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Law Times • December 7, 2009 McGuinty's holiday wish: a smoother ride in 2010 your helmets, and hang on. We're about to exit this year and enter the next, and it's going to be a bumpy ride. For those whose centre W of the universe is Queen's Park, it's a time of somber reflection — and possibly gen- uflection — as they consider what went wrong in 2009 and what might still go wrong next year. No, there isn't a lot of peace and joy at this juncture, which is not reflective of the season since we're supposed to put the bad times behind us and look forward in eager anticipation of what the new year brings. For Premier Dalton Mc- Guinty's government, however, 2010 starts with a hangover and not in a good way. For one, the damage of the recession will lin- ger and, despite signs of life in other areas, there's been no re- surgence of jobs while Ontario's manufacturing sector remains on life support. Without a vibrant economy, the government is already fret- ting over its upcoming budget as tax revenues plummet and costs for retraining programs, infrastructure, and health care continue to rise. On the political side, the government also has to stick- handle the harmonization of the GST and PST, a tough nut to crack with both the NDP and the Tories beating the drums against the merger. Already, the Conservatives have resorted to unparliamentary stunts such as a sit-in at the legislature to drive home their demands for public hearings. The McGuinty government, of course, doesn't want to hold public hearings, mostly because they'll turn into a soapbox bat- tle with special interest groups highlighting the dire effect of the harmonized sales tax on their sector and begging for ex- emptions. As a result, the hear- ings would be an entirely pre- dictable affair repeating what's already been said. The ripples are spreading to Ottawa, where the federal Lib- erals are reportedly split over support for harmonization, an issue putting even more strain on Michael Ignatieff's leader- ship. The problem is the Ontario government is committed to the HST and desperate for the revenues it represents as its defi- cit balloons, especially given the $4.3 billion the federal govern- ment has offered as an incentive to harmonize the two taxes. This is a good time to point out an error in my last column dealing with the HST. As the eminently sensible Alan Silver- stein, a certified specialist in real estate law, noted, the tax will apply to new homes but not the resale of existing houses. As he noted in a paper pre- sented at the Law Society of ell, folks, this is it. Strap on your seatbelts, put on Inside Queen's Park By Ian Harvey Upper Canada recently: "The tax levied on items like legal fees, surveyor charges, and real estate commissions will nearly triple starting Canada Day 2010 to 13 per cent from five per cent, and Ontario's HST will impact the development in- dustry more than any segment of the economy." The 13-per-cent tax will ap- ply to the purchase of any new home or condo less any rebates and will be at two rates, one for homes below $400,000 and an- other for those above. Complicated doesn't even begin to describe it. It doesn't easily reduce to a sound bite, so there's little wonder the prov- ince is having a hard time sell- ing it. All this, however, has over- shadowed a couple of positive moves. The first is the pending appointment of fabled Conser- vative Paul Godfrey (full disclo- sure: he was my boss from 1984 to 2000) to the Ontario Lot- tery and Gaming Corp., where things were a little lax recently. The legislature's all-party com- mittee has yet to confirm the move, but there's little time to waste with Buttcon Energy Inc. suing OLG for $355 million over the energy plant debacle there. Buttcon, incidentally, has tabled an offer to settle. As well, the passage of Bill 179, the Regulated Health Pro- fessions Statute Law Amend- ment Act, is another positive step forward. It will increase access to health care by allowing nurse practitioners, pharmacists, physiotherapists, dietitians, midwives, and medical radia- tion technologists to deliver more services and change the way drugs are administered, prescribed, dispensed, sold, and used by a range of service pro- viders. Of course, it's more of an administrative evolution than a revolutionary change but it's still good news, especially in remote communities where doctors are in short supply. But given all that's happened in 2009, I'm betting McGuinty and company are wishing for a little more peace and joy this holiday season and cross- ing their fingers that 2010 will bring some semblance of order. I, too, wish you all peace and joy this season. Thanks for drop- ping by and see you next year. LT Ian Harvey has been a journal- ist for 32 years writing about a diverse range of issues including legal and political affairs. His e-mail address is ianharvey@ rogers.com. www.lawtimesnews.com COMMENT PAGE 7 New accounting standards: it's time to choose BY SIMON FRANCIS For Law Times I n 2011, Canadian publicly accountable enterprises will have to adopt new ac- counting standards. But did you know that this could affect pri- vate companies, too? By the end of this year, your private company clients will need to make a de- cision about which of two accounting standards to adopt on a go-forward basis, either the inter- national financial reporting standards (IFRS) or the Canadian generally accepted accounting prin- ciples (GAAP) for private enterprises. IFRS represents the accounting language of international business. In response to today's global economy, it offers a single set of high-quality, consistent, and com- parable reporting standards that will prove more efficient and cost-effective by eliminat- ing the need for reconciliations of information reported under different national regimes. As for the GAAP, the new handbook for private enterprises is similar to the standards that exist today but makes them clearer and simpler to apply. For example, some disclosure requirements have been removed, there is no longer a need for the differential reporting op- tions that were introduced in 2003, and the emphasis to revert back to historical cost mea- sures has been eliminated. The timeline to choose which set of account- ing standards to adopt is short. If companies choose IFRS, there are a number of consid- erations before they adopt it in 2011. For in- stance, for companies with calendar year-ends, comparative figures for 2010 must be presented with their 2011 year-end results and, therefore, financial records must be kept in accordance with IFRS starting on Jan. 1, 2010. But when speaking with chief financial offi- cers, controllers or other entrusted senior mem- bers of finance teams at private companies, I've discovered that their belief is that IFRS is not applicable to them. There are several factors that may challenge this thinking, including exit strate- gies to public markets, accessing different types of financing worldwide or expanding international- ly. The factors all boil down to understanding the business' intentions for the future. For example, considerations should include market share and growth orientation, financing, infrastructure, ac- counting practices, and exit strategies. Most private business owners might be thinking that adopting the private enterprise GAAP is the most attractive option because it will likely involve less change and disruption to their accounting practices. Still, it might not be the best choice for their business. The decision on which accounting stan- dards to adopt, then, starts with understand- ing their business intentions and the needs of their lenders and shareholders. An early dia- logue with these key stakeholders should take place as soon as possible. An important issue is implementation consid- erations. The decision to adopt IFRS or Canadian GAAP affects not only the finance department Speaker's Corner of a business. Other key functional areas must be included in the planning and execution of the strategy. Technology needs must be addressed as software programs must be updated to account for the new standards. In addition, if there are many changes to current accounting standards, there may be a requirement to run parallel sys- tems in 2010. The human resources department also has some planning to do that includes as- sessing talent levels to determine whether or not they need to hire new employees with experience in IFRS and potentially additional support staff for the key functional ar- eas that are impacted by the change. What does this mean to you as their legal ad- viser? For those who choose to adopt IFRS, private businesses will now have two very dif- ferent ways of measuring the financial health of their company. As their legal adviser, it's up to you to understand both as well as assess the impact of the reporting standards on their business. As a result of its global reach, IFRS is a much larger set of accounting standards than today's Canadian GAAP. Your clients' finan- cial statements must be reviewed carefully to ensure that all applicable areas are addressed. The differences are vast and vary based on the industry in which the company operates. As an example, real estate and capital-inten- sive businesses such as manufacturers may want to take advantage of the ability to write up their assets to fair market values. This presents the potential need for a legal opinion to support the determined values. Furthermore, for those businesses looking for divestiture opportuni- ties, increasing assets can result in favourable purchase-price considerations on sale. Private companies are currently trying to understand how the changes to the accounting standards affect them. Businesses are making de- cisions without sufficient information, and this could lead to negative repercussions down the road, such as stalling the closing date of the buy- sell transaction in the due diligence process. In addition to encouraging your private business clients to take another look at the IFRS conversation and consult with their ac- counting professionals, you can help them make sense of their options by suggesting they focus on these three key areas: 1. Understanding the key users of their finan- cial statements and their needs. 2. Facilitating a discussion on the future plans for their business to determine if IFRS will be applicable. 3. Understanding the necessary steps for im- plementation, including timelines for the decision on accounting-policy adoptions. As professional advisers to private business- es, this affects us, too. The need for companies to start making decisions is imminent. LT Simon Francis is a senior manager and IFRS specialist in the audit and assurance practice at Fuller Landau LLP. He can be reached at 416-645-6583 or by e-mail at sfrancis@fuller landau.com.