OTTAWA — The Certified General Accountants Association of Canada has addressed the subject of a national securities regulator and has offered up suggestions about how it should work.
OTTAWA — The Certified General Accountants Association of Canada has addressed the subject of a national securities regulator and has offered up suggestions about how it should work.
At present, the provinces are responsible for regulation. Although many securities industry groups are calling for the creation of a federal body, the province of Quebec remains steadfast in its opposition.
At the risk of putting the regulatory cart before the reform horse, the accountants group, known as CGA-Canada, last Tuesday released a discussion paper, “The Regulation of Public Accounting and Accounting and Auditing Standard Setting Under a Common Securities Regulator in Canada.” The paper was written by Poonam Puri, a professor at York University’s Osgoode Hall Law School in Toronto.
“CGA-Canada believes there is a need for reform and that the principles of regulatory efficiency, professional inclusion, transparency, accountability and regional concerns should form the basis of a new model,” said Anthony Ariganello, president and chief executive of the Vancouver-based association.
“The paper focuses on what the mandate of a common securities regulator could be in relation to public accounting, standard-setting and auditor oversight,” Ms. Puri writes.
Harsh words abound in the paper:
“Currently, the regulation of public accounting in Canada is fragmented,” Ms. Puri states. “Accounting and audit standard setting and oversight in Canada are based much more on a self-regulatory model than a direct-governmental-regulation model, in comparison to other leading jurisdictions around the world.”
A conflict issue
Some of the harshest words are directed at a rival association, the Toronto-based Canadian Institute of Chartered Accountants. “Accounting standard setting and oversight in Canada lack independence from the chartered accounting profession. Both the standard-setting and oversight institutions are funded directly and wholly by the CICA, which creates a reasonable concern that the profession may actually be, or perceived to be, regulating in its own interests rather than the public interest … To the extent that even a reasonable perception of a conflict of interest may exist or potentially exist, such a perception would ultimately serve to undermine investor and public confidence.”
The paper does not explicitly state a preference between the three options it presents for a smoothly functioning new federal body.
The paper seems to serve a much needed function, however.
“It’s a waste of time to talk about the enforcement merits of a national securities commission unless our federal politicians are also willing to completely revamp the way in which financial-reporting standards are set in Canada,” Al Rosen, a forensic accountant and president of Rosen & Associates Ltd. of Toronto, wrote in a July 12 op-ed article in the Financial Post, a Toronto-based newspaper.
“The favorite tool used by Canadian fraud artists to cover up their scams is undoubtedly the audited financial statement … Financial-statement audits are worthless to investors. You cannot sue an auditor for approving misleading or fraudulent annual financial statements in Canada. Audits are simply a risk-free revenue stream for the auditing oligopoly … That is why a national regulator will not be any more effective at prosecuting financial-statement frauds than the sum of the current work of the provincial commissions, which, by the way, is close to nothing.
“The notion of an SEC-style regulator setting accounting standards in Canada is ideal.”
Indeed, the U.S. Securities and Exchange Commission last Monday filed civil-fraud charges against four former senior executives of Brampton, Ontario-based Nortel Networks Corp. for repeatedly engaging in accounting fraud between September 2000 and January 2004.
“We have no comment on Mr. Rosen’s article,” said Carol Presseult, vice president, government and regulatory affairs, for CGA-Canada, “except to note that he has been a strong advocate of a single national regulator, and we agree the situation in Canada puts us out of step with other jurisdictions.”
At present, Canada has no national regulator, just the Canadian Securities Administrators. The Montreal-based interprovincial securities regulator in March 2006 imposed new internal-control reporting requirements to apply in financial years ending on or after Dec. 31, 2007.
The proposed new approach “will strengthen investor protection while appropriately balancing the costs and benefits associated with internal-control reporting requirements for companies of all sizes,” said Jean St-Gelais, chairman of the CSA.
