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.


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.


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.


Visit the 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

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 (

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 


 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.

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

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

Accountants are always keeping up to date on tax related issues.


Here are a few tax planning ideas to consider before 2010  and changes for 2011:

1.Federal Small business rate remains at 11% for Federal tax purposes

2.New Avoidance Transaction rules, must be reported after 2010.

3.Quebec Sales Tax Rate: Increasing from 7.5% to 8.5% on January 1, 2011 and to 9.5% on January 1, 2012.

Financial Statement Reporting:

  1. “Publicly accountable enterprises” must adopt International Financial Reporting Standards (IFRS)
  2. Private Enterprises, must either adopt IFRS or “Accounting Standards for Private Enterprises”  (ASPE).

Owner Managed Business:

  1. Salaries to family members: accrue a reasonable salary to a spouse or child who is in a lower tax bracket.
  2. Consider maximizing discretionary deductions such as Capital Cost Allowance (CCA)
  3. Mandatory e-filing of corporate tax returns if annual gross revenue exceed $1 million.
  4. Exemption for qualified small business corporation shares is $750,000.


Environmental Incentives:

  1. Be aware that Federal and Provincial environmental incentives are available for your company to help you go green and save money.


  1. Education and textbook tax credits- Claim these credits if you attend post-secondary school.
  2. Scholarships: Exclude from income the full scholarship but be aware that new rules pertaining to post-secondary scholarships, fellowships and bursaries commence in 2010.
  3. Unused and unclaimed tax credits may be transferred to your parents, spouse or grandparents.

 Tax planning is an important component of what an Accountant does, most accountants make it a career to specialize in taxation, which is definitely a rewarding endeavour.

Discussion Questions:

  1. In Quebec PST increases from 7.5% to 8.5% on Jan. 1, 2010, what tax planning feature should you be considering?
  2. In your opinion why do governments provide Tax Incentives?
  3. Why is tax knowledge important to you as an Accountant?


For more information visit PricewaterHouseCoopers: where more information is provided on numerous topics

Link to Year-End Tax Planning-2010: from PWC


Posted by & filed under Accounting Careers, Advanced Accounting, Auditing, Financial Accounting, Fraud Accounting, IFRS.

Audit Committee Evolving Issues  focuses on communicating to

stakeholders about the impact of adopting IFRS.

Today’s changing business and economic conditions

provide an opportunity for the audit committee to reassess its priorities and

refocus its agenda. The purpose of the Audit Committee is to strengthen the integrity of the financial reporting process and the quality of the corporate governance process.

When considering their 2010 agendas, audit committees should consider at least the following:

1. The challenges of the economic downturn (access to capital, cash flow,

liquidity, counterparty risks, impairments, etc.) have dominated audit

committee agendas.

2. Understand how the changeover to IFRS will affect the organization and

its stakeholders, and remember that the board and the compensation

committee must also understand the implications of this change. Closely

monitor the enterprise’s progress in its conversion plan and whether work

needs to be accelerated to meet key milestones.

3. Many companies have engaged in cost cutting as the economy declined.

Every board and audit committee should now be asking whether the

company’s delivery model has been changed permanently, and whether a

‘cost-reduced’ business model can be sustained. Did we cut too much?

What are the implications for our IFRS conversion project? How quickly

can we restore critical infrastructure such as IT and sales force? How far

have we extended the organization through outsourcing and offshoring?

 4. The tremendous focus on risk today provides an opportunity for the board

to reassess the oversight role of the audit committee, the full board, and

the other standing committees such as the risk committee. Does the

audit committee have the expertise and time to deal with strategic,

operational, and other risks?

5. Be vigilant. The economic downturn has placed tremendous pressure on

management to achieve operating results; at the same time, cost cutting

and workforce reductions have exacerbated the pressure on these

programs. How has the company treated its employees? How do they

think they have been treated? A comprehensive review of the company’s

anti-fraud and compliance programs may be in order. The right tone at the

top and throughout the organization is critical.

Discussion Questions:

  1. Do you think that Audit Committees have the time to manage all of the above complex issues?
  2. What required expertise should  Audit Committee members have proficiency in?
  3. In your opinion who is often elected to be member of an Audit Committee?


To read more visit: KPMG LLP

Posted by & filed under Accounting Careers, Canadian Economy, Fraud Accounting, Managerial Accounting.

Have you ever wondered what is the fundamental purpose of a Corporation: You are correct in assuming “To Make a Profit”. Henry Ford once said ” A Business that makes nothing but money is a poor kind of business”. Let us put ourselves into perspective and see what we are referring to.

Looking back a few years ago, the financial turmoil caused our most senior world leaders to rethink the fundamentals of our financial system. BP’s deep water drilling off the coast of Mexico caused the death of 11 oil rig workers and untold damages to our environment and ecosystem.

Assessing Risk:

When we think of Risk assessment, we often think of the internal controls to prevent and detect fraud. We should also consider the Operational Risk. In the BP scenario, what safety procedures were in place to avert a disaster, in the financial markets what processes are in place to ensure that a second financial meltdown does not occur,again.

What processes are in place to ensure that another European Country does not fall into financial difficulty, similar to Greece. If we look into Agricultural, how do we ensure that our Corporations that mass produce our food, will have enough water to irrigate their crops? What process is in place to ensure that our Cities will survive and continue to have enough energy to warm or cool our homes?

Our Present Culture:

Focuses on legal compliance rather than safety, we seem to follow the rules and respect the government policies, but as we can see we are having more and more problems with our food source, where products are recalled  for Listeria or other deadly diseases. We live in a fast paced world where there is little room for complacency, the reality is that in a rapidly changing environment the profile of Risk also changes.

What Should we Look Forward to?

We cannot eliminate Risk and it would not be practical to do so, but we can change our business culture. We should no longer consider making large sums of money at the detriment of our environment and society. We should consider putting in place Risk assessment programs, that ensure sustainability of our resources, protection of our waters and to be forward looking to adapt and manage developing risks.

Discussion Questions:

1. Do you think the time has come to rethink,” Corporate Profits at any Cost”

2. From this article, if a culture of Risk Assessment was put in place, “Could we have avoided the BP disaster”

3. Using a Risk Assessment approach, should we continue to drill in deep waters?

Read more on Risk: upload the At Risk magazine from KPMG Fall 2010 issue

Visit Canadian Business Dec. 6, 2010 issue : Read the opinion from Steve Maich “What BP and Lehman Bros. have in common”


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.


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:

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?