Restructuring GM: Government Bailout a Success!

Posted by & filed under Accounting Careers, Auditing, Corporate Restructuring, Financial Statement Analysis, International Accounting.

General Motors started trading on the Toronto Stock Exchange on Thursday, a day after its IPO raised US$20 billion. From a starting price of US$33 a share it rose as high as $35.95 in intraday trading before settling at $34.01. It closed at $34.19 on the New York Stock Exchange, a gain of 3.61% in its first day, where 456,071,375 shares changed hands.

Restructuring:

The process taken by management was to:

 1. Reduce labour rates and reduce the labour force

2. Shut down non productive manufacturing plants

3. Reduce the number of products

4. Reduce dealerships

5. Increase incentives to purchase a GM vehicle

6. Eliminate Leasing

GM video link:

http://cnn.com/video/?/video/bestoftv/2010/11/20/gps.bailout.gm.cnn

Discussion Questions:

1. How many shares would you have to own to have “Significance Influence”?

2. Do you think GM stock will increase to $60 per share in a years’ time?

3. What steps would you have taken to turn GM around , from bankruptcy to a successful company?

GM IPO

Posted by & filed under Canadian Economy, Corporate Restructuring, Financial Accounting, Financial Statement Analysis.

What is an IPO?

An initial public offering, or IPO, is the first sale of a corporation’s common shares to investors on a public stock exchange. The main purpose of an IPO is to raise capital for the corporation. While IPOs are effective at raising capital, being listed on a stock exchange comes with heavy regulatory compliance and reporting requirements.

The term IPO only refers to the first public issuance of a company’s shares. It assumes a company is big enough, successful enough, and has the required track record to raise capital in the public equity market. If a company later sells newly issued shares again to the market, it is called a seasoned equity offering. When a shareholder sells shares, it is called a secondary offering and the shareholder, not the company that originally issued the shares, retains the proceeds of the offering. These terms are often confused and only a company which issues shares can make a primary offering or IPO. Secondary offerings occur on the secondary market, where shareholders (not the issuing company) buy and sell shares from and to each other.

General Motors executives are playing up three bright spots in the company’s future as they try to persuade investors to buy GM stock: a better lineup of cars and trucks, potential for global growth and a new cost structure that enables the company to make money even when the economy dips.

GM emerged from a government-organized bankrupcty just 16 months ago, the re-organization has erased debt and lowered labor costs. The re-organization has left the old stockholders with nothing.

Today GM is owned by both the Canadian and US govenment, the total IPO being presently issued by GM is $10 billion, demand is so hight that brokers have taken orders for as much as $60 billion US worth of shares.

Discussion Questions:

1. Do your own research on IPO’s, why is there such a demand?

2. Due to the hight demand, do you think GM will increase the IPO to $60 billion?

3. Why do you think the GM shares are in such high demand?

 Find out More!

GM IPO 6 times oversubscribed: reports

Reasons to sit out GM’s initial stock offering

Cashing in: Canada’s CEO salary surge

Posted by & filed under Accounting Careers, Uncategorized.

Walmart CEO SalaryIn the past 12 years, there’s been a 444 per cent salary increase for Canada’s top CEOs. The top 10 earners collected a total of $60.7 million in 1995—by 2007, that number had jumped to $330.3 million. For example, Paul Desmarais, CEO of  Power Corp, made more than $5 million in 1995; in 2007, his take-home was more than $29 million. 

Here’s a breakdown of the take-home pay the top  10 of Canada’s top CEOs—in 1995 and in 2007. Read ‘em and weep. 

2007, total take home for the year: 

  1. Michael Lazaridis, Research in Motion Ltd. $51, 515, 518
  2. Gordon Nixon, Royal Bank of Canada. $44, 270, 084
  3. Robert A. Milton, ACE Aviation Holdings Inc. $42, 928, 122
  4. James Balsillie, Research in Motion Ltd., $32, 053, 959
  5. Paul Desmarais Jr., Power Corp. of Canada. $29, 292, 829
  6. Andre Desmarais, Power Corp. of Canada. $28, 675, 763
  7. Bruce Flatt, Brookfield Asset Management Inc. $27, 164, 707
  8. J.M. Lipton, Nova Chemicals Corp. $25, 639, 972
  9. Raymond McFeerors, Great-West Lifeco Inc. $24, 759, 648
  10. William Doyle, Potash Corp. of Saskatchewan. $24, 020, 161

The Canadian Centre for Policy Alternatives reports that amidst the worldwide recession, Canada’s top 100 CEOs were paid an average of $7.3 million in 2008. 

Walmart CEO Pay: More in an Hour Than Workers Get All Year?

Read more: See the Digital Journal 

Walmart CEO Salary

Discussion Questions:

1. Should CEO’s be earnings such high salaries?

2. Would you consider being a CEO?

3. Why do you suppose, CEO’s earn such lucrative compensation packages?

System for Electronic Analysis and Retrieval (SEDAR)

Posted by & filed under Financial Reporting and Analysis, Financial Statement Analysis, Uncategorized.

Students and investors wishing to know more about our Canadian Public companies, should know about the SEDAR web site. Financial information is provided , such as:

1. Annual Financial statements  issued quarterly and year end

2.MD&A ( Management Discussion and Analysis reports)

3. Press Releases,  provide the most recent and up-to-date corporate disclosures

 

www.sedar.com is the official site that provides access to most public securities documents and information filed by public companies and investment funds with the Canadian Securities Administrators (CSA) in the SEDAR filing system.

The statutory objective in making public this filed information is to enhance investor awareness of the business and affairs of public companies and investment funds and to promote confidence in the transparent operation of capital markets in Canada.

 Achieving this objective relies heavily on the provision of accurate information on market participants.

The System for Electronic Document Analysis and Retrieval (SEDAR) is a filing system developed for the Canadian Securities Administrators to:

  • facilitate the electronic filing of securities information as required by the securities regulatory agencies in Canada;
  • allow for the public dissemination of Canadian securities information collected in the securities filing process; and
  • provide electronic communication between electronic filers, agents and the Canadian securities regulatory agencies

For more information visit: SEDAR.com

Discussion Questions:

1. Visit SEDAR.COM,  select your favorite Canadian Public Company: Review the most recent Press Release, MD&A and Annual Report: Did you find this site useful?

2.Would you consider this site for any future equity investments?

3. Is this site only useful for investors?

 

 

 

 

 

A Nation of Swindlers

Posted by & filed under Accounting Principles, Fraud Accounting, IFRS.

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.
Read the complete article in: Canadian Business magazine, page 38, “A Nation of Swindler ” by Al Rosen
Discussion Questions:
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?

When to Recognize Revenue ?

Posted by & filed under Accounting Principles, Financial Accounting, IFRS, Intermediate Accounting.

Despite a reliance on umpteen pages of principles and prescriptive rules for the preparation of financial statements, much depends on professional judgment and corporate governance. That’s why the quality of the company’s reported earnings is such an important consideration for analysts and investors.

REVENUE RECOGNITION

The question of when to recognize revenue is quite straightforward for some

industries (e.g., clothing retailers like H&M). Revenue is recognized when the customer

buys the goods in the store. Normally customers pay cash or use a debit or credit card,

which means that the collection of cash for the sale is not an issue.

For other industries, the decision is not as

clearly defined. For a manufacturing company such as Bombardier (a maker of trains

and airplanes), contracts are signed, merchandise such as a rail car is manufactured, the

merchandise is delivered, money is collected from the customer (usually some time

after delivery), and warranty services are provided on the merchandise sold. When

should such a company recognize revenue: when the contract is signed, when the goods

are delivered, when the cash is collected, or when the warranty period expires and all

obligations related to the sale have been satisfied?

　

Revenue recognition criteria

have been developed within IFRS (IAS 18) to

resolve this conflict and to produce a measure of performance that is intended

to balance the need for timely information with the need for reliable information.

　

B A S I C R E V E N U E R E C O G N I T I O N C R I T E R I A

1.The probable inflow of economic benefits to the company.

a. The performance has been achieved.

b. The risks and rewards are transferred and/or the earnings process is

substantially complete with respect to the sale.

2. The amount earned can be measured.

Can audit committees deliver?

The accounting scandals of the past decade have put the audit committee at the forefront of the battle against fraudulent financial reporting.

 Regulations regarding audit committee composition and responsibility have been enacted to improve the quality of financial information and

strengthen investor confidence in the quality of financial reporting and financial markets.　

Discussion Questions:

1. Should the audit committee have the responsibility to ensure that management, presents fairly their financial statement earnings?

2. Do you agree with the basic revenue recognition criteria?

3. When should earnings be recognized for a company such as bombardier? When the contract is signed or the product delivered?

　Read more about : Earnings Recognition, 

Earnings Quality Not Necessarily Impacted by GAAP Effect, CGA magazine.

Taking a Private Company Public……Going Public!

Posted by & filed under Accounting Careers, Corporate Restructuring, Financial Reporting and Analysis, Taxation & Planning.

Why go public?

Growing companies constantly search for new capital. Going public is one way to obtain that capital, but it takes time and money—and a lot of both!

Your decision to go public should follow from your longer-term strategic objectives—seeking opportunities for growth, value creation, or an exit strategy. It’s a big decision. You will need to have a clear understanding of the process and assess the impact it will have on you and your company.

Some of the advantages

  • Access to capital
  • Going public provides opportunity for growth and expansion of your business by offering a wider range of sources to raise capital. You may want to finance key acquisitions, retire existing debt, buy out existing shareholders, invest in research and development, or move into larger and more diverse markets.
  • Improved financial status
  • Going public increases your company’s equity base and creates more leverage for financing growth.

The disadvantages

  • Increased scrutiny and accountability
  • As a public company, you lose privacy in matters related to your company’s business operations, competition, executive officers’ compensation, material contracts, and customers. Extensive public disclosure rules require details in public offerings and continuous disclosure documents, such as the MD&A. As a public company, the information you must provide to the public is also available to your competition. Some of this information may be sensitive (e.g., operating results for the company or geographic segments, compensation of senior officers).
  • You are also under constant pressure to meet market expectations and explain the decisions made and actions undertaken to your shareholders and different players in the market.
  • Increased demands on time and resources
  • Going public creates extensive new reporting requirements, including preparing and filing annual and quarterly financial statements, MD&A, the AIF, and CEO/CFO certifications on disclosure controls and procedures as well as internal control over financial reporting.
  • Loss of control
  • An IPO dilutes the ownership of the company. At the IPO stage, the owners can make certain that they maintain control after the completion of the IPO by ensuring they continue to hold the majority of the voting shares. Future public financings or issuing shares for acquisitions will dilute their ownership percentage, and create the possibility that the original owners will lose future control

Read more on “Going Public” brochure provided by KPMG

Discussion Questions:

  1. If you own a Private company would you consider Going Public?
  2. Visit Sedar.com to review a Canadian Public company, determine if you would consider being the major shareholder of this Public company.
  3. Do you see any significant advantages to Going Public?

David beats Goliath: Great-West Life co ordered to pay $456M to policyholders

Posted by & filed under Financial Accounting, Financial Reporting and Analysis, Financial Statement Analysis.

LONDON, Ont. – A stunning $456-million judgement in a class-action lawsuit against insurance giant Great-West Lifeco (TSX:GWO) is a sign the courts are being more aggressive in keeping tabs on how corporate Canada conducts its affairs.

The Judgement:

Justice Johanne Morissette ruled after a 45 day trial in London, Ont. that Great-West breached sections of the Insurance Companies Act by transferring money from the accounts of subsidiaries London Life Insurance Co. and Great-West Life Assurance Co. to finance the 1997 takeover of London Insurance Group, the parent of London Life Insurance Co.

The lawsuit represented policyholders from across Canada, but the biggest concentrations are in Ontario, Quebec, Saskatchewan and Manitoba.

CICA Handbook Section 3290 Contingencies states the following:

¨ The amount of a contingent loss should be accrued in the financial statements by a charge to income when both of the following conditions are met:

(a)     it is likely that a future event will confirm that an asset had been impaired or a liability incurred at the date of the financial statements; and

(b)     the amount of the loss can be reasonably estimated.

The following has been disclosed by Great-West Life co. See their Annual Report 2009:

The trial of the class proceedings in Ontario regarding the participation of the London Life and Great-West Life participating accounts

in the financing of the acquisition of London Insurance Group Inc. (LIG) in 1997 by Great-West Life concluded on January 15, 2010. The Court reserved and a decision is expected later in 2010. Based on information presently known, these proceedings are not expected to have a material adverse effect on the consolidated financial position of the Company.

Discussion Questions:

1. The Consolidated Operating Profits show a Net Income of $443 million, based on the above lawsuit: Is the amount material?

2. Should management have accrued the Loss on their financial statements, rather than simply disclosing the contingency?

3. Why do you think management may have avoided recording the potential liability?

Read more:See the Canadian Press

Review the 2009 Great-West annual report: Read  Note 26 Contingent Liabilities

The concept of Bankruptcy!

Posted by & filed under Accounting Careers, Canadian Economy, Corporate Restructuring, IFRS.

The concept of bankruptcy is difficult to grasp and understand. Often the causes are due to Greed , Economic Conditions or Mismanagement. In essence Bankruptcy is a capitalistic concept-it is the loss of capital, an inability to pay a person’s or company’s creditors.

Accounting is a tool that provides information to management, to identify the potential risks or failure to meet creditor obligations.

In brief bankruptcy is a failure to mannge credit risk!

Accountants are often involved in Restructuring bankrupt or near bankrupt companies to their original potential or at least the Accountants will attempt to keep the company alive until deals can be re-structured with bankers and other creditors.

Bankruptcy Law and Accounting  for bankruptcies are two interesting fields that may interest you  as an exciting profession to consider!

Experience with the bankruptcy process can provide considerable leverage in finding effective solutions in avoiding the common and not so common economic pitfalls. This is where Accounting for cash flows, budgeting and pro-active management will reduce the risks of bankruptcies.

When a company is bordering on bankruptcy, accountants must prepare financial statements that disclosure the risks of  whether the company will survive within the next 12 months.

Going Concern Assumption (IAS 1, Framework for preparing Financial Statements)

The financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operation for the foreseeable future. Hence, it is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations; if such an intention or need exists, the financial statements may have to be prepared on a different basis and, if so, the basis used is disclosed.

Read more: link to ca magazine article by Peter P. Farkas: A capitalist concept.

Very interesting Video on the : Economic Meltdown prepared by the CBC , 45 minute video worth viewing. It presents the economic meltdown that occurred in 2008, and which is still prevalent today.

In Class Discussion Questions:
What happens after bankrupcy?
What are the alternatives to bankruptcy?
In your opinion what are the major causes of bankruptcies?

Four things that will slow Canada’s growth

Posted by & filed under Accounting Careers, Canadian Economy.

The Canadian economy is coming off a “sugar high” and will face four impediments that will slow growth going forward.

1. A weaker U.S. economy

2. Softness in Canadian housing

3. Fatigued consumers and

4. Fading stimulus will all conspire to limit growth to the 1.5% to 2.2% range

  U.S. exposure

U.S employers have been slow to add to payrolls, and that’s creating a pall over consumers — as well as slowing the housing market’s recovery, the TD report said. That means sluggish economic growth, which will affect Canadian sectors like auto and lumber as demand remains weak.

Housing softness

Canadian consumers are already among some of the highest leveraged households in the world, and that doesn’t bode well for the housing market, existing home sales will feel a sharp pinch, hitting a trough of 320,000 units by mid-2011 — a far cry from 2009’s near-record high of 465,000 units.

Fatigued consumers

TD’s report states that household indebtedness has been on what it calls a “sharp and unsustainable climb” over the past few years. Debt-to-person disposable income is now at 144% in Canada, close to the U.S.’s 151%. Four years ago, the gap was 30%.

Waning stimulus

On top of the strain from indebted consumers and a weak U.S. economy, the government is starting to turn off the stimulus tap, slowing the economy even further.

 

But it’s not all bad news.

“Fortunately, Canada faces a lesser near-term need than other countries for radical fiscal austerity.

Read more:

Courtesy of the financialpost

Watch CBC Video: Canada’s Economy

 

Discussion Questions:

1. Have you noticed any indications of a slowing economy?

2. Do you think, the economy will pick up by the time you graduate?

3. Should accountants be concerned about the economy?