Headnote
National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions - application for relief from the requirement in section 4.2(1) of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards that financial statements be prepared in accordance with Canadian GAAP - issuer wants to prepare its financial statements in accordance with International Financial Reporting Standards - issuer has implemented a comprehensive changeover plan, has assessed readiness of key persons, and has considered implications of adopting International Financial Reporting Standards - exemption granted subject to conditions. Applicable Legislative Provisions National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, s. 4.2(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
RAINBOW RESOURCES INC.
(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 (the Handbook) of the Canadian Institute of Chartered Accountants applicable to public enterprises (Old Canadian GAAP), in order that the Filer may prepare its financial statements for periods beginning on or after September 1, 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 the Provinces of Alberta and British Columbia (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
The decision is based on the following facts represented by the Filer:
The Filer is a corporation incorporated under the Business Corporations Act (Ontario) on October 13, 2009.
The registered and head office of the Filer is located at 95 Wellington Street West, Suite 1200, Toronto-Dominion Centre, Toronto, Ontario, M5J 2Z9.
The Filer is a junior exploration company focused on the acquisition and exploration of resource properties.
The Filer’s financial year end is May 31st.
In anticipation of completing its initial public offering of its securities under National Instrument 41-101 General Prospectus Requirements (the IPO), the Filer retained Sievert & Sawrantschuk LLP to audit its financial statements for the initial fiscal year from incorporation to May 31, 2010 for inclusion in the Prospectus (as defined below). The Prospectus included financial statements (audited) for the initial fiscal year from incorporation to May 31, 2010 and financial statements (unaudited) for the interim period ended August 31, 2010 (collectively, the Prospectus Financial Statements). The Prospectus Financial Statements have been prepared in accordance with IFRS-IASB.
Pursuant to a pre-filing waiver application filed with the OSC on August 26, 2010, the Filer was granted exemptive relief (as evidenced by the receipt for a (final) prospectus dated November 5, 2010) from certain requirements set out in the Instrument to allow the Filer to prepare financial statements to be included in its Prospectus (as defined below) in accordance with IFRS-IASB.
In connection with the IPO, the Filer filed a preliminary long form prospectus dated October 7, 2010 and a (final) long form prospectus dated November 5, 2010 (together, the Prospectus) and was issued a receipt for such filings on October 7, 2010 and November 5, 2010, respectively.
The Filer completed its IPO on December 23, 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.
Absent an exemption, section 4.2(1) of the Instrument would require that the Filer’s financial statements 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 interim and annual 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 beginning on or after September 1, 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 the periods beginning on or after September 1, 2010 to then convert months later back to IFRS-IASB for the financial year commencing June 1, 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 or investors.
The Filer further believes that the preparation and filing of its financial statements to be filed for periods beginning on or after September 1, 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 Board of Directors (the Board) of the Filer approved early adoption of IFRS-IASB on August 17, 2010, with effect immediately, subject to the Filer obtaining the Exemption Sought.
The Filer carefully assess the readiness of its staff, Board, auditors, investors and other market participants for the immediate adoption by the Filer of IFRS-IASB for the presentation of its financial information in connection with the IPO and for all subsequent financial periods after the IPO, including financial periods beginning on or after September 1, 2010, and concluded that all parties are adequately prepared for the Filer’s immediate adoption of IFRS-IASB.
The Filer has considered the implications of early adoption of IFRS-IASB on its obligations under securities legislation after completion of the IPO, 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 the Filer prepares its financial statements to be filed for periods beginning on or after September 1, 2010 in accordance with IFRS-IASB and complies with Part 3 of the Instrument.
“Michael Brown”
________________________
Michael Brown
Assistant Manager, Corporate Finance Branch
Ontario Securities Commission