Corporate Reporting

How your business will be

affected by impending regulatory
changes

May 18, 2010

Today’s presenters

Pamela Egger is PowellDorian’s Director, General Counsel Services and provides services in
the area of corporate compliance. She has over 10 years of experience as a securities and
corporate finance lawyer in Vancouver, BC, serving clients ranging from emerging private
companies (i.e. listing via IPO’s, RTO’s or CPC’s) to TSX Venture Exchange and TSX Exchange
(senior) listed companies.

Pamela Egger, B.A., LL.B.

Susan Clayton is PowellDorian’s Director, Financial Reporting. She has over 24 years of
experience managing finance and administration departments and related functions such as
contract administration, human resources and corporate secretary duties. Susan has held the
positions of CFO and Director of Finance for several companies in the technology industry and
now spends most of her time providing IFRS and Private Enterprise GAAP consulting expertise
to a wide range of organizations.

Susan Clayton, BBA, CGA

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Session objectives
By the end of this session you will:
 Understand why minimal corporate compliance may not be optimal
 Realize that as of January 1, 2011, Canadian GAAP as they are currently
known will no longer exist requiring all companies to adopt a different standard
 Identify different accounting standards that exist for private enterprises and the
choices you have
 Identify the new accounting standards that are mandatory for public
enterprises
 Understand the reasons for choosing one set of accounting standards over
another
 Understand the challenges of managing multiple roles in a small enterprise
 Have knowledge of the services that PowellDorian can provide to help you
efficiently manage your multiple roles

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Compliance considerations
Q Why does maintaining a broader scope of corporate compliance matter?

A What you don’t do now may haunt you later.

Private Enterprise Publicly Listed Company

Benefits Benefits

• Governmental entities and Not-for – •Better accountability promotes

Profits: better accountability promotes
confidence from public/membership
(accordingly, market forces continue to
drive adoption of modern governance
practices)
• Corporations: reduce risk of lost
opportunity such as future M&A, public
listing on any exchange, joint ventures,
venture capital financing
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investor confidence (lenders, venture
capital, private equity, public trading)
•Reduce risk of lost opportunity such
as financings, M&A, joints ventures.
• Ensures recruitment & retention of
quality directors and management
• Provide defence against liability for
losses in lawsuits (includes personal
liability of directors and officers)
•Remain clear of defaulting or cease
traded issuer list
What is best level corporate compliance for an organization?
The following may serve as part of a due diligence checklist.

1.Maintaining corporate records:

– articles, by-laws (establishing, maintaining, complying with)
– directors’ and audit committee resolutions
– shareholder and directors registers
– tracking share certificates and share transfers
– corporate filings (corporate registrar and public company regulators)
– material contracts

2. Maintaining meeting minutes:

– board, audit committee, other committees
– scheduling (timing and notice requirements)
– developing agendas
– advance preparation and distribution of materials
– minutes recording and record keeping
– task follow-ups

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What is best level corporate compliance for a corporation?
3. Coordinating annual shareholder meetings:
– preparing notice of meeting, information circular, resolutions, form of
proxy, and circulating to shareholders
– preparing script for Chair of meeting
– coordinating with stock transfer agent (NI 54-101 requirements - applies
to publicly listed companies)
– filing updates with corporate registrar

4. Monitoring and complying with governing legislation:

– governing company act and corporate by-laws
– privacy laws
– criminal laws applicable to corporations and directors
– industry laws (environmental, permitting, licensing, etc.)
– securities laws and stock exchange rules (applies to publicly listed
companies)

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What is best level corporate compliance for a corporation?
5. Establishing and maintaining corporate governance standards:

– developing corporate polices:

 Independence of Board and Audit Committee
 Code of Ethical Business Conduct
 Board Orientation and Continuing Education Policy
 Board Committee Charters
 Director and Board Committee Assessment Process
 CEO and Director Compensation Policy
 Director Nomination and Recruitment Process
– ensuring regular monitoring for compliance (liability defence )
– best practices (proactive)

NI 58-101 provides for mandatory disclosure for publicly listed companies

[with some exceptions for venture companies), but market forces are
! pressuring all entities to adopt principles contained in the corresponding NP
58-201

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What is best level corporate compliance for a corporation?
The remaining items are mandatory for publicly listed companies, but
some are considered “best practice” for other entities.

6.Establishing and maintaining audit committee standards:

– NI 52-110 mandatory disclosure requirements
– developing Audit Committee Charter, monitoring compliance

7.Complying with disclosure rules for executive compensation:

– NI 51-102F6 mandatory disclosure requirements
– developing policies (bonuses, expenses, stock option granting, other long
term and short term incentive plans)
– recording and regular monitoring of policies

8. Complying with general disclosure rules:

– material changes (news releases)
– NI 43-101 (mining law) & NI 51-101 (oil & gas law) disclosure requirements
– insider trading prohibitions and reporting
– developing “no-trading” policies (i.e. black out policies)

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What is best level corporate compliance for a corporation?

9. Establishing practices to comply with CEO and CFO

certification rules (some exemptions for venture companies):
– NI 52-109 mandatory disclosure requirements
– developing policies for internal control standards
– monitoring regularly by internal audit checks (liability defence)

10. Complying with disclosure rules for annual and quarterly

financial statements and management discussion & analysis:
– every quarter, preparing annual or quarterly financial statements and
MD&A (NI 51-102, NI 51-102F1 – MD&A form items)
– mandatory to convert to International Financial Reporting Standards
(IFRS) instead of Canadian GAAP (NI 52-107) effective as at January
1, 2011

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Canadian accounting standards status update

For fiscal periods beginning on or after January 1, 2011, Canadian GAAP

will no longer exist. Companies will need to adopt a different standard:

•Public companies will be required to use International Financial Reporting

Standards (“IFRS”)
•Private companies have the option to use either IFRS or Accounting
Standards for Private Enterprises
 

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Which standard is best for private companies?

The argument for IFRS:

• Your major competitors are adopting IFRS

• You have plans to issue equity through an IPO

• You are competing against public companies with access to credit

• Your exit strategy includes a sale to a private equity investor or public company

• You have plans to access capital or debt markets outside of Canada

• Users want your company to report on same basis as public companies

• You have plans for global expansion

• Your parent company reports under IFRS

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Which standard is best for private companies?

The argument for Private Enterprise GAAP:

• Your significant domestic competitors, customers and suppliers are

private

• You have no plans to access public equity or debt markets

• Your financial reporting is straight forward with limited complexities
• The intention is for ownership to be maintained within family or private
individuals

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Considerations before adopting IFRS
Advantages
Generally accepted as more relevant,
understandable, reliable and comparable
on a global basis.
Adopted by Canadian public companies
and by over 100 countries worldwide.
May provide a competitive advantage
against enterprises who fail to adopt a
globally-harmonized standard.
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Disadvantages
Standard is more principle based resulting
in fewer bright lines and rules
Disclosure requirements are significantly
greater than required under Private
Enterprise GAAP
The conversion process can be lengthy, and
require significant resources. (eg, contracts
such as banking agreements and executive
compensation may require renegotiating;
staff training both inside and outside of
finance regarding implications, etc)
Considerations before adopting Private Enterprise GAAP

Advantages Disadvantages

Based on current Canadian GAAP – Contracts such as banking agreements and

standards are straight forward and require executive compensation may require
little change renegotiating

Overall effectiveness will be reviewed after

Likely best route if no plans to access
standards have been in place for a few
public equity or debt market
years = possible significant future changes

May not be a long-term solution as there is

Disclosure requirements are less than a good chance that the standards will
those required under IFRS evolve to IFRS

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 What needs to be done?

First and foremost, determine which standards are applicable to your company

Publicly accountable enterprises

( no choice exists)

IFRS

Private enterprises
(choose wisely!)

PRIVATE
ENTERPRISE
GAAP

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What needs to be done?
Regardless of the standard chosen:

• No two conversion projects will ever be the same as the specific issues
that companies will face during conversion will vary widely because of
the variables at play.

• An impact assessment, diagnostic activity or scoping exercise should be

commenced in order for management and boards of directors to identify
the extend and complexity of the conversion and allow them to make the
appropriate decisions for planning, structuring and resourcing the
project.

• There are key areas that management will need to address during the
conversion that will be broadly similar for all conversions.

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Creating a transition plan
There are key areas that management will need to address during the
conversion that will be broadly similar for all conversions.

•Project launch and planning activities

• Structuring a project team and assigning resources

•Revision of Accounting Policies

•Application of transition standard

• IFRS 1

•Development of skeleton financial statements that are compliant with new

standard
•Preparation/restatement of financial information from Canadian GAAP to
new standard for comparative accounting period.

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Creating a transition plan (cont’d)

• Transition Approach
• Will entries be posted at a consolidated level or pushed down to the
transaction level?
• Identify and resolve data capture issues
• For IFRS, some of the increased financial disclosure will require new
processes to collect the data.
• Retraining of personnel
• Management will need to ensure that adequate resources are available
to ensure all employees have appropriate technical knowledge and
adequate training of any new accounting policies and business
processes and procedures.
• Communication with stakeholders
• This includes investors, unions,
• Audit committee financial literacy and retraining

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Practical Considerations
Before getting started, there are a few things to consider:

•Transition date and adoption date – time is of the essence.

•Prior year comparatives in accordance with the new standards are required -
time is of the essence.
•Standards will continue to evolve as standards are added and continuously
improved – monitoring changes will be important.
•Impact of adopting new standards can have a pervasive impact through out the
organization as it may impact IT, process and procedures extends beyond
Accounting/Finance – good communication plan and planning are key.

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Schedule of events
Now July 1, 2010 Oct 1, 2010
Jan 1
Planning phase Development Implementation 2011

Review impact of
Select Select accounting policies Calculate any Draft financial
standard on financial
accounting required for new standard adjustments statements and
statement
standard and resolve any issues required notes
components

Design system Develop and

modifications as implement system
required modifications
Analyze impact
on other business
areas

Identify
requirements, ie,
training

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Managing multiple roles
Small to mid-size private or public enterprises are often left with
only a few key players juggling multiple responsibilities.

Business Profit

CEO
Senior Officers
Board of Directors

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Compliance models
Traditional model Optimized model

Board of Directors Board

Corporate
Secretary

Management
Corporate
Compliance

External Stakeholders

External
Management
stakeholders

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The key roles to keep the business on track
Compliance Officer Role
• Expanded role compared to
“traditional” corporate secretary
• Manages all corporate compliance
and governance related matters;
works closely with office of CFO for
financial disclosure aspects
• Develops corporate policies and
procedures (for board and
management)
• Provides guidance to directors and
officers on their fiduciary duties,
relevant legislation, and other
applicable regulatory rules and
policies
• Helps foster an ethical corporate
culture
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Financial Reporting Role
• Requires familiarity with multiple sets
of GAAP
• Manages the transition to new
accounting standards (and any
changes thereafter)
• Works closely with Compliance
Officer to ensure appropriate
disclosures made and in a timely
fashion
• Works closely with CEO, board and
audit committee to present and
interpret financial statements,
financial performance and key
performance measures
• Responsible for design and
development of internal controls
How PowellDorian can help
PowellDorian Corporate Legal and Financial Services provide:

1. Corporate Secretary/Compliance Officer and In-house Counsel

– liaison between your Board, senior management, and external stakeholders
– coordination with office of the CFO (accounting/bookkeeping) for financial related
disclosure
– liaison with external lawyers = greater efficiency and reduced legal costs
– provision of corporate secretary services and in-house counsel services
– preparation of annual general meeting materials
– SEDAR, SEDI , and Corporate Registrar filings

2. Chief Financial Officer/IFRS Project Management and Consulting

– transition financial reporting from GAAP to IFRS or Private Enterprise GAAP
– financial and bookkeeping system setup
– advice and implementation of internal controls over financial reporting
– preparation of annual and quarterly financial statements and MD&A
– coordination with Corporate Secretary/Compliance Officer for financial related
disclosure
– liaison with CFO or provision of CFO related services

© PowellDorian Services Inc.

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Questions ?

Feel free to contact us at:

Pamela Egger, B.A., LL.B. Susan Clayton, BBA, CGA

Director Director
General Counsel Services Financial Reporting Services
PJEgger@powelldorian.com SClayton@powelldorian.com

(778) 588-7210

www.powelldorian.com

© PowellDorian Services Inc.

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