Should Accounting Standards be Principles or Rules?

In a recently-published article, Sir David Tweedie notes that: “Forty-odd years ago, as a CA apprentice, I didn't have to study accounting standards because there weren’t any! There was one major standard – the true and fair view – augmented by accepted practice.” According to Tweedie, two disputed takeover bids soon changed that. The President of the Institute of Chartered Accountants in England and Wales (ICAEW), Sir Ronald Leach, senior partner of Peat Marwick & Co., and Professor Edward Stamp of Edinburgh University became embroiled in a public argument in the pages of The Times over the state of British financial reporting.

 

“Professor Stamp argued that for any major company, there would be a million ways which you could show a true and fair view, and that this was totally unacceptable. Sir Ronald reacted with alacrity, and together with the other Institutes (including a rather reluctant ICAS), agreed to form the Accounting Standards Steering Committee in 1969. Pressured by the Government, the Committee looked for a quick win and came upon a research paper of the ICAEW dealing with Associated Companies. This was rapidly turned into the Statement of Standard Accounting Practice 1. While to accountants such a topic would be a bizarre choice for the first standard, rather than what became SSAP2 – Accounting Policies – the profession needed to show it.”

 

“The argument continues over whether standards in financial reporting can best be governed by clear and detailed rules, or by principles and judgement could act quickly in a time of crisis. Since then, we have seen the SSAPs gradually replaced with Financial Reporting Standards and latterly by International Financial Reporting Standards (IFRS). These standards have become more and more complex.”

 

“Accounting is not rocket science. Writing a standard to deal with 80 per cent of the problems takes only a few pages, yet if our profession requires every avenue to be explored, then it can run into hundreds. ICAS is just completing a judgement framework to assist professionals who are unsure what exactly judgement involves. If you have been trained in what I term ‘search-engine’ accounting – looking up the answer in a massive book of rules –judgement can be scary.”

 

“The profession is at a crossroads, and the more we head down the rules route the harder it will be to pull back to simpler, more clearly expressed principle-based standards.” Read the article “Should Accounting Standards be Principles or Rules?” by Sir David Tweedie, President of the Institute of Chartered Accountants of Scotland (ICAS), as well as previous postings regarding the Principles versus Rules debate.

The First Quarter Century of the GASB (1984–2009): A Perspective on Standard Setting

 

The Governmental Accounting Standards Board (GASB) was established in April 1984 as the authoritative accounting standard-setting body for state and local governmental entities in the United States. There are over 87,000 state and local entities in the country and for the most part these entities are required to comply with the generally accepted accounting principles established by the GASB. Therefore, the standards promulgated by the GASB are significant. On June 30, 2009, the GASB completed its 25th year of standard setting. Because of its influence and the importance of its mission, a better understanding of the GASB and its accomplishments during its first 25 years of existence may be helpful.

 

Two research papers (Part 1 and Part 2) provide a complete sequential treatment of the GASB’s operational history through the end of its first quarter century. The first paper begins with an historical perspective about municipal accounting issues from colonial times to 1934. The origin of professional self-determining standards is the feature of the second paper, identifying standard-setting bodies that contributed to municipal accounting from 1934 to 1984. The early activities of the GASB are then reviewed. Two appendices are provided to detail the composition of the Board during its first quarter century, along with biographical information about the early Board members and later Chair and Vice Chair personnel.

 

The first paper concludes with a review of the relationship of other governmental standard setting bodies at the federal level and the international level. The second paper provides an overview of the future challenges faced by the GASB and supplies a digest of the standards including appendix and a synoptic summary of the standards the Board has promulgated by topic and by standard number.

 

Gary J. Previts

For more information, read the article “The First Quarter Century of the GASB (1984–2009): A Perspective on Standard Setting” by Helen M. Roybark, Edward N. Coffman and Gary J. Previts.

 

Part 1 of this article was published in ABACUS (Volume 48, Issue 1, pages 1–30, March 2012) and Part 2 was published in ABACUS (Volume 48, Issue 2, pages 147–198, June 2012).

 

 

 

In addition, refer to the article “The GASB Marks 25 Years of Standards-Setting” published in June 2009 on the GASB website.

 

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.

Generally Accepted Auditing Standards: Audit Evidence – 1977

In February 1975, the CICA’s Auditing Standards Committee (AuSC) proposed, subject to comments received following exposure, to publish the contents of an Exposure Draft as CICA Handbook: Section 5100 - Generally Accepted Auditing Standards. In July 1976, the AuSC issued a 32-page Exposure Draft on “Internal Control” (for inter-related Sections 5200 to 5230).

Then, in May 1977, the AuSC issued a 12-page Exposure Draft on “Audit Evidence” (for Sections 5300). This material was intended to provide guidance, in general terms, as to the attributes of audit evidence and the manner in which the auditor obtains and evaluates such evidence to adhere to field work standard (iii) within generally accepted auditing standards. Field work standard (iii) states: “"Sufficient appropriate audit evidence should be obtained, by such means as inspection, observation, enquiry, confirmation, computation and analysis, to afford a reasonable basis to support the content of the report.”

The Exposure Draft emphasized that “The auditor is concerned with audit evidence in all phases of his audit engagement, from the planning stage, through the study and evaluation of internal control including the performance of compliance auditing procedures, to the performance of substantive auditing procedures.” It addressed the following matters: Introduction and Definition; Knowledge of the Business; Necessity for Performing Substantive Auditing Procedures; Sufficiency and Appropriateness of Evidence; Methods of Obtaining Evidence; Timing of Auditing Procedures; Errors and Irregularities; and Evaluation of Audit Evidence. In this regard, “The auditor relies on his professional judgment [emphasis added] in deciding which procedures will give him sufficient appropriate audit evidence. He evaluates the audit evidence gathered to determine the content of his report.”

Generally Accepted Auditing Standards: Internal Control – 1976

In February 1975, the CICA’s Auditing Standards Committee (AuSC) proposed, subject to comments received following exposure, to publish the contents of an Exposure Draft as CICA Handbook: Section 5100 - Generally Accepted Auditing Standards.

The following year, in July 1976, the AuSC issued a 32-page Exposure Draft on “Internal Control.” This material (for inter-related Sections 5200 to 5230) was intended to provide an explanation, in general terms, of what the auditor should do in order to comply with field work standard (ii) within Generally Accepted Auditing Standards (GAAS). Field work standard (ii) states: “There should be an appropriately organized study and evaluation of those internal controls on which the auditor subsequently relies in determining the nature, extent and timing of auditing procedures."

The Exposure Draft addressed the following matters: Management’s objectives; Basic components of internal control systems; Auditor's objective regarding internal control; Auditor's approach – overview; Auditor's study and evaluation; and, Relationship to substantive auditing procedures. A decision tree was provided in Appendix A on page 32 (refer to the graphic above). It is noteworthy that the Exposure Draft also mentioned that the AuSC was working on a project to provide a similar explanation with respect to field work standard (iii) - Audit Evidence.

CICA - Good Audit Working Papers: An Audit Technique Study (1970)

According to the Foreword in a 1970 CICA Audit Technique Study, Gertrude Mulcahy, FCA, Director of Research, states: “The preparation of audit working papers is an essential part of audit work. However, because they are part of the normal routine followed in all audit engagements, there is a very real danger that the basic purposes of preparing such papers may be overlooked, with the result that the papers may fail to achieve these purposes.”

In this 35-page study, called Good Audit Working Papers, the Study Group provides a statement of the purposes of working papers and develops what they believe to be a systematic approach to the content, organization, review and retention of good audit working papers as a basis for practitioners to evaluate their own procedures. During the formulation of this approach, the Study Group also examined questions relating to the ownership of working papers and the preparation of working papers for non-audit engagements.

Basic principles to assist in the resolution of these questions are also set out. In addition, several suggestions on the preparation of good audit working papers are included in the Appendices. Gerald Trites, FCA is acknowledged for his work on various drafts of this landmark Study published more than 40 years ago.

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).

Generally Accepted Auditing Standards – 1975

Thirty-seven years ago, in February 1975, the CICA’s Auditing Standards Committee proposed, subject to comments received following exposure, to publish the contents of an Exposure Draft as CICA Handbook: Section 5100 - Generally Accepted Auditing Standards. This Exposure Draft was a re-exposure of material previously included in a November 1973 Exposure Draft. At that time the Committee used wording closely following and, in most places, identical to that used in the AICPA Statement on Auditing Standards No. 1, Codification of Auditing Standards and Procedures.

The Introduction said: "Although the Committee’s intention remains, as a general principle, to use words closely following AICPA Statements (or other professional pronouncements) in cases where this is appropriate, consideration of responses received to the 1973 Exposure Draft indicated that several significant changes were desirable in this particular case. The November 1973 Exposure Draft contained two other Sections of background material, which have been eliminated. "Responsibilities and Functions of the Independent Auditor" required extensive changes and will be dealt with at a later date. The discussion previously included under the heading "The General Standards" related to ethical matters [emphasis added], which are within the jurisdiction of the provincial Institutes and Order. Accordingly, it is the Committee’s intention not to deal further with this topic in the Auditing Recommendations Section of the CICA Handbook, other than including the substance of the three November 1973 general standards as one general standard in paragraph 5100.02 in the interest of completeness."

It is noteworthy that the Introduction also said that, oncurrent with the issuance of this Exposure Draft as an Auditing Recommendation, the Committee would intend to amend the Introduction to Auditing Recommendations by inserting the following as a new paragraph in the "Application" section:

"Among the Recommendations issued, GENERALLY ACCEPTED AUDITING STANDARDS, Section 5100, constitute the basic professional standards with which, in the Committee’s view, the auditor should comply when reporting upon financial statements. In adhering to such basic standards the auditor should have regard to the specific Auditing Recommendations in the Handbook while exercising his professional judgment [emphasis added] as to what procedures are required for such adherence. In addition, the Handbook provides Recommendations with respect to unaudited financial statements, to which Generally Accepted Auditing Standards do not apply."

Update on the Social Science Research Network

The Social Science Research Network (SSRN) has grown substantially during the last 12 months. The SSRN eLibrary currently has 375,000 paper abstracts from over 175,000 authors and has received 60,000 new submissions during the year. The eLibrary recently delivered its 50 millionth full-text paper download. This is a significant milestone.

During the last year, SSRN changed its server architecture to improve the speed of searches, enhance overall stability and provide the infrastructure required to meet the continued growth. In recent tests, the average eLibrary search time has decreased from 4.5 seconds to less than 1 second. In addition, SSRN's Citereader project with ITX Corp. has extracted 7.4 million references, 4.7 million citations, and 7.7 million footnotes from 306,000 full text papers.

In 2012, SSRN plans to continue expanding its interdisciplinary growth in the social sciences and humanities by creating research networks in Sustainability, Innovation, Rhetoric, Anthropology and Hebrew.

CICA - Materiality in Auditing: An Audit Technique Study (1965)

In 1965, the Canadian Institute of Chartered Accountants (CICA) first published Materiality in Auditing: An Audit Technique Study. The Foreword to that study notes that: “One of the basic problems in conducting an audit is determining the extent of the examination. While the auditor must ensure that his examination has been in sufficient breadth and depth to warrant the expression of opinion on his client’s financial statements, he must plan his audit program wisely so that the cost of the service to the client is not excessive. Materiality plays an extremely important part in reconciling these two objectives."

"Although materiality has almost become a by-word in the profession, very little has been published to assist the auditor in applying the underlying concept to a particular situation. The Study Group, therefore, felt that this topic should be dealt with first, before proceeding to other topics of interest. The study should be of immediate interest to the members of the profession in public practice and should be a useful reference as future studies are published.”

“The reader should realize that this study discusses the concept of materiality primarily in relation to its effect on auditing procedures. The discussion has necessarily included some reference to the accounting consequences of materiality. But, the complex subject of accounting materiality as a whole - for instance as applied to consistency, classification or disclosure on financial statements - has not been dealt with.

“The members of the Study Group recognized at the outset that the application of the materiality concept rests on judgment - mature judgment based on experience. The consensus of the experience of the group has resulted in a series of guidelines which should be of help to the auditor. These guidelines are offered, not as substitutes for professional judgment but rather as stimulants to the reader by bringing to his attention the factors he should take into account in formulating his judgment.”

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).

Comparing Thoughts on Professional Judgment - 1937 and 1988

“Proficiency in accounting work is largely a matter of experience and judgment; the underlying theory of the science is not particularly profound. The test comes when we attempt to apply the general fundamentals to the infinitely varied and complex situations found in the world of commerce. Factual information and accuracy in its procurement are essential, but its value is submerged unless with it is synchronized the development and training of the judgment...the solution of business problems not only calls for an orderly marshalling of facts, but, what is equally important, careful analysis and logical reasoning from such facts, the formation and establishing of effective conclusions and the exercise of sound judgment.” (This quote is drawn from the article by Kris A. Mapp, FCA, "Educating Our Students - What Is Our Responsibility?" Canadian Chartered Accountant, October 1937, page 258.)

“According to the academic research literature, the exercise of professional judgment by those preparing and auditing financial accounting information is at the core of financial reporting. Without the flexibility and the intelligence provided by professional judgment, the complex system of financial accounting procedures, standards and rules would be ponderous, unresponsive, insensitive: in short, unworkable. Financial reporting, as it operates in Canada and elsewhere, requires professional judgment at many levels, in a host of circumstances, and by a variety of skilled and experienced professionals. In fact, professional judgment is an essential part of financial reporting.” (This quote is drawn from the CICA Research Study, Professional Judgment in Financial Reporting, Michael Gibbins and Alister K. Mason, 1988, page 1.)

Use and Meaning of "Market" in Inventory Valuation - A CICA Research Study 1963

In January 1963, the Canadian Institute of Chartered Accountants (CICA) published the first in a long series of Research Studies. Prepared by Gertrude Mulcahy, FCA, it was called Use and Meaning of "Market" in Inventory Valuation.

The Foreword states: “While the practice of valuing inventories at "the lower of cost and market" has a long tradition behind it in Canada, relatively little has been specifically written about the use of the term "market", and the purpose and application of the concept, in valuing inventories in this country. The meaning of "cost" in inventory valuation has been covered in the Institute's Bulletin No.5; and there have been official pronouncements by the Institute of Chartered Accountants in England and Wales and by the American Institute of Certified Public Accountants on the use and meaning of "market". While this Research Study, as with all studies in this series, does not purport to represent an official Institute view, it represents an organized examination of this most important area by an author familiar with the background of Canadian business. It is to be hoped that this study will be the basis of much thought and discussion among accountants and other businessmen in Canada; and, probably in other countries as well.”

It goes on to acknowledge that “While the study reflects only the views of the author, Miss Mulcahy received valuable comments and assistance from the Toronto and Montreal members of the 1962-63 Committee on Accounting and Auditing Research, in particular from Mr. R. M. Skinner, F.C.A. who reviewed successive drafts of the study. I know she would want me to express her appreciation for this help.”

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.

A Future for the Accountancy Profession: The Quest for Closure and Integration, 1957-1970

In October 2001, the Institute of Chartered Accountants of Scotland (ICAS) published A Future for the Accountancy Profession: The Quest for Closure and Integration, 1957-1970 (339 pages). The Foreword, by Professor Andrew Christie, ICAS President, notes that: “On assuming the Presidency of ICAS in April 2001, there were a number of key strategic issues which the Institute had started to address. Firstly, the unrestricted use of the term ‘accountant.’ At a time when ICAS is increasingly regulating the activities of its members, there remains a population of ‘accountants’ whose work is unrestricted and who compete with qualified practitioners. Secondly, investigating how the Institute can become more relevant to the large number of its members who are not in practice but employed in industry and commerce. Thirdly, how to ensure that the governance of the Institute is designed to adequately represent the interests of chartered accountants in the diverse environments in which they work. Fourthly, maximising the use of modern communications to enhance the involvement of the membership in the formulation of policy.”

Christie goes on to say: “It is intriguing to discover from this monograph by Ken Shackleton and Stephen Walker that these issues were familiar to our forebears. The problem of how to define the ‘accountant’ in the context of the changing nature of the work performed by qualified accountants has surfaced as a problem during several attempts to draft legislation for the regulation of the profession. At the centre of the efforts to unify the professional organisations during the 1960s was the need to address the fact that while the chartered institutes were established as organisations for practising accountants, an increasing proportion of their members were engaged in other fields. The study reveals the potential difficulties in devising governance structures which are reactive to the changing interests and characteristics of institute memberships. Another key finding is the embarrassing consequences for the profession’s leaders of failing to listen to their own constituents.”

He concludes that “This monograph, emanating from the Institute’s Accounting History Committee, is an important contribution to our understanding of a formative event in the post-war history of the UK accountancy profession. The messages it conveys remain relevant today as the accountancy bodies continue to review their organisation.”

Meeting the Challenge of Change – Report of the CICA Long-Range Strategic Planning Committee (1986)

A 1986 report by the Canadian Institute of Chartered Accountants (CICA) states (on page 5): “The Canadian CA profession - like the accounting profession worldwide - is facing fundamental and pervasive change. Led primarily by the rapidly evolving information technology that is revolutionizing business operations, but due also to altered perceptions about the value of the traditional attest audit, the role of chartered accountants in society - whatever their area of practice - is changing dramatically. CAs in public practice face new and increasing demands from their clients for services extending beyond those related to historical financial information and income tax advice and toward future-oriented information necessary for economic decision making. In the process, the CAs role is expanding from that of reporter and analyst of past events to communicator and adviser about business information affecting the future.”

The report further states: “CAs outside public practice - those in industry and government, for example - are no less subject to these demands, albeit from their employers. And CAs in education must face the challenging task of educating the profession's future members to meet this challenge. In an effort to manage change and provide strategic directions for our profession, the CICA Board of Governors formed the Long-Range Strategic Planning Committee in February 1984. Over the past two years, our assessment of these changes, via member and user surveys, focus groups, committee research, literature review and presentations at CICA and provincial institute conferences, has led us to develop an exciting vision of what the CA profession might become over the next 10 to 20 years. It is a vision of a more broadly-based profession whose highly-skilled members are the recognized experts in meeting the needs of an information society.”

The Committee’s conclusions are summarized in a mission statement and 14 specific strategic proposals. These proposals and the overall strategic direction are interrelated and should be looked on as a total concept. To learn more, read Meeting the Challenge of Change – Report of the CICA Long-Range Strategic Planning Committee (1986). Because of its multi-coloured front cover, it is commonly referred to as the “Rainbow Report.”

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.

Strategic Crossroads for the CA Profession

The Report of the Task Force on Strategic Planning was completed in July 2004 and subsequently endorsed by each of the governing bodies of the Canadian CA profession. The Message from the Chair provides a perspective on the strategic planning process. It notes: “By early 2003, the profession’s last major “vision” project from the mid-1990s required a rethink, given the many shifts in our environment over the last decade. The Task Force on Strategic Planning was established in the summer of 2003. Member and market input and analysis occupied the initial period of the Task Force’s work.”

“This report can only capture a portion of the very valuable intelligence and ideas we garnered from this activity but we are satisfied that our recommendations are based on solid evidence and sound analysis. Past strategic planning by our profession was our starting place for this exercise. We found the underlying planning to be very strong but did observe problems with execution, given our complex decision-making framework and diverse priorities of the provincial Institutes/Ordre. We are confident this has been overcome by the strong support and cooperation among the senior management group, the Council of Senior Executives (CSE), regarding our work. We recommended a new vision “trusted, internationally recognized financial leaders in senior management, advisory, tax and assurance roles.” ...CAs enjoy a very strong starting position in achieving this vision but bold action is required in four areas — branding, education, member relations and the public trust.”

(Read the CICA report Strategic Crossroads for the CA Profession and the related Appendices, published in October 2004.)