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CANADA NEWS
CICA Director Alert
The CICA has issued a Director Alert paper entitled: "The ABCP Liquidity Crunch – questions directors should ask" that provides some sample questions that Directors might ask in order to better understand the ABCP exposures, management response and the accounting and disclosure obligations. No such list is of questions is applicable to every situation and directors must use their experience and judgment in determining what information they need from management and their external auditors.
For read the document in its entirety, please click here.
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)
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ROBERT HALF RELEASES 2008 GUIDE TO ACCOUNTING AND
FINANCE SALARIES - Annual Report Finds Salaries Rise as Competition for Skilled Professionals Persists
Starting salaries for accounting and finance professionals are expected to increase an average of 5.5 per cent in Canada in the coming year, according to the just-released 2008 Salary Guide from Robert Half International. Payroll professionals, vice-presidents of finance and public accountants are projected to see the largest gains.
Not surprisingly, experienced candidates have greater leverage in negotiating compensation, and salaries for the most in-demand specialties are rising faster than the national average. Across Canada, demand is particularly strong in the manufacturing, oil and gas and real estate sector, Robert Half research shows.
Corporate Accounting: Salaries Rise for Payroll Professionals, Vice-President of Finance and Internal Audit Positions Business expansion and ongoing corporate governance initiatives are fuelling hiring among corporate accounting and finance departments. Payroll professionals at all levels are expected to see the biggest increases in base pay in 2008, with the average starting salary expected to rise 8.9 per cent. Within this classification, payroll administrators are projected to see an increase of 9.8 per cent over last year's level to a range of $34,250 and $41,500 annually, the single largest percentage increase in base compensation for 2008.
Vice-presidents of finance at large companies (more than $250 million in sales) are forecast to receive starting compensation between $135,750 and $223,750 annually, an increase of 7.6 per cent over last year's projections. Senior internal auditors at medium/small companies (up to $250 million in sales) are projected to see a 6.6 per cent increase over last year's projections to between $65,000 and $84,000 annually. Managers of financial analysis at large companies (more than $250 million in sales) are also projected to see strong gains with a 6.0 per cent increase over 2007 levels to a range of $74,500 and $102,500 annually.
Public Accounting Outlook
Steady hiring is expected to continue in public accounting as firms seek staff to help deliver an expanding set of service offerings. Average starting salaries for public accountants with one to three years of experience at large firms (more than $250 million in sales) are projected to increase 8.9 per cent in the year ahead, to between $50,000 and $60,500.
Professionals with up to a year of experience are also highly sought as firms look to address rising workloads and hire their next generation of leaders. At large firms (more than $250 million in sales), professionals can expect a 8.5 per cent increase in average starting salaries, to a range of $44,000 to $48,500. Senior accountants at medium/small firms (up to $250 million in sales) are projected to see a 5.6 per cent increase in starting salaries to the range of $53,000 and $65,000.
Other key findings reported in the 2008 Salary Guide:
- Credit and collections managers at large companies (more than $250 million in sales) are projected to see base compensation of $62,500 to $93,500 annually, a 6.3 per cent increase over 2007.
- Full charge bookkeepers can anticipate a 7.8 per cent increase in base compensation, to the range of $42,500 to $57,250 annually.
- Information technology audit managers at large companies (more than $250 million in sales) will see average starting salaries of $85,000 to $131,250, up 5.2 per cent from 2007 levels.
All salaries listed in the 2008 Salary Guide from Robert Half International are averages from our Canadian offices. Because hiring activity and compensation vary significantly by industry and geographic market, the Salary Guide includes a regional analysis of hiring trends and compensation variances for select Canadian markets.
Information in the guide is based on the thousands of job searches, negotiations and placements managed each year by Robert Half'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. Many companies regularly refer to the Salary Guide from Robert Half International to determine appropriate compensation for all levels of accounting and finance professionals.
Department of Finance Eliminates Withholding on Cross-Border Interest
On September 21, 2007 the federal Department of Finance and their U.S. counterparts reached agreement on the Fifth Protocol to the Canada-U.S. Income Tax Convention. One of the principal provisions reduces the 10% withholding tax over time on cross-border interest payments. This provision, contained in FEIC's 2007 pre-budget submission, was announced in the spring 2007 budget. Legislation to be introduced this fall will:
- Eliminate withholding on cross-border interest payments to arm's length lenders as of January 1, 2008 if the legislation is passed in 2007, or at a later date if the legislation is delayed.
- Reduce the withholding rate on interest paid to a non-arm's length lender (a loan from a parent to a subsidiary, for example) to 7% in 2008, or the first year following legislation; 4% in 2009, or the second year following legislation; and 0% in 2010, or the third year following legislation.
Elimination of withholding on cross-border interest payments will reduce the cost of capital, increase investment, create a more efficient North American capital market, and simplify the tax system.
FEI Canada's Tax Committee will continue to press Finance to eliminate withholding on cross-border dividend payments.
Barry Gorman
Chair, FEI Canada Tax Policy Committee
WHAT'S NEW FROM CCR
CCR Comments on "Progress Review - Steps to IFRS Incorporation in Canada".
On October 25th FEI Canada's CCR, represented by Alister Cowan, Chair of the CCR, and Michael Conway, President of FEI Canada, addressed the Accounting Standards Oversight Council (AcSOC) to provide the Committee's views on the exposure draft entitled: "Progress Review - Steps to IFRS Incorporation in Canada".
The submission highlights the Committee's supportive position towards the adoption of IFRS. CCR recommends that the AcSB takes the lead and encourages a "sane" IFRS implementation to avoid a repeat of the excessive US Certification implementation process. It does not believe that capital markets are well served and states that Canadian competitiveness is hindered when scarce financial resources are not used in value-enhancing initiatives.
At the same time, CCR expressed significant concerns about the feasibility of the proposed 2011 date and recommends that the implementation date be delayed at least one year unless certain issues are resolved quickly. They are particularly concerned that the proposed date does not recognize the challenges facing companies over the next few years in implementing recent CSA rules respecting internal control over financial reporting. They reiterate that it is critical that both the regulatory requirements and the IFRS implementation be flawlessly executed.
The CCR points out that a critical element in successful implementation of IFRS will be whether the financial community will have the knowledge to prepare, audit, use and interpret financial information prepared under IFRS. It therefore, urges the AcSB to consider the availability of resources to implement IFRS successfully when making a decision on timing.
Economic growth, SOX and 52-109 are currently causing a shortage of accountants and IT professionals relative to demand. The CCR predicts that this will be true for the next few years and suggests that layering IFRS implementation on top of the current issues will cause significant resource pressures creating significant risks for IFRS implementation.
To review the Committee's submission in its entirety, please click here.
To review the Press Release on this submission, please click here.
CCR and IPAC joint taskforce comments on Financial Reporting for Private Companies
On October 25th the CCR and IPAC joint taskforce on Private Company Issues, led by James Saretsky, Chair of the Private Company Issues taskforce, commented on the AcSB's Invitation to Comment entitled "Financial Reporting by Private Enterprises".
The submission highlights the Committee's position that common fundamental accounting principals should apply to all types of entities with significant external users in order to facilitate understanding, at a basic level, of financial information across entities. However, the Committee believes that substantial flexibility within these principles should be maintained when considering standards for specific classes of entities.
The Committee believes that there should be a strong linkage to the standards for publicly accountable enterprises, as it helps facilitate the movement of expertise between public and private entities, and the movement of private companies going public and public companies going private.
The Committee believes that a top-down approach based on GAAP for publicly accountable enterprises best satisfies the needs of both users and preparers of private enterprise financial statements.
The Committee fully supports the current initiatives of the CICA in the development of a new accounting framework for entities without significant external users.
To review the Committee's submission in its entirety, please click here.
WHAT'S NEW FROM IPAC
IPAC Comments on Ontario Pension System
On October 18, FEI Canada's IPAC, represented by Peter Donovan, Chair of the Pensions Taskforce, and Bill Hewitt, Chair of the Capital Markets Taskforce, addressed the Expert Commission on Pensions in regards to the discussion paper entitled "Reviewing Ontario's Pension System: What are the Issues?" issued in February 2007.
The Committee's submission highlights the asymmetry of the ownership and size of deficits and surpluses, recommending that plan sponsors should own plan surpluses to the same extent that they own plan deficits unless they have contracted something different in the pension documentation. The Committee also recommends that the Income Tax Act be amended to permit DB plan sponsors to deduct from taxable income DB funding payments when surpluses are in excess of the current CRA limit. The Committee recommends that the law of contract, rather than trust law, govern pension plans.
The Committee also commented on solvency calculations based on the hypothetical windup scenario with grow-in provisions prescribed by the current regulations and the short period of funding solvency deficits arising from currently low long-term rates. The Committee states that under the current solvency rules, financially strong companies would be forced to divert significant cash flows in the short term from their successful capital investments. This could negatively impact our economy. The Committee recommends that the funding period for solvency deficits should be increased immediately from five to something the lesser of the remaining active service life and the long-term funding period of 15 years. Plan sponsors can adjust cash flows over such a period to make these payments without disrupting their capital investment activities. Solvency interest rates may drift higher over such a period, reducing the calculated liabilities, reducing the solvency deficit and the related funding requirements.
To review the Committee's submission in its entirety, please click here.
To review the Press Release, please click here.
IFRS NEWS
AcSB Bulletin #5 – Adopting IFRSs : Next Steps – Ours and Yours
The Accounting Standards Board has issued a 5th bulletin in their IFRS adoption series. This bulletin outlines who is required to adopt IFRS, the AcSB's implementation progress to date, reasoning for across the board adoption as well as a progress checklist created as a tool to aide in smoother IFRS adoption.
For more information, please click here .
AcSB Roundtable
The Accounting Standards Board is holding roundtable discussions in Montreal, Calgary, Vancouver, Toronto and Halifax throughout November and December 2007. The roundtables will focus on airing the views of interested parties on whether sufficient progress is being made in Canada in establishing the infrastructure for implementation of IFRS. The Board Members are interested in answers to the following questions:
- What steps are being taken to plan and prepare for the adoption of IFRS?
- What issues and concerns do you have about the preparation and use of financial statements prepared in accordance with IFRS?
- What could the AcSB do to make the transition to IFRSs more efficient and effective?
- Are there any other issues that might affect the changeover date?
To participate in a roundtable discussion with the AcSB Chair and staff, register by contacting Marites Alvarez at marites.alvarez@cica.ca before November 15, 2007.
For additional information please click here .
"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.
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Canada's Transition to IFRS – SEC Registrants have choices to make
For Canadian SEC registrants, the finance professionals and boards of directors currently have the opportunity to decide:
- whether to adopt IFRS or US GAAP as their primary basis of accounting, and
- when to do so.
Adopt IFRS or US GAAP? Making this choice represents a strategic decision for the company, so you'll want to consider many factors and points of view. When to adopt either US GAAP or IFRS? If the SEC's proposals to eliminate the reconciliation requirement are effective, your next decision is timing. In evaluating early adoption, companies need to consider different factors, depending on whether they are looking at the IFRS or US GAAP option.
This special supplemental publication in our Canadian series on IFRS is intended to provide both questions to ask and insights to guide you in making these decisions.
For the full text of this publication click here.
For more information, please visit www.kpmg.ca/ifrs.
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Update on Canada's move to IFRS
Canada is six months away from the Accounting Standards Board of Canada's (AcSB) finalisation of its plan to adopt IFRS starting in 2011. Geoff Leverton, a PwC partner and leader of the Global Capital Markets Group in Canada, provides an update.
The Accounting Standards Board in Canada has proposed that Canadian GAAP for public companies migrate to IFRS over the period to 2011. The AcSB's plan to adopt IFRSs in Canada was published in 2006. The exact change-over date has not been established but is set to be finalised in March next year.
The Canadian adoption of IFRS is currently focused on publicly accountable enterprises – companies with publicly traded debt or equity securities or other organisations that are responsible to large or diverse groups of stakeholders. The scope of 'publicly accountable enterprises' is expected to be clarified in the March 2008 announcement.
The AcSB is exploring options related to private businesses, in light of their usually limited accountability. Private companies will be able to adopt IFRS if they choose to. This may be useful to private companies with overseas operations, Canadian subsidiaries of European parent companies, or companies considering international offerings.
At this point, we do not anticipate changes to the Canadian plan that would delay the 2011 adoption date. In fact, we may find that early adoption is a possibility – and we expect this may be attractive to some.
Companies with overseas IFRS reporting obligations, or significant overseas subsidiaries in IFRS-based reporting jurisdictions, would benefit from having the opportunity to move to a single basis of financial reporting on an accelerated timeline. Companies seeking to access overseas capital markets would also benefit from the transparency of reporting using IFRS from the standpoint of comparability and familiarity.
Over 100 countries have now adopted IFRS, and there are currently a number of others moving in the same direction – including Japan, India, Korea and China – each very significant players in the global economy.
In terms of the actual conversion, we expect that banking, insurance, investment management, oil and gas, utilities and forestry industries will have some of the more challenging conversion issues; however, companies from all industries will need to assess the impacts and take action to convert. While much of Canadian GAAP has been converging with either US GAAP or IFRS over the past decade, there are still differences. Key differences exist in:
- insurance contracts,
- financial instruments,
- full cost versus successful efforts,
- de-recognition of financial assets and liabilities,
- consolidation - variable interest entities and special purpose entities,
- stock-based compensation,
- impairment of non-financial assets,
- employee future benefits, and
- income taxes.
Over the summer, developments south of the border have also caught our attention in Canada – namely, the SEC's proposal to eliminate the reconciliation requirement for Foreign Private Issuers. The proposal would eliminate the reconciliation requirement for FPIs that prepare their financial statements in accordance with IFRS. PwC is supportive of the proposal and has encouraged the SEC to consider adoption of the proposed rule in time to allow calendar year-end companies to eliminate the reconciliation for years ending 31 December 2007.
SEC-registered companies in Canada currently have the ability to use full US GAAP financial statements as their primary basis of reporting in Canada. We have had discussions with some of our SEC registrant clients regarding the relative merits of moving to full US GAAP or full IFRS in light of the accommodation available to them in Canada.
Canadian companies that view their peer groups as being largely US-based, or that predominantly access the US markets when seeking funding outside of Canada, may be tempted to evaluate the US GAAP route further. Some of the considerations currently impacting this analysis are: clarity around the SEC's acceptance of IFRS without reconciliation; our securities regulators' views on continuing to accept US GAAP as a primary basis of reporting; and guidance from the AcSB on the potential to early adopt IFRS.
Also over the summer, the SEC issued a concept paper discussing the ability of domestic US SEC registrants to prepare their financial statements in accordance with IFRS rather than US GAAP. The elimination of the reconciliation requirement and possibility of domestic US companies moving to US GAAP are encouraging developments in the context of Canada's decision to move to IFRS.
PwC has been developing thought-leadership and speaking at conferences across Canada over the past year to raise awareness of IFRS. We have also been speaking to clients regarding the potential impacts of IFRS on their organisations. We are seeing an increased amount of activity in Canada as companies start to evaluate the impact of moving to IFRS, and we are encouraged by this early activity. Proactively addressing the transition to IFRS will make the change smoother and more manageable over the next four years.
For further details, please click here
INTERNATIONAL NEWS
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Hedge Funds Behaving More Like Traditional Asset Classes
Hedge funds are evolving. According to a new global report from Ernst & Young—Navigating New Complexities—successful hedge funds are becoming less entrepreneurial in nature and more "industrialized." As they morph into structures that more closely resemble traditional asset classes, global hedge fund managers must now grapple with many of the same issues shared by traditional fund managers.
For the survey, Ernst & Young interviewed more than 100 chief operating officers and chief financial officers at the top global hedge funds, which collectively manage around US$900 billion in assets—about 55% of the total US$2.5 trillion global industry.
With such vast amounts of asset under management, it's becoming more difficult for hedge fund managers to trade in the marketplace with a minimum footprint. Managers are therefore rethinking their infrastructure and operations not only to ensure scalability but also to minimize any drag on performance.
For example, as they become less entrepreneurial and more industrialized, fund managers are having to deal increasingly with people issues. They are concerned about ensuring the permanency of the business and becoming less reliant on the talents and drive of the founding principals. Retaining the right people (42%) and managing growth (39%) are the highest-level challenges fund managers say they'll face over the next year. This compares to only 9% who say their highest-level challenge will be investing or developing new products. Respondents are concerned about retaining key personnel, such as portfolio managers, senior researchers and senior operations staff (compliance and operational risk functions).
Given this concern, it's no surprise that people issues are seen by many respondents as both the cause and the solution to operational risk. Eighteen per cent identified people as the main operational risk, while 34% said hiring the right people was key to mitigating that risk.
Greater Industry Transparency
The Ernst & Young report also suggests that the call for greater transparency within the sector is resonating with fund managers. Sixty-four per cent of respondents say transparency around valuation is the foremost medium- to high-level regulatory challenge in the next two years, followed by conflicts of interest (57%) and market abuse (55%). One respondent to the survey said, "In order to attract pension money and permanent capital, we would probably need to be more transparent."
Calls for more transparency have been amplified during the current credit squeeze, and the report suggests that if the credit crisis continues to gather momentum, it's possible that hedge funds could be brought within the regulatory net. The report suggests that some obvious market consequences are likely in the midst of the credit crunch:
- The re-pricing of risk – greater simplification and transparency of products.
- A debate about the role of rating agencies and ratings themselves.
- Fixed income managers having to do much more of their own due diligence rather than relying exclusively on that of issuers and their agents—the rating agencies.
- A more vigorous and more realistically grounded debate about fair value accounting and the value and purpose of marking to market or marking to model.
- A rethink about moral hazard in financial markets.
New Confidence
When it comes to future spending, three-quarters of respondents cite technology as the area in which they'll put most of their investment in the next two years. Of that, 58% say the biggest proportion of that spend will be on risk management systems.
Finally, 37% of respondents say they're confident their operations meet the needs of their investor base and don't see a need to change in the next two years. And 21% say they're likely to offer products more suitable to retail investors in the next two years, demonstrating a new confidence for the industry.
"As the industry continues to mature and develop, governance and infrastructure will be the top enablers for hedge fund growth," says Leon Chin, a partner in Ernst & Young's Toronto hedge funds practice. "The most successful funds will continue to be those that combine first-class performance with deep investment management resource, robust processes and a scalable operational platform."
For more information please Click Here
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Managing Risk – Becoming an Integrated Finance Organization
The IBM Global CFO Study 2008
Balancing risk and performance management is a constant challenge for senior finance professionals. How does a CFO realize this balance in their organization?
IBM asked over 1,200 CFOs and Senior Finance professionals worldwide what they thought. The Global CFO Study 2008, "Balancing Risk and Performance with an Integrated Finance Organization" focuses on the CFO's need for their organization to outperform their peers with consistent growth and profits while effectively managing risk.
The Global CFO Study 2008 findings show that companies whose finance organization drives integration of information across the enterprise and who are the main providers of truth fare better. Learn more about the following topics by downloading the Study.
- Rethinking business models, operations and the impact of risk
- Successful CFOs are providing the truth and taking a lead in risk management
- Why become an Integrated Finance Organization (IFO)?
To register to download the new IBM Global CFO Study 2008 - please click here.
IASB Request for Comments
The IASB released an Exposure Draft of Proposed Improvements to International Financial Reporting Standards, issued October, 2007.
The objective of the IASB's annual improvements project is to provide a streamlined process for dealing efficiently with a collection of miscellaneous, non-urgent but necessary minor amendments to IFRS. There are 41 IFRSs affected by the proposed amendments in this exposure draft, and open for comment. They include:
IAS 1: Presentation of Financial Statements; IAS 10: Events after the Reporting Period: IAS 34: interim Financial Reporting and IAS 38: Intangible Assets.
Comments are to be received by January 11, 2008.
To review the full exposure draft, please click here.