The chair person of the Ontario Securities Commission noted that companies and their auditors “stretch the interpretation of accounting standards beyond all reasonable limits. In many cases, the reasoning to support positions is weak or nonexistent. In other cases, it is clear that conclusions are based on narrow interpretations of a few words in a standard without regard to their broader context.
Too often, we see an approach that treats standards like narrowly written rules rather than broad principles requiring the exercise of sound professional judgment in their application. “Too frequently, it seems that Generally Accepted Accounting Principles [GAAP] have become very elastic.”
Danger of not having a National Canadian Regulator
But in the decade since, an abysmal string of swindles and scams has offered proof that Canada still hasn’t gotten serious about protecting investors and clamping down on accounting shenanigans. Without a national securities regulator in Canada similar to the U.S. Securities and Exchange Commission (SEC), no one has a voice in this country loud enough to alert Canadians to the danger.
The Ontario Securities Commission
The OSC stands back while authorities in other jurisdictions expose the questionable behaviour of Canadian companies. It happened again in 2006, when U.S. authorities investigated more than 130 companies, including Apple and Dell, for the backdating of stock options awarded to their executives. In the U.S., the crackdown resulted in the dismissal of more than 50 executives and directors. In Canada, the OSC found good evidence that at least 35 Canadian companies had likely engaged in the practice. But the commission charged only one company.
In Canada a lot more room for Fraud
“The attitude in Canada,” explained Michael Watson, “is that there is a lot more room for compassion and understanding and rehabilitation.” And a lot more room for fraud, as well. The OSC’s lack of interest in accounting issues, its unwillingness to make examples out of companies in order to correct broad market misbehaviour, and its refusal to get tough on white-collar crime, will place investors in even greater jeopardy when Canada replaces GAAP with International Financial Reporting Standards on Jan. 1, 2011.
1. Why is it that in Canada, we do not have National Regulator, whereas the US has the SEC (Securities and Exchange Commission)?
2. Perfomr an internet search on Livent and Nortel: have you noted any financial restatement or fraud in your research?
3. Would a National Canadian Regulator protect investors from swindlers?
4. Knowing that GAAP is principle based and IFRS is even more principle based, will a change in accounting principles protect the Canadian Public?