The Bottom Line, July 2011

Ontario’s Court of Appeal has reversed a landmark lower court decision, reinstating outstanding professional misconduct charges and costs imposed by the Institute of Chartered Accountants of Ontario against three senior partners of Deloitte & Touche in connection with their audit opinion of Livent’s 1997 financial statements.

“This is good news for the
ICAO,” says Karim Jamal, chair of
the accounting department at the
University of Alberta in Edmonton.
“If they had lost this appeal, there
would be no real meaningful
notion of professional self-regula-
tion.”
Jamal believes that if the courts
had simply been able to toss out
findings of professional miscon-
duct by ICAO after such detailed
work, likely involving thousands
of lawyer hours and millions of
dollars in legal fees, it might have
been worthwhile to simply shut
down the ICAO discipline process
and take their cases to the public
courts.

The Court of Appeal also referenced self-regulation in its decision summary. “This case is important to the ICAO and the self-regulation of the accounting profession. The panels for both the hearing and the appeal included four chartered accountants. The hearing was the longest in the history of the institute,” it noted.

Douglas Barrington, a former head of Deloitte’s national practice, along with Anthony Power and Claudio Russo, were found guilty of multiple counts of professional misconduct by the ICAO’s discipline committee in 2007; those charges were subsequently upheld by the ICAO’s appeal committee in 2009.

All three partners were found guilty of professional misconduct for two instances of failing to ensure Livent’s financial statements were in accordance with generally accepted accounting principals (GAAP) related to the booking of certain revenues. Power and Russo were also convicted of a third breach of GAAP, along with five instances of failing to perform an audit in accordance with generally accepted auditing standards (GAAS).

Last year, the divisional court quashed both of the outstanding charges against Barrington (who is

“This is good news for the ICAO. If they had lost
this appeal, there would be no real meaningful
notion of professional self-regulation.”

Karim Jamal, University of Alberta

now retired), and four of the eight charges against Power (also retired), and Russo (currently a Toronto-based partner with Deloitte).

The court also recommended that financial penalties and costs be reduced to reflect the remaining professional misconduct charges — four GAAS-related charges against Power and Russo pertaining to audit activities such as failing to obtain sufficient audit evidence. The divisional court said allegations of financial misstatements should have heightened the partners’ professional scepticism, and increased the subsequent audit work they performed.

However, all of the professional
misconduct findings that were
quashed in 2010, along with fines
and costs totalling $517,000 per
in Toronto, but did not hear back.

JAMAL

“At my suggestion, (they) are going to take
a little time to think about what they want to do.

They have the option of seeking leave to appeal
to the Supreme Court of Canada.”

J. L. McDougall, Fraser Milner Casgrain

partner, have now been restored by the latest legal decision.

J. L. McDougall, counsel and partner emeritus of Fraser Milner Casgrain LLP in Toronto, is the attorney for Power and Russo. “On behalf of the clients, it’s a tragic result. They had worked so hard to get themselves to the situation they were in (at) the divisional court, and to have a complete reversal is a tragedy for them and their families,” he says.

As for his clients’ options going forward, “at my suggestion, (they) are going to take a little time to think about what they want to do. They have the option of seeking leave to appeal to the Supreme Court of Canada,” notes McDougall.

The Bottom Line also contacted
Barrington’s law firm of Lenczner
Slaght Royce Smith Griffin LLP
to overturn the ICAO committee
decisions, they claimed that the
test of professional misconduct
had been both misunderstood and
misapplied. They also said they
had been denied procedural fair-
ness on several charges because
the conviction ultimately regis-
tered was issued on an unrelated
matter.

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www.thebottomlinenews.ca Vol.27No. 4 April2011

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The Independent Voice for Canada’s Accounting and Financial Professionals

By JEFF BUCKSTEIN
wo big unknowns loomed
over British Columbia’s
fiscal 2011-12 budget,
despite a wide-ranging percep-
tion this was a prudent document
designed to help B.C. eliminate
its deficit by mid-decade. The
budget was tabled in the midst of
a Liberal leadership race to
determine outgoing Premier
Gordon Campbell’s replacement;
and there is also a provincial ref-
erendum on tap this September
about potentially dumping the
harmonized sales tax (HST).
“It was certainly a status quo
budget, which wasn’t really
unexpected, given the political
climate here. There were no sig-
nificant initiatives, but certainly
enough flexibility so that a new
Premier could create some initia-
tives,” says Bruce Hurst, chair of
the Certified General Accoun-
tants Association of British
Columbia’s board of governors
in Vancouver.
Indeed, B.C. Finance Minister
Colin Hansen explicitly stated in
his speech to the provincial leg-
islature that this “can best be
described as a status quo budget
(that) provides the government
with spending authority to
manage the province’s affairs for
the coming year. However, it
does not set out new directions.
This will be in the purview of the
next premier, who will set the
course for the next decade,” he
said.
Hansen forecast that the
province’s final deficit figure for
fiscal 2010-11 would be $1.265
billion, much improved over the
$1.715 billion proposed when
the budget was tabled last year.
The deficit is then scheduled to
drop to $925 million in 2011-12,
and $440 million in 2012-13,
with the province moving back
into surplus in fiscal 2013-14.
Prudence was also built into
the budget forecast, with contin-
gencies of $600 million in 2011-
12, and $450 million in each of
the following two years. An addi-
tional allowance of $350 million
annually has been allotted over
the next three years, providing
more than a $2.5billion cushion
in total.
“We’veseentheeconomy
pick up, and that has brought in
ByIAN HARVEY
overnment tax policies
must be redirected to
encourage Canadians to
save more or the nation risks
becoming uncompetitive in the
next 20years, University of Cal-
gary professor and renowned
fiscal and taxation policy expert

The Independent Voice for Canada’s Accounting and Financial Professionals

www.thebottomlinenews.ca Vol.27No.3 March2011

www.thebottomlinenews.ca Vol.27No. 5 May2011

Judge allows suit to move ahead

Jack Mintz told a breakfast meeting recently.

Speaking at the Toronto Board of Trade and hosted by the Investment Industry Association of Canada, he said the tax system needs to work more effectively to support Canadians inbusiness and retirement.

By DONALEE MOULTON
trio of former and onecur-
rent member of Nova
That relationship has been
strained at times. Particularly
troublesome for theauditor gen-
eral has been thereluctanceof the
past two governmentsto imple-
ment many of therecommenda-
tions from his office. That situa-
tion, however, may be about to
change.
“We have had verbal indica-
tions from governmenttheir inten-
tion is thatrecommendations will
be acted on, but it takes time for
this to happen,” Lapointe said.
“I’m hopefulit will.”
What will not change, he
noted, is how his team does their
job. “Conducting performance
audits is part of the role of this
(office) as is the investigative
role.”
Premier Darrell Dexter leads
anNDP government in Nova
Scotia.
Liberal Leader Stephen
McNeil doesn’t believe therecent
scandal will affect ho w the
Lapointeand his office are per-
ceived or how they operate. “The
auditor general didhis job and did
it well,”hesaid. “Therelationship
remains the same between govern-
mentand theAG. (It) has not
changed. We trust and rely onhim
to be the watchdog of public
money.”
That watchdog should not be a
threat to government, said Pro-
gressive Conservative Leader
Jamie Baillie, who is calling for
even greater involvement on the
part of the AG. “It is important
that the auditor general move
beyond just auditing the annual
financialstatements and get into
more comprehensive, value-for-
money audits,” he said. “His
review of MLA expenses was
originally designed as a perform-
anceaudit. Weshould do more of
theseacross alldepartments and
agencies ofgovernment.
“The government should see
the expanded mandate of the
auditor general as a welcome
development, ensuringtaxpayers’
money is fully accounted for and
that government programs are
delivered efficiently,” Baillie
added. “In an age of morelimited
finances, theauditor generalwill
play an important role in ensuring
the governmentis abletomeetits
service-delivery obligations in the
most effective manner possible.”
An obliging association with
government is important,
Lapointe said. “We don’t want to
send themessage to government,
A

HST shadow looms over stand pat budget

Athirdmeasure,towithdraw
federal government insurance
ByJEFFBUCKSTEIN
United States federal dis-
trict judge has ruled that
charges in a securities
fraud class-action la wsuit — for as
yet undetermined damages — can
proceed against the U. S. office of
auditing fir m De loitte & Touche
and certain directors and officers
from the now defunct Bear
Stearns.
In his 389-page decision,
RobertSweetrejectedarequestby
the defendants to dismiss the secu-
rities action. He notedthe plain-
tiffs’complaint about Deloitte
having issued a clean audit
opinionofBearStearns’financial
statements for the company’s
fiscalyearsendedNov. 30,2006
andNov. 30,2007,andforsimilar
certificationson the firm’squar-
terlystatementsthroughtoMarch
2008.
“The securities complaint
allegesthat those ‘cleanopinions’
and‘certifications’were‘false and
misleading’ because, through
them, Deloitte ‘knowinglyand
recklesslyoffered a materially
misleading opinionas to the finan-
cial statements’accuracy,’” Sweet
wrote.
“The securities complaint has
furtheralleged that the Deloitte
failure resultedfrom the fact that
Deloitte ‘disregardedspecific red
flags that would have placeda rea-
sonable auditoronnotice that the
companywasengagedinwrong-
doing,’” added Sweet in his
written decision.
The red flags alleged by the
securities complainants, as out-
linedbySweet,included,among
otheritems: accusations that Bear
Stearnspersistedinusingmort-
gage valuationmodelsthatthe
U. S. Securities and Exchange
Commissionhadrepeatedlycriti-
cized as beinginaccurate or out-
moded; the claim ofmultiple risk
alerts relatedtothecompany’s
internal controls, internal audits,
anddisclosures;andBearStearns’
alleged failure to disclose weak-
nesses in its pricing and risk
models, as well asits risk manage-
mentprocessesandpersonnel.
Therearethreecontentious
issues that tend toarise at the
A
“Canada has done a tremen-
dous job in fixing up the tax
system,” said Mintz, former presi-
dent and CEO of the C.D. Howe
Institute. “We used to have the
highest corporate tax andpersonal
tax burdens in the OECD and
these changes have been done by
both Liberal and Conservative
governments, and even the NDP
provincially in Manitoba and

Steve Beguhn auditions in Milwaukee for American Idol. The PricewaterhouseCoopers CPA was an instant hit in the accounting community for taking that shot.

“Theystem from myrole conducting aperformanceauditon the MLA expense process. One thing led to another,” Auditor General Jacques Lapointe told TheBottom Linein an interview. After his 2009 performance auditrevealedexpenseclaims that were considered unacceptable and excessive, the auditorgeneral launched a forensicaudit into possible criminal wrongdoing. “Therewere concerns theremight be illegal as well as inappropriate expenditures,” said Lapointe, a chartered accountant.

Saskatchewan.”
CFO of the Year award. The 63-
year old executive is thefirst certi-
fied management accountant to
win and the firstin the award’s
nine-year history to be selected
from a privately run company,
However, he said, the job is
never finished and a shift in
demographics will require action
now — perhaps as soon at the
March 22 federal budget — to
keep Canada competitive.

See Deloitte on page 25

See Province o n page 29

Unfortunately, he didn’t strike gold. The certified public accountant was eliminated during Hollywood Week, the show’s introduction— andfarewell — to hopefuls who had made it past their initial audition.

See Publicity on page 25

Auditor praised for role in Nova Scotia fraud probe

Gordon Maron, recentlynamed Canada’s CFO of the Year, is seen
outside PCL Construction’s headquarters in Edmonton with a
sculptureentitled ‘TheBuilders.’
JeffMayerofMortgageIntelligenceinTorontowelcomesthefederalmovestoplacenewcurbson
mortgages, but warns that credit carddebt posesa potentially greater threat.

Feds tightening rules on mortgage leverage

Maron bucking trend in winning CFOaward

Shot at glory ends, but hope endures

By DONALEEMOULTON teve Beguhn spent his vacation this year taking a break from auditing and instead auditioned, successfully, for American Idol.

G S

ANADAS CCOUNTING OP ORENSIC CCOUNTING RAUD DUCATIONFOR CCOUNTANTS

By JEFF BUCKSTEIN ordon Maron achieved a couple of firsts when he was named the 2011 winner of Canada’s prestigious

Forthe auditor generaland his team, the performance and forensic audits were businessas usual. The very public scandal that resulted was not. What is not known is ifthe subsequent humili-ationand public indignation will affectthe government’s perception of the auditor generaland his role. “It’s hardto say if this willhave an impact on the relationship with government,”Lapointe said.

PCL ConstructionHoldings Ltd. “It’s pretty cool to be recognized in that elite Canadian business group,”says Maron. “But for meit’s as much ateam awardasit is apersonalone. I thinksome of it is being in the right placeat the right time; where you’ve got the rightteam, the rightenvironment,

“Sometimesyouhavetoput
rulesandregulationsinplaceso
peopledon’thurtthemselves,”
stresses Jeff Mayer, a Toronto-
basedmortgageagentwithMort-
gage Intelligence Inc.
EffectiveMarch18,2011,the
maximumamortizationperiodfor
amortgageloaninCanadawillbe
reducedfrom35to30yearsfor
newgovernment-backedinsured
mortgages with loan-to-value
ratios inexcess of 80percent. The
maximumamount Canadianscan
borrowtorefinancetheirmort-
gageswilldeclinefrom90per
cent to85percent of the value of
theirhomes.

“Limitingeverybody,including homeowners,institutions,mort-gagebrokers––onhowmuchcan besqueezedoutofapropertyis important.ButIdon’tthinklim-itingtheamortizationperiodis goingtohavemucheffect,”says Mayer,whoviewscreditcarddebt as the major consumerculprit.

By JEFFBUCKSTEIN
hefederalgovernmenthas
furthertightenedmortgage
rulesforhomeownersinthe
faceofrecordconsumerdebtthat
haspromptedrepeatedwarnings
fromvarioussources, including
The critical issue going for-
ward, he said, is how Canadians’
savings are taxed — specifically
how Canadians can be encouraged
tosave more.

T
In January, Beguhn, who works
with PricewaterhouseCoopers LLP
in Milwaukee, Wisconsin, sang his
heart out forIdol judges, including
Grammy nominee Jennifer Lopez.
He made it past the first round of
cuts andwas California bound.