CHAIR'S PROFILE - CGA Online Learning Environment
CHAIR'S PROFILE - CGA Online Learning Environment
CHAIR'S PROFILE - CGA Online Learning Environment
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C E R T I F I E D G E N E R A L A C C O U N T A N T S O F O N T A R I O<br />
August/September 2011<br />
Volume 40, Number Four<br />
BUILDING GREAT TEAMS<br />
IN THE WORKPLACE<br />
CHAIR’S<br />
<strong>PROFILE</strong><br />
BLAKE MERCER, F<strong>CGA</strong><br />
BOARD OF DIRECTORS<br />
<strong>CGA</strong> ONTARIO<br />
+FINANCIAL ANALYSIS:<br />
EARNINGS GROWTH<br />
AND RESIDUAL INCOME
VIEW FROM THE CEO ▪ Doug Brooks, F<strong>CGA</strong><br />
Listening To Our Membership<br />
<strong>CGA</strong>s and students on the future of the accounting profession<br />
lake Mercer, F<strong>CGA</strong>, and I recently completed<br />
a series of town hall meetings on the future of<br />
the accounting profession. Blake is the newly<br />
elected chair of the board of directors of <strong>CGA</strong> Ontario and<br />
the subject of the cover story, “Like Father, Like Son,”<br />
which begins on page eight of this issue.<br />
Together we hosted six town hall meetings throughout<br />
late June and early July in locations across Ontario that<br />
surpassed our most optimistic expectations. They were<br />
well-attended, the level of engagement was extremely<br />
high, and our members expressed their appreciation for<br />
the opportunity to discuss the future of the profession<br />
in an open, welcoming and transparent environment.<br />
To me, as a <strong>CGA</strong> who understands the substantial<br />
demands upon the personal time of our membership, it<br />
was gratifying to see how many <strong>CGA</strong>s and students came<br />
out to listen, ask questions and express their opinions.<br />
There appears to be a consensus amongst our membership<br />
on the future of the accounting profession.<br />
<strong>CGA</strong>s recognize that the accounting profession is<br />
going global. We see the emergence of global account-<br />
ing designations just as we have seen the globalization<br />
of accounting standards.<br />
These developments simply mirror what is happening<br />
all around us: at the macro level, through free trade<br />
deals, outsourcing and the global movement of capital,<br />
and at the micro level, where change is occurring daily<br />
in our workplaces, regardless of the sector, employer or<br />
clientele.<br />
Forces of Unification<br />
Last March, the American Institute of Certified Public<br />
Accountants, based in New York, and the Chartered Institute<br />
of Management Accountants, based in London,<br />
announced a proposed joint venture that would create<br />
a new, globally recognized management accounting<br />
designation, CGMA, which stands for Chartered Global<br />
Management Accountant.<br />
Similarly, in Canada, the Canadian Institute of Chart-<br />
ered Accountants (CICA) and The Society of Management<br />
Accountants of Canada (CMA Canada) recently announced<br />
exploratory merger talks that might eventually lead to the<br />
creation of a new accountancy body and designation.<br />
Meanwhile, at the time of my writing, all three accountancy<br />
bodies in Quebec are officially engaged in<br />
merger talks that may lead to the creation of a new body<br />
and designation in that province, and would most certainly<br />
complicate matters of governance and affiliation<br />
nationally.<br />
With all the changes occurring in the accounting profession<br />
at the provincial, national and international levels,<br />
it’s not surprising that the consensus amongst <strong>CGA</strong>s and<br />
students in Ontario is that a nationally unified profession<br />
might work, but only under the right circumstances.<br />
<strong>CGA</strong>s also acknowledge that the accounting profession<br />
is evolving in conjunction with globalization and that<br />
we need to participate in the global accounting community.<br />
Clearly there are many options and many paths to<br />
consider. We talked about some of those at our town hall<br />
meetings.<br />
The Way Forward<br />
A unified profession that combined the strengths of the<br />
individual bodies and was fair and equitable to all its<br />
members would be profoundly different than the status<br />
quo. At an international level, a unified, national body<br />
would also have a stronger voice in international discussions<br />
within the accounting profession.<br />
But this is not the only path to an international presence.<br />
The <strong>CGA</strong> designation is already well respected<br />
internationally. We have partnerships with some of the<br />
largest, most highly respected accountancy bodies around<br />
the world. Our reputation internationally is solid.<br />
Though every Ontario member and student may<br />
not be in complete agreement with a way forward, we all<br />
agree that our Association and designation is strong and<br />
in a good position to move even further forward.<br />
We are not a part of official merger talks between<br />
the national bodies, but we are always talking to our professional<br />
peers and our colleagues at affiliates across<br />
Canada, and we will continue to be, as always, guided by<br />
the interests of our members and students in Ontario.<br />
One thing was very clear to me as I listened to our<br />
members and students speak: our passion and commitment<br />
to the <strong>CGA</strong> designation has never been stronger.<br />
We continue to see more than numbers and we will<br />
continue to keep <strong>CGA</strong>s at the forefront of the profession<br />
in Ontario, Canada and around the world.<br />
DOUG BROOKS, F<strong>CGA</strong><br />
Chief Executive Officer<br />
<strong>CGA</strong> Ontario<br />
2 STATEMENTS AUGUST/SEPTEMBER 2011
STATEMENTS<br />
The Ledger<br />
August/September 2011<br />
4<br />
5<br />
6<br />
7<br />
Town Halls on the Future of the Accounting Profession<br />
Harmonized Sales Tax for Ontario Businesses Booklet<br />
Household Debt Report Released by <strong>CGA</strong> Canada<br />
<strong>CGA</strong> Ontario Endows Schulich School of Business Chair<br />
Association Board of Directors 2011 Election Results<br />
Fellowship Designations Bestowed by <strong>CGA</strong> Canada<br />
MicroSkills Presents Corporate Spirit Award<br />
New Professional Development Catalogue Released<br />
Notes and Letters to the Editor<br />
16<br />
17<br />
21<br />
Columns<br />
‘NET ASSETS Paperless Possibilities<br />
TECH TALK How Safe is Syncing and Sharing<br />
THE PUBLIC SECTOR Pooled Pension Plans<br />
8<br />
8<br />
12<br />
18<br />
20<br />
22<br />
23<br />
Articles<br />
FEATURE: LIKE FATHER, LIKE SON<br />
A Profile of Blake Mercer, F<strong>CGA</strong><br />
Chair, Board of Directors, <strong>CGA</strong> Ontario<br />
HUMAN RESOURCES<br />
Building Team Dynamics<br />
Civility in the Workplace<br />
FINANCIAL ANALYSIS<br />
Earnings Growth and Residual Income<br />
ACCOUNTING STANDARDS<br />
Public Sector Handbook Update<br />
NOTES TO STATEMENTS<br />
Discipline Notices<br />
COMMUNICATION SKILLS<br />
A Proper Introduction<br />
18<br />
ON THE COVER: Blake Mercer, F<strong>CGA</strong>, the<br />
chair of the board of directors of <strong>CGA</strong> Ontario<br />
(photograph by Gary Beechey, BDS Studios).<br />
Published bimonthly by the Certified<br />
General Accountants of Ontario.<br />
Contents may not be reprinted<br />
without permission from the editor.<br />
The views expressed in articles and<br />
columns are not necessarily those<br />
of Statements or <strong>CGA</strong> Ontario.<br />
Letters to the Editor should be<br />
addressed to Statements, in care<br />
of <strong>CGA</strong> Ontario, by email to<br />
editor@cga-ontario.org, by fax<br />
to 416-322-5594, or by<br />
mail to <strong>CGA</strong> Ontario.<br />
Statements is printed on 10<br />
per cent recycled paper.<br />
Publications Mail Agreement<br />
No. 40006733.<br />
Return undeliverable<br />
Canadian addresses to:<br />
Circulation Dept.,<br />
330-123 Main Street,<br />
Toronto ON M5W 1A1.<br />
Editor<br />
Colin Ellis<br />
cellis@cga-ontario.org<br />
Associate Editor<br />
Christopher Stephenson<br />
cstephenson@cga-ontario.org<br />
Graphic Designer<br />
Tim Chau<br />
tchau@cga-ontario.org<br />
<strong>CGA</strong> Ontario<br />
240 Eglinton Avenue East<br />
Toronto ON M4P 1K8<br />
Telephone: 416-322-6520<br />
or Toll-free: 1-800-668-1454<br />
Fax: 416-322-5594<br />
Website: cga-ontario.org<br />
LAST ISSUE<br />
Read “Developing<br />
Opportunities” in the<br />
June/July 2011 issue of<br />
Statements, online in<br />
the publications section<br />
at cga-ontario.org.<br />
AUGUST/SEPTEMBER 2011 STATEMENTS 3
The Ledger<br />
N E W S & N O T E S F R O M C G A O N T A R I O<br />
<strong>CGA</strong> ONTARIO HOLDS<br />
TOWN HALL MEETINGS<br />
<strong>CGA</strong>s Voice Their Opinions<br />
on the Future of the<br />
Accounting Profession<br />
<strong>CGA</strong>s heard from the Association’s<br />
chair of the board of directors<br />
and its chief executive officer in<br />
meetings like this across Ontario.<br />
<strong>CGA</strong>s across Ontario gathered<br />
for a series of town<br />
hall meetings throughout<br />
June and July to voice their<br />
opinions on the changing<br />
landscape of the accounting<br />
profession.<br />
In response to the recent<br />
announcement of exploratory<br />
merger talks between the<br />
Canadian Institute of Chartered<br />
Accountants (CICA) and<br />
The Society of Management<br />
Accountants of Canada (CMA<br />
Canada), <strong>CGA</strong> Ontario scheduled<br />
six town halls across the<br />
province, plus a virtual town<br />
hall meeting via webcast, to<br />
provide a forum for <strong>CGA</strong>s and<br />
students to ask questions<br />
and share their opinions on<br />
the future of the accounting<br />
profession.<br />
More than a hundred <strong>CGA</strong>s<br />
attended a two-hour town<br />
hall meeting in the Greater<br />
Toronto Area in July.<br />
Town Hall Meeting,<br />
Golden Horseshoe Region<br />
An Open <strong>Environment</strong><br />
Many members expressed<br />
their appreciation for the<br />
opportunity to express their<br />
opinion and discuss the future<br />
of the profession in an<br />
open environment with their<br />
colleagues and the leadership<br />
of the Association.<br />
Led by Blake Mercer,<br />
F<strong>CGA</strong>, chair of <strong>CGA</strong> Ontario’s<br />
board of directors, and<br />
chief executive officer Doug<br />
Brooks, F<strong>CGA</strong>, the meetings<br />
drew more than 600 <strong>CGA</strong>s,<br />
reaching capacity in several<br />
locations, while many more<br />
<strong>CGA</strong>s participated in the<br />
virtual town hall, which has<br />
been archived for viewing by<br />
all <strong>CGA</strong>s and students (log in<br />
to cga-ontario.org and click<br />
on “News and Updates”).<br />
Opinion, Consensus<br />
Not surprisingly, there was<br />
a variety of opinions expressed<br />
on the future of the<br />
accounting profession. Members<br />
are confident about the<br />
strength of their designation<br />
and their prospects for the<br />
future. They also see the potential<br />
emergence of global<br />
accounting designations,<br />
given the globalization of<br />
business and the increasing<br />
standardization of accounting<br />
practices around the<br />
world. Discussion will undoubtedly<br />
continue as new<br />
developments emerge in<br />
the accounting profession<br />
and talks continue between<br />
professional accounting<br />
organizations.<br />
4 STATEMENTS AUGUST/SEPTEMBER 2011
<strong>CGA</strong> ONTARIO<br />
RELEASES HST GUIDE<br />
Supporting Best Practices<br />
for Ontario Businesses<br />
<strong>CGA</strong> Ontario<br />
is pleased to<br />
announce the<br />
publication of<br />
Harmonized<br />
Sales Tax for<br />
Ontario Business,<br />
an update to our highly<br />
popular HST booklet, Harmonized<br />
Sales Tax in Canada,<br />
which was published in 2009.<br />
This valuable and<br />
user-friendly HST booklet,<br />
authored by HST subject<br />
matter expert Diane Gaudon,<br />
F<strong>CGA</strong>, offers businesses<br />
useful tips on how to comply<br />
with HST, highlighting important<br />
changes that have<br />
occurred since the 2009<br />
implementation.<br />
“It was important for<br />
the Association to publish<br />
a second HST booklet that<br />
could take Ontario businesses<br />
from a place of transition<br />
to best practices,” said<br />
Ted Wigdor, <strong>CGA</strong> Ontario’s<br />
vice-president of government,<br />
regulatory and corporate<br />
affairs, upon the release<br />
of the booklet in June. The<br />
Honourable Sophia Aggelonitis,<br />
Minister of Revenue,<br />
echoed his thoughts. “<strong>CGA</strong><br />
Ontario plays an important<br />
role in helping business understand<br />
the most significant<br />
tax change in a generation,”<br />
said the Minister. “I look<br />
forward to working with <strong>CGA</strong><br />
Ontario as we move forward<br />
with implementation for Ontario’s<br />
Tax Plan for Jobs and<br />
Growth.”<br />
Harmonized Sales Tax<br />
for Ontario Business can be<br />
read online in the publications<br />
section of <strong>CGA</strong> Ontario’s<br />
website (cga-ontario.org)<br />
under Information Booklets<br />
and Brochures.<br />
<strong>CGA</strong> CANADA HOUSE-<br />
HOLD DEBT REPORT<br />
Fourth Report Reveals<br />
Alarming Consumer Trends<br />
On June 14th,<br />
<strong>CGA</strong> Canada<br />
released its<br />
fourth comprehensive<br />
research<br />
report<br />
on household debt and consumption,<br />
entitled “A Driving<br />
Force No More: Have Canadian<br />
Consumers Reached<br />
Their Limits”<br />
The report details in<br />
depth how Canadian families<br />
face an ongoing battle<br />
against the balance sheet as<br />
household debt reaches an<br />
historic high. “The debt of a<br />
typical household is rising,”<br />
says Rock Lefebvre, <strong>CGA</strong><br />
Canada’s vice-president of<br />
research and standards and<br />
the co-author of the report.<br />
“The financial situation of<br />
certain groups of households<br />
is much worse than<br />
average and continues to<br />
deteriorate.”<br />
The survey-based report<br />
reveals several alarming<br />
trends, as single-parent families,<br />
retired Canadians, and<br />
those with annual household<br />
income of less than<br />
$50,000, face a bleak financial<br />
situation. The full report<br />
is available at cga-canada.org.<br />
<strong>CGA</strong> ONTARIO ANNUAL<br />
GENERAL MEETING<br />
<strong>CGA</strong> Ontario’s annual general<br />
meeting will be held on<br />
Friday, September 16, 2011,<br />
at the Hilton Toronto on Richmond<br />
Street West. The AGM<br />
will begin at 6 p.m. and will<br />
be followed by the Member<br />
Recognition and Awards<br />
Dinner at 7p.m. If you plan to<br />
attend, please register online<br />
at cga-ontario.org.<br />
Leaders from <strong>CGA</strong> Ontario and the<br />
Schulich School of Business convened for<br />
the signing ceremony on June 22, 2011.<br />
<strong>CGA</strong> ONTARIO PARTNERS WITH SCHULICH<br />
SCHOOL OF BUSINESS<br />
New Chair in Global Competitiveness for Smalland<br />
Medium-Sized Enterprises<br />
<strong>CGA</strong> Ontario is pleased to announce a $2 million gift to the<br />
Schulich School of Business at York University to support the<br />
creation of a new, endowed academic chair focusing on global<br />
competitiveness for small- and medium-sized enterprises<br />
(SMEs).<br />
The <strong>CGA</strong> Ontario Chair in Global Competitiveness for<br />
SMEs will carry out intensive research into the success factors<br />
— as well as the challenges — currently affecting the internationalization<br />
of SMEs.<br />
This research can then be used to enhance export knowhow<br />
and foreign investment competence of businesses; to<br />
identify and leverage extensive international networks; and<br />
to develop public policies specifically designed to create the<br />
conditions necessary for Canadian SMEs to become more<br />
broadly engaged in the global marketplace.<br />
“We’re very excited to be working with Schulich in this<br />
joint project, as the SME business community is the backbone<br />
of today’s economy,” said <strong>CGA</strong> Ontario’s chief executive officer,<br />
Doug Brooks, F<strong>CGA</strong>, at the signing ceremony held at the<br />
Schulich Scool of Business on June 22, 2011.<br />
“A significant percentage of <strong>CGA</strong>s in Ontario serve SMEs.<br />
Research by the <strong>CGA</strong> Ontario Chair in Global Competitiveness<br />
for SMEs will play an important role in assisting SMEs to<br />
become more competitive outside their domestic markets.”<br />
Dezsö J. Horváth, dean of the Schulich School of Business,<br />
thanked <strong>CGA</strong> Ontario and its members for making this vital<br />
new chair possible.<br />
“Canada needs to do more to turn our small- and medium-sized<br />
enterprises into global competitors,” said Horváth.<br />
“What we lack is detailed knowledge about the success factors<br />
and challenges affecting the internationalization of smallto<br />
medium-sized enterprises.<br />
“The <strong>CGA</strong> Ontario Chair in Global Competitiveness for<br />
Small- and Medium-sized Enterprises will help us build that<br />
knowledge.”<br />
From left to right: Mamdouh Shoukri, president &<br />
vice-chancellor, York University; Doug Brooks, F<strong>CGA</strong>,<br />
chief executive officer, <strong>CGA</strong> Ontario; and Dezsö J.<br />
Horváth, dean, Schulich School of Business.<br />
AUGUST/SEPTEMBER 2011 STATEMENTS 5
2011-12 <strong>CGA</strong> ONTARIO<br />
BOARD ELECTION<br />
RESULTS<br />
Blake Mercer, F<strong>CGA</strong>,<br />
Elected Chair of the Board<br />
The board of directors of the<br />
Certified General Accountants<br />
of Ontario is pleased<br />
to announce the following<br />
officers of the Association<br />
for the 2011-12 fiscal<br />
year. Blake Mercer, F<strong>CGA</strong>, is<br />
elected chair of the board.<br />
Janice Charko, F<strong>CGA</strong>, is<br />
elected vice-chair and Anthony<br />
Stilo, F<strong>CGA</strong>, is elected<br />
secretary-treasurer. Frank<br />
Mensink, F<strong>CGA</strong>, is immediate<br />
past chair.<br />
Newly elected to the<br />
board are Restituto Del<br />
Rosario, <strong>CGA</strong>; John Hunter,<br />
F<strong>CGA</strong>; and Sandra Whyte,<br />
F<strong>CGA</strong>. Retiring from the<br />
board are Peter Cardinal,<br />
F<strong>CGA</strong>; Liang Chen, F<strong>CGA</strong> and<br />
Everett Colby, F<strong>CGA</strong>.<br />
Election results<br />
Under Article 2, section 13<br />
of the Association Bylaws,<br />
the CEO shall report to each<br />
member which candidates<br />
were elected as directors<br />
and list:<br />
1. The names of the<br />
candidates.<br />
2. Their ranking in order of<br />
votes received.<br />
3. The vote count received<br />
by each candidate.<br />
4. The number of spoiled<br />
ballots.<br />
5. The total count of votes<br />
received and percentage<br />
of membership voting.<br />
The final election results<br />
were as follows:<br />
Edward Carter 1008<br />
Debra Taylor 906<br />
Roseline Brennan 784<br />
Sandy Whyte 741<br />
John Hunter 722<br />
Restituto del Rosario 659<br />
Alan Robert Bickerton 510<br />
Annette Sullivan 494<br />
Diana Wielgus 485<br />
John Charles Harris 474<br />
Ram Venkat 444<br />
Ramona Rudeanu 348<br />
Amalia Trusca 219<br />
In total, 1727 ballots were<br />
cast with zero spoiled ballots.<br />
Based on membership<br />
of 20,680 (as of April 2011),<br />
8.35 per cent of members<br />
voted in the board election.<br />
FELLOWSHIP HONOURS<br />
F<strong>CGA</strong>s Bestowed on 10<br />
Members of <strong>CGA</strong> Ontario<br />
<strong>CGA</strong> Canada’s fellowship<br />
designation recognizes <strong>CGA</strong>s<br />
who have provided exceptional<br />
servce to the Association,<br />
the profession or the<br />
public, or who have achieved<br />
prominence through a variety<br />
of means. The designation<br />
was recently bestowed upon<br />
the following 10 members of<br />
<strong>CGA</strong> Ontario:<br />
Diane Gaudon, F<strong>CGA</strong>, is a<br />
sales tax specialist who has<br />
presented numerous professional<br />
development seminars<br />
for <strong>CGA</strong> Ontario and<br />
other professional associations<br />
and business groups.<br />
Most recently, Diane provided<br />
exemplary service and<br />
demonstrated leadership<br />
by acting as an HST ambassador<br />
to <strong>CGA</strong>s and the business<br />
community at large.<br />
Bruce Huggett, F<strong>CGA</strong>, is a<br />
dedicated and noteworthy<br />
volunteer in the Peel Region,<br />
on behalf of his community<br />
and Association. A <strong>CGA</strong><br />
since 1972 and a professional<br />
practitioner since<br />
1993, Bruce has served<br />
Peel Chapter in numerous<br />
capacities, including chair,<br />
for more than 20 years, and<br />
served for three years on the<br />
discipline committee of <strong>CGA</strong><br />
Ontario. He has also been a<br />
prominent volunteer in Peel<br />
Region sports, where he has<br />
applied his skills as a <strong>CGA</strong>,<br />
for more than 30 years.<br />
Blake Mercer, F<strong>CGA</strong>, is a<br />
partner at Mercer & Mercer,<br />
Certified General Accountants<br />
Professional Corporation,<br />
in Milton, Ontario.<br />
The chair of <strong>CGA</strong> Ontario’s<br />
board of directors, Blake has<br />
served the Association for<br />
many years at the provincial<br />
and community levels. He is<br />
a past treasurer of the Milton<br />
Chamber of Commerce.<br />
Sergio Marchionne, F<strong>CGA</strong>,<br />
is the chief executive officer<br />
of Fiat S.p.A. and the<br />
Chrysler Group LLC. The<br />
recipient of many business<br />
and industry awards, Marchionne<br />
is also the chairman<br />
of the European Automobile<br />
Manufacturers Association, a<br />
non-executive vice-chairman<br />
of UBS AG, and chairman of<br />
SGS S.A.<br />
Lance Rieger, F<strong>CGA</strong>, is a<br />
licensed public accountant<br />
(LPA) and partner in the<br />
firm EPR Rieger Bray Hohl<br />
Licensed Public Accountants,<br />
serving the business<br />
community of Chatham-Kent<br />
and acting as an authorized<br />
training office for <strong>CGA</strong>s<br />
pursuing public accounting<br />
licences. An LPA since 2004,<br />
Lance has served <strong>CGA</strong> Ontario<br />
in numerous capacities<br />
since becoming a <strong>CGA</strong><br />
in 1982.<br />
Rafiq Rokerya, F<strong>CGA</strong>, is an<br />
audit team leader with the<br />
Canada Revenue Agency<br />
(CRA) who has provided exemplary<br />
volunteer service to<br />
the City of Mississauga and<br />
acted as an ambassador<br />
of the <strong>CGA</strong> designation in<br />
the South Asian community.<br />
A founding member of<br />
the Memon Association of<br />
Canada, he has served on<br />
the Mississauga Appeal Tribunal,<br />
the election finance<br />
committee of the City of Mississauaga,<br />
and as treasurer<br />
of the IPC Charitable Organization<br />
and the Community<br />
Volunteer Income Tax Program<br />
of the CRA.<br />
Debra Taylor, F<strong>CGA</strong>, is a<br />
professional practitioner,<br />
member of <strong>CGA</strong> Ontario’s<br />
board of directors and former<br />
professor at Lambton College.<br />
Twice a winner of the<br />
Sarnia Lambton Outstanding<br />
Business Achievement<br />
Award, she is the current<br />
chair of the Sarnia Lambton<br />
Chamber of Commerce,<br />
and has served her community<br />
through a number<br />
of charitable and volunteer<br />
endeavours.<br />
Shirley Tom-Grigg, F<strong>CGA</strong>,<br />
is a professional practitioner<br />
and member of <strong>CGA</strong><br />
Ontario’s board of directors<br />
who has served her chapter<br />
and Association in numerous<br />
capacities, including chapter<br />
chair and chair of the discipline<br />
and public accounting<br />
licensing review committee.<br />
A noteworthy volunteer in<br />
Peel Region, she is a current<br />
member of the Oakville<br />
Chamber of Commerce and<br />
the Estates Planning Council<br />
of Halton.<br />
Ray Patrick, F<strong>CGA</strong>, is the<br />
president of Mary Kay Cosmetics<br />
Ltd. in Canada. A recognized<br />
leader in the direct<br />
selling market, Ray is a board<br />
member of the Direct Sellers<br />
Association, a board member<br />
and past chair of the Canadian<br />
Cosmetic, Toiletry and<br />
Fragrance Association, and<br />
a board member of the Look<br />
Good Feel Better program, a<br />
national program designed<br />
to assist women living with<br />
6 STATEMENTS AUGUST/SEPTEMBER 2011
cancer manage the appearance-related<br />
side effects of<br />
cancer treatment.<br />
Sandra (Sandy) Whyte,<br />
F<strong>CGA</strong>, is a dedicated volunteer<br />
in the Sarnia-Lambton<br />
community, contributing to<br />
the success of a number<br />
of charitable events. Sandy<br />
served on the board of<br />
Sarnia Chapter for nine<br />
years, including two years<br />
as chair, and is currently<br />
a marker for <strong>CGA</strong> Ontario.<br />
A staunch advocate of the<br />
<strong>CGA</strong> program, she is a continuing<br />
education professor<br />
at Lambton College and has<br />
been teaching in the business<br />
program since 1996.<br />
<strong>CGA</strong> ONTARIO SHOWS<br />
CORPORATE SPIRIT<br />
Microskills Gala Sponsored<br />
by <strong>CGA</strong> Ontario<br />
<strong>CGA</strong> Ontario was the “hospitality<br />
sponsor” and recipient<br />
of the Corporate Spirit Award<br />
at the 2011 MicroSkills Gala<br />
Celebration and Awards Banquet,<br />
held at the Pearson<br />
Convention Centre in Brampton<br />
on May 26, 2011.<br />
Community MicroSkills<br />
Development Centre is a<br />
multicultural, non-profit<br />
organization committed to<br />
assisting the unemployed,<br />
with priority to women, racial<br />
minorities, youth and<br />
immigrants. The Corporate<br />
Spirit Award is presented to<br />
an organization that demonstrates<br />
a strong commitment<br />
to MicroSkills and the community<br />
while having a strong<br />
social and economic impact.<br />
Special guests at this<br />
year’s awards included Jean<br />
Augustine, commissioner, Office<br />
of the Fairness Commissioner<br />
and the Honourable<br />
Eric Hoskins, Ontario Minister<br />
of Citizenship and Immigration.<br />
Both praised <strong>CGA</strong><br />
Ontario’s efforts supporting<br />
new Canadian immigrants,<br />
driving career opportunities<br />
and advancement.<br />
PD CATALOGUE 2011/<br />
2012 NOW ONLINE<br />
PD Year Promises More<br />
Quality Programming<br />
The 2011-12 Professional<br />
Development Catalogue is<br />
now online in the professional<br />
development section<br />
at cga-ontario.org. The<br />
entire year’s professional<br />
development programming is<br />
presented in one handy catalogue<br />
presented online in<br />
a digital format that can be<br />
downloaded to your desktop<br />
in PDF.<br />
With more than 100<br />
seminars, 50 speakers and<br />
10 seminar locations across<br />
Ontario, this year’s quality<br />
programming will refine your<br />
core competencies, sharpen<br />
your professional expertise<br />
and help you leverage your<br />
management and leadership<br />
skills.<br />
This year, we are proud<br />
to present live broadcasting<br />
of several seminars relating<br />
to taxation, accounting standards<br />
and professional practice.<br />
Further details will be<br />
announced in upcoming issues<br />
of Statements and ’Net<br />
Value.<br />
And we’re proud to<br />
partner with such leading<br />
institutions and associations<br />
as the Richard Ivey School<br />
of Business, the DeGroote<br />
School of Business, the<br />
Human Resources Professionals<br />
Association, and the<br />
Canadian Payroll Association<br />
to offer you more in crossplatform<br />
learning and networking<br />
opportunities.<br />
Visit cga-ontario.org and<br />
book your 2011-12 professional<br />
development opportunities<br />
today!<br />
Notes<br />
STATEMENTS TAKES<br />
GOLD AT KRW AWARDS<br />
<strong>CGA</strong> Ontario’s Statements Magazine<br />
took home the gold at the 57th<br />
annual Kenneth R. Wilson (KRW)<br />
Awards for business press journalism on June 7, 2011.<br />
“Driving Success” [Statements, February/March 2010], our<br />
feature profile of certified general accountant Sergio Marchionne,<br />
the head of Fiat and Chrysler, won a Gold Award for Best Profile<br />
of a Person.<br />
“Critical Incident Management: A Sure-Fire Recipe to Avoid<br />
Disaster” [August/September 2010], which was written by Craig<br />
Hannaford, <strong>CGA</strong>, received honourable mention in the category<br />
Best How-to Article or Series of How-to Articles.<br />
The KRW Awards (krwawards.ca) celebrate the best in business<br />
press journalism and are co-produced by the Canadian Business<br />
Press and Magazines Canada.<br />
BACK ISSUES AVAILABLE<br />
We remind readers that copies of many of our back issues are<br />
available and can be mailed, free of charge, to <strong>CGA</strong>s and students<br />
in the <strong>CGA</strong> program of professional studies. If you enjoyed<br />
a particular article or were included in News & Newsmakers,<br />
perhaps you’d like an extra copy to keep or pass on to friends,<br />
family or acquaintances. Please contact editor@cga-ontario.org<br />
with your request.<br />
WE REGRET<br />
In the June/July 2011 issue of Statements, Ray Walter was reported,<br />
on page five, as having passed away on May 17, 2011.<br />
Walter passed away on March 17, 2011, as correctly reported on<br />
page 27. We regret the error.<br />
Letters<br />
DEAFENED VERSUS DISABLED<br />
[As] a <strong>CGA</strong> with severe hearing loss, I am not familiar with the<br />
term “deafened.”<br />
The Canadian Hearing Society and similar organizations that<br />
serve Deaf and hard of hearing people are right in not using the<br />
term “hearing-impaired.” Someone might get the wrong idea as<br />
[to] just how “impaired’ I might be, especially behind the wheel.<br />
I remind friends and colleagues of my hearing disability,<br />
whether on the phone or in a noisy room, because that is precisely<br />
what I have, a disability.<br />
But thanks to modern technology and social and business<br />
awareness it does not mean I cannot function as anyone who<br />
does not have this disability.<br />
Robert (Alan) Pellettier, <strong>CGA</strong><br />
Toronto, Ontario<br />
AUGUST/SEPTEMBER 2011 STATEMENTS 7
BILL MERCER, F<strong>CGA</strong><br />
BLAKE MERCER, F<strong>CGA</strong><br />
Like Father, Like Son<br />
A Profile of Blake Mercer, F<strong>CGA</strong><br />
CHAIR, BOARD OF DIRECTORS, <strong>CGA</strong> ONTARIO<br />
Let’s get something out of the way, right from the start:<br />
Blake Mercer, F<strong>CGA</strong>, is the son of Bill Mercer, F<strong>CGA</strong>. Bill is<br />
a past president of <strong>CGA</strong> Ontario. Blake is the newly elected<br />
chair of the board of directors.<br />
Together they are partners in Mercer & Mercer, Certified<br />
General Accountants, in Milton, Ontario.<br />
One could argue that this is not particularly relevant to<br />
a profile of the incoming chair of the Association. But, on<br />
the other hand, the Mercers are the first father and son in<br />
the history of the Association to lead <strong>CGA</strong> Ontario in their<br />
respective years. So it’s tempting to draw parallels.<br />
Both are friendly, somewhat reserved men who exude<br />
professional competence. Each tends to speak in simple,<br />
direct sentences that rarely ramble on into paragraphs. Both<br />
love their sports; Bill plays golf, Blake plays baseball.<br />
In the 1980s, when the accounting profession was facing<br />
the challenges of computerization, Bill Mercer was asked to<br />
lead the 1980s task force that resulted in <strong>CGA</strong> Canada’s Program<br />
90, a fully revised <strong>CGA</strong> program of professional studies<br />
that included the integration of computer technology.<br />
Today, with the accounting profession facing an altogether<br />
new challenge — the challenge of globalization — Blake<br />
Mercer is leading the Association during a time of profound<br />
international convergence in accounting standards and accountancy<br />
bodies.<br />
As the old proverb says: Like father, like son.<br />
8 STATEMENTS AUGUST/SEPTEMBER 2011
TOWN HALL MEETINGS<br />
Blake Mercer is sitting in the boardroom of Mercer & Mercer in<br />
Milton. It’s mid-July and he has just completed the last of <strong>CGA</strong><br />
Ontario’s town hall meetings on the future of the accounting<br />
profession.<br />
Over the course of the past few weeks he has led — together<br />
with <strong>CGA</strong> Ontario’s chief executive officer, Doug Brooks — six town<br />
halls, in Burlington, London, Ottawa, Sudbury, Mississauga and<br />
downtown Toronto.<br />
“I think the meetings spoke volumes about<br />
the Association” says Blake with measured enthusiasm.<br />
“We had a great turnout. The level<br />
of engagement was high. It was important as<br />
an Association that we sought the opinion of<br />
our membership. And it was important for me<br />
personally, as chair of the board, to listen and<br />
observe, to really hear what members had to<br />
say.”<br />
Mercer, who has a degree in political science<br />
from the University of Toronto, is known<br />
within the Association for his commitment to<br />
good governance. “The town hall meetings<br />
were an affirmation of the good governance<br />
of the board. Where we are as a board mirrors<br />
where the members are on this issue.”<br />
Adjusting his glasses, Mercer connects<br />
the dots between the Association and the accounting<br />
profession as a whole, which appears<br />
to be unifying across borders. As examples he<br />
cites IFRS and the globalization of accounting<br />
standards, the growing number of transborder<br />
partnerships between accountancy bodies,<br />
and the ever-increasing synergies between<br />
markets and capital around the world.<br />
“Look at the international financial events<br />
of the past few years,” says Mercer, leaning<br />
forward, “beginning with the market meltdown<br />
of 2008. The world of accounting and finance<br />
is converging. Whether you want to accept it<br />
or not, you ignore it at your own peril.”<br />
MILTON, ONTARIO<br />
The town of Milton, Ontario, is one of the fastest growing communities<br />
in Canada. Ever since the “Big Pipe” project was completed,<br />
in 2001, bringing water straight to the town from Lake<br />
Ontario, Milton’s population has risen annually, yet the town still<br />
boasts one of the highest average household income levels in<br />
the Greater Toronto Area.<br />
Perhaps because its big box stores have been relegated to<br />
Steeles Avenue and the James Snow Parkway, Milton’s Main Street<br />
retains its small town charm. Drive past the mom-and-pop shops,<br />
the restaurants, the post office and its tall clock tower, turn down<br />
Commercial Street, and soon you’ve entered a pretty little enclave<br />
of tree-lined streets and ranch-style homes.<br />
That white building on your left, the one that vaguely resembles<br />
a church, is where you’ll find Mercer & Mercer, Certified General<br />
Accountants.<br />
The firm traces its roots back to 1975, when Bill Mercer<br />
purchased a small practice and began his career as a professional<br />
practitioner. “I wanted to strike out on my own,” he says,<br />
mentioning that he spent a few years with the Canada Revenue<br />
Agency. “I’ve never regretted it. I wouldn’t have it any other way.”<br />
In the terminology of the times, Bill was president of <strong>CGA</strong> Ontario’s<br />
board of governors in 1984-85 (the equivalent of “chair of<br />
The meetings spoke volumes about<br />
the Association. Where we are as a<br />
board mirrors where the members are<br />
on this issue.<br />
the board of directors” today). He is also a past president of <strong>CGA</strong><br />
Canada.<br />
Dressed in a snappy suit and tie, he still manages to retain<br />
the air of a kindly country doctor who mixes practical advice with<br />
a friendly bedside manner. Though his focus is on the growing<br />
field of estate planning, typically assisting clients who have been<br />
with the firm for decades, he explains that “Blake runs no less<br />
than 75 per cent of the business now. We’re partners but Blake<br />
is the president.”<br />
MERCER & MERCER, <strong>CGA</strong>S<br />
“Mercer & Mercer is a typical small- to medium-sized practice,”<br />
explains Blake. “We have a mix of personal tax clients and corporate<br />
clients. We do about a thousand personal tax returns a year<br />
and have several hundred corporate clients, ranging from notice<br />
to readers, review engagements — which we do with a licensed<br />
AUGUST/SEPTEMBER 2011 STATEMENTS 9
public accountant who is a <strong>CGA</strong> — and financial services such as<br />
estate planning.”<br />
Blake, who has been with the firm since 1996, says “95 per<br />
cent of our business is within a 10-minute drive of Milton, which<br />
is a fantastic place to do business. The population has doubled<br />
within the last 10 years and our practice has grown as Milton has<br />
grown.”<br />
Blake praises Halton Region, which includes Burlington, Milton<br />
and Oakville, as “a great place to raise a family.” Married to Jill,<br />
an elementary school teacher, the couple have a son, Robert,<br />
who is five. The Mercers’ first date together was game six of the<br />
1993 World Series at the SkyDome, where the Blue Jays won the<br />
game and the World Series on a three-run shot in the bottom of<br />
the ninth by Joe Carter.<br />
“Our whole family plays baseball,” says<br />
Blake proudly. “I play, my wife plays, and I<br />
coach my son’s team.” Mercer even served<br />
as the treasurer and director of the Burlington<br />
Women’s Fastball League for three years.<br />
More importantly to the practice, Blake<br />
served for several years as treasurer (and<br />
chair of the scholarship committee) of the<br />
Milton Chamber of Commerce, but left the<br />
Chamber board when he was elected to the<br />
board of <strong>CGA</strong> Ontario.<br />
He’s quick to mention that his father<br />
served two terms as president of the<br />
Chamber and was recognized as Milton’s business person of the<br />
year.<br />
Of the Mercer & Mercer partnership, Blake says, “Because<br />
my father has been in business for more than 35 years, we have<br />
two and sometimes three generations of clients from within the<br />
same family. Within the broader business community, we’re known<br />
for high quality service that we try to tailor to the needs of our<br />
clients.”<br />
Bill Mercer adds, “Blake and I complement one other. He’s<br />
more knowledgeable about current happenings within the profession.<br />
I’m in awe of his computer and writing skills and his ability<br />
to hammer out a top-notch letter or report to a client.”<br />
Bill tips his hat to Blake’s mother, Leslie — who has worked<br />
at Mercer & Mercer throughout its entire 35-year history — for<br />
contributing to Blake’s writing skills. “She was an English major<br />
at university and she really pushed both Blake and his sister Mary<br />
when it came to grammar and writing.”<br />
On the boardroom wall is a framed photograph of the Burlington<br />
Teen Tour Band. It was taken in 1987, at the Tournament of<br />
Roses in Pasadena, California. If you look closely enough, among<br />
the hundreds of musicians, is a teenaged Blake Mercer, playing<br />
the trombone.<br />
It’s one of a number of family mementoes in the office. It’s<br />
also an indication that by no means did Blake Mercer always intend<br />
to follow in his father’s footsteps.<br />
GROWING UP <strong>CGA</strong><br />
“I grew up around accounting,” says Blake Mercer candidly, “and<br />
I grew up around <strong>CGA</strong>s. Several of our family friends were <strong>CGA</strong>s<br />
and some of them served on the board of <strong>CGA</strong> Ontario. There was<br />
a whole group of kids who were the sons and daughters of <strong>CGA</strong>s.<br />
We’re not competing for<br />
donors or funds. We’re<br />
competing for students<br />
and we’re competing for<br />
jobs for our members.<br />
And the competition is<br />
cutthroat.<br />
We all grew up together.”<br />
As a teenager, Blake did some bit work around the office and,<br />
when the firm first started processing computerized tax returns in<br />
the 1980s, Blake and his sister, Mary, would help assemble them<br />
on the dining room table of the Mercer home. But these family<br />
tales are no different than they would be for children whose parents<br />
ran a restaurant or a hardware store.<br />
“Honestly,” Blake says, holding up his hands, “I was never<br />
pushed into the profession. It was something I eventually decided<br />
to pursue on my own.”<br />
Bill Mercer concurs. When asked if his son was influenced to<br />
pursue the profession, the elder Mercer is adamant: “Absolutely<br />
not. We didn’t even push him to come into the practice. He approached<br />
us.”<br />
Blake took accounting courses<br />
during high school and university (he<br />
began in the commerce program) and<br />
worked in the corporate accounting department<br />
of a large insurance company<br />
as a co-op student.<br />
“When I came out of university in the<br />
mid-90s, I wanted a career and the family<br />
business was there,” he says. “I grew up<br />
with a daily demonstration of the difference<br />
the <strong>CGA</strong> designation can make in a<br />
person’s life, and I wanted some of that<br />
success for myself.”<br />
Upon joining the practice in 1996, Blake immediately transitioned<br />
the office to a fully computerized, networked workplace,<br />
resulting in more streamlined work processes and efficiencies.<br />
Bill Mercer, who led the Program 90 computer integration of the<br />
<strong>CGA</strong> program, nonetheless admits that “We wouldn’t be where<br />
we are today in terms of computer technology without Blake. He’s<br />
our go-to guy whenever we have a problem.”<br />
Blake became a <strong>CGA</strong> in 2002 and immediately volunteered<br />
with <strong>CGA</strong> Ontario’s Hamilton Chapter. He began by invigilating<br />
exams, was elected to the chapter board in 2003, chaired the<br />
chapter’s public practice committee and was elected chapter<br />
chair in 2005-06.<br />
“When I get involved in something I really like to get involved,”<br />
he admits. One year later, in 2006, he was elected to the board<br />
of directors of <strong>CGA</strong> Ontario.<br />
GOVERNANCE & THE BOARD<br />
“Our board operates in a very interesting dynamic,” asserts Blake<br />
Mercer, warming to the topic of governance. “We are a memberbased,<br />
not-for-profit association with a general election process,<br />
yet we operate in an ultra-competitive marketplace. So how do<br />
you balance the needs and desires of a member-based, not-forprofit<br />
association that must, by necessity, compete<br />
“We’re not competing for donors or funds,” he explains.<br />
“We’re competing for students and we’re competing for jobs for<br />
our members. And the competition is cutthroat.<br />
“It’s a very challenging dynamic. Some members may feel that<br />
we should be a more folksy, grassroots board. In my opinion, we<br />
should be strategic and forward-thinking, more ‘corporate’ than<br />
your local charity board. But if you go too far in one direction you<br />
run the risk of alienating members and potential directors. If you<br />
10 STATEMENTS AUGUST/SEPTEMBER 2011
Photography by GARY BEECHEY, BDS Studios<br />
Blake Mercer, F<strong>CGA</strong>, Chair, Board<br />
of Directors, Certified General<br />
Accountants of Ontario<br />
go too far in the other you may suffer strategically.”<br />
Mercer has chaired a standing committee devoted entirely to<br />
issues of governance for the past two years. “I didn’t realize I was<br />
as much of a policy wonk as I am,” he says, laughing, “but I love<br />
it. It inspired me to enrol in the directors’ college at the DeGroote<br />
School of Business. This fall I write the exam for the chartered<br />
director designation.”<br />
Under the committee’s direction, the board has brought in<br />
consultants to review the board’s practices, and some of the senior<br />
officers have undertaken formal governance training.<br />
“I think we’re doing a good job of maintaining a proper balance,”<br />
says Mercer, “but there is always room for improvement.<br />
That said, one of the great strengths of our Association is that by<br />
and large our board truly represents our membership, and that<br />
commitment to our membership was fully demonstrated at the<br />
town hall meetings.”<br />
LIKE FATHER, LIKE SON<br />
“The board is in full support of the strategic framework and direction<br />
of the Association,” says Blake, “and we have a lot to build<br />
on in the coming year. As an Association we’re committed to<br />
recruiting high quality students to the <strong>CGA</strong> program, to creating<br />
opportunities for <strong>CGA</strong>s no matter where their careers may take<br />
them, and to continuing to raise our profile with employers, government<br />
and academia.<br />
“We also want to encourage <strong>CGA</strong>s in professional practice to<br />
consider forming larger practices, and perhaps authorized training<br />
offices, that would not only benefit them but benefit <strong>CGA</strong>s and<br />
students who wish to pursue careers in public accounting.”<br />
Bill Mercer says he warned his son that his time will be taken<br />
Bill and Blake Mercer outside<br />
Mercer & Mercer, Certified General<br />
Accountants, in Milton, Ontario.<br />
up by the Association to a degree that he cannot imagine now,<br />
but the Mercer family will be there to support him. One doubts<br />
he’ll have much time to play baseball, though he still hopes to<br />
coach his son’s little league games, “because I would like nothing<br />
more as a baseball parent than to see my son pitch in the major<br />
leagues.”<br />
OK. But failing that, is there the possibility for another generation<br />
of Mercer & Mercer, Certified General Accountants<br />
“I wouldn’t discourage it,” says Blake wryly, “but I’ll let my son<br />
choose his own path. If it leads to another Mercer & Mercer, I’m<br />
always looking for a succession planning opportunity.”<br />
“Like Father, Like Son,” by Colin Ellis, editor of Statements.<br />
AUGUST/SEPTEMBER 2011 STATEMENTS 11
FEATURE ▪ Human Resources<br />
Building<br />
Team<br />
Dynamics<br />
BY FLANNERY DEAN<br />
Not so long ago when employers wanted to boost<br />
morale, a box of doughnuts or a round of drinks<br />
after work used to do the trick. Organizations don’t<br />
get off so cheaply anymore.<br />
Now employers are realizing that<br />
adrenaline is the high that binds,<br />
as some organizations let their hair<br />
down and pursue extreme or unusual activities<br />
in the name of teambuilding. Team<br />
drumming, skydiving and rock climbing —<br />
even creating a haunted house — were a<br />
few unique team-building activities mentioned<br />
in a recent teambuilding survey by<br />
The Creative Group in Toronto.<br />
TEAM-BUILDING TITANS<br />
The companies that are taking teambuilding<br />
to new heights are those with<br />
money to spend, according to Anne<br />
Thornley-Brown, president of The Training<br />
Oasis, a Toronto company that creates<br />
adventure-based team-building events<br />
for organizations such as IBM, Manulife<br />
Financial and Telus.<br />
Joanne Doust, director of human resources<br />
at Bell Canada in Calgary, says<br />
it’s not just the events that have evolved<br />
during her 20-year tenure — interest in<br />
team-building activities has also undergone<br />
significant growth.<br />
While some emerge from an annual<br />
HR plan, many managers and executives<br />
are now organizing excursions for their<br />
departments. “They’re more savvy about<br />
making sure that teams and work projects<br />
come together,” says Doust.<br />
Bell’s Calgary contingent isn’t bungee<br />
jumping off any tall buildings, but taking<br />
a group culinary class is one way Bell encourages<br />
employee contact. And like many<br />
companies, Bell also yokes community<br />
involvement with teambuilding events —<br />
like sending groups out to volunteer in the<br />
community. Collin Ezzell, division director<br />
of The Creative Group, says most teambuilding<br />
still consists mainly of feel good<br />
classics like taking the group out to see a<br />
baseball game.<br />
WORTHY INVESTMENTS<br />
“It’s not so much skills [that companies<br />
are emphasizing] because the training<br />
12 STATEMENTS AUGUST/SEPTEMBER 2011
Team-Building ▪ FEATURE<br />
From HR<br />
Magazine, two<br />
articles on the<br />
components of<br />
building great<br />
teams in the<br />
workplace<br />
and development market has definitely<br />
declined. What [organizations] are looking<br />
for is to get people to work more effectively<br />
together,” says Doust.<br />
Businesses want to see a return on<br />
investment in the form of increased productivity,<br />
she says, and a splashy event<br />
may act as an endorphin-rushing jumpstart<br />
before the real work begins.<br />
“We’ve reorganized some of our teams<br />
recently, and people are now working with<br />
different groups,” says Doust. Timing is really<br />
important so they feel connected with<br />
their new team. To get the most benefit,<br />
the exercise has to be relevant to what’s<br />
going on at work.”<br />
CIVILITY IN THE WORKPLACE<br />
By Melissa Campeau<br />
A<br />
nyone who has spent time<br />
in an office environment<br />
has likely endured a little<br />
incivility: The coworker with the<br />
very loud phone voice, the perpetually<br />
grumpy cubicle mate or<br />
the staffer who eats fragrant<br />
meals at her desk every day. More<br />
than just irritating, these seemingly<br />
minor acts of incivility can<br />
add up to something much more<br />
serious if they’re not addressed.<br />
According to Lewena Bayer,<br />
president of Civility Experts, and<br />
a cultural competence assessor<br />
and Canadian culture and communications<br />
facilitator, if these<br />
small but troublesome behaviours<br />
are left to fester, more positive<br />
team-oriented behaviours will suffer,<br />
leading to negative effects on<br />
productivity and profit.<br />
Linda Allan, a business behaviourist<br />
and a certified management<br />
consultant with 30 years<br />
experience in corporate roles, describes<br />
civility in the workplace as,<br />
“conducting yourself in a way that<br />
respects the space and ideals of<br />
your coworkers.”<br />
Signs of trouble<br />
Bayer suggests this simple assessment<br />
to determine the degree of<br />
mutual respect in a workplace:<br />
“When you ask employees how<br />
they are, listen to the responses.<br />
In more civil workplaces, employees<br />
understand that part of their<br />
job is to be positive, so by answering,<br />
‘I’m having a terrible day’ zaps<br />
a bit of positivity from someone<br />
else. Imagine the impact on morale<br />
when the majority of employees<br />
express negativity in the first<br />
10 minutes of workplace interaction.”<br />
Sometimes the signs are<br />
even more obvious. When instances<br />
of incivility are left unaddressed,<br />
says Allan, employees<br />
can become territorial, hoard information<br />
and adopt a meagainst-you<br />
attitude. Bayer says<br />
these will almost inevitably lead to<br />
an increase in staff turnover, customer<br />
complaints, and, ultimately,<br />
a depleted bottom line.<br />
Why does this happen<br />
According to Allan, incivility in the<br />
workplace has been on the rise for<br />
the past few years. “In the economic<br />
downturn, workloads went<br />
up and everyone has been under<br />
more pressure,” she says. “Now<br />
there is less attention paid to how<br />
people behave and cubicle conduct<br />
has really slipped.”<br />
She suggests that too-casual<br />
work attire can lead to trouble,<br />
too. “If people are dressed in suits<br />
in the office, there’s a certain decorum<br />
that’s observed and it<br />
tends to permeate the whole organization,”<br />
says Allan.<br />
Continued on page 15<br />
AUGUST/SEPTEMBER 2011 STATEMENTS 13
FEATURE ▪ Human Resources<br />
Team drumming,<br />
skydiving and rock<br />
climbing are just a few<br />
of the unique teambuilding<br />
activities taking<br />
employees to new<br />
heights<br />
Attracting and keeping top employees<br />
is often the rationale behind team-building<br />
events. Doust says there’s more to teambuilding<br />
than simple retention issues but<br />
does acknowledge that there is pressure<br />
to keep ahead of the curve.<br />
Hot air ballooning, taking a comedy<br />
improv class, fire walking — just another<br />
day at work, right<br />
Not at all — and that’s the point. By<br />
taking employees out of their comfort zone,<br />
physically and emotionally, companies are<br />
counting on unfamiliarity to create deeper<br />
working relationships, particularly during<br />
reshuffling or periods of change.<br />
What companies hope to gain from<br />
team-building and what employees actually<br />
get from the experience may be very different.<br />
Professor Gerard Seijts, associate<br />
professor of organizational behaviour at<br />
the Ivey School of Business at the University<br />
of Western Ontario, suggests coherence is<br />
a key factor in an event’s effectiveness.<br />
Businesses need to make sure<br />
employees are briefed on the true significance<br />
of the action to insure the benefit.<br />
They need to answer an employee’s unspoken<br />
question: “Why the heck am I here<br />
instead of doing my job”<br />
Here, Seijts says, a good facilitator is<br />
essential.<br />
”The facilitator needs to clearly explain<br />
how [the employees] are going to take<br />
these lessons to the boardroom or onto<br />
the factory floor. If they don’t do that or if<br />
they’re not interested then it’s a waste of<br />
money.”<br />
NOT A PANACEA<br />
A trust fall — when you fall back into the<br />
arms of a colleague — may act as a dramatic<br />
metaphor for building team confidence,<br />
but the reality is that genuine trust<br />
and respect between coworkers doesn’t<br />
spontaneously develop. Professor Lynne<br />
Purvis, a psychologist who specializes<br />
in workplace issues at the University of<br />
Surrey in the U.K., points out good working<br />
relationships develop in the daily encounters<br />
and experiences of the workplace.<br />
“Team-building exercises may at the<br />
very least furnish opportunities to get to<br />
know colleagues better; however, trust is<br />
something built up over time through behaviour.<br />
If there is no infrastructure in place<br />
to support teamwork back in the workplace,<br />
then there will be no teamwork — however<br />
expensive the intervention,” says Purvis.<br />
Team-building exercises play with<br />
metaphors of the workplace, but a workplace<br />
culture needs to be built on concrete<br />
realities, such as competitive compensation,<br />
decent vacation time and investment<br />
in training and skills development, says<br />
Seijts.<br />
LOOKING WITHIN<br />
Thinking inside the box may also have benefits<br />
when it comes to team building. Daniel<br />
Torchia, managing director of Torchia Communications,<br />
a small communications firm<br />
in Toronto and Montreal, allows employee<br />
14 STATEMENTS AUGUST/SEPTEMBER 2011
personalities and interests to determine<br />
appropriate team-building excursions.<br />
“We look at what our colleagues do<br />
on their own free time: what passions they<br />
have, what keeps them busy outside of<br />
work. For example, one of our colleagues<br />
loves theatre and belongs to a theatre<br />
group, so we took the whole staff out for<br />
dinner and to a show,” says Torchia.<br />
The small staff size — there are only<br />
six people in the Toronto office — is an advantage,<br />
but larger companies may benefit<br />
from seeing the individual in team building.<br />
Flannery Dean is a Toronto-based writer<br />
and editor.<br />
Cultural differences can also<br />
be the cause of some inadvertent<br />
slips in civility. While a multicultural<br />
workforce is an asset to an<br />
organization in many ways, some<br />
actions perceived as rude by coworkers<br />
may simply be the result<br />
of cultural differences.<br />
Act quickly<br />
Addressing issues when they first<br />
arise is key. “What we think, is<br />
what we feel, is how we act,” says<br />
Allan. “If small annoyances are not<br />
addressed, employees’ thinking<br />
can turn into emotion and then<br />
turn into action.”<br />
In many cases, says Allan, it<br />
is appropriate to address a concern<br />
verbally, during a company<br />
meeting. “I would suggest keeping<br />
the commentary anecdotal,<br />
reporting comments from a client<br />
visiting the office, for example, so<br />
as not to single out any one person<br />
or department.”<br />
Follow the code<br />
Allan recommends adding a “respect<br />
in the workplace” piece to<br />
existing codes of conduct, requesting<br />
input directly from employees,<br />
so it can reflect what staff<br />
members would like to see — and<br />
avoid — in the workplace.<br />
“If codes of conduct and expectations<br />
for behaviour and<br />
communication are clearly outlined,<br />
it’s easier to hold people<br />
accountable,” says Bayer.<br />
Go back to school<br />
At Aegon Canada, Fiona Betivoiu,<br />
senior manager of training and<br />
development, offers training to all<br />
employees on a regular basis<br />
about respect in the workplace,<br />
business and meeting etiquette,<br />
and communication skills. “We offer<br />
a leadership certification program<br />
to our managers focusing<br />
on the value of coaching, asking<br />
questions and adapting our communication<br />
styles. Three months<br />
after the program is over I check<br />
up on all graduates to see how<br />
they are doing, find out if they’re<br />
asking questions of their staff and<br />
if they’re adapting to different<br />
communication styles,” she says.<br />
Defining a culture for new<br />
employees as soon as they walk<br />
through the front door is one approach<br />
to preventing trouble in<br />
the future. Allan recommends a<br />
day of training for new employees,<br />
during which HR spends time<br />
talking about what expectations<br />
are for culture and civility. “This<br />
kind of investment,” she says,<br />
“pays handsomely in terms of<br />
newcomers taking the messaging<br />
to heart.”<br />
Model behaviour<br />
“Much of the time workplaces<br />
make the mistake of preaching<br />
about the value of civility or spend<br />
months trying to define it for their<br />
specific workplace in an effort to<br />
get buy-in,” says Bayer. “My experience<br />
has been that talking about<br />
it is rarely effective. You just have<br />
to do it. Focus on the benefits and<br />
just start making changes.”<br />
Betivoiu agrees. “From a<br />
training and development perspective,<br />
we can offer lots of<br />
courses and coaching and create<br />
policies to support a respectful<br />
workplace.” But for an organization<br />
to have a truly respectful culture,<br />
she says, “it has to be from<br />
the top down. If each senior manager<br />
coaches his or her direct reports,<br />
adapts their communication<br />
style and encourages asking<br />
questions, there’s a better chance<br />
that a respectful culture will permeate.”<br />
She advises HR and the<br />
training department partner very<br />
closely with senior management<br />
to create a respectful coachingbased<br />
culture.<br />
Melissa Campeau is a Toronto-based freelance writer<br />
AUGUST/SEPTEMBER 2011 STATEMENTS 15
’NET ASSETS ▪ Greg Barber, InfoSolutions<br />
Finding the Media That Matters To You<br />
Paperless Possibilities<br />
The paperless office is a path towards productivity and profit<br />
s today’s “paperless office” really paperless Will office<br />
workers ever work without paper Despite enormous improvements<br />
in technology between 1980 and 2000, it’s<br />
worth noting that worldwide consumption of paper has doubled<br />
in the same period. Nevertheless, many<br />
advocates argue that paperless is the<br />
path towards productivity and profit. So<br />
how can you take advantage of paperless<br />
possibilities<br />
Best Practices<br />
Alexandra Defelice of Accounting Today<br />
says “the road to less paper” begins<br />
by following the best practices of companies<br />
that have already made the<br />
transition. If you consider the ways in<br />
which your company’s paper files are<br />
organized and you mimic that system<br />
in an electronic world, you can eliminate<br />
staff confusion and “reduce the likelihood<br />
of introducing inconsistencies in<br />
the way things are filed and named.”<br />
Training can ensure that employees<br />
are consistent in their paperless processes.<br />
Pilot projects, such as the<br />
paperless preparation of tax returns,<br />
can smooth the transition. Document<br />
management vendors can often help<br />
in mapping work processes. (To read<br />
“The road to less paper,” visit www.<br />
accountingtoday.com and enter the title<br />
in the search box.)<br />
InfoSolutions<br />
A BENEFIT FOR <strong>CGA</strong>S & STUDENTS<br />
IN THE <strong>CGA</strong> PROGRAM OF<br />
PROFESSIONAL STUDIES<br />
LOOKING FOR INFORMATION TO<br />
SOLVE A PROBLEM IN YOUR<br />
BUSINESS, ORGANIZATION OR<br />
CAREER<br />
Whether you need company profiles,<br />
financial data, or articles on<br />
everything from management trends,<br />
interview skills or career advice — if it<br />
exists, the professional research staff at<br />
InfoSolutions will find it through the wealth<br />
of resources at the University of Toronto’s<br />
network of libraries.<br />
InfoSolutions<br />
Rotman School of Management<br />
University of Toronto<br />
Tel: 416-978-1912 or<br />
1-800-810-8067<br />
Fax: 416-978-1920<br />
Email: infosolutions@rotman.utoronto.ca<br />
Print Less, Make More<br />
“Paperless equals profit” is the underlying<br />
message of “How to save money<br />
going paperless,” by K.J. McCorry of<br />
the Colorado Business Journal. Mc-<br />
Corry observes that “the easier it is for<br />
employees to print, the more likely it is<br />
that paper use will increase.” Offices<br />
can make printing less convenient by removing individual desktop<br />
printers and installing high efficiency “group” printers.<br />
McCorry also suggests downsizing the number of paper<br />
files retained and saving documents electronically. (Visit www.<br />
cobizmag.com and type “paperless” in the search box to read<br />
the full article.)<br />
The Risk Factor<br />
Improving client service, gaining a competitive edge, efficiency<br />
and effectiveness are the rewards of going paperless (or using<br />
less paper) but, as Roger Mongeon points out in an article from<br />
Accounting Technology, there are also some<br />
risks. These can include “a loss of control,<br />
biting off more than a firm can chew and<br />
confusion among accountants and staff<br />
about their roles in a new, paperless environment.”<br />
Planning workflow processes and<br />
preparing for the change can minimize most<br />
of these issues. Mongeon is also a proponent<br />
of bringing document management vendors<br />
in early in the planning process. (You can read<br />
Mongeon’s entire article at accountingweb.<br />
com by searching for the title, “The Risks and<br />
Rewards of Going Paperless.”)<br />
Is Paperless Right for You<br />
In a recent AccountingWeb blog, Alexia<br />
Whitley, a London-based senior audit manager,<br />
asks “Is a paperless office right for<br />
you” Whitley offers some good advice:<br />
“Don’t expect immediate success. Plan to<br />
spend the first year planning, testing, and<br />
implementing; the second year ironing out<br />
kinks and perfecting the systems.”<br />
But Whitley also offers further benefits of<br />
going paperless: working remotely is easier<br />
because electronic documents can be accessed<br />
away from the office, cleaner and<br />
clearer workspaces can raise staff morale<br />
and productivity, and using less paper benefits<br />
the environment. (To read the complete<br />
post, visit accountingweb.com.)<br />
Do you need more information about<br />
the paperless path towards productivity and<br />
profit InfoSolutions can help with this or any<br />
other business topic. Contact us and learn<br />
about our own paperless possibilities, here<br />
at InfoSolutions.<br />
Greg Barber is a business information specialist with InfoSolutions,<br />
a research service of the Joseph L. Rotman School of Management,<br />
and a member benefit to <strong>CGA</strong>s and students in the <strong>CGA</strong><br />
program of professional studies.<br />
16 STATEMENTS AUGUST/SEPTEMBER 2011
Grant Rowson, <strong>CGA</strong> ▪ TECH TALK<br />
Accounting for the Latest Trends in Technology<br />
How Safe is Syncing and Sharing<br />
File synchronization services are convenient but safety is a concern<br />
am a loyal customer of Dropbox, an online backup service<br />
that allows you to share documents between computers,<br />
tablets and smart phones.<br />
When you install its software, Dropbox places a folder on<br />
your desktop (or anywhere else you choose) that looks and acts<br />
just like any other folder on your computer. When you move a file<br />
into your Dropbox folder — Presto! — the program copies the files<br />
to similar folders on your other computing devices. That’s called<br />
“file synchronization,” and Dropbox is called a “synchronization<br />
service,” or “sync service” for short.<br />
Sync services are a form of cloud computing. You upload<br />
your files to private servers and your files are automatically downloaded<br />
to your other computing devices. It’s incredibly convenient.<br />
No longer do you need to carry countless USB keys or store your<br />
files on CDs or DVDs. You just transfer and update your files on<br />
all your devices through the clouds.<br />
But with all that file sharing going on, one has to ask: How<br />
safe is syncing and sharing<br />
Sync Security<br />
Naturally I’m concerned about the storage of unencrypted sensitive<br />
data on servers outside my control. I use Dropbox for nonconfidential<br />
purposes only — saving research notes, web articles,<br />
white papers and other documents that would be of no consequence<br />
if they were accidentally disclosed.<br />
But Dropbox came under criticism recently for security weaknesses.<br />
Critics drew attention to the fact that the staff at Dropbox<br />
could, in theory, access customer data if required in the operation<br />
of the service. Further, they could do so without your knowledge,<br />
if served with a U.S. government warrant under the Patriot<br />
Act of 2001.<br />
Worse still, the San Francisco-based startup experienced a<br />
four-hour security breach that affected its password authentication.<br />
For four hours on June 19, 2011, any user could access any<br />
account using any password. The breach, attributed to a code<br />
update, was a highly embarrassing and costly incident for a tech<br />
firm that in 2010 appeared on Business Insider’s list of “20 Hot<br />
Silicon Valley Startups You Need To Watch.”<br />
In the end, it turned out that only a hundred or so accounts<br />
were affected, but the breach called into question the security of<br />
all sync services, including SpiderOak, SugarSync and Box.net.<br />
SpiderOak<br />
The strength of SpiderOak lies in its “zero knowledge” security<br />
practices. SpiderOak does not store file names, encryption keys<br />
or passwords, which means that employees and hackers cannot<br />
steal information related to your syncing and sharing.<br />
SpiderOak also differs from other syncing services in its functionality.<br />
While it allows you to designate any folder on your system<br />
to synchronize (rather than creating a specific folder like Dropbox),<br />
you have to upload files to SpiderOak first before syncing them,<br />
rather than simply dragging and dropping files into a desktop application<br />
that does the job for you all at once.<br />
Its been called slow and complicated by its critics. You have<br />
to make sure its utility is running and its backup schedule is set<br />
according to your preferences. But, on the other hand, you feel<br />
secure and in control of your data.<br />
SugarSync<br />
A strong competitor to Dropbox, SugarSync lacks the strong thirdparty<br />
application tools and support of Dropbox, but allows you to<br />
upload from multiple folders (like SpiderOak) and has full web<br />
transfer capabilities on a variety of mobile devices, including<br />
Apple and RIM products. SugarSync works well with Documents<br />
To Go, the office suite for mobile devices that provides document<br />
synchronization between handheld devices and computers. It also<br />
provides for direct posting to Facebook Photos. Transferred files<br />
are stored in the cloud in an encrypted format.<br />
Box.net<br />
Finally, Box.net, which recently joined forces with Google to compete<br />
against Microsoft’s Office 365 in the software as a service<br />
field, targets the corporate crowd, emphasizing the benefits of<br />
group collaboration through an online workspace. In terms of security,<br />
it’s similar to Dropbox and SugarSync, in that it encrypts<br />
and stores personal information in the clouds. However, if you’re<br />
concerned about other users (even colleagues) accessing your<br />
files, you can tag files with an automatic expiry date and apply<br />
passwords to specific files.<br />
Products and Price Points<br />
Of course, these are just the main competitors in a rapidly expanding<br />
market, and they are all trying to differentiate themselves<br />
based on features, function, storage space and price. I’m still<br />
using my trusty Dropbox folder, but I caution you to make sure<br />
you’re comfortable with the security and privacy policies of your<br />
chosen sync service.<br />
Grant Rowson, <strong>CGA</strong>, is the administrative director of financial<br />
services & information technology for the Dryden Regional Health<br />
Centre. In addition to his <strong>CGA</strong> designation, Grant holds the certified<br />
information systems (CISA) designation.<br />
AUGUST/SEPTEMBER 2011 STATEMENTS 17
Article ▪ Financial Analysis<br />
Earnings Growth and Residual Income<br />
An exploration of the valuation potential of residual income,<br />
based on “Using residual income to refine the relationship<br />
between earnings growth and stock market returns,” by<br />
Sudhakar Balachandran and Partha Mohanram<br />
Is Residual Income an Indicator<br />
of Stock Market Returns<br />
By Partha Mohanram, <strong>CGA</strong> Ontario Professor, Rotman School of Management<br />
Content Adapted for Statements by Colin Ellis, Editor<br />
The following article is a<br />
condensed, edited version<br />
of “Using residual<br />
income to refine the relationship<br />
between earnings<br />
growth and stock<br />
market returns,” by Sudhakar<br />
Balachandran of<br />
the Columbia Business<br />
School and Partha Mohanram,<br />
the <strong>CGA</strong> Ontario<br />
Professor of Financial Accounting<br />
at the Rotman<br />
School of Management,<br />
University of Toronto.<br />
arnings and earnings growth have long<br />
been viewed as fundamental determinants<br />
of stock returns, yet accounting<br />
scholars have cautioned that earnings growth<br />
should be interpreted with care. Accounting earnings<br />
are an incomplete measure of firm profitability<br />
because they do not reflect the opportunity cost<br />
of the capital employed. Residual income (RI) is<br />
instead a better proxy for economic profits as it<br />
includes a charge for capital employed.<br />
Our paper used the concept of residual income<br />
to separate (“decompose”) earnings growth<br />
into growth in residual income, growth in invested<br />
capital, and other components. We conducted our<br />
tests using a sample covering the period from 1975<br />
through 2008, relying entirely on publicly available<br />
information from two databases, the Compustat<br />
annual file and the Center for Research in Security<br />
Prices (CRSP) monthly returns file.<br />
The findings showed that RI is a powerful indicator<br />
of stock market returns.<br />
EARNINGS GROWTH<br />
Accountants have long cautioned that earnings<br />
growth should be interpreted with care, because<br />
income statements do not reflect the full cost of<br />
capital invested in a firm, which can cause income<br />
to grow even for firms that invest in negative net<br />
present value projects.<br />
For example, a firm might grow net income by<br />
investing in projects that generate enough profit<br />
to cover the cost of debt, but not the total cost of<br />
capital. Similarly, a firm might hoard excess cash<br />
on its balance sheet and earn interest from this<br />
excess cash, increasing net income but generating<br />
returns lower than the opportunity cost of shareholder<br />
funds.<br />
A valuation framework that relies on earnings<br />
growth but does not distinguish between different<br />
sources of growth assumes that all growth is equally<br />
valuable to shareholders. However, in reality, earnings<br />
growth from some sources may be more valuable<br />
than others.<br />
The standard specification used to analyze the<br />
relationship between returns and earnings is one<br />
developed by Professors Peter Easton and Trevor<br />
Harris (“Earnings as an explanatory variable for<br />
returns,” in the Journal of Accounting Research,<br />
1991). The specification expresses stock returns<br />
as a function of the level of earnings and growth<br />
in earnings.<br />
This model, however, does not have the ability to<br />
distinguish between firms that increase accounting<br />
earnings while increasing shareholder value and<br />
firms that may be increasing accounting earnings<br />
but destroying shareholder value.<br />
RESIDUAL INCOME<br />
Residual income is instead a natural starting<br />
point to refine the relationship between earnings<br />
and stock returns. If returns to shareholders are a<br />
function of growth in the economic profitability of<br />
the firm, then incorporating a superior measure of<br />
economic profitability can potentially improve the<br />
ability to explain stock returns.<br />
Residual income starts with accounting income<br />
and incorporates a charge for the opportunity cost<br />
of the capital employed, thereby correcting an inherent<br />
incompleteness in accounting earnings.<br />
Prior research has typically defined RI as net<br />
18 STATEMENTS AUGUST/SEPTEMBER 2011
operating profit after tax (NOPAT) for the period less<br />
a charge for invested capital (IC) at the beginning<br />
of the period, which is typically represented as a<br />
weighted average cost of capital (WACC) times IC.<br />
Since the 1960s, accounting scholars have<br />
viewed residual income as a more appropriate<br />
indicator of firm profitability. Professor Robert Anthony,<br />
the late member of the Harvard Business<br />
School and the Accounting Hall of Fame, noted that<br />
firms often consider the cost of capital for internal<br />
decision making.<br />
Anthony argued that, “In management accounting<br />
it is quite usual to take into account the<br />
cost of equity capital; indeed, unless it did so, a<br />
company’s management would have difficulty in<br />
planning effectively and maintaining control.” He<br />
supported the use of RI to analyze firm profitability<br />
by arguing that “the financial community would be<br />
better able to judge the company’s results if the<br />
reports it analyzed recognized these costs.”<br />
Accounting scholars have used RI to develop<br />
structural models to value firms. These residual<br />
income valuation models have been empirically<br />
used to estimate the intrinsic value of the firm<br />
and estimate implied cost of capital. Given the<br />
vital importance accorded to RI by prior literature,<br />
our study sought to use it as a basis to refine the<br />
relationship between returns and earnings.<br />
RESIDUAL INCOME AND RETURNS<br />
The market appears to value earnings growth from<br />
RI as well as earnings growth from IC, though it is less<br />
optimistic about earnings growth in smaller firms.<br />
Findings also suggest that the market believes that<br />
investments made by firms with the greatest recent<br />
profitability are more likely to add value.<br />
The market, however, does not place the same<br />
weight on each component. The relationship is<br />
stronger for growth in RI. This suggests that the<br />
stock market views earnings growth from RI as<br />
more valuable than growth in IC.<br />
To understand why markets view growth in RI<br />
as more valuable, we analyzed the persistence of<br />
earnings growth. We found that earnings growth<br />
is likely to be more persistent when the proportion<br />
of earnings growth coming from growth in RI<br />
is greater — and more likely to reverse when the<br />
proportion coming from invested capital is greater.<br />
The results lend support for the use of growth<br />
in RI as an appropriate measure of growth in profitability,<br />
because it accounts for the opportunity cost<br />
of funds. This is consistent with arguments made<br />
by accounting scholars who have enumerated<br />
the shortcomings of earnings-based measures of<br />
profitability and advocated for the use of RI as an<br />
alternative measure of profitability.<br />
CONTEMPORANEOUS REACTION<br />
Prior research has shown that the contemporaneous<br />
reaction of markets is often incorrect. Markets<br />
often underreact to certain kinds of information,<br />
as seen in post–earnings announcement drift<br />
(PEAD), a longstanding anomaly that conflicts with<br />
the concept of market efficiency. Markets can also<br />
overreact to other kinds of information, as seen<br />
in the naïve extrapolation of accruals, the subject<br />
of “Do stock prices fully reflect information in accruals<br />
and cash flows about future earnings” by<br />
Professor Richard Sloan.<br />
We analyzed the relationship between the<br />
components of earnings growth and future returns,<br />
and found that markets contemporaneously underreact<br />
to growth in RI and overreact to growth in IC.<br />
In time, however, the market reverses its initial<br />
favourable assessment of earnings growth from<br />
growth in IC as it realizes that such growth does<br />
not persist and instead reverses.<br />
This corroborates prior research that documents<br />
negative returns in the aftermath of investments<br />
such as mergers and acquisitions and capital<br />
expenditure.<br />
THE ECONOMIC SIGNIFICANCE<br />
To analyze the economic significance of our results,<br />
we tested a trading strategy based on going long<br />
in firms with the most growth in residual income<br />
and going short in firms with the greatest growth<br />
in invested capital. We found that such a strategy<br />
generates economically meaningful hedge returns<br />
that are consistent across time, robust to controlling<br />
for risk factors and incremental to other documented<br />
anomalies.<br />
Consistent with this, we found that the persistence<br />
of future earnings increases in the proportion<br />
of earnings growth due to growth in RI and<br />
decreases in the proportion of earnings growth<br />
due to invested capital.<br />
When we examined the relationship between<br />
the components of earnings growth and future<br />
returns, we found that, while the growth in the RI<br />
component is positively associated with future returns,<br />
the growth in invested capital component is<br />
negatively associated with future returns.<br />
The positive relationship between growth in<br />
RI and stock returns is consistent with the contention<br />
that RI is an informative metric of economic<br />
performance for shareholders. But in contrast to<br />
prior research, our research showed that RI visà-vis<br />
earnings need not be viewed as competing<br />
measures.<br />
The value of RI lies as an effective conditioning<br />
variable that helps us better understand the sources<br />
of earnings growth.<br />
Partha Mohanram is<br />
the <strong>CGA</strong> Ontario Professor<br />
of Financial Accounting<br />
at the Rotman<br />
School of Management<br />
at the University<br />
of Toronto. Sudhakar<br />
Balachandran is the<br />
Assistant Dean for<br />
Teaching Excellence<br />
at Columbia Business<br />
School in New York.<br />
“Using residual income<br />
to refine the relationship<br />
between earnings<br />
growth and stock<br />
market returns” will be<br />
published in the Review<br />
of Accounting Studies,<br />
2012. The paper was<br />
edited for the purposes<br />
of this article<br />
by Colin Ellis, editor of<br />
Statements.<br />
To view selected articles<br />
and papers authored by<br />
Professor Mohanram,<br />
visit the “Faculty +<br />
Research” section of<br />
the Rotman School of<br />
Management website at<br />
www.rotman.utoronto.<br />
ca. We encourage all<br />
<strong>CGA</strong>s in academia to<br />
submit their papers to<br />
Statements. Papers<br />
will be edited to article<br />
form for a general<br />
readership.<br />
AUGUST/SEPTEMBER 2011 STATEMENTS 19
Article ▪ Standards<br />
Public Sector Handbook Update<br />
A summary of changes recently released by the Public Sector Accounting Board<br />
he Public Sector Accounting Board released a number<br />
of changes to the Public Sector Accounting (PSA) Handbook<br />
last spring. The Handbook release included new accounting<br />
standards for recognition, measurement and disclosure<br />
of financial instruments and the presentation of the associated<br />
gains and losses. It also included consequential amendments<br />
arising from the introduction of the new standards.<br />
All the new requirements are to be applied at the same time<br />
and for government organizations are effective for fiscal years<br />
beginning on or after April 1, 2012. In the case of governments,<br />
the new requirements are effective for fiscal years beginning on<br />
or after April 1, 2015. Earlier adoption is permitted.<br />
Financial Statement Presentation, Section PS 1201<br />
This section revises and replaces FINANCIAL STATEMENT PRE-<br />
SENTATION, Section PS 1200. The following changes have been<br />
made to the section:<br />
• Remeasurement gains and losses are reported in a new<br />
statement.<br />
• Other comprehensive income that can arise when a government<br />
includes results of government business enterprises<br />
and government business partnerships in its summary financial<br />
statements is reported in the statement of remeasurement<br />
gains and losses.<br />
• The accumulated surplus or deficit is presented as the total<br />
of the accumulated operating surplus or deficit and the accumulated<br />
remeasurement gains and losses.<br />
Foreign Currency Translation, Section PS 2601<br />
This section revises and replaces FOREIGN CURRENCY TRANSLA-<br />
TION, Section PS 2600. The following changes have been made<br />
to the section:<br />
• The definition of currency risk is amended to conform to the<br />
definition in FINANCIAL INSTRUMENTS, Section PS 3450.<br />
• The exception to the measurement of items on initial recognition<br />
that applies when synthetic instrument accounting is<br />
used is removed.<br />
• At each financial statement date subsequent to initial recognition,<br />
non-monetary items denominated in a foreign<br />
currency that are included in the fair value category in accordance<br />
with Section PS 3450 are adjusted to reflect the<br />
exchange rate at that date.<br />
• The deferral and amortization of foreign exchange gains<br />
and losses relating to long-term foreign currency denominated<br />
monetary items is discontinued.<br />
• Until the period of settlement, exchange gains and losses<br />
are recognized in the statement of remeasurement gains<br />
and losses rather than the statement of operations.<br />
• Hedge accounting and the presentation of items as synthetic<br />
instruments are removed.<br />
Financial Instruments, Section PS 3450<br />
This new section establishes standards for recognizing and measuring<br />
financial assets, financial liabilities and non-financial derivatives.<br />
The main features of the new section are:<br />
• Items within the scope of the section are assigned to one of<br />
two measurement categories: fair value, or cost or amortized<br />
cost.<br />
• Almost all derivatives, including embedded derivatives that<br />
are not closely related to the host contract, are measured<br />
at fair value.<br />
• Fair value measurement also applies to portfolio investments<br />
in equity instruments that are quoted in an active<br />
market.<br />
• Other financial assets and financial liabilities are generally<br />
measured at cost or amortized cost.<br />
• Until an item is derecognized, gains and losses arising due<br />
to fair value remeasurement are reported in the statement<br />
of remeasurement gains and losses.<br />
• Budget-to-actual comparisons are not required within the<br />
statement of remeasurement gains and losses.<br />
• When the reporting entity defines and implements a risk<br />
management or investment strategy to manage and evaluate<br />
the performance of a group of financial assets, financial<br />
liabilities or both on a fair value basis, the entity may<br />
elect to include these items in the fair value category.<br />
• New requirements clarify when financial liabilities are<br />
derecognized.<br />
• The offsetting of a financial liability and a financial asset is<br />
prohibited in absence of a legally enforceable right to set<br />
off the recognized amounts and an intention to settle on<br />
a net basis, or to realize the asset and settle the liability<br />
simultaneously.<br />
• New disclosure requirements of items reported on and<br />
the nature and extent of risks arising from financial<br />
instruments.<br />
Archived Pronouncements<br />
Superseded Sections PS 1200 and PS 2600 and withdrawn PSG-6<br />
are refiled under Archived Pronouncements.<br />
Supplements have been added in Archived Pronouncements<br />
setting out the former wording of those paragraphs.<br />
The archived material will be withdrawn from the Handbook<br />
when it is no longer effective.<br />
20 STATEMENTS AUGUST/SEPTEMBER 2011
Flavian Pinto, <strong>CGA</strong> ▪ THE PUBLIC SECTOR<br />
What’s Happening in the World of Government and Not-For-Profit<br />
Pooled Pension Plans<br />
Saskatchewan’s model offers a glimpse into the future of national pensions<br />
ere you paying close attention to the summer strikes<br />
at Air Canada and Canada Post As a public sector<br />
<strong>CGA</strong>, I had a couple of excellent reasons for watching<br />
the strikes with more than just a passing professional interest.<br />
First, the chief executive officer of Canada Post is a certified<br />
general accountant: Deepak Chopra, F<strong>CGA</strong>. Second, the strike<br />
at our national letter carrier and the strike at our national people<br />
carrier have kept alive an important national conversation about<br />
pension plans.<br />
A major reason behind both strikes was a proposal to move<br />
future employees from Defined Benefit (DB) pension plans to Defined<br />
Contribution (DC) plans. You know the DB/DC difference,<br />
of course: DB plans are the ones the media likes to refer to as<br />
“Cadillac plans” and “gold-plated pensions,” while DC plans are<br />
glorified RRSPs.<br />
Both Air Canada and Canada Post are struggling with massive<br />
pension deficits. Air Canada now has more retired employees<br />
(29,000) than it has active employees (26,000) to support them.<br />
Canada Post reminds one of Blockbuster. It’s a business that<br />
seems more and more irrelevant in this age of electronic delivery.<br />
Yet the Crown corporation deserves our close attention, because<br />
it’s facing a pension deficit of more than three billion dollars, a<br />
deficit for which the Canadian taxpayer is ultimately liable.<br />
The solution proposed by both employers to their employees<br />
is two-tier: one for the old, one for the new. Current employees<br />
would remain in the existing DB plan while new employees would<br />
receive the DC plan. The DB plan would continue to pay out a guaranteed<br />
amount of money to older employees in their retirement.<br />
The DC plan just gives you a lump sum of money as you<br />
embark upon your golden years. How much you invest and how<br />
much you withdraw is up to you. Frankly, most Canadians don’t<br />
have the investment know-how to grow their funds sufficiently for<br />
retirement anyway, and many will wind up with little or no retirement<br />
funding.<br />
No wonder DB plans are considered more valuable to some<br />
people than their homes. They’re becoming an increasingly rare<br />
and precious asset.<br />
Disappearing Pension Plans<br />
Only a third of Canadians are covered by an employer-sponsored<br />
pension plan. That extends to the public sector, where many of<br />
the agencies providing health and social services cannot afford<br />
to provide their employees with pension plans, whether DB or DC.<br />
To make matters worse, a third of all Canadians have no<br />
RRSP savings at all. This includes everyone from homemakers<br />
to the self-employed to those working in low-wage industries. And<br />
those with RRSPs ain’t socking away the cash like they used to.<br />
Instead, as widely reported in the media, they’re carrying record<br />
levels of debt.<br />
A Possible Solution<br />
Recent talk of pension reform between the provinces and federal<br />
government has led to the proposal of a pooled registered<br />
pension plan. The goal is to help middle-income private sector<br />
workers by allowing small and medium-size businesses to share<br />
resources and cut costs.<br />
Is there a privately pooled pension plan out there Is it possible<br />
to see what the future may look like under a privately pooled<br />
pension fund<br />
Yes there is. The Saskatchewan Pension Plan (SPP) is a voluntary<br />
program that has been in operation for 25 years. You don’t<br />
have to live in Saskatchewan to join the SPP and it’s operated at<br />
arm’s length from the government by an independent board of<br />
governors. Until recently, the maximum annual contribution was<br />
$600 a year, but as of 2010 members can annually contribute<br />
up to $2,500, providing they have the RRSP contribution room.<br />
DC employers can also add the SPP to their benefits package<br />
and contribute all or part of the $2500 to an employee’s account.<br />
The account stays with the employee until they retire and does not<br />
change when they change employers. Because the SPP is a pension<br />
plan and not an RRSP, contributions are locked in until age<br />
55, but its flexibility and portability as a pension are very good.<br />
A Successful Model<br />
The SPP relies on investment managers to ensure a high return<br />
with low management expense ratios of less than one per cent.<br />
Since its inception in 1986, it has earned a rate of return of about<br />
eight per cent.<br />
Very few mutual funds can claim that kind of performance.<br />
For those looking to diversify, the SPP is an attractive option if<br />
an individual is looking for a professionally managed investment<br />
vehicle outside of their RRSP.<br />
When SPP members retire, they can choose to buy an annuity<br />
and receive a reasonable monthly payment. It’s another option<br />
in retirement planning and a possible model for a better future<br />
than the one we have now — a glimpse into the future of national<br />
pension plans.<br />
Flavian Pinto, <strong>CGA</strong>, is chief financial and chief information officer<br />
of Community Living Toronto. Flavian has 30 years of public sector<br />
experience in the health care management field.<br />
AUGUST/SEPTEMBER 2011 STATEMENTS 21
Notes to Statements<br />
D I S C I P L I N E N O T I C E S<br />
DUE CARE AND<br />
PROFESSIONAL<br />
JUDGMENT<br />
<strong>CGA</strong> Ontario’s Code of Ethical<br />
Principles and Rules of<br />
Conduct (“the Code”) provide<br />
standards of acceptable<br />
behaviour that apply to all<br />
members of the Association<br />
and students in the <strong>CGA</strong> program<br />
of professional studies.<br />
The “Due Care and<br />
Professional Judgment” section<br />
of the Code states that<br />
“Members shall strive to<br />
continually upgrade and develop<br />
their technical knowledge<br />
and skills in the areas<br />
in which they practise as<br />
professionals. This technical<br />
expertise shall be employed<br />
with due professional care<br />
and judgment.”<br />
This section comprises<br />
five rules: R301, Competence;<br />
R302, Professional<br />
Development; R303, Adherence<br />
to Acknowledged Principles<br />
and Standards; R304,<br />
Terms of Engagement; and<br />
R305: Sufficient Information.<br />
(To read the Code of<br />
Ethical Principles and Rules<br />
of Conduct in their entirety,<br />
visit “Serving the Public” at<br />
cga-ontario.org.)<br />
Gougeon, Andre<br />
Andre Gougeon of the Town<br />
of Wasaga Beach was found<br />
in breach of Rule 302, Professional<br />
Development; Rule<br />
514, Registration; Rule 515,<br />
Practice Inspection Requirements;<br />
Rule 516, Professional<br />
Liability Insurance;<br />
and Rule 601, Compliance;<br />
of the Code.<br />
Mr. Gougeon did not satisfy<br />
the Association’s mandatory<br />
continuing professional<br />
development requirements<br />
for 2009. As well, he provided<br />
professional services<br />
to the public though he was<br />
not permitted to do so as he<br />
was not registered in professional<br />
practice with the<br />
Association.<br />
The following penalties<br />
were proposed and accepted<br />
by Mr. Gougeon:<br />
1. A reprimand.<br />
2. Payment of $5,000, consisting<br />
of a fine and the<br />
costs of the Public Practice<br />
Manual, CICA Handbook<br />
and professional<br />
liability insurance that<br />
should have been purchased<br />
for the years<br />
2009 and 2010.<br />
3. Suspension of membership<br />
in the Association<br />
for a period of six<br />
months.<br />
4. Return of <strong>CGA</strong> Ontario<br />
and <strong>CGA</strong> Canada membership<br />
certificates to<br />
the Association.<br />
5. Publication in Statements<br />
and a newspaper<br />
in the geographic area of<br />
Mr. Gougeon’s place of<br />
practice.<br />
Mathieson, Neil<br />
Neil Mathieson of the City<br />
of Mississauga was found<br />
in breach of the Principle of<br />
Due Care and Professional<br />
Judgment, and Rule 402, Association<br />
with Financial Information,<br />
of the Code.<br />
Mr. Mathieson’s client<br />
instructed him to file a notice<br />
of objection in response to<br />
an audit by Canada Revenue<br />
Agency (CRA). Though Mr.<br />
Mathieson advised his client<br />
that he filed the notice of objection,<br />
he was unable to provide<br />
confirmation of delivery<br />
of notice and the CRA did not<br />
receive a copy. In failing to<br />
either file the notice of objection<br />
on time, keep a copy<br />
of the notice, obtain some<br />
proof of delivery or file for an<br />
extension, Mr. Mathieson did<br />
not act with due care and<br />
professional judgment.<br />
Mr. Mathieson was<br />
aware that his client did not<br />
keep appropriate records<br />
to support his income or<br />
expenses. Though he did<br />
not have credible or reliable<br />
documentation from the<br />
client, Mr. Mathieson continued<br />
to prepare corporate<br />
financial statements, corporate<br />
income tax returns and<br />
personal income tax returns<br />
for his client and his client’s<br />
companies.<br />
While it was recognized<br />
that Mr. Mathieson’s intention<br />
was not to prepare or<br />
file misleading information,<br />
Mr. Mathieson remained<br />
involved when he knew or<br />
ought to have known that<br />
there was no credible or<br />
reliable information or documentation<br />
to support the<br />
filings. He was reprimanded<br />
and fined $1,000.<br />
Publication of<br />
Disciplinary<br />
Decisions<br />
Conditions related to the publication of disciplinary<br />
decisions are addressed in Article 9 of<br />
the Bylaws of the Certified General Accountants<br />
Association of Ontario.<br />
“Complaints, Discipline and Capacity” begins<br />
with the statement (“section 1”) that “All<br />
members, firms and students of the Association<br />
are required to comply with the Code of<br />
Ethical Principles and Rules of Conduct of the<br />
Association.”<br />
Article 9, section 41(a) states (in part), “The<br />
Association shall promptly release to the public<br />
and to members all hearing tribunal and<br />
appeal tribunal orders, decisions and reasons<br />
with respect to a member, a licence, or the certificate<br />
of authorization of a firm where there<br />
has been a finding of incapacity, incompetence,<br />
professional misconduct [emphasis added] or<br />
conduct unbecoming or where a student has<br />
been expelled from the Association’s program<br />
of professional studies.”<br />
If the tribunal orders suspension or explusion,<br />
as per section 41(b), the “Notice of suspension<br />
or expulsion of a member, the suspension<br />
or revocation of a licence or the certificate<br />
of authorization of a firm, or the placing of a<br />
restriction on the member’s or the firm’s practice<br />
shall promptly be given to the public by<br />
publication on the Association’s website and<br />
in a newspaper or newspapers distributed in<br />
the geographic area of the member or firm’s<br />
current or former practice, employment and/<br />
or residence, or in such other manner as the<br />
Association may determine to be appropriate.”<br />
To read the Association Bylaws, Code of<br />
Ethical Principles and Rules of Conduct, Public<br />
Accounting Licensing Regulations, and Procedural<br />
Rules for Hearings in their entirety, visit<br />
“Serving the Public” at cga-ontario.org.<br />
22 STATEMENTS AUGUST/SEPTEMBER 2011
Communication Skills ▪ Article<br />
A Proper Introduction<br />
An effective introduction sets the stage for a successful presentation<br />
here’s an old adage that states, “Well begun is half<br />
done.” When introducing a speaker, the introduction<br />
and the speaker’s opening remarks should fit together<br />
so seamlessly that the stage is set for a successful presentation.<br />
I recently attended a luncheon where the speaker was a candidate<br />
in an upcoming election. This was his introduction: “I would<br />
like to introduce our speaker, Joe Smith, your candidate for...”<br />
I cringed because I knew Joe. A successful restaurateur, he<br />
was very involved in local tourism, held a position on the local<br />
chamber of commerce and participated regularly in a variety of<br />
charity events.<br />
None of this was mentioned in his introduction. The poor man<br />
spent the first third of his speech trying to win over his audience.<br />
Introducing the Rules<br />
There are two rules with introductions. First, if you’re the speaker,<br />
write your introduction yourself. It should state your reasons for<br />
speaking on the chosen topic, summarize your background, and<br />
provide your audience with a reason to listen to you. Make the<br />
print easy to read and give it to the person introducing you.<br />
Second, make your introduction set the tone for your speech.<br />
I learned this at the School of Hard Knocks. When I first began<br />
public speaking (on the power of humour in the workplace), I tried<br />
to make my standard introduction sound as professional as possible,<br />
because I was trying to appeal to professional organizations.<br />
I was introduced as a professional accountant with a college<br />
degree in business administration who had held various corporate<br />
leadership positions.<br />
Bo-ring!<br />
It didn’t sound as though I was even remotely capable of<br />
humour. And I was well into my presentation before I got my first<br />
laughs.<br />
Priming the Pump<br />
So I changed my introduction. It still mentioned my accounting<br />
past, but I was now described as a “reformed accountant.”<br />
It mentioned my involvement with Toastmasters, the public<br />
speaking and leadership development organization; that I had<br />
won a number of humorous speech contests; and the fact that I<br />
was a seminar leader on the power of humour in the workplace.<br />
Listeners not only heard my name, they saw me laugh at the<br />
introducer’s joke (which I wrote) and they heard the word “humour”<br />
several times. They expected me to be funny. The introduction<br />
primed the pump, so to speak, and it was easier to make the<br />
audience laugh.<br />
In 1996 I was chair of the opening night festivities for Toastmasters<br />
District 60 Spring Conference. The international president<br />
and his spouse were in attendance. I used most of my standard<br />
introduction but added the comment, “Bob was a winner in the<br />
1991 District 60 Contest. He would have also won in 1993 if it<br />
hadn’t been for the judges.” This customized comment got a big<br />
laugh and prepared the audience to laugh even more.<br />
Setting the Right Tone<br />
If you are speaking on a serious topic such as drug addiction,<br />
however, you don’t want your introduction to be a series of oneliners.<br />
Again, your introduction should set the right tone for your<br />
speech. Start with a startling statistic, a personal story or rhetorical<br />
question.<br />
Your introduction and opening should work together. In my<br />
case, I ride in on the humour theme and use some self-deprecation.<br />
I usually make light of what I do for a living. After my opening, the<br />
audience is ready not only to hear my message but to have some<br />
fun as well.<br />
Starting a speech off right does not happen by accident.<br />
Unless you are a celebrity, the audience won’t know you or your<br />
message. They must be told in a direct manner who you are and<br />
why you are qualified to speak to them.<br />
But they must also be told — subtly and indirectly — why they<br />
should listen and how they should respond.<br />
Review your introductions and openings. Imagine yourself in<br />
the audience. Would you pick up on the subtle signals of direction<br />
from the information given Would you be primed to respond in<br />
the proper manner<br />
Well Introduced, Half Produced<br />
When it comes to a proper introduction, that old adage, “Well begun<br />
is half done,” should read “Well introduced is half produced.”<br />
As certified general accountants, we make presentations<br />
and give speeches on a regular basis, because our reputations<br />
as professionals make us ideal candidates for delivering many<br />
messages — technical, motivational, inspirational or otherwise.<br />
The next time you are asked to give a speech, give some<br />
thought as to how you should be introduced.<br />
I guarantee you: An effective introduction will set the stage<br />
for a successful presentation.<br />
Bob Armstrong, the author of this article, passed away in February<br />
2011. A certified general accountant for more than 25<br />
years, Bob was a popular seminar speaker who specialized in<br />
presentation skills and motivation. His obituary appeared in the<br />
June/July 2011 issue of Statements.<br />
AUGUST/SEPTEMBER 2011 STATEMENTS 23
INTRODUCING <strong>CGA</strong> ONTARIO’S<br />
PROFESSIONAL DEVELOPMENT<br />
FOR 2011/2012<br />
Quality programming, quality speakers, quality venues<br />
promise you more skills, more knowledge, more success!<br />
Visit the professional development section at cga-ontario.org<br />
and read our digital PD Catalogue today.<br />
<strong>CGA</strong> Ontario<br />
Professional<br />
Development.<br />
More Skills.<br />
More Knowledge.<br />
More Success.