August 07, 2008
IFRS will impact Internal Controls in a Company
In working with companies in Canada as they begin their journey toward IFRS in 2011, it is apparent that a large shift in the way accounting is performed and the way financial statements are presented will require revisions to internal controls as well.
This is due to the change toward an even more principles based accounting methodology - IFRS and because accounting policies must all be reviewed and many must be revised slightly or completely. This definitely depends on the industry and complexity of a company.
But like an internal controls review, the careful analysis and review of a company's accounting policies can yield benefits.
This is due to the change toward an even more principles based accounting methodology - IFRS and because accounting policies must all be reviewed and many must be revised slightly or completely. This definitely depends on the industry and complexity of a company.
But like an internal controls review, the careful analysis and review of a company's accounting policies can yield benefits.
- For example, many policies may have been suitable at some point of a company's development but may be out of date. So change can be good.
- Further, IFRS allows companies to make some changes to their balance sheets that can be beneficial for presentation of future financial statements. For example on Property Plant and Equipment, companies have the option to either use a cost basis or a revaluation method. Depending on the industry, revaluation could make sense and "clean up" the balance sheet.
The other reason internal controls will require changes is the completely different outlook that IFRS utilizes compared to Canadian or US GAAP, in that capitalization looks very strongly on whether the asset will produce future cash flows. Additionally, IFRS has more of a balance sheet orientation than income statement. This will force changes in management reporting and in internal controls.
An excerpt from a recent article on this topic is here:
"...One could certainly argue that the controls check the processes that create the financial data that end up being reported. They will still do that. The resulting data will merely be repurposed for IFRS.
But not so fast says D.J. Gannon, Partner at Deloitte & Touche, who maintains, "A shift to a judgment-based framework, such as IFRS, requires that not only the accounting policies, but also the internal processes and controls be adjusted."
An example: lease accounting. "Under U.S. GAAP, there are a number of rules governing how leases should be classified," Gannon says. "Company controls are designed to ensure compliance with those rules. IFRS takes a more holistic approach to classifying leases looking to the substance of the agreement. Therefore, a company's control structure may need to be fine-tuned to focus on applying principles consistently to reflect the economic substance of the transactions with more extensive disclosure."
So it will be an interesting journey - the road to IFRS and then revision to internal controls. There are pluses and minuses to IFRS but convergence of accounting standards in global markets only makes sense as the world increases integration through more global trade.
July 11, 2008
What do IFRS and "Wealth Transfer" Have in Common?
The current deadline for companies traded on Canadian public exchanges to begin disclosing their plans for conversion from Canadian GAAP to IFRS is 2008 for December 31 filers. This is a substantial change. Approximately 28 other countries have accomplished this change and lived to talk about it - EU member countries, South Africa, Australia to name a few.
But similar to the SOX 404 feeding frenzy by certain large accounting firms, there has been an attempt to scare Canadian public companies into a large "wealth transfer" from public company coffers to once again those of the large accounting firms.
While yes there is substantial work involved and it is not to be taken lightly, accountants in public companies are intelligent enough to accomplish this task without spending millions with the large firms. They learned GAAP so they can learn IFRS.
Additionally, there is no getting away from learning IFRS because it will be the new standard companies will be using. So do not outsource the chance to get involved and learn the ins and outs and manage your own conversion project.
A common complaint we hear in our work with public companies is that the large firms are just now training their own people so it is the same song second verse folks. SOX 404 all over again. The firms are using pressure to negotiate massive contracts with clients and then train their people on the job. They set out a work plan that guarantees the most tedious approach with the most amount of work possible.
Do not be fooled into thinking your internal team cannot handle this challenge. Yes it is work. Yes you must take it seriously. But is not so massive or difficult that you need to outsource the task, knowledge and train accounting firm personnel rather than your own. This is the new standard, better to take it on and own it early to make the best decisions. No one knows your company's requirements better than your team does.
But similar to the SOX 404 feeding frenzy by certain large accounting firms, there has been an attempt to scare Canadian public companies into a large "wealth transfer" from public company coffers to once again those of the large accounting firms.
While yes there is substantial work involved and it is not to be taken lightly, accountants in public companies are intelligent enough to accomplish this task without spending millions with the large firms. They learned GAAP so they can learn IFRS.
Additionally, there is no getting away from learning IFRS because it will be the new standard companies will be using. So do not outsource the chance to get involved and learn the ins and outs and manage your own conversion project.
A common complaint we hear in our work with public companies is that the large firms are just now training their own people so it is the same song second verse folks. SOX 404 all over again. The firms are using pressure to negotiate massive contracts with clients and then train their people on the job. They set out a work plan that guarantees the most tedious approach with the most amount of work possible.
Do not be fooled into thinking your internal team cannot handle this challenge. Yes it is work. Yes you must take it seriously. But is not so massive or difficult that you need to outsource the task, knowledge and train accounting firm personnel rather than your own. This is the new standard, better to take it on and own it early to make the best decisions. No one knows your company's requirements better than your team does.
June 20, 2008
Chief Executives Want Shareholders Have Greater Access to Information
In a Grant-Thornton poll, chief executives indicated two key areas that shareholders would be pleased with:
- The CFO and CEO positions in the company should be held by different individuals to assure independence.
- Chief executives want shareholders to have great transparency concerning compensation information.
This is an interesting trend post Sarbanes-Oxley. Maybe it turns out that good governance IS good. There is no point in trying to make executive compensation opaque to investors. This just increases unnecessary shareholder activism and assures that investors think the worst.
If you are one of those 3600 Canadian companies who have to comply with NI 51-102F6, then you will be very interested in the new Executive Compensation Disclosure product that we have developed and that is being distributed in Canada by Carswell, a Thomson Reuters business. The product is Compliance PARTNER - Executive Compensation Disclosure edition. You can learn more about the product by going to their Compliance PARTNER website for the Thomson Reuters news release or go directly to www.compliancepartner.ca for more information.June 13, 2008
Executive Compensation Disclosure - Canadian Update for Fiscal Year 2008
The Canadian Securities Adminstrators (CSA) are in the process of finalizing the expanded requirements for executive compensation disclosure associated with Form 51-102F6 Statement of Executive Compensation. The implementation date should begin with those issuers, excluding investment funds, with fiscal years on or after December 31, 2008.
This means there is lots more disclosure work ahead for about 3600 issuers on the TSX and TSX Venture exchanges.
Companies are going to need to improve their processes, systems and practices to meet the new requirements. Many shareholders feel that it couldn't come at a better time. A news release today highlights the challenges associated with transparency and processes. Click here to read more. Ouch!
If you are one of those 3600 companies then you will be very interested in the new Executive Compensation Disclosure product that we have developed and that is being distribued in Canada by Carswell, a Thomson Reuters business. The product is known as Compliance PARTNER - Executive Compensation Disclosure edition. You can learn more about the product by going to their Compliance PARTNER website at http://www.compliancepartner.ca/ .
This means there is lots more disclosure work ahead for about 3600 issuers on the TSX and TSX Venture exchanges.
Companies are going to need to improve their processes, systems and practices to meet the new requirements. Many shareholders feel that it couldn't come at a better time. A news release today highlights the challenges associated with transparency and processes. Click here to read more. Ouch!
If you are one of those 3600 companies then you will be very interested in the new Executive Compensation Disclosure product that we have developed and that is being distribued in Canada by Carswell, a Thomson Reuters business. The product is known as Compliance PARTNER - Executive Compensation Disclosure edition. You can learn more about the product by going to their Compliance PARTNER website at http://www.compliancepartner.ca/ .
April 03, 2008
Executive Pay: In the News
With so much concern about the global economy right now, executive pay is a hot topic. What seems to be out of sync, is the high levels of executive pay when earnings or share prices of companies are collapsing. Investors wonder whose interests are being looked after.
2007 was the first year that US companies begin filing new Executive Compensation Disclosure and Related Person Disclosure information in the form a new section to the annual reports called Compensation, Discussion and Analysis (CD&A). The SEC has expressed displeasure at the filings and has requested improved reporting.
Canada has proposed similar legislation for 2008 for Canadian public companies which will put a bright light on this topic "up north".
An article from HR Executive Resource Online " Doubting Executive Pay" released yesterday sheds light on this topic and the investor and employee discord surrounding it. Here is an excerpt:
"Directors and investors say exorbitant executive compensation causes resentment and harms corporate America's image, but the SEC's disclosure rules are not the answer. One expert says the problem stems from short-term thinking, rather than greed. By Kristen B. Frasch
With the nation's attention focusing ever more intently on CEO salaries -- most recently in the form of congressional hearings before the House Committee on Oversight and Government Reform -- two different surveys suggest boards of directors and shareholders remain at odds over just how broken the system is and what they can and should be doing to fix it.
In one study, by Heidrick & Struggles and the University of Southern California's Marshall School of Business, about one in three directors of U.S.-based public companies said CEO pay is "too high in most cases."
The 2007 Corporate Board Survey of 210 respondents also found widespread unhappiness among directors over the latest disclosure rules about executive compensation mandated by the U.S. Securities and Exchange Commission.
Most directors (about 90 percent) said they doubt the rules -- designed to give investors and corporate watchdogs better, timelier information about pay and other compensation for top executives -- are meeting investors' needs.
"Executive compensation and how that information is disclosed have been controversial for some time," says Ed Lawler, distinguished professor of business at USC Marshall and founder and director of the university's Center for Effective Organizations.
"But what this survey unmistakably shows is that the issues are a growing concern, even among the people most responsible for dealing with them: the board members of public companies," he says.
Board members' dissatisfaction in the study centers on the type of information reported in the new SEC-mandated proxy statements.
Only one in 10 said they believed the information did a good job of explaining how compensation decisions are made and fewer than three of 10 agreed the statements provide valuable information about the amount a CEO actually makes.
"A major advantage [of the new rules] is to see the top five salaries, but even these are often obscured with descriptions of things [boards] can't fully understand," Lawler says.
A problem contributing to hard-to-decipher information and continual salary increases, according to respondents, is the role compensation consulting firms play in the creation of new incentive-compensation programs.
"It is interesting that even though it is boards that determine the level of executive compensation, they still point to the important role consulting firms play," says Ted Dysart, managing partner for the Americas with Heidrick & Struggles' global board of directors practice.
In a separate study by Watson Wyatt Worldwide, corporate directors and institutional investors disagree over whether the U.S. executive-pay model is changing for the better, but both groups say the current model has hurt corporate America's image.
The study, 2008 Report on Directors' and Investors' Views on Executive Pay and Corporate Governance, which surveyed 163 directors and 72 investment and pension-fund managers, found 63 percent of directors think the pay system is improving, compared to just 36 percent of investors.
It also found 65 percent of directors believe the current pay model has helped to improve company performance while only 39 percent of investors feel that way.
"While directors believe the system generally works, institutional investors ... feel the model's flaws run deeper and require more substantial changes," says Ira Kay, global director of compensation consulting at Washington-based Watson Wyatt. "Clearly, more work needs to be done."
Most of the respondents (75 percent), however, believe the model has tarnished the nation's image, has led to resentment among the rank-and-file and has resulted in excessive executive pay..."
Clearly this disclosure meets with objections from those who have to report and administer it. But no one can argue that investors should be prevented from transparent information from the companies they invest in. Is the legislation perfect? Probably not, but you have to start somewhere. And starting with some disclosures about an important topic is important.
If your company has to comply with Executive Compensation Disclosure regulations, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information.
2007 was the first year that US companies begin filing new Executive Compensation Disclosure and Related Person Disclosure information in the form a new section to the annual reports called Compensation, Discussion and Analysis (CD&A). The SEC has expressed displeasure at the filings and has requested improved reporting.
Canada has proposed similar legislation for 2008 for Canadian public companies which will put a bright light on this topic "up north".
An article from HR Executive Resource Online " Doubting Executive Pay" released yesterday sheds light on this topic and the investor and employee discord surrounding it. Here is an excerpt:
"Directors and investors say exorbitant executive compensation causes resentment and harms corporate America's image, but the SEC's disclosure rules are not the answer. One expert says the problem stems from short-term thinking, rather than greed. By Kristen B. Frasch
With the nation's attention focusing ever more intently on CEO salaries -- most recently in the form of congressional hearings before the House Committee on Oversight and Government Reform -- two different surveys suggest boards of directors and shareholders remain at odds over just how broken the system is and what they can and should be doing to fix it.
In one study, by Heidrick & Struggles and the University of Southern California's Marshall School of Business, about one in three directors of U.S.-based public companies said CEO pay is "too high in most cases."
The 2007 Corporate Board Survey of 210 respondents also found widespread unhappiness among directors over the latest disclosure rules about executive compensation mandated by the U.S. Securities and Exchange Commission.
Most directors (about 90 percent) said they doubt the rules -- designed to give investors and corporate watchdogs better, timelier information about pay and other compensation for top executives -- are meeting investors' needs.
"Executive compensation and how that information is disclosed have been controversial for some time," says Ed Lawler, distinguished professor of business at USC Marshall and founder and director of the university's Center for Effective Organizations.
"But what this survey unmistakably shows is that the issues are a growing concern, even among the people most responsible for dealing with them: the board members of public companies," he says.
Board members' dissatisfaction in the study centers on the type of information reported in the new SEC-mandated proxy statements.
Only one in 10 said they believed the information did a good job of explaining how compensation decisions are made and fewer than three of 10 agreed the statements provide valuable information about the amount a CEO actually makes.
"A major advantage [of the new rules] is to see the top five salaries, but even these are often obscured with descriptions of things [boards] can't fully understand," Lawler says.
A problem contributing to hard-to-decipher information and continual salary increases, according to respondents, is the role compensation consulting firms play in the creation of new incentive-compensation programs.
"It is interesting that even though it is boards that determine the level of executive compensation, they still point to the important role consulting firms play," says Ted Dysart, managing partner for the Americas with Heidrick & Struggles' global board of directors practice.
In a separate study by Watson Wyatt Worldwide, corporate directors and institutional investors disagree over whether the U.S. executive-pay model is changing for the better, but both groups say the current model has hurt corporate America's image.
The study, 2008 Report on Directors' and Investors' Views on Executive Pay and Corporate Governance, which surveyed 163 directors and 72 investment and pension-fund managers, found 63 percent of directors think the pay system is improving, compared to just 36 percent of investors.
It also found 65 percent of directors believe the current pay model has helped to improve company performance while only 39 percent of investors feel that way.
"While directors believe the system generally works, institutional investors ... feel the model's flaws run deeper and require more substantial changes," says Ira Kay, global director of compensation consulting at Washington-based Watson Wyatt. "Clearly, more work needs to be done."
Most of the respondents (75 percent), however, believe the model has tarnished the nation's image, has led to resentment among the rank-and-file and has resulted in excessive executive pay..."
Clearly this disclosure meets with objections from those who have to report and administer it. But no one can argue that investors should be prevented from transparent information from the companies they invest in. Is the legislation perfect? Probably not, but you have to start somewhere. And starting with some disclosures about an important topic is important.
If your company has to comply with Executive Compensation Disclosure regulations, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information.
