Headnote Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief applications in Multiple Jurisdictions – Exemption from requirements in subsection 4.11(4), 4.12(1) and 4.14(1) of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards (NI 52-107) to reconcile acquisition statements to the issuer’s GAAP, permit the use of ISAs and to prepare the pro forma financial statements in accordance with issuer’s GAAP – The Filer wants relief from the requirement to include a reconciliation to Canadian GAAP in annual financial statements of the acquired business and to have those statements audited in accordance with Canadian or US GAAS – The Filer will prepare pro forma financial statements in accordance with the guidance set out in section 8.7(9) of Companion Policy 51-102CP as it applies to financial years beginning on or after January 1, 2011 for all periods presented.
Applicable Legislative Provisions
National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, s. 5.1
DATE: November 10, 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
3P INTERNATIONAL ENERGY CORP. (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 certain requirements in National Instrument 52-107 – Acceptable Accounting Principles and Auditing Standards (“NI 52-107”). Specifically, the Filer seeks the following relief:
that the acquisition statements (the “Acquisition Statements”) of JSC Tysagaz (“Tysagaz”) may be audited in accordance with International Standards on Auditing (“ISA”) issued by the International Auditing and Assurance Standards Boards (“IAASB”) notwithstanding section 4.12(1) of NI 52-107;
that the requirement under section 4.11(4) of NI 52-107 to reconcile acquisition statements to the issuer’s generally accepted accounting principles (“GAAP”) does not apply to the Acquisition Statements; and
that the pro forma statements of the Filer to be included in the business acquisition report (the “BAR”) to be filed by the Filer in respect of the acquisition of JSC Tysagaz be prepared in accordance with International Financial Reporting Standards, (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) notwithstanding subsection 4.14(1) of NI 52-107
(collectively, the “Exemption Sought”).
Under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) The Ontario Securities Commission (the “Commission”) is the principal jurisdiction for the application; and
(b) The Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System is intended to be relied upon in each of British Columbia and Alberta (the “Non-Principal Passport Jurisdictions”).
Interpretation
Terms defined in National Instrument 14-101 Definitions and NI 52-107 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 exists pursuant to articles of incorporation dated April 3, 2008 filed in accordance with the Business Corporations Act (Ontario).
The registered and head office of the Filer is located in Toronto, Ontario.
The Filer’s common shares are listed on the TSX Venture Exchange (the “TSXV”) under the symbol “DOH” and the Filer is a reporting issuer in Ontario and the Non-Principal Passport Jurisdictions.
The Filer is a “venture issuer” within the meaning of National Instrument 51-102 Continuous Disclosure Obligations (“NI 51-102”), and has been and is anticipated to be a “venture issuer” at all relevant times for the purposes of this application.
The Filer’s financial year end is June 30 of each year.
The Filer is not, to its knowledge, in default of its reporting issuer obligations under the Legislation and the legislation of the Non-Principal Passport Jurisdictions.
The Filer’s annual financial statements for the years up to and including the financial year ended June 30, 2011 have been prepared in accordance with Canadian GAAP determined with reference to Part V of the Canadian Institute of Chartered Accountants (“CICA”) Handbook applicable to publicly accountable enterprises (“Canadian GAAP”) and audited in accordance with Canadian GAAS.
The Filer’s annual financial statements for the current financial year, commencing July 1, 2011 and ending June 30, 2012, will be prepared in accordance with IFRS, as per Part I of the CICA Handbook applicable to publicly accountable enterprises for financial years beginning on or after January 1, 2011, and will be audited in accordance with Canadian GAAS.
The Filer’s first interim period for its current financial year ended on September 30, 2011.
The Filer’s interim financial report for the interim period ended September 30, 2011 (the “Q1 Interim Financial Report”), will be prepared in accordance with IFRS.
Due to the 30-day extension to the filing deadline applicable to an issuer’s first IFRS interim financial report, the deadline to file an issuer’s first IFRS interim financial report for a venture issuer is the 90^th^ day after the end of the interim period, which will be December 29, 2011 for the Filer’s Q1 Interim Financial Report.
JSC Tysagaz Acquisition
On September 6, 2011, the Filer completed the acquisition of all of the issued and outstanding shares of Tysagaz, a Ukrainian company with operations in the Ukraine. A material change report dated September 12, 2011 with respect to the acquisition of Tysagaz has been filed on the System for Electronic Document Analysis and Retrieval (“SEDAR”).
Tysagaz is an operating business that has had continuous activity for a number of years.
The acquisition of Tysagaz is a “significant acquisition” for the Filer within the meaning of Part 8 of NI 51-102. Consequently, the filer must file a BAR in accordance with Part 8 of NI 51-102 within 75 days of the completion of the acquisition.
Tysagaz’ year end is December 31 of each year.
Presentation of Acquisition Statements and Pro Forma Financial Statements
Subsection 4.11(4) of NI 52-107 provides that if acquisition statements are prepared using accounting principles that are different from the issuer’s GAAP, the acquisition statements must, among other things, be reconciled to the Filer’s GAAP.
Subsection 4.12(1) of NI 52-107 provides that acquisition statements must be audited in accordance with Canadian GAAS or U.S. GAAS. Although subsection 4.12(2) of NI 52-107 provides limited exceptions to the general requirements set out in subsection 4.12(1) of NI 52-107, the exceptions do not apply in the context of the Tysagaz Acquisition.
Subsection 4.14(1) of NI 52-107 provides that pro forma financial statements must be prepared in accordance with the issuer’s GAAP.
The Filer is seeking to present the most meaningful financial information to investors in the context of the Filer’s transition to IFRS. The Filer believes that the presentation of the Acquisition Statements and the pro forma financial statements to be included in the BAR (the “Pro Forma Statements”) in IFRS would constitute higher quality financial information than if the Acquisition Statements are reconciled to, and the Pro Forma Statements presented in, Canadian GAAP.
The Filer believes that the rationale for presenting the Acquisition Statements and the Pro Forma Statements of the Filer in IFRS is supported by the fact that the Filer will be presenting its financial statements in IFRS on a go-forward basis.
The Acquisition Statements of Tysagaz to be included in the BAR will be prepared in accordance with IFRS.
The Acquisition Statements for the year ended December 31, 2010 will be audited by Baker Tilly (Ukraine).
The auditor of Tysagaz has represented to the Filer that the auditor has expertise and experience in ISA issued by the IAASB.
The Filer will include in the BAR clear disclosure as to the basis of presentation of the Acquisition Statements and the fact that the Acquisition Statements have been audited in accordance with ISA issued by the IAASB.
The Pro Forma Statements will be prepared in accordance with the guidance in section 8.7(9) of Companion Policy 51-102CP as it applies to financial years beginning on or after January 1, 2011. As part of the preparation of the required Pro Forma Statements, the Filer will identify accounting policy differences between Canadian GAAP and IFRS that would potentially have a material impact and which could be reasonably estimated, and will describe such differences in the notes to the Pro Forma Statements in the course of describing the adjustments presented relating to the financial results of the Filer.
Paragraph 20 of Part 1 of the Assurance Handbook of the Canadian Institute of Chartered Accountants provides that the ISA issued by the IAASB have been adopted as Canadian Auditing Standards for audits of financial statements for periods ending on or after December 14, 2010.
The Filer believes that the relief sought herein is appropriate in the context of transition to IFRS and would ultimately provide investors with the most meaningful financial information regarding the Filer and its business.
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:
(a) the Filer includes in the BAR, Acquisition Statements for Tysagaz for the year ended December 31, 2010 that are prepared in accordance with IFRS as issued by the IASB, are audited in accordance with ISA issued by the IAASB, and are accompanied by an auditor's report that does not contain a reservation;
(b) the Pro Forma Statements in the BAR:
(i) are prepared in accordance with the guidance in section 8.7(9) of Companion Policy 51-102CP as it applies to financial years beginning on or after January 1, 2011 and the material differences between the Filer’s GAAP and the accounting principles used to prepare the Pro Forma Statements are explained;
(ii) quantify the effect of materials differences between the Filer’s GAAP and the accounting principles used to prepare the Pro Forma Statements that relate to recognition, measurement and presentation, including a tabular reconciliation between net income reported in the Filer’s financial statements and net income computed for purposes of the Pro Forma Statements;
(c) the Filer includes in the BAR its opening transition date statement of financial position as at July 1, 2010;
(d) the Filer includes in the BAR its equity reconciliations as described in paragraph 24(a) of IFRS 1 First-time Adoption of International Financial Reporting Standards (“IFRS 1”) (supplemented by the details required by paragraphs 25 and 26 of IFRS 1); and
(e) the BAR otherwise complies with the requirements of Form 51-102F4 Business Acquisition Report.
“Kelly Gorman”
________________________________
Kelly Gorman
Deputy Director, Corporate Finance Branch
Ontario Securities Commission