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Canada News
New from the Emerging Issues Committee - AcSB
Private Enterprises: AcSOC is also seeking short presentations from interested parties on the future of financial reporting by private enterprises, focusing on the questions posed in the AcSB's Invitation to Comment (PDF) and Discussion Paper (PDF). Those documents discuss the needs of the private enterprise sector and propose some alternatives for how the AcSB might proceed to meet those needs.
Financial Reporting by Private Enterprises
June 13, 2007. A video recording of an interview with Paul Cherry, AcSB Chair, has been posted. The interview highlights the key elements of the AcSB’s Invitation to Comment and Discussion Paper.
Financial Instruments Implementation Guidance – Invitation to Comment:
June 20, 2007. The Financial Instruments Working Group has released the fourth in a series of draft Implementation Guidance documents designed to assist entities with the implementation and application of the financial instruments standards. Comments are requested by July 31, 2007.
AcSB Strategy — Publicly Accountable Enterprises
The AcSB is seeking expressions of interest from individuals who have experience in the preparation of financial reports under International Financial Reporting Standards (IFRS), to participate as a volunteer on the IFRS Advisory Committee. This Committee assists the AcSB and staff in implementing its strategy for adopting IFRSs for publicly accountable enterprises. Expressions of interest should be sent, together with a current resumé, to Florita Dinglasan by July 16, 2007
IFRS Advisory Committee (IAC) — Report on Public Meeting (PDF)
June 14, 2007. At its May 2007 meeting, the IAC discussed the AcSB’s plan for reviewing Canada’s progress in preparing to implement International Financial Reporting Standards. IAC also discussed the effects of adopting IFRSs on accounting in the oil and gas sector and for joint ventures.
Expert Commission on Pensions
In the fall of 2007, the Government of Ontario, "Expert Opinion on Pensions intends to launch a program of research, to consult directly with major stakeholder and professional organizations, and to hold public hearings across the province. It will soon announce the timetable for its research program, consultations and public hearings, and for the submission of formal briefs. The Commission welcomes queries and communications concerning its work, by mail, e-mail on on-line via. http://www.pensionreview.on.ca/english/.
FEI Canada and its research foundation, CFERF intends to participate in this program. CFERF is undertaking a joint pension survey with Rogers Publishing Limited, publishers of "Benefits Canada and "Advantages, and Aon Consulting. This survey will become a Boardroom-level benchmarking database for Canadian Defined Benefit, Defined Contribution, and Supplementary Executive Retirement Plans. Participate and you will receive a free copy of the full survey report in September as well as an invitation to see the survey findings presented live. The report will contain decision-influencing data on current pension issues such as:
- How are organizations managing the balance sheet impacts of pensions and post-retirement health benefits?
- How are they reacting to new accounting rules in these areas?
- To what degree have sponsors moved to defined contribution or hybrid plans? How many are considering such a move?
- How are organizations managing executive pension plans? Are they addressing lack of funding security? How much incentive compensation do they recognize for pension purposes?
- To what extent are organizations harmonizing pension plans with HR efforts to retain talent?
- Are plan sponsors satisfied with Canada’s regulatory environment for pensions? If not, what do they think should change? (If you have opinions, here is your chance to give them voice.)
For more information on this research or to participate on the technical committees of FEI Canada, please contact:
Heather Bell,
Executive Director, CFERF
hbell@feicanada.org
Ramona Dzinkowski
rdzinkowski@feicanada.org
Hot Topics from FEI Canada's Committee on Corporate Reporting (CCR)
CCR Comments on Employee Future Benefits
On June 28th, the Committee on Corporate Reporting (the Committee) of Financial Executives International Canada ("FEI Canada " ) provided its views on the AcSB Exposure Draft "Employee Future Benefits (Amendments to Section 3461) issued in March 2007.
The Committee agreed that the funded status of an entity’s defined benefit plan(s) should be recognized in the balance sheet and that the AcSB should amend Canadian GAAP accordingly. They did not anticipate any difficulties in applying the principles in the proposals. However, they did anticipate that there may be difficulties in explaining the resulting disclosure and accounting to the readers of financial statements. This is so because the accounting measurement of the status of a pension plan differs from the measurement used by actuaries. They did not not anticipate any difficulties in complying with the disclosure requirements in paragraphs 3461.15(cl), 3461.154(f) and 3461.16A-B1. The Committee agreed that the relief provided to entities other than public enterprises co-operative organizations, deposit–taking institutions or life insurance enterprises, specifically excluding the disclosure requirements in paragraphs 3461.159 (b)- (b1). They also agreed with the amendments to INTERIM FINANCIAL STATEMENTS, Section 1751. Finally, the Committee agreed with the effective dates and transitional provisions for the proposals.
Further comments were provided regarding the complexity of financial statements, that encouraged the CICA to work with the IASB to adopt a simpler regime of accounting for employee future benefits and a simpler regime of disclosure.
To review the Committees full comment letter, please click.
CCR Comments on CSA MI 52-109
On June 28, the Committee on Corporate Reporting (the Committee) responded to the Request for Comments and Replacement of MI 52-109, Forms 52-109F1, 52-109FT1, 52-1-9F2 and 52-109FT2, and Companion Policy 52-109 CP Certification of Disclosure in Issuers Annual and Interim filings. It is the view of CCR that this document is well prepared, is aligned for the most part with U.S. requirements in terms of management’s responsibilities, is easy to understand and generally lays out clearly what management is expected to do. The specific comments of the Committee are in response to the following questions laid out in the CSA document;
- Do you agree with the definition of "reportable deficiency and the proposed relate disclosures? If not, why not and how would you modify it?
- Do you agree that the ICFR design accommodation should be available to venture issuers? If not, please explain why you disagree.
- Do you agree that our proposal to provide a scope limitation in the design of the DC&P and ICFR for an issuer’s interest in a proportionately consolidated investment or variable interest entity is practical and appropriate? If not, please explain why you disagree.
- Do you agree that our proposal to allow certifying officers to limit the scope of their design of the DC&P and ICFR within 90 days of the acquisition of a business is practical and appropriate? If not, please explain why you disagree.
- Do you agree that our proposal not to require certifying officers to certify the design of ICFR within 90 days after an issuer has become a reporting issuer or following the completion of certain reverse takeover transactions is practical and appropriate? If not, please explain why you disagree.
- Do you agree that the nature and extent of guidance provided in the Proposed Policy, particularly in Parts 6, 7, and 8 is appropriate? If not, please explain why and how it should be modified.
- Are there any specific topics that we have not addressed in the Proposed Policy on which you believe guidance is required?
The CCR response letter can be read in its entirety by clicking here.
From the News Desk of |
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IFRS: What does it mean for Canadian companies?
IFRS is coming to Canada. What do leaders in other countries think about their move to IFRS? What should companies here be doing to prepare for the transition of Canadian GAAP into IFRS?
"The aftermath of the first year of implementation of International Financial Reporting Standards has confirmed that what has happened is a 'once-in-a-generation' transformation of the business landscape.
"Company reports are at once more complex but more comparable. The number of countries embracing the use of IFRS has produced a global tipping point in favour of the system. The accounting walls are coming down all around the world. The old provision that companies from elsewhere round the world wishing to list on US stock exchanges had to reconcile their figures to the US GAAP system looks to be on the way out. The once impregnable system of US GAAP no longer looks quite so secure. Even the US regulator, the Securities and Exchange Commission, is talking of the possibilities of US companies using IFRS, if they so wish, in the foreseeable future.
Robert Bruce, Leading commentator on accounting and financial reporting issues.
IFRS: The quest for a global language is a new KPMG report that focuses on the experiences and thoughts of those involved in this historic transformation. The views expressed in this report have come from CFOs, audit committee chairs, regulators, standard setters, analysts and auditors. Their comments reveal the depth of change experienced, and focus on the scale of the transformation, the perils of complexity in financial reporting, the future importance of narrative reporting, and the debates over principles-based or rules-based standards and the issue of fair value. Finally, they share their thoughts on what future priorities should be.
To read the full report, please click here.
Another new publication, Managing the Transition to IFRS: The journey to 2011, focuses on Canadian enterprises contemplating this fundamental shift in financial reporting. Beginning with a summary of the rationale and timing of our move in Canada, it then highlights key differences from the transition in Europe and Australia, and suggests how you can begin your planning now.
To read this publication, please click here.
KPMG will be sponsoring a National Breakfast Seminar on these and other issues surrounding IFRS implementation. Stay tuned for cities and venues.
From the News Desk of |
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Of Greening, Legal Services and GST Recovery
The spring months are usually a quiet time for commodity tax news, as legislators clean up their budgets before adjourning for the summer break. However, there have been a couple of snippets worth noting.
Ontario Waives Retail Sales Tax on Energy-Efficient Goods
On June 20, 2007, Ontario Premier Dalton McGuinty unveiled a package of measures aimed at further greening Ontario. Among the announced incentives was a point-of-sale retail sales tax exemption for ENERGY STAR® light bulbs and light strings, fridges, dishwashers, clothes washers, freezers, dehumidifiers and room air conditioners, purchased, rented or leased after July 19, 2007 and before July 20, 2008. The Premier also announced that the temporary retail sales tax rebate for residential purchases of solar, wind, micro hydro-electric and geothermal energy systems is to be extended to purchases made before January 1, 2010, but this announcement just repeats the proposal of the March 2007 Ontario budget.
The full text of the press release can be found at:
http://www.premier.gov.on.ca/news/Product.asp?ProductID=1409
Supreme Court of Canada Releases the Christie Decision
In 2005, the BC Court of Appeal upset the social service tax applecart by confirming a BC Supreme Court decision that effectively rendered the collection of social service tax on legal services unconstitutional, at least in so far as the services related to any determination of rights by a court or tribunal.
The BC government appealed that decision to the Supreme Court of Canada, and in the meantime lawyers continued to collect the tax on barristers' services, other than from low-income persons, and keep it in trust pending a final resolution. Other provinces also intervened at the Supreme Court of Canada level to make their position known.
On May 25, 2007, the Supreme Court of Canada ruled that the imposition of the social service tax on legal services is constitutionally valid. Therefore, lawyers holding taxes in trust are now required to remit those taxes on their next return to be filed after June 30, 2007. BC has confirmed that it will not seek to recover taxes for the period prior to May 25, 2007 from low income persons who were not required to pay tax during the course of the Christie case litigation.
Foreign Convention and Tour Incentive Program
The Federal Minister of Finance announced in June that the Foreign Convention and Tour Incentive Program GST rebate announced in the 2007 federal budget will be extended to include the 8% provincial component of the HST. Additionally, the CRA has begun to publish a series of Q & As on its web site related to the cancellation of the Visitor Rebate Program and the introduction of the new convention and tour program. See the first of the series, GST/HST Notice 221, at:
http://www.cra-arc.gc.ca/E/pub/gi/notice221/notice221-e.pdf
Financial Institution GST Allocation Methodologies
January 26, 2007 saw the introduction of draft legislation to enact new input tax credit allocation rules for financial institutions. They impose specific default rates of GST recovery for banks, insurance companies and securities dealers as well as provide authority for the CRA to impose specific allocation methods on others, generally applicable to years beginning after March 2007.
Since we are now in the period "after March 2007, the word from Ottawa is that institutions should conduct themselves as though the new rules are in effect. Those qualifying institutions wishing to file elections to use pre-audited methods for a first year beginning after March 2007 will apparently be allowed to file using their own form, since none has yet been issued by the CRA. Also, since there are, as yet, no published guidelines concerning CRA-approved allocation methods (submissions by stakeholders have been requested), institutions other than qualifying institutions may find themselves having to continue to use methods that may or may not be in compliance with eventual requirements.
From the News Desk of |
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Concerns about pension crisis abating
Preliminary results from of the fourth annual Survey on Pension Risk, conducted by Watson Wyatt Worldwide in association with the Conference Board of Canada, were released on May 10, 2007 at the Conference Board's 2007 Pensions Summit: Striking the Right Balance. The survey found that the percentage senior financial officers (CFOs) and senior human resource executives (VPs HR) surveyed who feel the pension crisis will be long-lasting has declined significantly. The results also show a growing concern regarding workforce issues and continued concerns regarding volatility expense.
An improved outlook
While many survey respondents remain concerned about pension risk, the results reveal an improved long-term outlook. While two-thirds of respondents still believe there is a pension funding crisis in Canada, the percentage who feel that the crisis will be long-lasting has declined significantly, from 61 percent in 2006 to 48 percent in 2007 in the case of CFOs, and from 67 percent in 2006 to 40 percent in 2007 in the case of VPs HR.
"The lower level of concern is likely a reflection of better returns and diminishing pension deficits that we have seen over the past year, said Ian Markham, Director of Pension Innovation, Watson Wyatt. "Still, organizations are pursuing considerable changes in investment strategies and plan design.
Pension expense and volatility remain serious threats
The volatility of pension expense remains a top concern for defined benefit (DB) pension plans (with 48 percent regarding it as a serious or moderate challenge), particularly for respondents from publicly-traded companies. In both the private and public sectors, respondents also cited concerns over the current level of pension expense, solvency funding challenges, and compliance with the upcoming changes to pension accounting rules in Canada. Coping with the current level of pension expense is a particularly serious concern for not-for-profit respondents.
70 percent of respondents indicated that the most serious threat to the sustainability of private sector DB plans is the cost of maintaining and funding such plans. Other major concerns include the volatility of future funding contributions, the imbalance between funding risk or reward, and the volatility of pension accounting expense.
Changes to investment strategy and plan design to continue
There is a significant amount of activity underway in changing investment policies. The majority of respondents have made material changes in the last 24 months or are likely to do so in the next 12 months. Over the next 12 months, 19 percent indicated that they plan to increase their plans' exposure to alternative investments, while only 9 percent are considering increasing their plan's bond weighting. In addition, a quarter of respondents are considering a move towards liability driven investment (LDI) in the next 12 months, to immunize their plans from solvency deficits and stabilize costs.
When asked about their organization's situation and actions on accounting for pension plans and other post-retirement benefits plans (OPRBs), only 15 percent of publicly-traded respondents indicated that they were very concerned about the impact of recent changes to Financial Accounting Standards (FAS) 158 and expected similar CICA changes. These changes will require that the funded status of an organization's pension and OPRBs be reported on the corporate balance sheet.
Almost 70 percent of respondents offer OPRBs. Of these respondents, 28 percent indicated that they are considering changes to their programs, including reductions in coverage of all or some OPRBs, increasing or introducing retiree co-payment for existing OPRB programs, and eliminating some or all of their OPRB programs.
Forty-one percent of respondents with some form of DB arrangement for future service have made a plan design change in the past 24 months, or plan to make a change in the next 12 months. The majority of changes will apply to future service for both new hires and current plan members. The most common design changes planned for the coming year in the private sector were DC/Group RRSP conversions for members' future service, reductions of the benefit accrual rate, early retirement benefits and ancillary benefits. In the public sector, the most common plan change is an increase in the employee required contribution rate.
Approximately 18 percent of respondents from publicly-traded organizations performed DC conversions for all members' future service in the past 24 months, and another 15 percent indicated plans to do the same in the next 12 months. Only 5 respondents indicated that they had or are planning to fully wind up their DB plan(s).
The major influences on plan design changes are reduction in cost volatility and reduction in total funding or expense cost.
Investment education and communication needs improvement
For DC pension plans, the most serious threat to their sustainability was found to be the inability of members to optimize their net investment return to provide adequate retirement benefits. Respondents were also concerned with possible employer liability for poor investment performance, and the requirement to provide plan members with sufficient education and information.
In terms of management of employees and plan members, respondents with DB plans felt the most critical challenges are the cost and impact of an aging population and the effective communication of the benefits, risks and costs to plan members. For those with DC plans it is the effective communication of the benefits, risks and costs to plan members, ensuring that their plan members receive adequate education on investment, and addressing the cost and impact of an aging population. All respondents are concerned with the adequacy of pension benefits and savings for future retirees.
Employee attraction, retention, and exit patterns a greater concern for non-DB plans
Respondents are highly concerned about the attraction and retention of highly skilled or high performing employees, in the short and medium term (next 5 years), with almost two-thirds stating that they are very concerned with attracting highly-skilled individuals in 5 years. Respondents are also considering issues regarding employee exit strategies, with over 80 percent indicating that they are very or slightly concerned with ensuring that employees exit their organization in an orderly pattern. One-third of respondents have implemented (or plan to implement) a phased retirement program.
Respondents indicated that DB plans are considerably more valuable and/or persuasive in attracting and retaining highly skilled or high performing employees than a DC plan alone. Respondents found DB plans very valuable for retaining high-performing employees, compared to hybrids (a combination of DB and DC plans) or DC plans; respondents also found DB plans very valuable for attracting highly skilled individuals, in comparison to hybrids and DC plans. Over 70 percent of respondents considered DB plans to be very or somewhat valuable/persuasive in helping to manage the orderly exit of employees, compared to 50 percent for hybrids and 40 percent for DC plans.
About the survey
The survey was completed by 147 respondents from 141 organizations across Canada. The respondents included 45 publicly-traded companies, 44 for-profit private companies, 17 not-for-profit companies, and 41 public sector organizations.
Of the 147 responses, 35 percent were completed by CFOs alone, 39 percent by VPs HR alone, and 10 percent jointly by both functions, with the remaining 16 percent being completed by individuals in other functional areas.
For more information about the survey, please contact infocanada@watsonwyatt.com.
The Kerry Decision: Contributions, Expenses and Surplus
On June 5, 2007 the Ontario Court of Appeal released its decision in Kerry (Canada) Inc. v. DCA Employees Pension Committee. The Court unanimously ruled in favour of the employer, overturning the Divisional Court decision and restoring the Financial Services Tribunal decision. The Kerry decision raises several interesting possibilities for plan sponsors regarding payment of expenses from the pension fund and using surplus under the DB component of a plan to make contributions to the plan's DC component. For a discussion of the decision and its implications please click.
The Kerry Decision: Contributions, Expenses and Surplus
From the News Desk of |
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Procurement is back on the boardroom agenda - and the stakes have been raised
"Canadian Dollar could be at parity with US by end of year
"Raw material costs have increased by 40% since 2002
"150,000 manufacturing jobs lost in Ontario in the last two years
These are just some of the headlines which are prevalent in news at the moment, and why procurement and supply chain management in general are back on the boardroom agenda.
Indeed, a recent IBM survey of over 500 Chief Procurement Officers of large, global corporations from across the spectra of industries have confirmed that a combination of cyclical cost pressures (profitable growth, a "zero inflation and more mindset and increased global competition) and permanent structural shifts (increased third party spend, increased focus on risk management, corporate restructuring and a growth in outsourcing) have put it there. In terms of delivering competitive advantage, the old challenges still remain - Cost is still King, and Cost, Quality and Service Responsiveness continue to be critical – but traditional approaches are no longer enough.
The IBM survey has identified five themes that are emerging as the new business models for procurement and are differentiating the procurement leaders (able to deliver 12-15% savings year on year) from the laggards:
- More pro-active Category Management as the No 1 driver for continuous value creation, across the enterprise. Behind this lies an increase in strategic, central contracting of spend – but the battle for compliance has yet to be won. However, spend visibility is rated as the No1 inhibitor to achieving next generation sourcing benefits.
- Fewer, deeper Supplier Relationships with the emphasis on long term value creation (and not just price) and managing contracts to completion. "Three bids and buy just no longer cuts it. Suppliers are now part of the supply chain "solution through product and system collaboration and risk management.
- More strategic and more complex contracting, driving the requirement for Total Cost of Ownership (TCO) approaches.
- Growth in the use of outsourcing to unlock new value particularly with respect to certain indirect category areas such as hardware support, printing, facilities, travel management.
- Further growth in the use of Low Cost Country Sourcing, driven by competitive cost pressures particularly with respect to direct goods, components and assemblies.
In delivering value from this changing landscape, CPO's are now recognized to be a strategic contributor to the business and as such now typically have board level positions. Underneath them, the organization is also being transformed from one that is transactional focused (purchasing) to one where most of the work is strategic and emphasizes delivering results and measuring performance. As a result, the battle is now on for talent. Skills are at a premium with the management and retention of talent, the upgrading of skills and capabilities and the training of staff to improve core procurement skills being the top three concerns.
In conclusion, there are four main messages the reader is encouraged to takeaway from this survey:
- Procurement has become a Key Competitive Weapon – leadership performance will translate directly into shareholder value
- It's NOT about Procurement Strategy and Negotiated Price… it's about Business Strategy and performance of the Integrated Supply Chain
- The Role of Procurement is Changing Fundamentally – "from Buyer to Business Partner
- The Battle for Talent – skills shortages will be the single biggest obstacle to success
From the News Desk of |
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Russell has just released their June Investment Manager Outlook (IMO), which taps into the opinions of a broad range of Canadian investment managers. This publication provides a concise synopsis of their quarterly survey of top investment managers, and brings you their opinions on the direction of the markets, sectors to watch, and trends that are having an impact.
Key findings in this June 2007 IMO include:
- Half of Canadian investment managers now bullish on the Loonie – nearly twice as many as last quarter
- Canadian bond bears rise sharply from 38 percent to 77 percent of managers
- Nearly 70% of investment managers surveyed think Canadian equity markets are fairly valued
- Two-thirds of managers skeptical about private equity deals, citing extreme valuations and excessive leverage
For the full results of the IMO or for more information on Russell Investments please go to www.russell.com/ca or call
1-866-737-2228
International News
IASB Discussion Paper - Insurance Contracts
On May 3, 2007 the International Accounting Standards Board (IASB) launched a public consultation on accounting for insurance contracts by publishing its preliminary views in a discussion paper. This announcement is the latest stage of a consultation which began in 2004 when the IASB set up an Insurance Working Group of senior representatives of the insurance industry and other interested parties. The public consultation will last for a period of six months and will aid the IASB in developing firm proposals for an exposure draft to be published towards the end of 2008. Allowing for a further period of public consultation, the IASB expects the new standard to be in place in 2010.
Comments to be submitted by 16 November 2007.
http://www.iasb.org/Current+Projects/Open+to+Comment.htm
IASB Launches Field Test of IFRS for SMEs
On June 18, the International Accounting Standards Board (IASB) launched a programme for field testing the proposals in the exposure draft of an International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) Field testing is part of the IASBs international consultation process to obtain input for a broad range of parties that could potentially benefit from the adoption of common financial reporting standards aimed at small companies. Companies wishing to take part in the field test are asked to provide background information about the company, submit their most recent annual financial statements under their existing accounting framework, prepare financial statements in accordance with the proposed IFRS for SMEs for the same financial year and respond to a series of questions designed to identify any specific problems the company encountered in applying the exposure draft.
For further information contact:
Paul Pacter, Director of Standards for SMEs, IASB
Telephone: (852) 2852-5896
ppacter@iasb.org
IFRS Resource Centre
In an effort to help our members stay up-to-date on IFRS developments, and to provide them with a central reference point for information on the conversion process, FEI Canada has begun an IFRS Resource Centre.
A work in progress, this section of the FEI Canada website will include recent announcements from the IASB and the AcSB, industry-specific overviews of the impact of IFRS, tools and other resources to use in the conversion process, and analysis of the conversion process from our strategic partners and other thought leaders in the area of IFRS.
The IFRS Resource Centre will be updated as new information becomes available. We also encourage you to pass along any information you may have come across that would be of use to your colleagues.
Your feedback on the site is greatly encouraged. As it grows, we anticipate that it will change and become more dynamic.
Please click here for the IFRS Resource Centre.
Please send any comments, suggestions and/or resources to rdzinkowski@feicanada.org.