1

Public availability of financial statements Public availability of financial statements of publicly traded and privately-held of publicly traded and privately-held

companies: companies:

The Canadian CaseThe Canadian Case

REPARIS Workshop on Accounting & Audit Regulation Vienna, March 14th 2006

Presented by Alfred Borgonovo, CGA

2

Forms of business in CanadaForms of business in Canada

• Sole proprietorship – an individual carrying on business alone

• Partnership – two or more people carrying on business together for the purpose of making a profit

• Corporation – an incorporated company that is a legal entity separate from the people who own the shares

3

The sole proprietorship form of businessThe sole proprietorship form of business

A business owned and operated by one individual

• Operated under the owner’s name, or another name• Business income is declared on the personal income

tax return of the proprietor• Canada’s Income Tax Act guarantees the

confidentiality of income tax returns

FINANCIAL STATEMENTSNEED NOT BE PREPARED / MADE PUBLICLY AVAILABLE

4

The partnership form of businessThe partnership form of business

• The law does not set a limit on how many partners may be involved

• Partnership income is declared on the income tax returns of the partners

FINANCIAL STATEMENTS

NEED NOT BE PREPARED / MADE PUBLICLY AVAILABLE

Two or more persons carrying on business together for the purpose of making a profit

5

The corporationThe corporation

Different forms of incorporation• Registration – practice adopted from Britain• Letters Patent – royal charter approach• Articles of Incorporation - adapted from U.S.

An incorporated company that is a legal entity separate from the people who own the shares

6

Corporations law in Canada: Corporations law in Canada: a provincial responsibilitya provincial responsibility

• There are 10 provinces and 3 territories in Canada

• Corporations can be incorporated at provincial or national level (Canada Business Corporations Act -CBCA)

7

Financial reporting obligations of Financial reporting obligations of corporations under CBCAcorporations under CBCA

• Section 155 of CBCA: Obligation of a corporation to present financial statements on an annual basis.

• Regulations stipulate that the financial statements shall include:

a. a balance sheet

b. a statement of retained earnings

c. An income statement; and

d. A statement of changes in financial position• Sections 157 and 159: Availability of financial

statements to shareholders

8

Financial reporting obligations Financial reporting obligations under the CBCA - continuedunder the CBCA - continued

• A corporation may apply to a court for an order barring the right of a person to examine the financial statements

• The requirement to produce financial statements can be waived by unanimous resolution of the shareholders

Restrictions on the availability of financial statements

9

Different types of corporationsDifferent types of corporations

• Non-offering corporations (commonly referred to as private or closely held corporations)

Generally restricted to 35 or 50 security holders Prohibition on offering shares to the Public

• Public offering corporations No such restrictions Subject to the provincial securities laws

Canadian legislation governing corporations distinguishes between:

10

Financial reporting obligations of private Financial reporting obligations of private corporationscorporations

• Lodge an annual income tax return• Lodge annual returns with the Provincial Registrar of

Companies

FINANCIAL STATEMENTS MAY NOT NEED TO BE PREPARED/DO NOT HAVE TO

BE MADE PUBLICLY AVAILABLE

11

A prominent Canadian private corporationA prominent Canadian private corporation

12

Financial disclosure by private companies is Financial disclosure by private companies is purely voluntarypurely voluntary

13

Financial reporting obligations of public Financial reporting obligations of public offering corporationsoffering corporations

• Cannot be exempted from the requirement to produce annual financial statements

• Financial statements must be made publicly available

• Financial reporting obligations of public companies and investment funds are governed by the Securities Act of each Province and Territory

14

The Ontario Securities Commission (OSC)The Ontario Securities Commission (OSC)

• Its authority derives from the Securities Act of Ontario

• According to this act, the OSC responsibilities include laying down the requirements for the timely, accurate, and efficient disclosure of information

• The OSC administers securities legislation in Ontario, including the Toronto Stock Exchange (TSX)

15

Canadian Securities AdministratorsCanadian Securities Administrators

16

How the CSA makes financial statements How the CSA makes financial statements publicly availablepublicly available

17

What is SEDAR?What is SEDAR?

• SEDAR® is the System for Electronic Document Analysis and Retrieval ("SEDAR"). The SEDAR system enables public companies and investment funds to electronically file securities related documents and information with the Canadian securities regulatory authorities.

• This Web Site contains those parts of the Filed Information and other public information that the CSA has determined to make available on this Web Site

18

Searching the SEDAR websiteSearching the SEDAR website

19

Not only the current yearNot only the current year

20

Not just financial statementsNot just financial statements

21

Document types availableDocument types available

• Annual Information Form• Annual Report• Director’s Circular• Early Warning Report• Financial Statements• Issuer Bid Circular• Management Report of

Fund Performance• Management’s

Discussion and Analysis

• Material Change report• News Releases• Notice of Meeting• Notice of Principal

Regulator• Prospectus• Proxy Circular• Take-over Bid Circular• Other

22

Search for HBC – financial statementsSearch for HBC – financial statements

23

Hudson’s Bay Company financial Hudson’s Bay Company financial statements available to downloadstatements available to download

24

And the entire company annual reportAnd the entire company annual report

25

SummarySummary

• Sole proprietorship and partnership: Exempt from the requirement to prepare financial statements

• Private company: Financial statements (if prepared) need not be made publicly available

• Public company: Annual financial statements to be made publicly available & ongoing disclosure regime

26

StatisticsStatistics

• Publicly traded Canadian companies number 2,300 Publicly available financial information Cost of compliance is high, and increasing

• Corporations and partnerships, in British Columbia alone 285,000 corporations / 352,000 partnerships Financial information not publicly available

27

Canadian trends in governance regulations Canadian trends in governance regulations (CSA) and reporting(CSA) and reporting

• Governance Reporting on internal control over financial reporting Reporting on disclosure controls and procedures Securities disclosure liability

• Reporting standards Convergence with International reporting standards.

28

Is the public availability regime of financial Is the public availability regime of financial statements in Canada adequate?statements in Canada adequate?

• Economic value of financial statements Timely and accurate financial information to support

capital markets

• The objective of financial statements according to Canadian GAAP:– “[…] to communicate information that is useful to

investors, members, contributors, creditors and other users in making their resource allocation decisions and/or assessing management stewardship”. Section 1000.15 of the CICA Handbook.

29

Is anything missing? Is anything missing? Are investors and decision-makers receiving Are investors and decision-makers receiving

the information they need?the information they need?

• Corporate sustainability reporting is becoming increasingly prevalent.

• The Jenkins Committee’s model of business reporting, 1994.

30

Concerns about the adequacy of Concerns about the adequacy of financial statementsfinancial statements

CA Magazine, August 1996

31

Financial Statements: Financial Statements: Only part of the picture?Only part of the picture?

32

Thank youThank you

For further information contact:

Alfred Borgonovo, CGA

Manager, International Development

Tel: +1 (604) 605-5041

Fax: +1 (604) 689-5845

E-mail: aborgonovo@cga-canada.org