TORONTO, May 10 /CNW/ - Canada's new simplified accounting standards for private enterprises require significantly fewer financial statement disclosures than the predecessor generally accepted accounting principles. Lenders are supportive of this reduction in disclosures, but only so long as the preparers of financial statements exercise sound professional judgment and provide additional disclosures where circumstances warrant, according to an Executive Research Report, The Role of Disclosures in the Financial Statements of Private Business in Accessing Credit, published by the Canadian Financial Executives Research Foundation (CFERF), the research institute of FEI Canada, in partnership with KPMG Enterprise(TM).
A 2009 study conducted by CFERF in conjunction with KPMG Enterprise raised the concern that simplifying accounting standards for private enterprises (ASPE) could lead to difficulties in accessing credit; this follow-up research finds no evidence that the new ASPE will limit their ability to raise capital or debt so long as the companies provide incremental disclosures when required to achieve "fair presentation" and maintain the trust relationship with their lenders.
"We know that the lending community relies on financial statements to provide a snapshot of the health of a company," says Ramona Dzinkowski, Executive Director of CFERF. "However, we also know that they have a strong interest in future cash flows, which is not something provided in the audited financial statements. Most financial executives believe that in addition to providing information regarding debt covenants, providing further information regarding possible impairments to future cash flow is definitely a value add when it comes to accessing credit."
According to Bob Young, Partner, National Assurance & Professional Practice at KPMG Enterprise, "Like any language, financial statements are primarily a communication tool. The communication should be tailored to the needs of the audience. Financial statements prepared in accordance with ASPE will provide a consistency that lenders can use to compare company to company within sectors. The simplification of private company GAAP only amplifies the fact that it is incumbent on privately held companies to build trust and establish solid, transparent relationships with their lenders. Failure to establish these relationships can lead to difficulty in obtaining capital."
The report comprises the results of a survey of senior financial executives in private companies in Canada conducted between February 22 and March 17, 2010, and the insights obtained at a CFERF Executive Research Forum that was held in Toronto on March 3, 2010. Views were sought from both preparers of private company financial statements and external users, namely lenders and investors in the private equity and venture capital communities.
THE CANADIAN FINANCIAL EXECUTIVES RESEARCH FOUNDATION (CFERF) is the non-profit research institute of FEI Canada. The Foundation's mandate is to advance the profession and practices of financial management through research. CFERF undertakes objective research projects relevant to the needs of FEI Canada's more than 2,000 members in working toward the advancement of corporate efficiency in Canada. Further information can be found at www.feicanada.org.
FINANCIAL EXECUTIVES INTERNATIONAL CANADA (FEI CANADA) is the all industry professional membership association for senior financial executives. With eleven chapters across Canada and more than 2,000 members, FEI Canada provides professional development, thought leadership and advocacy services to its members. The association membership, which consists of Chief Financial Officers, Audit Committee Directors and senior executives in the Finance, Controller, Treasury and Taxation functions, represents a significant number of Canada's leading and most influential corporations. Further information can be found at www.feicanada.org.
About KPMG Enterprise
KPMG Enterprise is a network of professionals devoted exclusively to serving the needs of private companies in Canada.
KPMG LLP, the audit, tax and advisory firm (kpmg.ca), a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative ("KPMG International"). KPMG International's member firms have 140,000 professionals, including more than 7,900 partners, in 146 countries.
The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such.
SOURCE KPMG LLP
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