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Canadian Private Companies – Financial Statement ... · KPMG ENTERPRISE Canadian Private...
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KPMG ENTERPRISE
Canadian Private Companies Canadian Private Companies ––Financial Statement Disclosures Financial Statement Disclosures and Access to Creditand Access to Credit
2© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
FEI Toronto:Introducing our panelistsFEI Toronto:Introducing our panelists
Bob Young, PartnerNational Assurance and Professional Practice, KPMG Enterprise
Mark Walsh, PrincipalAccounting Standards Board, CICA
Todd Shute, Vice PresidentCommercial Financial ServicesHSBC
Stephen Cummings, Principal, Lumira CapitalChair, CFO Task ForceCanadian Venture Capital Association
Peter Hatges, PartnerKPMG Enterprise
John Forester, CFONUCAP Industries Ltd.
3© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Financial Statement Disclosuresand
Access to Credit“It’s a Matter of Trust”
Financial Statement Disclosuresand
Access to Credit“It’s a Matter of Trust”
4© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Accounting Standards for Private EnterprisesObjectives of the Accounting Standards BoardAccounting Standards for Private EnterprisesObjectives of the Accounting Standards Board
Conceptual model for financial statement disclosures:
Creditors are the most frequent usersUsers have access to additional informationThree more important categories of disclosures:
Accounting policiesRisks and uncertaintiesUnusual events
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Accounting Standards for Private EnterprisesAccounting Standards for Private Enterprises
Fair Presentation – what does it mean?
Applying Generally Accepted Accounting Principles
Providing sufficient information about transactions or events . . . that are of such size, nature and incidence that their disclosure is necessary to understand that effect (the “stand-back” test)
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Applying Accounting Standards for Private EnterprisesFEI Survey of Selected Required DisclosuresApplying Accounting Standards for Private EnterprisesFEI Survey of Selected Required Disclosures
Accounts Receivable• The carrying amount of impaired accounts receivable and the amount of
any allowance for impairment.• The exposures of accounts receivable to risk and how they arise,
including concentrations of risk (credit risk, currency risk, interest rate risk, liquidity risk, market risk, other price risk)
Inventories• The amount of inventories recognized as an expense during the period,
i.e. cost of goods sold
Property, Plant & Equipment• A description of impaired long-lived assts, i.e. long-lived assets whose
cost is not recoverable, including the facts and circumstances leading to the impairment
• The amount of impairment loss on property, plant & equipment included in income
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Applying Accounting Standards for Private EnterprisesFEI Survey of Selected Required DisclosuresApplying Accounting Standards for Private EnterprisesFEI Survey of Selected Required Disclosures
Trade Accounts Payable• The amounts payable at the end of the period in respect of government
remittances
Long-term Debt• Any debt instrument in default or breach of any term or covenant that
would permit a lender to demand accelerated repayment.• Whether any default was remedied or the terms of the liability were
renegotiated before the financial statements were completed.• The exposures of long-term debt to risk and how they arise (credit risk,
currency risk, interest rate risk, liquidity risk, market risk, other price risk)
Cash Flows• Investing and financing transactions that do not require the use of cash
or cash equivalents, including all relevant information
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Applying Accounting Standards for Private EnterprisesFEI Survey of Selected Required DisclosuresApplying Accounting Standards for Private EnterprisesFEI Survey of Selected Required Disclosures
Use of Financial Information
0 20 40 60 80 100
Carrying amount ofimpaired A/R
A/R exposures tocredit risk
Cost of sales
Impaired long-livedassets - description
Amount ofimpairment loss in
income
Governmentremittances
payable
Debt instruments indefault
Remedied defaults
LTD Risks
Non-cashtransactions
Disc
losu
re
Percentage of users
Cash FlowSecurityLiquidity
9© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Applying Accounting Standards for Private EnterprisesFEI Survey of Selected Required DisclosuresApplying Accounting Standards for Private EnterprisesFEI Survey of Selected Required Disclosures
When Information is Used
0 20 40 60 80 100
Carrying amount of impaired A/R
A/R exposures to credit risk
Cost of sales
Impaired long-lived assets - description
Amount of impairment loss in income
Government remittances payable
Debt instruments in default
Remedied defaults
LTD Risks
Non-cash transactions
Disc
losu
re
Percentage of users
RenewingMonitoringGranting
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Applying Accounting Standards for Private EnterprisesFEI Survey of Selected Required DisclosuresApplying Accounting Standards for Private EnterprisesFEI Survey of Selected Required Disclosures
Importance / Adequacy of Disclosures
0 20 40 60 80 100
Carrying amount of impaired A/R
A/R exposures to credit risk
Cost of sales
Impaired long-lived assets - description
Amount of impairment loss in income
Government remittances payable
Debt instruments in default
Remedied defaults
LTD Risks
Non-cash transactionsD
iscl
osur
e
Percentage
AdequacyImportance
11© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Panel QuestionPanel Question
Of the required disclosures surveyed, which ones do you believe are particularlyuseful / less useful to users of private company financial statements?
Why?
12© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Applying Accounting Standards for Private EnterprisesFEI Survey of Selected Possible Additional DisclosuresApplying Accounting Standards for Private EnterprisesFEI Survey of Selected Possible Additional Disclosures
Accounts Receivable• The ageing of accounts receivable, i.e. a maturity analysis.
Inventories• The amount of inventories whose cost exceeds net realizable value.• The circumstances resulting in a provision for impairment or the
subsequent reversal of a write-down of inventories.
Property, Plant & Equipment• The fair value of property, plant & equipment.• The estimated salvage value or disposal value of plant and equipment at
the end of its estimated useful life.
13© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Applying Accounting Standards for Private EnterprisesFEI Survey of Selected Possible Additional DisclosuresApplying Accounting Standards for Private EnterprisesFEI Survey of Selected Possible Additional Disclosures
Trade Accounts Payable• The ageing of accounts payable, i.e. a maturity analysis.
Long-term Debt• The priority of security positions on collateral.• The fair value of debt instruments.• A sensitivity analysis for each type of market risk to which the entity is
exposed.
Cash Flows• Cash flows for interest and dividends received and paid.• Cash flows arising from income taxes.
14© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Applying Accounting Standards for Private EnterprisesFEI Survey of Selected Possible Additional DisclosuresApplying Accounting Standards for Private EnterprisesFEI Survey of Selected Possible Additional Disclosures
Value of additional disclosures for accessing credit
2.5
2.6
2.9
3
3.1
3.2
3.2
3.2
3.4
3.5
3.8
0 1 2 3 4
A sensitivity analysis for each type of market risk to which the entity is exposed
.
Estimated salvage value or disposal value of plant & equipment at end of estimated useful life
The ageing of accounts payable, i.e. a maturity analysis
The fair value of debt instruments.
Cash flows arising from income taxes
Inventory where cost>net realizable value
Fair value of property, plant and equipment
Cash flows for interest and dividends received and paid
Cause of provision of inventory impairment & reversal
Priority of security positions on collateral
Ageing of the receivables
Value for accessing credit (5=Very valuable, 1=Not at all valuable)
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Applying Accounting Standards for Private EnterprisesFEI Survey of Selected Possible Additional DisclosuresApplying Accounting Standards for Private EnterprisesFEI Survey of Selected Possible Additional Disclosures
Possible Disclosures
0 10 20 30 40 50 60 70
Ageing of AR
Inventory - Cost > NRV
Inventory impairment / reversals
Fair value of PP&E
Estimates - salvage value of PP&E
Ageing of AP
Priority of security positions
Fair value of Debt Instruments
Sensitivity analysis to risk factors of LTD
Cash flows from dividends / interest
Cash flows from income taxes
Percentage
Benefits >costAdds Value
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Panel QuestionPanel Question
Of the possible additional disclosures surveyed, which ones do you believewould be particularly useful / less usefulto users of private company financial statements?
Would the benefit of the disclosure warrant the cost involved to provide the information?
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Panel QuestionFair Presentation – the “Stand-Back” TestPanel QuestionFair Presentation – the “Stand-Back” Test
What are some examples of situationsthat you believe “are of such size, nature and incidence that their disclosure is necessaryto understand that effect” in order to provide fair presentation.
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Panel QuestionEBITDA – A Non-GAAP Performance MeasurePanel QuestionEBITDA – A Non-GAAP Performance Measure
EBITDA is a term that underlies many lending agreements. It is not a defined accounting term which precludes its presentation in financial statements.
Should companies be entitled to measure and disclose EBITDA in their financial statements?
What would be the benefits and challenges?
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Panel QuestionManagement Discussion and AnalysisPanel QuestionManagement Discussion and Analysis
Public companies are required toprovide MD&A to assist the users of theirfinancial statements in understanding significant changes in the business, risk factors, etc.
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Panel QuestionManagement Discussion and AnalysisPanel QuestionManagement Discussion and Analysis
Principles• enable readers to view the entity through management's eyes;• supplement and complement the information in the financial
statements;• be complete, fair and balanced, and provide information that is material
to the decision-making needs of users;• have a forward-looking orientation;• focus on management's strategy for generating value over time; and• be understandable, relevant, and comparable.
Canadian Performance Reporting Board
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Panel QuestionManagement Discussion and AnalysisPanel QuestionManagement Discussion and Analysis
Disclosure Framework
• Core businesses and strategy• Key performance drivers• Capability to deliver results• Results and outlook• Risk
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Panel QuestionManagement Discussion and AnalysisPanel QuestionManagement Discussion and Analysis
Would a framework for an MD&A model for private companies be useful to borrowers and lenders in “putting some color on the canvas”to facilitate access to capital?
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Accounting Standards for Private EnterprisesAccounting Standards for Private Enterprises
The Future?• Contentious areas• Transition balance sheet• IFRS
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Accounting Standards for Private EnterprisesAccounting Standards for Private Enterprises
Contentious Areas not Simplified / Amended• Stock-based compensation• Lease accounting• Classification of Callable Debt
Panel Views?
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Accounting Standards for Private EnterprisesAccounting Standards for Private Enterprises
The Transition Balance Sheet Elections• Fair value items of property, plant and equipment• Write-off certain unrecognized balances
Unamortized gains & losses on defined benefit pension plansCumulative translation account
Panel Views?
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Accounting Standards for Private EnterprisesAccounting Standards for Private Enterprises
The Future• ASPE – maintain a “made in Canada” solution”• IFRS• IFRS for SMEs• Other
Panel Views?
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Assurance StandardsChange Here Too!Assurance StandardsChange Here Too!
“Fair Presentation” vs. “Compliance” Frameworks• Today
ContractLegislationRegulation
• TomorrowUnrestricted
Panel Views?
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Executive Dialogue:Open FloorExecutive Dialogue:Open Floor
Q&A
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Closing RemarksClosing Remarks
Dennis Fortnum, PartnerNational Leader, KPMG Enterprise
Your feedback is important to us.
Please take a few moments to provide your commentson the evaluation forms and submit to our event team upon your departure.
30© 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.