issues in canadian private company reporting fei canada toronto... · 2009-06-26 · will be able...
TRANSCRIPT
KPMG ENTERPRISE
Issues in Canadian Private Issues in Canadian Private Company ReportingCompany Reporting
2© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
FEI Toronto:Introducing our panelistsFEI Toronto:Introducing our panelists
Bob Young, PartnerNational Assurance and Professional Practice, KPMG Enterprise
Mark Walsh, FCAPrincipal, Accounting Standards Board
Hesham Shafie, CMAPresident, Global Dynamic Sourcing Ltd. (GDS)
Barry Mutis, Sr. ManagerProfessional Services Group Commercial Financial Services, RBC
Sunil Mistry, CAPartner, KPMG Enterprise
3© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Accounting Standards UpdateBob Young, Partner, KPMG EnterpriseAccounting Standards UpdateBob Young, Partner, KPMG Enterprise
2006- AcSB announces IFRS for publicly accountable entities by 2011
2007- AcSB issues Invitation to Comment for non-publicly accountable
entities:- IFRS*- IFRS for Small & Medium Sized Entities*- Made in Canada solution
- CICA issues Framework for Owner Managed Enterprises (FOME)- non-GAAP model
* Differential reporting options
4© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Accounting Standards UpdateBob Young, Partner, KPMG EnterpriseAccounting Standards UpdateBob Young, Partner, KPMG Enterprise
2008- AcSB announces project to develop a made-in-Canada solution
- based on existing Handbook- reduced disclosures- contentious areas – review based on cost/benefit
- AdCom established to support AcSB
2009- AcSB expects to release new standard- IASB expects to release IFRS for Private Entities
5© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Setting the StageExecutive Dialogue:Setting the Stage
Canadian GAAP works! (% of positive responses regarding disclosures)
Cash flows – 81%Cash – 97%Inventories – 94%Investments – 87%Goodwill – 86%Intangible assets – 84%Property, plant & equipment – 95%Operating line of credit – 96%Long-term debt – 96%Share capital – 98%
6© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Setting the StageExecutive Dialogue:Setting the Stage
Canadian GAAP works! (% of positive responses regarding disclosures) - continued
Accounting policies – 95%Pension plans – 87%Guarantees – 88%Contingent liabilities – 88%Cash flows:
Operations – 91%Investing activities – 91%Financing activities – 91%
7© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:QuestionExecutive Dialogue:Question
Q:When it comes to financial reporting, Canada’s private companies will be able to select between IFRS and Canadian Private CompanyGAAP. This may lead to challenges when comparing the financial position and operating results of businesses inside and outside of Canada.
Do you believe it is important that financial reporting standards for private companies are consistent with those used by public companies? What challenges do you see with having the ability to select between two models?
8© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Setting the StageExecutive Dialogue:Setting the Stage
IFRS:
Comprehensive global framework widely used by public companies
Significant use of fair value (e.g. financial instruments & investment properties)
Reversal of impairment losses (and consequently potentially more volatility in income)
Concept of other comprehensive income as a temporary equity parking lot for certain (generally) unrealized gains and losses
Canadian PB GAAP:
Focused on private companies
Historic cost focus with limited use of fair value
Losses generally not reversed in subsequent years
No concept of other comprehensive income – gains / losses directly to income
9© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Setting the StageExecutive Dialogue:Setting the Stage
Is it important that financial reporting standards for private companies are consistent with those used by public companies?
Yes -53%
No - 43%
10© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Executive Dialogue:
Panel:Do you believe it is important that financial reporting standards for private companies are consistent with those used by public companies?
What challenges do you see with having the ability to select between two models?
11© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:QuestionExecutive Dialogue:Question
Q:Today’s Canadian GAAP provides differential reporting options for private companies where the costs of applying certain accountingstandards are perceived to exceed the benefits.
In your view, do reporting options impact the comparability of financial reporting amongst entities? If so, what arguments can be made for providing reporting options?
12© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Setting the StageExecutive Dialogue:Setting the Stage
• Today’s differential reporting options:Non-consolidationTaxes payable vs. tax allocation (deferral)Tax preferred shares (equity vs. debt classification)
• Proposed additions:Pension plans for owner-managers/spousesExpensing development costs on internally generated intangible assetsBifurcation of compound financial liabilities (embedded equity component)
“Unanimous shareholder approval vs. Management policy choice*”
* “more relevant” test after initial adoption
13© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Setting the StageExecutive Dialogue:Setting the Stage
Do reporting options impact comparability of financial reporting?
Yes - 60%
No - 36%
14© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Setting the StageExecutive Dialogue:Setting the Stage
Yes - 55%
No - 38%
Given the underlying GAAP concept of comparability, are reporting options acceptable?
15© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Executive Dialogue:
Panel:In your view, do reporting options impact the comparability of financial reporting amongst entities?
If so, what arguments can be made for providing reporting options?
16© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:QuestionExecutive Dialogue:Question
Q:Will two different GAAPs pose specific challenges for transferring financial management skills between private and public companies?
17© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Setting the StageExecutive Dialogue:Setting the Stage
Once PB GAAP has been implemented, will you view the technical accounting skills of a private company CFO as equivalent to those of a public company CFO?
Yes -33%
No - 48%
Don't know - 20%
18© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Executive Dialogue:
Panel:Will two different GAAPs pose specific challenges for transferring financial management skills between private and public companies?
19© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:QuestionExecutive Dialogue:Question
Certain debt instruments are either due on demand or will becomedue within one year from the balance sheet date, even though repayment within the year may not be expected - for example, a five-year mortgage with a 25-year amortization period that is due for renewal within one year of the balance sheet date.Such financial obligations under Canadian GAAP are classified ascurrent liabilities unless they have been either refinanced on along-term basis before the financial statements are issued, or a binding agreement for refinancing has been executed with a lender that can honour its commitment.In the absence of committed refinancing, should debt instrumentsthat become due within twelve months of the balance sheet date, be classified as current liabilities? In your view, what are the implications of showing these liabilities as current?
Q:
20© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Setting the StageExecutive Dialogue:Setting the Stage
Yes - 70%
No - 27%
In the absence of committed refinancing, should debt instruments that become due within twelve months of the balance sheet date, be classified as current liabilities?
21© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Executive Dialogue:
In the absence of committed refinancing, should debt instrumentsthat become due within twelve months of the balance sheet date, be classified as current liabilities?
In your view, what are the implications of showing these liabilities as current?
Panel:
22© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:QuestionExecutive Dialogue:Question
Should private companies disclose management compensation in their financial statements? If so, what type of disclosure would be appropriate?
Q:
23© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Setting the StageExecutive Dialogue:Setting the Stage
• Executive Compensation
Public companies – National Instrument NI 51-102Direct and indirect compensation to specific executive officers and directors (including CFO and CEO)
Private companiesManagement compensation
24© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Setting the StageExecutive Dialogue:Setting the Stage
Yes - 19%
No - 78%
Should private companies disclose management compensation in their financial statements?
25© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Executive Dialogue:
Should private companies disclose management compensation in their financial statements? If so, what type of disclosure would be appropriate?
Panel:
26© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:QuestionExecutive Dialogue:Question
What are the factors a private company might weigh in deciding to adopt the new private company GAAP or IFRS?
Q:
27© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Setting the StageExecutive Dialogue:Setting the Stage
Canadian GAAP works! (% of positive responses regarding disclosures)
Cash flows – 81%Cash – 97%Inventories – 94%Investments – 87%Goodwill – 86%Intangible assets – 84%Property, plant & equipment – 95%Operating line of credit – 96%Long-term debt – 96%Share capital – 98%
28© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Setting the StageExecutive Dialogue:Setting the Stage
Canadian GAAP works! (% of positive responses regarding disclosures) - continued
Accounting policies – 95%Pension plans – 87%Guarantees – 88%Contingent liabilities – 88%Cash flows:
Operations – 91%Investing activities – 91%Financing activities – 91%
29© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Setting the StageExecutive Dialogue:Setting the Stage
Reasons to transition to IFRS* - survey results:
Facilitate financial analysis – 45%Benchmarking with peers / competitors – 41%Anticipated IPO – 36%Planned sale of company – 27%Requirement of lenders / suppliers – 22%Better financial statement presentation – 17%
* Multiple responses
30© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Setting the StageExecutive Dialogue:Setting the Stage
Yes -32%
No - 50%
Don't know - 17%
Will the cost of implementing IFRS preclude private companies from accessingcapital in the public markets?
31© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Setting the StageExecutive Dialogue:Setting the Stage
Is your private company planning to adopt IFRS?
Yes -26%
No - 49%
Don't know - 25%
32© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Executive Dialogue:
What are the factors a private company might weigh in deciding to adopt the new private company GAAP or IFRS?
Panel:
33© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Executive Dialogue:
With IFRS, the relative focus is toward fair value whereas the new private company GAAP is more toward historical cost. What do you see as the relative pros and cons of financial reporting frameworks based on historic cost vs. fair value measurements?For example: Financial instruments and investment properties.
Panel:
34© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Executive Dialogue:Open FloorExecutive Dialogue:Open Floor
Q&A
35© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.