It may come as a surprise to some that an influential body such as the Canadian
Institute of Chartered Accountants had rather inauspicious beginnings. This, however, is what makes its history a matter of prime interest: it has grown from nothing into a powerful national organization that is consulted by governments – a body with power to set standards that are incorporated into law.
When Toronto chartered accountant John Mackay decided to form an association of CAs at the turn of the 19th century, the Association of Accountants of Montreal, the first formal accounting association in North America, had been around since 1880, and the Institute of Chartered Accountants of Ontario was formed in 1883. Mackay believed creating a national organization for accountants in public practice was necessary, and so on May 15, 1902, the Dominion Association of Chartered Accountants (DACA) was formed.
Tentative and with few members, the new association struggled to find a purpose and an identity. But it discovered its voice in the 1930s, and soon after gained the head of steam that led to the standard setting 1960s and ’70s, the period that won the institute acclaim at home and around the world.
The story of the first 100 years of the CICA is one of an organization that evolved slowly and won respect gradually –– ultimately coming to be seen as having an important influence on the international stage. It is the story of an organization that responded to the challenge of making itself and the profession relevant in a new century. It is also the story of an organization and profession that would begin its second century facing two serious challenges: increased competition from other professionals and professional organizations, and the challenge of making itself and the CA profession relevant in the new knowledge economy.
Accountancy in Canada and in North America became a firmly established and respected profession between 1890 and 1910. As Queen’s University Prof. J. E. Smyth pointed out in the November 1953 issue of the Canadian Chartered Accountant, the association’s publication at the time, “The building, extension, and grouping of railways, the amalgamation and consolidation of companies, and the developing techniques of mass production all inspired an interest in costs … and the services of accountants were required to determine costs.”
Two dominant themes stand out in the first 50 years of the organization’s growth: how it defined its relationship with the provincial institutes, which were responsible for most of the important issues such as licensing and discipline, and how it found its voice, its corporate identity.
The organization’s relationship with the provincial institutes was from the start a contentious issue. Mackay was determined to establish and enforce a single, national accounting standard, while the Montreal and Ontario associations insisted on maintaining and enforcing their own regulations. The turf war ended in 1909 at an informal meeting of the Canadian associations, when DACA was made to realize it would never be able to compel the provinces to follow its lead on any issue. Perhaps as a compromise, the associations agreed that every member of a provincial organization would become a member of the national body.
Up until the early 1930s, DACA was a sleepy organization whose only apparent purpose was to prepare for and conduct its annual meeting. However, one of the main items discussed at DACA’s 1929 annual meeting in Vancouver was the need for more stringent reporting procedures and uniform companies’ legislation. Those discussions continued until the 1931 annual meeting in Regina. Spurred by the stock market crash of 1929 and such bankruptcies as the Royal Mail Steam Packet in Britain, members unanimously passed recommendations on “books of accounts, the power and duties of auditors, and the contents of balance sheets,” according to the July 1934 Canadian Chartered Accountant. So confident was DACA of these new standards that in the summer of 1933, it formed a committee on legislation and authorized it to make representations to the federal government, which was then drafting amendments to the Canada Companies Act. When the amendments were finalized on June 1, 1934, they followed very closely the generally accepted accounting principles that DACA had laid down. It was a defining moment in the history of the national organization, one that marked the beginning of a long involvement in shaping economic life in Canada. It was also a moment that would be replicated almost exactly 35 years later, when the CICA Handbook would come to be accepted as the basis of GAAP in Canada.
Not content to rest on its laurels, the association soldiered on to the next battle: the role of the auditor. While this was not nearly as problematic as disclosure regulations, it was a troublesome issue. At DACA’s annual meeting in 1933, president George McDonald, a senior partner at McDonald Currie & Co. (now PricewaterhouseCoopers), suggested it might be time to clarify and codify the auditor’s role under the same Canada Companies Act. The Ontario institute protested, saying any attempt to define the auditor’s responsibility would only lead to trouble. When DACA tried to make auditors’ reports uniform in 1940, the Ontario institute asked an advisory committee of its past presidents to consider DACA’s request. “Over the past 50 years,” the committee reported, “the outcome of suits brought against auditors in this country had been very satisfactory to the profession. So to move away from the form might expose the Canadian auditor to greater liability.” This rebuff successfully quelled DACA’s initiative, but all was not lost: the movement for reform had been launched.
DACA’s failed attempt to set a national auditing standard illustrates the limited power it had at the time. The 1902 charter conferred only one real power on the organization — the right to set a national accounting standard. Other powers, such as licensing, education, discipline and ethics, were provincial responsibilities.
In this busy and productive decade of the 1930s, DACA also began to standardize exams written by accounting hopefuls across Canada. Before it did this, Queen’s University had offered a bachelor of commerce with a major in accounting since 1919, while Shaw Schools of Toronto and the Success School of Accountancy in Winnipeg had offered correspondence courses. Standards and courses of study differed widely, a fact that was reflected in the exams, which were developed and administered by the various provincial institutes. DACA saw an opportunity to raise its own and the profession’s profile, and in 1927 it proposed to develop a uniform exam that all candidates across Canada would write. Most of the provinces supported the idea but Quebec did not, partly because the exam would be in English and partly because the Quebec Ordre wasn’t sure if the province’s universities would recognize the exam results. The issue remained dormant until 1938 when, at a meeting in Winnipeg, DACA and all the provinces agreed to a uniform national exam. Standardization was completed in 1939. This was the first time uniform intermediate and final exams were written in all provinces — except in Quebec. (Candidates in Quebec began writing the uniform exam in 1954.)
At about the same time, the growing complexity of business finances and the tax environment led the organization to believe it could serve its members better with research on relevant issues. Consequently, a committee at DACA’s national meeting in 1938 decided to form an alliance with the accounting department at Queen’s, in a program of research into accounting procedures and principles. The following year, the executive committee formed the national body’s first research committee, which was renamed the Accounting Research Committee in 1941 — the same committee that 25 years later would produce the CICA Handbook.
And 1939 was also the year the committee hired its first director of research, Clem King of Edmonton. King would make history again in 1947, when he became the organization’s first paid executive director. As for the research committee, it would make its own history in 1943 when it issued a recommendation on the treatment of the refundable portion of the Dominion Excess Profits Tax. It marked the first time a professional accounting body in Canada had given formal advice or guidance on a technical matter to its members. The precedent seemed to mark the end of one era — one that began with DACA’s involvement in redrafting the Companies Act — and the beginning of another, characterized by the precedent-setting initiatives of the Accounting Research Department.
Viewed against the accomplishments of the busy ’30s, the ’50s was a quiet decade for the organization. Still, on March 21, 1951, DACA changed its name to the Canadian Institute of Chartered Accountants. At the same time, it adopted a French name — L’Institut Canadien des Comptables Agréés. Aside from the publication of bilingual annual reports, it was the first time the institute had formally recognized its francophone members. It wasn’t until the early ’60s, and then only gradually, that the CICA started to become bilingual.
When King retired in 1955, he was replaced by Mike Howarth, a Rhodes scholar and a manager with Charles E. Frosst Co. of Montreal, who handled the job for five years. On January 1, 1960, Doug Thomas, a partner at Riddell, Stead, Graham & Hutchison (now KPMG), became the institute’s secretary and director of research.
“When I was hired I was told to get the thing going,” Thomas recalls. “People wanted things done. And when you looked around, you could see all the work that needed to be done. ”
Both Ken Fincham, hired as the CICA’s executive director in 1972, and Thomas seemed to ignite the CICA staff and usher in a generation of sweeping changes that instilled purpose and drive into the organization.
Under Thomas’s leadership, research once again became the institute’s most significant activity. A series of important studies was inaugurated; the first one — The Use and Meaning of ‘Market’ in Inventory Valuation — was produced by Gert Mulcahy, an examinations associate hired in 1949. It was followed in 1965 by a study on materiality in auditing. Though Thomas was busy investigating such initiatives as introducing technology into the CICA’s operations, he was also taking note of the institute’s research bulletins and the way they were issued. “When I joined in 1960, there were 11 bulletins and they were really stepping on each other’s feet, contradicting previous bulletins. This seemed really stupid because you just can’t go on shooting yourself in the foot.” At the very least, thought Thomas, the bulletins needed to be streamlined.
Thomas realized the bulletins did nothing more than codify the way things were being done in the accounting world. There was a real need for regulations that were based on best practices and that would render opinions rather than merely document the way practitioners did things, regardless of their effectiveness. In 1965, Thomas formed a special study group to look into how the bulletins were being produced. Chaired by Howard Lyons of Deloitte Plender Haskins & Sells (now Deloitte & Touche), the study group recommended the bulletins be replaced by a loose-leaf binder to house the CICA’s version of GAAP. The result was the CICA Handbook, which when completed in December 1968, would indelibly stamp the institute for its excellence in standard-setting.
“There was a real sense of accomplishment,” says Mulcahy, who was promoted to research director for her work on the Handbook. “Everything was exactly as it should be, with no contradictions. Background material and recommendations were provided, and in a lot of cases, we really stuck our necks out. For example, we recommended following the deferred tax method. We also started attacking other issues that had become problematic because they had more than one practice. With the Handbook, we effectively began to lead the practice rather than merely saying ‘Here is what you have done.’”
The principles laid down in the Handbook denoted something beyond lucidity. They were authoritative — gospel, really — and that, in turn, marked the institute as a ruling voice. The Handbook also had great symbolic value. By “sticking out its neck” and “leading the practice,” it signified the maturation and arrival of an organization that was unafraid to take positions and would be an active, potent force in numerous domains. Indeed, the publication of the Handbook signaled a new era, one characterized by numerous, important achievements, the development of new programs and frequent exercises in introspection. In the 100-year history of the CICA, the Handbook was a divide: everything before it would be part of one era, everything after, of another.
Organizations and institutions soon began to laud the CICA Handbook. In 1972 the Canadian securities administrators decreed that provincial securities commissions must now consider the Handbook as the basis for GAAP. At about the same time, the federal government had begun redrafting the Canada Business Corporations Act. John Howard, an assistant deputy minister leading the redrafting effort, called on Thomas. According to Thomas, he said, “Look, what we have so far is really bad. Can we call on you for help?”
In 1975, the Handbook was practically incorporated into the act and from that point on every company in Canada would have to prepare financial statements according to the CICA Handbook.
The third in a series of shining moments for the Handbook came in 1981, when all organizations in the public and not-for-profit sectors accepted the principles in the Handbook as law as well. The CICA had set up the Public Sector Accounting Board (PSAB) to develop accounting standards for public sector organizations. “There was a need for a more credible, uniform set of reporting standards for governments,” says Denis Desautels, who was a member of the PSAB. A partner with Ernst & Young at the time, he later served from 1991 to 2001 as Canada’s auditor general. The PSAB developed a set of guidelines for all public sector organizations using the regulations the CICA had designed for the private sector as a foundation. “That was a real success story for the CICA,” adds Desautels. “There was a fairly complete buy-in across Canada. That is quite exceptional because you really cannot impose accounting rules on sovereign governments.”
The Handbook’s wide acceptance was a stunning accomplishment, and its significance was best described by David Wilson, former CEO of the Institute of Chartered Accountants of Ontario, in his 1988 book, Public Accountancy in Ontario: Modernization and Reform. “There are few countries where the development of standards and their integration into the legislative and self-regulatory systems is so substantial and complete,” wrote Wilson, who was then executive director of the Ontario institute. More important, those standards have withstood the test of time. “Financial information is the cornerstone of the capital markets,” says John Carchrae, chief accountant of the Ontario Securities Commission. “The CICA has developed an enviable reputation in the development of sound high-quality standards for statements and audits.”
That reputation extends to the international scene, where the institute has been instrumental in promoting harmony in global accounting standards. In part through Thomas’s instigation, the International Standards Committee was formed in 1973. “At the fourth meeting,” Thomas recalls, “the French representative said that something being proposed contravened French law. The German representative replied, ‘Gentlemen, we’re here to set accounting standards, not to worry about local laws.’ We never looked back after that and the International Federation of Accountants was founded in 1977.” These and other efforts on the international stage have made the CICA a force in discussions of accounting around the world. “Through the CICA’s efforts, Canada has earned tremendous respect on the world stage and an influence that is out of proportion to its size,” says Steve Glover, executive director of the Chartered Accountants of Alberta.
Closer to home, several other initiatives in the ’70s demonstrated the CICA’s leadership. In 1971, under the chairmanship of Rod Anderson, it set up an Auditing Standards Committee. Several years later, its standards became part of what is recognized around the world as the generally accepted auditing standards. “At the time, we were the only country with a professional body whose national accounting and auditing standards were law,” says Anderson. Nevertheless, questions about auditing standards became more persistent, and in 1976, the institute tried to address the key issues by setting up the Adams Committee (named for chairman J.W. Jack Adams). The independence of the auditor was the main issue.
“The auditing profession had faced early challenges to its independence and that became more problematic in the early ’70s, when the profession started expanding into management consulting,” says Ken Gunning, a member of the Adams Committee. Its most important recommendation was that any company required to have an audit should also be required to have an audit committee. While the issue of auditors’ independence persists to this day (auditors are “basically guards hired by the inmates,” says Anderson), the Adams Committee had been the first inquiry to address the issue.
In April 1969, the CICA formed Task Force 2000 to “examine the future roles of the chartered accountant and to formulate and recommend appropriate plans for the profession’s development.” The task force was, to some extent, inspired by the prevailing zeitgeist, the nationwide navel-gazing unleashed by Canada’s centennial. It was also the first of numerous soul-searching exercises the institute would conduct over the next 25 years and would culminate in the omnibus 1994 Inter-Institute Vision Task Force. In many ways, the report of Task Force 2000 set the tone and standard for others. While some of its recommendations were understandably and necessarily lofty (“that the profession adopt as its goal the achievement and maintenance of the highest level of professional competence”), others were highly practical, such as those on research, education and member services.
In two important ways, the task force defined the theme that would focus the CICA’s future energies. In its executive summary, it highlighted the need for the CICA to get closer to its market. It was a need that went only partly fulfilled for many years, but one that was addressed and acted on aggressively by the 1994 Vision Task Force. Moreover, by delineating a stronger presence and role for the national body, the task force created the impression that “the provinces were being thwarted and that the CICA was starting to see itself as a sort of head office,” says Thomas. For most of the next 25 years, the provincial institutes’ distrust of the national organization remained a stumbling block to cooperation between them and the national body. The distrust was formally acknowledged and to a large extent removed when the Vision Task Force made collaboration and coordination the twin premises for any initiative that the national body would undertake.
In his farewell in the September 1983 issue of CAmagazine, outgoing president Larry Doane wrote, “Our greatest weakness as a professional body is that we have not made up our minds whether we want to be an institute of auditors, whether we wish to control many multidisciplinary functions or whether we wish to control only a limited number of financial and accounting disciplines. Articles have been written, discussions have been held, task forces have reported and investigations have also been [carried out to deal with] this problem, but no one seems to have pulled them all together and taken a hard look at our future.”
Doane and many others were preoccupied by the fact that, for the past 30 years or so, the CA’s role had been changing and expanding, from essentially reporting and analysing past events to providing information and advice that would affect the future of their clients’ business. And though the CAs were influential in insolvency, management consulting, business valuation and industrial accounting, they did not control its development as they did accounting. While many in the institute were aware of the profound change, the institute itself had not responded. It was not helping its members manage change nor was it providing strategic direction for the profession. If CAs were still only accountants, then the CICA’s form, correctly, followed function. But the majority of members were in fact no longer just accountants.
To address the problem, the institute formed the Long-Range Strategic Planning Committee in 1984. Two years later, on July 30, it delivered its report. Meeting the Challenge of Change (popularly referred to as the Rainbow Report for its multicolour cover) articulated a vision of “a more broadly based profession whose highly skilled members are the recognized experts in meeting the needs of an information society.” But while the report was right for the times, its recommendations went neglected. “There were some real gems in the Rainbow Report, but they remained buried, gathering dust,” says Doug Barrington, the chairman of the Inter-Institute Vision Task Force, which was formed in 1994 and picked up where the Rainbow Report had left off.
Delivered in 1996, the Vision Task Force’s report sounded an alert, saying the profession’s day of reckoning was fast approaching. Noting that the issues in the Rainbow Report hadn’t been resolved, it pointed out “those issues are still with us, but whereas they were emerging in 1986, they are enveloping our profession today. ... The [chartered accountant’s] pre-eminence in the marketplace, as trusted business advisors and key players in business decisions, has eroded over the last decade. … We do not have the insight and skills to thrive in the future … and that erosion will only accelerate.”
The task force also pointed fingers at the CICA’s unwieldy governance structure and at the provinces that for many years had chosen to go their own way. “The CICA’s dilemma mirrors the federal government’s,” says Michael Gibbins, the Winspear Professor of Professional Accounting at the University of Alberta and a member of the Rainbow Report committee. “How do you give a national body more power without giving the provinces less power? The Vision Report clarified what the CICA’s responsibilities are and which ones belong to the provincial institutes. It’s a step forward but I don’t see how the CICA can become more national than it is.”
The Vision Task Force identified and underlined two imperatives: change was a matter of survival, and the changes it was recommending had to be implemented almost immediately. (In fact, almost all of its recommendations have now been implemented.) A quarter of a century after its first task force, the CICA had a definitive document that seemed to put an end to the introspection of those previous 25 years. Moreover, it had a pressing call to action that would force the institute and the profession to confront and manage the realities of its very roots, the commercial world.
“The Vision Task Force recognized and addressed the fact that the profession needs to be sensitive to the needs of the market,” says Michael Rayner, who retired last year after nine and a half years as president of the CICA.
In no small way, the task force’s report is a positioning document. On the one hand, the task force describes a professional who is well-grounded in such traditional services as accounting and auditing. But it also envisions a professional who is equipped to compete in the knowledge economy and is well-rounded enough to understand and develop a broad perspective of a client’s business and add value to the decisions that affect the future of that business.
“Our biggest challenge is to make the CA brand the most powerful professional brand in the country,” says David Smith, who took over from Rayner in November 2001 as president of the CICA. Smith notes that professionals such as lawyers have made inroads into the domain of chartered accountants and says, “The profession does not and cannot live in isolation. We don’t have a corner on the market and so we have to continually stake our claim. We need to reinvent the profession. I think that you’ll see as much change over the next 10 years as there was in the CICA’s first 100 years.”
The report is also extremely comprehensive. From its calls for a more nimble governance structure to new designations that, according to Rayner, make the “CA brand more elastic,” and to a re-engineered education program that puts a premium on competency instead of on knowledge, it paints a picture of a remade professional and profession.
Over the past 100 years, the organization John Mackay created has undergone tremendous evolution and has grown into a body with a strong and influential presence. The CICA has a definite sense of where it and the profession are going and an even stronger sense of how it will reach its goals and how it will sustain its leadership in the years ahead. After decades of looking in the mirror, there is no need to keep looking back.
