Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – National Instrument 52-107, s. 5.1 Acceptable Accounting Principles and Auditing Standards - A reporting issuer wants to early adopt IFRS for purposes of preparing its financial statements - The issuer has assessed the readiness of its staff, board, audit committee, auditors and investors.
Applicable Legislative Provisions
National Instrument 52-107, s. 5.1
January 31, 2011
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction)
AND
IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF LAGO DUORADO MINERALS LTD. (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Filer from the requirement in section 4.2(1) of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards (the Instrument) (the Exemption Sought) that financial statements be prepared in accordance with generally accepted accounting principles determined with reference to Part V of the Handbook of the Canadian Institute of Chartered Accountants (the Handbook) applicable to public enterprises (Old Canadian GAAP), in order that the Filer may prepare financial statements for periods ending on or after November 30, 2010 in accordance with generally accepted accounting principles determined with reference to Part I of the Handbook applicable to publicly accountable enterprises, that is International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IFRS-IASB).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (OSC) is the principal regulator for this application, and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland (the Passport Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Filer is a corporation incorporated under the Canada Business Corporations Act on May 21, 2009; the Filer’s registered and head office is located at 2037 Long Lake Road, Unit 10A, Sudbury, Ontario, Canada, P3E 6J9.
The Filer is an exploration company focused on the exploration of gold and other minerals in South America. The Filer currently has property rights in the Brazilian state of Mato Grosso.
Pursuant to a pre-filing waiver application filed with the OSC on September 13, 2010, the Filer was granted exemptive relief (as evidenced by the receipt for a (final) prospectus dated November 8, 2010 (the Prospectus)) from certain of the requirements set out in the Instrument to allow the Filer to prepare financial statements to be included in the Prospectus in accordance with IFRS-IASB.
In connection with the Offering, the Filer included consolidated audited financial statements for the period beginning May 21, 2009 and ended May 31, 2010 and consolidated unaudited interim financial statements for the three month period ended August 31, 2010 (the Prospectus Financial Statements) in the Prospectus. The Prospectus Financial Statements were prepared in accordance with IFRS-IASB.
In connection with the Offering, the Filer filed the Prospectus and was issued a receipt by the OSC for such filing on November 8, 2010.
The Filer completed the Offering on November 16, 2010 and is a reporting issuer in the Jurisdiction and the Passport Jurisdictions. The Filer is not in default of its reporting issuer obligations under the Legislation or the securities legislation of the Passport Jurisdictions.
The Filer’s common shares are listed on the TSX Venture Exchange under the symbol “LDM.”
The Filer’s financial year-end is May 31.
Absent an exemption, section 4.2(1) of the Instrument would require that the Filer’s financial statements for periods relating to financial years beginning before (or prior to) January 1, 2011, other than acquisition statements, be prepared in accordance with Old Canadian GAAP.
The Canadian Accounting Standards Board has confirmed that publicly accountable enterprises will be required to prepare their financial statements in accordance with IFRS-IASB for financial statements relating to financial years beginning on or after January 1, 2011.
In CSA Staff Notice 52-321 – Early Adoption of International Financial Reporting Standards, Use of US GAAP and Reference to IFRS-IASB, staff of the Canadian Securities Administrators recognized that some issuers may wish to prepare their financial statements in accordance with IFRS-IASB for periods beginning prior to January 1, 2011 and indicated that staff were prepared to recommend exemptive relief on a case by case basis to permit a domestic issuer to do so.
Subject to obtaining the Exemption Sought, the Filer intends to prepare and file its financial statements to be filed for periods ending on or after November 30, 2010 in accordance with IFRS-IASB.
The Filer expended considerable resources in connection with the preparation and audit of the Prospectus Financial Statements in accordance with IFRS-IASB and the establishment of the necessary internal controls and procedures required of a reporting issuer. Having already expended these resources and established these controls and procedures, the Filer believes that requiring it to prepare financial statements in accordance with Old Canadian GAAP for its 2010 financial year only to then convert months later back to IFRS-IASB for the financial year commencing May 31, 2011 would be costly and time-consuming and would create significant inefficiencies with respect to the Filer’s financial statement preparation process as well as the establishment and maintenance of its internal controls and procedures. The Filer also believes such a requirement would be confusing for investors.
The Filer believes that the preparation and filing of its financial statements to be filed for periods ending on or after November 30, 2010 (and its related disclosure practices for its 2010 financial year) in accordance with IFRS-IASB will benefit the Filer and its investors by offering continuity in form, presentation and public disclosure of its financial information consistent with the form, presentation and public disclosure of the Prospectus Financial Statements.
The Filer had carefully assessed the readiness of its staff, its board of directors, auditors, investors and other market participants for the adoption by the Filer of IFRS-IASB for financial periods beginning on May 21, 2009 and thereafter and concluded that all parties were adequately prepared for the Filer’s adoption of IFRS-IASB for such financial periods.
The Filer considered the implications of early adoption of IFRS-IASB on its obligations under securities legislation including, but not limited to, those relating to CEO and CFO certifications, business acquisition reports, offering documents, and previously released material forward looking information, to the extent applicable.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that the Filer prepares its financial statements for financial periods ending on or after November 30, 2010 in accordance with IFRS-IASB and complies with Part 3 of the Instrument.
“Michael Brown”
Michael Brown, Assistant Manager Ontario Securities Commission