Securities Law & Instruments

Headnote

Multilateral Instrument 11-102 Passport System -- National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- National Instrument 52-107 Acceptable Accounting Principles and Accounting Standards -- Exemption granted from requirement to prepare financial statements in accordance with Canadian Generally Accepted Accounting Principles applicable to publicly accountable enterprises except that any investments in subsidiaries, jointly controlled entities and associates must be accounted for as specified for separate financial statements in International Accounting Standard 27 Consolidated and Separate Financial Statements -- Exemption granted for fiscal years ending November 30, 2012 and November 30, 2013.

Applicable Legislative Provisions

Multilateral Instrument 11-102 Passport System, s. 4.7

National Instrument 14-101 Definitions

National Instrument 52-107 Acceptable Accounting Principles and Accounting Standards, ss. 3.2(3)

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions

January 9, 2013

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the "Jurisdiction")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIF APPLICATIONS

IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

THE PALLAS ATHENA CORPORATION

(the "Filer")

DECISION

BACKGROUND

The principal regulator in the Jurisdiction has received an application from the Filer (the Application) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from the requirement of paragraph 3.2(3)(a) of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards (NI 52-107) that financial statements be prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP) applicable to publicly accountable enterprises except that any investments in subsidiaries, jointly controlled entities and associates must be accounted for as specified for separate financial statements in International Accounting Standard 27 Consolidated and Separate Financial Statements (IAS 27) for the Filer's fiscal years ending November 30, 2012 and November 30, 2013, so long as the Filer delivers to the regulator the annual audited financial statements prepared in accordance with Canadian GAAP applicable to private enterprises (the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Québec (the Passport Jurisdictions, and together with the Jurisdiction, the Jurisdictions).

INTERPRETATION

Terms defined in National Instrument 14-101 Definitions, NI 52-107, 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

1. The Filer is a corporation formed under the Canada Business Corporations Act. The Filer's head office is located in Ottawa, Ontario.

2. The Filer is registered in each Jurisdiction as an adviser in the category of portfolio manager (PM).

3. In 2004, the Filer established an Individual Pension Plan (IPP) for its President, James Lowry. The IPP is a retirement savings vehicle that will be wound up and transferred to a Locked-in Retirement Income Fund (LRIF) for Mr. Lowry when he reaches age 71.

4. Mr. Lowry is presently 69 years of age. The wind up of the IPP will occur in approximately two years or by December 31, 2014 which is the end of the calendar year when he reaches age 71.

Financial statements

5. The Filer is subject to the requirement of paragraph 3.2(3)(a) of NI 52-107 that financial statements be prepared in accordance with Canadian GAAP applicable to publicly accountable enterprises except that any investments in subsidiaries, jointly controlled entities and associates must be accounted for as specified for separate financial statements in IAS 27.

6. Canadian GAAP applicable to publicly accountable enterprises is International Financial Reporting Standards (IFRS).

7. The Filer's balance sheet includes the IPP as a non-current asset. The IPP will no longer form part of the Filer's financial statements upon Mr. Lowry becoming 71 years of age.

8. The accounting and reporting of an IPP under IFRS is set out in International Accounting Standard 26 Accounting and Reporting by Retirement Benefit Plans (IAS 26). The requirements of IAS 26 related to defined benefit plans are more robust and complex than those previously required under pre-changeover Canadian GAAP.

9. As a result of preparing the financial statements of the Filer under IFRS, the estimated audit and actuarial fees related to the IPP under IFRS are significantly higher than under pre-changeover Canadian GAAP.

10. Based on discussions with its auditor, the Filer estimates that its audit fees will double to approximately $10,000 as a result of using IFRS. The significant increase is attributable to the requirements under IFRS related to the IPP.

11. Based on discussions with its actuary, the Filer estimates that its actuarial fees will be in the range of $4,000 to $5,000 as compared to $900 in prior years as a result of the IFRS requirements relating to defined benefit pension plans.

12. The IPP does not form part of the calculation of excess working capital. Since the IPP is excluded from the current assets in the Form 31-103F1 Calculation of Excess Working Capital (Form 31-103F1), requiring the Filer to prepare its financial statements under IFRS in accordance with paragraph 3.2(3)(a) of NI 52-107 would not result in any beneficial information for regulatory purposes.

13. The annual audited financial statements that the Filer has prepared using Canadian GAAP applicable to private enterprises provide sufficient information to allow the regulator to assess the Filer's solvency and capital adequacy. For the limited time period that the IPP remains the property of the Filer, it would be burdensome and costly for the Filer if it was required to prepare and file annual audited financial statements using IFRS.

14. The Exemption Sought by the Filer is only for its fiscal years ending November 30, 2012 and November 30, 2013. Thereafter, the IPP will be transferred to a personal LRIF and will have no bearing on the audit and actuarial expenses of the Filer.

15. The Filer has in the past, and intends to remain well above the minimum working capital requirements.

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 auditor's report relating to the Filer's annual financial statements for the fiscal years ending November 30, 2012 and November 30, 2013 expresses an unmodified opinion that the financial statements are presented fairly, in all material respects, and in accordance with Canadian GAAP applicable to private enterprises.

"Marrianne Bridge"
Deputy Director, Compliance & Registrant Regulation
Ontario Securities Commission