1. 1 Public availability of financial statements of publicly traded and privately-held companies: The Canadian Case REPARIS Workshop on Accounting & Audit Regulation Vienna, March 14 th 2006 Presented by Alfred Borgonovo, CGA

2. 2 Forms of business in Canada Sole proprietorship – an individual carrying on business alone Partnership – two or more people carrying on business together for the purpose of making a profit Corporation – an incorporated company that is a legal entity separate from the people who own the shares

3. 3 The sole proprietorship form of business A business owned and operated by one individual Operated under the owner’s name, or another name Business income is declared on the personal income tax return of the proprietor Canada’s Income Tax Act guarantees the confidentiality of income tax returns FINANCIAL STATEMENTS NEED NOT BE PREPARED / MADE PUBLICLY AVAILABLE

4. 4 The partnership form of business The law does not set a limit on how many partners may be involved Partnership income is declared on the income tax returns of the partners FINANCIAL STATEMENTS NEED NOT BE PREPARED / MADE PUBLICLY AVAILABLE Two or more persons carrying on business together for the purpose of making a profit

5. 5 The corporation Different forms of incorporation Registration – practice adopted from Britain Letters Patent – royal charter approach Articles of Incorporation - adapted from U.S. An incorporated company that is a legal entity separate from the people who own the shares

6. 6 Corporations law in Canada: a provincial responsibility There are 10 provinces and 3 territories in Canada Corporations can be incorporated at provincial or national level (Canada Business Corporations Act - CBCA)

7. 7 Financial reporting obligations of corporations under CBCA Section 155 of CBCA: Obligation of a corporation to present financial statements on an annual basis. Regulations stipulate that the financial statements shall include: a. a balance sheet b. a statement of retained earnings c. An income statement; and d. A statement of changes in financial position Sections 157 and 159: Availability of financial statements to shareholders

8. 8 Financial reporting obligations under the CBCA - continued A corporation may apply to a court for an order barring the right of a person to examine the financial statements The requirement to produce financial statements can be waived by unanimous resolution of the shareholders Restrictions on the availability of financial statements

9. 9 Different types of corporations Non-offering corporations (commonly referred to as private or closely held corporations)  Generally restricted to 35 or 50 security holders  Prohibition on offering shares to the Public Public offering corporations  No such restrictions  Subject to the provincial securities laws Canadian legislation governing corporations distinguishes between:

10. 10 Financial reporting obligations of private corporations Lodge an annual income tax return Lodge annual returns with the Provincial Registrar of Companies FINANCIAL STATEMENTS MAY NOT NEED TO BE PREPARED/DO NOT HAVE TO BE MADE PUBLICLY AVAILABLE

11. 11 A prominent Canadian private corporation

12. 12 Financial disclosure by private companies is purely voluntary

13. 13 Financial reporting obligations of public offering corporations Cannot be exempted from the requirement to produce annual financial statements Financial statements must be made publicly available Financial reporting obligations of public companies and investment funds are governed by the Securities Act of each Province and Territory

14. 14 The Ontario Securities Commission (OSC) Its authority derives from the Securities Act of Ontario According to this act, the OSC responsibilities include laying down the requirements for the timely, accurate, and efficient disclosure of information The OSC administers securities legislation in Ontario, including the Toronto Stock Exchange (TSX)

15. 15 Canadian Securities Administrators

16. 16 How the CSA makes financial statements publicly available

17. 17 What is SEDAR? SEDAR® is the System for Electronic Document Analysis and Retrieval ("SEDAR"). The SEDAR system enables public companies and investment funds to electronically file securities related documents and information with the Canadian securities regulatory authorities. This Web Site contains those parts of the Filed Information and other public information that the CSA has determined to make available on this Web Site

18. 18 Searching the SEDAR website

19. 19 Not only the current year

20. 20 Not just financial statements

21. 21 Document types available Annual Information Form Annual Report Director’s Circular Early Warning Report Financial Statements Issuer Bid Circular Management Report of Fund Performance Management’s Discussion and Analysis Material Change report News Releases Notice of Meeting Notice of Principal Regulator Prospectus Proxy Circular Take-over Bid Circular Other

22. 22 Search for HBC – financial statements

23. 23 Hudson’s Bay Company financial statements available to download

24. 24 And the entire company annual report

25. 25 Summary Sole proprietorship and partnership: Exempt from the requirement to prepare financial statements Private company: Financial statements (if prepared) need not be made publicly available Public company: Annual financial statements to be made publicly available & ongoing disclosure regime

26. 26 Statistics Publicly traded Canadian companies number 2,300  Publicly available financial information  Cost of compliance is high, and increasing Corporations and partnerships, in British Columbia alone  285,000 corporations / 352,000 partnerships  Financial information not publicly available

27. 27 Canadian trends in governance regulations (CSA) and reporting Governance  Reporting on internal control over financial reporting  Reporting on disclosure controls and procedures  Securities disclosure liability Reporting standards  Convergence with International reporting standards.

28. 28 Is the public availability regime of financial statements in Canada adequate? Economic value of financial statements  Timely and accurate financial information to support capital markets The objective of financial statements according to Canadian GAAP: – “[…] to communicate information that is useful to investors, members, contributors, creditors and other users in making their resource allocation decisions and/or assessing management stewardship”. Section 1000.15 of the CICA Handbook.

29. 29 Is anything missing? Are investors and decision-makers receiving the information they need? Corporate sustainability reporting is becoming increasingly prevalent. The Jenkins Committee’s model of business reporting, 1994.

30. 30 Concerns about the adequacy of financial statements CA Magazine, August 1996

31. 31 Financial Statements: Only part of the picture?

32. 32 Thank you For further information contact: Alfred Borgonovo, CGA Manager, International Development Tel: +1 (604) 605-5041 Fax: +1 (604) 689-5845 E-mail: aborgonovo@cga-canada.org