Sunday News Roundup 22.07.03: Recission, recession, ethics cheating and more Canadian accounting news
Wrapping up the odds and ends from the past week in Canadian accounting news
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TORONTO, July 3, 2022 – On Tuesday, the US Securities and Exchange Commission levied its largest penalty ever imposed on an audit firm ($100M) over yet another cheating scandal at the Big Four. This time it was the US operations of Ernst and Young LLP, although readers will recall that, just a few months ago, PwC Canada was fined over one million CDN by US and Canadian regulators, for largely the same issue — the sharing of answers on internal professional development courses.
The Canadian Public Accountability Board says it will ask EY Canada whether any of its employees cheated on exams and training courses. One would think, however, that any similar incidents would have been reported by EY Canada, given that the investigation into EY in the US has been a long one.
In its press release, the US SEC seems rather put out by the audacity of EY audit professionals, who would actually cheat on the ethics components of CPA exams and PD courses. Worse still, unlike PwC Canada, which brought the cheating to the attention of regulators, “EY made a submission conveying to the Division that EY did not have current issues with cheating when, in fact, the firm had been informed of potential cheating on a CPA ethics exam.”
But wait: SEC Commissioner Hester Peirce issued a public statement in which she disagreed with the penalty. The free markets advocate and member of the Federalist society felt there were extenuating circumstances and EY staff did in fact confess to the SEC. The EY penalty is disproportionate, at twice the amount of the recent KPMG penalty, and 100 times the amount of the PwC Canada penalty. And now, on to the rest of the past week’s news in Canadian accounting.
No recission for you! Supreme Court commentary comes in quickly
Canadian Accountant was the first to report the big decision by the Supreme Court of Canada in the case of MNP LLP and the Collins Family Trust. Basically, the 8-1 majority decision boils down to this: The CRA can reassess a taxpayer if the government misinterpreted its own tax rule but taxpayers cannot change their tax filings. (That’s the best we could do in one simple sentence.)
But tax accountants and lawyers deal in more nuance and so the commentary is now flowing in. We chose what we thought was the best analysis of the bunch (from Davies). But good contributions have also come from McCarthy Tétrault, Torys, and Clark Wilson, in addition to the Lawyers Daily. The Court has now ruled in multiple cases that you cannot engage in retroactive tax planning. What’s done is done.
Who owes more to the CRA? Canadians or companies?
Apparently Canadians owe more money (between $41.9 and $52.8 billion in personal income tax between 2014 and 2018) to the Canada Revenue Agency than companies (between $23.1 and $36.6 billion over that same period). That’s according to a new analysis of the country’s tax gap conducted by the CRA and reported by the Toronto Star and the Globe and Mail.
Fair warning to investors: cryptocurrency transactions are “on the radar of the CRA.” And as for offshore tax schemes: “In the case of hidden offshore investment income, the report said complex structures are sometimes marketed by professionals as tax schemes that promise to reduce taxes,” according to the Globe.
Economic outlooks: All about the R-word
Mark Carney was in the Globe this week asserting a global recession risk is ‘uncomfortably high,’ but Canada likely to fare better than most other countries. Meanwhile, Deloitte Canada was saying that, while “the dreaded R-word” makes its way back into the conversation with the rise of heightened economic uncertainty and new elements of risk, it doesn’t guarantee a recession.
Deloitte Canada’s latest Economic Outlook, Rising interest rates and inflation to slow growth, anticipates a sharp economic slowdown in the coming quarters. While a recession cannot be ruled out if the Bank of Canada and the Federal Reserve are too aggressive in raising interest rates, the more likely scenario is one where growth weakens but inflation cools only slowly.
Conservatives: Protecting private-sector pensions
Back in 2017, Sears Canada filed for creditor protection after paying out millions to shareholders and executives, at the expense of employees who saw their defined benefit pension plans reduced. While we covered the demise of Sears in a three-part series, the Sears story has become a cautionary tale of how employees can lose their retirement savings when companies are run into the ground.
Some good news has come from the federal Conservatives, however, as their private member’s bill has passed second reading in the House of Commons. Giving employees preferred creditor status is opposed by the banking and pension investment sectors, but Canada compares poorly to both the US and UK, where pension protection plans are in place.
Tax Court: Poker champ gets to keep the whole pot
Is poker a game of chance or a game of skill? If you play poker all the time, are you engaged in a business or in recreation? As Jamie Golombek explained in the Financial Post, the Tax Court of Canada has decided in favour of Quebec poker champion Jonathan Duhamel, won the World Series of Poker Main Event in Las Vegas in 2010, that he cannot be taxed on his winnings by the CRA.
Canada’s stellar unemployment rate is a blessing for banks and the housing market – but no one seems to notice (Globe and Mail)
More Scary Anti-WFH Headlines: Is Remote Work Bad for Your Mental Health? (Going Concern)
The Big Four Continue to Dominate Auditing: Weekly Stat (CFO.com)
How to avoid an awkward surprise – an unexpected tax assessment (Globe and Mail)
By Canadian Accountant staff.