Vanishing Credibility of Financial Reporting

Vanishing Credibility of Financial Reporting

Al Rosen

Government Ministers often complain about the shortage of job-creating investment dollars arriving into Canada. Somehow in their search for explanations they curiously overlook one of the obvious reasons. Canadian laws and inactions from Governments, and those who have been permitted to “self-regulate,” are sending out “negative signals.” Especially concerning is that investors are not being adequately protected in Canada against growing financial tricksters. Hence, many investors decide to by-pass the country. Why? “The safety deck is stacked against” investors, and pension plan managers, for many of the publicly-traded securities.

In having to choose to invest in Canada, versus for example the U.S.A., Canada is years behind in dampening swindler “success” reality. Also, the swings in exchange rate for the currency require consideration. Why take the risks of the increasing biases being decided against investors?; and the favouring of those who seriously “cook the books,” without appropriate investigations and consequences. Neglect and silence from Governments is too commonplace.

Available, plentiful data clearly shows that overall oversight of financial reporting and auditing is minimal in Canada. Yet, individual U.S. investors also do not seem to comprehend that both the financial reporting in Canada, and oversight thereof, is far below what exists in the U.S. Examples of Canadian financial collapses (such as Nortel Networks, Sino-Forest Corporation, Poseidon Concepts and many more) indicate that U.S. Regulators are far more protective of their investors than occurs in Canada. The U.S. has been more and more forced to protect their citizens who foolishly invest in IFRS/Canada.

Such a gap will widen when additional inferior, dangerous IFRS-reporting entities in Canada fail (such as for marijuana and inflated “income” real estate companies). [Further details are available in “Avoiding Swindlers,” a book by Al Rosen, 2022.]

Self-regulating bodies, being protected by Governments, years ago drifted into self-serving policies, with ineffective leadership and oversight policies. Major changes, with higher standards, are long overdue if world-respect, and investment dollars are to be Canadian goals.

The major downturn against investors/pension plans commenced in 1997, as a result of a decision by the Supreme Court of Canada (SCC). In its Hercules Managements’ decision, the SCC in essence ruled that the objectives/purposes of financial statements of public companies was to be heavily restricted to reporting to just existing corporate shareholders. In short, prospective shareholders were cast aside as not being owed several forms of duties of care, should the financial statements have been manipulated, and losses were eventually suffered.

Yet today (25 years later), many investment analysts and stockbrokers still have to base their recommendations on such unreliable, yet often audited, financial statements. Tricksters are thus generally permitted to walk free. Financial analysts are being forced to use management-biased financial data. Thus, many prospective investors fail to realize that they are unprotected against considerable possible trickery (especially much of illogical IFRS reporting).

The strange background of SCC’s 1997 decision is that the Court apparently accepted the arguments raised by lawyers for the external auditors. Even stranger is that for years before 1997, and continued up until today, the external auditors’ “Handbook”/Concepts state that prospective investors are one of the prime users of audited financial statements. A similar 2017 decision of SCC (Livent Entertainment) did not clarify the confused picture of rights of prospective investors. Exactly which rights do prospective investors have today?

Such a major or deep contradiction in responsibilities for bogus financial statements has not been corrected by Canada’s governments, or by the external auditors, over the 25 plus years. Correspondence with governments about the absence of prospective investor protection states that complaints should be directed to “the independent” external auditors’ body. (The use of the word “independent” in Government correspondence shows astounding unawareness of reality. Various lengthy research studies by U.S. groups provides analyses of alleged inappropriate usage of the word “independent” in the context of external auditors.)

Twenty-five years of extensive investor neglect arises partially because Government Minister-level appointments for “Investor Protection” do not appear to exist in Canada. Thus, the country’s reputation increasingly suffers, as?huge losses pile up. Serious corrective changes are just not made.

Meanwhile, far too many investors are somehow accepting the false declarations of the supporters of IFRS, who seem to seek “simplicity,” for their “purposes.” Combining seriously-flawed IFRS along with Canada’s archaic securities laws gives the country a troubling overall undesirable reputation. Pension funds and individual investors have especially good reasons for not leaving unprotected money in publicly-traded Canadian companies. Faked “income/profits” companies eventually collapse. Any doubt can be quickly erased by simply counting failures, and their causation.

Summed up, Governments have to cease procrastinating, and add Ministers of Investor Protection. Misleading data from lobbyists has to be cast aside, and types of thefts from investors assembled. Even on its face level, IFRS’ “illogic” quite obviously has to be labelled for what it really is: “counting chickens before any eggs have been laid.” An IFRS absence of “prohibitions,” means that swindlers have unlimited scope, especially under IFRS and Canada’s archaic laws. Lobbyists’ IFRS claims are not reality, and long ago should have been discarded. Corporate failures, including the marijuana fiascos, are draining any remaining respect for wanting to invest in Canadian companies.