Big Four Audit Split, Accounting Standard Setter Goes Global, and More

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TORONTO, May 29, 2022 – Last week news broke that Ernst & Young LLP was considering a global spin-off of its audit and advisory business. If true, the decision would impact thousands of Canadian accountants and have ramifications for the accounting profession in Canada, especially within the Big Four.

The story was first reported by Michael West Mediaan Australian-based independent investigative journalism platform, which said “EY partners in groups around the world have signed non-disclosure agreements in an effort to prevent information leaks before decisions are made. final decisions are made regarding the structure of the two new companies”.

The news was later picked up by the the wall street journalwhich focused on the potential creation of two giant professional services companies, and The Guardian in the UK, which focused more on the record of Big Four audit failures and regulatory scrutiny of the independence of firms. Yesterday the Wall Street Journal reported that other major companies have no intention of following EY and “have issued statements defending their existing models”. And today came the news that EY’s global head, Carmine Di Sibio, “pleaded with the company’s more than 300,000 employees not to be distracted by the severance plans and said no final decision had been made,” according to Australia Financial analysis.

In a related note, the UK Financial Times and AccountingWEB everyone reported last week that audit failure fines actually benefit the accounting profession. Fines imposed on UK accountancy firms by the Financial Reporting Council are actually passed on to the Institute of Chartered Accountants of England and Wales, rather than the securities regulator (as is the cases in Canada and the United States), or even (as has been suggested) into contingency funds to compensate victims of audit failures, such as employees who lost their jobs and retired during the business failure.

AccountingWEB explains it best: “When a major auditor is sanctioned by the FRC, the fine in question is refunded, net of costs, to the professional institute that had primary responsibility for regulating the firm found guilty”.

Accounting Standards Chair appointed at the IASB

In Canadian accounting, the big news of the week was the appointment of Linda Mezon-Hutter, Chair of the Accounting Standards Board of Canada (AcSB), to the International Accounting Standards Board. Mezon-Hutter has been an integral part of setting the standards for a year, having joined the CNC in 2004 and serving as chairman since 2013.

David Milstead at The Globe and Mail covered his date (and has interviewed Mezon-Hutter from 2015). Milstead rightly refers to many of the accounting standards challenges that have marked Mezon-Hutter’s tenure, such as the move to IFRS, non-GAAP reporting and cannabis accounting standards, issues that have been discussed at length by the business press.

The Court of Appeal confirms the decision on the SR&ED tax credit

Scientific research and experimental development (SR&ED) tax credits are a big business for accounting and consulting firms. And Canadian innovators wonder what another government review of the program could accomplish, according to Betakitaddressing the balance between direct and indirect support for research and innovation.

So it might be worth a read Federal Court of Appeal upholds decision denying tax credits claimed by consulting firm as a Canadian lawyer. Not only was the claim ineligible for a tax credit, but both judges agreed that the claim was not supported by adequate documentation. (Patrick Brethour in the Globe and Mail also references decision.)

Quick shots

UK professional services firms seek exemptions to ban work in Russia (Financial Times UK)
City of Greater Sudbury Receives National Award for Financial Reporting (Greater Sudbury)
The housing market is out of control. Here are five fixes that could help bring prices down (Toronto Star)
Luxury tax will slash auto, plane and boat sales by more than $600 million a year, PBO says (Globe and Mail)
Snowbirds face a potpourri of tax problems (Globe and Mail)
Taxes and Spending: The Micawber Principle of Public Debt (Globe and Mail)
Canadian foreign aid discussed during Barrick’s Tanzania tax dispute, internal emails show (Globe and Mail)

By Canadian accounting staff.

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