www.lexisnexis.ca Vol. 31, No. 2 February 2015
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Two out of three in on merger talks Print This Article
By Jeff Buckstein

July 2011 issue

Kevin Dancey, president and chief executive officer of the Canadian Institute of Chartered Accountants.

The Canadian Institute of Chartered Accountants and Certified Management Accountants of Canada are in discussions that could lead to an historic merger between their two organizations — one that would irrevocably change the Canadian accounting landscape.

However the other major entity on the national accounting landscape, the Certified General Accountants of Canada, was in on the initial merger discussions but is now on the outside looking in. And the two groups still in talks have a different take on how that unfolded than the one put forward by CGA-Canada.

The CICA and CMA Canada have been in merger negotiations before; it happened most recently in 2004 when a completed plan was drawn up and presented to their respective memberships, but it ultimately proved unsuccessful. Unlike those earlier merger discussions, this time the membership is expected to have a major say in the final details of any arrangement, emphasize the participants.

"We thought that rather than spending a lot of time behind closed doors working out a whole bunch of details, this time it would probably be better to go to members early and engage them," says Kevin Dancey, the Toronto-based president and chief executive officer of the CICA. "There are lots of issues affecting this profession. We think it’s important to get members’ viewpoints on what those issues are and take those into account in shaping the way forward."

Members of the 13 CICA provincial and territorial affiliates, along with Bermuda, have until September to comment on the preliminary merger proposal. If there is broad support to continue discussions, the next step will be to shape a concrete proposal to take back to members for their consideration and support, says Dancey.

A similar arrangement has been undertaken with CMA Canada and its affiliates.

CGA-Canada was initially involved in merger discussions, but is now on the sidelines. The leaders of Canada’s major accounting bodies offer conflicting accounts about certain events while CGA-Canada was at the table, starting with how three-way talks began.

Anthony Ariganello, president and chief executive officer of CGA-Canada in Vancouver, says his organization approached the CICA in last February and asked to be invited to the table when they learned the CICA and CMA Canada had begun talks about a potential merger.

"Upon discussions with their board, (the CICA) came back and acknowledged it would be good to at least get together and explore that possibility," Ariganello says.

But both Dancey and CMA Canada president and CEO Joy Thomas, who is based in Mississauga, Ont., insist it was they who approached Ariganello with an invitation.

All agree, however, that several guiding principles were established early on when negotiations commenced at the end of February. Those principles are currently outlined in the CICA-CMA Canada position paper Uniting the Canadian Accounting Profession.

The principles outlined cover: the continued use of existing designations; evolution to a new single core designation — likely Chartered Professional Accountant; the need to focus solely on the Canadian CPA brand early during the transition process; the retention of existing rights, but no granting of new rights solely as a result of the merger; the development of a new certification program; establishment of post-qualification specialties; merged operations and governance of bodies at the national, provincial, and territorial levels; and a uniform regulatory framework, including a nationally consistent public licensing regime.

"After that first week, the CGAs very quickly felt that they needed more clarity around those principals, and wanted to further negotiate other aspects of a merger," says Thomas. "We (the CICA and CMA Canada) were of the opposite opinion — that this time around was an opportunity to not get too far down a negotiation road, but to engage our membership," she says.

Ariganello says the majority of principles in the position paper were acceptable to CGA-Canada, including moving towards a new merged study program, merging operations and corporate governance.

He says the talks broke off in large part because CICA and CMA Canada set out a number of preconditions that CGA-Canada had to agree on before member consultations or full negotiations could commence — conditions with which most of its affiliate organizations were uncomfortable.

For example, Ariganello says there was a pre-condition that CGA-Canada and its affiliates drop their challenge under Canada’s Agreement on Internal Trade (AIT). It involves asking provincial governments to oppose Ontario’s decision to list accounting as an exception under the labour mobility chapter of the AIT. This exception means accountants with public practice rights in another province do not automatically qualify for the same rights in Ontario. 

"We could not do that," Ariganello stresses. "CGA-Canada supports this challenge and has encouraged provincial governments to challenge the mobility issue, and it needs to continue. We repeatedly said ‘this is extremely important for us. One of the key reasons we exist is to protect and preserve the rights of our members.’"

CGA-Canada was the organization that raised the AIT as a condition during talks, says Dancey.

"CGA-Canada felt strongly the AIT process should continue regardless of our organizations being in lead-up discussions to engaging our members in exploratory merger talks. Our view was this would be starkly inconsistent with the purpose and spirit of our discussions. As such, we suggested that ongoing support for the AIT challenges be suspended during the exploratory discussions," he says.

"The CICA and CMA Canada both believed that … we would risk sending mixed messages to our members if we were working with government on AIT challenges," adds Thomas.

Another contentious issue between the bodies involved legacy designations. It was decided there would be mandatory tagging, or aligning of new and old designations, such as CA-CPA; CGA-CPA, or CMA-CPA, alongside newly minted CPAs for approximately a 10-year transition period, although those who wished to retain a legacy designation longer could do so voluntarily.

Mandatory tagging would potentially create different classes of CPAs in the minds of some in the public, and among the members, argues Ariganello. "We thought that could prejudice the rights and opportunities of our members, because there was an opportunity to distinguish between members. And we didn’t feel it was right, particularly when the bodies had merged."

"We were OK with moving to a new chartered professional accountant designation." However, "what’s the point of forcing someone to carry their (old) designation behind their new designation when they’re not branding it anymore?" he asks.

"We’ve really tried to learn from past (merger) attempts, and one of the main issues has always been around the emotion that comes from a legacy designation in this country," Thomas counters. "The bodies’ members are very, very proud of their designations, and worked hard to get them. In a perfect world everyone would become one new name today. But it would not respect the unique strengths of the individual designations," she stresses.

CGA-Canada would prefer voluntary or temporary tagging for a much shorter period of time, perhaps until legislation can be passed to permit use of the new designation in various Canadian jurisdictions. (In Canada, the professions are governed under provincial or territorial law.)

"Once legislation has passed across the country, and once the new program is graduating these CPAs, there will be a point where we will say there’s no longer a need to use both," stresses Thomas. However, with some 40 national, provincial and territorial organizations covering all three major accounting bodies in Canada, it could well take a decade to enact enabling legislative for the new designation in all jurisdictions, she warns.

Another precondition presented to CGA-Canada during early merger negotiations was that they were not to speak of themselves as being equals in any communication, says Ariganello. "We then tried to push the idea of ‘let’s talk about a merger of equal status peers or peers having substantial equivalence.’ This was not agreed to," he adds.

"CGA-Canada suggested referring to the proposed merger as a ‘merger of equals,’ during discussions among the three accounting bodies," acknowledges Dancey. But "we simply did not believe that would be helpful … it will take time to promote the CPA so that it fully represents the best of each brand," he adds.

"Within the governance structures that would be negotiated going forward, there was concern about equal representation," recalls Thomas. "We did say that it would likely be some form of representation based on the numbers and where members were practising," she notes.

Another suggestion during early discussions was that CGA-Canada might have to drop at least one of its international mutual recognition agreements (MRA), says Ariganello. The association currently has four such agreements, with the Association of Chartered Certified Accountants (ACCA) in the United Kingdom, CPA Australia, CPA Ireland, and the Ordre des experts-comptables de France.

"The issue of MRAs was discussed among the three designations," says Dancey. "One of the CGA MRAs generated some attention since the other body involved has been actively lobbying Canadian governments to gain recognition for its designation in Canada. That would make for a very complex situation to deal with while contemplating a merger and future MRAs the new body might enter into. In the end, we never got too far down this road, as CGA-Canada had other concerns," he says.

The bodies were reluctant to publicly identify which of CGA-Canada’s existing MRA agreements was causing potential consternation.

However, one of the CICA/CMA principles appears to specifically protect participating bodies against the threat of losing an existing MRA. Principle number three reads: "No member should automatically acquire or lose rights, such as public accounting licensing rights or rights under any existing mutual recognition agreement, solely as the result of the merger of the two bodies."

Both the CICA and CMA Canada say they would welcome the return of CGAs to merger talks in future should the latter wish to rejoin the discussion table. "We think the concepts we are exploring could apply to CGAs as well, so that door is open," says Dancey.

CGA-Canada is also willing to go back to the negotiating table, says Ariganello, who emphasizes that "we didn’t break off talks. We fully support uniting the profession under one banner, but under the right conditions, or with no preconditions. We stand firmly that it would be beneficial for the profession." But any merger "needs to continue to protect member rights and member privileges, and that was the issue for us."

Moreover, "we felt there wasn’t open discussion. It was more a directed, very one-sided discussion … and it was very difficult to continue to work under that environment. We continuously asked for open dialogue and setting a framework to guide us through the discussions with fundamental principals, and they were not prepared to do so," he says.

Thomas says the discussions were conducted openly.

"The three bodies developed the key elements subsequent to our first meeting, and worked on those. We were brought together to see if we could find some common ground to move this forward as a three-way merger. That didn’t occur, and two bodies went forward," she says.

The public interest would be well served by a merger of the CICA and CMA Canada because it would offer consistent codes of conduct, disciplinary processes, inspection processes, public accounting licensing regimes, and the like, Dancey told The Bottom Line.

Moreover, from a marketing standpoint, "over the last five years, I would estimate the accounting bodies have collectively spent in the area of $100 million on branding and recruitment strategies," notes Thomas. "That’s a significant amount of money. The redeploying of something as simple as the costs of competing against each other would enable us to provide more valuable products and services to the membership going forward."

The proposed merger is also considered advantageous from an international standpoint. "We sit here in Canada as four per cent of global capital markets. We have to make decisions and choices so we can have the most relevance and influence as a member body in a world that’s going global, and we think size matters," emphasizes Dancey.

The global push for international financial reporting standards as well as international auditing standards were also key factors behind the merger. "We have to make sure we are cognizant of what’s going on at the global table, and we participate in that and try to influence those standards as they affect Canadian businesses. By putting our operations together we think we can add more relevance and influence globally," Dancey explains.

Dancey believes the earliest the ongoing merger proposal might be ready is in late autumn. Then if all goes well after further consultation, it might be possible to have a final merger agreement in place in 2012.

Merger talks are part of an international trend. Last month, the American Institute of Certified Public Accountants, based in Washington, and the London based Chartered Institute of Management Accountants agreed to establish a new designation known as the Chartered Global Management Accountant (CGMA).

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