SEC: 20th Anniversary of Regulation FD

 

On August 15, 2000, the United States Securities and Exchange Commission (SEC) adopted Regulation Fair Disclosure, often referred to as Regulation FD. The rulemaking was controversial, and the vote of the Commissioners to approve Regulation FD was 3 to 1 in favor. The SEC’s Chairman at the time, Arthur Levitt, believed that Regulation FD was necessary to “level the playing field” for investors, by prohibiting the selective disclosure of material non-public information to market professionals. On the other side of the debate, some feared that Regulation FD would have a chilling effect on the communications between public companies and the market, while others worried that Regulation FD would lead to information overload, where public companies would be obligated to frequently disclose too many material developments.

Over the past twenty years, Regulation FD has significantly shaped the framework for public company communications. The SEC has enforced Regulation FD judiciously, seeking action in the most egregious cases to send a clear message to public companies about the conduct that is expected in accordance with the rules. Regulation FD has also adapted with the changing times, as the Commission has provided guidance on the dissemination of material nonpublic information through websites and social media channels. Today, Regulation FD stands as a key component of the regulation of corporate disclosure.

The SEC Historical Society has prepared an extensive review on the 20th Anniversary of Regulation Fair Disclosure. The review includes an audio program that provides A Historical Perspective on the Development, Implementation and Enforcement of Regulation FD on its twentieth anniversary.

The future of corporate reporting: a review article (2000)

 

In a research article published in 2000, Professor Vivien Beattie noted that: “Significant changes in the corporate external reporting environment have led to proposals for fundamental changes in corporate reporting practices. Recent influential reports by major organisations have suggested that a variety of new information types be reported, in particular forward-looking, non-financial and soft information.”

This paper presents a review and synthesis of these reports and provides a framework for classifying and describing suggested information types. The academic antecedents for certain current proposals are identified and the ambiguous relationship between research and practice is explored. The implications for future academic research are discussed and a research agenda is introduced.

For additional insight, read the article “The future of corporate reporting: a review article” by Vivien Beattie published in the Irish Accounting Review 2000, 7(1), pages 1-36. As well, refer to the 1991 landmark research study called Information to be included in the Annual Report to Shareholders published by the Canadian Institute of Chartered Accountants (CICA). This 317-page study was drafted by J. Paul-Emile Roy, CA under the direction of a seven-member Study Group chaired by Gerald Trites, FCA.

Andersen, Auditing and Atonement

Ten years ago, Arthur Andersen was forced to surrender its licences in the United States after the Enron scandal, precipitating its global collapse. December 2011 marked 10 years since Enron, the Texas energy company, filed for bankruptcy after perpetrating one of the world's biggest business frauds. More significantly for the accounting profession, May 2012 marks a decade since the Enron indictment in the United States, and the beginning of the end for the well-respected Arthur Andersen, one of what was then the Big Five accounting firms.

The firm was convicted of obstructing justice by destroying thousands of documents related to its work for Enron. While the ruling was overturned in 2005 on technical grounds, it came too late to resuscitate the brand. For the profession, the scandal drew wide scrutiny on the supposed compromised position of large firms that audit the books of clients to whom they also provide consultancy services.

For a look back on the past decade of reactions, reforms and soul-searching in the accounting profession, read the article “ANDERSEN, AUDITING AND ATONEMENT: The accounting profession 10 years after Enron” by George W. Russell at GAA Accounting online.

The “Going Concern” Assumption: Accounting and Auditing Implications - 1991

The “Going Concern” Assumption: Accounting and Auditing Implications was published by the Canadian Institute of Chartered Accountants (CICA) in 1991. This 262-page research report was prepared by J.E. Boritz, PhD, FCA, supported by a seven-member advisory group. It assesses the financial reporting and auditing implications of the “going concern” assumption. Particular attention is given to the nature and extent of disclosures in the financial statements and/or auditor's report when there is insufficient support for the assumption due to significant risks or uncertainties facing either the industry or the enterprise.

The “going concern” assumption is important because it underlies generally accepted accounting principles. Financial statements are prepared on the basis that the entity is a “going concern”, meaning that it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the normal course of operations.

According to the report, there were 8,664 business bankruptcies in Canada in 1989, accounting for about $2.2 billion in liabilities against assets of only $774 million, representing losses to creditors of more than $1.4 billion. In view of the economic significance of “going concern” disclosures, the lack of professional guidance, and the absence of standards in this area, the purpose of the report is to provide the basis for: 

• an accounting standards project to address the financial reporting implications of the “going concern” assumption in the accounting section of the CICA Handbook;
• an auditing standards project to modify CICA Handbook Section 5510, Reservations in the Auditor's Report, regarding auditor review of management's assertion as a “going concern”;
• an audit techniques study to support the professional judgment process.

The report summarizes relevant pronouncements and current literature and surveys reporting practices in Canada and the United States. In addition, it fulfills its mandate by:

• defining key terms including “financial distress”, “insolvency” and “bankruptcy”.
• discussing whether any reference should be made to the “going concern” assumption in the notes to the financial statements.
• assessing the financial reporting implications when there is insufficient support for the assumption.
• identifying conditions which may bring into question the continuance of an entity as a “going concern”.
• providing guidance on how doubts as to “going concern” status should be expressed.
• evaluating alternative principles governing the presentation of financial information including historical cost, value realizable in orderly liquidation and discounted value.
• determining the need for auditor review of the support for management's implicit or explicit “going concern” assumption.
• assessing the audit implications and providing guidance for reporting when there is insufficient support or inadequate disclosure in the financial statements.
• considering techniques to support the professional judgment process.

The report responds to recommendations in the 1990 publication Approaches to Dealing with Risk and Uncertainty and the 1988 Report of the Commission to Study the Public's Expectations of Audits, which noted the need to warn the public about the risk of business failure and the auditor's responsibility in that connection.

Information to be included in the Annual Report to Shareholders – 1991 Research Study updated 2008

In 1991, the Canadian Institute of Chartered Accountants (CICA) published a landmark research study called Information to be included in the Annual Report to Shareholders. This 317-page study was drafted by J. Paul-Emile Roy, CA under the direction of a seven-member Study Group chaired by Gerald Trites, FCA.

The Foreword to this study states: “The annual report has long been used by an enterprise as a primary vehicle of communication, not only with its investors or members, but also with other audiences who, for a variety of reasons, have a legitimate interest in the affairs and operations of the enterprise. Generally, the annual report contains the financial statements and associated notes. It also contains additional information which both elaborates upon the financial condition and operating results of the enterprise and provides non-financial information of interest and value to its audiences.”

It further notes: “To date, accounting and auditing standards have concentrated on the financial statements. They have paid relatively little attention to information outside the financial statements, which, to a large extent, has been regarded as the domain of the enterprise’s management. It is considered, in many circles, that a greater amount of discussion and analysis of the financial information needs to be provided than that currently contained in notes to the financial statements. This has resulted in a greater scrutiny being given to such matters, particularly by regulators such as the securities commissions.”

In addition, it states that “some concern has been expressed about the general quality of annual reports, which varies significantly among enterprises. It has been noted that the annual report has the potential of being "a shining affirmation of the company’s scope, strength, philosophy and aspirations"; on the other hand, "it can be dismal, ineffectual and boring - a wonderful opportunity lost".”

To address these matters, the CICA Accounting Standards Committee was prompted, in May 1989, to commission a research study to discuss the objectives of the annual report to shareholders and to recommend what information should be provided, beyond that which must be presented in the financial statements, to assist in achieving those objectives. Besides addressing information content, the study considers the form and presentation of information, reviews the concept of effective communication and considers annual reporting formats, summary reporting, graphics and other presentation matters.

It is noteworthy that this research study was updated and re-published by the CICA in 2008, under the title Corporate Reporting to Stakeholders (also refer to the August 25, 2008 blog posting). The updated study was prepared by J. Paul-Emile Roy, CA (author of the 1991 study) under the direction of a seven-member Study Group chaired by Gerald Trites, FCA (chair of the 1991 Study Group). It aims to promote effective communication between a company and its stakeholders by providing useful guidance to preparers of corporate reports. It is based on an in-depth review of the annual reports and websites of 125 companies that participated in the ongoing CICA Corporate Reporting Awards program. In addition, this study examines practices and significant trends in corporate reporting by analyzing:

·       more than 50 different types of information disclosed in 2004-2005 annual reports;

·       major changes in the 2004, 2005 and 2006 annual reports of award-winning companies;

·       information content, presentation and navigation on company websites in 2007.

Award for Excellence in Annual Reporting by Crown Corporations

Annual reporting is an important vehicle for accountability. In 1994, the Office of the Auditor General of Canada (OAG) launched the Award for Excellence in Annual Reporting by Crown Corporations. The program aimed to promote enhanced accountability through improved disclosure of information on corporate performance by recognizing Crown corporations that do this well. Awards were presented in two categories based on corporation size.

According to the Report of the Auditor General of Canada, 1993 (Chapter 4, paragraph 4.72): “The annual report gives management and boards of directors an opportunity to report to shareholders on how they have fulfilled their responsibilities. The private sector has shown considerable interest in the role of the annual report, and its importance is widely acknowledged. Both the Canadian Institute of Chartered Accountants (refer to the 1991 research study, Information to be included in the Annual Report to Shareholders) and the Society of Management Accountants of Canada have issued research reports detailing information that should be included in the annual report, and these are excellent references.”

It is clear that information on financial results alone does not adequately address the full range of stakeholders’ interests and information requirements. Because they deliver a mix of public policy and commercial objectives, improved performance reporting is especially important in the case of Crown corporations. The practice of reporting on performance in annual reports, though much improved, still has a way to go. The first important steps are: reporting against all objectives; stating objectives in more measurable terms; and reporting performance information that focuses principally on outputs and outcomes. Also, more attention needs to be given to providing more comparable and consistent information on parliamentary funding.

After operating this program for 12 years, the OAG transferred the administration of the Award for Excellence in Annual Reporting by Crown Corporations to the Canadian Institute of Chartered Accountants (CICA) in 2006. The CICA has incorporated the OAG program into its own annual Corporate Reporting Awards program (see the previous postings on November 17, 2010 and June 9, 2011).

The Evolution of US GAAP, Part II: 1973-2004

This article, the second of a two-part commentary about accounting standards setting, chronicles the rising importance of financial accounting standards in different sectors of the US economy, which has led to increasing special-interest lobbying for accounting standards with characteristics compatible with the desired outcomes. Financial accounting standards affect the US economy in many ways, both in the aggregate and in the distribution of income, wealth and risk. This commentary captures many of the key issues that have preoccupied standards setters, and especially identifies the efforts of the Financial Accounting Standards Board (FASB) to implement an asset-and-liability approach to recognition and a fair-value approach to measurement.

According to the author, “When a highly prescriptive standards setter is coupled with a rigorous enforcement process used by a government regulator to secure compliance with accounting standards, especially in a confrontational society such as the United States, companies and even branches of government will lobby the standards setter not to approve standards that interfere with their business plans and strategies. This is what has happened increasingly in the United States since the 1970s, and there is no sign that, on sensitive and controversial issues, it will diminish in intensity or frequency.”

(Read more in the article “The Evolution of U.S. GAAP: The Political Forces Behind Professional Standards (Part II)” by Stephen A. Zeff, PhD, in the February 2005 issue of The CPA Journal online.)

The Evolution of US GAAP, Part 1: 1930-1973

In 2005, The CPA Journal marked its 75th anniversary by publishing an assessment of the path of accounting standards setting over the previous 75 years. This commentary on the evolution of US GAAP was presented in two parts.

The first part covers the years from 1930 to 1973. The second part covers the years from 1973 to 2004. The focus is deliberately on incidents that represented important changes in practice or in the way in which accounting principles and standards were set.



Read about the history of US accounting standards in the article “The Evolution of U.S. GAAP: The Political Forces Behind Professional Standards” by Stephen A. Zeff, PhD, in the January 2005 issue of The CPA Journal online.

Approaches to Dealing with Risk and Uncertainty - 1990 CICA Research Report

The 1990 CICA Research Report, Approaches to Dealing with Risk and Uncertainty, was prepared by J.E. Boritz, PhD, FCA. He was assisted by an 8-member Advisory Group. This Research Report (about 160 pages) was developed in response to a recommendation in the Report of the Commission to Study the Public's Expectations of Audits (published in June 1988), commonly referred to as the Macdonald Commission Report.

The recommendation in  the Macdonald Commission Report stated that "the CICA should initiate and complete as soon as possible a study of risks and uncertainties leading to conclusions as to how they may best be disclosed in financial statements or elsewhere (e.g., in Management's Discussion and Analysis in the annual report)." Accordingly, the primary purpose of the Research Report is to discuss and summarize some of the key issues, and to recommend what further action should be taken.

CICA Task Force on Standard Setting - Final Report 1998

The Final Report of the CICA Task Force on Standard Setting (TFOSS) was issued in May 1998. It represented the culmination of almost two years of deliberations involving extensive communication and consultation with stakeholders in the standard-setting community, both in Canada and abroad. TFOSS expressed a belief in four-long-term goals articulated in its Report. These include the ultimate achievement of one set of internationally-accepted accounting and auditing standards, with Canada playing a significant role in their development.

According to TFOSS, Canada's ability to fulfil that role in the future, as well as to maintain its leadership in setting national private and public sector standards and developing emerging and innovative areas of service to the public, will depend on the commitment of adequate human and financial resources. This commitment has traditionally come from the CICA. But, in the future, TFOSS believes that it must also come from others who benefit from standards, particularly in accounting, but possibly in other areas as well. Their participation and support will serve to enhance the CICA's position as it continues to lead the profession in the years ahead.

Toronto Transit Archives

The Transit Toronto Archives contain scanned and other electronic images, including maps, old brochures, news clippings, annual reports, schedules, sound files and a photo gallery. The materials were produced by the Toronto Transit Commission and other transit agencies in the Greater Toronto Area (GTA) over the past century. While not a complete list, this material is useful for understanding how public transportation in Toronto has grown and developed since its beginnings in the mid 19th century.  The TTC’s Previous Websites can be accessed courtesy the Internet Archive. More maps and photographs are available online at Mike’s Transit Stop.

CICA Corporate Reporting Awards celebrate 60 years of excellence

This year marks the diamond anniversary of the Chartered Accountants of Canada’s Corporate Reporting Awards. Since 1941 the program has been centre stage in Canada’s evolution to best practice reporting models.  By providing important recognition for those committed to advancing business reporting, the program has helped drive the development of best practices in financial reporting, corporate governance disclosure, electronic disclosure and sustainable development reporting, all of which are now regarded as essential components of the corporate reporting model. Judging organizations include the Canadian Institute of Chartered Accountants (CICA), PricewaterhouseCoopers, Ernst & Young, Deloitte, International Institute for Sustainable Development, Canadian Investor Relations Institute, and Toronto CFA Society.  (Read the article “Corporate Reporting Awards celebrate 60 years of excellence” in the June-July 2011 issue of CAmagazine online.)

Remembering Professor Edward Stamp (1928-1986)

As a scholar and professional of truly international renown, Professor Edward Stamp was a British subject by birth and a Canadian citizen by naturalization. He took his degree from Cambridge in Natural Sciences and in 1950 was a Fulbright Scholar. In 1951, he came to Canada joining the public accounting firm of Clarkson Gordon & Co., where he qualified as a Chartered Accountant. He was admitted to partnership in the firm in 1959 and practiced in both Toronto and Montreal. In 1976, he was given the rare honour of Fellowship by the Ontario Institute of Chartered Accountants.

His academic teaching interests began in 1957 when he was a Special Lecturer at the Osgoode Hall Law School in Toronto. His first full-time academic appointment was in 1962 at Victoria University of Wellington in New Zealand where he was later appointed Professor of Accountancy. In 1967, he was appointed Professor and Head of the Department of Accounting and Business Method in the University of Edinburgh, Scotland - positions which he held until his appointment as Professor of Accounting Theory and Head of the Department of Accounting and Finance at the University of Lancaster in 1971. In 1975 he was named the Endowed Research Professor at the University of Lancaster. He founded the International Centre for Research in Accounting at that University in 1971 and was appointed as the Director of the Centre.

Professor Stamp's research interests are particularly broad, covering financial accounting and reporting, accounting theory, international accounting and auditing, and public accounting and auditing. He is the co-author of the basic document of the British conceptual accounting framework (The Corporate Report, 1975) and the author of the counterpart document for Canada (Corporate Reporting - Its Future Evolution, 1980).

One of the particular achievements of Professor Stamp is bridging the gap between academe and practice. His continual and articulate urging of the profession to respond to the new findings and direction emanating from the universities prompted much professional progress. His professional experience as a partner in an international public accounting firm and his senior academic appointments provide a uniquely rich background for these endeavours.

Among many of Professor Stamp's achievements and honours are: Advisor to Her Majesty's Treasury; Distinguished International Visiting Lecturer of the American Accounting Association; and Visiting professorships in Europe, Africa, the United States, Canada, Australia, New Zealand and Japan He was an executive member of the European Accounting Association and a Founding Member of the International Association for Accounting Education and Research in Japan. Professor Stamp was awarded the degree of Doctor of Laws at the University of Saskatchewan in 1984. He continued as the Endowed Research Professor and Director of the International Centre for Research in Accounting at the University of Lancaster, England, until he passed away on January 10, 1986 in Toronto.

Canada's CAs symbolized by new logo

On June 1, 2007, Canada’s Chartered Accountants (CAs) got a new look as the profession unveiled a dynamic and modern redesigned logo. Updated for the first time since the early 1990s, the new CA logo reflects the leadership and value provided by the more than 72,000 CAs and 10,000 CA students in Canada and Bermuda. (See the CICA Annual Report 2006-2007 "Inspiring Confidence" - article on page 7.)

Shell Canada - Celebrating 100 Years

In 2011, Shell Canada celebrates 100 years of business. To celebrate this milestone, it is launching exciting programs from coast to coast to say thank you to Canadians. A lot has changed since 1911, but Shell has remained committed to innovation and leadership. It strives to leave a positive legacy for all Canadians for generations to come. Read the Anniversary Press Release and Explore 100 Years of Innovation through an Interactive Timeline.

Canadian corporate archives - The Canadian Tire Heritage Collection

At the D.B. Weldon Library on the campus of the University of Western Ontario, an expression of Canadian culture like no other quietly sits waiting to be uncovered. This incredible collection of materials is known as The Canadian Tire Heritage Collection. It's a treasure trove that includes hundreds of catalogues dating back to the early 1930s, internal newsletters, annual reports, 39,000 photographs, various versions of Canadian Tire money and hundreds of audio and visual files including some now-famous television ads.  To learn more, read the article “Canadian Tire archives - treasure trove” in Western News (November 22, 2007 Vol. 43 No. 32) which is also available online.

Canada's History and the Hudson's Bay Company

In 1994, the Hudson's Bay Company donated its corporate archives to what is now the Archives of Manitoba, and its museum collection to The Manitoba Museum, both public institutions. These gifts earned a substantial tax saving, most of which was put to work in the name of history by establishing the Hudson's Bay Company History Foundation. The Foundation, in turn, provides core funding to ensure the maintenance of the Company's gifts and to support the initiatives of Canada's History. Canada’s History operates independently of the Foundation and realizes additional funding through memberships, donations and sponsorships. As a registered charity, it can accept donations and issue receipts for income tax purposes.

Corporate Governance and the New York Stock Exchange

The New York Stock Exchange (NYSE) has long been a leading proponent for the highest standards of corporate governance and ethical behaviour. Its listing standards have included governance rules for approximately 150 years. It was the NYSE that first required companies to issue regular financial statements, as well as to provide quarterly earnings announcements and conduct independent audits of financial statements, all of which were included as part of the NYSE’s listing standards before any of the federal securities legislation coming out of the Great Depression. The leadership role of the NYSE on governance matters continued during the middle of the 20th century, when the NYSE pioneered such developments as required proxy statement distribution, a minimum number of outside directors, and audit committees made up entirely of independent directors. To learn more about the NYSE and governance, read the Report of the New York Stock Exchange Commission on Corporate Governance (September 23, 2010). The report contains a summary of significant corporate governance developments since 2000 (pages 10-23).

History of the CICA Corporate Reporting Awards

The CICA Corporate Reporting Awards (CRA) began in the early 1950s. Originally, they were based on hardcopy annual reports (from 1951-1992). Today, the awards have expanded beyond the annual reports to include sustainable development awards (introduced in 1993), MD&A (introduced in 1995), corporate governance awards (introduced in 1996), electronic financial reporting (introduced in 2001) and scorecards (introduced in the late 1990s). Now, the major federal crown corporations are also included (introduced in 2007). For a brief history of the Corporate Reporting Awards, refer to the March 2010 research paper “Corporate Reporting Awards and Financial Reporting Quality” by Tim Bauer (tdbauer@uwaterloo.ca) and J. Efrim Boritz (jeboritz@uwaterloo.ca) – pages 6-12 and Appendix B).

CICA - Information Technology Advisory Committee

The Information Technology Advisory Committee (ITAC) of the Canadian Institute of Chartered Accountants (CICA) was established in 1991 by the CICA's Research Studies Department. A four-person committee was set up to help the CICA Studies and Standards Group keep abreast of the potential impact of technological developments on Canadian accounting and auditing standards, practices and methodologies. Throughout the 1990s, ITAC's focus was assisting the auditing profession, since technology had made it possible for auditors to implement procedures not possible previously, because of time constraints and costs. Today, ITAC is made up of representatives from accounting firms, financial institutions, government and academe. They meet four times a year for a one-day meeting and conference calls are scheduled as needed. ITAC’s focus is broader than advising on national accounting and auditing standards (see About ITAC). Notably, it provides advice and prepares guidance on information technology matters affecting the CA profession and the business community (see ITAC Recent Activities and ITAC Publications). A history of ITAC is provided in the CAmagazine article, "Behind the Committee" published in January/February 2004.