Thursday, August 14, 2008
Significant "deficiencies" were found in the disclosures made by
one-quarter of 854 companies and issues scrutinized in a review program
that included the way troubled asset-backed commercial paper is valued,
the Canadian Securities Administrators has found.
Industry observers said the focus by regulators on the frozen segment of
the debt market during the fiscal 2008 review is not a surprise, but
questioned whether regulatory standards can be applied to instruments
that are in the midst of a restructuring involving the courts.
"It would seem to me it would be a target issue because of the problems
we've had," said Bill Mackenzie, director of special projects at the
Canadian Coalition for Good Governance in Toronto. "It's a good thing
they're doing that now --it would have been nice a year ago."
The CSA, the umbrella organization for the country's regional
financial-market regulators, said in a report yesterday it conducted 442
full reviews and 412 issue-oriented reviews into ABCP, new accounting
requirements including financial instruments, and mining technical
The CSA said 39% of the reporting issuers reviewed for the fiscal 2008
period were not required to amend disclosure documents or make further
disclosure enhancements. But it said "some reporting issuers had
significant deficiencies" in their disclosure.
Five per cent were referred to enforcement officials, while a
cease-trade order was issued in 1% of the cases, the CSA said.
Nineteen per cent of the issues studied required the refiling of certain
"Many companies are doing a good job? but there is room for
improvement," said Cameron McInnis, chief accountant of the Ontario
He said the review revealed that some companies were not properly
assessing asset-backed commercial paper, the troubled short-term
securities backed by packages of loans including mortgages. The ABCP
market seized up a year ago, when concern rose over the quality of the
debt and the likelihood it could be repaid. ABCP was supposed to be
readily convertible into defined amounts of cash.
Mr. McInnis said some companies continued to value the holdings as
current assets, while others wrote them down but not to the extent
"In some cases, we weren't satisfied with the value they came up with,"
Mr. McInnis said.
Colin Kilgour, who helped create and sell asset-backed commercial paper
until 2006 and is now advising companies on how to value ABCP, said
firms can do little more than guess the worth while a proposed
restructuring of the frozen segment of the market makes it way through
the courts. The restructuring proposal aims to convert the commercial
paper into more palatable longer-term notes.
"It's still pretty much shooting in the dark. Until someone steps up and
says 'I'll buy that,' you don't know," he said, adding that regulators
have little expertise because the non-bank ABCP market was not regulated
"You can't say [companies] are right or wrong compared to anyone else,"
Mr. Kilgour said. "It's easy [for regulators] to throw stones. It's hard
to tell what the right answer is."
Copyright © 2007 CanWest Interactive, a division of CanWest
MediaWorks Publications, Inc.. All rights reserved.