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CANADA NEWS
Corporate Income Tax Rate Cut
The federal government announced on October 30th that the general corporate income tax rate will be cut to 15 percent by 2012, down from the current rate of 22.1 percent.
The total corporate tax rate, including provincial taxes, has fallen to 34 per cent currently from an average of 43 per cent in 2000, and is estimated to hit 27 per cent by 2012.
Currently amongst Canada’s largest publicly traded companies, tax expenses as a percentage of profits is falling and corporate tax revenues are growing. Lower rates, plus a broader tax base, is anticipated to lead to less economic distortion caused by tax-related investment and finance decisions. With a growing economy, the result is forecasted to lead to stable or higher than stable revenues.
To read the Department of Finance News Release, please click here.
CFERF & Sprott School of Business Research Study |
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The Canadian Financial Executives Research Foundation (CFERF) is conducting a study on Implementing Performance Management and Control Systems in collaboration with the Sprott School of Business, Carleton University.
The study examines performance management systems, specifically the role of enterprise systems in implementing effective controls and performance measures, as well as related challenges and opportunities. It can provide financial executives a better understanding of how enterprise systems can improve performance management and control systems. CFERF will publish and distribute a summary report of the results.
Your participation is critical for the success of this study. If you received a hard copy of the survey in the mail and would prefer to take the survey online, please click here. We request that you fill out the survey only once, in hard-copy or online as per your preference.
Please be assured that your responses will be held strictly confidential. Only overall summary results will be reported, with no references made to individual responses, respondents, or organizations.
The research procedures for this study have been approved by the Research Ethics Committee of Carleton University. If you have questions regarding ethical conduct of this research, you may contact the Chair of the Committee, Professor Antonio Gualtieri, by telephone at 613-520-2517 or by e-mail at ethics@carleton.ca. For further information regarding the objectives of this study, please contact Raili Pollanen at the Sprott School of Business.
Thank you in advance for your valuable contribution to this important and timely study.
From the News Desk of |
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Survey: Companies to Pursue Technology Upgrades, Business Process Improvements in Next Two Years
When asked what initiatives were top of mind for their firms over the next two years, chief financial officers (CFOs) surveyed most often cited technology upgrades (30 per cent) and business process improvement measures (19 per cent).
The survey was developed by Robert Half Management Resources, the world’s premier provider of senior-level accounting and finance professionals on a project and interim basis. It was conducted by an independent research firm and includes responses from 270 CFOs from a stratified random sample of Canadian companies with 20 or more employees.
CFOs were asked: "In the next two years, which of the following initiatives is your company most likely to pursue?" Their responses*:
| Technology upgrade... | 30% |
| Business process improvement... | 19% |
| Geographic expansion... | 17% |
| New product or service line extension... | 16% |
| Merger or acquisition... | 11% |
| None... | 15% |
| Don’t know/other/no answer... | 8% |
| * Multiple answers were allowed. |
From the News Desk of |
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Implementation of GST Rate Reduction and More on Harmonization
In the October Economic Statement, the Harper government dropped the other shoe, and announced the reduction in the rate of GST to 5% effective January 1, 2008. As with the previous reduction to 6% effective July 1, 2006, there is a series of implementation rules intended to smooth the transition to the new rate. But first, selling the tax to the provinces…
Harmonization
The federal government has recently increased its marketing of the GST in an attempt to persuade more provinces to harmonize their commodity tax structures with the GST. The rate cuts may make the overall combined rate that would result from harmonization more palatable, but several obstacles remain. Provinces must deal with the political fallout from making more goods and services taxable than are currently subject to retail sales tax, and some compensation must be paid to the provinces that would lose revenues from businesses that could now recover the tax fully on their inputs. Whether the federal government’s efforts will succeed remains to be seen, but it is gratifying to see the federal government begin to exert more pressure on its provincial counterparts, particularly after several years of promoting the benefits of harmonization by business lobby groups such as FEI.
Rate Cut Implementation
As with the last rate cut, the GST credit is maintained at current levels for low- and modest-income Canadians and existing GST rebate rates for new housing continue unchanged. The rebate percentages used to calculate rebates of the otherwise unrecoverable GST claimed by charities, qualifying non-profit organizations and selected public service bodies (including municipalities, universities, public colleges, schools and hospitals) will not change. In line with the Government’s promotion of health and wellness, tobacco (but, this time, not alcohol) excise duties will increase to offset the impact of the GST rate reduction, beginning January 1, 2008. The increases will also capture inventories on hand at January 1, 2008, excluding only retail inventories of 30,000 units or less.
Air Transportation Security Charge rates are structured to include, where applicable, the GST/HST. The new rates are $4.90 for a domestic one-way trip, $9.80 for a round-trip and $8.34 for a cross-border flight. The rate for other international, zero-rated flights remains the same, at $17.00. The new rates will apply to tickets purchased on or after January 1, 2008.
Transitional rules will determine the GST rate applicable to transactions that straddle the January 1, 2008 implementation date. They operate in the same way as those in effect for the July 1, 2006 rate cut. The tax content of allowances under section 174 of the Excise Tax Act, becomes 5/105 (or 13/113 for the harmonized zone) where the allowance is paid on or after January 1, 2008, and the simplified factor for use on expense reports becomes 4/104 (or 12/112 for the harmonized zone) where the expense is reimbursed (i.e., expense report is paid) on or after January 1, 2008.
For more detailed information on Transition Rules, including Sales of Real Property, Deemed Supplies, Imported Goods, Imported Taxable Services and Intangibles, Taxable Benefits, Anti-Avoidance Provision, Housing Rebates, and Streamlined accounting methods, please click here.
From the News Desk of |
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KPMG issues 2007-08 comparison of IFRS and Canadian GAAP
Our new publication, IFRS compared to Canadian GAAP: An Overview is designed to assist readers in gaining a high-level understanding of the significant differences between IFRSs and Canadian GAAP.
In this publication, we do not discuss every possible difference; rather, we highlight those differences that we have encountered most frequently in practice, resulting from either a difference in emphasis or specific application guidance. Our focus is on recognition, measurement, and presentation, rather than on disclosure; therefore, disclosure differences generally are not discussed. We do, however, include certain areas that are disclosure-based, such as related party transactions and segment reporting.
The standards and interpretations included in this publication are those that are currently effective for a calendar year-end company’s annual reporting for the year ended December 31, 2007.
To obtain an electronic copy, click here.
From the News Desk of |
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CFO Study: 'How Canadians Manage Risk?' Now available
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.
For the 45 Canadian companies who participated in the Study, the issues rated as high importance were;
- Meeting statutory and fiduciary requirements,
- Driving cost reduction.
In Canada, 45% of companies interviewed had a major risk event within the last 3 years and only 33% considered their companies 'well prepared'.
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.
From the News Desk of |
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Corporate Governance: Making the IT Connection
Today, business executives must be preoccupied with corporate governance, all day, everyday. Nothing can take place, no move made, without ensuring that the proper Governance, Risk and Control (GRC) procedures and precautions are in place and adhered to.
But how do executives reconcile the need to manage their companies to achieve competitive advantage and maximize profitability while meeting the onerous requirements for continuous oversight in every corner of the business? A big part of the answer lies in IT.
IT shifts the key tasks of monitoring, collecting and sorting scores or more data points and generating reports to an automated function. IT does it for financials, for inventory, for customer and supplier relationships. Robust, well-designed IT systems and processes can do it for corporate governance. Canadian businesses are already recognizing this. An IDC Canada white paper includes survey results that show a significant majority of top Canadian businesses say information technology systems play an essential role in helping them meet their corporate governance objectives. The white paper, titled Governance Challenges: Does IT Offer A Solution?, reveals that 69 percent of C-level executives interviewed point to IT's important (43 percent) or critical (26 percent) role in achieving corporate governance goals.
They believe this because, as a senior Canadian executive recently told IDC, "[Our] board spends a lot of time on governance and the directors feel with the increased focus on governance, there is never time to talk about our business issues."
To read the entire article, please click here.
From the News Desk of |
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Global Economic Crime Survey 2007: Canadian Summary
Corporate crime poses a real and substantial threat to the stability of any organization, remaining one of the most problematic issues facing businesses worldwide.
According to the PwC Global Economic Crime Survey 2007, no industry is immune from the risks posed by economic crime — with rates remaining high despite the fact that many companies have invested significantly to implement fraud controls. In fact, more than half of Canadian companies surveyed reported being a victim of economic crime, with average loss increasing significantly to US$3.7 million (up from US$600,000 in 2005).
This summary provides a unique Canadian perspective on the 2007 global survey results, with insights into the perceptions, awareness and impact of economic crime across Canada and around the world. It stresses that companies need to act proactively rather than reactively to effectively minimize fraud, and must continue to be vigilant by constantly re-evaluating and strengthening their internal control measures and overall corporate culture.
The report also highlights the importance of using speed, sensitivity and discretion when dealing with fraud and financial investigations and focuses on issues including:
- The changing awareness and cost of fraud
- Recovery of stolen assets
- Means of detecting and preventing fraud
- Typical perpetrator profile
- Risks in emerging markets
To read the full report please click here
INTERNATIONAL NEWS
IASB News: IASB Oversight Committee, in the Works
The International Accounting Standards Board (IASB) trustees are moving forward with the creation of an oversight committee in an effort to better represent public interest. The move follows the expanded adoption of IASB's International Financial Reporting Standards and concerns from European countries about IASB's growing stature and relative autonomy.
How the IASB operates and receives its funding has become particularly critical as the SEC puts pressure on both the IASB and FASB to accelerate their IFRS convergence project. European critics of the project worry that Americans' tendency toward rules-based standards will interfere with the IASB's more principles-based accounting guidance.
The current makeup of the IASB trustees specifies the need for six trustees each from Asia/Oceania, Europe, and North America, and four additional trustees who can come from any region. This mix is causing some concern over the United States' influence on international standards. Evaluating the validity of the board’s mix of trustees would be an initiative undertaken by the oversight committee.
In the next year, the trustees also plan to expand the sources of their funding as well as create a policy aimed at improving how the IASB receives input from other policy makers and organizations.
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 IFRS 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.
SEC and EU News: No more reconciliation
On Thursday November 15th, the SEC unanimously voted to eliminate the reconcilation requirement for eligible foreign private issuers, effective immediately. The single stipulation for this decision is that non-U.S. company issuers comply with IFRS standards in preparing and filing their financials.
The IASB welcomed the SEC’s decision and regards it as yet another positive step towards integrating global capital markets using a common language for their financial reporting.
In a reciprocal action, on Wednesday November 28th, Charlie McCreevy, the European Union market Commissioner for Internal Market and Services, moved to eliminate the reconciliation requirement for European Exhange listed American companies. He called his actions a "sensible way forward" in the move towards a global set of standards.
To read the IASB press release, please click here.
To read a transcript of McCreevy’s address, please click here.
XBRL who?
Polling efforts from Grant Thornton, and the CFA institute, have demonstrated that XBRL (eXtensible Business Reporting Language) awareness is remarkably low across public company CFO’s, analysts and fund managers, the audiences that are the intended beneficiaries.
To combat this lack of awareness, the SEC has created an Office of Interactive Disclosure, charged with aiding companies and analysts in their application of XBRL into their financial statements. On December 5th, a draft version of XBRL will be released for public review, in an effort to allow financial executives to test it out against their own financial results. This approximately 3 month comment period will enable the public to use XBRL and shape the language to suit their own needs before it becomes mandatory. The current hypothesis, from the SEC Chairman Christopher Cox, is that XBRL filing will become mandatory as of year-end 2008.
From the News Desk of |
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KPMG Study Examines Reliability of Forecasting to Drive and Sustain Long-term Growth
All organizations use forecasts to predict and manage their future performance yet only 22 percent came within five per cent of their projections, according to the results of a global study initiated by KPMG LLP.
The research study, entitled: Forecasting with Confidence, was conducted by the Economist Intelligence Unit (EIU) on behalf of KPMG International and was based on the replies of 544 senior executives, 30 per cent of them Chief Financial Officers. Respondents were drawn from a cross section of industries and 59 percent were from organizations with over US$1 billion in annual revenue.
The study shows that unreliable forecasts cost organizations money. On average, forecasts over the last three years have been out by 13 per cent. Executives in the survey estimate that such errors have directly knocked six per cent off their share prices over the same period, mainly because of investor reaction.
"Earlier research by KPMG had already told us that CFO’s were unhappy with their current forecasting capabilities," said John Herhalt (Practice Leader, Operations Improvement, KPMG Advisory Services). "By digging deeper into this critical finance function, we see very clearly that those companies that do meet forecasting targets are high performing companies able to make better decisions about their future. It is obvious that good forecasting pays."
Highlights from the study include:
- Firms with forecasts that came within five percent actual saw share prices increase by 46 per cent over the last three years, compared with 34 per cent for others
- Despite the fact that leaders demand accurate forecasting, companies are much more likely to outperform rather than under perform their predictions. Possible reasons run from "sandbagging" to protecting bonuses
- Outperforming the forecast means that important decisions such as resourcing and investment choices are being made on the basis of inaccurate or incomplete information
- Almost 50 per cent of companies surveyed believe the reliability of their financial data is merely adequate or worse; a majority think the same of their non-financial data
- Organizations largely use internally generated data – only 40 percent use government economic reports. Two out of the four areas where companies say they make forecasting errors are consumer demand and economic drivers – both of which could be helped by readily available external data
- Information technology is too often a hindrance not a help
"What emerges clearly from this study is that high-performing companies usually take the forecasting process very seriously," said Herhalt. "Armed with better quality, forward-looking information, executives at these organizations are able to make better decisions about the future direction of their business."
Visit KPMG’s web site to learn more about the report’s key findings and to receive a hard copy or download a pdf copy of the report.
From the News Desk of |
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The risks companies everywhere should worry about
Regulation, financial shocks and an aging workforce are three of the 10 biggest challenges global companies will face in 2008, says a new Ernst & Young report. But the greatest of these strategic risks will continue to be regulatory and compliance risks.
For the report — Strategic Business Risk: 2008 — Ernst & Young collaborated with Oxford Analytica to interview analysts from around the world working in disciplines that shape the business environment. The analysts helped identify the top 10 global risks across 12 of the world’s most important business sectors (asset management, automotive, banking and capital markets, biotechnology, consumer products, insurance, media and entertainment, oil and gas, pharmaceuticals, real estate, telecommunications and utilities).
The report suggests that the regulatory and compliance burden being endured by most global businesses will be exacerbated as companies extend their value chains well beyond Europe, North America and the BRIC countries (Brazil, Russia, India, China). Companies will be forced to manage diverse regulations in different markets.
Regulatory challenges are followed closely by global financial shocks, which have already begun to have an impact, as evidenced by the recent credit crunch. The report says few sectors would escape the impact of major global financial shocks. Biotech and utilities firm, for example, would have trouble raising capital; banking, asset management and insurance industries would likely suffer direct losses from market movements; and after making high-cost exploration investments, oil and gas companies might suddenly find themselves facing low prices if the global economy moves into sudden recession.
Finally, workforce and consumer aging will see a number of industries struggling to respond to dramatic shifts in demand and shortages in skilled labour. All this could result in some companies’ inability to capitalize on the rise of emerging markets.
The Ernst & Young report concludes that boards must have strategic business risks on the radar at all times. Boards will have to decide where their greatest risks lie and find ways to deal with them. Ignoring them is not an option.
Here’s the complete list of Ernst & Young’s top ten strategic business risks for 2008:
- Regulatory and compliance risk
- Global financial shocks
- Aging consumers and workforce
- Emerging markets
- Industry consolidation/transition
- Energy shocks
- Execution of strategic transactions
- Cost inflation
- Radical greening
- Consumer demand shifts
Analysts were also asked to identify risks outside the top ten that had the potential to become globally significant in the next three to five years. The five most likely to become serious challenges are:
- The war for talent
- Disease pandemic
- The rise (and possible fall) of private equity
- Inability to innovate
- China setback
To learn more about the report, please click here.