That’s not surprising – because, as the Fraser Institute notes, nearly three quarters of those debts are not included in the federal and provincial governments’ financial statements. So, Canadians have no clue how bad the country’s true financial situation is.
This lax reporting is spread throughout the system, including public companies, says one expert.
“Investors are being systematically swindled out of large amounts of retirement savings,” says Al Rosen, a forensic accountant and co-author of Easy Prey Investors, a recently-released book that details shortfalls of Canada’s lax reporting standards.
Accounting scandals abound
“Investors mistakenly believe that their pension plans, mutual funds and other investments are safeguarded,” says Rosen. “In fact, they are suffering losses that are monumental, compared to individual publicized scams.”
A key challenge, says Rosen, relates to Canada’s use of International Financial Reporting Standards, which “assign excessive power and choice to corporate management, providing them the ability to inflate corporate profits.”
Rosen cites a range of accounting scandals including Valeant, Nortel and Sino-Forest as examples of Canadian laxness.
(In one famous fraud case, Bre-X, auditors couldn’t be bothered to check if the company’s gold mine, its only major asset, actually existed. External accountants instead essentially relied on a manager’s claim that he had “found gold” in the core samples he presented to a valuation firm, when they signed off on the statements).
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