Armand Capisciolto, FCPA, FCA, is the chair of the Accounting Standards Board. In this interview with The Analyst, Capisciolto talks about accounting standard setting in Canada and the vital role CFA charterholders have contributed to this critical process.  

What does the Accounting Standards Board do in Canada? 

The Accounting Standards Board (AcSB) is an independent body with the authority to establish accounting standards for all Canadian entities outside the public sector. We serve the public interest by setting standards for financial reporting by all Canadian private sector entities and contributing to developing internationally accepted financial reporting standards. 

The analyst community may be more familiar with the International Financial Reporting Standards (IFRS), which public enterprises apply in Canada. While IFRS are set by the International Accounting Standards Board in London, England, we have a seat at the international table during the standard-setting process to ensure the Canadian perspective is heard. 

Equally important are the accounting standards we develop to support private enterprises, not-for-profit organizations, and pension plans in Canada. We are constantly working to enhance the quality of these accounting standards to meet the needs of financial statement users. 

With advanced technology, information about a company can be obtained outside the traditional financial statements. Why should CFA charterholders pay attention to accounting standards? 

Warren Buffet said, “Accounting is the language of business.” Like grammar, punctuation, and other rules, we must learn to communicate in this language, and accounting standards establish common rules for how transactions and other events are recognized, measured, presented, and disclosed in financial statements. As financial professionals, CFA charterholders should know these rules in order to extract relevant and comparable information when reviewing companies’ financial information to arrive at more informed investment decisions. 

While analysts can obtain a company’s non-GAAP (Generally Accepted Accounting Principles) metrics from various sources, they should be aware of some metrics, such as earnings before interest, taxes, depreciation, and amortization (EBTIDA), can vary significantly between different industries or even companies within the same industry. Consequently, analysts may need to reconcile these measures back to GAAP numbers to have an apples-to-apples comparison between companies. This creates inefficiencies. Being the accounting standard-setter, we want to improve the quality of the information used to make capital allocation decisions. To do that, we need investment professionals to tell us what information they value and how that information could be provided to them in an efficient manner.

What contributions have CFA charterholders made in setting accounting standards? 

We are fortunate to have many charterholders actively engaged in the standard-setting process. Two of our board members are CFA charterholders, and they bring the investors’ perspective directly into the standard-setting process. Doing so ensures the final standard provides better information to investors. 

Outside the boardroom, we actively engage financial statement users, many of whom are charterholders, in every stage of our projects. From the beginning of the process, our User Advisory Committee gives feedback on what information they find most useful, which helps us determine our standard-setting priorities. In our consultation phase, financial statement users attend our outreach events to give feedback on whether our proposals clearly articulate the information investors and other users need to make decisions. After the standard is finalized and implemented, users let us know whether the reality meets their expectations and how we can improve it going forward. 

As you can see, user feedback is a crucial ingredient in the standard-setting process. CFA charterholders are actively involved throughout the process and significantly contribute to setting accounting standards. We are very grateful to them.

How can more charterholders get involved in the standard-setting process? 

We are always looking for more representation from our user community. Our User Advisory Committee includes members who are investment professionals, credit granters in financial institutions, equity and credit analysts, and other users of financial information. 

With private equity firms becoming more active in today’s economy, we look forward to connecting with professionals in this sector, given their frequent use of the financial statements of private companies to make investment decisions. In addition, we welcome users to join the Private Enterprise Advisory Committee and Not-for-Profit Advisory Committee to help AcSB with standard-setting for private enterprises and not-for-profit organizations. Their feedback would help us improve our standards for these enterprises in Canada. 

For more information on our events and volunteering opportunities, please check out our website. We are looking forward to connecting and collaborating with you in the future.