Ethics Newsline®

Special to Newsline from Canadian correspondent Errol P. Mendes

TORONTO
The chairman of the Ontario Securities Commission (OSC) urged directors of corporations to more closely supervise corporate auditors to ensure that financial statements are not pumped up to meet market expectations.

David Brown asserted that companies are using “creative accounting” to bloat earnings in the short term, thereby endangering the health of the marketplace in the long term.

Increasing fear of disappointing the market and seeing stock prices tank is the motivation for such creative accounting, Brown said.

Brown noted that the OSC has been examining specific instances and that there is a strong likelihood that action would be taken against individual companies. Such action could include halting a company’s trading privileges, issuing a reprimand, or forcing a company to withdraw or amend disclosed financial reports.

The Commission has also established a “continuous disclosure” team that will monitor companies’ regular financial reports. However, Brown emphasized that it is the duty of every board of directors and the boards’ audit committees to ensure that “creative accounting” does not take place.