50 years ago in the October 1962 CAmagazine

The October 1962 edition of CAmagazine discussed the “Need for reform in the Bankruptcy Act.” It stated that: “Bankruptcies and their attendant losses have become a most pressing problem…. A tremendous volume of business is presently conducted in Canada by ‘thin’ corporations — where the shareholders have very little of their own money in the company. [One] might well remark that such a corporation should not be given credit…. Our present Bankruptcy Act … displays no recognition, whatsoever, of the need of a separate set of ‘ground rules’ in dealing with corporations.”

Also, read about the “60th Annual Conference” (from the summary of the CICA annual meeting in Fredericton, New Brunswick) and “The new management theories make for poor performance” (a summary of “Executives who can’t manage,” from The Atlantic Monthly, July 1962).

Indiana CPAs - In the beginning …

Before there was a tax code (1913), before there was a Department of Labor (1913), before the SEC (1935) and before the PCAOB (2002), even before audits, there were CPAs (New York – 1896). How did the profession rise to the level of prominence in business without license to do something specific?

What were the requirements in 1915? Well … you had to be 21 years old, a high school graduate, have three years of experience as a professional accountant and submit “proof” of all of that to the newly created “state board of certified accountants”. Then, per Indiana law, “shall be granted without examination a certificate authorizing him to practice as a certified public accountant”. Of course this had to be done within 90 days. After that you would have had to take an examination. The early CPAs were grandfathered. That is how the profession got its start.

The first accounting standards were issued somewhere around 1938, and by 1959 there were 51 pronouncements known as Accounting Research Bulletins – this eventually became GAAP. The pronouncements were issued by the Committee on Accounting Procedure (CAP). The first auditing standards were issued in 1939 by the American Institute of Accountants committee on auditing procedure. In 1941, the SEC mandated that the auditor’s report had to be made in accordance with GAAP (they didn’t do that in 1935 because there was no GAAP).

To learn more, read the article “In the beginning …” posted on the Indiana CPA Society blog on February 16, 2012 by Gary Bolinger.

SEC Historical Society – 10th anniversary and timeline update

The Securities and Exchange Commission (SEC) Historical Society, through its virtual museum and archive, shares, preserves and advances knowledge of the history of financial regulation. It is a non-profit organization, independent of the US Securities and Exchange Commission.

The SEC Historical Society celebrates the 10th anniversary of its founding in 2012. Since opening on June 1, 2002, this independent and objective resource provides access to primary materials on the creation and development of the regulation of the capital markets from the 20th century to the present.

The comprehensive collection includes a Virtual Museum Timeline that highlights significant developments in the history of financial regulation against US and world events. To start, choose a decade, click the arrow button to move through the years, and click on any development to read more. In addition, learn more about building the Timeline.

The collection also includes: Galleries (permanent exhibits within the museum, providing access to materials from throughout the collection on a particular topic); Papers (letters, speeches, memos, telegrams and reports, many not accessible through other online sources); Photos (historic and current images of people significant to financial regulation); and Oral Histories (remembrances, available in audio, MP3 and edited transcript formats, from people who helped create and continue to shape the financial regulatory system). As well, the collection comprises a variety of original programs - including Fireside Chats, the Society's Annual Meeting, The Best of NERA, etc. - offering historic perspective on current regulatory issues (broadcast live and preserved in audio, MP3 and edited transcript formats).

Report of the CICA Special Committee on Standard-Setting (SCOSS) - 1980

On December 19, 1980, the CICA Special Committee on Standard-Setting (SCOSS) presented its Report to the CICA Board of Governors. This comprehensive 158-page report states (pages 9-10) that: “If one is to consider the means by which accounting and auditing standards are to be set and maintained, one should first have a clear understanding of what is, or should be, the appropriate role, nature and scope of those standards.”

According to the SCOSS report: “A brief history of the standard-setting function in Canada and the way the nature and role of standards have evolved may help to set the stage. This history will essentially be that of accounting standards, since accounting standards as such have been in existence for much longer than auditing standards and they are, besides, much more in the public domain than auditing standards.

There have been accounting standards in Canada for a very long time. At no time in the past century would it have been possible for a preparer of financial statements to make up his own accounting practices without considering conventional usage, even though the accepted conventional practices may not have been published anywhere. Although our main concern today is for the development of published standards, it should not be forgotten that there are, even now, many accounting standards that are generally accepted and universally followed but have not yet been published. For example, there is no requirement in the CICA Handbook to depreciate fixed assets or to follow the matching principle generally.

The CICA published its first accounting standard in 1946. It was published in the form of a Bulletin, which continued to be the form of publication for more than twenty years. Twenty-six Bulletins were published between 1946 and 1967. Of these, six were published in the years 1965-67. In 1967, as a result of the report of a committee such as ours, the CICA Handbook came into existence and the Bulletins then in force were incorporated into it. The bulk of the material in the present Handbook has been added since 1968. The pace of standard-setting has clearly accelerated, and continues to do so.

It is difficult to generalize about the thought processes involved and the purposes behind projects carried out by standard-setters in the past. Nevertheless, it appears that the early Bulletins were essentially attempts to codify best existing practices rather than to change existing practice generally. In most cases the early Bulletins were non-controversial and the best practice was fairly clearly recognized. Their purpose was to discourage less desirable practices that were being followed in a minority of cases. Over time, however, the Bulletins, and later the Handbook, became progressively more innovative in the sense of changing practices generally rather than merely eliminating minority practices.

The trend away from codifying consensus to establishing new practice was due, in part, to the 1967 Report of the Study Group on Methods of Work and Organization (chaired by P.H. Lyons, FCA) which stated: “The Research Committee, to a much greater extent than it has in the past, should engage in initiating and overseeing basic research at the frontiers of our profession rather than gathering together to record the best current practice.”

Recent accounting standards, such as those on segmented reporting, accounting for leases and disclosure of transactions with related parties, have clearly changed the accounting and disclosure practices of the majority of Canadian enterprises rather than merely imposing on a stubborn minority accounting and disclosure practices already adopted by the majority. It is not always easy to categorize a particular standard as being essentially a codification of consensus on the one hand or a changing of the rules on the other – but, in general, the trend from the former approach to the latter seems indisputable. Moreover, the history of the process makes it apparent that this attitudinal change was primarily internally generated rather than forced on the profession from outside.

Undoubtedly, the most important development in the standard-setting arena since the Handbook came into existence is the conferring of quasi-legislative status on the Handbook. This process began with National Policy #27 adopted by the Canadian Securities Administrators in 1972. Since then, various federal and provincial statutes (and regulations thereunder) have come to require that financial statements prepared pursuant to those statutes must comply with the CICA Handbook.

The impact of this development on the perceived authority of the Handbook and the additional responsibilities it may, or may not, impose on standard-setters will be discussed later. However, while it is not possible to tell whether standards issued since the acquisition of this quasi-legislative status would have been different if such status had never been granted, it is possible that they might have been affected by the existence of this factor, and that future standards may be affected. The Handbook in its present form might be said to be largely a professionally- oriented set of standards with some of the latest (and future) additions perhaps being legislatively oriented. There could be conflicts in this potentially dual character of the Handbook.”

In addition to the above-noted discussion on the evolution of Canadian standards, the SCOSS report (pages 11-14) discusses the need for professional judgment in standard-setting, taking a principles-based approach, using principles rather than detailed rules, and clearly stating the role of professional judgment in the CICA Handbook. Although the report was issued more than 30 years ago, the observations and views of the Special Committee appear to be equally valid today. (For a review of the discussion on professional judgment, refer to the four-part series posted in the blog on Professional Judgment Matters.)

A Brief History of the Evolution of Accounting and Auditing Standards in Canada

Prior to 1951, the Canadian Institute of Chartered Accountants (CICA) was known as the Dominion Association of Chartered Accountants (DACA). It established an Accounting and Auditing Research Committee in 1946, which began issuing a series of bulletins setting out recommended standards of practice on accounting and auditing.


In 1968, it replaced the series of bulletins with a loose-leaf, subject-indexed Handbook that was periodically updated with inserts as the CICA’s committee issued new recommendations. Although the bulletins set out what the committee “considers to be the best accepted practice or its suggested treatment of new elements in accounting statements arising as a result of changes in social or economic conditions,” the recommendations contained in the Handbook were intended to possess greater force. Section 1500.06 in the Handbook, issued in November 1969, stated that any departures from the Handbook recommendations “should be explained in notes to the financial statements with an indication of the reason why the recommendation concerned was not followed.”

In 1975, the Canada Business Corporations Act added a degree of quasi-legislative authority to the Handbook, when Regulations 44 and 45 of the Act proclaimed:

44) The financial statements referred to in paragraph 149(1) of the Act shall, except as otherwise provided by this Part, be prepared in accordance with the standards, as they exist from time to time, of the CICA set out in the Handbook.

45) The auditor’s report referred to in Section 163 of the Act shall, except as otherwise provided by this Part, be prepared in accordance with the standards of the CICA set out in the Handbook.

In 1963, the CICA began publishing research studies on contemporary accounting and auditing topics. Since 1980, it has published a number of research studies on accounting and financial reporting, on auditing and assurance, and on environmental and performance reporting. Most are available as PDF downloads free-of-charge.

In 1991, the CICA replaced the Accounting Standards Committee and the Auditing Standards Committee with the Accounting Standards Board (AcSB) and the Auditing Standards Board. Later in that decade, the CICA Task Force on Standard Setting released its final report in May 1998, and among its recommendations was the establishment of an “independent standard setting organization for Canada.”

In addition, the CICA established the Accounting Standards Oversight Council (AcSOC) to support the setting of accounting standards domestically and to contribute to the development of internationally accepted standards. AcSOC’s mandate also includes providing opportunities for the public to comment on all aspects of accounting standard setting, and reporting to the public annually.

In 2005, a firm commitment was made to adopt International Financial Reporting Standards (IFRS), effective January 1, 2011. IFRS have now been incorporated into the CICA Handbook, along with International Auditing Standards (IAS).

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.)

Report of the Commission to Study the Public’s Expectations of Audits - June 1988

The Report of the Commission to Study the Public’s Expectations of Audits (Macdonald Commission Report) was released by the Canadian Institute of Chartered Accountants (CICA) in June 1988. The Commission had a threefold mandate: (1) to study the public’s expectations of audits; (2) to determine whether there is a gap between what the public expects or needs from auditors and what auditors can reasonably expect to accomplish; (3) to the extent there is an identifiable gap, to make suggestions as to how the gap might be narrowed.

The  Macdonald Commission Report made numerous recommendations regarding: strengthening the audit environment; accounting standards; extensions of financial disclosure; valuations and estimates; disclosure outside financial statements; exercise of auditor’s judgment; additional auditor responsibilities; clarification of financial reporting responsibilities; professional self-regulation; public input to auditing standards; employee fraud; management fraud; illegal acts; changes of auditors; communication with regulators; accounting standards for financial institutions; auditor reporting on internal control; and, auditor’s knowledge of the business.

A listing of the report’s 50 recommendations is provided in Appendix A (pages 139-146) of the report.

History of the FATF (1990-2010)

In response to mounting concern over money laundering, the Financial Action Task Force on Money Laundering (FATF) was established by the G-7 Summit that was held in Paris in 1989.

Recognizing the threat posed to the banking system and to financial institutions, the G-7 Heads of State or Government and President of the European Commission convened the Task Force from the G-7 member States, the European Commission and eight other countries.

The Task Force was given the responsibility of examining money laundering techniques and trends, reviewing the action which had already been taken at a national or international level, and setting out the measures that still needed to be taken to combat money laundering. In April 1990, less than one year after its creation, the FATF issued a report containing a set of Forty Recommendations, which provide a comprehensive plan of action needed to fight against money laundering.

In 2001, the development of standards in the fight against terrorist financing was added to the mission of the FATF. In October 2001, the FATF issued the Eight Special Recommendations to deal with the issue of terrorist financing. The continued evolution of money laundering techniques led the FATF to revise the FATF standards comprehensively in June 2003. In October 2004, the FATF published a Ninth Special Recommendation, further strengthening the agreed international standards for combating money laundering and terrorist financing - the 40+9 Recommendations.

To learn more, read the publication 20 Years of the FATF Recommendations 1990-2010.

Canadian income tax, then and now

It has been almost 40 years since Canada overhauled its tax system, eliminating estate duties and bringing in capital gains tax. Since 1972, we have seen no less than 49 editions of the Income Tax Act. Its length has increased enormously and the complexity exponentially. Changes in technology have aided the Canada Revenue Agency in the selection and audit of taxpayers. Ever-changing legislation, powerful audit tools, information exchange agreements and anti-avoidance rules have made tax planning harder, tax compliance more challenging and tax enforcement easier with key changes over the past 40 years and challenges presented to the accounting profession. (Read the article “Income tax, then and now” in the June-July 2011 issue of CAmagazine online.)

Tax blast from the past

The total tax bill of the average Canadian family has increased by 1,624% since 1961 — a faster increase than any other single household expenditure — according to a study by the Fraser Institute. In contrast, expenditures on housing increased by 1,198%, food by 559% and clothing by 526% from 1961 to 2009. (See "Tax blast from the past" in CAmagazine online.

Supreme Court of Canada - Creation and Beginnings

The Supreme Court of Canada, which stands today as the final arbiter of legal disputes in the Canadian judicial system, has not always enjoyed the status of court of last resort. Its history begins more than a century after the appearance of courts in Canada and its role has evolved considerably since its creation in 1875. Learn about the Creation and Beginnings of the Court, webcasts by session (since February 2009)and This Day in History.

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.

CICA - Setting the standard

It may come as a surprise to some people that an influential body, such as the Canadian Institute of Chartered Accountants (CICA), had rather inauspicious beginnings. This, however, is what makes its history a matter of prime interest.

The CICA has grown from nothing into a powerful national organization that is consulted by governments – a body with power to set standards that are incorporated into law. Read the article “Setting the standard” in CAmagazine (May 2002).

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).

About the Ontario Securities Commission: Part 2 - The First Four Chief Accountants, 1986–1996

Published in the June 2010 Accounting Perspectives journal of the Canadian Academic Accounting Association (CAAA), this research article presents Part 2 of a historical review and analysis of the Ontario Securities Commission (OSC). It describes the role played by the first four Chief Accountants in the regulation of accounting and auditing from 1986 to 1996. Part 1 dealt with the period from the 1960s to 1985. Part 3 will treat the role played by the fifth Chief Accountant, from 1996 to 2008. Prior to this series of articles, the academic and professional accounting literature was largely barren on the OSC’s evolving role in accounting and auditing.

The Role of the Ontario Securities Commission in Accounting and Auditing from the 1960s to 1985

Published in the March 2010 Accounting Perspectives journal of the Canadian Academic Accounting Association (CAAA), this research article presents Part 1 of a historical review and analysis of the role played by the Ontario Securities Commission (OSC) in accounting and auditing from the 1960s to 1985. Parts 2 and 3 will review the roles played by the first five Chief Accountants, from 1986 to 2008. Prior to this article, the academic and professional accounting literature has been largely barren on the OSC’s evolving role in accounting and auditing.

Bank of Canada - Celebrating 75 years

The Bank of Canada opened its doors in Ottawa on March 11, 1935, during the Great Depression. Its role was set out in the Bank of Canada Act of 1934: "to promote the economic and financial welfare of Canada." Shares of the privately-owned bank cost $50 but, in 1938, the Canadian government bought out shareholders and nationalized the bank. Today, the bank operates accounts only for the Canadian government, other central banks and commercial banks. To mark its 75th anniversary, the Currency Museum of the Bank of Canada has inaugurated a new exhibition which looks at the Bank and its history from the perspective of outside observers - journalists, cartoonists, headline writers, economists, politicians, government-appointed commissions, and the public at large. Visit the online exhibit By All Accounts: 75 Years of Central Banking.

About the Ontario Securities Commission (OSC)

The Ontario Securities Commission (OSC) was established by the Securities Act (Ontario) and the Commodity Futures Act (Ontario). It is a self-funded Crown corporation, accountable to the Ontario Legislature through the Minister of Finance. The OSC's mandate is to provide protection to investors from unfair, improper and fraudulent practices, and to foster fair and efficient capital markets and confidence in capital markets. (Access the digital archives on Notices and News Releases as well as Speeches and Events dating back to 2005.)

About the Canadian Securities Administrators (CSA)

The Canadian Securities Administrators (CSA) is a voluntary umbrella organization of Canada’s provincial and territorial securities regulators whose objective is to improve, coordinate and harmonize regulation of the Canadian capital markets. It aims to achieve consensus on policy decisions which affect our capital market and its participants. It also aims to work collaboratively in the delivery of regulatory programs across Canada, such as the review of continuous disclosure and prospectus filings. (Read the Introduction to CSA and access the What’s New digital archives dating back to 2001.)

About the US Securities and Exchange Commission (SEC)

The mission of the US Securities and Exchange Commission (SEC) is to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation. Before the Great Crash of 1929, there was little support for federal regulation of the securities markets. This was particularly true during the post-World War I surge of securities activity. Proposals that the federal government require financial disclosure and prevent the fraudulent sale of stock were never seriously pursued. During the peak year of the Depression, Congress passed the Securities Act of 1933. This law, together with the Securities Exchange Act of 1934, which created the SEC, was designed to restore investor confidence in capital markets by providing investors and the markets with more reliable information and clear rules of honest dealing. President Franklin Delano Roosevelt appointed Joseph P. Kennedy (President John F. Kennedy's father) to serve as the first Chairman of the SEC. (Read the SEC’s What We Do and access digital archives from 1929 to 2010 containing Commission Speeches and Public Statements on a wide range of topics concerning the state of the markets and the regulatory agenda.)