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In profile—Anthony Scilipoti, President & CEO, Veritas Investment Research Corporation and member of the Capital Markets Advisory Committee

IASB Investor Team: Can you tell us about your professional background and what got you interested in financial reporting and analysis?

Anthony: I first had to work with accounting to file taxes for my clothing business back in my late teens. By looking at the accounts, I realized I was able to understand what was going on in my business. Accounting is, after all, the language that we use to communicate about the performance and financial position of a business. While at university, I stumbled onto the accounting profession after I realized that law was not for me. I accepted a role at Arthur Andersen where I spent three years in the owner-managed audit and accounting advisory division where I was able to access the most granular information about a company.

I left to pursue what I felt was the most exciting area of accounting—litigation and expert testimony at a boutique, Rosen & Vettese. I also was teaching accounting at York University. Over 13 years there, I helped design their coursework on financial statement analysis and business valuation and I covered numerous case studies on accounting shenanigans.

From there, I was able to connect with the head of research at a brokerage and we decided to start an independent forensic accounting-based research house. It was the peak of the dot-com bubble. We observed that investors were not looking at accounting and cash flow risks and auditors were more interested in selling their consulting. Veritas Corp emerged in 2000 with a simple mission—to find the truth behind the numbers. I am now the President and CEO at Veritas.

Because I’ve accumulated all this experience in accounting and the analysis of business, and through the litigation and expert testimony work that I have done, the numbers speak to me about a business. It is like I am the baby whisperer of accounting. I have been perfecting this skill every day since I began using accounting in my clothing business when I was a teen.

IASB Investor Team: Can you tell us about your involvement in various committees and some of the contributions you have made to standard setting over the years?

Anthony: It wasn’t enough to have an interest in accounting. I wanted to contribute to standards setting. In 2003, through a mentor and business partner, I was introduced to the Canadian Accounting Standards Board (AcSB). I subsequently joined what was then the Emerging Issue Committee (EIC) of the AcSB, which is akin to the IFRS Interpretations Committee of the IFRS Foundation. This was quite early in my career, and I learned a great deal from the board members at what is now CPA Canada. I was a part of the EIC till 2009 and subsequently, I was appointed to the AcSB. This was again a result of my mentor recommending me for a role at the standard setter.

I am also fortunate to have been involved in the formation and chairing of the Users Advisory Committee (UAC) of Canada, which is the equivalent of the Capital Markets Advisory Committee (CMAC) of the International Accounting Standards Board (IASB) that I sit on now. I helped raise the UAC’s profile by inviting many of my colleagues and peers to the UAC. Another contribution is on the Continuous Disclosures Advisory Committee of the Ontario Securities Commission. I have been on this committee since 2006 and it has allowed me to access and opine on new disclosure regulations before their implementation by listed Canadian companies.

Non-GAAP performance measures have been of great interest to me, and I have pushed regulators and standard setters to introduce reform in the presentation and transparency of such measures. All the effort made in conducting research into Non-GAAP performance measures, publishing our findings, and getting the securities regulators to adopt our recommendations on the presentation and reconciliation of such measures, is finally coming to fruition in Canada and internationally (ie through the management performance measures proposals in the IASB's Primary Financial Statements project).

M&A accounting is another bugbear for me. It is one area of accounting where companies can move a lot of things around to cook the books. Recently in Canada, the securities regulator was proposing reduced disclosures for companies for some business acquisitions, and I pushed hard against the proposal. In terms of the accounting for goodwill, I do not think that it should be amortised because investors will end up adding it back in their analysis, just as they did in the past.

IASB Investor Team: What are some unique aspects of the Canadian equity market both from a sector mix and a financial reporting point of view?

Anthony: Canada is a unique market. The TSX comprises just 4% of the world's total stock market value, yet it depends heavily on the US for trade, security and capital flows. In terms of the index composition, Financial Services make up approximately 30%, natural resources (i.e., energy and minerals) make up another 25%, and the rest is other sectors.

To manage money in Canada, you must know the unique traits of the market. Historically, our market can become enamoured with a single name that dominates the index. For instance, going back to the dot–com period, it was Nortel that made up approximately 33% of the market index (index weightings have since been capped). We were negative on the company and published reports at that time on their problematic accounting. In 2008 the company went bankrupt. Similarly, Yellow Pages, Blackberry and Valeant Pharmaceuticals were all dominant companies that we were negative on, and they eventually collapsed after we published our findings. Our approach for all these companies was to rely on the facts behind the stories. Now we have Shopify, which makes up roughly 8% of the index and it drove the Canadian index in 2020. We have held mixed views on the company’s valuation over time, but have not found accounting issues.

IASB Investor Team: What are some areas of corporate reporting that can be improved and how should standard setters go about making changes?

Anthony: One area where there is significant room for improvement is the presentation of Key Performance Indicators (KPIs). Management keeps tinkering with the way KPIs are presented and there is little transparency into how the metrics have changed and the period over which they have been measured. Often, KPIs are also not comparable across companies in the same sector.

In Canada, we really get to feel the differences between US GAAP and IFRS Standards because American investors benchmark Canadian companies that prepare their accounts using IFRS Standards against American companies that use US GAAP. Take, for example, software development costs—the accounting makes companies in the technology and pharma sectors incomparable. All things being equal, Canadian companies will report higher EBITDA versus that of similar American companies. Likewise, in the case of banks, expected credit losses in IFRS 9 is not comparable with current expected credit losses  under US GAAP. Again, because of the new lease standards, I cannot compare the P&L sub-totals of US companies with those of Canadian companies because of the differences in the respective accounting standards.

If I buy a pair of size 11 shoes in Canada, it is a size 29 in Japan and a size 44 in Europe. Why can't we have the same measure around the world? It is the same with accounting. Without clear knowledge of the differences and proper reconciliations, investors could be less inclined to buy the shares of companies from across the border if the accounting is different. This is a huge problem for Canadian companies and for our clients. 

Our clients tell us that they are not all too happy with the new IFRS Standards, like IFRS 9, IFRS 16, and IFRS 15. They tell us that this is too much change, too much complexity, and not enough comparability (both with US GAAP and across companies that report using IFRS Standards). These Standard changes have resulted in the loss of trend information, which is a critical input for investors. For example, I cannot compare the provisions for banks in the previous crises with those observed in this covid induced crisis. It is the same for revenues, which is literally the starting point of analysis for many investors. Not only have we lost trend information due to the new Standards; it has also become harder to understand the performance on long-term contracts.

I believe that if the Standards are made for users, they should be based on the simpler information needs of users. Don’t obscure the information by adding layers of complexity where companies ultimately do a poor job of providing comparable information. The other issue is that if we cannot find comparability with the US, what is stopping countries that currently use IFRS Standards from making carve outs. The utilities sector in Canada is an example of this and many companies deferred the adoption of IFRS Standards and adopted US GAAP. This was not a great outcome.

IASB Investor Team: What topics deserve attention in the IASB’s 2022–26 work plan?

Anthony: I think sustainability accounting should not be intertwined with GAAP statements. GAAP statements are meant to present corporate profitability and not measure good or responsible corporate behaviour. Just as a not-for-profit entity prepares its accounts using principles set for not-for-profit businesses, GAAP reporting principles should be kept separate from ESG-type reporting principles.

We need to do something about the accounting for cryptocurrencies because what we have today is a mish-mash of requirements that do not do the job for investors. The accountants are not happy with what we have today, and neither are the auditors. We don’t want to delay developing requirements for this because things are moving too fast and there is a risk of the standards being left behind. Something is better than nothing and can be refined through implementation.

I don’t think the IASB should touch intangibles accounting as many are demanding. The accounts should not reflect more assets or liabilities just to make up for the gap between the fair value of equity versus book value of equity. Companies will end up having even more discretion in how these assets are recognised on their balance sheets. Real estate is a great example of how this is already problematic. Investment properties are fair valued under IFRS Standards and there is so much discretion over the values that get reported because the assumptions can be tweaked to arrive at almost any number. We want to stick to the basics of what is spent (ie the cost measurement basis) and provide investors with enough information so that they can make their own assessment of value. It also does not help when the balance sheet is comprised of items that have numerous measurement bases.

IASB Investor Team: We thank Anthony for taking the time to share his views with us and our readers.

Anthony Scilipoti

Anthony and his partners founded Veritas Investment Research in 2000. He is a Fellow Chartered Public Accountant, a Fellow Chartered Accountant, a Certified Public Accountant (Illinois) and a member of the Association of Certified Fraud Examiners. He is a licenced portfolio manager. Anthony also serves as a member of the Ontario Securities Commission's Continuous Disclosure Advisory Committee since 2006.

Read the rest of his biography here.


Spotlight article—2021 Greatest Hits: An update on IASB consultations

2021 has been a busy year for the International Accounting Standards Board (IASB). Several consultations were launched over the year to further the mission of the IFRS Foundation, which is to enhance transparency, accountability and comparability in the financial markets. The year also saw a return to normalcy as IASB members and staff adopted a hybrid working schedule, working both in the office at 7 Westferry Circus and at home. In 2022, we hope to meet our stakeholders at in-person meetings.

In this spotlight article, we summarise some of the past year’s consultations and relate messages from investors and other stakeholders who shared their views with us. As always, we are grateful to the members of the investment community who participated in our events and discussions in 2021.

The Third Agenda Consultation—Setting the agenda of the IASB over 2022–26

In March 2021, the IASB published the Request for Information Third Agenda Consultation. Responses to this Request for Information will help shape the IASB’s thinking when determining how to prioritise its activities and what new projects to add to its work plan for 2022 to 2026. The comment period for the consultation ended on 27 September 2021.

The objective of the consultation was to seek feedback on the strategic direction and balance of IASB’s activities, the criteria the IASB should use for adding projects to its work plan and the priority of financial reporting issues. We briefly discuss each theme and summarise stakeholders’ feedback.

1. The strategic direction and balance of the IASB’s activities.

The below table summarises the IASB's main activities. Feedback suggests the IASB’s strategic direction is about right and that the IASB should consider some minor changes to rebalance its focus.

Strategic direction and balance

Activity Current level of focus Feedback
Research and standard-setting project 40%–45% Decrease or leave unchanged
Maintenance and consistent application of IFRS Standards 15%–20% Increase or leave unchanged
The IFRS for SMEs Standard 5% Leave unchanged
Digital financial reporting 5% Increase
Understandability and accessibility 5% Increase
Stakeholder engagement 20%–25% Leave unchanged

2. Criteria for assessing which financial reporting issues to add to the work plan

The IASB has limited resources and capacity, which means it is important to identify the right criteria for assessing priorities.

The IASB considers seven criteria in deciding whether to add a potential project to its workplan:

  1. The importance of the matter to investors.
  2. Whether there is any deficiency in the way companies report the type of transaction or activity in financial reports.
  3. The type of companies that the matter is likely to affect, including whether the matter is more prevalent in some jurisdictions than others.
  4. How pervasive or acute the matter is likely to be for companies.
  5. The potential project's interaction with other projects on the work plan.
  6. The complexity and feasibility of the potential project and its solutions.
  7. The capacity of the IASB and its stakeholders to make timely progress on the potential project.

Stakeholders generally agreed with the IASB’s proposed criteria for assessing the priority of financial reporting issues.

3. Priority of financial reporting issues

While the IASB is currently working on a few major projects that will continue, the RFI included in its Appendix B a list of 22 potential new projects to help stakeholders in preparing their responses. The IASB is also open to suggestions about other proposed projects when gathering feedback.

Some of the projects suggested most often by investors include:

  • climate-related risks;
  • cryptocurrencies and related transactions;
  • intangible assets;
  • operating segments; and
  • statement of cash flows and related matters.

Detailed feedback analysis was presented at the November 2021 IASB meeting (AP24G).

Next steps

The final output of the agenda consultation will be a summary of the feedback on the RFI and presentation of the IASB’s 2022–2026 work plan.

Business Combinations Under Common Control Discussion Paper

In November 2020, the IASB published the Discussion Paper Business Combinations under Common Control (BCUCC). The Discussion Paper sets out the IASB’s preliminary views on possible reporting requirements that would help companies provide better information about business combinations under common control.

The comment period for the consultation ended on 1 September 2021.

One proposal in the discussion paper is to account for BCUCC transactions using either the acquisition method (as described in IFRS 3 Business Combinations) or a book-value method. The proposal describes the criteria applying each method.

Investors have generally agreed with the proposals. Most investors agree with the IASB’s view that, in principle, the acquisition method should be used if non-controlling shareholders are affected.

Next steps

The IASB will start discussing feedback on the Discussion Paper in December 2021 before deciding whether to develop an exposure draft containing proposals to put in place new requirements.

Rate-regulated Activities Exposure Draft

In January 2021, the IASB published the Exposure Draft Regulatory Assets and Regulatory Liabilities, which sets out proposals that aim to give investors better information about the financial performance of companies with products or services subject to rate regulation.

The consultation’s comment period ended on 30 July 2021. The IASB is considering the feedback on the Exposure Draft in developing the final requirements.

Overall, most stakeholders were of the view that the benefits the proposals would bring to investors would outweigh the costs of implementing the proposals for preparers. Many investors have said that the information currently provided in the financial statements by regulated entities could be improved. They said that a principles-based approach is needed for entities to account for the effects of differences in timing in their financial statements (for a quick recap on the proposal, refer to the press release). Staff gathered feedback from investors on various areas of the Exposure Draft. This feedback was discussed at the October 2021 IASB meeting (AP9-AP9H):

Returns on assets not yet available for use
All investors that staff met with commented on this aspect of the model. Investors generally thought that information about the returns to which a company is entitled during the construction period of an asset is useful to their analysis. A vast majority of investors generally were of the view that returns on construction work in progress should be reflected in the P&L during the construction period. These investors argued for closer alignment with the regulatory agreement and cash flows.

Recognition, measurement and discount rate
Some investors on the IASB’s Capital Markets Advisory Committee expressed concern about volatility that may arise in P&L if companies recognise regulatory assets that are not subsequently recovered. These investors said that the proposals on recognition and measurement would require management to make judgements and that disclosure of those judgments in the notes would be useful. Most of the investors commenting on the measurement proposals agreed with the cash flow-based measurement technique and agreed with using the regulatory interest rate as the discount rate. Most of the investors commenting on the discount rate agreed with the proposal to use the regulatory interest rate as the discount rate. However, these investors did not agree with the proposals for using a minimum interest rate when the regulatory interest rate provided for a regulatory asset is insufficient to compensate an entity for the time value of money and uncertainty arising from the cash flows of the regulatory asset.

The investors who commented on the proposed disclosure requirements agreed with the proposed overall disclosure objective, specific disclosure objectives and disclosure requirements. Some investors commented on the usefulness of specific disclosure requirements such as the proposed breakdown of the regulatory income minus regulatory expense, the maturity analysis of regulatory assets and regulatory liabilities, and the reconciliation from the opening to the closing carrying amounts of regulatory assets and regulatory liabilities.

Next steps

The IASB will discuss its plans for redeliberating the proposals on the Exposure Draft at its December 2021 meeting. The discussions are expected to cover:

  • prioritising the discussion of important aspects of the proposals that raised significant concerns among stakeholders (for example, returns on construction work in progress and scope); and
  • the expected use of the Consultative Group for Rate Regulation.

Other IASB consultations

The consultations covered so far in this article are not the only ones that IASB staff have discussed with investors over the year. Many investors have shared their feedback on the Disclosure Initiative—Targeted Standards-level Review of Disclosures and the Management Commentary projects. We expect the feedback from stakeholders on these consultations to be finalised by IASB staff later and we aim to share with you the feedback from investors on these projects in a future newsletter.

The IASB Investor Team would like to thank all investors who submitted comment letters, responded to surveys, and met with IASB staff to discuss projects.

We need your views

Non-current Liabilities with Covenants

In November 2021, the IASB published the Exposure Draft Non-current Liabilities with Covenants, which proposed amendments to IAS 1 Presentation of Financial Statements. The Exposure Draft seeks feedback on proposed improvements to the information companies provide about long-term liabilities with covenants.

The proposals would specify that covenants with which a company must comply within 12 months after the reporting date would not affect the classification of debt or other liabilities as current or non-current at that date. Instead, a company would:

  • present non-current liabilities that are subject to covenants on its statement of financial position separately from other non-current liabilities; and
  • disclose information about the covenants in the notes to its financial statements, including their nature and whether the company would have complied with them based on its circumstances at the reporting date.

The IASB expects that these proposals would improve the information a company provides about non-current liabilities with covenants by enabling investors to assess the risk that such liabilities could become repayable within 12 months.

The proposals also address feedback from stakeholders about the classification of debt as current or non-current when applying requirements introduced in 2020 that are not yet in effect. Consequently, the IASB is also proposing to defer the effective date of those requirements to align them with the proposed amendments.

For an overview of the Exposure Draft, read the Snapshot.

The IASB invites investors’ views on the Exposure Draft; the deadline for submitting comments is 21 March 2022.

Supplier Finance Arrangements

In November 2021, the IASB published the Exposure Draft Supplier Finance Arrangements. The proposed disclosure-only amendments are intended to complement the requirements in IFRS Accounting Standards that apply to supplier finance arrangements.

The IASB has been informed that the information companies currently provide about supplier finance arrangements falls short of meeting investor information needs.

The proposed amendments would affect a company that, as a buyer, enters into one or more supplier finance arrangements, as described in the proposals, under which the company, or its suppliers, can access financing for amounts the company owes its suppliers.

The IASB is proposing a disclosure objective and requirements that a company disclose information that enables investors to assess the effects of the company’s supplier finance arrangements on its liabilities and cash flows. The IASB’s proposals also highlight the required disclosure of liquidity risk and risk management information arising from supplier finance arrangements and of any non-cash changes in its disclosures about changes in financing liabilities.

The latest Investor Perspectives article by IASB Member Zach Gast explains the IASB proposals and their aims.

We are seeking investors’ views; the comment period for the Exposure Draft ends on 28 March 2022.

Extractive Activities

At its September 2021 meeting, the IASB made tentative decisions about the scope and objectives of its Extractive Activities project. The IASB decided the project will explore improving the information companies provide about their exploration and evaluation expenditure and activities applying IFRS 6 Exploration for and Evaluation of Mineral Resources.

Extractive activities consist of exploring for, evaluating, developing and producing natural resources such as minerals, oil and gas. Such activities are important globally and are particularly significant in some countries. IFRS 6 applies only to exploration and evaluation activities.

Views from investors, reflected in answers to our December 2020 survey, were an important source of information for the IASB and allowed the IASB to make informed decisions about the project’s scope and objectives (see Appendix B of Agenda Paper AP19 to the IASB’s September 2021 meeting).

The next steps for the IASB will be to consider what research would be required to identify the information investors need about exploration and evaluation expenditure and activities, why they do not currently get that information and the costs of providing that information. The IASB will therefore want to hear again from investors on this topic. Watch this space!

Stay up to date

IFRS Foundation announces International Sustainability Standards Board (ISSB), consolidation with CDSB and VRF, and publication of prototype disclosure requirements

As world leaders met in Glasgow for COP26, the Trustees announced three significant developments to provide the global financial markets with high-quality disclosures on climate and other sustainability issues.

  • Read the speech delivered by Trustee Chair Erkki Liikanen at the UN climate-change summit’s Finance Day Presidency event titled ‘A Financial System for Net Zero’.
  • Watch the recording of a live panel discussion from COP26 on this topic, moderated by Clara Barby, CEO of the Impact Management Project. Liikanen was joined on the panel by Richard Samans, CDSB Chair, and Richard Sexton, Co-Chair of the Value Reporting Foundation Board.

Emmanuel Faber appointed to lead the ISSB

The Trustees of the IFRS Foundation announced the appointment of Emmanuel Faber to serve as Chair of the ISSB, effective 1 January 2022.

Sustainability-related reporting—Purpose and progress of the Technical Readiness Working Group (TRWG)

Watch this webcast explaining the role of the TRWG, which was created by the IFRS Foundation’s Trustees in March 2021 to prepare for the creation of the (then) proposed ISSB.

Sustainability-related reporting—TRWG: Recommendations for consideration by the ISSB

Watch this webcast explaining the recommendations from the TRWG to the recently announced ISSB for consideration.

IFRS Foundation announces new and reappointed Trustees

The IFRS Foundation recently announced the appointment of Jorge Familiar and Keiko Tashiro and the re-appointment for a second term of Trustee Chair Erkki Liikanen as well as Trustees Sarah J Al Suhaimi and Dr Suresh P Kana.

IFRS Foundation Trustees announce appointments to the IFRS Advisory Council from 2022

The Trustees have also confirmed the appointment and re-appointment of several organisations and representatives to the IFRS Advisory Council. The appointments take effect from 1 January 2022 for a three-year period.

Speech—IASB Chair Andreas Barckow on connectivity, core work and convergence

Andreas Barckow addressed delegates at the AICPA and CIMA Conference on Current SEC and PCAOB Developments on 7 December in Washington. In his speech, he outlined the IASB’s immediate and future priorities, talked about the growing importance of sustainability issues in financial reporting and shared his views on convergence with the FASB.

Speech—IASB Chair Andreas Barckow on first impressions, intentions and intangibles

Andreas Barckow delivered his inaugural speech at the World Standard-setters Virtual Conference on 27 September 2021. Speaking to delegates from about 70 jurisdictions, he reflected on the first three months of his role and discussed the IASB’s agenda in the coming years. He also shared his thoughts on how the IASB can collaborate more closely with national standard-setters.

Meet the new IASB member—Bertrand Perrin

Bertrand Perrin, from France, joined the IASB in July 2021, filling one of the European seats. In this Q&A, Bertrand talks about his experience as a preparer and what he’s most looking forward to in his new role.

Resources for investors


Investor Perspectives—Disclosures in financial statements to better reflect investor needs

Investors have been calling for better disclosures in financial statements but delivering these proves to be a consistent challenge for companies. To help companies, the IASB has proposed a new approach to developing and drafting disclosure requirements in IFRS Standards. IASB Member Nick Anderson explains the proposed approach and discusses some of the changes that investors would see in the financial statements.

Investor Perspectives: Supplier Finance Arrangements

IASB member Zach Gast explains the IASB's proposed changes in disclosure requirements to improve the transparency of supplier finance arrangements (sometimes referred to as reverse factoring) and their effects on a company’s liabilities and cash flows.

Article—Business Combinations under Common Control to fill a gap in IFRS Standards

Read this article published in the Australian Accounting Review in which IASB Member Ann Tarca explains the IASB’s preliminary views on accounting for business combinations under common control, accounting IFRS Standards do not yet address.


Bitesize webcasts answering FAQs on Exposure Draft Management Commentary

In five bitesize webcasts, technical staff answer frequently asked questions about the IASB’s proposals for a new framework for preparing management commentary.

The first webcast ‘Why and why now?’ sets out the IASB’s aims, which also relate to the recent announcement about the creation of the International Sustainability Standards Board. Other webcasts detail the proposals, for example, explaining why and how the proposed requirements focus on the information needs of investors.

Watch these supplementary videos on various technical projects:

IASB Updates and Podcasts