Perspective
Restoring Market Confidence... The Senate Speaks
FROM:
SEP-OCT 2003 ISSUE
The Senate Standing Committee on Banking, Trade and Commerce has released its long awaited
post-Enron report. Entitled
Navigating Through "The Perfect Storm": Safeguards To Restore Investor Confidence, the document published in June is the result of many months of submissions, investigations, and discussions. While the report contains important recommendations related to the overall restoration of investor confidence in Canada, there are two key findings that address matters of specific concern to
CGA-Canada. The first relates to the adoption of international accounting standards in Canada and the second addresses the independence of the accounting standards setting process itself.
In the wake of Enron and WorldCom, the Senate committee convened hearings in
May 2002, under the leadership of Committee Chair Senator
Leo Kolber. Its task was to examine the U.S. scandals in the light of the Canadian experience and determine what legislative and regulatory changes may be required in Canada to restore public confidence in capital markets.
The report's finding could not come at a better time. Currently, Canadian legislators and regulators are considering a host of reforms, many designed to bring Canada in line with changes already in place south of the border. The committee addressed such central issues as the need for greater independence on boards of directors, the need for independent and financially literate audit committees, the rotation of and the independence of auditors, whistleblower protection, beefed up fraud protection, and financial statement certification by CFOs and CEOs.
Now let's take a closer look at two other key recommendations. The committee has said that:
- Canada should work closely with the U.S. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) to move expeditiously toward global uniform accounting standards.
- Ottawa should convene discussions with all relevant stakeholders on what kind of entity should have responsibility for the setting and revision of accounting standards and rules, with a view to ensuring independence, accountability and transparency.
These two findings go directly to the heart of
CGA-Canada's submissions to the committee in
May 2002 and
February 2003. We are extremely gratified to see these recommendations highlighted in the final report. For many years,
CGA-Canada has advocated the adoption of IASB accounting standards in Canada. While global convergence of accounting standards is an eventual inevitability, we have always argued that Canada has a leadership role to play in speeding up the process. Second, and equally important, is our longstanding view that because Canada's accounting standards setting body (the Accounting Standards Board) operates under the auspices of one professional accounting body, this kind of arrangement is inappropriate for 21
stcentury Canada. Nothing less than full independence, accountability, and transparency is required of our accounting standards setting body, as the Senate committee has so rightly observed.
We were also gratified on another important matter. The Committee observed that the specific needs of small and
medium-sized enterprises (SME) in Canada should be taken into account when designing regulations concerning the provision of
non-audit services to audit clients. In Canada's SME sector, accountants are often much more than preparers or auditors of financial reports. Instead, they are trusted business advisors. It is this special and broad relationship between an SME client and his or her CGA accountant that is so important to the small and medium enterprise sector today.
In highlighting these key issues, the Senators have played a valuable role in shaping the public policy debate. We are pleased to see our views reflected in the report. Now it is up to the legislators and regulators to turn sound policy recommendations into action.
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