Posted by & filed under Accounting Principles, Advanced Accounting, Financial Accounting, Financial Reporting and Analysis, IFRS.

IFRS( International Financial Reporting Standards)  for SMEs (Small Medium Enterprises) is a separate comprehensive set of standards for non-publicly accountable entities that is the result of a five-year development process with extensive consultation with SMEs worldwide. It simplifies many of the principles in full IFRSs for recognition and measurement, omits topics not relevant to SMEs, and significantly reduces the number of required disclosures. It is intended to be a full set of accounting principles for private companies in 230 pages.

 Listen to the KPMG web cast:  Excellent Web Cast , you may also , review the power point presentation , which is available to download for free, upon registration to the Web Cast.

  Discusses what other countries are doing, to resolve the issues of Small Medium Enterprises, as to how to present financial statements for Private Companies.

    Should we adopt a New GAAP to represent Private Companies

    Should we adopt an IFRS Framework and remove certain portions non applicable to Private companies.

    How does Corporate Governance aid in preparing accurate and fairly presented financial statements

    Continue the Status Quo, keep IFRS for Publicly Accountable Companies and keep the present GAAP for Private enterprises.

Discussion Questions:

  1. If you were responsible to make changes: How would you change things to make information more relevant to financial statement users?
  2. Would you consider an  IFRS  model that has been simplified to suit Private Entities?
  3. Should we have a Canadian Way for Private Company GAAP or should all countries that adopted IFRS, adopt a common Private Entity GAAP?

 Web Cast hosted by Janice Patrisso, KPMG partner: KPMG, The Future of Private Company Reporting,

Posted by & filed under Canadian Economy, Financial Accounting.

Bauer heads to the TSX  

  

Canadians claim that “hockey is our game,” but that boast disguises 

deep-seated unease over the creeping Americanization of the professional sport.

That is why we hold on to nostalgic fantasies of the Jets returning to Winnipeg, the Nordiques going back to Quebec City, and the Maple Leafs returning to the Stanley Cup playoffs. Sometimes nostalgic fantasies do come true.Top hockey equipment maker Bauer Performance Sports Ltd. announced at the beginning of March that it had completed an initial public offering to sell 10 million shares at $7.50 a share. The money will be used to acquire 100% of Kohlberg Sports Group Inc., and the company will list on the Toronto Stock Exchange.

 

 Founded in London, Ont., in 1927, Bauer produced the first skate in which the blade was permanently secured to the boot. It became a wholly owned subsidiary of Nike in 1994 and rebranded as Nike Bauer, then was sold to private equity investors in 2008. While the shares are priced at the low end of the floated range, CEO Kevin Davis was exuberant. “Our company is on a great growth trajectory, and we have a lot of exciting growth opportunities in the future, and this is a great way for us to have access to consistent capital,” he said. “So we’re really excited about what this means to our future.”

 

  

Article written by–ANDReW POTTeR  see www.canadianbusiness.com April , 2011 issue

 

Discussion Questions:

 

1. Would you consider purchasing common shares in Bauer Performance Sports Ltd.?

2. Do you agree with the CEO that Equity Financing is the best way to obtain cash for future growth?

3.  In your opinion in tough economic times would debt financing be considered a safe approach to obtain cash?

 

 

 

 

Posted by & filed under Accounting Careers, Corporate Restructuring, Taxation & Planning.

Beginning of Story Content

When small business owners ask Diana Dolack whether they should incorporate, she often advises against it.

“There’s not too many I advise to incorporate,” says Dolack, an H&R Block franchise owner in Biggar, Sask. “For farmers, especially, the rules are more beneficial to not being incorporated.”

The formula for Dolack is quite simple.

“If you need to spend all your profit to live on, then you don’t need to incorporate because you have nothing to shelter,” she said. “A corporation is a lot of extra paperwork, higher accounting fees and takes a lot of extra time.”

Once incorporated, a business is a distinct entity from the business owner. The corporation has its own legal status, property, rights and liabilities. It differs from a sole proprietorship in that the money and other assets belong to the corporation, not the individual or shareholders, and it is taxed separately at a corporate tax rate.

A business can be incorporated federally or provincially depending on where it operates.

Ron Ellis, a criminal defence lawyer based in London, Ont., says he’s often asked about incorporating but still hasn’t taken that step.

“I’m 44 years old, recently into the practice of law as of 2004, and only been a sole practitioner since 2006,” Ellis said. “And while my practice is growing nicely, I have two kids in university so am assisting with funding. I need all the money I make right now. But I expect in time, I will be in a better position to incorporate as I expand.”

Keeping it simple

For the thousands of sole proprietors or partners out there who choose not to incorporate, a big motivation is keeping the tax work as simple as possible, said Christopher George, founder of Christopher M. George Chartered Accountant Professional Corporation in Toronto.

“There are less tax-compliance issues and fewer returns to file,” George said. “And it’s cheaper — about $75 — to just register your business as a sole proprietorship or partnership. Incorporation could cost you north of $1,000.”

As an unincorporated proprietor, tax filings are simply a matter of filling out the T2125 Statement of Business and Professional Activities form and including it with your personal tax return.

“You put it on your personal return, and you’re done with it,” George said.

“Most people just don’t have the technical ability or time to prepare financial statements, balance sheets, income statements and all that goes with it.”

Of course, avoiding the paperwork and costs of incorporation does not mean underestimating the value of good accounting practices.

For many sole proprietors who do their own taxes, it’s important to know what you can deduct — and how much. More often than not, George says, those proprietors aren’t deducting enough.

“Usually, their expense claims are way too low,” he said. “I’ve seen people claim only $35 a year for their cellphone, or underestimate their car expenses. Or I see someone with a wife and two kids that isn’t taking advantage of income splitting. People just don’t seem to understand what reasonable expenses are.”

Usual deductions

There are, of course, the usual deductions: any advertising (websites, newspapers, etc.), business meals, entertainment, insurance costs, and interest on loans relating to your business, as well as car and office expenses.

If you run a home office, you can claim a portion of your home expenses, including mortgage interest, home insurance, utilities and renovation costs.

Also, don’t forget business travel expenses, including cellphone and internet charges.

“What I encourage people to do is to track everything they spend when travelling and have a checklist to see what types of expenses can be written off,” George said. “Then, you just add your receipts and fill in the boxes.”

When in doubt, he recommends dividing expense items by revenues to see if the percentages being claimed are reasonable. For example, if you have revenues of $100,000 and $3,000 in meals and entertainment expenses, that translates into an acceptable three per cent.

“If those expenses were 20 per cent of your revenues, then your tax return might get pulled aside,” said George.

‘Reasonable’ payments

Income splitting is also a good way to optimize your tax dollars, George said.

“Be careful with that, since you have to show that what you paid a family member is reasonable for the work they have done,” he said. “If you’re paying someone $275,000, that’s going to cause the Canada Revenue Agency to take a look.”

If you have purchased a car, you can deduct a capital cost allowance for depreciation, as well as an appropriate percentage of gas, loan interest, insurance, licence, registration and maintenance costs.

In the case of leasing, you simply write off a percentage of the lease amount along with the day-to-day running expenses. In order to support the claim and ensure percentages are accurate, the Canada Revenue Agency advises professionals to keep a logbook that records kilometres driven for business purposes.

While some self-employed individuals avoid seeking professional help to save themselves costs, fees usually end up being less than the extra taxes saved, George says.

“A one-hour consultation will give you a good understanding as to how everything works, what can be claimed or not,” he said. “You could end up savings tens of thousands of dollars over your lifetime.”

By Denise Deveau, special to CBC News

Discussion Questions:

1. When would it be more advantageous to incorporate? (Hint Small business pay less than 20% tax, taxpayers tax rate increase gradually to more than 50%)

2. Why is income splitting advantageous?

3. What is meant by reasonable expenses?

Posted by & filed under Accounting Careers, Taxation & Planning.

What you need to know before earning income abroad

As more students and young adults take time out to indulge in longer-term international travel, income tax filing is probably the last thing they think about.

When weeks abroad stretch into months, however, picking up some extra income is often the best way to make ends meet. At that point, it pays to know the ins and outs of what types of income you need to report — and how — when filing tax returns.

If you don’t pay attention, you could end up paying double taxes on income earned in foreign countries or simply end up mired in more paperwork than you need to be. Worse yet, you could get caught out for non-payment and be saddled with all the headaches that go with it.

How you manage your income reporting depends on the laws of the country you’re working in, says Philippe Brideau, a spokesperson for the public affairs branch of the Canada Revenue Agency in Ottawa.

Ways to avoid double dipping

Scenarios can differ depending on your location, your tax status at home and the conditions of the treaty agreement, if any, the country has with Canada.

For example, your foreign income — even if it’s a few hours a week serving coffee at a local café — may be taxed at source in that country. In all likelihood, you will also have to report that same income on your Canadian tax return because you are still a resident of Canada.

Tax filing for foreign income

Understanding your tax filing requirements for foreign income can save you a lot of administrative headaches during and after your travels.

 Below are some guidelines and resources from Revenue Canada to help you get started:

  • A person leaving Canada temporarily is considered a “factual resident” of Canada, which means their income earned inside and outside the country is taxable.
  • Individuals or students working or studying abroad may claim all deductions and credits that apply to them. For information, refer to pamphlet T4131, Canadian Residents Abroad, and P105, Students and Income Tax. Some useful links include:
  • To prevent double taxation, check to see if the country in which you are working has a bilateral agreement with Canada. Canada has 86 tax treaties in force, each of which may have its own nuances, so it’s important to do your research. These can be found on the Department of Finance website.
  • Canadian residents who pay tax on income while in another country may be able to claim a foreign tax credit for taxes paid elsewhere when filing their Canadian return. Information about the foreign tax credit is available in the General Income Tax and Benefit Guide and in Interpretation Bulletin IT-270R3, Foreign Tax Credit.

“In such a circumstance, the individual could be subject to tax in both countries on the same income,” Brideau said.

However, there are provisions to help you avoid paying tax twice on the same income if you are earning income in a country that has a tax treaty with Canada.

For example, there may be a provision that will restrict or exempt you from income taxation in a given country, but you will still be required to report that income on your personal income tax return in Canada under the foreign-sourced income section.

In other cases where both countries retain the right to tax your income, you may be able to deduct foreign tax paid on your Canadian income tax form.

To avoid the risk of double taxation, Brideau advises individuals to consult the provisions of the treaty in question before they go abroad to make sure they know what to expect and what paperwork needs to be filled out in advance.

No one-size-fits-all approach

Pramen Prasad, managing partner with Toronto CA Solutions Inc., a business advisory services firm, says that when it comes to reporting foreign income, there isn’t a one-size-fits-all approach.

“It’s important to be aware of the tax implications of earning income worldwide,” Prasad said. “But there are also different scenarios depending on your work/education status, what type of work visa you have, the jurisdiction you’re in, etc.”

There are some general rules of thumb that can provide the baseline for making the right filing decisions, he said.

“The first thing to look at is your present filing position,” says Prasad. “The key issue is that taxation is based on residency, not citizenship. If you are not severing your residency ties with Canada while abroad, you are still considered a resident for taxation purposes and must prepare and file a Canadian tax return reporting all income earned.”

In some cases, a person will break ties with Canada. This may apply if you are spending extensive time abroad and perhaps working in a “tax friendly” jurisdiction. Ties can be reinstated on your return.

This can be a major undertaking, however, since you have to ensure you don’t have Canadian bank accounts or residence and that you have cancelled your health coverage. Cancelling your driver’s licence is optional.

While it all seems like a lot to take in when you’re caught up in the excitement of planning an extended trip abroad, staying ahead of the game is not as complicated as it sounds. It just means a bit of homework ahead of time, Prasad says.

“If someone is looking to study or work abroad, it pays to get some tax advice or do some web research, and obtain tax advice from a professional accountant.

For more information see: CBC News website 

By Denise Deveau, special to CBC News

Discussion questions:

1. Why do you think Canadians are taxed on their World Income?

2. How can you avoid double taxation?

3. Canadians are taxed based on Residency and not based on Citizenship: Define Residency  for Canadians?

Posted by & filed under Financial Reporting and Analysis, IFRS.

Why do companies choose to disclose, or not, forward-looking information in their corporate annual? 

Accountants have long known that disclosure is important for companies and users of financial statement information. In its simplest form, the voluntary disclosure decision can be understood as managers having an incentive to disclose if the benefits of disclosure exceed the related costs. Of course, assessing benefits and costs of disclosure can be difficult, making it a challenge to predict a specific disclosure decision. This is particularly so as there is no comprehensive theory of disclosure that explains what companies disclose. 

Disclosures can be grouped into three broad categories: 

The first disclosure category  links disclosures to changes in stock price and trading volume. Studies of this type often assume investors have rational expectations about what a company will disclose, so when the actual disclosure decision is made investors will adjust the stock price for any new information contained in the disclosure. For example, based on a biotechnology company’s past disclosure practices, investors might expect an announcement about the results of testing of an important new drug at the end of March 2011. If no disclosure is made, investors might infer that the company has bad news and is delaying its disclosure. So, the share price may decline until a detailed disclosure is made about the drug test results. 

The second category of disclosure includes discretionary-based disclosure models, which examine incentives that explain why managers choose to disclose some things and not others.
The third category includes efficiency-based disclosure that help explain why disclosure exists in the first place (e.g., the role of disclosure in perfect markets and in imperfect markets with information asymmetry where some investors are better informed than others).
Discretionary Disclosures: 

A good way to illustrate the discretionary disclosure conundrum faced by managers with conflicting incentives about whether or not to disclose is to consider two extremes: disclose all the information that might be useful to investors versus disclose nothing (or at least nothing beyond what is required by law). If managers choose to disclose nothing, the level of information asymmetry between the manager and potential investors would be very high, and research suggests the cost of capital would rise prohibitively. On the other hand, if managers disclose too much information, it may cause them to incur significant proprietary costs, helping their competition and hurting the company’s business prospects. 

Mandatory vs Voluntary Disclosure: 

Recently the debate over disclosure has focused on mandatory versus voluntary disclosure. For public companies, there are many mandatory disclosures such as disclosures within financial statements (and related notes), MD&A and disclosures about corporate governance. However, many of the disclosures made in annual reports are not required in the strictest sense. It has been argued that most theories of disclosure ignore the simple notion that many items are disclosed because managers have a duty to disclose material information. In short, materiality is   a key factor in determining what is required to be disclosed under GAAP or IFRS, and by the Ontario Securities Commission (OSC), SEC and other regulators. Consequently, it can be argued that only when managers determine that a piece of information is immaterial, or when the firm has no affirmative duty to disclose the information, is a disclosure truly voluntary. So managers must balance their obligation to disclose material information with their disclosure incentives; this should be kept in mind when evaluating disclosures in the MD&A and other sections of annual reports. 

MD&A disclosure requirements
The OSC suggests that the MD&A focus on material information. Deciding what is material requires professional judgment. To assist preparers, the OSC suggests information be considered material if a reasonable investor’s decision whether or not to buy, sell or hold securities in the company is likely to be influenced or changed if the information in question was omitted or misstated, a definition that is similar to CICA Handbook requirements. In addition, the OSC suggests the MD&A should address company performance and other factors such as liquidity, capital resources, off-balance sheet arrangements, transactions with related parties and key fourth-quarter events. Most importantly, from the perspective of our study, the MD&A should also include a discussion of the company’s future prospects, including trends and risks that are reasonably likely to affect financial statements in the future. Similarly, a key objective of the MD&A is to provide information about the “quality, and potential variability, of [the] company’s earnings and cash flow, to assist investors in determining if past performance is indicative of future performance” (OSC, FORM 51-102F1, Part 1 (a)). From a user’s perspective, it may be useful to contrast the required disclosures in the MD&A and the voluntary disclosures that may be made in the MD&A and elsewhere in the annual report. The former may be driven by materiality, while the latter are more likely to reflect a manager’s bias and the disclosure incentives discussed above.
 

Conclusion:

As we look to future trends, research suggests that voluntary disclosures may decline, reducing the benefits of any increase in required disclosures under IFRS. This is based on the expectation that different countries’ legal environments and political situations will continue to have a significant effect on disclosures. If Canadian companies do not perceive that a level playing field exists in terms of disclosures made by their competition internationally, they may be willing to provide only required (material) disclosures. 

See complete article written by: Merridee Bujaki, CA,  and Bruce McConomy, CA Magazine

Discussion Questions: 

1. Should all material information be disclosed , even if it creates a competitive disadvantage? 

2.What process should be put in place to ensure that all material disclosures are disclosed to the investing public? 

3. Is it fair to assume  that too much disclosure puts the company at an unfair competitive disadvantage?
 

Posted by & filed under Accounting Careers, Corporate Restructuring, Financial Accounting.

Super Voting Shares:   

Its a known fact that private corporations may issue to the initial founding shareholders’ shares that give the holders right to multiple votes, even preferred shares may have multiple voting rights, if properly structured by a corporate lawyer. This is why I always advise my students, that in the event they consider purchasing a privately held company to ensure that they purchase all the outstanding and issued shares and all classes of shares that are issued and outstanding.  

 Magna International , Frank Stronach Super Voting Shares:   

There is one thing Frank Stronach’s supporters and   

critics can agree upon: the founder of the Magna International   

auto-parts empire is a very rich man. No one has benefited from Magna’s success more than “El Presidente” himself. And nowhere is this more apparent, or more lucrative, than in the jaw-dropping deals Stronach has struck for releasing his iron grip over Magna companies, the full details of which are only now coming into focus.   

The Austrian-born industrialist has long drawn the ire of shareholder-rights activists, and even some investors, for using Magna money to support his personal passions, most notably his love of horse racing. But he was once seen as an early champion of the little guy. In 1984, he introduced the Magna constitution, which tied most executive pay to a fixed percentage of pre-tax profits. The goal, he said at the time, was to prevent him from acting like greedy executives who like to “Stuff their pockets with all the gold they can find.” The constitution, of course, has proven little impediment to Stronach’s corporate power, or his access to gold. The Magna empire evolved into a complex web of ventures, including some without constitutions. But Stronach maintained control of all things Magna with super-voting shares, despite typically holding relatively small ownership stakes in the companies he controlled. That control had considerable benefits. For instance, over the past decade, Stronach has served only a part-time role as Magna’s chairman, but he was paid more than $250 million during that period.   

    

1% gives you control?   

Stronach had little incentive to eliminate its dual-class 

  

share structure, which allowed him to control the company  

 

despite holding less than 1% of its equity. In return   

for his super-voting shares, Stronach received US$300   

million in cash plus common shares worth US$563 million   

(they have since increased in value by 85%). When   

it was announced, the deal paid Stronach a premium   

of 1,799% for his shares and diluted other shareholders’   

holdings by about 11.4%.   

Complete Article see: Canadian Business Magazine , March 2011 issue , $1,700,000,000 Golden Handshake, by Thomas Watson  

Discussion Questions:  

1. Why do you think Frank Stronach issued super voting shares?  

2. In your opinion were subsequent shareholders’  aware of these super voting shares?  

3. Why do you suppose super voting shares are less common in Public Corporations?  

    

Posted by & filed under Accounting Careers, Auditing, Canadian Economy.

Profession:

Internal Auditing is now a fully developed profession, Internal audit developed as an extension of the external audit role in testing the reliability of accounting records that contribute to published financial statements. These are exciting times for internal auditors, especially those who see themselves as agents of change within the organization. The drive to do more with less, to do the right thing, or to re-engineer the organization and the way it does business in creating an environment of introspection and change.

Let us look at “Research in Motion” (RIM) 2010 annual report, the maker of the famous Blackberry mobile phone:

Go to page 24 of the RIM annual report: Other Changes- The company established an internal audit department and an officer, usually the Chief Internal Audit officer reports directly to the Audit & Risk Management Committee as well as administratively to the Co-Chief Executive Officer, Jim Balsillie.

The above note proves how important the Internal Auditor is to an organization such as RIM.

 Role of the Internal Audit Dept.

Internal audit periodically reviews the enterprise-wide compliance function and processes to provide assurance to the audit committee on the program’s effective and efficient operation.

CERTIFICATION OF INTERIM FILINGS:

Visit the sedar.com website, and review the CEO certification, this certification states among many others that  the CEO Mr. Balsillie is at least responsible:

“For establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR). This process of helping Mr. Balsillie , certify to the investors that a process is in place to ensure reliable and accurate financial reporting. This is helped out by the Internal Auditi Dept. by testing and monitoring the financial and operational processes of the company.

 To find out more about internal auditing: Visit the websitewww.theiia.com

Discussion Questions:

1. Do you agree, that Internal Auditing has developed into an exciting new profession, due to the new Corporate Governance Legislation such as Bill C 198 in Canada and Sarbanes-Oxley in the USA?

2. In your opinion what skills should an Internal Auditor possess?

3. Without an effective Internal Audit department, would the CEO of RIM, be able to certifiy that the company’s controls are effective and operational?

Posted by & filed under Canadian Economy, Taxation & Planning.

Learn the top 8 reasons to contribute to your RRSP this year.

1. Make your golden years more golden: The first and foremost reason to sock money away in an RRSP is to help ensure you have a comfortable retirement. “Being old and poor isn’t much fun,” says Sheila Walkington, a money coach co-founder of the Women’s Financial Learning Centre in Vancouver. “You don’t want to get to age 65 and be caught without enough savings.”

2. An immediate tax break: When you contribute to an RRSP, you won’t pay any tax on that money until you eventually withdraw it (ideally when you are retired and in a lower tax bracket). “Most of us are more motivated by the tax savings than by the retirement benefits because the savings are immediate and we hate paying taxes,” says Walkington. How big your tax refund from your RRSP contribution will be come April depends on the tax bracket you are in. The higher your income, the bigger your refund. For example, at a marginal tax rate of 48 per cent, a $5,000 contribution will mean a reduction/refund of taxes of $2,400.

3. Tax-deferred growth: Since contributions are tax sheltered, you don’t pay any tax on the income earned (interest, dividends or capital gains) inside an RRSP until you withdraw the funds. Because of this, investments in an RRSP can grow faster than those outside an RRSP, where the income earned is taxed in the year it is earned.

4. The magic of compound interest: The money in your RRSP grows exponentially by continually earning interest on itself. By starting to invest early – and contributing regularly – your returns will grow faster with each passing year.

5. The power of dollar-cost averaging: When you contribute to your RRSP on a monthly, instead of annual, basis, you can reap the benefits of dollar-cost averaging. By investing a fixed amount on a regular basis (say $300 a month) you buy more units when prices fall and fewer units when prices are rising. This means you get more bang for your buck when stock prices fall because you can lower the average price you pay for the units and increase the number of units you can purchase.

6. Help with your first home: The Home Buyers Plan allows you to access up to $25,000 from your RRSP savings for a down payment on your first home, and you won’t have to pay tax on the withdrawal. However, the money must be repaid over 15 years.

7. Upgrading your education:
The Lifelong Learning Plan allows you to borrow up to $20,000 from your RRSP to go back to school. You have 10 years to pay back the money. “This is an easy way to access money that you have saved over time to retrain yourself,” says Walkington.

8. An emergency fund if you need it: While most financial experts strongly advise against ever withdrawing from your RRSP before retirement, there may be circumstances – job loss for example – when tapping into your RRSP is a necessity. It’s good to know the money is there if you really need it.

The above article written by Anne Bokma (canadianliving.com)

Discussion Questions:

1. Should students consider investing in an RRSP earlier , rather than later?

2. How does an RRSP become advantegeous when your tax bracket is at 48%?

3. When you contribute, is the interest earned taxed? When is the interest taxed?

Posted by & filed under Accounting Careers, Corporate Restructuring, Taxation & Planning.

In the coming years many small private companies will be up for sale, due to the fact that Baby Boomers will be retiring and hoping to cash in on the sale  of their business. 

Grooming a business for sale takes time, which means that you need to get started well in advance. Your reward is a feeling of confidence that you can seize the interest of more qualified buyers quickly, and possibly get a better price. You will also know that you are selling the business in the best possible condition. Here are few questions to ask?

  1. Are you in a position to respond if a strategic purchaser made an offer to purchase your business?
  2. Can you show a buyer a business plan that articulates your growth and strategy and prospects?
  3. Is there a contingency plan so that the business can continue without you if your personal or family circumstances change suddenly?

What is your Business worth?

Do you know what value your business might achieve in the current environment? 

It may prove beneficial to discover what multiples comparable businesses have 

sold at should an unsolicited opportunity  arise. Today’s combination of low interest rates, capital market liquidity,

and significant pools of private equity and debt are driving a high level of merger and acquisition activity. This can be

a great opportunity for business owners. The   competition for quality deals is intense, putting upward pressure on business 

 valuations.

 Great Oppotunity for Accountants

Accountants should be prepared to help their clients, prepare a business plan, including 3 year projections. The more a buyer can count on expected future revenue the easier it will be to sell the business. Prepare a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis.  A good analysis will help the buyer make an intelligent decision. Identify and document all expenditures that a buyer will likely not incur, such as outsized management bonuses, excessive salaries to family members etc.

Sales of Small Business, tax considerations

Accountants often specialize in the sale of Family Business, there are tax savings to the vendor when deals are completed according to the Income Tax Act. A professional Accountant can provide advise on the Small Business Deduction. Also there are Rollover rules which should be considered prior to the sale of a business.

Discussion Questions:

1. Do you agree with the article, that in a few years more and more family run businesses will be for sale?

2. Why should you hire a professional Accountant to help you with the sale of a business?

3. Should a chartered accountant use the service of an outside service provider, to help with the valuation of a business?

More information may be obtained from the KPMG web site. www.kpmg.com

To read more about this article:

 

 

 

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

Canada is in the midst of a seismic shift in accounting standards— one that will tie the country more tightly to international commerce, but might also result in investors being taken for a ride. Starting this year, Canadian public companies will issue financial statements using international financial reporting standards (IFRS) instead of the generally accepted accounting principles (GAAP) that have been in place for decades.

 Many countries have unique accounting standards that are difficult to reconcile. In part to remedy this, the European Union began to implement IFRS to harmonize reporting among member countries.

 (The U.S., meanwhile, is incorporating aspects of the international standards over the next few years, but wholesale adoption is still in debate.)

The primary benefit of a common set of accounting principles is the increased comparability between companies around the world, which ultimately reduces the cost of capital. “If you want to operate in a global economy, then having unique standards will not find favour,” he says. Or so the argument goes. “This is a matter of tight rules versus shitty rules,” argues Toronto based forensic accountant Al Rosen. IFRS is a major step back from Canadian GAAP, he says, and will permit unethical managers to hide, massage and choose numbers to make their companies look good. “This is a Ponzi scheme in progress,” he says. Investors, who are supposed to benefit through increased comparability, could end up the victims of unfair accounting. A key difference under IFRS is that managers have more choice in how they report certain information.

Take revenue recognition. Canadian accounting standards had stringent criteria around when and how a company could record revenue on goods and services. Under IFRS, the guidelines are more vague, potentially permitting unscrupulous managers to pump up revenue or mask bad debt.

Al Rosen is also fuming about related-party transactions. IFRS does away with fair market valuation of self-dealings—for instance, if a private company owned by a couple of executives sells an asset to the public company employing them—meaning investors have little to no assurance the goods and services are transacted at legitimate prices.

Supporters of IFRS will agree there is more leeway in reporting in some areas, but trust auditors to exercise their professional judgment to prevent accounting shenanigans from occurring.

 The areas in which IFRS allow for greater choice reflect a more complex business world in which no two transactions are exactly alike.  Managers will have to justify their accounting decisions in financial statements under IFRS, as well, giving investors more information to chew over. In some cases, these disclosures are more rigorous than what existed under Canadian GAAP.

Ron Salole, a director of the AcSB argues no standards, however stringent, will stop unethical executives from manipulating financial statements. In any event, there is no turning back,

Discussion Questions:

  1. Do you think with IFRS we are back to where we started from: will financial  manipulation ever end?
  2. Should each country have kept their own individual country GAAP and not embark with common IFRS rules?
  3. In the end, do you agree that no standards will stop unethical behaviour?

 For more information , read the Canadian Business Magazine article by Joe Castaldo “accounting for trouble? As Canada moves from GAAP to IFRS, some see it as a licence to swindle