Tackling Compliance: Small Business and Regulation in Canada 

Backgrounder

With the goal of gaining an objective understanding of the Canadian business reaction to regulation, the Certified General Accountants Association of Canada (CGA-Canada) commissioned a survey of publicly listed Small and Medium-sized Entities (SME) in Canada, a practicing Certified General Accountants (Practitioner) survey and a round table discussion. The report entitled Tackling Compliance: Small Business and Regulation in Canada seeks to assess the impacts of regulations on the SME sector, to influence the ongoing debate as to the reasonability of SME compliance, and to advocate for new approaches to regulatory pronouncement and administration. The report also includes a comparison of results and experiences with the Association of Chartered Certified Accountants (ACCA) which concurrently conducted its own research in the United Kingdom.

KEY FINDINGS

The Surveys: SME and Practitioner Views

With the exception of securities requirements, individual regulatory requirements applicable to publicly-traded SMEs in Canada are seen as reasonable and fair. However, the “cumulative effect” of regulations is a source of SME anxiety towards regulation. SMEs also report that relative to other regulatory areas, securities regulations are of the greatest concern to publicly-traded SMEs in Canada. Finally, accountants play a significant role in helping SMEs manage their regulatory obligations.

Canadian SMEs reported that, while important:

• 59.7% of them considered securities regulation not to be reasonable;
• 21.7% of them considered tax regulation not to be reasonable;
• 17.9% of them considered environmental regulation not be reasonable;
• 7.7% of them considered human resource and payroll regulation not to be reasonable;
  and
• 4.4% of them considered employment regulation not to be reasonable.

In respect to their regulatory obligations:

• 88.3% of these SMEs are concerned with issues of inequity;
• 88.0% of them are concerned with complexity;
• 88.0% of them are concerned with change;
• 86.8% of them are concerned with quantity;
• 62.9% of them are concerned with duplication; and
• 57.6% of them are concerned with timing.

In respect to their reliance on external accountants and satisfaction with services provided:

• 85.6% of them rely on an external accountant to assist with Taxation filing requirements
• 72.8% of them rely on an external accountant to assist with Securities obligations
• 14.8% of them rely on an external accountant to comply with Human Resource/Payroll filing requirements
• 7.8% of them rely on an external accountant to comply with Employment standards
• 7.5% of them rely on an external accountant to comply with Environmental regulations
• 82.3% of them rated their external accountants as excellent or good for their Technical Understanding

Concurrently, Practitioners reported that:

• 33.0% of them consider tax regulation to be unfair;
• 22.3% of them consider human resource and payroll regulation to be unfair;
• 22.1% of them consider employment regulation to be unfair;
• 22.1% of them consider environmental regulation to be unfair; and
• 21.5% of them consider securities regulation to be unfair.

Round Table Discussion – Participants views on Contributing Factors to the Regulatory Burden of SMEs –

• The three tiers of government and numerous departments and agencies have made it difficult for government to effectively coordinate their regulatory activities
• Regulations are often created without appropriate consultation or consideration for the businesses that they impact, and when implemented, regulators fail to effectively communicate and educate businesses on the requirements that apply to their organizations
• Regulations have become unnecessarily complex and burdensome because regulators are not willing to take risks and try to “bullet proof” regulations
• Policy makers fail to give appropriate consideration to the regulatory impacts of their policy decisions
• Globalization has led to convergence of regulations internationally which adds another layer of complexity to the regulatory environment especially for SMEs

KEY RECOMMENDATIONS

By consulting stakeholders, surveying Practitioners and SMEs and learning from the experiences of organizations in other jurisdictions, CGA-Canada advocates for a number of tangible solutions to reduce regulatory burden in Canada, including:

• Recommending that regulatory reform be a priority throughout all levels of government, giving it the same attention as government spending and taxation;
• Establishing accountability by measuring regulation, setting reduction targets and reporting to the public on progress achieved;
• Assessing the impacts of new regulation, specifically the costs/benefits on businesses;
• Enabling businesses to determine the best way to satisfy their regulatory obligations while offering guidance on appropriate methods for compliance;
• Rewarding “good companies” for compliance through reduced requirements and dedicating resources to monitor and manage those few marginal performers more likely to sidestep their regulatory obligations, to maximize the use of limited regulatory resources;
• Addressing the unique needs of SMEs by limiting the impacts of regulation given that these entities have fewer resources than their large counterparts to manage new requirements;
• Creating an online one-stop interface to inform businesses of new requirements or provide guidance on existing regulations;
• Relying on market forces before turning towards formal regulations;
• Creating a common securities regulator, or at the very least, augmenting efforts to harmonize requirements and improve cooperation between the 13 provincial and territorial securities administrators; and
• Harmonizing standards and regulations with those in other nations and those developed at the international level to remain competitive.

TRANSATLANTIC COMPARISON

• Although the ACCA study focused on private SMEs and the CGA-Canada study on publicly-traded entities, the “cumulative effect” of regulations is cause for concern in both jurisdictions.
• In both Canada and the UK, a majority of SMEs agree that the regulations applicable to their organization are reasonable.
• Employment standards are of least concern to SMEs in Canada while they are seen as the most troubling category of regulation for SMEs in the UK.
• Quantity, Inequity, Change and Complexity are of highest concern in both jurisdictions, with Inequity of regulations the greatest concern in Canada and Quantity the greatest concern in the UK.
• External accountants and accounting firms rate highly in both jurisdictions with a majority of SMEs rating their external accountants as either excellent or good in each
• Accountants play a significant role in helping SMEs manage their regulatory obligations in Canada and the UK.

For more information, contact:

Taylore Ashlie
Director, Communications, CGA-Canada
Phone: 604-605-5055
Cell: 604-307-0212
Email: tashlie@cga-canada.org

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