FEI Canada's committee on corporate reporting.

In this issue of Financial Executive, we continue our series of profiles on FEI's committees, which track legislative, regulatory and business developments important to financial executives.

Because Canada is struggling with many of the same corporate reporting issues Corporate America is, it's not surprising that FEI Canada's Committee on Corporate Reporting is just as busy as its American counterpart. Chaired by Mark Walsh, assistant comptroller of Imperial Oil Ltd. in Toronto, with Steven Bower, assistant controller of BCE Inc. as the vice chairman, the committee of 20 actively tracks and responds to proposals made by Canadian business' regulatory bodies. These include the Canadian Institute of Chartered Accountants (akin to a combination of the American Institute of Certified Public Accountants and the Financial Accounting Standards Board. says Walsh) and the Ontario Securities Commission, which is the largest of Canada's provincial securities commissions and is similar to the Securities and Exchange Commission in the United States.

CCR meets four times a year, twice face-to-face and twice by teleconference. But unlike several of FEI's technical committees in the United States, Canada's CCR doesn't have standing subcommittees. Instead, the committee forms task forces of four or five people to address specific issues as they arise, Walsh explains. This allows the committee to remain flexible and responsive. "The task-force members study the exposure draft CICA or the OSC puts forth and draft a response. Then we circulate it throughout the entire committee and develop a final letter that incorporates everyone's input," he says.

Compared to U.S. organizations like the FASB, "the access to CICA is relatively easy, and the sessions are informal," Walsh reports. In fact, at the committee's semi-annual face-to-face meetings, CICA members are usually the dinner speakers, so CCR members get the chance to engage in a lively debate with them about corporate-reporting matters and ask questions about CICA's positions on specific issues. But it's not as if CICA and FEI Canada are two oppposing camps. Many CICA members are FEI Canada members, so CCR often can place one FEIC member on the CICA task force studying a particular issue.

Most recently, CCR has been focusing on CICA's proposed foreign-currency translation draft, which would affect how companies calculate gains or losses on their non-Canadian debt. These gains or losses are currently deferred on the balance sheet and amortized to income over the life of the debt. Under the draft's proposed changes, Canadian companies would have to reflect fluctuations in foreign-exchange rates in their reported earnings. The change would mark a shift on the part of Canadian regulators toward an accounting approach more consistent with that of the United States and many other countries.

Walsh explains the committee is concerned that such a regulation could cause significant earnings fluctuations, depending on the size of the debt and the degree of oscillation in the exchange rates. "In general, people think there are just too many aspects that are conceptually or pragmatically wrong," he adds. Right now, CCR is waiting for CICA to wrap up the financial instruments project it's doing with the International Accounting Standards Board, because some of the decisions on that project affect the foreign-currency translation proposal.

When it's necessary, FEIC's CCR is capable of lighting a fire under CICA to get it moving on emerging issues. Several years ago, when the United States implemented OPEB, CCR members began to feel that post-employment benefits was an issue that would become increasingly important for Canadian companies, too. "The liabilities were creeping up on a lot of companies, and they just weren't managing for them," Walsh recalls. CICA dismissed CCR's concerns as irrelevant for Canadian companies, until the committee made a presentation based on a membership survey it had done. The survey, conducted and analyzed with the help of an actuary, showed that the members' estimated liabilities for their post-employment benefits were much higher than previously expected. CICA immediately put the issue on its agenda, but "it's taken until now for the issue to work its way up to the top of the pile," says Walsh, adding that a CICA task force will meet sometime this month to begin discussing the issue.

On a different front, CCR has responded to the Canadian securities commissions' requests for input on a proposed conversion to electronic filing (similar to EDGAR here). CCR endorsed the idea but expressed several concerns about details of the proposal, including the need for electronic signatures modeled after U.S. procedures, the type of software and hardware required and the confidentiality of electronic comment letters and responses. CCR also pointed out that "Companies who file with the SEC will be required to make two separate electronic filings on two different systems," something companies don't currently have to do, and it observed that the costs of electronic filing seem to outweigh the benefits. Therefore, while the committee supports the principle of electronic filing, it's against mandating it.

FEIC's CCR gets involved with broader reporting themes, too. For example, it recently submitted comments on CICA's proposed five-year work plan, which has a general, strategic thrust rather than a laundry list of specific issues. The committee supported CICA's approach of developing general principles rather than detailed rules, observing that "This leaves room for professional judgment in determining the correct accounting for specific sets of circumstances, which should result in better financial reporting."

The committee's comment letter also stressed the need to support efforts on behalf of harmonizing international accounting standards, particularly between the United States and Canada. CICA works closely with the International Accounting Standards Board, so the idea of harmonization, not surprisingly, "has been one of the regulators' big themes in the last few years," Walsh reports.

Clearly, many of the issues FEI Canada's CCR is working on closely parallel developments in corporate reporting and controls in the United States. That's why the committee "would like to have better liaisons with the U.S. committees, so that we can work together in instances where we're trying to achieve the same standards," Walsh emphasizes. U.S. and Canadian financial executives "share the same concern over the increasing complexity of reporting standards," he points out, and with the advent of NAFTA, "It's more important than ever to develop harmonious accounting standards."