Corporate Reporting How Your Business Will Be Affected By Impending Regulatory Changes

Corporate ReportingHow your business will be affected by impending regulatory changes

May 18, 2010

© PowellDorian Services Inc.

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Today’s presenters

Susan Clayton is PowellDorian’s Director, Financial Reporting. She has over 24 years of experience managing finance and administration departments and related functions such as contract administration, human resources and corporate secretary duties. Susan has held the positions of CFO and Director of Finance for several companies in the technology industry and now spends most of her time providing IFRS and Private Enterprise GAAP consulting expertise to a wide range of organizations.

Pamela Egger is PowellDorian’s Director, General Counsel Services and provides services in the area of corporate compliance. She has over 10 years of experience as a securities and corporate finance lawyer in Vancouver, BC, serving clients ranging from emerging private companies (i.e. listing via IPO’s, RTO’s or CPC’s) to TSX Venture Exchange and TSX Exchange (senior) listed companies.

Pamela Egger, B.A., LL.B.

Susan Clayton, BBA, CGA


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Session objectives

By the end of this session you will:

Understand why minimal corporate compliance may not be optimal

Realize that as of January 1, 2011, Canadian GAAP as they are currently known will no longer exist requiring all companies to adopt a different standard

Identify different accounting standards that exist for private enterprises and the choices you have

Identify the new accounting standards that are mandatory for public enterprises

Understand the reasons for choosing one set of accounting standards over another

Understand the challenges of managing multiple roles in a small enterprise

Have knowledge of the services that PowellDorian can provide to help you efficiently manage your multiple roles


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Compliance considerations

Why does maintaining a broader scope of corporate compliance matter?

What you don’t do now may haunt you later.

Q

A

• Governmental entities and Not-for –Profits: better accountability promotes confidence from public/membership (accordingly, market forces continue to drive adoption of modern governance practices)• Corporations: reduce risk of lost opportunity such as future M&A, public listing on any exchange, joint ventures, venture capital financing

Private EnterpriseBenefits

•Better accountability promotes investor confidence (lenders, venture capital, private equity, public trading)•Reduce risk of lost opportunity such as financings, M&A, joints ventures. • Ensures recruitment & retention of quality directors and management• Provide defence against liability for losses in lawsuits (includes personal liability of directors and officers)•Remain clear of defaulting or cease traded issuer list

Publicly Listed CompanyBenefits


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What is best level corporate compliance for an organization?

The following may serve as part of a due diligence checklist.

3.Maintaining corporate records:

– articles, by-laws (establishing, maintaining, complying with)

– directors’ and audit committee resolutions

– shareholder and directors registers

– tracking share certificates and share transfers

– corporate filings (corporate registrar and public company regulators)

– material contracts

2. Maintaining meeting minutes:

– board, audit committee, other committees

– scheduling (timing and notice requirements)

– developing agendas

– advance preparation and distribution of materials

– minutes recording and record keeping

– task follow-ups


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What is best level corporate compliance for a corporation?

1. Coordinating annual shareholder meetings:

– preparing notice of meeting, information circular, resolutions, form of proxy, and circulating to shareholders

– preparing script for Chair of meeting

– coordinating with stock transfer agent (NI 54-101 requirements - applies to publicly listed companies)

– filing updates with corporate registrar

3. Monitoring and complying with governing legislation:

– governing company act and corporate by-laws

– privacy laws

– criminal laws applicable to corporations and directors

– industry laws (environmental, permitting, licensing, etc.)

– securities laws and stock exchange rules (applies to publicly listed companies)


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1. Establishing and maintaining corporate governance standards:

– developing corporate polices: Independence of Board and Audit Committee

Code of Ethical Business Conduct

Board Orientation and Continuing Education Policy

Board Committee Charters

Director and Board Committee Assessment Process

CEO and Director Compensation Policy

Director Nomination and Recruitment Process

– ensuring regular monitoring for compliance (liability defence )

– best practices (proactive)

NI 58-101 provides for mandatory disclosure for publicly listed companies [with some exceptions for venture companies), but market forces are pressuring all entities to adopt principles contained in the corresponding NP 58-201!


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The remaining items are mandatory for publicly listed companies, but some are considered “best practice” for other entities.

•Establishing and maintaining audit committee standards:– NI 52-110 mandatory disclosure requirements

– developing Audit Committee Charter, monitoring compliance

•Complying with disclosure rules for executive compensation:– NI 51-102F6 mandatory disclosure requirements

– developing policies (bonuses, expenses, stock option granting, other long term and short term incentive plans)

– recording and regular monitoring of policies

8. Complying with general disclosure rules:– material changes (news releases)

– NI 43-101 (mining law) & NI 51-101 (oil & gas law) disclosure requirements

– insider trading prohibitions and reporting

– developing “no-trading” policies (i.e. black out policies)


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1. Establishing practices to comply with CEO and CFO certification rules (some exemptions for venture companies):

– NI 52-109 mandatory disclosure requirements

– developing policies for internal control standards

– monitoring regularly by internal audit checks (liability defence)

4. Complying with disclosure rules for annual and quarterly financial statements and management discussion & analysis:

– every quarter, preparing annual or quarterly financial statements and MD&A (NI 51-102, NI 51-102F1 – MD&A form items)

– mandatory to convert to International Financial Reporting Standards (IFRS) instead of Canadian GAAP (NI 52-107) effective as at January 1, 2011


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Canadian accounting standards status update

For fiscal periods beginning on or after January 1, 2011, Canadian GAAP will no longer exist. Companies will need to adopt a different standard:

•Public companies will be required to use International Financial Reporting

Standards (“IFRS”)

•Private companies have the option to use either IFRS or Accounting

Standards for Private Enterprises


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The argument for IFRS:

• Your major competitors are adopting IFRS

• You have plans to issue equity through an IPO

• You are competing against public companies with access to credit

• Your exit strategy includes a sale to a private equity investor or public company

• You have plans to access capital or debt markets outside of Canada

• Users want your company to report on same basis as public companies

• You have plans for global expansion

• Your parent company reports under IFRS

Which standard is best for private companies?


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Which standard is best for private companies?

• Your significant domestic competitors, customers and suppliers are

private

• You have no plans to access public equity or debt markets

• Your financial reporting is straight forward with limited complexities

• The intention is for ownership to be maintained within family or private

individuals

The argument for Private Enterprise GAAP:


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Considerations before adopting IFRS

Advantages Disadvantages

Generally accepted as more relevant, understandable, reliable and comparable on a global basis.

Standard is more principle based resulting in fewer bright lines and rules

Adopted by Canadian public companies and by over 100 countries worldwide.

Disclosure requirements are significantly greater than required under Private Enterprise GAAP

May provide a competitive advantage against enterprises who fail to adopt a globally-harmonized standard.

The conversion process can be lengthy, and require significant resources. (eg, contracts such as banking agreements and executive compensation may require renegotiating; staff training both inside and outside of finance regarding implications, etc)


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Considerations before adopting Private Enterprise GAAP

Advantages Disadvantages

Based on current Canadian GAAP – standards are straight forward and require little change

Contracts such as banking agreements and executive compensation may require renegotiating

Likely best route if no plans to access public equity or debt market

Overall effectiveness will be reviewed after standards have been in place for a few years = possible significant future changes

Disclosure requirements are less than those required under IFRS

May not be a long-term solution as there is a good chance that the standards will evolve to IFRS


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What needs to be done?

Publicly accountable enterprises ( no choice exists)

Private enterprises (choose wisely!)

IFRS

PRIVATE ENTERPRISE

GAAP

First and foremost, determine which standards are applicable to your company


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What needs to be done?

Regardless of the standard chosen:

• No two conversion projects will ever be the same as the specific issues that companies will face during conversion will vary widely because of the variables at play.

• An impact assessment, diagnostic activity or scoping exercise should be commenced in order for management and boards of directors to identify the extend and complexity of the conversion and allow them to make the appropriate decisions for planning, structuring and resourcing the project.

• There are key areas that management will need to address during the

conversion that will be broadly similar for all conversions.


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Creating a transition plan

There are key areas that management will need to address during the conversion that will be broadly similar for all conversions.

•Project launch and planning activities

• Structuring a project team and assigning resources

•Revision of Accounting Policies

•Application of transition standard

• IFRS 1

•Development of skeleton financial statements that are compliant with new

standard

•Preparation/restatement of financial information from Canadian GAAP to

new standard for comparative accounting period.


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Creating a transition plan (cont’d)

• Transition Approach• Will entries be posted at a consolidated level or pushed down to the

transaction level?

• Identify and resolve data capture issues

• For IFRS, some of the increased financial disclosure will require new processes to collect the data.

• Retraining of personnel

• Management will need to ensure that adequate resources are available to ensure all employees have appropriate technical knowledge and adequate training of any new accounting policies and business processes and procedures.

• Communication with stakeholders

• This includes investors, unions,

• Audit committee financial literacy and retraining


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Practical Considerations

Before getting started, there are a few things to consider:

•Transition date and adoption date – time is of the essence.

•Prior year comparatives in accordance with the new standards are required -

time is of the essence.

•Standards will continue to evolve as standards are added and continuously

improved – monitoring changes will be important.

•Impact of adopting new standards can have a pervasive impact through out the

organization as it may impact IT, process and procedures extends beyond

Accounting/Finance – good communication plan and planning are key.


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Schedule of events

Select accounting standard

Planning phase Development

Now July 1, 2010 Oct 1, 2010

ImplementationJan 12011

Review impact of standard on financial

statement components

Select accounting policies required for new standard

and resolve any issues

Calculate any adjustments

required

Draft financial statements and

notes

Analyze impact on other business

areas

Design system modifications as

required

Identify requirements, ie,

training

Develop and implement system

modifications


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Managing multiple roles

Small to mid-size private or public enterprises are often left with only a few key players juggling multiple responsibilities.

Business Profit

CEOSenior Officers

Board of Directors


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Compliance models

Corporate Compliance

Board of Directors

Management

External Stakeholders

Board

External stakeholders Management

Traditional model Optimized model

CorporateSecretary


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The key roles to keep the business on track

• Expanded role compared to “traditional” corporate secretary

• Manages all corporate compliance and governance related matters; works closely with office of CFO for financial disclosure aspects

• Develops corporate policies and procedures (for board and management)

• Provides guidance to directors and officers on their fiduciary duties, relevant legislation, and other applicable regulatory rules and policies

• Helps foster an ethical corporate culture

Compliance Officer Role

• Requires familiarity with multiple sets of GAAP

• Manages the transition to new accounting standards (and any changes thereafter)

• Works closely with Compliance Officer to ensure appropriate disclosures made and in a timely fashion

• Works closely with CEO, board and audit committee to present and interpret financial statements, financial performance and key performance measures

• Responsible for design and development of internal controls

Financial Reporting Role


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How PowellDorian can help

PowellDorian Corporate Legal and Financial Services provide:

• Corporate Secretary/Compliance Officer and In-house Counsel– liaison between your Board, senior management, and external stakeholders– coordination with office of the CFO (accounting/bookkeeping) for financial related

disclosure– liaison with external lawyers = greater efficiency and reduced legal costs– provision of corporate secretary services and in-house counsel services– preparation of annual general meeting materials– SEDAR, SEDI , and Corporate Registrar filings

• Chief Financial Officer/IFRS Project Management and Consulting– transition financial reporting from GAAP to IFRS or Private Enterprise GAAP– financial and bookkeeping system setup– advice and implementation of internal controls over financial reporting– preparation of annual and quarterly financial statements and MD&A– coordination with Corporate Secretary/Compliance Officer for financial related

disclosure– liaison with CFO or provision of CFO related services


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Questions ?

Feel free to contact us at:

(778) 588-7210

www.powelldorian.com

Pamela Egger, B.A., LL.B. Susan Clayton, BBA, CGA

DirectorGeneral Counsel [email protected]

DirectorFinancial Reporting [email protected]

Documents

Corporate Reporting How Your Business Will Be Affected By Impending Regulatory Changes