Sunday News Roundup 25.01.12: Bench accounting lessons, CPAB rule changes and more Canadian accounting news

Wrapping up the odds and ends from the past week in Canadian accounting news

Jan 13, 2025 Author: Canadian Accountant

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TORONTO, January 12, 2025 – Now that the dust has settled on the collapse of Bench Accounting, it’s time for the kind of analysis that was sorely lacking in the business press. For the uninitiated, Bench Accounting was a bookkeeping service for small to medium-sized businesses, one that combined a software platform with in-house bookkeepers. Based in Vancouver, it was often described as a startup — even at the time of its failure — but in reality it was launched more than 10 years ago.

Ostensibly, Bench had achieved critical mass, with more than 10,000 customers and roughly 600 employees, many of whom are now facing uncertain futures. On December 27, 2024 (the first business day after Boxing Day), the company abruptly shut down. (Imagine the employees who spent big over the holidays, only to find that they were jobless on their first day back.) On New Year’s Day, Bench was acquired by Employer.com, an HR tech company based in California.

Accountants should be cheering the collapse of Bench. The company was based on the idea that you could undercut accounting fees through software and non-professional accountants. Unlike accounting platforms such as Xero or QBO, Bench wasn’t augmenting accountants, it was trying to replace them.

The founder had no more experience in accounting than a finance and economics degree; he was a fintech entrepreneur who began his career at Bain and Shopify (later, investors in Bench). Both clients and insiders described a culture of steadily declining service over the years in what was surely a low margin business.

Bench burned through around $140 million in venture capital funding during its 12-year history. Half of that ($73 million) came from Shopify and accounting software maker Sage. Shopify was quick to blame the company’s collapse on a decision by new management to oust the founder. While there may be some truth to the claim, we’d be pointing fingers at others too if we invested that much in a failed company.

A much more realistic analysis (ignored by the business press) was that Bench floated on a sea of easy money, just another VC company in the “free money” era of private equity funds. During its 15-year history, the era saw the lowest interest rates in modern history, known as the “zero interest-rate period” (ZIRP). Once interest rates rose post-pandemic, the fast money and the fancy talk dried up, and many tech firms were (and are) living on life support.

Bench missed its window of opportunity to go public or get bought out by a bigger company. As an abject lesson in the stubborn persistence of the accounting profession, it may be useful to remember Bench Accounting when pundits opine about AI replacing accountants, and wags counter that AI means “actually, India,” rather than Artificial Intelligence.

And now, on to the rest of the news from the past week in Canadian accounting.

(Qualified) Hope for Canadian audit watchdog CPAB

It’s hard to believe but Canadian Accountant has been the only one media outlet to publish anything about changes to the regulatory Rules of the Canadian Public Accountability Board. If you’re an auditor, you care about CPAB rules; if you’re an investor, you should at least be interested. CPAB has announced changes to its regulatory rules for the first time in 20 years. The announcement coincided with the release of the regulator’s new strategic plan.

Of course, we published an overview last week of CPAB’s regulatory rules, which do not require amendments to the body’s governing legislation by the government of Ontario. As CPAB explains, the changes are mostly to do with the review proceeding process; who is and who isn’t subject to oversight; and some housekeeping matters to improve language clarity.

The real question is whether we will ever see amendments to the Canadian Public Accountability Board Act (Ontario), 2006. For too long, Canadians have had no idea as to which accounting firms are passing or failing their inspections, because the Act says that all documents are confidential. Meanwhile, CPAB’s American counterpart has put its Canadian cousin to shame, with an open and easily accessible online system of reports.

CPAB is committed, according to its strategic plan, to “enhancing our regulatory toolkit,” which includes “publishing summarized inspection reports for audit firms we inspect.” We wish them well. But with the Doug Ford government focused on American trade relations and a spring election, it could be years until we finally find out the answer to such burning questions as the name of Canada’s “accounting-firm problem child.”

And that, dear friends, was a question raised over three years ago.

Prorogation a problem for tax planning

CPA Canada issued a statement this past week saying that Justin Trudeau’s prorogation of Parliament is leaving taxpayers in limbo when it comes to capital gains. The Canada Revenue Agency has already announced that, under Canadian tax law, it will administer proposed tax changes, especially since some changes may be retroactive to the 2024 taxation year.

In the opinion of Kim Moody, writing in the Financial Post, “there is nothing controversial about this long-standing practice of the CRA,” but the CRA should stop encouraging taxpayers to comply, and instead amplify its warnings to taxpayers of future compliance.

That all sounds very reasonable. Parliament will return from prorogation in March with a new Liberal leader and the likelihood that an election will be triggered. Pierre Poilievre has already said he opposes the changes to capital gains — even though, as prime minister, he may prefer that a new revenue-raising tool was available, one that he could safely say he never wanted. On the other hand, there are scenarios (unlikely but still possible) under which an election may not occur until the fall, and the legislation passes in the spring or summer.

Regardless, add the capital gains tax to the long list of taxation policies that the Liberals failed to enact, whether due to timing, poor planning or political pressure.