CGI to replace EY with PwC as its next auditor

22 October 2018 Consulting.ca

Montreal-based tech consultancy CGI has chosen Big Four accounting and consulting firm PwC to replace previous auditor EY. The decision flows from the best-practice of periodically rotating auditors, regardless of performance.

CGI announced that its Board of Directors will recommend that PwC perform auditing services for the fiscal year ending Sept. 30, 2019. The recommendation came as the result of the firm’s rigorous selection process supervised by CGI’s Audit and Risk Management Committee. The routine recommendation will likely be confirmed by shareholders at the company’s Annual Meeting in January.

"Ernst & Young have always acted independently and collaboratively. We appreciated their professionalism and contribution over the past several years," said François Boulanger, Executive Vice-President and Chief Financial Officer, CGI. "The recommendation to appoint a new auditor is in line with global best practices to periodically rotate this function, ensuring the continuity of independence and transparency for our shareholders."CGI to replace EY with PwC as its next auditorThis is no skin off the back of EY, who will pick up another large client as corporate giants periodically shuffle auditing chairs between the Big Four oligopoly of Deloitte, KPMG, PwC, and EY. Between them, the Big Four audit over 99% of S&P 500 companies. When other accountancies describe themselves as focusing on the middle-market, it’s because they have little choice – crowded out as they are by the dominance of the Big Four among the largest public clients.

Among the S&P 500, firms stay with a single auditor for an average of 16-23 years, though a number have 100+ year relationships with their Big Four auditor. For example, Deloitte has audited Procter & Gamble and Dow Chemical for over a hundred years; PwC has audited United States Steel for 114 years; KPMG has been with General Electric for 108 years; and EY has audited GATX for over a century.

Meanwhile, the Big Four audit 98% of the FTSE 350 in the UK, a situation which has led Grant Thornton to give up trying to bid on FTSE 350 audits. The UK introduced legislation in 2016 which forces public companies to tender auditing contracts every 10 years and to change auditors every 20 years. The move has led to little change in the monopoly conditions of public company auditing, and has seen British regulators call for a splitting of the Big Four to create audit-only firms.

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Canadian cannabis firms have attractive international opportunities, MNP reports

18 April 2019 Consulting.ca

Accounting and consulting firm MNP has released a report examining the comparative favourability of international cannabis markets.

As the first G7 country to legalize recreational cannabis, Canadian businesses are in an advantageous position to steer the emerging sector. However, Canada’s market is still a small one in the global scale of things. As in the case of other industries like manufacturing or natural resources, Canada’s cannabis firms need to pursue opportunities abroad in order to compete globally and unlock true growth potential.

"Canadian cannabis firms have the financial capital, intellectual capital, human capital, and a supportive policy framework to germinate the seeds of international success," Glenn Fraser, MNP's national cannabis co-leader, said. "Whether opportunities blossom depends on how effectively they leverage those advantages to get in on the ground floor of new markets. The time is now for Canadian cannabis companies to take a leadership role and replicate the Canadian model in new environments."

For now, only Canada and Uruguay have legalized recreational cannabis sales on a national level. However, numerous countries have legalized medical marijuana, and more still are contemplating recreational legalization, encouraged by Canada’s example as well as the changing attitudes of citizens.

MNP, a nationwide accounting and consulting firm with a strong cannabis advisory practice, recently released an illuminating report on the comparative attractiveness of international cannabis markets. The firm analyzed 16 international markets with dynamic cannabis sectors, considering factors like available financing, taxes and fee structures, and policy maturity. Though no markets received top marks across all categories, several still showed great promise.

Financing opportunities

Accessing capital, banking, and financial services can be a challenge in some markets, but remains an important part of market viability and business success. As such, MNP’s report analyzed the relative ease of accessing capital through public or private markets, as well as the availability of banking services.

Israel, Switzerland, Australia, and Malta emerged as the markets with the best financing opportunities. Israel’s cannabis sector, which has seen strong investment from Canadian firms, has also been buoyed by the anticipated legalization of exports. The Israeli market is largely supported by private equity firm iCan, which represent firms from more than 40 countries.

Switzerland’s cannabis market has also seen heavy investment from Canada, while the SIX Swiss Exchange and Bern exchange provide ample access to further capital. Venture capital is also expanding rapidly.

Australia, meanwhile, has the Australian Stock Exchange, which is already home to more than 20 cannabis stocks, including AusCan, Bod Australia, and Atlas Pearls.

Malta has strong access to capital though the Malta Stock exchange, as well as investment from banks. The small island nation has a particularly vibrant emerging medical cannabis sector, which has largely been built from international investment. "If Canadian businesses want to build eminence in new countries, they need to involve themselves in cannabis' continued integration into healthcare," David Danziger, senior vice president, assurance, MNP, said. 

"Companies who are already active in regions with a burgeoning medical market will have a clear advantage – both in terms of brand awareness, infrastructure, and international relationships – if and when those areas transition to recreational legalization," Danziger added.

Colombia, Jamaica, Denmark, Germany, and the UK were tagged as mid-level markets for financing opportunity, while Uruguay, Mexico, Netherlands, Portugal, Italy, Africa, and Asia were on the low-end.

Taxation and fees

Another central factor is the level of taxation and fees, which determine overall profitability, but also cannabis sector viability – set taxes and fees too high, and consumers will flock to the black market instead of buying overpriced legal pot. Uruguay (corporate tax rate 25%), Portugal (21%), and Jamaica (25%) were deemed as having the most favourable tax and fee burdens. Asia also entered the top tier, with China holding a corporate tax rate of 25%, and Thailand carrying a favourable 20% rate.

The UK, Netherlands, Australia, and Mexico were in the middle range, while Colombia, Israel, Switzerland, Malta, Italy, Denmark, Germany, and Africa were in the high-taxation range. All of the countries in the mid and high tier for taxation were hampered by either higher corporate tax rates, value added taxes (usually in 20% range), or a combination of both.

Policy maturity

Colombia, Jamaica, Australia, Malta, and Germany have the most mature and open cannabis policy environments, according to the MNP report. Jamaica is setting itself up as a premier legal cannabis producer, with progressive cannabis laws and dispensaries that allow tourists to purchase medical cannabis.

Colombia is creating a strong export market, with 80 companies producing cannabis products, many with international investment. The sale of dried cannabis for medicinal purposes, is, however, still barred.

Australia has a strong amount of domestic production underway with investment from Canadian firms, and recently permitted cannabis exports. There is also the belief that the government will start reimbursing medical marijuana in the years to come.

Though it has a miniscule population, Malta’s cannabis industry has attracted heavy international investment. The country’s high cost-per-gram paid by patients, as well as its liberal medical cannabis importation policies, make the country an attractive target.

Finally, Germany has perhaps the most advanced medical cannabis market, with its own government agency and costs coverage by the national health plan. The number of insured patients and medical cannabis imports are both on the rise, and some executives believe recreational legalization is on the horizon.

Uruguay, Israel, Italy, the UK, and Mexico were deemed to have mid-level policy favourability, while the Netherlands, Switzerland, Portugal, Denmark, Africa, and Asia had low-end policies. The Netherlands, despite its image as a pot haven of sorts – especially in Amsterdam – is actually just lax on enforcement, as the drug is still federally illegal. Many of the countries on the list have decriminalized personal possession and consumption of marijuana, but its sale and production remains illegal (outside of medical parameters). 

Overall, Jamaica and Australia emerged as perhaps the most attractive cannabis markets, with Australia in the high tier for financing and policy, and mid tier for taxation. Jamaica, meanwhile, has high-tier policy, mid-level financing, and a low-tax environment.

Looking forward, MNP advises Canadian firms to double down on their competitive advantages, while building a strong brand at home as opportunities open up abroad. "It's important for local cannabis companies to consider their areas of expertise and invest heavily in owning that position in the market," Fraser said. "The most valuable international opportunities will go to those companies who have developed a sustainable (and transferable) competitive advantage in conjunction with a recognizable brand in their home market."