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When it comes to governance and accountability the feds should practice before they preach
By Walter Robinson
Recently leaders in the accounting profession announced the creation of an independent public oversight body to ensure the quality and integrity of audits conducted by Canadian accounting firms. In short, this body will audit the auditors. This move stems from the seemingly endless stream of accounting and corporate disclosure scandals that have rocked the markets in recent months.
The list of companies think Adelphia, Enron, Global Crossing, Sunbeam, Xerox etc. in the throws of bankruptcy, under regulatory scrutiny, engaging in questionable accounting practices, or restating financials is long. As a result stock prices tanked, creditors were stiffed, and employees have been laid off holding millions in worthless stock options.
In fairness, most corporate titans are not party to such activity, but confidence in corporate institutions has eroded. So the creation of an independent, non-governmental body is welcome. While the Department of Finance praised this new body, a news release from Minister John Manley insisted that further action five specific steps must be taken.
1) Strengthening Corporate Governance. Companies in Canada must be seen to be governing themselves in a responsible and principled way in the best interests of shareholders.
No disagreement here. Now if only the federal government would hold itself to this same standard. Wasting $40 million annually in sponsorships, and writing off hundreds of millions of dollars in corporate welfare loans is not in the interests of Canada's shareholders (read: taxpayers).
2) Ensuring Management Accountability. Senior executives must ensure the veracity and completeness of their public disclosures, including their financial statements.
Another common sense idea. Sadly Ottawa has booked $7.7 billion in arm's length foundations. And it consistently underestimates federal tax revenues while ratcheting up mid-year spending.
3) Improving Financial Reporting. Canadian companies must provide investors with complete, accurate and easy-to-understand information.
This is a no-brainer. However, the last two spring economic updates (May 2001, June 2002) from two different finance ministers were devoid of numbers, projections, etc. The gall of Ottawa to offer counsel on financial reporting is astonishing.
4) Toughening Enforcement. Individuals and companies that violate the public trust must face punishment that is consistent with the seriousness of the violation.
Absolutely. But hopefully Canada's corporate police won't follow Ottawa's example when it comes to punishment: Denmark already has an ambassador.
5) Enhancing Further Credibility of the Audit Process. Investors must have confidence in the independence and integrity of companies' external auditors.
Yes they must. But taxpayers have expressed their confidence in the government's external auditor: the Auditor General (AG). Now if only federal Liberal MPs would cease their efforts to undermine and discredit the integrity, independence and merits of the AGs work.
When it comes to governance and accountability, the feds should practice before they preach.
Walter Robinson is the Federal Director of the Canadian
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