Financial Reporting in Canada

[Eye4Valu]

I know a lot of members of this board are from Canada. What are your thoughts on this article from Gretchen Morgenson? IFRS in general? Do you trust the financial reporting on Canadian stocks? 

 

https://www.nytimes.com/2017/07/07/business/warren-buffett-investing-canada.html?ref=business

 

[SharperDingaan]

The source is very good, very smart, and well known for what he does.

The reporter however, could use some work. He is quoting out of context to make a particular story - a 'planted' story.

 

True: For public reporting, Canada and the US use different accounting standards 

 

Cherry Picking: Every accountant can find instances where US GAAP is more 'flexible' than IFRS, and vice-versa. 'Flexible' does not automatically mean 'fair' either.   

 

False: Generally IFRS is 'fairer' than US GAAP; US GAAP is well known for material and significant shortcomings in a great many places. So much so, that a great many US Fortune 500 would be either technically bankrupt (or very close to) were they to use IFRS. Goodwill gets annually means tested under IFRS, not so under US GAAP.

 

To some folks of course this is fair-play; news is 'entertainment', investors should not be making decisions based on a news story, and a reporter should not be subject to the requirements of the Investment Act of 1940. Problem is the 'Act' applies to everybody, reporters are not exempt, and its equally fair-play 'entertainment' to watch a reporter prosecuted and destroyed in court - it also sells way more papers if the reporter can be 'driven' into drug abuse, or off the top of a tall building. We all follow the law, and play nice for a reason.

 

The reality is that most of the world uses IFRS for global comparability purposes; it is not perfect, and it is often not applied evenly everywhere, but it is clearly where the world is going. We're special, because we're the US; doesn't really cut it.

 

SD

 

 

[TBW]

My view is Canadian firms play more games than US firms. Not a matter of accounting, although that is a large part of this, as much as it is lax enforcement of rules. Really rare to see white collar crime charge here.

 

I see issues with expenses capitalized, reits, loan loss reserves vastly understated, with lenders, and poor disclosures.

 

Plenty of good companies too, dont get me wrong, but I think more dilligence is required when investing up here.

 

If you want to learn more there was a great Globe and Mail investigative article on Amaya. Highlights all types of issues investors should be aware of. I found it to be a shocking read.