Print Edition
      September 2008
Email    Print    Feedback

News from the profession

A summary of current CICA projects and initiatives

Corporate reporting on the Web

The World Wide Web began to be used in earnest by companies for reporting to their stakeholders about 10 years ago. Research at that time showed the technology being used tentatively and experimentally.

Over the past 10 years, much has changed. The Web has emerged as the primary vehicle for communicating information to investors and other stakeholders. Virtually all public companies have an investor relations section on their websites that contains a broad range of corporate information.

In recognition of this emerging trend, the CICA, the FASB of the US and the International Accounting Standards Board all published research studies in 1999 and 2000 about reporting on the Web. Then, in 2002, the Corporate Reporting Awards run by the CICA and its partner organizations added electronic reporting as one of the categories in its annual contest. Recently, the CICA and the Canadian Investor Relations Institute jointly released a discussion brief on “Financial and Business Reporting on the Internet” setting out best practices in the area.

The discussion brief picked up on several issues brought out in the earlier research papers, along with some that emerged later. The issues discussed in the discussion brief fell under three broad categories — content, navigation and usability. The content discussed included the corporate overview, corporate governance, financial information, news releases, presentations and events, share information and environmental and social responsibilities.

The Web provides a means for companies to disclose information on a more current basis than the traditional printed approach. Legislation, such as Sarbanes-Oxley, and the rules of regulators in numerous countries, including Canada and the US, increasingly are looking to the Internet as a vehicle for disclosing information quickly, sometimes within 24 hours of the occurrence of an event.

But there is more than speed involved. Since the Web is a multimedia vehicle, it means that sound, video and animation can be used to convey information. The provision of webcasts of key meetings and presentations such as analyst conference calls, executive briefings and CEO reports has become almost routine on corporate investor relations sites. Some companies even offer real time webcasts of such events.

The Web has also expedited the broadening of the information that companies report. While corporate reporting was once confined largely to the annual report, now it encompasses a wider range of topics, such as sustainability and governance reporting. Indeed, the latter two areas have become major aspects of the reporting process.

It is fair to say that the use of the Web for corporate reporting is in its infancy. In fact its use for anything is in its infancy. Something that has been used for less than 20 years could not be otherwise. As the Web is evolving quickly, its use for corporate reporting will evolve quickly as well. Moreover, there are trends within the corporate reporting model itself that will be facilitated and accelerated by the use of Web technology.

We hear a good deal these days about Web 2.0. This is not a new Internet, but rather a new way of conceptualizing and using the Internet. Web 2.0 is characterized by interactivity, through the advent of social networks such as Facebook, LinkedIn and Second Life. It shows us that the Web is not a one-way vehicle for the dissemination of information, but a way of connecting with people and exchanging information. This is beginning to affect corporate reporting on the Web. We will see more companies placing an emphasis on connecting with their stakeholders and providing opportunities for interaction with them. This interaction is emerging through the use of chat rooms, blogs and virtual world spaces. Corporate reporting will become more timely and interactive. This presents enormous challenges for companies. How do they cope with the volume of queries? How do they monitor the quality of the responses? How do they ensure that the true message is getting out? But the companies will deal with these issues because they will have to.

Another emerging change in the use of the Internet is the equipment that people use to connect with it. We have seen over very recent years a growth in the use of hand-held devices such as the BlackBerry and the iPhone, which are really Internet access devices. Industry experts are predicting that such devices are likely to become the dominant means of connecting with the Internet over the next few years. Companies are already beginning to make their websites compatible with these devices. Increasingly investor information will be obtained through these means.

The change to hand-helds will be compatible with another change taking place in the reporting world — the move to datacentric reporting. This involves the presentation of data that is not necessarily tied into pre-formatted reports. More data is being presented in spreadsheets and other technologies that users can take into their own systems and analyze themselves. The new filing requirements of the SEC for XBRL data, which includes requirements for disclosure of the XBRL data on websites, is likely to accelerate this trend.

Initially, the use of XBRL will be limited to financial statements, 10Ks, etc. However, this is only the tip of the iceberg for XBRL and its capabilities. As software companies add the tagging functionality for XBRL to their applications, the data will be available at various stages in the reporting chain. More and more uses of this data will be found because the whole idea of XBRL is to make the data more readily available for import into users’ analytical systems. It will be found to be the cheapest and easiest way to obtain and analyze data, which will mean that it will be used more and that the reuse of the data by various types of users will make it a lot more cost effective for the providers
of the information than current systems, which in fact are often cumbersome.

That means in future we will see investors and other stakeholders using laptops and hand-helds to download particular data items into their own interfaces for their own consumption on a near real time basis. This will complete the cycle for the pending round of changes. Financial and business reporting will continue on its path of going into a real time mode, making available all kinds of data on demand for a variety of sophisticated and nonsophisticated stakeholders using everything to access the data from their home entertainment units to their car stereos to their smartphones. Such is the immediate future of corporate reporting on the Internet.

Gerald Trites, FCA, leads the judging for electronic disclosure in the Corporate Reporting Awards (CRA). This is the first of a series of articles on best practices from the CRA

IFRS gains mainstream media attention

Canada’s approaching changeover to international financial reporting standards (IFRS) is beginning to capture the attention of the mainstream media and that in itself is good news.

What initially sparked the media’s attention was the IFRS-North America conference held in Toronto in April. The conference, featuring more than 800 participants, was a joint presentation by the International Accounting Standards Committee Foundation, and the Canadian Institute of Chartered Accountants.

Sir David Tweedie, chair of IASB

The event brought Sir David Tweedie, Chairman of the International Accounting Standards Board (IASB), and other members of the IASB to Canada. Other important leaders in attendance included senior representatives from the Canadian Accounting Standards Board, the US Financial Accounting Standards Board, regulators from Canada and the US and international financial reporting experts.

New ground was broken by the IFRS coverage generated during the conference period. While a number of commentaries and op-ed pieces had been published before the conference was held, this was the first time the transition to IFRS garnered significant mainstream media attention, broadening the scope of exposure to include people and businesses that had not yet been directly impacted.

The Financial Post published an interview with Tweedie during the conference and gave the article impressive profile by promoting it on the front page with a colour banner and photo. In mid-May, the National Post ran an additional story relating to the IFRS conference, this time about the potential impact of the US adopting IFRS.

“It is very encouraging to see the media coverage that has resulted from the IFRS conference staged in Toronto,” said Mark Byatt, director of corporate communications, IASB. “Canada’s transition to IFRS is of great interest to other countries, including the US, and mainstream media coverage helps interested parties track the process.”

The Globe and Mail covered Tweedie’s speech to the Empire Club of Canada and later ran another article that highlighted some concerns within the real estate sector regarding the changeover to IFRS. The Edmonton Journal also featured a story on preparing for the changeover to IFRS.

“The fact that the transition to IFRS is generating mainstream media attention is important and welcome,” said Ron Salole, vice-president, standards, CICA. “Having a variety of issues such as early preparation or concerns of the real estate sector addressed in the media helps to promote wider discussion and awareness about IFRS.”

Salole points out that the earlier those impacted by the move to IFRS start to prepare, the smoother their transition will be. “The fact IFRS is generating mainstream media coverage may help those companies impacted by the change-over to focus on what needs to be done,” says Salole.

Canada’s changeover to international financial reporting standards takes effect in January 2011.

New CA learning resources help smooth transition to IFRS

As Canada moves closer to adopting international financial reporting standards (IFRS) for publicly accountable enterprises in 2011, CAs across the country will be called upon to help guide companies through the changeover process. Being effective in this leadership role requires a solid grounding in the changes associated with the transition to IFRS. To assist CAs in developing expertise in these new standards, CICA and the provincial institutes/ordre continue to work together to develop a wide range of IFRS learning resources, the next phase of which will be offered across the country starting this fall.

For those who are not familiar with IFRS, a newly developed online self-study course, Introduction to IFRS — Implications for Canadian Business, will be of particular interest. This e-learning course, developed by the CICA, is available free of charge through the profession’s dedicated IFRS website (www.cica.ca/IFRS). A primer on IFRS, it covers the basics and provides a step-by-step explanation of how to begin making the transition. The course content is presented by a panel of experts and built-in quizzes to help online learners track their own progress. Divided into four modules, the course includes an introduction, a taste of the similarities and differences between Canadian GAAP and IFRS, a module on gathering data for IFRS and another on managing the implementation process. It takes approximately three hours to complete the self-study program, which, for CAs, counts toward CPD credits.

For those who require deeper knowledge of IFRS, a wide variety of industry-focused and topic-specific courses will be offered through the provincial institutes/ordre beginning this autumn. The courses will differ in levels of technical detail and range from a half-day to two days in length. In-depth programs being offered by CICA will include Transition to International Financial Reporting Standards (three days, in-residence) and International Financial Reporting Standards Immersion (four days, in-residence).

The inventory of IFRS training products will continue to grow with new and expanded topic-specific offerings in 2009, including IFRS 1, Financial Instruments, Business Combinations and Income Taxes, new industry-focused offerings such as Financial Services — Insurance, and Rate-Regulated Industries, and more IFRS in-depth programs. In addition, an annual IFRS conference and a number of regional industry-specific IFRS conferences are being planned.

Members are encouraged to begin planning their personal IFRS training strategies as soon as possible. A good way to start is by visiting the CA profession’s dedicated IFRS website (www.cica.ca/IFRS).

This site has been built to provide access to extensive resources that will help steer companies and individuals throughout the transition process. It not only offers information about the wide range of courses and conferences available across Canada, it also provides access to an extensive array of reference materials, downloadable publications, ideas on how to get started, and implementation tools such as sample financial statements.

Ontario privacy commissioner strong supporter of generally
accepted privacy principles

Privacy is a sensitive matter. That is why organizations must be proactive in identifying any weaknesses in their privacy programs.

A privacy breach can trigger unpredictable costs incurred in immediately notifying all affected parties, regaining their trust and correcting the flawed program. Such costs almost certainly will exceed what it would have cost in the first instance to identify and rectify inherent weaknesses.

Ontario’s information and privacy commissioner, Ann Cavoukian, PhD, says help is available for any organization planning to review its privacy program. She encourages them to look at generally accepted privacy principles (GAPP) developed by the Canadian Institute of Chartered Accountants (CICA) and the American Institute of Certified Public Accountants (AICPA).

GAPP is the work of a joint AICPA/CICA Privacy Task Force. Originally written in 2003 and updated in 2006, GAPP is a global privacy framework that allows all organizations, both public and private, to develop and assess their privacy programs. It can serve as an effective guidepost in assisting organizations with the implementation and monitoring of privacy programs.

“GAPP is the most thorough audit framework in existence,” said Cavoukian. “GAPP takes fair information practices — the bedrock of privacy — and creates objective criteria that reflect the existence of sound information practices. These practices are the embodiment of privacy principles; GAPP creates a tool that can objectively measure whether these principles are actually being implemented.”

Cavoukian’s confidence in GAPP was clearly displayed earlier this year when she recommended that the Toronto Transit Commission (TTC) undergo an independent third-party audit using the privacy framework. This followed a complaint in 2007 regarding deployment of video surveillance cameras throughout the TTC’s mass-transit system. Cavoukian said security cameras should be allowed on the transit system but that additional steps should be taken to ensure the privacy of individuals is protected.

For more information on GAPP, including methodologies and how to use GAPP within your own organization, visit the CICA’s Privacy Resource Centre (www.cica.ca/privacy).

 

Income trusts’ adoption of standardized distributable cash guidance

It has been just more than one year since the CICA’s Canadian Performance Reporting Board (CPRB) issued Standardized Distributable Cash in Income Trusts and Other Flow-Through Entities — MD&A Guidance on Preparation and Disclosure.

This guidance sought to improve the consistency and comparability of reporting the nongenerally accepted accounting principles financial measure distributable cash. The guidance provides a framework for calculating standardized distributable cash and considering related disclosures. It encourages preparers to address:

Recognizing management’s need to communicate issues unique to the business, the guidance also supports the calculation of a supplementary entity-specific measure, which would include adjustments beyond those included in standardized distributable cash.

A review of income trusts’ MD&As was conducted in April 2008 to assess the extent of guidance implementation during the first year. Of the 65 income trusts selected for review (from a total of 212 income trusts on the TSX at December 31, 2007):

Results of the review have recently been published in a CPR Alert that discusses challenges encountered in applying the guidance and sets out examples of guidance application.

“Almost one-third of the income trusts reviewed are striving to improve reporting distributable cash,” says Chris Hicks, CA, principal, knowledge development. “That is an excellent first-year adoption rate for voluntary guidelines. We hope that highlighting the challenges and illustrating positive examples of guidance use will contribute to more effective disclosure of standardized distributable cash moving forward.”

The CPR Alert is available at CICA’s Performance Reporting Resource Centre at www.cica.ca/cpr.

Standardized Distributable Cash in Income Trusts and Other Flow-Through Entities — MD&A Guidance on Preparation and Disclosure is also available at that location, as are other CPRB publications.