The Grant Thornton International IFRS team has published three publications in the Insights into IAS 36 series.

  • Identifying cash-generating units;
  • Allocating assets to cash-generating units;
  • Allocating goodwill to cash-generating units.

IAS 36 Impairment of Assets is not a new standard and, while many of its requirements are familiar, an impairment review of assets (either tangible or intangible) is frequently challenging to apply in practice. This is because IAS 36’s guidance is detailed, prescriptive and complex in some areas.

The Insights into IAS 36 series have been written to assist preparers of financial statements and those charged with the governance of reporting entities to understand the requirements set out in IAS 36 and revisit some areas where confusion has been seen in practice.

The next three publications in the Insights into IAS 36 series are all about cash-generating units (CGUs):

  • Identifying cash-generating units;
  • Allocating assets to cash-generating units;
  • Allocating goodwill to cash-generating units.

Identifying CGUs is a critical step in the impairment review and can have a significant impact on its results. That said, the identification of CGUs requires judgment. After the entity identifies its CGUs, it must determine which assets belong to which CGUs, or groups of CGUs.

The first publication discusses how to identify CGUs and the other two publications discuss how to allocate assets and goodwill to CGUs.

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The Grant Thornton International IFRS team has published IFRS Viewpoint – Configuration or customisation costs in a cloud computing arrangement.

The IFRS Viewpoint series provides insights on applying IFRS in challenging situations. Each edition will focus on an area where the standards have proved difficult to apply or there is a lack of specifics.

This edition provides guidance on the accounting for costs of configuring or customising a supplier’s application software in a cloud computing or Software as a Service (SaaS) arrangement.

The issue

The International Financial Reporting Interpretations Committee (IFRIC) received a request addressing how a customer should account for costs of configuring or customising a supplier’s application software in a cloud computing or SaaS arrangement. Significant diversity in practice had developed and the IFRIC determined it was appropriate for an agenda decision to be issued.

The IFRIC determined sufficient guidance exists within the relevant accounting standards and therefore no amendments to accounting standards were required. The rationale for arriving at this conclusion, which forms part of the interpretation of IFRS, is set out in the agenda decision.

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Here at Grant Thornton, we’re close to mid-market businesses internationally. Around the world our member firms support mid-market companies across all sectors, from retail to manufacturing.

This gives us considerable insight into how the mid-market is feeling about the changing risks and opportunities it faces. Every year we deepen this understanding through our International Business Report (IBR), the longest running survey of mid-market attitudes, including views on sustainability.

We know that mid-market companies are keen to become more sustainable, reflecting their forward-looking, entrepreneurial nature. We also recognise the vital role we, as service providers can play in supporting the transition to net-zero. This is why we recently joined the Net Zero Financial Service Providers Alliance. As the COP26 goals point out: “We can only rise to the challenges of the climate crisis by working together.”

Mid-market businesses see action on sustainability as a business imperative, rather than just ‘doing the right thing’, given increasing pressure from their large multinational supply chain customers, consumers and competitors. Our most recent IBR research confirms this – 62% of those surveyed say sustainability is as important as, or more important than, financial success. And 72% say that prioritising sustainability has become more important than it was pre-pandemic.

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Going public is a good way to help your business grow. However, it’s important to be well prepared and rely on a solid team of internal and external specialists.

This was the message to entrepreneurs from Paul Raymond, President and CEO of Alithya, during a one-on-one meeting with Emilio B. Imbriglio, Raymond Chabot Grant Thornton President and CEO.

Alithya, a Québec-based digital strategy and technology company, was first listed on the Toronto Stock Exchange and NASDAQ in November 2018. Under Raymond’s leadership, Alithya has completed 11 acquisitions in the past 10 years, the latest being R3D Conseil (600 professionals) in April 2021. Alithya now employs over 3,300 people, 16 times more than in 2011.

An accelerated IPO

“Alithya decided to launch an initial public offering to address growth objectives in response to client requirements,” explained Paul Raymond.

Its clients were asking it to quickly reach a certain critical mass so they could use its services for strategic projects. Alithya therefore increased its acquisitions and began planning an IPO, in particular, in order to make it easier to share the wealth created among its shareholders.

While the organization was quietly preparing for a potential IPO, the 2018 purchase of U.S.-based, publicly-traded Edgewater Technologies pushed the process into high gear. “The only way we were going to be able to complete the transaction was to become a public company through the acquisition of this company,” Paul Raymond said.

“In my mind, we had two years to prepare for our IPO, but with this transaction, we had to pull out all the stops to complete both the acquisition and the IPO in just six months,” he added.

When Alithya started to negotiate with Edgewater, “We already had a committee consisting of management and external experts, we had external investors and we had started to put governance mechanisms in place, but we were a long way from the governance of a public company”.

Alithya hired a Chief Financial Officer and a Chief Legal Officer with public company experience to successfully complete the transaction and go public.

Advice to CEOs

Paul Raymond and Emilio B. Imbriglio both stressed that preparing an IPO is a demanding process that requires the support of external specialists in all aspects of finance, law, corporate strategy and management.

Before taking the company public, “you need to have a very good vision of its next two years,” advises Alithya’s President. A CEO must be well surrounded in order to be able to delegate certain tasks to trusted managers, because investor and analyst relationships can be time-consuming.

“These people want the CEO to explain the company’s strategy,” said Paul Raymond, who advises entrepreneurs thinking of taking their companies public to get public communications training.

“I’m a big believer in having a good plan when going public, but you also have to be willing to listen and change, which is not always easy for a CEO,” said Paul Raymond, recipient of Investissement Quebec’s CEO Emeritus Award in 2020.

“I’ve seen entrepreneurs who have completely transformed themselves during an IPO process, but I’ve seen others who didn’t anticipate having to deal with this new category of partners (investors) and thought they could continue to do everything just like before,” said Emilio B. Imbriglio.

Paul Raymond also recommend that entrepreneurs learn from their peers and the many support resources in the business community: “In Québec, public company executives are very generous with their time and advice. And there is a whole ecosystem to help entrepreneurs who are considering going public.”

Benefits of being public

According to Paul Raymond, the demands placed on public companies dictate a rigorous management framework and transparent accountability that is to their benefit. “I really like the discipline and quality of governance that being a public company brings because you answer to more than just one shareholder.”

An added benefit of being publicly traded is that there is no need to look for a buyer for the company when the principal executive retires. “There is a natural transfer of power, and the company can continue to grow,” said Paul Raymond.

However, being on the stock market does have some drawbacks. For example, the transparency required means that competitors can see the company’s financials and learn its strategy. “We’re still discovering downsides,” he acknowledged, noting the level of complexity associated with a Québec company being listed on the U.S. stock exchange.

That said, Emilio B. Imbriglio reminds us that public financing is a good way to grow. “Many Québec companies that have become national and international leaders have been able to realize their dreams thanks to public financing. Nevertheless, Québec accounts for only 7% of Canadian companies listed on the two main TMX Group stock exchanges. This is still too few, considering that Québec’s economic weight (GDP) accounts for about 20% of the Canadian economy,” he said.

Emilio B. Imbriglio and Paul Raymond would like the government to consider creating a new plan based on the old Stock Savings Plan (SSP). They say this would allow many companies to benefit from new capital.

The human side above all

Paul Raymond believes it is essential for people to be at the heart of a company’s technological progress and strategic decisions, whether it be employees, customers or shareholders.

“I have always felt that people have an incredible capacity to adapt. We’ve seen that over the last year and a half. When employees understand why changes are being made, it’s much easier to introduce those changes and train them.”

He said the rise of telework as a result of the pandemic is now a fact of life and is beneficial on many levels, from increased employee productivity to a reduced environmental footprint, for example.

The rollout of high-speed internet across the province is a major wealth-creating project, he said. “We’re sitting on a gold mine in Québec with green energy, high-speed internet in every home and the world’s largest market less than an hour’s drive from Montréal.”