Canada`s Accounting Top 30

Transcription

presents
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Top six busy despite slowdown
By GUNDI JEFFREY
lthough
international
f inancial reporting standards (IFRS), new regulatory initiatives and certain tax
measures have opened up new revenue opportunities for Canada’s
professional services firms, there’s
no doubt that the global financial
crisis has squeezed both their
clients’ and their own business.
But even the recession has a few
silver linings and the country’s top
firms are determined to ride it out
as well as possible.
“The ongoing global credit
crunch — which really just hit
industry in the last quarter of 2008
— has affected many of our clients
adversely,” says Phil Noble, CEO
of Grant Thornton LLP.
“Tighter restrictions on borrowing cash have prevented many
of our clients from obtaining the
necessary resources to fund operations and finance new investments.
Reduced consumer confidence has
led to a reduction in demand for
many of our client’s products and
services. For firms that export, the
global nature of the crisis has seen
a reduced demand from overseas
markets.”
“We expected this to be a challenging year — and it is — but we
A
are still seeing some growth in our
business,” adds Lou Pagnutti,
chair and CEO of Ernst & Young
LLP. “It’s true that companies are
cutting back on spending in all
areas, including professional services. Our clients, however, see us
as trusted advisors who can help
them find their way through these
difficult times. And as you would
imagine, there is a significant need
for our restructuring experience in
the market.”
And a need for advice, too.
“We’re encouraging our client
service professionals to focus on
the potential risks that tough economic times and tight credit markets mean for the viability of our
clients’ businesses,” explains Bill
Thomas, CEO of KPMG LLP. “To
that end, we’re advising our people
to stay close to our clients, closer
now than ever. We need to listen to
their concerns, understand the
challenges they face and then to
help them overcome these challenges. If we do this right, clients
will remember that we were there
for them at difficult times — and
we’ll strengthen our relationships
with them.”
Chris Clark, CEO of PricewaterhouseCoopers LLP, agrees that
there are still many opportunities
in the marketplace, “such as
assisting our clients with the
implementation of international
f inancial reporting standards,
developing corporate social
responsibility programs, helping
with cost reduction and prof it
improvement programs, or
assisting governments (to) implement
their
infrastructure
spending.”
As well, PwC has developed a
taskforce to help clients manage
the downturn, “providing insight
into the recession and practical
advice on how they can manage
through these challenging times.”
Moreover, he says, there are
opportunities on the accounting
and auditing side of things. “The
economic crisis has required companies, auditors and regulators to
address complex accounting and
disclosure issues not generally
seen in better times. These include
determining whether assets such
as investments and goodwill are
impaired, estimating values when
markets are illiquid and assessing
going concern and liquidity
issues.”
There are going to be both risks
and opportunities in the current
environment, acknowledges Alan
MacGibbon, managing partner
and chief executive of Deloitte &
Touche LLP. “Both Deloitte and its
clients have to deal with a myriad
of changes and volatility in the
economy and marketplace. We
plan to take advantage of the
opportunities the current environment offers while tightly managing our expenses and spending
levels, including critically examining all our programs. And, while
predicting the future is difficult,
we are maintaining a balanced
view.”
The fact is, adds Keith Farlinger, CEO of BDO Dunwoody
LLP, most accounting firm clients
will continue to require accounting
and tax services and, in past economic downturns, “our experience
has been that clients need more,
not less, counsel.”
He believes the greatest opportunity for growth may lie in advisory services. He also sees
forensic services growing as, “in
an economic crisis, there is definitely an increase in the incidence
of fraud.”
In prosperous times, explains
Clark, “fraud is often driven by
greed. In a crisis, fraud is often
driven by desperation. Experience
tells us that in an economic downturn, demand for our services will
arise out of the exposure of fraud
which occurred during prosperous
times.
“During a downturn, some
companies may relax fraud prevention and investigation activities
in an effort to cut costs. These cost
cutting measures can have a significant negative impact on internal
controls, such as weaker enforcement of segregation of duties and
fewer resources dedicated to
internal audit, compliance and
anti-fraud initiatives,” he adds. “It
is critically important that companies continue to task fraud as a priority and seek forensic assistance
to evaluate and reinforce the key
components of an anti-fraud
regime.”
The imminent introduction of
IFRS has also been keeping firms
quite busy and will continue to do
so as conversion projects ramp up.
Already, the Canadian Securities
Administrators (CSA) are asking
for management discussion and
analysis (MD&A) disclosures for
the 2008 fiscal year on what conversion plans Canada’s public
companies are putting into place.
As a result, says Farlinger,
BDO professionals focusing on
See Tough on page F3
The Bottom Line April 2009
F2
By GUNDI JEFFREY
t 41, Bill Thomas, who
became chief executive
officer and senior partner of
KPMG LLP in Canada on New
Year’s Day, is one of the youngest
people ever to lead a national firm.
He takes the helm during a worldwide financial crisis, a continuing
shortage in skilled professionals
and major changes in the regulatory
landscape. Those challenges do not
appear to have softened his focus
on an ambitious corporate vision.
“I want us to be the envy of
(Canada’s) professional services
firms, not just the Big Four but all
of them,” he says.
Although a candidate for the top
job, Thomas says he never expected
to get it, which gave him the
freedom to speak his mind and
sketch out his vision for KPMG.
“When you go into something not
expecting to be chosen, you can say
what you think. I had strong views
about where the firm should be
going and I think our board found
that refreshing.”
He describes his business
mantra in one word, relationships.
That is based on “building long and
deep relationships with five groups:
clients, future clients, local communities, the global firm, and with
each other within the firm.” In
these trying times, he adds, “It is
A
not enough to be among the biggest
or the best. More is needed.
“If we build great relationships
with clients, provide service
delivery second to none, and provide exceptional knowledge and
experience that is recognized
throughout the profession, it will
give us the opportunity to differentiate ourselves from the rest.”
A looming challenge for him is
the fact that very soon the professional talent pool could run dry.
“Over the next few years there is
going to be terrific competition for
talent, and 2012 will be the watershed year. There won’t be enough
talent to go around. Unless more
Canadians delay retirement or
immigration increases drastically,
there will soon be more people
leaving the workforce than entering
it. So, skilled professionals will
continue to be in short supply.”
And for that supply, he says,
“We’ll be competing with not only
the Big Four, but with all the professional services firms. So, if we
want to be successful in the future,
we need to attract and retain the
best people. To do that, we must be
a people organization; KPMG has
to be the place where people want
to be.”
Therefore, for Thomas, one of
the most important relationships of
the five he noted is with KPMG’s
T HOMAS
New leader didn’t expect top job
staff: “It’s a relationship for life. We
help them build their careers and
reward long-term career choices.
Even if they move to industry, they
are still part of the KPMG family.
There is a bond there that is nurtured forever.”
Thomas believes that this cause
is helped by what he calls the
waterfall theory. “My job is to
motivate, engage and excite the
people that are around me, partners,
senior management and the community I play in. They, in turn, will
engage and inspire the people
around them, and so on. One
person doesn’t motivate the entire
organization but, collectively, we
can motivate the entire organization.”
Another important part of
Thomas’s platform is KPMG’s role
in the 30 or so communities it
serves, including a strong commitment to the environment. “These
days you have to be a top corporate
citizen,” he says
Thomas began his career with
KPMG in Vancouver in 1990. He
was audit leader for the Greater
Vancouver Area practice, managing
a staff of 450, and was appointed
office managing partner in 2006.
He co-chaired the finance committee of the 2006 World Junior
Hockey Championships.
He moved to Toronto in 2007 to
serve as KPMG’s deputy CEO.
The firm is soon moving into an
environmentally friendly building
in downtown Toronto and, among
other initiatives, are reduced business travel, paper and energy use.
The firm also facilitates assessments of employee homes to help
identify potential energy efficiency
improvements.
These types of efforts, says
Thomas, “are no longer nice-tohaves, they are table stakes of the
future.”
Global relationships are another
focus. “Think about where the
world is going. It’s moving to a
more global level all the time.
Clients are becoming more global
and they expect constant, thorough
service wherever they are.”
Thomas points to Canada’s
upcoming change to international
financial reporting standards
(IFRS) as one example of globalization. Even the U.S. is buying into
that system. “The world is turning
to IFRS and soon we will all be
speaking one (accounting) language.”
The firm expects IFRS conversion to be an important source of
new revenue in the coming two
years and has recently established a
national IFRS practice. And in the
past six months, partners from
other KPMG firms in France,
South Africa and Australia have
joined the Canadian firm to focus
exclusively on IFRS engagements.
These are the trends influencing
the KPMG he has inherited,
Thomas notes, “And we need to
make sure that the firm plays a
leadership role on both the global
and domestic playing fields.” He
says he has always looked for a job
where he could make a difference
and have fun. “I would not settle for
one without the other.”
Enlarging KPMG’s profile
according to his vision will certainly fulfill one of those ambitions
— and fun is in the eye of the
beholder.
By GUNDI JEFFREY
etting close — real close —
to clients and helping them
navigate through the current
financial turbulence is one of the
platforms espoused by Phil Noble,
the executive partner and CEO of
Grant Thornton LLP since April
2008. And he’ll step right into your
living room to prove it, in a manner
of speaking.
In an innovative way of reaching
out to clients and the public, Noble
appears, seemingly almost life size,
in a video on the firm’s web page to
talk about the economy and offer
practical advice to help Canadian
businesses survive and even thrive
in this downturn. In his website
chat, he directs viewers to The
Credit Crunch, a comprehensive
Grant Thornton document that
describes how the tight credit markets affect a typical business, and
gives a 10-point checklist of what
they might need to do to survive.
“We see this as an ‘off the
meter’ consultation to help clients
manage the specific challenges of
these difficult times,” Noble told
The Bottom Line. “We felt compelled to reach out to clients being
threatened by the global credit
crunch and economic downturn
G
and give them practical guidance
on how to move forward.”
Showing committed leadership
in the marketplace on how to
manage the downturn, he believes,
“will give us a great opportunity to
assist our clients in tangible ways
while, at the same time, growing
our firm.”
Noble, who makes no bones
about his enthusiasm at being asked
to serve in the role as CEO and
working with “the best team in the
business,” has spent most of his
professional life with Grant
Thornton, starting in 1983 as a staff
accountant while living in Vancouver.
Now that he’s Grant Thornton’s
chief executive, Noble has decided
that his firm — which has enjoyed
success to date — didn’t need to
change its overall strategy much, it
just required a little tweaking. The
current focus is on “ensuring
excellence in its strategic execution,” he said.
“We consider ourselves to be in
an excellent competitive position.
Our people and our clients will tell
you that we’re quite distinctive.
And our people are our differentiator.” Although all firms tend to
say that, Noble insists it is really
N OBLE
Noble’s premier cause is client service
true for Grant Thornton. “Survey
after client survey tells us that our
clients value our quality, our
people and their relationships with
our people.” This client perspective, and the dedicated team he
works with, “made taking on the
CEO
responsibilities
very
appealing.”
Noble and his partners came up
with three “focus priorities” to capitalize on the firm’s momentum.
“We wanted to significantly
improve our external focus to take
advantage of the market opportuni-
ties.” Even in tough times, Noble
said, there are chances to help
clients survive the crisis and come
out intact on the other side, perhaps
even stronger.
Second, “we wanted to improve
our internal operational excellence,
to ensure a high level of internal
efficiency in our operation.” Third
— and, in a way, closing the loop
— “we wanted to be highly aligned
strategically and directionally with
the market and our clients.” This
would involve anticipating and fulfilling market needs. “It’s about
agility – about understanding and
responding to needs quickly.”
To raise visibility for the firm
while also giving back to the community, Noble said he and others in
Grant Thornton plan to speak out
more, something he believes the
profession has done well but perhaps not enough. “We need to collectively contribute more to public
policy debates on societal issues,
such as effective corporate governance, regulation and economic
issues, areas where we have clear
expertise.”
Noble acknowledges that, in the
coming year, the economy will
undoubtedly have a negative
impact on the profession, leading
to more intense competition for
fewer engagements and a downward pressure on fees. “It all
depends on how long the recession
lasts and how deep it becomes.”
Unquestionably, the firm will have
to practise good cost control, but
that’s not a strategic imperative,
“it’s just good business.”
He has not reduced expected
growth targets one whit. “We are
rooted in what we do well, and our
pattern of growth should continue.
We are diversified geographically
and by practice area.
“As long as we keep a sharp
focus on operational details, take a
multi-dimensional approach to our
business strategies and stay balanced, we will continue to have
intellectually, emotionally and
financially rewarding careers in an
organization that is sustainable in
every way.”
Noble became a partner in the
firm in 1990. He served as chair of
the firm’s national policy board,
managing partner for the three
greater Vancouver offices, international business centre director and
as national managing partner
starting in 2006. In early 2008, he
relocated to Toronto to begin his
tenure as CEO.
F3
Tough times call for creative moves
Continued from page F1
public companies are beginning to
be more occupied with helping
clients make the necessary MD&A
disclosures.
Clark says that PwC is “actively
engaged in helping clients navigate and prepare for IFRS. In fact,
we have over 135 dedicated IFRS
champions addressing clients’
IFRS issues from all angles.”
Pagnutti adds that many clients
have now completed their initial
IFRS diagnostic, or impact assessment, and are moving on to the
more detailed conversion planning
and implementation.
Deloitte’s MacGibbon points
out the U.S. roadmap for transition
to IFRS. “If that timetable is met,
Canadian and U.S. reporting
issuers should be on the same
accounting standards by 2014.” As
well, “the CICA is developing a
strategy for non-publicly accountable entities and, on the auditing
side, is proceeding at a rapid pace
to convert Canadian GAAS to
international standards on
auditing.” All of these developments will have a profound impact
on the work opportunities of
Canada’s accounting firms.
The country’s public companies
also now have to meet new CSA
requirements calling on CEOs and
CFOs to certify the design and,
ultimately, the effectiveness of
their internal controls over financial reporting. This means, says
Thomas, having to educate clients
about the key changes in these
requirement and their implications
for management, boards and audit
committees.
Noble adds that this requirement will “certainly represent a
struggle to gather all of the information required” and his business
risk services team is helping
clients review their control frameworks and testing controls to support their conclusions.
A number of new tax initiatives
are also filling tax agendas, in particular a major change to the U.S.Canada tax treaty. As of Jan. 1,
2008, Canadian withholding tax
no longer applies to most arm’s
length, unrelated party payments
of interest. “This dramatic
change,” says Clark, “will now
f inally permit the tax eff icient
cross-border securitization of billions of dollars of Canadian consumer and corporate receivables in
U.S., European and other capital
markets throughout the world.”
Despite all the positives, says
MacGibbon, “in these uncertain
times, clients are being more cautious with their spending.” So are
the firms. “We continue to monitor
Rank by Revenue
2008
2007
Firm / Year End / Head Office
enable us to build our business,
reduce our costs, develop our
people and make it easier for them
to work with each other and our
clients. We’re still committed to
investing in training and learning,
in technology, and in selected
market-facing efforts.”
PwC shares that commitment.
“We believe that our strategic priorities are the right priorities for
the firm notwithstanding what’s
happening in the marketplace
today,” Clark stresses. “As a result,
we are committed as much as possible to staying the course and
investing in the business to achieve
our goals.”
And that, say all the f irms,
means continuing to invest in their
people. Farlinger, for example,
does not foresee any layoffs for
BDO, “as it is important for the
future to keep our good employees
and we still need the right people
with the right skill set.” In fact, he
adds, if some of the firms do start
laying off, “there may be opportunities to further strengthen our
team across the country.”
Noble says it would be “irresponsible to describe accounting
firms as a safe harbour for staff.
However, there probably has never
been a better time for our profession to truly make a difference.
Top talent is always in demand.”
Pagnutti agrees. “Like many
firms in the profession, we have
made some very limited staff
reductions, but we’re still larger
than we were last year. We still
plan to hire hundreds of new graduates in the fall. We also continue
to recruit more experienced people
into key areas of our business. And
while the current economy has
made the talent pool broader and
deeper, it hasn’t necessarily made
it any less challenging to recruit
truly great performers.”
All the firms expect 2009 to be
a difficult year. But Pagnutti is
“confident that we’ll get through
this and help our clients do the
same.”
On the revenue side, says
Thomas, “we’re looking at a very
tight, competitive marketplace. On
the cost side, expense control will
become more important than ever.”
BDO, says Farlinger, “will continue to grow our people, add to
our depth or consummate mergers
and acquisitions if they fit. Interestingly, we see more opportunities
for mergers in these economic
times.”
Clark concludes that “change
can sometimes be challenging but
it is invariably stimulating, encouraging creative thinking and new
ways of looking at the world and at
business.
Revenue
2008 ('000s)
Revenue
change %
Partners/
Principals (+/-)
Professional
Staff (+/-)
Revenue per
prof. staff
+6.9
546 (+30)
5411 (+360)
262,244
57 (+6)
N/A
+4.5
437 (-10)
3,551 (+87)
315,974
33
N/A
+2.9
423 (+5)
3,535 (-20)
300,481
25
N/A
1
1
Deloitte & Touche LLP / May 31, 2008 / Toronto
1,419,000
2
2
KPMG LLP / Dec. 31, 2008 / Toronto
1,122,022
1,062,200
1
Number Revenue splitting
of offices A&A/MAS/tax/other
3
3
PricewaterhouseCoopers LLP / June 30, 2008 / Toronto
4
4
Ernst & Young LLP / June 30, 2008 / Toronto
856,000
+2
318 (+17)
2576 (+28)
332,298
14
N/A
5
5
Grant Thornton Canada / Dec. 31, 2008 / Toronto
425,800
+3.9
416 (-2)
2300 (+54)
185,130
105 (+6)
53/16/18/13
6
6
BDO Dunwoody LLP / Dec. 31, 2008 / Toronto
339,698
+9.6
327 (+11)
1,543 (+3)
220,154
95
N/A
7
7
Meyers Norris Penny LLP / Dec. 31, 2008 / Calgary
260,000
+23.8
189 (+29)
557 (+129)
466,786
43 (+1)
N/A
8
8
Collins Barrow National Co-operative / Dec. 31, 2008 / Waterloo, Ont.
126,100
-4.5
153 (-6)
454 (+21)
277,753
39 (+1)
67/8/21/4
9
9
RSM Richter / Dec. 31, 2008 / Montreal/Toronto
115,339
+3
88
329
350,574
3
43/35/20/2
110,857
+12.1
102 (+2.5)
527 (+81)
210,355
29
58/10/19/13
10
1
our own business environment and
practise the fundamentals of sound
business management: wisely
managing discretionary spending,
focusing energy on our clients and
continuously communicating with
each other.”
Thomas notes that KPMG is
looking “carefully at discretionary
expenses such as meetings and
travel. We’re asking people to treat
every f irm expenditure as if it
were their own personal money.”
Pagnutti concurs. “We’ve made
large cuts in air travel that’s unrelated to clients, for example, which
has helped us significantly reduce
our costs and carbon emissions.
Overall, I think this downturn has
pushed us to take a good, hard look
at our business and helped us find
ways to do things more efficiently
and cost-effectively, and that’s not
a bad thing in any economy.”
Farlinger
believes
that
accounting firms “are, in general,
financially prudent enterprises.”
All the same, “at BDO, we will
continue to invest in initiatives that
will help us better service our
clients, keep and attract good
people and create opportunities for
growth.”
Indeed, says Pagnutti, “We
can’t sacrifice long-term value for
short-term gain. That’s why we’re
moving ahead with plans that will
10
2
PKF Canadian Firms / Dec. 31, 2008
Only data from the named member firm or the exclusive member firms within the network/association is included. Data relating to non-exclusive associate or affiliate firms is not included.
2
PKF Canadian Firms figures include the firms of Smythe Ratcliffe (Vancouver); Walsh King (Vancouver); Young, Parkyn McNab (Lethbridge); Catalyst (Calgary); Heywood Holmes & Partners (Red
Deer); Vitrus Group (Saskatoon); Scarrow & Donald (Winnipeg); RLB (Guelph); Kraft Berger (Markham); PKF Hill (Toronto); Fauteux, Bruno, Bussiere, Leewarden (Montreal); Harel Drouin-PKF
(Montreal); Neal, Pallett & Townsend (London)
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F4
Deloitte & Touche LLP
KPMG LLP
PwC LLP
eloitte celebrated its 150th birthday in 2008.
According to managing partner and chief executive
Alan MacGibbon, “We have proven throughout our
long history that we adapt well to challenge and change —
which last year certainly presented. While the year started
more slowly than expected, we built momentum throughout
the year and came through reasonably well.”
The firm’s 2008 growth of 6.9 per cent was just a touch
less than that of the previous year. Deloitte’s tax business —
the largest in Canada — “continues to outperform the
market.” MacGibbon also singled out the firm’s consulting
and financial advisory services as being particularly successful, “driving growth for our firm.” The private company
services (PCS) practice experienced strong growth, as a
result of mergers with Verrier Paquin Hébert in Quebec and
Mintz & Partners in the GTA and the dedicated PCS practices in Montreal and Toronto. In the fall of 2008, Deloitte
also completed a merger with Scott, Rankin and Gardiner in
the Ottawa area. Another key win was being selected as the
official professional services provider to the 2010 Olympic
and Paralympic Winter Games.
As well, Deloitte enhanced several service areas “in
response to current demands from the marketplace.” The
corporate responsibility and sustainability team helps
clients better respond to issues of sustainable development
and integrate them into core business strategies, MacGibbon
said. And, with IFRS now a clear strategic priority for publicly accountable enterprises, “we saw IFRS-related revenues grow as our clients develop and implement their IFRS
conversion plans.”
ill Thomas, CEO and senior partner, agrees that IFRS
conversion “has become a major priority for most
public companies in Canada,” and the firm has “won
a significant amount of new business from companies that
have chosen to put their IFRS conversion projects out to
tender. We expect this to be an important source of new revenue for the coming two years.”
In addition, Thomas notes, KPMG “continued to win
important clients and assignments in all areas of our business.”
The tax practice, in particular, had strong results, “driven
by a continuing flow of policy developments from the
Canada Revenue Agency and by a growing demand for
international tax advice from our clients.”
And the firm’s dedicated private-company business,
KPMG Enterprise, also posted healthy revenue growth last
year. “Our national advertising campaign for KPMG Enterprise generated a lot of interest in the market about our services for private companies,” Thomas adds.
KPMG is now helping its TSX-listed clients to meet
requirements for CEOs and CFOs to certify the design and,
ultimately, the effectiveness of their internal control over
financial reporting, which also contributes to the firm’s
bottom line.
Corporate transactions generate demand for many of
KPMG’s service. But, says Thomas, “When transactions dry
up, as they did this year, it becomes harder for us to generate
new revenues from these service lines.”
In 2008, the firm was recognized as one of Canada’s top
10 employers by the Financial Post.
hris Clark, CEO, says current market conditions are
challenging but they “provide opportunities to assist
clients in adapting and reshaping their businesses to
meet the changing marketplace and the new economic
reality.” For example, the firm launched a restructuring and
distress strategy group to help clients find solutions for
managing in a downturn. More than 30 fully dedicated partners and managing directors and 100 experienced restructuring and distress strategy professionals help clients with
their restructuring strategy and implementation issues.
But PwC’s 2008 primary revenue growth came from the
tax and advisory practices, which “continue to be main focal
points for future growth across the world and, in (fiscal year
2008), for the first time, accounted for more than half of our
global revenues.”
Clark says the pipeline of public-private partnerships
(PPP) deals in Canada is growing, noting that Project
Finance magazine ranked PwC Canada as top Financial
Adviser — Canada Public-Private Partnerships from 2004
to October 2008, in terms of both number of deals and
dollar volume. Over the past four years, PwC was engaged
for six PPP deals worth close to $3 billion.
As well, IFRS was a significant source of revenue. “To
date, we have over 200 IFRS conversion projects at varying
stages in the transition, and we expect to see increased
activity as they complete their transitions into 2011.”
While assurance remains the centre piece of PwC’s business, “We expected the reduction in its growth from the significant growth levels over the past couple of years associated with the introduction of SOX.”
D
Rank by Revenue
2008
2007
11
12
B
3
BHD Association / Dec. 31, 2008 / Toronto
4
C
Revenue
2008 ('000s)
Revenue
change %
Partners/
Principals (+/-)
Professional
Staff (+/-)
Revenue per
prof. staff
71,371
+7.3
80 (-7)
376 (+3)
189,816
14
59/13/25/3
-13.8
45 (-12)
278 (-27)
221,367
7 (-3)
67/7/21/5
5
12
11
Nexia Canada / Dec. 31, 2008 / Toronto/Calgary
61,540
13
13
HLB/Schwartz Levitsky Feldman / Dec. 31, 2008 / Montreal
48,400
+5.3
69 (+12)
227 (+38)
202,643
8 (-1)
64/0/21/15
14
14
Mallette / August 31, 2008 / Quebec
43,450
+9.5
52 (+10)
389 (+2)
111,697
22
65/15/15/5
15
15
MacKay LLP / Dec. 31, 2008 / Vancouver
37,900
+11.8
34
185 (-1)
204,865
8
55/6/22/17
16
16
EPR Canada Group Inc. / Dec. 31, 2008 / Maple Ridge, B.C.
31,541
+19.9
59 (+5)
202 (+23)
156,144
38 (+4)
64/9/20/7
29,150
+26.2
24 (+4)
172 (+38)
169,477
4 (+1)
70/10/20/0
+12
26 (+13)
112 (+76)
250,000
4 (+2)
51/21/17/11
17
19
6
Moore Stephens North America (Canadian firms) / Dec. 31, 2008 / Vancouver
28,000
7
18
29
Fuller Landau / Dec. 31, 2008 / Toronto
19
18
Porter Hetu International / Dec. 31, 2008 / Montreal
26,500
+10.4
62 (+1)
130 (+10)
203,846
43 (+2)
65/15/18/2
20
17
Soberman LLP / Dec. 31, 2008 / Toronto
25,287
+3.7
22 (-2)
124 (+46)
203,927
2
71/14/9/6
3
BHD Association figures include firms D&H Group (Vancouver); Buchanan Barry LLP (Calgary); Veres, Picton & Co. LLP (Edmonton); Thomson Jaspar & Associates (Saskatoon), PKBW Group
(Winnipeg); Millard Deslauriers Shoemaker LLP (Toronto); Hyatt Lassaline, LLP (Windsor); Marcil Lavallée (Ottawa); Demersbeaulne (Montreal); Choquette Corriveau (Québec City); LeblancNadeau
Bujold (New Brunswick); Hilborn Ellis Grant LLP (Toronto)
4
Nexia Canada figures include firms Davidson & Company LLP (Vancouver), Zeifmans LLP (Toronto), Hudson LLP (Calgary), Nexia Friedman LLP (Montreal), Perrault Wolman Grzywacz & Co.
(Montreal), Lyle Tilley Davidson (Halifax)
5
Please note that the decline in revenue is entirely caused by the elimination of duplicate representation in Toronto. In fact, aggregate 2008 revenue for the current firms is up 9 per cent from 2007.
6
The above figures are combined for two Moore Stephens Affiliates in Canada: DMCL LLP and MSCM LLP
7
Revenue from 2007 restated to $25,000,000
F5
Ernst & Young LLP
Grant Thornton LLP
BDO Dunwoody LLP
hief executive officer Lou Pagnutti acknowledges
that “we’re operating in a very challenging business
environment, and we’re seeing this have an impact
across our businesses. Our advisory and restructuring businesses are doing well in a tough market, but we’re seeing
slower growth in other areas.” Clients, he adds, “are being
careful about spending in all areas, including what they
spend on professional services.”
Nevertheless, he says, “all of our businesses made a
strong contribution to our bottom line.” As with the other
firms, most of Ernst & Young’s growth was in tax and transaction advisory services. The second half of the year saw
assurance and advisory services grow, “as clients needed
help with IFRS and addressing risks related to the financial
crisis.”
And that has definitely brought in new business. “It may
have taken a while, but IFRS conversion is on the management agenda today. We’ve found that more and more companies understand that IFRS isn’t simply a technical
accounting exercise, but a major change that can have implications across the business. And they also see the value of
getting an early start on the conversion effort. Larger companies are moving first and faster, because they have more
resources available to them.”
To help businesses achieve their IFRS objectives, Ernst
& Young has invested in training, recruited professionals
with prior IFRS experience and tapped into the firm’s extensive network of people in other countries who have already
helped companies convert.
Ernst & Young also launched a new advisory services
platform in Canada and around the world “to bring our risk
and performance improvement professionals together into a
single advisory network.”
rant Thornton’s new CEO Phil Noble believes that
the global financial crisis has actually triggered
greater demand for some services, “especially
restructuring and reorganization, and operational improvement services. Our forensic and investigative services area
has also seen an increase in demand, given the heightened
risk in the current environment.” Grant Thornton enjoyed
broad-based organic growth in almost every core sector and
service line, Noble said. “In particular, 2008 has been an
excellent year for our audit and assurance practice despite
the significant downward pressure on assurance-related fees
experienced throughout the industry.”
The firm continued to make excellent progress in the key
areas the leadership focused on in 2008. It launched a new
national specialist advisory services practice “and we look
to continued growth and success in this area in the months
ahead.” Noble says his firm is the market leader in Atlantic
Canada “and we have continued strong growth throughout
the region in both fee volume and clients served.” The
western region has also achieved “exemplary growth and
success in key markets for our firm.”
On the minus side, the mergers and acquisitions service
area has been tightening up, as business owners are reluctant
to sell their businesses in this market. “However, as we have
been advising clients, now is the time to prepare and groom
the business for sale, looking for ways to improve performance, increase profitability and shed non-core businesses.”
The drop in deal flow has also had an impact on some of
Grant Thornton’s sophisticated tax planning services,
“although, generally, tax is holding up well.”
To a certain extent, says Noble, “our service offerings
counterbalance themselves and increased demand in certain
areas offset declines in others.”
ne of the few f irms among the top six to almost
match its good 2007 performance was BDO Dunwoody.
“We met our targets,” says CEO Keith Farlinger, “and are
very pleased with our results.”
The financial crisis hasn’t cramped BDO’s style, he adds.
“In past economic downturns, our experience is that clients
seek more counsel not less, so we don’t anticipate any services areas to experience slowdowns this year.”
The firm has also seen a growing demand for IFRS services.
“More and more of our clients and non-clients are
seeking advice to comply with the new requirements,” Farlinger explains.
As well, BDO’s professionals focusing on publicly
accountable enterprises were called on to help clients with
the new (management’s discussion and analysis) disclosures
required for the 2008 fiscal year.
But BDO’s stellar 2008 growth was driven by good
results in all of its business lines.
“The Canadian economy is led by a significant middle
market comprising medium to large private enterprises and
small-to-midsized public companies — companies that
make up the bulk of our client base and target markets.
“These companies continued to grow and drive the Canadian economy, albeit at a slower pace than in the past few
years.”
These clients always require accounting and tax services.
And most “wanted to ensure that they had their businesses
in order to better weather the downturn. We were able to
work with them on those initiatives.
“And they will all require more from BDO as they move
forward.”
C
Rank by Revenue
2008
2007
G
O
Revenue
2008 ('000s)
Revenue
change %
Partners/
Principals (+/-)
Professional
Staff (+/-)
Revenue per
prof. staff
21
20
The AC Group / Oct. 31, 2008 / Bedford, N.S.
25,200
13.5
47 (+2)
163 (+28)
154,601
18 (+1)
70/10/15/5
22
21
Welch LLP / Jan. 31, 2008 / Ottawa
23,500
+6.8
32 (-6)
114 (-12)
206,140
9 (-2)
69/5/18/8
23
26
Ginsberg Gluzman Fage & Levitz LLP / Dec. 31, 2008 / Ottawa
18,950
+25.5
13
75 (+15)
252,667
10 (+2)
24/8/16/52
24
23
SF Partnership / Dec. 31, 2008 / Toronto
18,700
+6.9
15 (+1)
82 (-11)
228,049
2 (+1)
40/20/20/20
24
24
Manning Elliot LLP / Dec. 31, 2008 / Toronto
18,700
+10
20 (+1)
102 (+22)
183,333
2
80/5/15/0
26
25
Millard Rouse & Rosebrugh LLP / July 31, 2008 / Brantford, Ont.
16,700
+5.7
27 (+2)
64 (+7)
260,938
6
50/20/30/0
27
28
Wolrige Mahon LLP / Dec. 31, 2008 / Vancouver
13,278
+9.3
16 (+1)
68
195,258
1 (-1)
49/19/21/11
28
27
Segal LLP / Dec. 31, 2008 / Toronto
12,782
+0.2
18 (+2)
45 (-2)
284,044
1
59/5/26/10
29
30
Taylor Leibow / Dec. 31, 2008 / Hamilton, Ont.
11,000
+7.7
10
48
229,170
2
44/5/27/24
30
--
Lemieux Nolet / Dec. 31, 2008 / Levis, Quebec
10,693
+12.1
19 (+1)
50 (+5)
213,860
4 (-1)
70/5/10/15
F6
T
also saw steady growth, picking up
new clients and not losing clients.”
Another factor in the firm’s rise,
explained Jacobs, is that it signed
up several years ago with DFK
International, an association of
independent accounting firms and
business advisors.
“That has helped us to compete
with some of the bigger firms. We
have coverage across Canada and
North America and Europe and if
we need any work done in China
we’ll send it to our Chinese affiliate, or in the U.S. our U.S. affiliate. We have representation across
Canada and that really helps us
provide services to our clients.”
For Lemieux Nolet in Levis,
near Quebec City, which placed
30th on the 2008 list, its first
appearance in the Top 30, diversification is the key to success.
When the firm was founded in
1996, the partners developed a lot
of clients in the audit field, said
Stéphane Dumas, a partner with
the firm. But the plan was to offer
diversified services.
“So, we developed our forensic
accounting, we developed the business valuation, bankruptcy trusteeship, and tax and risk management
services. It’s like we’re a small
firm, but with the specialities. We
were able to develop and get access
to clients that need those services
and they appreciate our service,
and after that they became clients
of our audit services.”
The strategy has paid off handsomely for Lemieux Nolet. The
firm had revenue of $10.7 million
in 2008, up 12 per cent from $9.5
million in 2007.
The plan going forward is to
stay the course.
“Our forecast is to continue the
growth,” said Dumas. “We think it
will increase by 10 per cent next
year. Part of that will come from
new clients in the audit field and
we are pretty consistent in our
practice in business valuation.”
Mergers of accounting industry
firms have driven some clients to
the doors of Lemieux Nolet.
“The fact that some of the major
firms merged made some clients
unhappy,” said Dumas. “We’re
seeing a lot of clients who have the
feeling that they aren’t getting
good service for the amount of
fees.”
For Smith Nixon of Toronto, a
full service business advisory,
accounting and audit firm which
just missed out of the Top 30 in
31st place with revenue of $10.4
million, the strategy is to focus on
niche areas.
“Part of our strategy is to be the
dominant mid-tier firm in Toronto
and the one way we think we can
achieve that is by focusing in on
where our abilities are, so we have
some niche areas that we feel very
comfortable dealing with, like
mutual funds and flow-through
D UMAS
By GRANT CAMERON
he Davids of the accounting
industry, it appears, are
using a variety of tactics to
compete with the Goliaths.
Smaller firms on the list of
Canada’s top accounting companies are focusing on niche areas,
offering more diversified services
and making an effort to forge better
relationships with clients.
The fact they’re picking up disgruntled customers from mid-tier
accounting firms that have merged
with bigger companies has also
helped the bottom line of the
smaller players.
“Really though, the key to success these days is how you manage
your relationships with your
clients,” explained Nigel Jacobs,
chief executive officer of Taylor
Leibow in Burlington, Ont. “We
obviously benefited from a pretty
good economy early on in the year
but at the end of the day it was
because we’re always looking for
business opportunities and we’re
always looking to add value to our
clients, and when you can do that
you’re always going to do well.”
Taylor Leibow is listed 29th on
the rankings for 2008, up one spot
from the year before. The firm had
revenue of $11 million in 2008, up
7.7 per cent from $10.2 million in
2007.
Jacobs said the firm planted its
seeds for success a few years ago
when it put more effort into areas
like valuations and litigation support, and that investment began to
pay off in 2008.
“This year was just a case of
where some of those investments
we made in some of our areas, like
our valuations and litigations support, just continued to grow. Our
assurance and accounting areas
J ACOBS
Mid-tiers focus on relationships
funds,” said John Sinclair, partner
and member of the management
committee at the firm.
Smith Nixon has traditionally
been in the top 35 accounting
firms. Its revenues in 2008 were 10
per cent higher than the figure of
$9.5 million for 2007. And going
forward, Smith Nixon expects
good years in both 2009 and 2010.
Partner Rhonda Klosler said
public company work is growing
and the firm will be focusing on
growing its IFRS consulting service.
“Our practice is predominantly
assurance based and we don’t offer
a lot of specialized services so in
terms of growing the practice we’ll
focus on what we can do with our
audit clients, as opposed to some
firms that would have transaction
work or evaluation work potentially.”
Meanwhile, Sinclair said
mergers of firms like Deloitte &
Touche and Mintz & Partners in
late 2007 have resulted in more
mid-tier clients looking to other
firms.
“What we try and do is fit the
mid-tier clientele and as mid-tier
firms like Mintz join the national
firms, that creates opportunity for
us to take on those clients that
don’t like that change, and aren’t
happy to go to the larger firms,” he
said.
“In the public company realm
there was traditionally an understanding … that you needed the
national firms, whereas now
people are realizing you don’t and
that’s worked in our favour.”
Karim Jamal, a professor in the
department of accounting and
management information systems
at the University of Alberta at
Edmonton, said he’s not surprised
that some of the smaller firms are
picking up clients as a result of
mergers in the industry.
“The firms are partly in the
relationship business and so
merging creates a bit of noise. If a
firm merges with another that
automatically unhinges that relationship and some portion of
people will drift away, especially if
the new guy coming in is going to
charge a lot more.
“If I’m already a client of a
medium-sized firm, most likely the
reason I’m a client of a mediumsized firm is that I didn’t need a big
firm, and I wasn’t willing to pay
for the extra fees that they charged,
and I didn’t value whatever brand
image or whatever attribute they
have.”
While smaller firms might be
picking up clients, Jamal noted
there is a danger as mergers leave
businesses with a smaller pool of
accounting firms to choose from.
“If you have a company with
aspirations to go public and raise
money and things like that, then
you have very little choice.”
By GRANT CAMERON
oug Frondall never
thought he’d become an
accountant, much less
take the helm of an industryleading association.
Cars, you see, were his f irst
love.
“When I graduated from high
school, I went to work as an auto
mechanic,” he explains.
“I worked at that job for seven
years.”
One day, though, he decided to
try something different. So, he
got into sales and, in the process,
ended up rubbing shoulders with
chartered accountants.
“I got to meet a few guys who
were chartered accountants and
developed a knowledge and
respect for their ability, and
D
decided if I was going to go back
to school I’d like to get into my
own business. I thought that one
of the best backgrounds for
owning your own business was
accounting.
“I got in there and enjoyed the
marketing side of accounting
rather than the public practice
side,” says Frondall. “When I was
doing my articling for my CA
right out of university, I started
developing my own client base
and enjoyed helping people run
their own business.
“I just kind of stuck with it. I
never looked back.”
Today, Frondall is chief executive officer and managing partner
of Virtus Group LLP, one of the
largest accounting and business
advisory services f irms in
F RONDALL
‘Gear-head’ opted for a new challenge
Saskatchewan.
He’s also the f irst Canadian
chairman of the board of directors
of the PKF North American Network (NAN), an association of 85
independent accounting firms.
The 13 firms in the Canadian
division of PKF had revenue of
$111 million in 2008, placing the
association 10th on the list of top
accounting companies in this
country. The revenue of PKF
Canadian f irms was up 12 per
cent over the figure of $98.9 million in 2007.
Frondall credits PKF — and in
particular its executive leadership
forum — for helping Virtus grow
its revenues from approximately
$4 million a decade ago to more
than $8 million today.
The forum has separate twoyear courses for executives, experienced partners, new partners
and managers. Frondall partici-
pated in the course for executives.
As part of it, he listened to presentations and worked with an
industrial psychologist. Executives put their issues on the table
and focused on setting up ways to
fix them.
“It was a real wake-up,” recalls
Frondall. “We saw evidence that
there was a better way of doing
things. It helped us with our
growth by making us focus and be
more strategic. It made us step
back and say: ‘OK, you’ve got
limited resources. What’s the
highest and best use of those
resources?’
“There was some work we just
stopped doing. It taught us to be a
lot more strategic in everything
See Sales on page F7
F7
Sales side always intrigued Virtus CEO
we do, on revenue, on retention of
staff, training of staff, right on
down to the net income and
bottom line.
“We went through some real
turbulent times with our firm and
that executive leadership forum, I
would say, kept our firm together
and enabled us to make the tough
decisions that helped us change
the firm.”
Frondall restructured compensation, counseled out clients and
partners that weren’t a good fit,
and fostered a one-firm mentality.
Participating in the leadership
forum helped him develop a
strategic mindset and craft specific plans for improving performance and profitability at Virtus.
“We went through a real rationalization of our fit,” he recalls.
“We really took a hard look at
what we were doing and made the
hard decisions. You really have to
make the tough decisions in the
best interests of the firm and still
do it very diplomatically, so you
don’t really upset things. But you
get things going in the right direction, and the results can be there
if you do.”
Frondall said PKF helped his
firm in other ways, as members of
the association are open to
sharing information.
“Each f irm has to give a
detailed f inancial report every
year,” he said, “and at the end of
the year there’s a seven-inch
binder that’s got every f irm’s
f inancial information detailed
line-by-line, including income for
partners, just there’s no names
beside it, so you can look at those
firms by size because your operational issues will be similar, and
you can pick your best firms and
say: ‘I need to talk to this managing partner because they’re hitting on the market way better than
we are.’
“It’s about getting information
on how to run your firm better. If
you’re a certain-sized f irm and
you see another firm and the metrics of their performance (are)
just bang on, you can go to them
and they will tell you how they do
it. And they’ll go out of their way
to help you.”
Frondall expects PKF to continue growing, both in the number
of f irms and in revenue, but he
believes the association needs to
be more aggressive in getting its
message out.
“A lot of f irms are re-evaluating whether they’re going to be
part of a network or part of an
association, and there’s been a bit
of tire-kicking around,” he said.
“Other associations have been
very aggressive in that, and
chasing new members. We’ve
“You really have to make the tough decisions in the best
interests of the firm and still do it very diplomatically
so you don’t really upset things.”
Doug Frondall, chair, PKF North American Network
decided we need to take it up a
notch.
As for 2009, Frondall expects
PKF f irms that deal with the
banking and mining sectors to
lose some business, with possibly
some layoffs in the association’s
bigger f irms, while f irms in
eastern Canada will also feel the
pinch. But, he notes PKF firms in
the west are optimistic.
“PKF firm stats are still very
strong. But you can see that in
some areas that have been really
strong it’s kind of flattening off.”
Frondall is chairman of PKF
NAN for the 2009 calendar year.
And though he’s risen through the
ranks of the accounting industry,
he clearly still has a soft spot for
his old profession.
“I’ve always been a self-professed gear-head,” he says, “and I
guess I still am.”
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Calgary
PKF Hill LLP
Toronto
Fauteux, Bruno, Bussiere, Leewarden
Montreal
RLB LLP
Guelph
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Montreal
Scarrow & Donald LLP
Winnipeg
Heywood Holmes & Partners LLP
RedDeer
Red
Deer
Smythe Ratcliffe LLP
Vancouver
Kouri Berezan & Heinrichs
Edmonton
Virtus Group LLP
Saskatoon
Kraft Berger LLP
Toronto
Walsh King LLP
Vancouver
Neal, Pallett & Townsend LLP
London
Young Parkyn McNab LLP
Lethbridge
#10 on The Bottom Line “Canada’s Accounting Top 30” list for the third year in a row!
F8
Westerners still see new opportunity
By GEOFF KIRBYSON
espite the economic turbulence rumbling across the
country, two Western
Canadian-based firms are confident they have the right stuff to
weather the storm.
There’s no question particular
business units at Meyers Norris
Penny LLP and MacKay LLP are
down since last fall, but others
have turned up as the economic
malaise has spread.
Daryl Ritchie, CEO of Calgary-based MNP, says the slowdown is simply part of the business cycle. Regardless of where
the economy is heading, however,
the firm’s clients still need help.
“They’ll need different help.
We refer to it as changing times.
You need to be changing as well
so you can make sure you’re able
to help clients. There are always
shifting priorities, there will
always be changes made. We’re
not shutting down any areas, we’ll
shift resources around,” he says.
“We’re a very diverse firm with
a full-service line. You can
imagine this isn’t a bad time to be
in the insolvency business or
forensics and it’s not a great time
to be in the corporate f inance
business.”
Hugh Livingstone, CEO of
Vancouver-based MacKay, says its
Calgary office is feeling the pinch
with the price of oil hovering in
the US$40 per barrel range, a far
cry from its all-time high of about
US$147 per barrel last summer.
But activity at its Vancouver
off ice continues to grow with
public company and auditing
work, while its Kelowna outlet has
a constant market for its tax services. Its Edmonton, Whitehorse
and Yellowknife offices have a full
slate of First Nations work, too.
“I’m happy the corner of North
America that we’re in, we’re not
feeling (the economic downturn)
in the same way as Ontario or the
U.S. Locally, we have the
Olympics coming in 2010 so
we’ve had our own home-grown
stimulus package in B.C. There’s
$900 million being spent on security and there’s lots of construction going on,” he says.
MacKay had revenue growth of
16 per cent, 28 per cent and 12 per
D
“Locally, we have the Olympics coming
in 2010 so we’ve had our own home-grown
stimulus package in B.C.”
Hugh Livingstone, CEO, MacKay
20 per cent for the next five years.
In 2009, it’s most likely to be a
little slower than average. Last
year was a little faster. The
economy is going to grow slower,
so f irms are going to grow
slower,” he says.
MNP had revenue of $260 million last year, up nearly 24 per
cent from $210 million in 2007.
That’s good enough to be the seventh-biggest accounting firm in
the country.
Its original goal was to build a
strong Western Canadian firm, but
it decided to go national with last
year’s merger with Toronto-based
Horwath Orenstein LLP. The midmarket accounting firm added 80
employees to MNP’s payroll,
bringing its workforce to more
than 2,000 people. The eastern
expansion continued last month
with a merger with Shiner
L IVINGSTONE
cent per year for two decades,
MNP isn’t showing many signs of
slowing down. Nothing more than
a slight tap on the brake.
“Some years we grow at 18 per
cent, some years it’s 22 per cent.
We expect we’ll average around
R ITCHIE
cent from 2006 to 2008.
Livingstone says he expects
growth at the 15th-biggest
accounting f irm in the country,
which had $37.9 million in revenue last year, to fall off slightly
in 2009 but he doesn’t “see the
sky falling.”
“Twelve per cent is still nice
growth. If we continue to grow,
that tells us we’re doing extremely
well. What you would worry
about is a contraction,” Livingstone says.
“Our strategic plan has us
looking at being a $100-million
firm in 2020. We think it may not
accelerate in the next couple of
years in terms of organic growth
but we’re optimistic we’ll get
there.”
Livingstone says MacKay is
always on the lookout to expand
beyond the Alberta-Saskatchewan
border. “They have strategic fits
with us with resource work and
First Nations work. We can solve
other people’s problems (with a
merger),” he says.
Ritchie says even after
expanding at an average of 20 per
Kideckel Zweig, an insolvency
f irm with eight off ices in and
around Toronto.
Ritchie says the f irm hasn’t
decided where it might expand
next — it already has 75 full and
part-time locations from Victoria
to southern Ontario — but it plans
to go beyond Toronto’s 416 area
code.
“It won’t just be a Toronto
expansion; it will be a southern
Ontario expansion. When or if we
expand further east than Ontario,
we haven’t decided yet,” he says,
noting the economic slowdown
isn’t significant enough to cause
any of MNP’s plans or initiatives
to be delayed.
Not all of its growth is coming
from the acquisition trail, however. Organic growth was good
enough in Winnipeg that the company decided to relocate its operations from the suburbs to the
corner of Portage Ave. and Main
St. — the heart of downtown Winnipeg. It traded in its former longtime home in St. James for twoand-a-half floors in Canwest
Place, one of the city’s business
towers.
Trevor Sprague, a partner in
the Winnipeg off ice, says the
move was made to be closer to the
network of lawyers and financial
institutions that its people deal
with regularly on behalf of clients.
“Downtown is where the centre
of business activity is. As the firm
has grown, we want to make a
clear indication that we’re open
for business and we’re a major
player in the Winnipeg marketplace,” he says.
John Carpenter, CEO of CGA
Alberta, says successful accountants and f irms like MNP and
MacKay are able to adapt to the
needs of their clients and the circumstances those clients face.
“Versatility matters and a new
environment will likely require a
change in the service mix offered
by larger f irms, along with the
resources secured and deployed in
support of those services. The
accounting profession, accounting
firms, and accounting educators
will respond to those demands as
they have to environmental
changes in the past,” he says.
“Our real world experience is
sufficiently broad, practical and
informed to help our clients
through most of what they will
face in good times or in confronting adversity.”
Ritchie says there is also a
silver lining to the economic slowdown as retention isn’t likely to be
as great a challenge as it has been
over the past few years. He says
when the economy is firing on all
cylinders, industry recruits a lot of
people from accounting firms at
precisely the same time as firms
are trying to poach top people
from each other.
“This could be a really good
time for recruiting some really
strong people because of the slowdown,” he says.
Livingstone says the recruiting
pendulum has already started to
swing back its way. “A couple of
years ago, recruiters were phoning
our people at home all the time.
Now we’re starting to see unsolicited resumes are coming to us.
There has been a shift,” he says.
“We think investing in our
people will make us more competitive and a better firm
F9
East Coast prepares to ride out storm
W
“There will be some belt tightening,
and more importantly,
some attitude tightening.”
Gerard Fitzpatrick, Fitzpatrick & Company
town, “for the most part is suffering the same as the rest of the
country although perhaps not as
deeply.
“Our biggest areas of concern
are tourism and base industries,”
he added.
In
neighbouring
New
Brunswick, the forecast is for
good weather, all things considered.
“New Brunswick will be home
of the stronger economic performance in the Atlantic region in
2008, as continued robust non-residential construction activity offsets tax hikes,” said Sébastien
Lavoie, an economist with Laurentian Bank Securities in Montreal.
While Newfoundland and
Labrador is not predicted to have
as healthy an economic year as its
East Coast counterparts, the reality
is that the province is swimming in
oil and newfound wealth. That
wealth will be used to stimulate
the economy.
The provincial government has
just announced it will increase
infrastructure spending to approximately $800 million in the 200910 fiscal year and in excess of $4
billion over the next several years.
The money the province will
spend on infrastructure this fiscal
year represents a jump of $285
million — well over 50 per cent —
from the 2008-09 fiscal year.
This is but one example of what
happens when oil flows freely.
“Our f iscal situation has been
strengthened over the past few
years, which has provided
unprecedented financial flexibility
and allowed money to flow for job
and spin-off creating infrastructure
investments, for instance,” said
Bruce Templeton, chair of the St.
John’s Board of Trade.
“These investments will continue to have positive benefits to
the province over the coming
months and will help the economy
continue to be strong.”
That means a healthier bottom
line that the reality of recession
might otherwise indicate. “We are
very optimistic about doing business in the current economic climate because of our f irm’s
regional scope … We are quite
often the ‘go-to people’ because
of our personal approach and our
focus on relationship building,”
said Steve Belanger, a partner with
the chartered accounting f irm
Belanger Clarke Follett & McGettigan in St. John’s, Nfld.
Belanger’s buoyancy is being
felt throughout Atlantic Canada.
“In the profession here in Nova
Scotia, there will not be peaks and
valleys,” said Goodman. “There
will be mounds and small (dips).”
“There is room,” he added, “for
guarded optimism.”
Still a recession is not a time to
sit on one’s laurels. “Our clients
need more support in handling
higher business risks, and in
obtaining adequate financing to
get them through what promises to
be a tough period. We’ll be
focusing on providing them with
business advice and helping them
find new and innovative sources of
credit, as traditional compliance
and assurance services will not be
their primary requirement,” said
Horwich.
“In terms of our own practice,”
F ITZPATRICK
By DONALEE MOULTON
hen it comes to the ‘R’
word, Canada’s East
Coast, long a bastion of
have-not provinces, may do much
better than other, richer areas of
the country. One province in particular — Newfoundland and
Labrador — may do very well
indeed.
And as the province goes, so
does the accounting profession.
The region’s most populous
province, Nova Scotia, expects to
weather the current economic
storm more profitably, or at least
less disastrously, than other
provinces. There are a number of
reasons for this forecast.
“Nova Scotia is not immune to
the impact of the slowing
economy. We are part of the global
economy like everywhere else.
However, we have not had the
highs of other places, so we should
not have the lows,” said Michele
Williams, a chartered accountant
and office managing partner with
Grant Thornton LLP in Halifax.
The province also does not have
a large stake in sectors being hit
big time. “Nova Scotia will not
fare as badly as Ontario and
Alberta. We don’t have the
volatility of large manufacturing
and resource sectors,” said Paul
Goodman, president and managing partner with BDO Dunwoody Goodman Rosen Inc. in
Halifax.
Of course, the province is not
immune from the economic
tsunami.
“The tightening and increased
cost of business and consumer
credit is going to have a significant
impact on consumer spending patterns, which will, in turn, have an
impact on economic growth and
prosperity for Nova Scotians and
businesses in our region,” said Jim
Horwich, a partner with AC Dockrill Horwich Rossiter, a chartered
accounting firm in Halifax, and
chair of The AC Group, a group of
CA f irms with 21 locations
throughout Atlantic Canada.
“I am particularly concerned
about our rural communities,
many of which may be dependent
on the continued operation of a
particular employer,” he added.
“It is also a concern that our
province does not have significant
amounts of economic resources to
provide a large amount of interim
support, and we may not have the
electoral clout to receive sufficient
federal assistance for our businesses, relative to other regions of
Canada.”
The same advantages, and concerns, are true of New Brunswick
and Prince Edward Island. PEI,
noted Gerard Fitzpatrick, a partner
with Fitzpatrick & Company Chartered Accountants in Charlotte-
he added, “we will be ensuring that
we place the proper emphasis on
cash management, and in training
staff to be more aware of an
increased risk of clients in difficulty, and also the client’s exposure to employee fraud, in what
might be for some people desperate times.”
Action is essential, noted
Williams. “Our firm is doing all
sorts of things. We have a broad
range of services, and we are
proactively approaching clients to
help them through the challenges.
We were very quick off the mark
with a large publication entitled
The credit crunch: a practical
guide, which is designed to help
our clients understand the crisis
and plan for success through it.
“We are aggressively seeking
new clients as we have specialized
services right here in Atlantic
Canada that can help with the
challenges of the recession,” she
added.
“We have been preparing for
this and are ready to help … We are
forcefully bringing the best skills
available in Atlantic Canada and
making them available to our
clients.”
There may be good reason to be
proactive — and positive — at a
time when the news is consistently,
and depressingly bad. “There will
be some belt tightening, and more
importantly, some attitude tightening,” said Fitzpatrick.
“Attitude is half the battle,” he
stressed, “and it’s going downhill
quickly.”
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NEWS
F10
‘Zappers’ will face charges, CRA warns
By DONALEE MOULTON
he Canada Revenue Agency
ended 2008 with a national
tax alert — and a chilling
warning — for business owners
across the country. The main message comes down to this: Don’t try
to avoid paying your fair share.
Specif ically, the national tax
agency is cracking down on the
use of electronic suppression software, which is designed to work
with point-of-sale systems and
electronic cash registers. Businesses use the software — illegally
— to delete a portion of sales from
their computer records to evade
payment of income and sales
taxes.
The use of such systems is
“definitely growing,” said Patrick
Ho, a forensic senior manager
with Grant Thornton LLP in
Toronto.
That growth is spurring the
CRA to put significant resources
behind their warning to retailers,
restaurateurs
and
others.
According to the tax alert, the
Canada Revenue Agency “has over
5,000 employees dedicated to
f inding unreported business
income and ensuring that the
proper amount of taxes is paid,
even when sales records are
missing.”
“The overwhelming majority of
Canadians pay their taxes in full
and on time,” said Dan Bell, assistant director of enforcement at the
Vancouver Tax Services office. “In
fairness to them, the Canada Revenue Agency is continuing its
investigation of businesses that use
electronic sales suppression software and will prosecute them to
the full extent of the law.”
The agency has already had
success in uncovering use of the
software, commonly known as
‘zappers.’ The same day the CRA
issued its tax alert, it also issued a
news release announcing that five
individuals had been changed in
B.C.
They were alleged to have
zapped approximately $3.8 million
in sales from transaction records at
four restaurants they operate. One
restaurant alone was said to have
deleted more than $1.6 million —
or about 21 per cent of its recorded
restaurant bills — over a four-year
period. That amounts to more than
$400,000 in lost federal income
tax and GST.
For many businesses today,
using electronic suppression software is more tempting than ever,
said Rod Butcher, director of consulting services with Brendan
Moore & Associates Ltd., a professional services f irm specializing in tax solutions, in Toronto.
“We’re in a recession, revenues
everywhere are going down. Dishonest businesses can cheat the
government by using this software.
Both GST/HST, and business
income taxes would be reduced by
generating records that do not
record all sales made.”
Adding to the temptation is
T
“We’re in a recession, revenues everywhere are going down.
Dishonest businesses can cheat the government
by using this software.”
Rod Butcher, Brendan Moore & Associates
ease of use. “Electronic suppression systems today are much more
sophisticated … It can be as simple
as using a USB plug-in,” said Ho.
“It’s very hard to detect, which
is why the CRA is using a different
tactic,” he added.
“They’re going after the developers and suppliers. They’re getting customer lists from these
people.”
The CRA noted in its tax alert
that it is currently working “to
identify those who develop, sell, or
use the software.”
The move comes hard on the
heels of the CRA’s victory over
eBay Canada Ltd. at the Federal
Court of Appeal. The court ruled
the tax agency was legally entitled
to the names of the online auction
house’s top sellers.
In the B.C. case, a series of
search warrants were executed at
various restaurant locations as well
as at the off ices of Richmondbased InfoSpec Systems Inc., a
software company that is alleged
to have designed and sold electronic sales suppression software.
The search of InfoSpec was the
culmination of an eight-month
undercover operation by the
RCMP, who had officers pose as
potential buyers of the electronic
devices. During the search, the
CRA seized both paper and electronic records consisting of
invoices, e-mails, point-of-sale
software, and other electronic data.
There may be extra impetus to
go after tax cheaters who use this
type of software, noted Butcher, a
certif ied general accountant.
“Suppressing sales taxes collected
on sales is particularly odious
because the money is not the business’s to keep — it was collected
from customers for remittance to
the government and is rightfully
regarded as trust money by taxing
jurisdictions.
permeate the CRA’s current tax
alert. “Businesses that have used
electronic sales suppression software are suspected of having
hidden thousands of transactions
and millions of dollars in sales,”
the alert states, adding. “Once
caught, these tax cheaters will face
penalties, court fines, and possibly
even jail. They will also have to
pay the taxes they tried to evade,
plus interest.”
The CRA is also looking for
some help from customers. The
“They’re going after the developers
and suppliers. They’re getting
customer lists from these people.”
Patrick Ho, Grant Thornton LLP
“Jurisdictions,” he added, “are
very tough on this type of fraud.”
The fraud can occur in two
ways, noted Ho. One, the business
owner can use the software to
cheat the tax system directly. Or,
an employee could use the software to skim a little from the top
without the business owner ever
knowing.
“The CRA is interested in
recovering tax revenue but will be
more lenient if the employer is a
victim of theft,” said Ho.
A sense of leniency does not
alert notes that, “Although customers may not notice if a business is using electronic sales suppression software, they can do
their part to ensure tax compliance
by always requesting a copy of
their receipt.”
Turning the spotlight on retail
businesses is part of ongoing
efforts by the CRA to level the
playing field, noted Butcher.
“The CRA (and the other jurisdictions) is expanding its audit
practices to defeat these and other
schemes … When government rev-
enues from tax programs reduce,
as they will during a recession, the
government can increase its take
by expanding the audit net —
widening the target groups of
industries that are consistent low
remitters, increasing the frequency
and number of audits, and by lowering the threshold of materiality
at each of those clients.”
In many respects, this is business as usual for Canada’s tax
agency, said Ho. “Every few years,
if not annually, the CRA will target
specif ic areas. In the past, for
example, the construction sector
has been targeted.”
In the case of electronic suppression software, users are an
easy target. “By putting the spin
on it that all they’re doing is taking
down the cheats that make honest
people pay more, (it’s) an easy sell,
particularly in tough times,” said
Butcher.
The CRA is not alone in its
crackdown on businesses that use
electronic suppression software.
Earlier this year, the Quebec minister of revenue announced it
would be putting a pilot program
in place to test another type of
software, one designed to detect
and derail zappers.
The government estimates that
electronic suppression software
costs the province $425 million in
lost revenue every year.
F11
NEWS
Toronto wants to pounce on rebound
By GEOFF KIRBYSON
nlike many organizations
this year, the Toronto
Stock Exchange isn’t
slashing its travel budget to cut
costs in the face of a slowing
economy.
Instead, off icials from the
country’s largest exchange are
busy finalizing their itinerary for
their third annual road show to
the U.S. this summer, a trip that
will take them through more than
a dozen cities including New
York, Boston, Chicago, Denver,
Phoenix and San Francisco.
Their purpose is to spread the
gospel about the f inancing
opportunities offered by both the
TSX and the TSX Venture
Exchange for U.S.-based companies with a market capitalization
of less than $500 million.
Kevan Cowan, president of
the TSX, says while the latter
half of 2008 was particularly
challenging on a number of
fronts, he’s committed to
growing U.S. business. The first
year travelling south of the
border was intended to be a pilot
project but the interest was
“overwhelming” so the road
show has become an annual
event
“We believe in this opportunity. We’re going to keep at it
right through the downturn.
We’re f inding there is a large
divergence in the pipeline of
potential listings versus actual
listings closing. The pipeline is
quite large, there’s a lot of
interest, it’s just difficult getting
a deal over the goal line,” he
says.
“Our strategy is to be well
positioned for the upturn. When
the market cycle improves, we
want to be ready. That’s why
we’re continuing to do our road
show through the downturn.”
Cowan says 16 U.S. companies listed in Canada last year,
including seven on the big board.
He attributes at least some of the
appetite to list north of the 49th
parallel to the two-tiered market
system where the TSXV targets
smaller f irms and the TSX is
there for the bigger ones.
“We have found some U.S.
companies use the opportunity to
list on the venture exchange,
raise some initial financing and
graduate to the TSX,” he says,
noting a trio of companies did so
in 2008.
Cowan says he was buoyed by
the fact at least half of the companies that listed on the two
exchanges last year are not from
the resource sector.
“Many people see us as a
strong resources market so they
might assume the only international business we get is from the
resources area,” he says.
Cowan was particularly optimistic about the prospects for its
capital pool program in the U.S.
Modelled after the Keystone
company platform on the old
U
“On our road shows, we’re hearing the U.S. exchanges
have really abandoned the small and medium-sized
enterprise space, which is our specialty.”
Kevin Cowan, president, TSX
Alberta and Winnipeg stock
exchanges, capital pools are a
listing vehicle that allow companies to use far fewer resources to
obtain public listings even before
they have determined precisely
what business they will be in.
Junior capital pools are considered to be ‘blind’ investments
because investors are essentially
trusting that the company’s direc-
issues. A recession, equity
market volatility, constricted
credit and sagging commodity
prices are all working against a
recovery in the short term. He
says he knows there will be a
pent-up demand for capital and
new equity issues when the markets stabilize but he has no way
of knowing when that will be.
According to a recent survey
A single new issue made it to
the TSXV in the final quarter of
2008 to bring the full-year total
to 38 IPOs for the year, with a
value of $128 million, down significantly from the 54 new issues
worth $382 million in the previous year.
“There haven’t been any IPOs
on the TSX of newly listed companies in the last six months.
Patrick Donohue, Northland Securities
tors will find the proper business
to acquire.
Last year, the TSX had three
U.S.-based capital pool companies list on the exchange, a
number that Cowan realizes is
small but shows promise
nonetheless.
“This is early-stage traction
for us for a program that has
been phenomenally successful in
Canada and is generating lots of
interest south of the border. This
is a new thrust for us,” he says,
adding he’d like to bring on at
least 10 capital pool companies
from the U.S. in 2009.
Ross Sinclair, Toronto-based
national leader for PricewaterhouseCooper’s IPO and income
trust services, says the first half
of 2009 shows little promise of a
market recovery for new equity
by PwC, just 57 new issues
struggled to reach Canada’s
equity markets in 2008, with a
mere 10 registered on the TSX
for the year ended Dec. 31, 2008.
That’s the worst year in the
decade PwC has conducted its
annual report.
Of particular note, there were
no new IPOs on the TSX in the
final six months of the year. By
comparison, there were 100 IPOs
on all of Canada’s exchanges in
2007, with 36 new issues on the
TSX.
The value of all issues on
Canadian markets in 2008 was
$682 million, down 80 per cent
from the $3.4 billion in 2007, the
survey shows. The value of all
issues on the TSX in 2008 was
$547 million, off from $3 billion
in 2007.
D ONOHUE
“The process to get smaller issuers
publicly trading these days
has become terribly burdensome
in the U.S.”
That’s the biggest question, the
source of concern for everyone.
We’ve been doing this survey for
10 years and we haven’t seen a
period of time where there’s been
this much inactivity,” he says.
Sinclair says the drop in IPO
action won’t provide a knockout
blow to the economy like the
automotive sector could if it continues to shed jobs at its current
pace, but it is reflective of what’s
going on in the marketplace.
He cautions that even in
extremely good markets, IPOs
require a long lead time and lots
of investments.
“They’re not for the faint of
heart. Everybody has to
remember that people don’t just
wake up in the morning and say,
‘let’s do an IPO.’ It’s not for
everyone even in the best of
times,” he says.
Despite
the
downturn,
Canada’s markets have one significant factor in their favour in
the battle to win U.S. clients —
the regulatory regime south of
the border.
Critics say the SarbanesOxley Act, a series of corporate
governance check and balances
enacted in the aftermath of the
Enron and Worldcom accounting
scandals, imposes prohibitive
costs on young companies with a
market cap of less than $500 million.
Cowan says the Canadian
exchanges have responded to
Sarbanes-Oxley by “rightsizing” requirements to smaller
U.S.-based enterprises and not
treating them as if they were
multinational behemoths.
“Canada is committed to the
highest levels of corporate governance but what we have is
more proportionate to the size of
our companies,” he says.
Cowan says the TSX and
TSXV also stand to benefit from
the increased competition
between the New York Stock
Exchange and the Nasdaq, which
has seen the two giants focused
on overseas merger and acquisition activity and growing
through alliances with European
exchanges.
“On our road shows, we’re
hearing the U.S. exchanges have
really abandoned the small and
medium-sized enterprise space,
which is our specialty,” he says.
Cowan says he thinks the
appetite among U.S. companies
wanting to go public in Canada is
going to continue to increase as
the primary American exchanges
battle it out for blue-chip players.
“Anything up to $500 million
in market cap, we have a real
advantage. Where U.S. markets
don’t pay a lot of attention is up
to $200 million (in market cap),”
he says.
Patrick Donohue, vice-president of corporate f inance of
Northland Securities, a Minneapolis-based
full-service
investment bank, says the American market for smaller issuers
has been “pretty much shut
down” because of the growing
credit crunch, poor overall markets and Sarbanes-Oxley.
“The process to get smaller
issuers publicly trading these
days has become terribly burdensome in the U.S.
“The Toronto Stock Exchange
has checks and balances in place
See Road on page F12
NEWS
F12
Road trip still on despite slowdown
F OERSTER
but they’re not as f inancially
burdensome as the U.S. regulatory environment, which has
almost been a death blow to
small issuers in the U.S,” he says.
Donohue says the TSX and
TSXV have become a “very
viable” marketplace, especially
for small U.S. companies in the
mining, metals and equipment
manufacturing sectors.
“There’s no better market for
them than Toronto. If I have a
mining company in Nevada, it’s a
no-brainer, I go to Toronto to
raise money. They understand
and appreciate mining companies,” he says.
“For us to take a medical
device company to Toronto
doesn’t make as much sense. The
level of expertise for medical
device companies and the bulk of
the appetite is in the U.S.”
He says when f irms get to a
certain size, they have all the
major exchanges in the world
wooing them to list there. The
competition in the small cap
space is nowhere near as intense,
he says.
“The sticky issue has been for
“A lot of times our investors have
been so gun shy. If pools of liquidity
exist elsewhere, people will go where
that’s available.”
Patrick Donohue, Northland Securities
companies under the $200-million market cap, especially those
under $100 million. It becomes
very diff icult to be a viable
public company when your
annual (regulatory) costs are
$500,000 to $1 million. Those
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costs would be much smaller on
the TSX,” he says.
Northland did its first deal on
the TSX in 2006 with a company
called Duluth Metals and followed up with two more in 2007.
Donohue says his goal is to do
another six to 12 in the next
“year or two.”
He says the U.S. government
and market have shot themselves
in the foot by creating such an
unfriendly environment for
smaller companies.
“It’s drying up a lot of entrepreneurial opportunities in the
U.S. I see a tonne of companies
going anywhere in the world to
find capital.
“ A lot of times our investors
have been so gun shy. If pools of
liquidity exist elsewhere, people
will go where that’s available,”
he says.
Stephen Foerster, a professor
of f inance at the Richard Ivey
School of Business at the University of Western Ontario, says
he doesn’t believe the use of
Canadian exchanges to go public
will ever reach epic proportions.
“I don’t see a mass IPO phenomena of general U.S. companies coming to Canada (to go
public),” he says.
“I don’t think it’s a trend that
will continue to larger cap firms
and wider industry representation but something that will be
concentrated in the mining and
exploration areas.”
Foerster says it’s common for
various exchanges around the
world to gain an international
reputation in certain niches and
that’s what the TSX and the
TSXV have done thanks to their
lower costs and relative absence
of red tape.
He says while the intentions
behind Sarbanes-Oxley were
good, legislators failed to predict
the impact on smaller firms. As a
result, he says a number of
small-cap companies have opted
to delist from U.S. exchanges
after weighing the pros and cons
of being a public company.
Many medium and large-cap
firms, meanwhile, have turned to
the London Stock Exchange to
avoid Sarbanes-Oxley and to
trade in a marketplace with
plenty of liquidity.
Cowan says the investing
community has told him earlierstage companies want to plow as
much capital as possible into
their projects, management and
execution of their business plans.
“They’re not looking for
reams of money and paperwork
to go into governance,” he says.

Canada`s Accounting Top 30

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Case Study: Calzedonia Spa

Integrity, expertise and commitment—anywhere in

Mark R. Somerstein (MS 9721) Benjamin L. Schneider (BS 2004

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