Intelligence to Run With

Inspire: to spur on, impel, motivate.  Inspiration: the action or power of moving the intellect or emotions - influencing…

Without a doubt every client or opportunity I consider has to inspire me and the vehicle of this inspiration can only be found in the CEO (at my role/level).  It seems absurd to have to remind people that inspiration is a key leadership quality!  The ability to inspire people to achieve great heights of performance is mandatory for running a small tech company. Passion, purpose, listening and meaning help make leaders inspirational and in turn will get me (the rest of the staff, investors, vendors, etc.) to do about anything for the success of the venture.

seems straight forward … what’s with the emphasis on inspiration today?

I’ve been very fortunate to work with some great CEO’s that inspire me but recently I was approached by an opportunity in which the client wanted me to help (a) raise money and (b) then become their part-time CFO.  The idea is interesting and the work would be standard issue but there was something holding me back.  And that something was a lack of inspiration.  If the CEO doesn’t have passion how can I get them funded?  That is the first thing an investor looks for.  Also, when you are completely putting in sweat equity inspiration is the only real currency that gets you to show up every day!  Why should I work my ass off for someone that is lukewarm on their own idea!?!?

Sure there are loads of management books that I could refer to here to support this thesis but it’s something you already inherently know.  Think of this as a reminder.

This CEO is courting some incredible talent in this city to build out her new venture and I’m willing to bet money they will all turn her down because of this lack of inspiration.  I have every intention of telling her that’s why I’m turning it down.  It’s a shame but it’s a lesson that must be learned.

Who knew payroll changes were going to be such a huge hit on this site (#9 in 2009).  So, keeping up with the reference theme here are the changes for 2010:

Per the Canada Revenue Agency (”CRA”) payroll site:

Annual employment insurance to be deducted from employee pay is $747.36 in 2010 (up from $732 in 2009) and the maximum annual canada pension plan amount is $2,163.15 in 2010 (up from $2,119 in 2009).  To be clear, the rate at which these amounts are contributed did not change it was the earnings limits that increased which then increased the amount to contribute.

In the United States, the IRS guidance on employment taxes is:

For 2010, the federal rates did not change: 6.2% for social security, 1.45% for medicare, 0.8% for FUTA (when offset by state unemployment payments - the federal rate is actually 6.2%)

As always, please do not forget the employer portion of these payments - and as I’ve mentioned … perhaps it’s time for payroll services?

You  may have already noticed that your auditors are a bit more perky (chirpy?) about preparing for their 2009 audits.  What you may not know is the reason: effective December 15, 2009 your auditors are being held to a new standard - the Canadian Standards on Quality Control (”CSQC 1“).

Uhm, why do I care?

Fair enough.  This doesn’t really apply to us but it will change:

(a) the tone of your audit engagement - which may increase your fees because they are being more thorough; and (b) the “auditors note” at the beginning of your audited financials will be far more robust.

And, finally, I always believe in promoting a collaborative audit process so understanding where your auditors are coming from (e.g. why do they do the things they do?) is always a good thing.  If you want to know more check out the Canadian Audit Standards here.

A client of mine just met with their auditors in order to prepare for their 2009 audit.  One of the questions the auditors asked was:

are you going to embrace International Financial Reporting Standards (”IFRS“) in 2010 or will you move towards private enterprise GAAP?

As many of you know IFRS is mandatory for Canadian publicly traded companies as of January 1, 2011 (which because of year on year comparisons means they need to adopt IFRS as of January 1, 2010).  But what about private companies?  Private companies must choose between adopting IFRS or what is called Private Enterprise GAAP starting 2011 (Note I did not say Canadian GAAP).

hmmm, what is private enterprise GAAP?

When the Canadian Accounting Standards Board (”AcSB”) decided to move towards international accounting standards they realized that “one size does not fit all” and broke out public company vs. private company options - this is when private enterprise GAAP emerged (which uses the CICA Handbook as its starting point).  Per the AcSB, the key differences between Canadian GAAP today and private enterprise GAAP are in the areas of:

• recognition, measurement and presentation simplification in the following areas:
  

  —	financial instruments;
  —	asset retirement obligations;
  —	employee future benefits;
  —	goodwill and other intangible assets;
  —	income taxes;
  —	stock-based compensation;
  —	subsidiaries;
  —	investments; and
  —	joint ventures;

• required disclosures that are appropriate for private enterprises and meet the needs of users — as a result, the number of required disclosures has been reduced by about half; and
• elimination of EIC Abstracts as they currently exist in the Handbook. (Certain guidance that is important to this sector has been embedded in the standards).

I would highly recommend that you read the private enterprise GAAP guidance in order to fully understand the differences.  As well, because the guidance is out you can adopt private enterprise GAAP for your 2009 audit year if you choose.  Talk to your auditors about the options.

So, what is the best choice?

The choice really depends on who the users of the financial statements are going to be and the cost/benefit analysis (I’ve heard of small private companies paying a minimum of $25K to just get their systems ready for IFRS let alone maintaining it).

For many private companies that are closely held, financed locally and are not planning to access public equity or debt, private enterprise GAAP is probably best.

However, IFRS should be considered if:

• you are thinking about going public;
• your exit strategy involves being acquired by a company that already has adopted IFRS (e.g. publicly traded);
• you have international operations with multiple financing options.

Eventually all private enterprises will move to IFRS so there is consistency in reporting but this is a nice interim step to try to reduce the burden of cost to implement a complete solution.   It should also be noted that there is IFRS for small and medium enterprises but Canada has not adopted that yet for private enterprise.