Many directors and officers know nothing about the SEC deadline, of June 15, 2011, for foreign private issuers (XBRL.ca, here, says there are 350 in Canada) to meet interactive data reporting requirements (explanation of XBRL, here). I have not been able to develop an opinion on the potential ramifications of XBRL on Canadian governance and compliance risk, or on directors and officers liability, but, change never comes without some costs.
IFRS is for many people a thing of the past. But the repercussions on governance, risk management and D&O insurance have not even started and may not be known for years. The concern of D&O underwriters is the significant increase in reliance on management assumptions and estimates in corporate financial statements. Some accountants are suggesting that the number of notes to the financial statements will jump from 30 to 300. Others have even said that had Nortel been reporting under IFRS the corporate problems would have gone on much longer, and loss to stakeholders would have been much larger. This over disclosure will do far more harm than good, especially to directors. Disclosure and transparency is a good thing. But when it becomes overwhelming for investors, and even for professional analysts, the result will be a more confusing and unreliable financial statements than before our current level of disclosure was mandated. The difference is that the over disclosure will allow more protection for “allegedly” negligent executives, and their outside auditors, accountants, analysts, investment advisors and lawyers, because when a professional liability lawsuit is launched they will be able to point the four words (out of 10,000) in two obscure notes as their get out of jail free card. That escape from liability has a good chance of driving an increase in “risky” behaviour, and it leaves the shareholders, creditors, employees, suppliers, and the directors, holding the bag.
If you would like to receive more information please contact me, Greg Shields, Partner, Mitchell Sandham Insurance Service, firstname.lastname@example.org, or at 416 862-5626.
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