Winnipeg-based IGM Financial Inc. will see a boost in reported earnings thanks to an accounting rule change, the asset-management company announced on Thursday.
The implementation of the IFRS 15 accounting standard, which will alter the timing of how commission expenses are recognized, will also impact the company’s net earnings, the company says in a news release.
IGM is scheduled to announce its first quarter earnings on Friday May 4.
For fiscal 2018, the new accounting standard is expected to increase net earnings by approximately $39 million ($53 million before tax), IGM reports. For the first quarter, it’s expected to boosti net earnings by approximately $6 million ($9 million before tax).
Under IFRS 15, commissions paid under fee/asset-based compensation arrangements are amortized over their expected lives; commissions paid under sales-based compensation arrangements will be recognized as they are paid, the firm says.
“Due to an ongoing shift from sales-based compensation towards asset-based compensation, sales commission payments are expected to decline in 2018 and subsequent years in relation to the last several years. As a result, expensing sales commissions as incurred will result in lower commission expense than our previous approach of amortizing these amounts over an expected life of up to seven years,” IGM says.
Additionally, due to the new accounting treatment, IGM will “derecognize $704 million of its deferred selling commission asset and related deferred taxes of $189 million. The net amount will reduce shareholder’s equity by $515 million.”