The International Accounting Standards Board (IASB) has issued a collection of narrow scope amendments to IFRS. The collection includes amendments to three standards as well as Annual Improvements to IFRS Standards, which addresses non-urgent (but necessary) minor amendments to four standards.

The changes are summarised in this Adviser Alert.

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Christiane Caisse
Senior Manager | CPA, CA, M. Sc. | Financial advisory

Costing improves profitability and is therefore of paramount importance for any business, including service companies. This is particularly true in these times of uncertainty.

Like manufacturing companies, service companies are constantly evolving and will need to arm themselves better than ever to stay the course and consolidate their operations in order to face the uncertainties of the coming months. Managers must have all the information they need to make informed decisions and ensure the company’s financial performance.

By definition, costing is the sum of all expenses needed for producing a good and finalizing a service.

Establishing costs for informed decisions

There are several advantages to knowing and controlling the cost of your services, such as:

• Determining the sales price of services;
• Making informed decisions about contracts (because in negotiations with the client, the manager is better able to understand the available margins);
• Recognizing the difference between profitable and non-profitable services.

In many companies, costing is a neglected management tool, either because of lack of time or lack of knowledge.

As a result, many managers navigate rough waters and cannot rely on costing in the many strategic decisions they must make.

Here are some points indicating that you would need to update or review your costs:

  • You have had to review your priorities because of the pandemic;
  • Your costs were last updated more than a year ago;
  • Significant changes were made within your business;
  • Your range of services has increased and you don’t know how to price your new services;
  • You’re not sure you included all of the relevant costs in your costing;
  • Your profit margin does not reflect the estimated profit margin at the time of a tender.

Calculating costs

To evaluate the cost of a service, you have to understand that it is composed of several elements:

  • Salaries;
  • Subcontracting;
  • Operating costs;
  • Sales expenses;
  • Administration expenses.

When determining your costs, one of the most common pitfalls is to evaluate a resource’s hourly rate based on hours worked rather than taking into account productive hours (vacation and other days off, breaks and training).

For example, if we take an employee with a $25 hourly rate including benefits, this is equivalent to an annual salary with benefits of $52,000 per year. This annual expense, based on the number of productive hours per year ($52,000/1,660 hours in our example), gives us a productive hourly rate of $31.33. It is this rate that should be taken into account when assessing a service contract and not the $25 hourly rate.

When assessing your services, you will be confronted with several traps . One of the most important ones to avoid is postponing the project or waiting for 100% accurate information to determine the cost price. Remember that, like your company, costing is a constantly evolving process.

22 Jun 2020  |  Written by :

Christiane Caisse is your expert in Financial advisory for the Sherbrooke office. Contact her today!

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Flash – February 2019 (updated: June 2020) – ASPE

Retractable or Mandatorily Redeemable Shares Issued in a Tax Planning Arrangement

Section 3856, Financial Instruments, currently provides an exception in paragraph 23 that requires retractable preferred shares issued in a tax planning arrangement under specific sections of the Canadian Income Tax Act (ITA) to be presented as equity and measured at par, stated or assigned value.

Following publication of two Exposure Drafts in 2014 and 2017 and various discussions on the comments received, in December 2018, the Accounting Standards Board of Canada (AcSB) published the definitive amendments to Sections 3856 and 3251, Equity, to amend the balance sheet classification of retractable preferred shares issued in a tax planning arrangement. These amendments will result in significant changes in the accounting for these shares.

Accordingly, some of the preferred shares now classified as equity under the previously described liability classification exception will remain classified as equity if they meet certain conditions. However, we expect many preferred shares will be reclassified as liabilities and measured at their redemption amount.

These amendments are relevant to private enterprises that report under Part II of the CPA Canada Handbook – Accounting and apply ASPE and are applicable for fiscal years beginning on of after January 1, 2021 (in April 2020, the AcSB deferred the application date from 2020 to 2021).

Download the document below.

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Nancy Jalbert
Partner | CPA, CA | Management consulting

With all the rapid changes of the last few weeks, it has become clear that the future of business depends on technology.

When the global COVID-19 crisis emerged, industries suddenly had to find new ways to protect their operations while complying with public health directives.

No one could have foreseen the far-reaching impacts of the pandemic, but the businesses that have successfully pulled through are now better equipped to deal with its consequences. And in many cases, they owe their survival to a digital transformation initiated before the crisis began.

Now more than ever, companies need to strengthen their digital capabilities in order to overcome the challenges triggered by the pandemic and position themselves for a brighter future. Digital transformation plans should be realistic and broken down into phases. They should also take into account the organization’s needs and resources.

Adapting to new consumer habits

When the pandemic forced businesses to close, consumers turned to online shopping for everything from essential goods to entertainment. The situation forced the hand of even the most reluctant consumers and, as a result, e-commerce has skyrocketed 118% in Quebec (source: Adviso).

Even now that businesses are reopening, traditional sales in brick-and-mortar locations aren’t expected to bounce back quickly. Consumers are reluctant and a general sense of insecurity prevails. By the time the crisis is over, a certain proportion of in-store sales may have made a definitive shift to online sales and consumer behaviour may be changed for good. In fact, global retail e-commerce sales are expected to double by 2023 (source: Statista).

Consequently, temporary processes implemented to help businesses continue selling products and services during the crisis will become permanent. But they’ll need to become more efficient.

Aligning processes for better consistency

Digital transformation isn’t just about maintaining and pushing sales. If all corporate data and processes are aligned and connected, it can also improve decision making and optimize each step in the value chain.

But this isn’t new. Our experts were talking about it as early as 2018. Now that social distancing is essential, it makes even more sense to reorganize production lines, add automated systems and include connected robots (which have no physical limitations).

Digitizing the customer journey to create a memorable experience

COVID-19 containment measures have forced many retailers and service providers to turn to digital technology to continue driving sales. Those that had already begun the transition before the pandemic quickly found themselves ahead of the competition. Today, all businesses need to consider the digital user experience, whether they need to build it from scratch or rethink their existing assets. It’s essential for protecting their business continuity in the post-COVID-19 era.

If you haven’t already done so, it’s time to redesign your business model and add digital services. Businesses that can successfully innovate and provide customers with a smooth purchase experience will be able to take advantage of the current situation and increase their market share quickly. The opportunity is there. It’s time to seize it.

Digital Transformation- Technologies - Businesses Optimisation - RCGT

Digitizing operations to reduce reliance on humans

Whether the issue is a pandemic or a labour shortage, relying on human resources for most business processes puts companies at risk. If we rely on people, productivity can plummet or operations may even be forced to halt.

From production to distribution, inventory management, stocktaking and costing, all business processes should be connected and automated. Before the crisis, companies were already embracing this shift in order to gain efficiency and work around labour shortages. COVID-19 has only accentuated and accelerated the need for businesses to hop on the digital bandwagon.

Digitizing supply chains to increase agility

Product shortages, logistical constraints, quarantines, delays, new shipping routes, supplier changes… Businesses are currently facing significant supply chain disruptions as a result of the pandemic. These challenges reveal an opportunity for businesses to review their processes and create a more integrated and robust supply chain for the future. This involves digitizing processes from end to end to achieve better visibility and control of the entire chain. A big-picture view allows you to optimize efficiency across the chain and respond quickly to disruptions.

It’s time to face facts. Sales of household appliances, electronics, building materials and home renovation products have jumped 625% in Canada since the beginning of the pandemic. (source: Statista) If we want to protect local jobs, supply local markets and stimulate the local economy, our homegrown businesses need to embark on a digital transformation journey. If we don’t embrace digital technology, consumers simply look somewhere else. Ease of doing business trumps all.

18 Jun 2020  |  Written by :

Nancy Jalbert is a partner at Raymond Chabot Grant Thornton. She is your expert in strategic and...

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