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Canada News
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From the News Desk of |
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Rethink What You Know About Accounts Receivable
As financial transaction volumes increase it becomes increasingly important to reduce ineffective accounts receiveable (AR) processes. Doing so can free up working capital, increase profit, and improve customer satisfaction. Incremental in-house investment needs to be balanced against other core business goals. You might consider how Lucent Technologies approached this issue and consider a similar approach for your business.
In 2002, Lucent Technologies, the global leader in telecom equipment, was in the midst of an industry downturn. As the sector continued to deteriorate with no sign of imminent market recovery, Lucent relied heavily on the strength of its leadership team to evoke the internal changes necessary to maintain their leading market position. Lucent's new strategy required a restructuring of existing back-office business processes, including the administration of accounts receivable (A/R). Seeking to optimize its cash position through improved management of its A/R, Lucent required a flexible, yet scalable resource to be able to manage the first-party collections and dispute management process for its multi-billion dollar Europe, Middle East and Africa (EMEA) customer base.
Lucent chose to work with IBM, a leader in managed services of order-to-cash functions. Len Rinaldi, CFO & Vice President of EMEA Lucent Technologies has stated, "IBM has improved our operation by pinpointing where disputes are occurring, and who's responsible for resolving them. I think that overall, they've helped us shed 10% of our finance resources, while improving our asset management perspective by 40%. That's freed up tens of millions of dollars in working capital."
If you would like to learn more about the offerings Lucent leveraged from IBM, visit: www-935.ibm.com/services/us/index.wss/offerfamily/igs/a1025280
Canada's securities regulators launch XBRL voluntary filing program
The Canadian Securities Administrators (CSA) have launched an XBRL voluntary filing program. CSA Notice 51-323 XBRL filing program and request for volunteers outlines how issuers can voluntarily file financial statements in XBRL format. XBRL is a relatively new business reporting language that is emerging as an international standard for communicating business and financial data. The basic concept of XBRL is that it attaches standardized electronic "tags" to elements of information that provide information about what the item represents.
In 2006, the CSA conducted a survey to assess the awareness of XBRL in the marketplace and the interest in an XBRL filing program. "The feedback we received from the marketplace indicated that about half of the respondents have some understanding of XBRL and a significant number are in favour of an XBRL filing program," said Jean St-Gelais, Chair of the CSA and President & Chief Executive Officer of the Autorité des marchés financiers (Québec). "With this voluntary filing program, we hope to increase the level of practical knowledge in the Canadian marketplace of this new technology and gain a greater understanding of the potential of XBRL."
The XBRL filing will not replace the official PDF filing that is required by securities regulators, but will be additional information made available to the public through the System for Electronic Document Analysis and Retrieval (SEDAR) website.
"We invite issuers to join the voluntary filing program. We are committed to learning more about technologies that can help improve efficiency in our marketplace," said St-Gelais.
CSA Notice 51-323 XBRL filing program and request for volunteers is available on the websites of several CSA members. Issuers interested in joining the voluntary filing program should contact one of the CSA staff members listed in the notice.
For more information, please see here.
CSA Request for Comments: Amendments to Income Trusts and Other Indirect Offerings
The Canadian Securities Administrators (CSA) has issued a request for comment on proposed amendments to income trusts and other indirect offerings.
The CSA has reorganized the Policy to more clearly group its expectations for the areas of distributable cash, prospectus offerings and continuous disclosure.
To read the full request, please see here.
Comments must be received by March 6, 2007. Please address your submission to the following securities regulatory authorities:
Ontario Securities Commission
Alberta Securities Commission
British Columbia Securities Commission
Autorité des marchés financiers
Saskatchewan Financial Services Commission
The Manitoba Securities Commission
Nova Scotia Securities Commission
Please send your comments to the following, and they will be distributed to all other jurisdictions by CSA staff:
| Kyler Wells Legal Counsel, Corporate Finance Ontario Securities Commission 20 Queen Street West Suite 1900, Box 55 Toronto, Ontario M5H 3S8 Fax: (416) 593-8229 E-mail: kwells@osc.gov.on.ca |
Anne-Marie Beaudoin Directrice du secrétariat Autorité des marchés financiers Tour de la Bourse 800, square Victoria, C.P. 246, 22e Etage Montréal, Québec H4Z 1G3 Fax: (514) 864-6381 E-Mail: consultation-en-cours@lautorite.com |
| From the News Desk of BRENDAN MOORE |
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FI Legislative Proposals Reverse State Farm, Revise Allocation Methods for Financial Institutions and Rebate GST to Pension Trusts
On January 26, 2007, Finance Canada released new legislative proposals dealing with several thorny financial institution-related issues, although the proposals to deal with the State Farm decision had already been released in November 2005.
The January 2007 release includes legislative changes necessary to require financial institutions with a presence or affiliate outside Canada to self-assess in respect of any administrative loading inherent in an otherwise exempt cross-border charge or allocation, with effect generally retroactive to November 17, 2005, although the tax liability does not technically crystallize until the income tax return filing date for the year the transactions occur.
The release also includes legislative detail governing the promised revised input tax credit allocation rules applicable to financial institutions. The new rules include the establishment of prescribed GST recovery percentages for larger "qualifying" institutions (10% for insurance companies, 12% for banks and 15% for securities dealers) that will apply to non-attributable expenditures unless the institution can obtain pre-approval from the Canada Revenue Agency to use its own allocation method. The new rules will apply generally to fiscal years beginning after March 2007, although rules applicable to qualified institutions requiring pre-approval will not apply until their fiscal years beginning after March 2008, in order to provide time to obtain such approval. A transitional election available to qualifying institutions allows them to use previously-audited allocation methodologies for the first and only taxation year beginning after March 2007.
It is further proposed that financial institutions be required to file an annual information schedule within six months after the end of a fiscal year, providing breakdowns of sales revenues, GST collected, input tax credits claimed, adjustments made, and additional information about GST paid during the year, inter or intra-company supplies, exports, change in use, and input tax credit claims by allocation method. The new schedule will be due for fiscal years commencing after 2006.
Lastly, the ever-evolving policy with respect to pension trusts takes another turn. Now, it is proposed that pension plan trusts be able to recover a 33% rebate of GST/HST paid (as was originally proposed several years ago), with employers effectively being denied any input tax credit net benefit from expenses incurred by them with respect to the pension plan. Public comment is requested to the Tax Policy Branch of the Sales Tax Division of Finance Canada by April 30, 2007.
The new rules are complex and can be found at the Finance Canada web site at: http://www.fin.gc.ca/drleg/gstJan07_1e.html#Proposals
GST Credits for Tax Paid on Imported Goods – Draft CRA Policy Published
In late December, the Canada Revenue Agency ("CRA") released a draft of a revised Policy Statement P-125R, "Input Tax Credit Entitlement for Tax on Imported Goods". The revision was occasioned by the imminent enactment of GST legislation intended to repair what has become known as the de facto importer issue, discussed in a previous issue of FEI Accounting & Finance Review.
Put simply, where a GST-registered non-resident sells goods to a Canadian resident whereby title transfers outside Canada, the non-resident would not collect GST on its invoice. In those circumstances, however, if the non-resident also acts as importer of record in bringing the goods into Canada, the CRA will not permit the non-resident to recover the GST paid at the border. The goods have already changed hands prior to the tax being paid, and only the Canadian resident, as the de facto importer, could recover the tax. The policy established by P-125 permitted the Canadian resident to recover the tax if it could demonstrate that the non-resident acted as agent for the Canadian resident and if the resident could obtain supporting documentation from the non-resident (usually, a copy of the B3).
Where both parties to the sale are GST registrants entitled to recover the tax in full, it really should not matter who recovers the tax – there's no real tax leakage. But, where the Canadian resident is not entitled to recover fully any GST paid, the CRA was concerned that by arranging for a sale to take place outside Canada and using the registered supplier as importer of record, the resident could avoid paying tax that it could not recover, an undesirable result.
The resulting overhaul of tax credit entitlement on import established that only the "constructive importer" would be entitled to recover tax paid at the border, no matter who acted as importer of record in clearing the goods into Canada. The constructive importer, generally, is the last person to whom a supply of the goods is made outside Canada, either because of the terms of sale applicable to that transaction or because the purchase is from an unregistered non-resident who is deemed to supply all goods outside Canada for purposes of the GST. However, by way of relief, where the non-resident supplier is registered, the new rules permit the non-resident and the Canadian customer to agree that the supplier will collect tax from the Canadian recipient on its invoice. The supplier would then be allowed to recover the GST paid at the border and, if the Canadian resident could not fully recover tax paid by it, no tax would have gone missing.
The new rules will not apply in any case where an unregistered non-resident supplier pays the tax at the border and passes it on to its Canadian customer, nor will they apply where a Canadian service provider imports goods for the purpose of providing a commercial service on those goods to a non-resident. It is already legislated that, generally, the Canadian resident may recover the tax in these circumstances.
The revision to P-125 now substitutes the concept of "constructive importer" for de facto importer, and illustrates the new rules with some 25 examples intended to provide for nearly every combination of registered status, residence and place of supply. Included are situations where P-125R will override the new rules for administrative ease. One example is where the wrong importer is named on the B3 by mistake; P-125R will allow the correct importer to recover the tax if it obtains the supporting documents from the party that was named as importer in error. It is presumed that the wrongly-named party will be reimbursed for the tax that it paid in error at the border by the correct claimant.
Another example is where a non-resident, unregistered supplier sells to a registered Canadian wholesaler, who sells to a registered Canadian retailer. The retailer acts as importer of record, and both sales take place in Canada. In this case, the last person to acquire the goods outside Canada is the wholesaler, because the unregistered non-resident would be deemed to supply the goods outside Canada. However, to recover the tax, the wholesaler would be required to obtain a copy of the retailer's B3, which may prove problematic. In this case, P-125R will allow the retailer to recover the GST paid at the border, provided the wholesaler makes no attempt to do so. P-125R is silent on the responsibility of the retailer to check before doing so, but one can expect the question to be asked on audit.
What P-125R demonstrates is that, before tax paid at the border is recovered, it is now necessary to determine who the constructive importer is in any situation where goods are acquired from a registered non-resident supplier. Merely paying the tax at the border will not, of itself, guarantee the recovery of that tax as an input tax credit.
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From the News Desk of |
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Audit Committee survey gives high marks to CFOs
In 2005-06, KPMG's Audit Committee Institute and the Institute of Corporate Directors (ICD) conducted our first annual survey of audit committee members of Canadian public companies to better understand the challenges and issues facing these committees.
More than 100 audit committee members provided input on current practices, emerging trends, and prospective issues affecting audit committees. The report on this survey provides information that can help audit committees as well as CFOs, other executives and boards of directors to reflect on their company's audit committee and its performance.
A few highlights from the survey include:
- Two out of three respondents rate their audit committee as being very effective and also feel it has become more effective over the past year
- More than 80 percent are very satisfied with the interaction and support they receive from the CFO, rising to 94 percent among companies with revenues over $1 billion
- More than 70 percent are not fully satisfied with their audit committee's oversight of internal control over financial reporting
- Almost half focused on two desired improvements in pre-audit committee meeting materials – more comparison to industry statistics and better identification of important issues
- Most respondents (87 percent overall) were not fully confident that, with their whistleblower procedures, employees feel comfortable reporting behaviour they believe is questionable.
The survey report is available from the Audit Committee Institute's Web site at www.kpmg.ca/auditcommittee. Please share this report with audit committees and directors.
Our 2007 survey is now underway, and we invite audit committee members to contribute their views before February 23, 2007. The survey can be completed:
- on-line at www.kpmg.goglobal.com/ACI- International (it should take approximately 10 minutes to complete)
- or by printing the survey document posted on that Web site and faxing it to (416) 777-8360, Attention: Karen Sova.
Because this year's survey is also being conducted internationally, we will be able to compare the results in Canada with those of many other countries, including the US, UK and Australia.
| From the News Desk of ROBERT HALF MANAGEMENT RESOURCES |
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2007 Guide to Accounting and Finance Salaries Released
Strong Demand, Shortage of Skilled Accountants Lead to Rise in Compensation Levels
Business expansion and ongoing compliance requirements will drive the demand for skilled accounting and finance professionals and intensify recruitment challenges next year, according to the recently-released 2007 Salary Guide from Robert Half International. As a result, salaries for many specialties are on the rise, with an average increase in base compensation of 3.1 per cent projected for 2007. Research shows that compliance professionals, internal auditors, IT auditors and general accountants are among those expected to see the greatest gains in base pay.
Compliance and Internal Audit Salaries on the Rise in Corporate Accounting
Businesses, public companies in particular, are looking for professionals with knowledge of the Canadian Investors Confidence Measures to help maintain compliance with regulatory requirements. Internal audit managers with large companies (more than $250 million in sales) can expect a 5.9 per cent increase in base compensation in 2007, with average starting salaries between $79,000 and $122,500.
Public Accounting Outlook
An increasingly competitive hiring environment is prompting public accounting firms of all sizes to make recruiting a year-round priority in areas such as audit, corporate governance, tax and risk management. In 2007, average starting salaries for tax managers at medium/small firms ($25 million to $250 million in sales) are projected to climb 7.1 per cent, to between $78,500 and $118,250 annually. Entry-level public accountants at large firms (more than $250 million in sales) can anticipate a 4.3 per cent increase in average starting salaries, to the range of $39,750 to $45,500 per year. To attract top performers, firms have raised salaries and signing bonuses for new recruits and existing staff, and options such as flexible scheduling, part-time work and telecommuting have become increasingly common.
Other key findings reported in the 2007 Salary Guide:
- Credit and collections managers are projected to see base compensation of $57,250 to $89,500 annually, a 6.9 per cent increase over 2006.
- Information technology audit managers at large companies will see average starting salaries of $81,500 to $124,000, up 5.9 per cent from 2006 levels.
- Public accounting supervisors at medium/small firms can expect a 4.5 per cent increase in starting salary in 2007, to between $58,500 and $75,750.
Across Canada, demand for accounting and finance professionals is expected to be particularly strong in the financial services, construction and the transportation sectors. (All salaries listed are averages from our Canadian offices. However, hiring activity and compensation vary significantly by industry and geographic market. A regional analysis of hiring trends and compensation variances for select Canadian markets is included in the Salary Guide.)
Information in the Salary Guide is based on the thousands of job searches, negotiations and placements managed each year by Robert Half International's staffing and recruiting managers. Continuing or ongoing salaries are not reported because many external factors -- such as seniority, work ethic, job performance and training -- impact the salaries of full-time professionals as work histories develop.
International News
PCAOB Proposes Revised Auditing Standard to Replace AS2
The US Public Company Accounting Oversight Board (PCAOB) has proposed for public comment a new standard on auditing internal control over financial reporting which will supersede the existing standard, AS 2.
The proposed standard is designed to focus the auditor on the matters most important to internal control; eliminate unnecessary procedures; simplify and shorten the standard by reducing detail and specificity; and make the audit more scalable for smaller and less complex companies. It would:
- Direct the auditor to the most important controls and emphasize the importance of risk assessment;
- Revise the definitions of significant deficiency and material weakness, as well as the "strong indicators" of a material weakness;
- Clarify the role of materiality, including interim materiality, in the audit;
- Remove the requirement to evaluate management's process;
- Permit consideration of knowledge obtained during previous audits;
- Direct the auditor to tailor the audit to reflect the attributes of smaller and less complex companies;
- Refocus the multi-location testing requirements on risk rather than coverage; and
- Recalibrate the walkthrough requirement.
To read the full proposal, please see here.
Comments will be received until February 26, 2007. Please forward all comments to comments@pcaob.org, referencing "PCAOB Rulemaking Docket Matter No. 021" in the subject or reference line.
IFAC Issues New Proposals for Auditor Independence
The International Ethics Standards Board for Accountants (IESBA), an independent standard-setting board within the International Federation of Accountants (IFAC), has issued an exposure draft updating and strengthening the independence requirements contained in the IFAC Code of Ethics for Professional Accountants.
Proposed changes to the Code include:
- Expanding the applicability of partner rotation requirements;
- Updating requirements related to the provision of non-assurance services, including setting out additional guidance on the provision of tax services to audit clients; and
- Extending the independence requirements to the audits of a wider range of entities of significant public interest.
Comments on the exposure draft are requested by April 30, 2007. The exposure draft may be viewed by going to http://www.ifac.org/EDs. Comments may be submitted by email to edcomments@ifac.org.
SEC Proposes Risk-based Guidance for SOX 404
The Securities and Exchange Commission (SEC) has proposed for comment interpretive guidance for management regarding its evaluation of internal control over financial reporting (SOX 404).
The interpretive guidance sets forth an approach by which management can conduct a top-down, risk-based evaluation of internal control over financial reporting. It is intended to assist companies of all sizes to complete their annual evaluation in an effective and efficient manner and it provides guidance on a number of areas commonly cited as concerns over the past two years.
It will also amend its rule requiring management's annual evaluation of internal control over financial reporting to make it clear that an evaluation that complies with the interpretive guidance is one way to satisfy those rules. And it will amend its rules to revise the requirements regarding the auditor's attestation report on the assessment of internal control over financial reporting.
To read the full proposal, please see here.
Comments will be received until February 26, 2007. Please send comments to rule-comments@sec.gov. Please include File Number S7-24-06 on the subject line.
IOSCO Survey Results: The Regulation of Non-Audit Services Provided by Auditors to Audited Companies
The International Organization of Securities Commissions (IOSCO) has published the results of a survey conducted in 2006 to gather information to help IOSCO members determine how to best deal with auditor independence issues.
Nearly all IOSCO member jurisdictions regulate non-audit services and most also have specific requirements of some type. Responsibility for regulation tends to consists of a system that either includes one of more of the following: a legislative office, a securities regulator, an auditor oversight board, or a professional body. Over 90% indicate that legislation and securities regulators have a role in forming or developing auditor independence regulations and 100% consider the rules of local professional bodies in this process. More than 75% have a system that relies on multiple organizations to regulate auditor independence. 75% use all or part of the IFAC Ethics Code in establishing independence requirements.
The regulation of non-audit services is based on a principles-based approach for most, with an emphasis on those services that are prohibited, rather than those that are permitted. 73% include a list of prohibited non-audit services in their independence regulations; 21% include a list of permitted non-audit services.
To read the full report, please see here.
IFRS Update
Canada's Move to IFRS: FAQ
The Accounting Standards Board (AcSB) has issued a bulletin addressing some of the issues regarding the conversion to International Financial Reporting Standards (IFRS).
As the AcSB points out, "Canadian public companies should ask about their responsibilities as Canada moves towards adopting International Financial Reporting Standards (IFRS). Management should be prepared to answer. Accountants should be prepared to advise."
The bulletin, Canada's Move to International Financial Reporting Standards: Frequently Asked Questions, addresses questions such as who will move to IFRS, when this changeover will occur, and the implications for Canadian companies listed in the US and Canadian subsidiaries of foreign parents.
To read the full bulletin, please see here.
AcSB's IFRS Advisory Committee Update
On December 18, 2006, the IFRS Advisory Committee (IAC) held its third meeting. The meeting included a discussion of issues related to implementation of IFRSs and to the level of understanding of the AcSB's strategy for publicly accountable enterprises.
Among the issues discussed, the IAC noted:
- The use of IFRS 1, First-time Adoption of International Financial Reporting Standards, might result in Canadian subsidiaries having different amounts in reported Canadian financial statements from the amounts reported to their foreign parent in the first year of Canadian IFRS reporting
- There is concern regarding the amount of work it would take to implement IAS 39, Financial Instruments: Recognition and Measurement, particularly with identifying the effects of differences in detail between IAS 39 and the current GAAP equivalent
- A prioritization of standards would be useful in the education of IFRS
- Industry specific guidance would be useful
- The requirements for pre-convergence disclosure have not been expressed. The committee would like this disclosure to take a form that does not lend itself to ‘boilerplate' notes in financial statements
- The committee also discussed those standards that do not have IFRS equivalents to determine if they should remain after the changeover
It was also reported in the meeting that a revised IFRS/Canadian GAAP comparison will be available in early 2007.
To read the full report of the meeting and previous meetings of the IAC, please see here.
Hot Topics from CCR
CCR Responds to AcSB Exposure Draft on Cash Distributions
On December 15, 2006, FEI Canada's Committee on Corporate Reporting (CCR) submitted its response to the Accounting Standards Board's (AcSB) Exposure Draft on Cash Distributions.
CCR aggress with the proposed changes and the proposed effective date. CCR also believes the proposals to be appropriate for application to non-publicly accountable enterprises.
To read the full Exposure Draft, please see here.
To read the full Comment Letter, please see here.