Report on Specialization in the Canadian Chartered Accountancy Profession – December 1981

The 148-page Report of the Committee to Study Specialization in the Canadian Chartered Accountancy Profession was issued in December 1981. The Chairman’s Letter by W.D. Grace, FCA, states that: “The issue of specialization within the profession is not easily resolved. The Committee believes that the recommendations for a voluntary structured plan of specialization would prove to be of significant long term benefit to the Canadian public and to all members of the chartered accountancy profession. The Committee has addressed the issue of specialization through a lengthy process of research, discussion, and debate and by consideration of the present de facto situation and the specialty experiences of other accounting bodies and other professions.” The Committee recommended that four specific areas of practice be initially recognized as specialties: taxation, insolvency, business valuation and computer audit.

According to the booklet called Another Great Leap - CA•Designated Specialists, Chartered Accountants in Canada now have access to six profession-endorsed specialist designations, some offered directly by the Canadian Institute of Chartered Accountants (CICA) and others through organizations that have been accredited by the CICA. Currently, more than 1,000 have earned the advantage of a CA specialist designation. Regardless of the route to the specialist designation, candidates for specialist certification need to demonstrate experience in the field, in addition to completing an evaluation process. As well, specialists must comply with continuing experience and professional development standards to maintain the designation.

For more information, read the CAmagazine article, “Breaking new ground” (published in December 1997, page 2). This article discusses the first specialist designation for investigative and forensic accounting. Also, refer to the CICA website section on CA Specialization and the Institute of Chartered Accountants of Alberta (ICAA) website section on Specialty Designations.

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.

The Official Duties of Chartered Accountants - 1891

A lecture called “The Official Duties of Chartered Accountants” was read before the Manchester Chartered Accountants' Students' Society on May 4, 1891. According to that lecture, the duties of a Chartered Accountant may be divided into three classes: Private, Public, and Official.

“By private duties I mean such as are due by a Chartered Accountant to his client when he is instructed to perform an audit or an investigation on behalf of a private association, a firm, or on behalf of individuals, either in their business or private capacity. His duty is then strictly confined to carrying out the instructions of his clients to the best of his professional skill and ability; when he has performed these his responsibilities are at an end.”

“The public duties of a Chartered Accountant have reference to those cases where he acts on behalf of persons who give him general but not definite instructions, and who leave him to carry them out according to his own ideas, in the full belief that he will do his duty in the interest of all concerned, and hold him responsible for so acting. These duties are such as are undertaken by accepting the appointment of Auditor of a public company, of voluntary Liquidator of a company, of Auditor of the accounts of a deceased person's estate on behalf of those interested, either in the division of the estate or in the income derived from investment of the same, and of an Arbitrator, while the official duties are those appertaining to offices or appointments held under the Courts of Justice, whether of the Chancery Division or the Queen's Bench Division of the High Court of Justice, or under the County Courts, and under the Board of Trade.”

“It is with the last class of duties that my lecture is concerned. The appointments under the Chancery Division of the High Court of Justice are those of Receiver, Receiver and Manager, Provisional Liquidator, Voluntary Liquidator under supervision of the Court, and Liquidator; the appointment under the control of the Queen's Bench Division of the High Court of Justice is that of Trustee in Bankruptcy. Under the Board of Trade, a Chartered Accountant may receive the special appointment as a skilled Accountant to assist a debtor against whom a Receiving Order under the Bankruptcy Act of 1883 has been made, in the preparation of his statement of affairs, and also to assist the directors or other officials of a company, after an order for winding it up has been made by the Court, in the preparation of a statement of affairs. He may also be appointed the Special Manager of the business of a debtor from the date of the Receiving Order until the appointment of, or rather certification of, a Trustee, or the approval of a scheme, and also the Special Manager of a company after a Winding-up Order has been made by the Court.”

(The full lecture about “The Official Duties of Chartered Accountants - 1891” is available online at Google Docs.)

ICAEW - Timeline of the Accountancy Profession in the United Kingdom

The comprehensive ICAEW Timeline explores events from ancient times through to the first half of the nineteenth century (for detailed events, click on the red titles – for example, 1853 - 1880 and 1968 - 2003. The Timeline shows when accountancy starts to take form as an organized profession, growing primarily as a result of the commercial and legal activity of bankruptcy, insolvency and the winding up of companies all the way to the current day.

Insolvency then and now

Bankruptcy figures have been climbing. At June 30, 2010, 145,233 Canadians had filed for bankruptcy or a consumer proposal in the previous 12 months. While last year’s figures represent an increase of 33.7%, bankruptcy numbers have grown from less than 1,000 in the 1960s to 2,700 in 1971 and 19,000 in 1980. This has raised the profile for insolvency practitioners in the accounting profession. Read "Insolvency then and now" in the January/February 2011 CAmagazine online.