TORONTO, Oct. 29 /CNW/ - Canada's CAs are providing support to help
directors deal with the current asset-backed commercial paper (ABCP) liquidity
Canadian businesses and investors have become increasingly concerned
about their exposure to credit quality issues since problems with the U.S.
sub-prime mortgage market surfaced this summer. As companies consider
disclosure for quarterly and yearend reporting, management needs to provide
investors with a good understanding of how this situation is affecting their
Board and audit committee members need to ensure that appropriate
consideration has been given to the valuation of these investments and that
company disclosures relating to asset-backed commercial paper are clear,
complete and adequately describe any exposures or potential impacts. To
address these concerns, the CICA is recommending that directors focus on a
series of key questions when reviewing financial statements and to satisfy
themselves that management is effectively managing related company exposures
"Our document walks directors through these questions to help them
understand what investors want to know and the level of information needed to
provide appropriate disclosure," said Dave Pollard, Vice-President of
Knowledge Development for the CICA. "Investors need this information to
understand and evaluate how exposures to ABCP could affect the company's
financial position, profitability and future prospects, and in order to make
informed investment decisions."
The CICA document is designed to provide guidance to directors in their
oversight roles. Further analysis and clarification on the financial reporting
of ABCP is expected to be released this week and posted on the Accounting
Standards Board web site.
ABCP is a secured short term debt obligation. Traditionally, the
underlying assets of the ABCP were principally made up of mortgages and
various types of consumer loans and receivables. However, many now hold a
significant portion of their assets in the form of credit default swaps,
collateralized debt obligations and other leveraged derivatives instruments.
Many of these instruments are complex and not widely understood.
"It is in the interest of businesses, investors and the reputation of
Canada's capital markets that all parties provide clear, accurate and complete
disclosures," said Pollard. "The CICA alert helps directors ask the right
questions to provide informed governance and oversight. This includes
addressing the impacts of the liquidity crunch on the debt and capital markets
and what it may mean for the financing strategies of the company."
The document, prepared by the CICA's Risk Management and Governance
Board, is the first in a series of alerts that will be developed as issues
emerge. It outlines questions for directors to ask, and for financial
executives to be prepared to answer and to consider in formulating their
corporate investment strategy. An important addition to the CICA's thought
leadership in financial reporting, governance and control, "The ABCP Liquidity
Crunch - questions directors should ask" is available on the Institute's web
site at www.cica.ca.
The Canadian Institute of Chartered Accountants (CICA), together with the
provincial, territorial and Bermuda Institutes/Ordre of Chartered Accountants,
represents a membership of approximately 72,000 CAs and 10,000 students in
Canada and Bermuda. The CICA conducts research into current business issues
and supports the setting of accounting, auditing and assurance standards for
business, not-for-profit organizations and government. It issues guidance on
control and governance, publishes professional literature, develops continuing
education programs and represents the CA profession nationally and
internationally. CICA is a founding member of the International Federation of
Accountants (IFAC) and the Global Accounting Alliance (GAA).
For further information:
For further information: For more information or to arrange an
interview, contact Tobin Lambie, Media Manager, CICA, (416) 204-3228,