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Law TiMes • March 28, 2011 budget dilemma C all it a tale of two cities. With apolo- McGuinty's Inside By Ian Harvey COMMENT PAGE 7 Watt deserves praise for clarity BY JAMES MORTON For Law Times gies to Charles Dick- ens, these aren't the best of times, al- though the worst is hopefully behind us. Still, it's no time for revolutionary moves. So hot on the heels of the federal budget, Ontario Finance Queen's Park Minister Dwight Duncan tables his spending document this week. We're all waiting to see how he handles it. He's in an unenviable position, stuck with an $18.7-bil- lion defi cit and a $237-billion debt that's accumulating interest at the rate of $9.7 billion a year. With the Bank of Canada certain to raise interest rates sooner rather than later, the cost of that debt is going to weigh even more heavily on the government's options. Duncan has already complained his federal counterpart Jim Flaherty did him no favours in his budget. "Where is the support for clean, green energy in Ontar- io?" he moaned, going on to note there's nothing more for skills training in a province where jobs have been hit hard by the recession in comparison to Western Canada. Suggesting it was a budget designed to fail and trigger an election, Duncan promised he'll be out campaigning for his Liberal party friends when the federal politicians hit the polls. Of course, it would be actual news if Duncan went out and campaigned for the federal Conservatives. We'd expect nothing less. To be fair, there was a little something for the other levels of government, especially the City of Toronto, as the Tories said they'd enshrine the gas tax fund. As the Toronto Board of Trade pointed out, however, there was little for long-term transit development, which is a bigger concern in the nation's biggest city. Take the political dogma out of the reaction, however, and the consensus seems to be it was the right tone and budget for the times. It was sensible, moderate, and fo- cused on eliminating the $40.5-billion federal defi cit that's proportionately much smaller than Ontario's annual short- fall. It's not a bad platform to take to the polls. As it stands, Duncan — and, by extension, Premier Dal- ton McGuinty — has almost no wiggle room in the provin- cial budget that will set the tone for the incumbent govern- ment's policy between now and election day on Oct. 6. With the Conservatives at about 44 per cent in the polls, the NDP consistently at 16 per cent, and the Liberals at about 35 per cent, this is no time for bold moves. Last year, they hung their hat in part on a strategy to reduce costs by holding the line or cutting back on the civil service. Th at went over like the proverbial lead balloon with the unions. In the meantime, they've pinched here and there, scratching out savings by merging diff erent agencies and targeting ways of streamlining others or eliminating them all together. Th ey have not, however, in the words of Toronto Mayor Rob Ford, stopped the gravy train in any meaningful way. Th e question, then, is can they sell a hard-times budget with tax hikes and service cuts? Given the already contro- versial electricity price hikes and the fragile state of con- sumer spending, that's a tough, if not impossible, sell. Duncan has already said there won't be any tax hikes, which isn't surprising given it's an election year. Th e other option is a neutral budget, one that continues politically essential programs such as all-day kindergarten and other education spending but neither raises personal income taxes nor imposes new user fees or hikes the pro- vincial quotient of the HST. Th ere is, however, a hidden bombshell that could drop — energy. While nuclear power remains a keystone in On- tario's electricity plan, recent events in Japan have created a great deal of controversy around the $30-billion plan to build four reactors at Darlington. Putting that expansion on hold pending a review of les- sons learned wouldn't be scientifi cally or operationally logi- cal since the approval process began fi ve years ago and is far from complete. But it would buy political capital, especially among left-leaning voters, and delay major spending for a couple of years. Th e downside, of course, is the question of how to replace that power. Coal plants, anyone? Ian Harvey has been a journalist for 32 years writing about a diverse range of issues including legal and political aff airs. His e-mail address is ianharvey@rogers.com. tions. Th ese changes were on such a grand scale that boards of directors have had to allocate resources to- wards implementation of the anticipated changes. As a lawyer, understanding these changes is impera- I tive to the quality of service given to your clients. Eff ective Jan. 1, 2011, most publicly accountable enterprises must follow international fi nancial report- ing standards (IFRS). Canada is the fi rst country in North America to adopt IFRS. Mexico will imple- ment it beginning in 2012. It is anticipated that the United States will follow suit in 2015 or later. IFRS is a set of standards stating how particular types of transactions and other events should be re- ported in fi nancial statements. More than 100 jurisdic- tions have adopted it, including the European Union and countries like Israel and Armenia. Th e main aim of implementing IFRS is to make fi nancial statements transparent and comparable on a global basis. IFRS applies to publicly accountable enterprises, which the Institute of Chartered Accountants de- fi nes as an entity, other than a not-for-profi t orga- nization or government or other body in the public sector, that has issued or is in the process of issu- ing debt or equity instruments that are or will be outstanding and traded in a public market or that holds assets in a fi duciary capacity for a broad group of outsiders as one of its primary businesses. But does the Canada Revenue Agency accept IFRS? Although the Income Tax Act does not specify accounting principles or standards to determine prof- it, CRA has stated its "view that the fi nancial state- ments based on IFRS would be an acceptable start- ing point to determine income for tax purposes." In terms of practical implications, IFRS deals with a number of accounting issues, including those related to property, plant, and equipment: • Cost, which includes all costs necessary to make the asset ready for operation. Self-constructed assets should include borrowing costs directly attributable to the acquisition. • Depreciation, in which signifi cant components of a single asset should be depreciated separate- ly. Th is will result in faster depreciation of some www.lawtimesnews.com L awyers are often criticized for being incom- prehensible. Judges, if anything, are usually said to be even harder to understand. Many a law student and lawyer have struggled to identify what exactly a court meant in its reasons for judg- ment. I have read trial decisions of cases I've argued and been unsure if my client won or lost. Yet a senior Ontario judge is being criticized in the media for writing too clearly. David Tanovich, a well-respected legal academ- ic, is quoted in Th e Globe and Mail as saying of Justice David Watt of the Court of Appeal for Ontario "is out of control. I am frankly surprised that no one on the court — including the chief justice — has said anything to him. I would not be surprised if there is not a judi- cial council complaint if he continues." Tanovich also said the criminal law is no place for lively writing that "serves to sensationalize and desensitize tragic facts and serious social issues." In a letter to the editor, Tanovich clarifi ed his po- sition. He said his real concern was to ensure that "the very personal facts about real people, accused and victim, and about tragic and serious issues are treated in legal judgments with respect and dignity." I disagree with these and other criticisms. Watt's language is clear, direct, and easy to understand. It often deals with dreadful things, but being plain- spoken is a good thing. Using direct and clear language doesn't denigrate anyone. Indeed, obfus- cation suggests the reader can't handle the reality. Consider two recent excerpts from Watt's decisions. "On a cold weekend in late January 2000, the lengthy but brittle relationship among Michael Luciano, Col- leen Richardson-Luciano, and James Cooper ended. Abruptly and violently. First, in Woodbridge. Th en, in Egmondville. Two deaths. Colleen Richardson-Lucia- no died fi rst. In Woodbridge. Stabbed to death. A day later, James Cooper died in Egmondville. By asphyxia from strangulation," he wrote in R. v. Luciano. "Explosions damage and destroy things. Some- Speaker's Corner times, their victims are people. Like here. An explo- sion damaged and destroyed several buildings. Hurt some people too. And killed oth- ers. Th e explosion was pre- ventable," he wrote in On- tario (Labour) v. Enbridge Gas Distribution Inc. Th e language is clear, direct, and easy to un- derstand. I agree that in dealing with victims' families, it's important to use tact and sometimes avoid using blunt language. But Watt is writing for judges, lawyers, and the public, all of whom deserve to be told clearly what the law is. As U.S. judge Billings Learned Hand said in 1916, "Th e language of the law must not be for- eign to the ears of those who are to obey it." Watt deserves praise for writing clearly. James Morton is a Toronto lawyer and past president of the Ontario Bar Association. He also teaches evi- dence at Osgoode Hall Law School. How IFRS will affect your clients BY VAZKEN IZAKEL For Law Times n the last couple of years, changes to the account- ing standards have been one of the hot topics dis- cussed in the boardrooms of Canadian corpora- of the components of an asset. Components re- placed are capitalized. Th is treatment will elimi- nate any ambiguity about whether the compo- nent replaced should be capitalized or expensed. • Revaluation that increases the value of property, plant, and equipment to their fair value. Revalua- tion should be made regularly to ensure that carry- ing value does not diff er materially from fair value. In general, any increase will be recognized as other comprehensive income and accumulated in equity under the heading of revaluation surplus. If the in- crease is due to a reversal of a revaluation decrease, then it should be charged to profi t and loss. A de- crease in carrying value to fair value is also avail- able. Th e resulting decrease, in general, is charged to profi t and loss with some exceptions. IFRS also deals with impairments. Interna- tional accounting standards stipulate that an en- tity should assess whether there is an indication of possible asset impairment, in which case it should estimate the recoverable amount of the asset. In terms of provisions and contingent liabili- ties, international accounting standards defi ne a provision as a liability of uncertain amount or timing. Th is liability can be a legal or constructive obligation. For a provision to be recognized, there must be an event and probable outfl ow of eco- nomic resource. Contingent liabilities and assets are not recognized because their existence depends on the occurrence or non-occurrence of a future event that is not in control of the entity. Other issues relate to a requirement that the entity should make an assessment of its ability to continue as a going concern every time it prepares a fi nancial statement. In terms of related party transactions, in- ternational accounting standards require disclosure of the nature of the relationship and information about the transactions and the outstanding balance at the end of the year. Moreover, they require disclosure of the control relationship even when there are no fi nan- cial transactions. Th ey also mandate disclosure of the name of the ultimate controlling entity or individual. Overall, IFRS presents a signifi cant change to the accounting landscape in Canada. As a result, lawyers need to make sure they have a good grasp of the legal implications. Vazken Izakel is a partner at accounting fi rm Kestenberg Rabinowicz Partners LLP in Markham, Ont.