FEI Canada Finance & Accounting Review September 2007 Edition

This newsletter is sponsored by:

Canada News

"IFRS Adoption � Lessons from the Leaders" - Conference February 13 Sheraton Toronto.

FEI Canada will join forces with The Economist on February 13 at the Sheraton in Toronto to bring international best practices and experience to the adoption of IFRS.

In 2011, any Canadian publicly traded company listed on a Canadian securities exchange will be required to file their financial statements using the International Financial Reporting Standards (IFRS) as opposed to Canadian GAAP. This will have both financial impact, and management implications across the company, as well as pose significant issues for the Board of Directors.

Economist Conferences in conjunction with their strategic partners will be presenting a unique all day conference to address these and other pressing issues surrounding the adoption of IFRSs.

To date, much of the information available to senior decision makers has surrounded the differences in the IFRS and local GAAP. This conference will be important not only address some of these issues, but also provide indepth focus on broader management issues across the company. It will feature the insights from the hands on experience drawn from UK companies who have already gone through the IFRS conversion process.

FEI Canada members will receive first in line consideration for this event and $150.00 off the conference price of $US 875.00. For further information and front of line registration, contact Ramona Dzinkowski on rdzinkowski@feicanada.org. Further details will be provided upon request.

CICA Research � Request for Participation

The CICA is undertaking a research project on Reporting on the Web. They would very much appreciate some feedback from senior financial executives on this issue.

Please feel free to contact Chris Hicks at chris.hicks@cica.ca with any questions. Background information can be found on: (Click Here)

Request for Comment on "An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements"

On September 24, 2007 the CICA released a request for comment on the Auditing and Assurance Standards Board Exposure draft titled "An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements". Comments are due by October 10, 2007.

The AASB is proposing to publish a new section in the CICA Handbook in an effort to encourage consistently high quality work and reporting. The new section is based on the Public Company Accounting Oversight Board's (PCAOB) Auditing Standard 5 (AS5) that was approved by the US Securities and Exchange Commission on July 25th 2007. It is intended to provide standards and guidance to auditors performing audits of internal control over financial reporting that is integrated with an audit of the entity's financial statements.

The comments requested on this draft are restricted to those that will identify Canadian issues in relation to the proposed requirements.

Full text of draft can be found on www.cica.ca

From the News Desk of
BRENDAN MOORE

Quebec Auditors Pursuing Aggressive Policy

War stories directly from our client base and at tax association meetings around the country are revealing a tougher side to recent Quebec audits. It is a fact that whenever a budget expressly devotes more money to combat tax evasion (as most have this year), this usually shields a hidden plan to become generally more aggressive on audit. Such is the case, at present, with Quebec auditors.

The most common items caught on audit remain the restrictions that apply to deny input tax refunds for QST paid on certain specific expenses for large businesses. While the restrictions have been softened over the years, they remain a costly oversight. Under the Act respecting the Quebec sales tax, input tax refund restrictions are applied to five categories of common expenses. These restrictions generally apply to any registrant with taxable supplies in Canada that, including sales of any associated businesses, exceeded $10 million in the previous fiscal year. The restrictions relate to QST paid on the following purchases:

purchases or leases of licensed road vehicles, other than (1) those weighing more than 3000 kgs, or (2) qualifying hybrids purchased or leased after June 26, 2007 and before January 1, 2009, to the maximum limit allowed for income tax write-off purposes,
fuel for licensed road vehicles, other than diesel fuel or gasoline purchased for use in heavy vehicles or qualifying hybrids,
telephone and telecommunication services, other than charges for 1 800/888/877/866 services, internet access services, web site hosting services, equipment rentals and directory advertising,
meals and entertainment expenses subject to the 50% income tax deductibility limitation, and
electricity, gas, steam and other combustibles (excluding combustibles used for motive power), except to the extent used in the manufacture or production of goods for sale.

In addition, auditors have begun to pay more attention to the input tax refund documentation requirements that require correctly-addressed invoices disclosing tax due, and to the calculation of recoveries from expense reports. Where a taxpayer uses the simplified 4.1% factor to recover QST from expense reports, this factor must also be used to recover QST on expenses that are paid outside the expense report but that relate to travel or other employee-related costs that would have otherwise been processed through an expense report. Auditors have also been known to deny the recovery on individual expense reports where, due to the existence of international flights, or even merely tips on meal chits, the requirement that at least 90% of the expenses be taxable, other than zero-rated, is not met.

While the input tax refund restrictions are a fruitful source of assessment, Quebec auditors have also become obsessive about the quantity of records to be provided before an audit commences, frequently requiring records from a registrant's total Canadian or international operations. A little planning beforehand can reduce the headache of the process when the audit finally commences.

From the News Desk of
IBM

In their new book, "Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage" - recent best seller, Daniel C. Esty and Andrew S. Winston, look at the increasing interest companies are taking in environmental stewardship. The authors label the forward-thinking, green-friendly companies 'WaveMakers' and assess environmental responsibility, and its impact on a company's bottom line, customers, suppliers and reputation.

The book cites IBM's 'green initiative', which Jeff Gluck at IBM further discusses in a podcast interview on the greening of corporate America. http://www.ibm.com/press/feed/audio/21440-1.mp3

Both the book and the podcast affirm that a critical part of any companies' strategy is their environmental policy and building sustainable business around corporate leadership and environmental responsibility. In addition to conserving energy, IBM continues to set environmental goals while openly reporting it's performance and proving good practices. Read more in this AMR Research Report: Big Green: IBM and the ROI of Environmental Leadership:

ftp://ftp.software.ibm.com/common/ssi/rep_wh/n/
GFL03017USEN/GFL03017USEN.PDF

Or visit the IBM Asset Recovery website to learn more: http://www-03.ibm.com/financing/us/recovery/gogreenwithibm/index.html?ref=ars

Pre-register now to receive the new IBM CFO Study, and find out how 1,200 leading CFO's are making the most of each day.

Globalization brings new opportunities with new risks. The world is changing, making business more complex and more risky. Traditional barriers for global sources and uses of financial, physical, human and social capital are disappearing.

How do Finance organizations respond to this new environment?
What foundational principles drive more effective finance organizations?
What is the CFO's role in the orchestration of risk management and how are exceptional enterprises addressing performance and risk?

IBM asked over 1,200 CFOs and Senior Finance professionals worldwide what they thought. Some of their answers might surprise you.

To pre-register to receive the new IBM Global CFO Study when it is released in November 2007, please click here.

From the News Desk of
ROBERT HALF MANAGEMENT RESOURCES

Study Reveals More Than Half of Finance Managers Worldwide Are Working Longer Hours

A new global report shows that many financial professionals are putting in more hours on the job than just two years ago, but exactly how much time varies widely by country. The Robert Half International research also suggests a trend toward increased accessibility of financial managers outside of the office.

Among the findings:

Forty-seven per cent of Canadian finance managers surveyed said their hours have increased over the last two years. Among those, close to two-thirds (64 per cent) said they now work an additional five to 15 hours a week.
Canadian respondents cited working an average of 42.5 hours per week, more than the 40.9 hours reported in the United States but below the average 43.2 hours worked in Australia, 43.8 hours in Italy and 47.1 hours in Japan.
Forty-four per cent of Canadian finance professionals said they take work calls or check e-mail in the evening at home. The results were 10 percentage points higher than the global average, double the results in Germany and were second only to Netherlands (46 per cent).
Only 29 per cent of Canadian practitioners said they never work weekends, versus 65 per cent in Spain and 55 per cent in France. One-quarter of Canadian finance professionals say they work three or more weekends each month.
Nearly four out of 10 (38 per cent) of Canadian respondents said they sometimes or always take their laptops or PDAs with them on vacation, as compared to 16 per cent in Ireland, a country near the top of the list in hours worked.

The Working Hours: A Global Comparison report was based on a global survey conducted by an independent research firm and developed by Robert Half International, the world's first and largest staffing services firm specializing in accounting and finance. The study includes responses from more than 2,200 financial managers across four continents, representing 17 countries.

Globally, 37 per cent of financial professionals polled said they work between 39 and 45 hours per week, and more than half (52 per cent) said they have been putting in more time over the last two years. The three most popular reasons for an increase in working hours are taking on more responsibility (56 per cent), company growth (45 per cent) and understaffing (27 per cent).

"Finance and accounting managers have taken on new roles and responsibilities due to company expansion and the emphasis on corporate governance and compliance," said Max Messmer, chairman and CEO of Robert Half International. "This clearly has resulted in heavier workloads -- and, in many cases, the need to work longer hours."

Messmer noted that as business becomes more global, it's useful to understand typical work hours and preferences across cultures. "Professionals around the world have differing expectations of how and when they should work," he said. "As organizations branch into new countries, they must understand and respect the customs within different parts of the world. While it may be acceptable to call contacts in one location in the evening or during their vacation, for example, others may consider it intrusive or unprofessional."

Robert Half International was founded in 1948 and is traded on the New York Stock Exchange. Its financial staffing divisions include Accountemps�, Robert Half� Finance & Accounting and Robert Half� Management Resources, for temporary, full-time and senior-level project professionals, respectively. The company has more than 350 staffing locations in the Americas, Europe and the Asia-Pacific region, and offers online job search services on its divisional websites, all of which can be accessed at www.rhi.com.

From the News Desk of
PWC

Keeping your head above water: Recent issues in financial reporting

The August issue of Financial Reporting Release, a newsletter from PricewaterhouseCoopers' Professional, Technical, Risk and Quality Department, discusses the increasing influence IFRS will have on financial reporting (see below excerpt). The issue's key message: Get ready because sooner or later, IFRS is going to affect you one way or another.

Implementing IFRS in Canada

How will entities transition from existing Canadian GAAP to IFRS?

By applying the guidance in International Financial Reporting Standard 1, First Time Adoption of International Financial Reporting Standards. The basic principle in this guidance is that you'll have to adjust your balance sheet to state assets and liabilities at the amounts you would have reported had you always been applying the particular edition of IFRS adopted by the Board. There are a number of exceptions to this principle. For instance, if you can't or don't want to calculate the IFRS cost of your fixed assets, investment properties or intangible assets, you'll have to measure them at fair value. Adjustments, by the way, go to shareholders' equity (usually retained earnings), not net income. Study IFRS 1 with care. The financial statements you save may be your own.

Observation. Successful transition to IFRS will depend on education, planning and developing, and executing a well thought out conversion strategy. Even then, it can be a tough chore. Leveraging our experience with IFRS conversion in Europe, we're taking a leading role in helping Canadian companies address the accounting systems and control ramifications of adopting IFRS. Need help? Give us a shout.

For the further discussion and full text, please click here.

For more information please visit www.pwc.com.

From the News Desk of
ERNST & YOUNG

Private Sector Funding Public Sector Infrastructure

Population trends and economic growth have created a tremendous need for infrastructure investment worldwide. Continued economic prosperity depends on having the roads, rails and ports needed to ship goods and the schools, hospitals and other facilities needed to sustain a healthy, educated population. Governments everywhere are increasingly turning to public-private partnerships (P3s) to close the infrastructure gap�creating a new asset class and a vast range of new investment opportunities in the process.

According to Ernst & Young's report, Investing in Global Infrastructure 2007: An Emerging Asset Class, global private investment in infrastructure could exceed a trillion dollars annually. The market capitalization of the global listed infrastructure sector is an estimated US$2.1 trillion, or nearly 5% of the market capitalization of the global equities market. Given Canada's success with P3s, Ernst & Young recently named Canada a global P3 leader. Other countries are following Canada's example and working to ensure a consistent, co-ordinated deal flow.

For the full report please click here

International News

Request for Comment on "Exposures Qualifying for Hedge Accounting"

The International Accounting Standards Board (IASB) released a request for comment on IAS 39 "Financial Instruments: Recognition and Measurement". Comments due by January 11, 2008.

The IAS 39 amendments are intended to clarify the designation of a hedged item in a hedge accounting relationship. The specific issues to be addressed are:

Specifying the qualifying risks
Specifying when an entity can designate a portion of the cash flows of a financial instrument as a hedged item
The effect of the proposed amendments on existing practice
Transition

Full text of draft can be found on www.iasb.org

Concept Release On Allowing U.S. Issuers To Prepare Financial Statements In Accordance With International Financial Reporting Standards

On August 7, 2007, the US Securities and Exchange Commission published it's "Concept Release on Allowing U.S. Issuers to Prepare Financial Statements in Accordance with International Financial Reporting Standards. The purpose of this release is to obtain information about the extent and nature of the public's interest in allowing U.S. issuers, including investment companies to prepare financial statements in accordance with International Financial Reporting Standards as published by the International Accounting Standards Board for purposes of complying with the rules and regulations of the Commission. The main points of inquiry are: The effect of the IFRS on the U.S. public capital market; IFRS implementation matters for U.S. issuers; and any other issues that commenters may wish to address and the benefits and costs relating to investors, issuers and other market participants of the possibility of accepting financial statements from U.S. issuers prepared in accordance with IFRS. Comments should be submitted on or before November 13, 2007.

Federal Register version
Comments received are available for this notice
Submit comments on S7-20-07

Request for Comment on "Hedges of a Net Investment in a Foreign Operation"

The International Financial Reporting Interpretations Committee released a request for comment on IFRIC Draft Interpretation D22. Comments due by October 19, 2007. The Draft Interpretation applies to an entity with net investments in a foreign operation that hedges the foreign currency risk arising from those net investments in foreign operations and wishes to qualify for hedge accounting in accordance with IAS 39. Investments in foreign operations may be held directly by a parent entity or indirectly by its subsidiary or subsidiaries. The issues addressed in this draft Interpretation are:

the nature of the hedged risk for which a hedging relationship may be designated:
1. "whether the parent entity may designate as a hedged risk only the foreign exchange differences arising from a difference between the functional currencies of the parent entity and its foreign operation, or whether it may also designate as the hedged risk the foreign exchange differences arising from the difference between the presentation currency of the foreign operation; and
2. if the parent entity holds the foreign operation indirectly, whether the hedged risk may include only the foreign exchange differences arising from differences in functional currencies between the foreign operation and any intermediate or ultimate parent entity.
where in a group the hedging instrument can be held:

whether a qualifying hedging relationship can be established only if the entity hedging its net investment is a party to the hedging instrument or whether any entity within the group, regardless of its functional currency, can hold the hedging instrument.

Full text of Draft can be found on www.iasb.org

Request for Comment on "Real Estate Sales"

The International Financial Reporting Interpretations Committee released a request for comment on IFRIC Draft Interpretation D21. Comments due by October 5, 2007. IFRIC D21 proposes that revenue should be recorded as construction progresses only if the developer is providing construction services, rather than selling goods (completed real estate units). It proposes features that indicate that the seller is providing construction services. In many countries, these features tend currently not to be present in typical off plan sales agreements. Specifically, D21 clarifies whether sale agreements entered into before construction is complete should be regarded as construction contracts within the scope of IAS 11 or agreements for the sale of goods within the scope of IAS 18. It also revises guidance on applying IAS 18 to real estate sales in general.