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ACCOUNTING IN CANADA

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Canada has a free-market economy with businesses ranging from small owner-operated enterprises to multinational corporations. Canada's economic development was historically based on the export of agricultural staples and on the production and export of natural resource products, such as minerals and forest products. Canada now ranks as one of the top ten manufacturing nations of the world. Also, the service industry has expanded rapidly in the last two decades.

The government's economic and fiscal policy aims to sustain economic growth and job creation by promoting private-sector growth, reducing the size of government, and reducing government debt. The federal government has appointed a minister responsible for privatization, and it has been selling Crown corporations deemed no longer essential to meet public policy goals. Several companies have already been privatized, including Canada Air, Canadian National Railway's trucking division, Fisheries Products International and Air Canada.

Canada and the United States in many ways share a common business environment and a common approach to financial reporting. The underlying accounting principles used in the two countries are to a large extent highly compatible. There are some differences due in part to differences in the legal and political systems. Generally, there is more codification of accounting principles from official standards-setting authorities in the United States than in Canada. As a result, United States principles frequently are absorbed in Canada and become part of generally accepted practice without necessarily being incorporated in a Canadian standard.



Three recognized accounting bodies in Canada are the Canadian Institute of Chartered Accountants (CICA), the Association of Certified General Accountants, and the Society of Management Accountants (SMA).

CHARTERED ACCOUNTANTS

North America's first professional corporation of Chartered Accountants (CA), now known as the Ordre des Comptables Agrees du Quebec, was instituted in Quebec in 1880. The national organization for public accountants is the CICA. The practice of public accountancy in Canada is licensed by each provincial government. In most provinces, this has been restricted to CAs. Now there are approximately 60,000 licensed CAs, the majority in the provinces of Ontario and Quebec. There are about 27,000 CAs in Ontario and 16,000 in Quebec.

The CICA could be compared to the AICPA in the United States. Members in good standing of any of the ten provincial or two territorial Institutes of Chartered Accountants are automatically members of the CICA. The responsibilities of the CICA are as follows:
  • accounting and auditing research, in both private and public sectors, including developing authoritative accounting and auditing standards
  • acting as a liaison with the federal government, public and private agencies, and national organizations
  • expression of the profession's viewpoint on national matters of concern
  • publication of a professional journal and other publications
  • national communications and public relations
  • representing the Canadian profession internationally
The CICA Handbook has evolved over passage of time and contains the codified accounting principles of the CICA's Accounting Standards Committee. This handbook is the single most authoritative pronouncement on generally accepted accounting principles (GAAP) and reporting practices in Canada. Most corporate and securities legislation requires financial statements to be prepared in accordance with the requirements of the handbook.

The handbook has gained quasi-legal status as containing the formal accounting principles by means of recognition by securities administrators and federal and provincial legislation. Codification of GAAP in Canada is not as extensive as in the United States. The emphasis in Canada is on using professional judgment in determining what constitutes fair presentation or good practice. A practitioner could use CICA guidelines, research studies, published financial statements of the industry involved, authoritative Canadian literature, and literature of other countries that normally would emphasize U.S. pronouncements.

The duties and responsibilities left to the jurisdiction of the provincial institutes when licensing CAs are as follows:
  • education, training, and admission of new members
  • professional conduct and ethics, including discipline and investigation of complaints
  • acting as liaison with provincial governments, agencies, and other organizations
  • provincial public relations and community service programs
Naturally, not all who embark on a career in public accounting necessarily remain in it, but every CA has had the experience of public practice, since a period of practical experience with an accounting firm is required before a person can become a CA. About half the CAs in Canada work in public practice.

The size of public accounting firms varies considerably, depending on the needs of the clients served. All the Big Six firms have offices in the major cities in Canada. In large cities it is not unusual for a firm to have more than a hundred staff members, while other firms and other locations may have as few as two or three in the office.

The Canada Business Corporations Act and most provincial corporations acts specify the corporate records that must be maintained. Generally, these include shareholders' records, minutes of meetings, resolutions of shareholders, the articles of incorporation, and adequate accounting records. The accounting records may be maintained in any form (loose- leaf, microfilm, computer prepared) that is capable of reproducing required information in written form within a reasonable time.

One of the main functions of the CA in public practice is that of auditor. Auditing is the examination of an organization's financial statements and reporting on whether they present fairly its results. The auditing function of CAs is becoming increasingly important as more people are relying on the independence and expertise of CAs in reporting on financial statements. The purpose of the statutory audit is not formally defined in the law. However, the CICA Handbook (sec. 5000.01) states:

The objective of an audit of financial statements is to express an opinion (usually to the shareholders) on the fairness with which they present the financial position, results of operations and changes in financial position in accordance with generally accepted accounting principles, or in special circumstances another appropriate disclosed basis of accounting, consistently applied. Such an opinion is neither an assurance as to the future viability of an enterprise nor an opinion as to the efficiency or effectiveness with which its operations, including internal control, have been conducted.

A reservation in an auditor's report is made either when there is a departure from GAAP or when there has been a limitation in the scope of the audit that results in the auditor being unable to determine whether there is a departure from GAAP. The auditor should provide an explanation of the reasons for any reservation in the report.

Taxation

A CA in public practice may specialize in tax advice. The tax field has experienced dramatic growth recently as individuals and corporations increasingly call on CAs for expert advice due to the complexities of tax legislation.

The federal government introduced major tax reform provisions in 1987 involving a general lowering of income tax rates accompanied by a broadening of the tax base. Taxes are imposed in Canada by the federal, provincial, territorial, and municipal levels of government. The bulk of total government revenues in Canada are represented by the various taxes imposed by the federal government, which in turn makes tax-sharing payments and grants to all of the provincial, territorial, and municipal governments.

In Canada income taxes are imposed federally under the authority of the Income Tax Act and provincially under the authority of the income tax legislation of each of the various provinces. The Income Tax Act requires that proper books and records be maintained by all persons subject to its provisions, including corporations, partnerships, and sole proprietors.

Management

The management consulting side of public practice is a growing area. The Consulting Services CAs' unique blend of expert knowledge and practical experience position them well for the challenges and demands asked of them. The consulting projects are varied and tailored to the individual needs of the clients. Canadian public accountants working as management consultants would perform similar kinds of projects as their counterparts in the United States (see Chapter 1).

In the United States CPAs can work not only in the public accounting area, but also in business education and government. This is also true in Canada. CAs with expertise are sought after to fill a large variety of positions. In industry, many corporation controllers are CAs and participate in formulating financial and administrative policies of the company. A career as a CA frequently leads to such positions as vice-president-finance or treasurer of a large corporation.

Table 8.1 shows the average salary figures for public accounting firms. The table has been excerpted from a report compiled by .

It should be noted that certification in an area, a law degree, or a master's degree may increase the salary figures by 10 to 15 percent. Salaries will also vary according to geographic location.

For more specific details about any aspect of becoming a CA, contact the individual provincial institute. Addresses are listed at the end of this chapter.

CERTIFIED GENERAL ACCOUNTANTS

In the first decade of this century, Montreal was the financial and economic center of Canada. The demand for trained accountants was growing, especially among large corporations. John Leslie, controller and vice-president of Canadian Pacific Railway, helped form the Canadian Accountants' Society in 1908 for the purpose of helping personnel within his organization upgrade their accounting skills and their careers. Five years later the group received its federal charter and the right to set standards and examinations across Canada and to grant the designation "Certified General Accountant" (CGA).

The associations enjoyed steady though modest growth until the 1950s. It was at this time that the group saw the need for a new type of accounting education program, one that would allow students to continue working and earning a living as they studied for their professional designation.

There are now active CGA association in every province and territory. Membership has increased as shown in the following table.

The largest groups of CGAs, approximately 40 percent, are employed in industry and commerce. This covers every area from a major bank or the largest manufacturing company to a small business or service industry. In these enterprises, CGAs hold a wide range of responsibilities, from controller to CEO, from financial administrator to vice-president-finance, or from accountant to internal auditor.

The second largest group, about 36 percent, comprises those CGAs employed in government and public service. This group embraces the entire range of public employers, from the federal government to public utility commissions and from municipalities to school boards.

The third group includes those CGAs in public practices and constitutes about 24 percent. Regulatory legislation in Ontario, Quebec, Newfoundland, Nova Scotia, and Prince Edward Island restricts the practice of public accounting by CGAs.

A major purpose of the CGA organization is to provide and maintain a uniform educational program of high quality. To accomplish this, the CGA has established interlocking committees and advisory councils to ensure superior standards of course content. There is a uniform national study program with recommended academic standards for certification and uniform exams for the end of each class. The suggested courses for study leading to certification are:

Level 1

Financial Accounting 1 Economics 1 Law 1 Computer Tutorial

Level 2

Financial Accounting 2

Quantitative Methods 2

Management Accounting 1

Level 3

Financial Accounting 3

Finance 1

Management Information Systems 1

Level 4

Management Accounting 2

Taxation 1

Auditing 1

Level 5

Financial Accounting 4

Finance 2

Auditing 2 or Management Auditing

Level 6

Two of the following:

Financial Accounting 5

Management Information Systems 2

Taxation 2

Strategic Management 1

Auditing 2

Basically, the CGA educational program is a professional self-study program. Lectures, which are optional, are designed to assist students by highlighting the important and more difficult aspects of the course.

The CGA program does not culminate in a single examination. Exams are given at the end of each course and may be taken in December, March, or June of each year. A grade of 65 percent or more on the final examination in each course is passing. If you fail four attempts in any one course, you must withdraw from the CGA program.

The study program is designed so a student should be able to complete the entire course in 5 to 6 years. A student is allowed a maximum of 10 years to complete the program.

The Certified General Accountants' Research Foundation, a nonprofit organization, actively supports professional and academic accountants in Canada who conduct progressive accounting and auditing research. The CGA Magazine, fully bilingual, is the official publication of CGA Canada. Published eleven times a year and sent to all members and students, it presents news of the profession plus articles on accounting, auditing, financial management, taxation, computers, and business administration.

For more information about CGA, call (604) 669-3555 or visit the CGA web site at http://www.cga-canada.org.

THE SOCIETY OF MANAGEMENT ACCOUNTANTS

The Certified Management Accountant (CMA) program was established to provide accountants in management in private firms with an alternative to the CA program. This is not to imply that an accountant cannot obtain both certifications. A person interested in becoming a CMA will have a university or commerce degree, or its equivalent. Once these pre-professional requirements are met, a person must take the Entrance Examination. This examination is a comprehensive testing of all the pre-professional courses and their interrelationships. The purpose of the Entrance Examination is to ensure that all candidates have the necessary knowledge required for entry into the professional program. It's given in two 4-hour sessions in June. It covers financial accounting, management accounting, and management studies.

All CMAs must take the two-year professional program. It's a course of study the new accountant can follow while working full-time and gaining experience. The professional program is designed to enhance the career opportunities for CMAs and give them a competitive edge in the marketplace. There are about 28,000 CMAs today.

Professional studies are presented through a series of independent study sessions. Six study modules are given in a combination of group sessions and independent study. Topics include the following:
  • Managing in a World of Change
  • Leadership and Communication
  • Human Resource Management
  • Advanced Accounting Practices
  • Global Competitiveness
The Final Examination is a case examination designed to test the candidates' knowledge of the Professional Syllabus. It is four hours long and taken in late June. To emphasize a national standard, the Final Examination has a greater weight then the other learning experiences.

A final report to a board of CMAs is the last requirement of all candidates in the professional program.

Practical experience is considered to be an essential component of the accreditation process. The integration of on-the-job experience with professional program studies helps candidates develop management skills and assures employers that a CMA possesses competency in the application of management principles and accounting knowledge. The practical experience requirement consists of two levels of experience: operational and managerial. A candidate must have at least 24 months' experience with a minimum of 6 months in a managerial position.

The salary figures in Table 8.2 for various corporate financial positions have been excerpted from a report compiled by, Inc. It should be noted that certification in an area, a law degree, or a master's degree may increase the salary figures by 10 to 15 percent. Salaries will also vary according to geographic location.

Most CMAs are employed in industry, and the field of concentration has been in cost and management accounting. Regulatory legislation in Ontario, Quebec, Newfoundland, Nova Scotia, and Prince Edward Island restricts the practice of public accounting by CMAs. For more information on the specific requirements necessary in a province or territory, refer to addresses and telephone numbers at the end of this chapter.

GOVERNMENT ACCOUNTING

There are some significant differences between the U.S. and Canadian systems of government.
  • Canada functions under a parliamentary system. Funding and policy decisions are made almost entirely in the executive branch by the Prime Minister and the Cabinet.
  • Canada has only about one-tenth the population of the United States, and its central government is proportionately smaller.
  • Canada has much clearer separation in functions between the central and provincial governments than exists between the federal and state governments in the United States.
Auditor General

The watchdog over the government's fiscal activity in Canada is the Office of the Auditor General (OAG), which is much like the General Accounting Office (GAO) in the United States. Traditionally, the Auditor General's Office examined departmental performance and expenditure control by focusing on isolated examples of improprieties discovered during field audits. To provide Parliament with a better understanding of the underlying problems, the Auditor General has adopted a more comprehensive departmentalized systems-based approach. The department wise audits concentrate on the following areas:
  • financial controls
  • attest function
  • management controls
  • electronic data processing
The OAG issues only one report a year to Parliament. It contains the results of several of these comprehensive audits as well as chapters on the office are other major activities.

The Comptroller The Office of Comptroller General (OCG), established in 1978, is an agency

General in the Canadian government's executive branch to:
  1. oversee the quality and integrity of financial systems and related practices, and
  2. to develop and maintain policies, procedures, and practices necessary to evaluate and report on the efficiency and effectiveness of government programs.
The OCG establishes government wise policies on program evaluation and internal audit activities in the executive departments. Individual departments and agencies are encouraged to conduct their own evaluation of the effectiveness and efficiency of their programs, with guidance from the OCG.

In the area of internal audits, the OCG publishes government wise standards similar to the GAO's yellow book. Canada's internal auditors perform roles similar to those of the GAO's inspectors general.

Bureau of Management Consulting

The Bureau of Management Consulting, established in 1946, offers a full range of management consulting services to Canadian departments and agencies on a fee-for-service basis. The consultants are well aware of Canadian government policy and procedures. Individuals working for the bureau possess the same needs. Both groups study the problems in various organizations and assess alternative courses of action.

The bureau was instrumental in helping to establish the OCG, which is a good example of the implementation of a plan of change for the Canadian government.

Revenue Canada Federal and provincial tax legislation is administered by the Department of National Revenue, also known as Revenue Canada. Revenue Canada operates with a main office in Ottawa, the nation's capital, and 29 district offices in various parts of the country.

The department is the responsibility of the Minister of National Revenue, but the day-to-day operations of the income tax branch of the department are under the general direction of the Deputy Minister of National Revenue for Taxation, who is a senior public servant. Revenue Canada is responsible for determining tax liability and collecting taxes.

In Canada, income taxes are imposed federally under the authority of the Income Tax Act and provincially under the authority of the income tax legislation of the various provinces. Most provincial income taxes are administered and collected by the federal government.

ACCOUNTING EDUCATOR

In Canada, as in the United States, the main function of the accounting faculty member at an accredited university is to present an in-depth study of the field of accounting. The faculty member usually specializes in one area of accounting. The primary areas are financial, managerial, tax, auditing, and not-for-profit organizations. Some Canadian universities have a separate accounting department; others have accounting faculty within the College of Business, or, commonly, the accounting faculty is part of the Faculty of Management. Chapter 6 describes general information on the accounting educator.

Employer demand for accounting and financial personnel, while currently remaining relatively strong in most regions of Canada, is expected to decrease somewhat as the decade continues. As the economy slows, salary growth in the upcoming period likely will come under some pressure.

In the public accounting sector, demand remains strong in spite of the unprecedented merger activity, particularly at the entry level where fewer university graduates are entering the labor force. The merger activity, however, probably will lead to some staff redundancy and the possibility of selective personnel reductions. In some cases, the mergers may act as a catalyst for employees who feel this to be an opportune time to investigate the market. Competing national, regional, and local firms are poised to hire many of these professionals, and corporations have expressed similar interest in seniors with three or more years of experience. The increased presence of these individuals in the market may serve to restrain salary offers in this segment.

As a result of mergers, acquisitions, and corporate restructurings, increases in starting salaries for high-level financial professionals have leveled off in recent years. Layoffs and early retirements have put many highly qualified candidates into the employment market. Furthermore, the desire for join security at large corporations has reduced turnover among CFOs, treasurers, controllers, and tax specialists, who are inclined to remain in their current positions rather than consider a change at this time.

In the education and government area, employment is predicted to be steady or increase slightly. Salary figures in both these area are attractive and competitive. The ambitious, well-trained accountant should find a job in his or her desired area.
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