PUBLIC ACCOUNTING IN ONTARIO

Prior to the collapse of Enron and Andersen, The Society of Professional Accountants of Canada expressed concern with respect to the following issues, which were made known to the Red Tape Commission in its submission June 21, 2001:

Losses suffered by lenders and investors as a result of apparent malpractice on the part of public accounting firms. The authors of a paper entitled "Accountants' Legal Liability" estimated claims pending against the then six largest U.S. accounting firms at $30 billion. The financial press suggested that Canadian lenders and investors might be suffering comparable losses; the following are examples:
            
             (a)             Law suits against auditors of Principal Investors.
             (b             Law suits by Chrysler Corporation and others against Coopers and Lybrand                                                        as auditors of Castor Holdings.
             (c)             Law suits by National Bank and others against Lipton, Wiseman, Altbaum                                                     and Partners as auditor for the Werner Dahnz group of companies.
             (d)             Law suit by Dr. Michael Kovalik against Touche Ross in respect of biased                                                         investment advice.
             (e)             Numerous suits against the now-bankrupt firm of Laventhol & Horwath.
             (f)             Law suit against Mallette Maheu as auditor and assessor of the bankrupt Les                                             Cooperants insurance group.
             (g)             Class action suit against Deloitte and Touche by a group of 100 investors in                                                 a Mississauga condominium project.

The submission pointed out that the existence of these lawsuits gives rise to concern of the extent of possible professional malpractice; and that indeed, those may be only the tip of the iceberg. It seemed likely the submission continued that there could be many more cases of a nature similar to those above, which have not surfaced since no litigation was involved.

The Professional Oligopoly

The paper continued that in Ontario, the climate for possible malpractice developed alongside a climate of intensifying oligopoly. The apparent malpractice was a direct result of the oligopoly. It was the Board's view that the beneficiaries of the oligopoly may have come to believe that the effect of the regulatory regime is to enhance their own earnings and that this goal could be justified by such practices. The paper pointed out that Canadian lawsuits have all been concentrated in Ontario and Quebec, the provinces with the most restrictive legislation. Media coverage did not published comparable litigation in British Columbia which has the least restrictive legislation or in the Prairie Provinces which, with the exception of Alberta, until recently have had no public accounting regulation.

A series of mergers which have resulted in a situation where a preponderance of all billings for Accounting services were accounted for by six national firms. This concentration has had a significant effect of reducing the incomes of small accounting practices, members of which hold other designations, or undesignated Practitioners. It has an enormous effect in increasing the bargaining power of the oligopolists and increasing the burden of accounting costs on a stagnating economy. The Ernie Eves government is rightfully concerned with the investment climate in Ontario and positive steps are being taken with the appointment of Professor Ronald J. Daniels, BA, LLB, LLM to reform the process and recommend legislative change to protect investors and consumers in Ontario.

The Society of Professional Accountants of Canada (SPAC) granted a Federal Charter under the provisions of Part II of the Canada Corporations Act is a self-governing professional Organization which sets qualifying standards to ensure the professional competence of its members. Members of the Society are authorized to use the designatory letters R.P.A.", which abbreviation represents, Registered Professional Accountant (Comptable Professionnel Enregistre). The Society of Professional Accountants of Ontario (SPAO) represents Ontario members.

The Society welcomes the appointment of Professor Daniels as a positive step and its Representatives look forward to working with him.