The Grant Thornton International IFRS team has published Insights into IFRS 16 – Lease incentives.

The document Insights into IFRS 16 – Lease incentives provides guidance on the accounting for lease incentives under IFRS 16 Leases from a lessee perspective.

Granting lease incentives is a common way to encourage a new lessee to sign up to a new lease contract and fill vacant premises. Lease incentives may take various forms depending on the negotiation between the lessee and the lessor.

When accounting for lease incentives in accordance with IFRS 16 Leases from a lessee perspective, questions may arise in how to identify a lease incentive and when the accounting treatment changes depending on how the lease incentive is granted.

The document Insights into IFRS 16 – Lease incentives aims to resolve these lessee accounting questions.

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Katy Langlais
Manager | CRHA, MBA | Human resources consulting

The pandemic has forced businesses and workers to be flexible. In these challenging times, there’s nothing more valuable than positive leadership.

Reviewing business models. Forecasting new customer needs. Positioning your business in the market. All this requires a lot of thought and frequent adjustments from senior management. Many entrepreneurs compare the challenge to playing Tetris. You have to be agile in order to fit everything in, without missing any pieces, even when your circumstances are constantly changing. Unpredictability has become the norm.

Meanwhile, everyone is talking about agility. The word pops up everywhere, but what does is it really mean? And how can companies promote it?

What is agility?

The dictionary definition associates agility with nimble dancers and quick thinkers. For businesses, being agile involves continually questioning your work while developing products and services.

In the current climate of uncertainty, business leaders need to anticipate what’s around the corner and stay attuned to changes and cues from within their organizations and the market more broadly. Entrepreneurs need to make quick decisions to help their companies adapt in the face of events and the new reality. Leaders and teams need to find new points of reference and ensure they’re still aligned with the core values of their organization and workforce.

Tracking trends and focusing on development

To protect their long-term prospects, businesses need to keep their eyes and ears open while focusing on major development projects, such as those targeting strategic priorities or with high growth potential. It’s critical to be able to get these projects off the ground quickly. And that’s where the agile approach comes in.

By involving employees early in the ideation and execution phases, managers can effectively mobilize teams and increase their engagement in the company’s activities.

Of course, staying on top of new social trends is also important, as it can help leaders decide how to adjust their product lines and practices. For example, the buy local movement has never had so much traction in government and public discourse. The same can be said of self-sufficiency and sustainable development.

Employees, partners and customers will respond favourably to businesses that successfully adjust their position in response to emerging trends and recent events.

Pairing positive leadership and agility

What’s needed is agile, positive leadership. This means turning stumbling blocks into stepping stones that ultimately lead to business growth and stronger team spirit. It’s a practice that should emanate from all organizations and the managers they employ.

When looking at facts, leaders should take a step back and consider different points of view. Asking employees for their perspectives can help you get a better big-picture understanding of the situation. In addition, a crisis or period of change can be an opportunity for some workers to shine. You never know, they might reveal a rainbow of solutions to cut through the dark clouds cast by the pandemic. Take the time to get your workforce involved and listen to what they have to say. It’s true what they say: together, we’re better.

Slowing down before bouncing back

Practicing positive agility also means knowing when to stop, reconnecting with your business’ values and making sure your decisions are aligned with these principles.

  • Do your words reflect your values? Do you pass your values on to your team on a day-to-day basis?
  • Are your work methods and actions consistent and ethical?

When going after agility, it’s easy to get off track. If you’re not careful, your judgement can become clouded as you rush to act quickly.

In order to stay on course despite the occasional sea change, keep your organization’s mission in mind and remind yourself why you invested so much time into building your business. Now more than ever, the key to staying afloat is to keep your focus on your organization’s brand identity and make sure it’s effectively conveyed to customers and employees. Otherwise, your company’s image could take a hit, leaving scars that last.

Developing positive agility starts with springing into action, spotting opportunities and responding quickly. At the same time, keep in mind that your teams need to move in step with you, with the same drive and skill.

If you’d like to discuss strategies for getting your business back on track, contact our team of experts. We’ll be happy to help you implement effective best practices for today’s turbulent times.


02 Nov 2020  |  Written by :

Katy Langlais is a recruiting and human resources consulting at Raymond Chabot Grant Thornton.

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Marie Cayer
Manager | CPA, CA | Management consulting

Do you think the digital shift only concerns certain industries? Make no mistake: organizations in all sectors can make the most of it.

A 4.0 transformation is essential for your business in order to increase your competitiveness, especially during this pandemic and in the post-pandemic period. Regardless of your industry − retail, construction, services, tourism, bio-food or other − you must adapt to new standards and to a clientele whose needs have changed. Digital and technology will help you meet this evolving demand and to remain competitive.

Let’s take a closer look at what digital transformation can do for you. What are its benefits and, concretely, how can you use it in your market for your business activities.

Competitive advantages for your business

Integrating digital technologies makes it possible to significantly improve all of the organization’s processes, in terms of both operations and the customer experience.

There are numerous benefits to the 4.0 transformation, such as:

  • Reducing your costs by automating activities and improving the flow of information within your organization;
  • Responding to your customers’ needs more quickly and forging stronger ties with them;
  • Increasing your production capacity and product quality;
  • Attracting and retaining talent within your organization through an enhanced technology experience.

Businesses with high digital maturity are 62% more likely than their peers to have experienced strong sales growth over the past three years. In these times of pandemic, the most proactive organizations will have a significant competitive advantage and will therefore benefit from it.

What does a digital shift entail?

This advancement, called “digital transformation”, “4.0 shift” or “industry 4.0”, consists of using new technologies to increase communication between your organization’s various components (individuals, machines, products, suppliers, distributors, etc.).

In other words, it is about optimizing the organization’s processes and services to make it more competitive, through the acquisition, processing, evaluation and interpretation of data.

What can the digital transformation do for you?

Here are tangible examples of the benefits of the 4.0 shift in different activity sectors.

Retail sales

The integration of digital technologies enhances the customer experience by allowing consumers to view inventory status, configure products, evaluate delivery times and track the progress of products.

For example, a clothing retailer could offer its customers the opportunity to integrate a photo of themselves into its online shopping platform so that they can virtually try on certain models, sizes and colours of clothes they are interested in. The customer process could then be automated all the way through to the transaction and shipping.


The customers of a building materials distributor, for example, could have access, via the Web, to all the products that are offered, with an illustration and their various characteristics. Customers could also find out about inventory availability, order and pay for products online, and then track the shipment progress.


Imagine air flights are cancelled due to a snowstorm. Using artificial intelligence tools, a travel agency could automatically identify affected customers, offer them new flights, re-plan their travel itinerary and change their hotel reservation.


By installing sensors on machines, real-time data can be collected and production can be proactively monitored to identify and correct problems. Another application: monitoring production with cameras makes it possible to check product quality and automate the reject process.


Automating farming activities and using data can help increase yields and reduce production costs, among others. For example, there are a growing number of applications for continuously monitoring the growth and health of animals and automatically regulating their diets based on the data collected.

Transformation through a step-by-step process

You have to prepare for a digital shift. It’s best to go gradually, without skipping any steps and by prioritizing projects according to your resources (human, material, technological and financial) and your ability to manage this change.

  • Think about your needs, the processes to be improved and how to stay competitive;
  • Define your strategic objectives;
  • Prepare a complete organizational diagnosis.

This diagnosis is carried out by means of an industry 4.0 audit, which is used to develop a digital action plan to achieve the strategic objectives.

All industries are eligible for financial assistance under the Ministère de l’Économie et de l’Innovation du Québec’s Audit Industrie 4.0 program.

Do you have questions about the digital transformation? Our experts will be more than happy to answer them.

15 Oct 2020  |  Written by :

Marie Cayer is a management consulting expert at Raymond Chabot Grant Thornton. Contact her today!

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Martin Deschênes
Partner | CPA, CA | Financial advisory

Due diligence is an essential step in the process of purchasing a business and there are a number of pandemic-related considerations.

Never in recent history has a global event had such a significant and rapid impact on the M&A landscape.

All established transactional paradigms, such as market-recognized valuation multiples, historical profitability and all other performance measures, need to be reviewed.

Can we continue to evaluate a business on the basis of its financial projections and past profitability when it is hard hit by the turmoil of the COVID-19 pandemic?

  • How will upcoming transactions be structured?
  • Will a larger portion of the purchase price be payable at some future date based on the attainment of certain profitability criteria?
  • Will the use of financial instruments convertible into shares based on certain factors be more frequent?

In any event, the M&A world will, at least in the short and medium term, have to adjust to this highly uncertain environment.

Business opportunities for some buyers

At the same time, this pandemic will also provide opportunities that strategic acquirers and investment funds have been looking forward to.

Such transactions will have to be based on a thorough due diligence review adapted to the current situation.

  • How should due diligence be adjusted for issues such as the ability to meet with management in person, visiting the site and seeing the target company’s operations?
  • What role should seller or buyer/investor due diligence play in determining recurring profitability in the context of a global pandemic?

The “new normal” must be determined. Here are five additional considerations for the buyer/investor or seller.

1. Determination of EBITDA (earnings before interest, taxes, depreciation and amortization)

It’s important to consider pro forma adjustments in order to highlight the business’s recurring profitability and exclude any temporary COVID-19-related impact. In some cases, COVID-19 was advantageous and resulted in increased sales and EBITDA. The seller will have to demonstrate that this is a recurring increase and the buyer will have to ensure that this is the case.

There is no standard formula. Here are some methods for quantifying pro forma adjustments.

Compare the evolution of EBITDA

It is important to compare how EBITDA evolved (considering seasonality) from pre-COVID-19 periods to the COVID-19 era. Performing this analysis by business unit, by product and even by customer will provide greater comfort to the acquirer. Some business units may be more affected by COVID-19 than others. It would therefore be advantageous to isolate these units from the rest of the entity’s activities.

Compare with financial projections

The pro forma adjustment can also be quantified by comparison with the financial projections. Obviously, the buyer/investor will need to ensure that the projections are established carefully and that, in the past, the company’s results have been fairly close to the forecasts made.

Adjust subsidies received

Adjusting the various subsidies provided by different levels of government to support businesses during this period is also useful, including the Canada Emergency Wage Subsidy (CEWS).

Adjust the salary expenditure

The salary expenditure must be adjusted and restored to a standard recurring level. Many companies have made cuts in salaries or laid off employees (temporary adjustment).

Consider ongoing savings related to a reorganization

Ongoing cost savings associated with a reorganization during the pandemic should be taken into consideration. Several companies reacted quickly and put a restructuring plan in place to deal with the situation. In some cases, these restructuring plans have resulted in permanent savings. The pro forma adjustment will therefore have to take this into account.

Obviously, it will be more difficult to justify such an adjustment if the restructuring plan exists on paper only and has not yet been implemented (layoffs, closure of business units historically at a loss, review of the manufacturing process, etc.).

Consider the gross margin loss

The gross margin loss related to the decline in sales should also be noted (see the following section on sales). It is important to properly validate the margin percentage used. The greater the degree of precision, i.e., determined by business unit or by product, the lower the need to question the adjustment.

Assess future supply costs

Future supply costs and their effect on EBITDA must be evaluated (see the section below on suppliers and procurement).

2. Sales

As was the case for EBITDA, it is important to understand the impact of COVID-19 on sales and its effect over time.

Analyze the trend in monthly sales

It is important to analyze the trend in monthly sales prior to COVID-19 by geographic area, business unit and even by customer, and to compare it with sales during the COVID-19 period.

Determine the entity’s position in the supply chain

Knowing where the organization is located in the supply chain can help determine if the impact is still to come.

Analyze the most important customers

Analyzing the most important customers and assessing how COVID-19 impacted them is essential.

Analyze financial projections

Financial projections should be analyzed with an emphasis on the backlog and pipeline and by considering the historical achievement of projections and the success rate of potential sales.

Assess collection issues

Any collection issues must be evaluated, as well as the future impact on sales to the customers in question.

3. Suppliers and procurement

Determining whether there is a dependence on certain suppliers or whether some important suppliers are located in the same region and are therefore likely to be affected at the same time if measures are put in place at the local level is crucial.

Investigate going concern risks

The going concern risks of certain suppliers must be investigated in order to assess the various contingency options.

Assess costs

The effects on cost prices must be assessed.

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4. Working capital

One of the complex components in a transaction is determining a target working capital.

  • What time period should be used?
  • Should projections be considered?
  • Are there any items that should be excluded and included instead in the net debt calculation, such as taxes and customer deposits?

These items are often discussed during negotiations between the parties.

The pandemic is certainly complicating matters. The following additional points should be considered in determining target and closing working capital.

Adjust various items

The various items affected by COVID-19, such as accounts receivable, inventory, and accounts payable and accrued liabilities, must be adjusted. The goal is to recalculate the “normal” level of these items during the months affected by COVID-19.

For example, a historical collection time rate could be considered for accounts receivable or a standard turnaround time for inventory. This avoids penalizing the vendor by using temporarily high working capital items in the calculation.

Do not include potential losses in the target calculation

Be careful not to consider potential losses in the target calculation. For example, if inventory has to be sold below cost, the target should not be changed.

However, when determining working capital at the transaction closing, these items will have to be taken into consideration.

On the closing date, pay special attention to some items

Here are items that require special attention for the buyer/investor on the closing date:

  • Recoverability of accounts receivable without a provision;
  • Sufficient allowance for inventory obsolescence;
  • Occurrence of prepaid expenses;
  • Percentage of completion and appropriate evaluation of work in process.

If there are any doubts about these items, specific clauses should be included in the purchase contract, for example:

  • Adjustment clause after a certain period (normally 120 days) for accounts receivable without a provision at the balance sheet date that are still not collected after the period specified;
  • Clause stating that if inventories likely to be sold at a loss after the balance sheet date are in fact sold at a loss, the purchase price will be adjusted downwards.

It is always advisable to have a balance of sale that specifically protects the buyer against potential price adjustments.

An adequate target working capital that supports attainment of EBITDA for purchase price purposes should be determined. Any temporary impact of COVID-19 should be excluded from this calculation. This ensures that the seller is not penalized with a target working capital that would otherwise be overstated.

In addition to validating the target working capital adjustments, the buyer/investor must ensure that the various working capital items are properly valued at the closing date. If there are any doubts, clauses in the purchase contract should be considered.

5. Other considerations

Guard against insufficient capital investment

In an uncertain environment, an entity may be inclined to reduce capital expenditures or required to suspend them.

Whether it is a question of maintenance or capital expenditures, the buyer/investor must ensure that it properly assesses the consequences on the EBITDA determination or on future cash requirements to address the delay.

One way to guard against insufficient capital investments is to include fixed assets in the working capital calculation (target and closing).

Analyze management’s reaction to the pandemic

It is very worthwhile for a buyer/investor to analyze the management team’s reaction to COVID-19.

  • What plan was put in place?
  • How was staff supported and how were they mobilized?
  • Were difficult decisions made? How quickly?

Consider review or audit engagement options

It is not always possible, for several reasons, to require audited financial statements at the balance sheet date. Given the risk associated with COVID-19, other options should be considered to protect the buyer/investor:

  • Review engagement;
  • Application of specific audit procedures by an independent auditor. Such procedures would focus on risk items, such as:
    • Confirmation of accounts receivable;
    • Physical inventory count tests;
    • Inventory price tests;
    • Sales and purchases cut-off tests.

Consider adding clauses

The buyer/investor should include several items in the purchase contract as a safeguard, especially in uncertain times. Here is a partial list of items to consider in addition to the usual clauses:

  • Be careful of the usual clause stating that the closing financial statements must be prepared on the same basis as the historical financial statements. With COVID-19, this may no longer be possible;
  • Adjustment clauses for the recoverability of certain assets included in working capital;
  • Sufficient balance of sale to cover certain purchase price adjustments;
  • Specific representation on the risk of having to reimburse the CEWS following a government audit;
  • Important changes and cases of force majeure. The standard clause must include specific wording related to COVID-19.

Our team of financial advisory professionals has extensive experience in providing guidance in uncertain times. They also have in-depth corporate financing expertise and privileged access to capital market stakeholders.

Don’t hesitate to contact us today. We will respond promptly so we can work with you to achieve your objectives.

15 Oct 2020  |  Written by :

Martin Deschênes is a partner at Raymond Chabot Grant Thornton. He is your expert in Transaction...

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