Keeping pace with change: The latest developments in financial - - PowerPoint PPT Presentation

Keeping pace with change: The latest developments in financial reporting for private companies

Financial Reporting Development session for private companies September 30, 2020

agenda

1.

The latest updates and COVID-19 implications on Accounting Standards for Private Enterprises (ASPE)

Adam Rybinski

2.

A Canadian tax update

Ameer Abdulla

3.

Recent developments in transactions and capital markets

Eric Heutschi and Bill Wu

4.

More on return to office: Workforce transformation

Juliet Nicol

Today’s

Presented by

The latest updates and COVID-19 implications

• n Accounting Standards

for Private Enterprises (ASPE)

Adam Rybinski National Professional Practice Leader, EY Private

Agenda

1.

Events after the reporting period

2.

Going concern

3.

Debt classification

4.

Fair value measurement

5.

Financial instruments

6.

Impairment assessment

7.

Onerous contracts

8.

Government assistance

9.

Income taxes

10.

Accounting for rent concessions

11.

Government measures – Canada

12.

Other accounting considerations

• Termination benefits
• Discontinued operations
• Assets held for sale classifications or changes to a plan
• Deferral of upcoming ASPE standards

13.

Other disclosure requirements

14.

Resources

Events after the reporting period

►

As it relates to entities that are affected by COVID-19 or the measures taken by governments, ASPE 3820 Subsequent events makes a distinction between adjusting and non-adjusting events based on whether the event provides evidence of conditions that existed at the reporting date

►

Management will need to apply judgment in critically evaluating what event in the series of events provides evidence of the condition that existed at the reporting date

►

Although the COVID-19 outbreak occurred at a time close to 31 December 2019, for many entities most of the impact on their business operations, assets and liabilities may not have been a direct consequence of outbreak, but a result of the government measures taken to contain it, which may have occurred after the reporting date

Events after the reporting period

► Therefore, for 31 December 2019 year ends we believe that any impact caused by COVID-19 (i.e. impairment of financial and non-financial assets) should be considered a non-adjusting subsequent event and should not be reflected in the 31 December 2019 financial statements ► We also believe that, in most cases, disclosure of such determination should be explained in the financial statements, particularly in cases where the impact of the COVID-19 outbreak will be material ► Additionally, disclosure might be required if it is determined that such non-adjusting subsequent events could cause significant changes to assets or liabilities in the subsequent period or will, or may, have a significant effect on the future operations of the entity

►

Further consideration will need to be given to entities with year ends ending after 15 March 2020 where subsequent events may be more likely to be considered adjusting events

►

The one exception to COVID-19 being considered a non-adjusting subsequent event that teams should be aware of, however, relates to the going concern assessment in which management must take into account all available information about the future which is at least 12 months from the end of the reporting period (refer to Going concern considerations below for more information)

Events after the reporting period (continued)

Going concern considerations

►

Section 1400 General standards of financial statement presentation requires management to make an assessment of an entity’s ability to continue as a going concern

►

When management is aware of material uncertaintiesrelated to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, the entity shall disclose those uncertainties

►

In making their going concern assessment, management takes into account all available information about the future which is at least 12 months from the end of the reporting period; the assessment needs to be performed up to the date on which the financial statements are issued

►

Management will need to consider both the existing and anticipated effects of the outbreak

►

Given the unpredictability of the potential impact, material uncertainties may need to be disclosed

Going concern considerations

►

Management may also need to assess whether significant judgment disclosure is required where it has been determined that material uncertainty does not exist, but the conclusion was subject to significant judgment

The degree of consideration required and required level of disclosure will depend on facts and circumstances in each case, as not all entities will be affected in the same manner and to the same extent Significant judgment and continual updates to assessments up to the date of financial statement issuance may be required given the evolving nature of the outbreak and uncertainties involved

►

For entities affected by the COVID-19 outbreak, management will need to prepare the following information:

Going concern considerations (continued)

► Updated financial forecasts for a period of not less than 12 months after the balance sheet date, when it is determined that management’s previous financial forecasts are not longer reasonable given current circumstances; ► Updated sensitivity analysis; ► Forecast of compliance with banking covenants; and ► Any other information available up to the date the financial statements are issued

Debt classification considerations

►

Instability in the markets and disruptions to cash flows as a result of the impact of the coronavirus may increase the risk of breach

• f financial covenants

►

Entities and engagement teams should consider how such breaches impact the timing of repayment of the related liabilities (for example, it becomes due on demand) and the impact on the classification of such liabilities at the reporting date

►

Where a breach occurs on or before the end of the reporting period and the breach provides the lender with the right to demand repayment within 12 months of the reporting date, the liability should be classified as current unless:

Current and non-current classification of liabilities and covenant breaches

► The creditor has waived, in writing, or subsequently lost, the right to demand payment for more than one year from the end of the reporting period; or ► The debt agreement contains a grace period during which the entity many cure the violation and contractual arrangements have been made that ensure the violation will be cured within the grace period; and ► A violation of the debt covenant giving the creditor the right to demand repayment at a future compliance date within one year of the reporting period is not likely ► Of note: in a situation where a waiver is obtained for a year-end covenant violation, entities will need to ensure that the waiver considers any future covenant violations over that same 12 month period (for example, future quarterly covenant calculations)

►

Consideration of the existence and impact of cross-default provisions within arrangements should be evaluated to determine if additional waivers would be needed

►

As well, entities will need to consider the impact on disclosure of any guarantees provided by the entity to other entities (often part

• f a related group of entities) under AcG-14 Disclosure of guarantees

►

Additionally, violations subsequent to the reporting period could also affect the entity’s ability to continue as a going concern

Current and non-current classification of liabilities and covenant breaches (continued)

Fair value measurement considerations

►

Under ASPE, fair value is defined as the amount of consideration that would be agreed upon in an arm’s length transaction between knowledgeable, willing parties (or market participants) who are under no compulsion to act, taking into consideration the specific facts and circumstances at the reporting date

►

Underlying the definition of FVM is a presumption that an entity is a going concern. Therefore, FVM is not the amount that an entity would receive or pay in a forced transaction, involuntary liquidation, or distress sale

►

Market participant assumptions consider all available information, including information that may be obtained through due diligence efforts

►

Events or transactions occurring after the reporting datemay provide insight into the assumptions used in estimating fair value, however, they are only adjusted for in FVM if:

Principles of fair value measurement (“FVM”)

► They provide additional evidence of conditions that existed at the measurement date; and ► Provide evidence of conditions that were known, or knowable, by market participants

►

For entities with year ends ending after 15 March 2020 (i.e. 2020 calendar year-ends), any assets and liabilities that are measured at FV will have to include evaluation of a market participant’s perspective:

►

Financial markets have seen significant volatility in recent months. Such volatility may be difficult to properly incorporate in a valuation model. However, unless transactions in the marketplace are for non-orderly transactions, they should not be disregarded in their entirety on the basis of the market valuation being temporarily impacted. ASPE requires that valuation is based on the market value as of the valuation date, not a possible future valuation.

What information was available to the market at the reporting date?

► Whether the severityof the outbreak at the reporting date would impact market participants’ valuation assumptions; ► Corroborative or contrary evidence such as the timing and trajectory of observable market price movements of related assets in the relevant markets; and ► Information from other than usual sources of market data, up to the reporting date.

Financial instruments considerations

► Entities may need to amend existing debt agreements or obtain waivers if they no longer satisfy debt covenants, which

management will need to evaluate under Section 3856 Financial instruments to determine if the change represents a:

►

Extinguishment; or

►

Modification

► A transaction between a borrower and lender to replace a debt instrument with another instrument having substantially

different terms is accounted for as an extinguishment of the original financial liability

► A substantial modification of the terms of an existing financial liability or a part of it is accounted for as an extinguishment of

the original financial liability when:

►

The present value of the cash flows under the new terms differs by at least 10% from the present value of the remaining cash flows of the original financial liability, both discounted at the original interest rate;

• r

►

There is a change in the creditor and the original debt is legally discharged by the debtor through a cash payment or

• therwise

Debt restructurings

Current vulnerability due to concentration and liquidity risks

► The deterioration in credit quality of trade receivables as a result of the outbreak will likely have a significant impact on the

determination of the allowance for doubtful accounts

► Entities should exercise judgement and their best efforts to consider all reasonable and supportable information available about past

events and current conditions

► Section 3856 requires that, for each type of risk arising from financial instruments, concentration of risk should be disclosed. ►

Entities that have identified concentrations of activities in areas or industries affected by the outbreak that have not previously disclosed the concentration because they did not believe that the entity was vulnerable to the risk of a near-term severe impact, should now reconsider making such a disclosure

►

Liquidity risk in the current economic environment is increased. Therefore, it is expected that the disclosures required under ASPE 3856 in this area will reflect any changes in the liquidity position as a result of the coronavirus outbreak

Impairment assessment considerations

Impairment assessment considerations

► Section 3856 Financial instruments, Section 3063 Impairment of long-lived assets, Section 3051 Investments and Section 3064

Goodwill and intangible assets require an entity to assess, at each reporting date, whether there are any indicators of impairment for both financial assets, investments and non-financial assets

► When reporting on years ending on or before 31 December 2019 there is no need to consider the effects of COVID-19 for impairment

• f financial and non-financial assets because any potential impact would be considered a non-adjusting subsequent event (refer to

Events after the reporting period above)

►

However, if performing a 31 December 2019 impairment test in light of indicators of impairment other than COVID-19, entities need to be mindful when preparing forecasts that significant events related to the COVID-19 outbreak are not being incorporated in hindsight. However, if these forecasts are expected to change significantly as a result of COVID-19, subsequent events disclosures should be considered

► Given the business and economic impacts of COVID-19 and government response measures in early 2020, entities with year ends

ending after 15 March 2020 (i.e. calendar 2020 year-ends) will have to assess whether indicators of impairment exist such that an impairment test needs to be performed

►

For entities with indicators of impairment, estimates of cash flows should reflect management’s best estimate of the economic conditions that will exist over the remaining useful life of the asset

Impairment assessment considerations (continued)

► Significant challenges can be expected in determining whether the discount rates used and future cash flow forecasts prepared by

management are supported by actual subsequent performance

► Section 3856 requires that the carrying value of a financial asset recorded at cost or amortized cost shall be reduced to the highest of

the following:

►

The present value of the cash flows expected to be generated by holding the asset, discounted using a current market rate of interest appropriate to the asset;

►

The amount that could be realized by selling the asset at the reporting date; and

►

The amount that the entity expects to realize by exercising its right to any collateral

► Additionally, Section 3051 requires that investments accounted for using the cost or equity method shall be reduced to the higher of: ►

The present value of the cash flows expected to be generated from the investment, discounted using a current market rate of interest appropriate to the asset; and

►

The amount that could be realized by selling the asset at the reporting date

► Finally, Section 3063 requires that the carrying value of a non-financial asset be reduced by the amount that it exceeds its fair value,

generally determined on a discounted cash flow basis

Impairment assessment considerations (continued)

► Disclosures

►

Description of the impaired asset, the amount of any allowance for impairment (for financial assets and investments) and the amount of impairment loss included in net income; and

►

Description of the facts and circumstances leading to the impairment (given the potential magnitude of the impact of the COVID-19

• utbreak on entities, this disclosure may be more robust than might otherwise be the case)

► Inventory, goodwill, intangible assets, long-lived assets, financial assets and investments will all need to be assessed for impairment

resulting from COVID-19. From a sequencing perspective, goodwill is assessed and tested last

Onerous contracts

Onerous contracts

► ASPE does not specifically include the notion of an onerous contract. An onerous contract is one in which the costs of fulfilling the

• bligations under the contract are greater than the economic benefits expected to be received under the contract

► Given the significant global disruption caused by the coronavirus, contracts that were previously profitable may now become onerous.

Contracts should be reviewed for:

►

Termination penalty clauses (such as loss of deposits)

►

Special terms that may relieve an entity of its obligations (e.g. force majeure)

►

Non-standardised contract terms

► Entities should consider guidance in Section 3290 Contingencies whereby a contingency is defined as “an existing condition or

situation involving uncertainty as to possible gain or loss that will ultimately be resolved when one or more future events occur or fail to occur.” Contingent losses, in particular, should be accrued in the financial statements by a charge to income when it is likely (ie. the chance of the occurrence of the future event is high) that the future event will occur and the amount of the loss can be reasonably estimated

Onerous contracts (continued)

► Further, given the lack of authoritative guidance in ASPE on onerous contracts, entities may also look to relevant guidance in IFRS, i.e.

IAS 37 Provisions, Contingent Liabilities and Contingent Assets

►

Under IAS 37, unavoidable costs of meeting the obligations under the contract – representing the least net cost of exiting from the contract – should be accrued

►

Least net cost is defined as the lower of the cost of fulfilling the contract and any compensation or penalties arising from failure to fulfil it

► Generally, the expectation of government assistance to be received would not be factored into the assessment of whether a contract is

• nerous given that they are separate transactions. Once we are able to recognize the government grant or assistance in accordance

with Section 3800 Government assistance (refer to Government assistance considerations section below), the amount received would

• ffset the charge to income for the provision only at that point

Government assistance considerations

Government assistance considerations

► Governments have introduced measures to assist entities and individuals. This has taken various forms, making it important to assess

which ASPE standard applies. Judgement may be required:

►

Aid in the form of a cash payment or with non-tax related conditions attached is more likely Section 3800 Government assistance

►

Income tax credits that are forfeited or deferred if there are insufficient taxes payable and has few, if any, non-tax conditions attached is more likely Section 3465 Income taxes (refer to Income taxes considerations below)

► Recognition ►

Government assistance toward current expenses or revenues shall be included in the determination of net income for the period (may be presented net)

► Section 3800 allows for presentation of government assistance to vary depending on the circumstances. The alternatives

available are to show expenses net of assistance, to show the assistance as a deduction from aggregate expenses or as revenue

►

When government assistance relates to expenses of future accounting periods, the amount should be deferred and amortized to income as related expenses are incurred

►

The estimated total of government assistance to be received should be accrued, to the extent there is reasonable assurance that the entity has complied and will continue to comply with the conditions

Government assistance considerations (continued)

►

Government assistance towards the acquisition of fixed assets should be either:

► Deducted from the related fixed assets with any amortization calculated on the net amount; or ► Deferred and amortized to income on the same basis as the related fixed assets are amortized ►

Some government assistance programs provide for a reimbursement of excise or sales taxes related to qualifying capital expenditures or for such things as reduced interest on loans, forgiven realty taxes, reduced lease payments and free technical

• assistance. Such reimbursements are accounted for as a reduction in the cost of the fixed asset or the expenditure incurred,

respectively

►

When an entity becomes entitled to receive a forgivable loan, it shall be accounted for in the same manner as a grant (i.e. government assistance). The appropriate accounting treatment depends on the purpose of the loan as discussed above, but should be recognized as a grant when the entity becomes entitled to received it and not at the time such loans are forgiven

►

Occasionally, an entity might become eligible to receive government assistance in a period subsequent to the occurrence of the event to which the assistance relates. In this case, the assistance is accounted for in the period when the estimate is firstmade

► Disclosure ►

Accounting policy adopted including recognition and presentation

►

Nature and extent of government assistance recognised

►

Unfulfilled conditions and other contingencies attaching to government assistance recognised

Income tax considerations

Income taxes

► As noted in the Government assistance considerations section above, governments have introduced measures to assist entities and

individuals

► Where the government measure impacts income taxes payable or receivable in accordance with Section 3465 Income taxes, such

measures should be considered for accounting when they become substantively enacted

►

Different jurisdictions have different legal processes to enact legislation. Entities will need to assess the government measures for jurisdictions in which they operate in order to determine whether, at the reporting date, such measures were substantively enacted

►

Measures that are enacted or substantively enacted after the reporting date are not considered for current tax and future income tax accounting as of the reporting date

►

Some government measures may be in relation to tax credits. As noted in the Government assistance considerations section above, if such tax credits are forfeited or deferred if there are insufficient taxes payable and have few, if any, non-tax conditions attached, they are more likely in scope of Section 3465 and as such would be considered in the accounting for current and future income taxes (where the measures are substantively enacted).

Income taxes (continued)

► For entities with year ends ending after 15 March 2020 following the future income tax method of accounting for income taxes, when

assessing a future income tax asset for recognition, Section 3465 requires that assets arising from all deductible temporary differences, unused tax losses and income tax reductions be recognized to the extent that the amount is more likely than not to be realized.

►

Entities may be supporting the recognition of a future income tax asset by relying on the reversal of taxable temporary differences; however, depending on the nature of the these differences, an entity may need to reassess whether the differences are still expected to reverse prior to the period any loss carry forwards would expire

►

For entities that are supporting the recognition of a future income tax asset based on tax planning alternatives and/or future projections of taxable earnings, they will need to assess the impact on their future projections of the adverse economic events within the global economy from COVID-19

► Section 3465 requires that entities consider the impact of both favorable and unfavorable evidence on the recognition of future

income tax assets. The weight given to each should be commensurate with the extent that it can be verified objectively. The more unfavorable evidence that exists, the more favorable evidence is necessary and the more difficult it is to support a conclusion that recognition of some or all of the future income tax asset is appropriate. The adverse economic events and uncertainty in the global economic environment may enhance the level of support required for entities to recognize a future income tax asset in these circumstances

Accounting for rent concessions

Accounting for rent concessions

►

The Accounting Standards Board (“AcSB”) has just issued an Exposure Draft to amend Section 3065, Leases, providing accounting relief for lessees and lessors on accounting for rent concessions due to COVID-19

►

Amendments will provide optional relief for both lessees and lessors on accounting for lease modifications that were either received or granted as a result of COVID-19, such that COVID-19 related lease modifications will not have to be accounted for as new leases

►

The optional relief would be limited to only those lease payments:

►

That were originally due on or before 31 December 2021, and

►

Where the total modified lease payments are the same as, or less than the total payments required by the original lease contract

►

Lessors and lessees would continue to account for the lease according to the terms of the original lease contract; however, the modification would be accounted for as follows:

►

For a deferral of lease payments with no changes to the total payments required by the original lease contract, a lessee would recognize a lease payable, and a lessor would recognize a lease receivable, representing the amount of deferred lease payments

►

For a reduction in the total payments required, a lessee and a lessor would recognize the reduction in total lease payments in net income, in the reporting period when the lease payments are reduced

►

This optional relief can be applied on a lease-by-lease basis; retrospective application will be required

►

Additional disclosure requirements:

The fact that an enterprise has used the optional relief;

For a deferral of lease payments, the aggregate carrying amount of lease payables and lease receivables recognized in the reporting period relating to the deferral

For a reduction of lease payments, the total amount recognized in net income for the reporting period relating to the reduced payments

Proposed amendments will be effective for fiscal years ending on or after 31 December 2020, with early adoption permitted

Responses to Exposure Draft are due by 2 October 2020

The AcSB plans to incorporate the amendments into Part II of the Handbook in November 2020

Government measures - Canada

Government measures – Canada

► The Canadian federal government announced a number of measures to help workers and businesses. A summary of the measures

announced can be found here. Certain of these measures impact businesses and as such need to be considered for accounting and financial reporting purposes

► Temporary 10% Wage Subsidy ►

For employers that are eligible to receive this wage subsidy (being certain Canadian-controlled private corporations, as well asnon- profit organizations and registered charities), they will benefit by reducing the required remittances of employee’s income taxes on their employment remuneration. This subsidy equates to 10% of remuneration paid for the period (being 18 March 2020 to 19 June 2020) up to a maximum subsidy of $1,375 per employee and $25,000 per employer

►

As these amounts are based on employee wages and not the entity’s income taxes, this assistance would be accounted for in accordance with Section 3800 (see Government assistance considerations section above)

►

Additionally, this program received Royal Assent on 25 March 2020 and thus accounting for this subsidy would occur from that point on

Government measures – Canada (continued)

►

Canada Emergency Wage Subsidy (CEWS) 1.0

► This subsidy co-exists with the temporary 10% wage subsidy noted on the previous slide and employers of all sizes and across

all sectors of the economy are eligible, with the exception of public sector entities (e.g. municipalities, Crown corporations, public universities) who have suffered a drop of arm’s length revenues of at least 15% in March and 30% in April, May and June. The change in revenues can be calculated by comparing to either the average of January and February 2020 revenue or revenues earned in the same month in the prior year. Additionally, non-profit organizations can choose whether or not to include revenue from government sources as part of the calculation

► The original program covered the 24 week period from 15 March - 29 August 2020 and the subsidy is for [i] the greater of

75% of the amount of remuneration paid, up to a maximum of $847 per week per employee and [ii] the lesser of the amount paid or 75% of the employee’s baseline remuneration, up to a maximum of $847 per week per employee

► Additionally, this subsidy includes a 100% refund for certain employer-paid contributions to EI, CPP, QPP and QPIP. The

refund covers the contributions made by employers for each full week applicable employees are on leave with pay. This measure ensures that the additional cost to employers for keeping employees on is removed

► The program received Royal Assent on 11 April 2020 and thus accounting for this subsidy would occur from that point on.

Consistent with the temporary 10% wage subsidy, as these amounts are based on employee wages and not the entity’s income taxes, this assistance would be accounted for in accordance with Section 3800

Government measures – Canada (continued)

►

CEWS 2.0

► In July 2020, the Canadian federal government extended the CEWS program for a further 12-week period through to 21

November 2020, proposing major changes that will provide a wage subsidy to any employer who has experienced a revenue decline between July 2020 and November 2020 when compared, generally, to the respective prior month in 2019.

► Key elements of the redesigned CEWS are: ► A base subsidy, calculated on a sliding scale that gives more support to businesses with higher rates of revenue decline; ► A top-up subsidy of up to 25% for employers most affected by the COVID-19 crisis; ► A safe harbour rule to ensure that an employer with a revenue decline of 30% or more will receive no less for periods 5 and

6 under the redesigned CEWS program than they would have under the initial design; and

► A separate CEWS rate structure for furloughed employees. ► The filing deadline for claiming the CEWS was also extended from 30 September 2020 to 31 January 2021 ► Further details of the redesigned and extended CEWS 2.0 can be found here

►

Canada Emergency Commercial Rent Assistance (CECRA)

► On 24 April 2020, the federal government announced a new rent assistance program aimed at those with commercial

• properties. This program will lower rent by 75% for eligible small businesses that have been impacted by COVID-19 and is

administered and delivered by the Canada Mortgage and Housing Corporation (CMHC)

► Forgivable loans will be provided to commercial property owners to cover 50% of rent payments due to be made by eligible

small business tenants for the months of April through September 2020. Property owners will cover at least 25% of the remaining 50%, with small business tenant paying no more than 25%

► Loans are forgivable if the property owner holding the mortgage agrees to all the terms and conditions and a rent forgiveness

agreement must be established, including a term that the tenant cannot be evicted while the agreement is in place

► For more information on who is eligible to apply for the CECRA and how the program works, refer to the CMHC website

here There is also a link on that website to alternate programs for tenants who are struggling to pay their portion (or refer here)

► The application process for CECRA opened on May 25, 2020. Accounting for this subsidy would occur from the point that this

program is available and receives Royal Assent

► For commercial property owners, the amounts received represent government assistance and should be accounted for in

accordance with Section 3800 (refer to Government assistance considerations section above). Additionally, the 25% reduction in rent being provided to tenants as part of this program is a lease modification and should be accounted for in accordance with Section 3065 (refer to the earlier slide on accounting for rent concessions)

► For eligible small business tenants, consistent with commercial property owners, given that the terms of the lease are being

modified by the lessor, this program would be accounted for in accordance with Section 3065

Government measures – Canada (continued)

►

Improved access to credit – If loans are provided at off-market interest rates, entities will need to assess whether any government assistance is being provided and account for such assistance in accordance with Section 3800

► For example, interest-free loans received through the Canada Emergency Business Account (CEBA) are a form of government

assistance as they are interest-free for the initial term. The difference between the loan’s initial fair value in accordance with Section 3856 and the proceeds received is government assistance to be recognized in accordance with Section 3800.

► CEBA also provides for loan forgiveness for entities that repay the balance of the loan on or before 31 December 2022 of up to

25% of the loan balance (to a maximum of $10,000), also to be accounted for in accordance with Section 3800

►

Deferred payment of income taxes – For all taxpayers (individuals, trusts and corporations) payment of income taxes owing on or after 18 March 2020 have been deferred until after 30 September 2020. This deferral only applies to income tax balances and instalments owing under Part I of the Income Tax Act. This deferral is not expected to have an impact on the accounting for most entities

►

Deferred remittances of GST/HST and import duties – payments were deferred until 30 June 2020 for GST/HST monthly filers’ remittances of amounts collected for the February to April 2020 reporting periods, for GST/HST quarterly filers’ remittances of amounts collected for the 1 January 2020 through 31 March 2020 reporting period; GST/HST annual filers’ remittances of amounts collected and owing for their previous fiscal year, as well as instalments in respect of their current fiscal year that are due in March, April or May 2020; and payments owing for custom duties and GST on imports for March to May 2020 statements of

• account. This deferral is not expected to have an impact on the accounting for most entities

►

Filing deadline extensions – there are various extended tax filing deadline extensions for individuals, corporations, trusts, charities, non-residents and partnerships. Entities should ensure they refer to the link on the previous page to determine the impact to their organization. These extensions are not expected to have an impact on the accounting for most entities

Government measures – Canada (continued)

Other accounting considerations

► Special and contractual termination benefits ►

Entities that offer special termination benefits to employees for voluntary terminationsshould be recognized as a liability and an expense when employees accept the offer and the amount of the special termination benefits can be reasonably estimated

►

An entity that offers special termination benefits to employees for involuntary terminations should recognized a liability and an expense in the period in which:

► Management having the appropriate authority level approves and commits to the plan; ► The benefit arrangement is communicated to employees in sufficient detail to ensure they understand what is being offered to

them;

► The plan of termination specifically identifies the target level of reduction in the number of employees, the job classifications or

functions and their locations; and

► The period of time to complete the plan of termination indicates that significant changes to the plan are not likely ►

An entity that is required by the existing terms of a benefit plan to provide contractual termination benefits to employees should recognize a liability and an expense when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated

►

An entity should disclose the nature and, if not separately presented on the face of the income statement, the effect of any termination benefits provided in the period

Termination benefits

► Section 3475 Disposal of long-lived assets and discontinued operations defines a discontinued operation as a component of an entity

with operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity that either has been disposed of (by sale, abandonment or spin-off) and:

►

Represents a separate major line of business or geographical area of operations;

►

Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or

►

Is a subsidiary acquired exclusively with a view to resale

► With the coronavirus outbreak, entities with planned closures (i.e. permanent closures of separate lines of business, not government-

mandated closures) should consider whether such provisions are to be recorded and the timing of such recording

►

The results of discontinued operations shall be reported as a separate element of income for both the current and prior periods. A loss should be recognized for any initial or subsequent write-down to fair value less costs to sell. Future losses associated with the

• perations of a discontinued operation are not accrued

Discontinued operations

► Section 3475 Disposal of long-lived assets and discontinued operations requires that a long-lived asset should be classified as held for

sale in the period in which all of the following criteria are met:

►

Management has committed to a plan to sell;

►

The asset is available for immediate sale in present condition;

►

An active program to locate a buyer and other actions required to complete the sale plan have been initiated;

►

The sale is probably and expected to be completed within one year;

►

The asset is being actively marketed for sale at a price that is reasonable in relation to its current FMV; and

►

Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn

► Exceptions exist for the “one year” criterion, including: ►

At the date a plan is committed to, it is reasonable to expect that others (not a buyer) will impose conditions on the transfer that may extend the period required; or

►

An entity obtains a firm commitment and unexpected conditions extend the period required; or

►

During the initial one year period, circumstances arise that previously were considered unlikely and, as a result, the asset is not sold during that period

Assets held for sale classifications or changes to a plan

► Entities will need to consider whether the exceptions as noted above apply to the asset held for sale as it relates to COVID-19 or

whether the criteria are no longer met. Additionally, assets held for sale are to be measured at the lower of its carrying amount and fair value less costs to sell, with the FV potentially being impacted by the impact of COVID-19 for entities with year ends ending after 15 March 2020

►

If a long-lived asset no longer meets the criteria to be classified as held for sale, it should be reclassified as held and used and measured at the lower of the carrying amount before it was classified as held for sale, adjusted for any amortization expense that would have been recognized if had been held and used, and the fair value at the date of the subsequent decision not to sell

Assets held for sale classifications or changes to a plan (continued)

► As a result of the COVID-19 pandemic, the Accounting Standards Board (“AcSB”) deferred the effective dates of recently issued

standards and amendments by one year.

► The AcSB is deferring the effective dates of the following amendments effective for years beginning on or after 1 January 2020, by

• ne year to 1 January 2021:

► Amendments to Section 3051, Investments; ► Amendments to Section 3465, Income Taxes; and ► Amendments to Section 3856, Financial Instruments. ► The AcSB is also deferring the effective dates of the following new standards and amendments, effective for years beginning on or

after 1 January 2021, by one year to 1 January 2022:

► New Section 3041, Agriculture; and ► Amendments to Section 3400, Revenue. ► Early adoption of each of these amendments and new Section 3041 continues to be permitted.

Deferral of upcoming ASPE standards

Other disclosure requirements

► Entities need to consider the magnitude of the disruptions caused by the outbreak and the availability of information in order to

adequately disclose information about those assets and liabilities that are subject to significant measurement uncertainty, and provide users with a better understanding of the financial impact:

►

Where the outbreak may result in obligations or uncertainties previously not recognized or disclosed, entities should consider the need to explain the impact on areas that might include provisions and contingent assets/liabilities;

►

Given the outbreak has added additional risks that the carrying amounts of assets and liabilities may require material adjustments within the next financial year, entities should consider whether additional disclosures are necessary to help users understand the uncertainty and the estimates applied, including, where relevant, a sensitivity of carrying amounts to the assumptions underlying their calculation; and

►

As most entities are only recently impacted by the outbreak, those with year ends ending after15 March 2020 may need to include more comprehensive disclosure than what they have historically provided

Disclosures regarding measurement uncertainty

Resources

EY Tax Alerts

EY Tax Alert 2020-15: Canada’s Economic Response Plan

EY Tax Alert 2020-20: Federal Economic Response Plan: Additional tax measures and guidance

EY Tax Alert 2020-24: Federal wage subsidy program

EY Tax Alert 2020-25: Federal Economic Response Plan: Additional filing deadline extensions

EY Tax Alert 2020-26: CERB and Canada Work-Sharing Program update

EY Tax Alert 2020-27: Canada announces deferral of customs duties and import GST payments

EY Tax Alert 2020-28: Canada Emergency Wage Subsidy: Update

EY Tax Alert 2020-29: Canada Emergency Wage Subsidy: Further update

EY Tax Alert 2020-30: Canada Emergency Wage Subsidy legislation receives Royal Assent – COVID-19

EY Tax Alert 2020-31: Canada updates the CERB – COVID-19

EY Tax Alert 2020-34: Eligibility for the Canada Emergency Wage Subsidy extended – COVID-19

EY Tax Alert 2020-41: Federal government delivers its 2020 Economic and Fiscal Snapshot

EY Tax Alert 2020-42: Redesign and extension of the Canada Emergency Wage Subsidy (CEWS 2.0)

EY Applying IFRS (Updated July 2020): Accounting for COVID-19 related rent concessions

EY Applying IFRS (Updated July 2020): Accounting considerations of the coronavirus pandemic

EY Applying IFRS (February 2020): IFRS accounting considerations of the coronavirus outbreak

►

EY Technical Line – US GAAP (July 2020): Revenue recognition considerations for the effects of the COVID-19 pandemic

EY Technical Line – US GAAP (June 2020): Accounting for rent concessions related to the COVID-19 pandemic under ASC 840

►

EY Technical Line – US GAAP (June 2020): Accounting and reporting considerations for the effects of the coronavirus outbreak

EY Technical Line – US GAAP (March 2020): Accounting for impairment of goodwill and indefinite-lived intangible assets due to the coronavirus

►

EY Technical Line – US GAAP (March 2020): Accounting considerations related to recent declines in oil and gas prices

►

CPA Canada: COVID-19 External Auditing and Reporting Resources

►

Government of Canada: Canada’s COVID-19 Economic Response Plan

Resources

Have questions? We are here to help.

Today’s presenters Ontario EY Private assurance contacts:

Adam Rybinski

National Professional Practice leader, EY Private Toronto Adam.Rybinski@ca.ey.com

Stephen McIntyre Partner, Assurance Stephen.McIntyre@ca.ey.com

Ottawa

Deanna Monaghan Partner, Assurance Deanna.J.Monaghan@ca.ey.com Suzie Gignac Partner, Assurance Suzie.R.Gignac@ca.ey.com

Southwestern Ontario

David Fabian Partner, Assurance David.Fabian@ca.ey.com

Toronto

Elizabeth Maccabe Partner, Assurance Elizabeth.Maccabe@ca.ey.com Warren Granger Partner, Assurance Warren.Granger@ca.ey.com Andrea Feddema Partner, Assurance Andrea.C.Feddema@ca.ey.com Mario Piccinin Partner, Assurance Mario.Piccinin@ca.ey.com Joseph Stuart Associate Partner, Assurance Joseph.Stuart@ca.ey.com Richard Beeny Associate Partner, Assurance Richard.Beeny@ca.ey.com Marcello Chimenti Associate Partner, Assurance Marcello.Chimenti@ca.ey.com Aaron Chousky Partner, Assurance Aaron.Chousky@ca.ey.com Rahul Parasnis Associate Partner, Assurance Rahul.Parasnis@ca.ey.com Keith Robbins Associate Partner, Assurance Keith.B.Robbins@ca.ey.com Rachel Rodrigues Partner, Assurance Rachel.Rodrigues@ca.ey.com Ruthie Simpson Associate Partner, Assurance Ruthie.Simpson@ca.ey.com Jeffrey Tannenbaum Partner, Assurance Jeffrey.Tannenbaum@ca.ey.com Greg Tugg Partner, Assurance Greg.Tugg@ca.ey.com Christopher Young Partner, Assurance Christopher.Young@ca.ey.com

Presented by

A Canadian tax update

Ameer Abdulla Associate Partner, Tax, EY Private

• COVID-19 Economic Response Plan update
• Tax filing and payment due dates
• Summary of selected active programs
• Canada Emergency Wage Subsidy
• Planning considerations resulting from

COVID-19

►

Income tax payment due dates (Individual, corporate, and trust income tax)

► Payments of 2019 income tax and 2020 instalments further extended from September 1, 2020 to

September 30, 2020.

► No penalties and interest charged if payments are made by the extended deadline of September

30, 2020. Includes the late-filing penalty as long as the return is filed by September 30, 2020.

►

Filing deadline for individual, corporate, and trust income tax returns

►

September 1, 2020.

► Late-filing penalties will not be charged if payments are made and the return is filed by September

30, 2020

►

Filing deadline for charities with Form T3010

► December 31, 2020

Tax dues dates and considerations

►

Interest waived on existing tax debts

► Individual, corporate, and trust income tax returns from April 1, 2020, to September 30, 2020 ► Measure has no impact on penalties and interest already assessed on a taxpayer’s account prior to

this period. Purpose solely to ensures taxpayer’s existing tax debt does not continue to grow.

Tax dues dates and considerations

►

Canada Emergency Business Account (CEBA)

►

Business Credit Availability Program (BCAP)

►

Canada Emergency Wage Subsidy (CEWS)

Summary of Active Programs

►

Canada Emergency Business Account – Extended to October 31, 2020

► Interest-free loans of up to $40,000 to small business and not-for-profits ► Repayment on or before December 31, 2022 will result in loan forgiveness of up to 25% (up to a

maximum forgiveness of $10,000)

► Implemented by banks and credits unions

Active Programs – Canada Emergency Business Account (CEBA)

►

Business Credit Availability Program – Extended to June 2021

► Loan Guarantee for Small and Medium-Sized Enterprises

►

Available through banks and credit unions

►

Co-Lending Program for Small and Medium-Sized Enterprises

►

Available through banks and credit units

► Mid-Market Financing Program

►

Available through the BDC

Active Programs – Business Credit Availability Program (BCAP)

►

CEWS 2.0 - Added Three More Periods for a total of 9, 28 day periods

►

Last period is October 25, 2020 – November 21, 2020

►

Filing Deadline for CEWS claims extended from September 30, 2020 to January 31, 2021

►

Key Changes

►

Fixed revenue reduction threshold of 30% or more eliminated for Periods 5 to 9. All eligible employers experiencing any decline in revenue will qualify for some level of CEWS support.

►

Fixed 75% subsidy rate eliminated in favour of a sliding scale to determine the subsidy rate. The greater the revenue decline, the greater the subsidy rate.

►

Maximum CEWS claims will decrease in later periods

Canada Emergency Wage Subsidy (CEWS) - CEWS 2.0 Updates

►

CEWS 1.0 - PERIODS – March 15 to July 4 (Four Periods)

►

THRESHOLD – At least 30% drop in “Qualifying Revenue”

►

Comparison

►

Current month to same calendar month in 2019

►

Current calendar month to average January/February 2020

►

AMOUNT – 75% of employee’s wage ($58,700 max annual salary/wage/fees/commissions)

►

Up to a maximum benefit of $847/week.

►

No overall limit on number of employees that can be covered.

►

ADDITIONAL AMOUNT – Employer’s EI/CCP/QPP/QPIP Premiums/Contributions for Employees on full-time leave with pay

CEWS 1.0 – quick refresher

►

CEWS 2.0 - PERIODS – July 5 to November 21 (Five Periods)

►

THRESHOLD – Any drop in “Qualifying Revenue”

►

Comparison – Same as CEWS 1.0

►

Current month to same calendar month in 2019

►

Current calendar month to average January/February 2020

►

AMOUNT – “Base %” + “Top-Up %” x employee’s salary/wage/fees/commissions

►

Max “Eligible Remuneration” : $1,129/wk per employee

►

No overall limit for Total Subsidy for Eligible Employer

►

ADDITIONAL AMOUNT – Employer’s EI/CCP/QPP/QPIP Premiums/Contributions for Employees on full-time leave with pay

►

UNLESS Employer’s Base % and Top-Up % = 0% or less (i.e. Employer’s returned to year-over- year growth)

CEWS 2.0 – quick refresher

Qualifying Period (4- Wks) Current Reference Period Prior Reference Period Qualifying Revenue Threshold 1 Mar 15 – Apr 11 March 2020 March 2019 or Jan/Feb 2020 15% or more CEWS 1.0 2 Apr 12 – May 9 April 2020 April 2019 or Jan/Feb 2020 30% or more 3 May 10 – June 6 May 2020 May 2019 or Jan/Feb 2020 30% or more 4 June 7 – July 4 June 2020 June 2019 or Jan/Feb 2020 30% or more 5 July 5 – Aug 1 July 2020 July 2019 or Jan/Feb 2020 n/a CEWS 2.0 6 Aug 2 – Aug 29 Aug 2020 Aug 2019 or Jan/Feb 2020 n/a 7 Aug 30 – Sep 26 Sept 2020 Sept 2019 or Jan/Feb 2020 n/a 8 Sep 27 – Oct 2 Oct 2020 Oct 2019 or Jan/Feb 2020 n/a 9 Oct 25 – Nov 21 Nov 2020 Nov 2019 or Jan/Feb 202 n/a

CEWS 2.0 – quick refresher

►

CEWS 2.0 claim amount has two components that are added together:

►

Base Percentage

►

Calculated on a sliding scale - gives more support to those employers with higher rates of revenue

►

Employers with Qualifying Revenue drop of 50% or less

►

Compare Current Qualifying Revenue to Prior Year Qualifying Revenue

►

Top-Up Percentage

►

Up to 25% additional subsidy for employers with qualifying revenue drop of more than 50%

►

Compare Prior 3-month Current Year Qualifying Revenue to Prior 3-month 2019 Qualifying Revenue

CEWS 2.0 – quick refresher

►

Base Percentage – Employers with Qualifying Revenue drop of 50% or less

►

“Revenue Reduction Percentage”

►

1 – A/B

►

A = Qualifying Revenue for Current Reference Period

►

B = Qualifying Revenue for

Prior Reference Period, or Avg Jan/Feb 2020, Or Period Prescribed by Regulation

CEWS 2.0 – quick refresher

►

Top-Up Percentage – Employers with Qualifying Revenue drop of more than 50%

►

“Top-Up Revenue Reduction Percentage”

►

1 – A/B

►

A = Average Monthly Qualifying Revenue for Last Three Calendar Months

►

B = Average Monthly Qualifying Revenue for:

Prior Year Last Three Calendar Months ending prior to Current Reference Period, or Avg Jan/Feb 2020

CEWS 2.0 – quick refresher

► Helpful information and FAQs available through EY Tax Alerts and Canada Revenue Agency (CRA) ►

FAQs are updated regularly so review before submitting new claims

►

Elections

►

Qualifying Revenue: Employer can choose accrual method, or cash method.

►

Election is applicable for all nine periods of the program.

►

Qualifying Revenue : Various elections for consolidated, affiliate or related group calculations

►

Reference period – Employer can choose the prior reference period, current calendar month to same calendar month in 2019 or current calendar month to average January/February 2020.

►

Election made twice, 1st half CEWS 1.0 and 2nd half CEWS 2.0.

► Each CEWS application is required to be allocated to component payroll (RP) accounts ► Each CEWS application requires an attestation (RC661) to be prepared and signed

CEWS 2.0 – quick tips

► Ensure employees are eligible and meet the 14 day remuneration condition (for CEWS 1.0). ►

Employer should interpolate payroll information to align with CRA’s template, rather than manipulating CRA’s template to agree to their payroll information.

►

Employers required to report employment income paid to employees during CEWS periods on their T4 using boxes 57 58, 59, 60

► Ensure accurate records maintained for furloughed employees for the CPP, EI and QPIP paid ► Keep complete and detailed calculation and notes for all claims submitted. This should assist with

addressing CRA questions if the company is audited.

►

See sample CEWS audit request letter and checklist in the appendix

CEWS 2.0 – quick tips

►

10% Temporary Wage Subsidy for Employers (“TWS”)

►

Three month period — March 18, 2020 to June 19, 2020

►

Three month period Amount - subsidy equal to 10% of the remuneration paid from March 18 to June 19, 2020, up to $1,375 for each eligible employee.

►

The maximum total is $25,000 for each eligible employer.

►

Payment method — Must be calculated manually; reduce payroll remittance by amount of subsidy (no application required)

►

An eligible employer that did not reduced payroll remittances during the year, can still calculate the TWS on remuneration paid during the identified period and submit the application form(s) at the end of the year. Submit Form PD27, 10% Temporary Wage Subsidy Self-Identification Form for Employers

►

An eligible employer that is eligible for the CEWS, must adjust their CEWS claim for the TWS they are deemed to receive or submit Form PD27 and elect to claim $0 of the TWS and claim the full CEWS amount

Other Economic Measures

► Acceleration of loss utilization – triggering taxation year-end to carry-back 2020 losses to prior

years

►

Loss utilization strategy within corporate group – used when some entities in the corporate group are profitable and other have non-capital losses

► Creditor proofing – distribution of certain cash on a tax deferred basis ► Estate Freeze – opportunity if there is a lower value ascribed to the company ►

Accessing foreign affiliate cash – surplus calculations

►

Pulling out surplus cash at lower tax rates – staying in front of possible tax rate increases

Planning considerations resulting from COVID-19

Have questions? We are here to help.

Today’s presenters Ontario EY Private tax contacts:

Ameer Abdulla

Associate Partner, Tax, EY Private Waterloo Ameer.Abdulla@ca.ey.com

Chris Jerome Partner, Tax Chris.Jerome@ca.ey.com

Ottawa

Tim Rollins Partner, Tax Tim.Rollins@ca.ey.com David Steinberg Partner, Tax David.A.Steinberg@ca.ey.com

Toronto

John Sliskovic Partner, Tax John.Sliskovic@ca.ey.com Ian Sherman Partner, Tax Ian.M.Sherman@ca.ey.com Gabriel Baron Partner, Tax Gabriel.Baron@ca.ey.com Ken Kyriacou Partner, Tax Ken.Kyriacou@ca.ey.com Neil Moore Partner, Tax Neil.Moore@ca.ey.com

Southwestern Ontario

Presented by

Recent developments in transactions and capital markets

Eric Heutschi Manager, Strategy and Transactions Bill Wu Capital Markets Advisory leader

Ontario - # of Announced Deals by Month

54 43 59 48 54 58 52 51 38 47 44 22 29 43 40 36 10 20 30 40 50 60 70 Jan Feb Mar Apr May Jun Jul Aug 2019 2020

M&A Activity Has Resumed

The Losers and Winners of COVID-19

Losers

88 48 2019 2020

Industrials

34 18 2019 2020

Consumer Discretionary

53 37 2019 2020

Financials

Winners

19 21 2019 2020

Consumer Staples

28 27 2019 2020

Communication Services

73 54 2019 2020

Information Technology

M&A Outlook: Catalysts and Uncertainties Remain

M&A Catalysts M&A Uncertainties

Wave of Succession Low Interest Rates Supply: Demand: Record PE Dry Power Strong Valuations COVID 2nd Wave Border Closures Societal Changes Political Landscape Stressed / Distressed

Canadian economy snapshot

• 60
• 40
• 20

►

Per the federal fiscal snapshot published in July 2020, the government expects the Canadian economy to shrink by 6.8% in 2020, before recovering by 5.5% in 2021.

►

From a peak unemployment rate of 13.7% in May 2020, it has steadily declined to 10.2% in August

►

GDP rebounded modestly at 4.5% in May and continued it upward recover into the 3rd quarter and forecasted growth to taper off in the Q4-2020 and remain consistent for fiscal 2021

►

Retail sales up 23.7% in June and 1.3% above pre-COVID levels (February 2020)

Bond issuance and long-term rates

Canadian benchmark bond yields

Source: Bloomberg

Canadian bond issuances, 2013 to 2020 (YTD)

Canadian bond issuances, August 2018 to August 2020

• No. of issues

• No. of issues

• No. of issues

• No. of issues

S&P Canada bond yield index

Loan issuance

►

Loan issuance remains subdued, however there is activity

►

Looking to the US market, secondary market pricing has rebounded for leverage loans, but remains below pre-COVID levels Canadian loan issuances, 2013 to 2020 (YTD)

• No. of issues

• No. of issues

• No. of issues

• No. of issues

Canadian loan issuances, August 2018 to August 2020

Source: Loanconnector

S&P/LSTA U.S. Leveraged Loan 100 Index

US Leverage Loan Issuance Volume ($bn)

Leverage multiples vs LTM default rate by principal outstanding

►

Not surprisingly leverage multiples are down due to COVID-19 and the last twelve months (“LTM”) default rate by principal

• utstanding has increased to 4.1% from Pre-COVID levels late 2019 and early 2020 of less than 2% (December 2019 was

1.4%)

Historical LBO Leverage Levels

LTM Default Rate by Principal Outstanding

What we’re seeing…

Last Few Years COVID-19

• 1 to 2 financial covenants
• Higher leverage
• Cash flow lending
• Grid pricing

3 to 4 financial covenants

►

Lower leverage

►

Collateral

►

Higher pricing

►

Less reporting

►

Frequent reporting Senior debt 60 - 65% Subordinated debt / mezzanine 10% - 15% Equity 20% - 30% Senior debt 50% Subordinated debt / mezzanine < 5% Equity >45% Characteristics Capital Structure

Private Debt market

► Institutional investors (pension funds, family offices) have invested billions of dollars into private credit market. ► Private debt market was $42.4 billion in 2000 and grown to $776 billion by 2018 and estimated to top $1 trillium in

2020.

► 56% of private companies in North America are in private debt and 25% in Europe and 13% in Asia

Why private debt so popular?

► As banks globally become more regulated, and tighten of capital evident (i.e. strict lending guidelines), companies can

look to private debt options for future capital needs, particularly in the mid market

► Why consider private debt lenders

►

Existing bank giving less favourable credit terms post COVID-19

►

Credit structuring more flexible and creative,

►

More dynamic, can fund quicker

►

Longer term thinking

• f Canadian Securitie

• m sector analy

The top three priorities for Canadian companies post-pandemic EY Canadian Capital Confidence Barometer

Reshaping Results

Keeping employees safe, keeping business open and securing enough liquidity to survive and conduct portfolio reviews, take decisive action, create a plan to reshape the results and implement a focused growth strategy

Supply Chain Reinvention

Look closer to home for suppliers, seek alternative suppliers in multiple jurisdictions, move from linear supply chains to networked value chains that are data- driven and can react to events and make changes in real time

Digital Transformation

The shutdown of nearly all brick-and- mortar retail channels should remind everyone

• f the importance of an e-commerce

strategy and a work-from-home strategy, which have accelerated IT infrastructure projects

1 2 3

Have questions? We are here to help.

Today’s presenters Ontario Strategy & Transactions team:

Eric Heutschi

Manager, Strategy & Transactions Waterloo Eric.Heutschi@ca.ey.com

Bill Wu

Capital Markets Advisory leader Toronto Bill.Wu@ca.ey.com

Greg Adams Senior Vice President, Strategy & Transactions Greg.J.Adams@ca.ey.com

Ottawa

Kevin Casey Senior Vice President, Strategy & Transactions Kevin.J.Casey@ca.ey.com Chris Hutchinson Senior Vice President, Strategy & Transactions Chris.Hutchinson@ca.ey.com

Toronto

Andrew Schaefer Senior Vice President, Strategy & Transactions Andrew.Schaefer@ca.ey.com Gus Tertigas Senior Vice President, Strategy & Transactions Gus.Tertigas@ca.ey.com

Southwestern Ontario

Presented by

The new hybrid workforce model

Juliet Nicol Partner, Workforce Advisory

In a completely changed landscape, are you fostering effective leadership, culture, diversity and inclusion in this new way of working?

Embrace a hybrid workforce to enable business and employee resiliency

Rapidly changing business models are forcing workforce changes Traditional Workforce approaches hamstring ability to compete Hybrid workforces allow us to rethink our workforce strategy

Source: Gartner, Inc. “Embrace a Hybrid Workforce to Enable Business Resiliency and Cost Savings”

Work On-Site Work Interchangeably Work Remote

Ability to “Flow Through”: Employees and managers have the expectation to be able to switch locations and schedules dynamically where it makes the most sense to drive both productivity and engagement. Shared Ownership: Organizations need to break down long held beliefs and potential myths about where and how work gets done most effectively. Managers must trust employees to be effective and productive while employees need to be flexible and comfortable being mobile.

The Hybrid Model: Adaptive and Interchangeable COVID-19 has dramatically changed our ways of working. With many changes here to stay, organizations have needed to address short-term people concerns while considering the impact it will have on their future culture.

Key considerations of a hybrid workforce model

How can we set a new hybrid work model with greater degrees

• f remote and flexible work

empowered by technology? How do we improve the employee experience, accelerating organizational agility and reducing costs?

• 1. Real estate footprint

Employers are planning moderate to extensive changes in real-estate

74%

• 6. Flexibility and wellbeing

policies

Employers are planning moderate and extensive change to remote work strategies with associated policy changes

78%

• 5. Remote work enablement & tech

Employers are looking for better digital tools to enable a mix of onsite and remote work

79%

• 4. Workforce planning and analytics

Employers are looking to change how they measure productivity of work

49%

• 3. Learning and culture

Employers are looking at moderate to extensive change in learning and skills

75%

• 2. Business travel and mobility

Employers expect to make either moderate

• r extensive changes to

business travel and mobility

74%

EY research highlights six major “resets” in key areas of the work experience: Three big challenges

• rganizations face as they

integrate their workforce in a hybrid model:

2 1 3

How are we maintaining

• rganizational values

and culture in a hybrid workforce? How will our leaders be enabled to lead through these transformations? How do we foster inclusivity across all segments of the workforce model?

Help optimize the hybrid work experience

As workforces adjust and adapt to working in new ways, organizations should focus on the holistic employee experience, regardless of where they work. New strategies, policies and technology are needed to help optimize hybrid working models.

ME

The individual experience: How do I focus and fit work into my life now? How I think, feel, learn, change, grow, with each wave of change

WE

The relational experience: How do we work together?

HERE

The working environment: How/where do we operate? Who we work with, how we connect and team, who we serve, what we’re about, how we make decisions How we protect people, our tools and technology, courageous leadership, how we work, how we handle information

Work On-Site Work Interchangeably Work Remote

Leading and working well in an ambiguous, virtual working world

Anchoring on core values and supporting a transformative culture and leadership can help

To foster the resiliency of your organization and truly unleash the potential of your workforce, you must first ensure that your organization is anchored by its values (its “north star”) and that those values are lived through your organizational culture and embodied by your leadership team.

How do we keep people focused, connected, motivated and productive within a hybrid workforce model? How do we sense and respond to how our people are feeling through the crisis? How do we help our leaders to lead through this crisis within a hybrid workforce model? How do you transform your culture to unleash the full potential of your workforce? Foster resilience and innovation in your culture

2

Anchor on organizational values

1

Equip your leaders to be transformative

3

Exemplify organizational values

Let organizational values influence decision-making

Support your leadership teams

►

Understand your culture

►

Foster transparency

Be a resilient and innovative leader

Provide a vision and direction

Take the time to understand

►

Show up as an authentic leader

Making decisions in the reimagined workplace

Adopt a Future-Back approach

• Be ambitious and decide on a

vision for the future

• Being deliberate and working

backwards from a well-motivated desired case is more likely to ensure you make the right investments in culture, technology, skills, and process change

Don’t apply a ‘one size fits all’ approach

• While the lockdown has meant

that all roles had to be remote, it doesn’t mean they should be

• Activity analysis by job family or

critical role is key to understanding the viability of remote work

Don’t confuse flexible and remote work Make it about work not remote work Don’t rely (too much) on aggregate surveys

• Pulse surveys are useful indicators
• f broad employee thinking, or to

gauge aggregate appetite for

• ptions for planning purposes, but

there is no short cut to understanding individual employee circumstances and preferences

Use data

• The last few months have been a

forced experiment in remote work and the underlying data we have all created during this time can be analysed using sociometric methods to understand what has and has not changed compared to pre-lock down data

Promote diversity

• Deliberate about how you want

to work going forward, not just where people will work

• Determine what best facilitates

your future operating model

• Remote work is about location but

flexible work goes further to include scheduling, responsibilities, hours, and contracts

• Remote work should be viewed as

the key to long term organizational savings, increases in productivity and improved attractiveness to and wellbeing of employees

• Teams that consider the options,

analyse the data and make the decisions should be as diverse as possible to avoid the bias that comes from different work and home circumstances and lock- down experiences.

Have questions? We are here to help.

Today’s presenter Ontario People Advisory Services team

Juliet Nicol

Partner, Workforce Advisory Ottawa Juliet.Nicol@ca.ey.com

Richard Skippon Partner, Workforce Advisory Richard.Skippon@ca.ey.com

Questions?

Appendix

Sample CEWS audit request letter and checklist

PROTECTED B September 11, 2020 _____________ Dear ___________: Subject: Audit of your Canadian Emergency Wage Subsidy claims Following our telephone conversation on September 10, 2020, this is to confirm that we are commencing the audit of the Canadian Emergency Wage Subsidy (CEWS) received by ____________ for the above-referenced periods. In accordance with subsection 231.1(1) of the Income Tax Act (ITA), we will require access to the various documents listed in the attached CEWS – Appendix A to initial contact letter for the purpose of administering and enforcing the ITA rules in the context of this audit. As discussed, given the unusual nature of the wage subsidy program, the CRA is commencing audits earlier than it normally would. We anticipate that this approach will assist both taxpayers and the CRA in locating and providing requested documentation as well as explanations of approaches taken in the CEWS application. This is a limited scope audit which we anticipate could be completed, provided that requested documentation is made available in a timely manner. In this regard, we refer you to the attached CEWS – Appendix B to initial contact letter which describes procedures for information requests throughout the audit process. I would like to take this opportunity to direct you to My Business Account and Represent a Client, which, in addition to facilitating electronic documents transfer for the purposes

• f this audit, allow you to view and control many other services such as filing a return or

election, and authorizing or managing representatives who can submit records on your

• behalf. For more details or to register for My Business Account, go to canada.ca/my-

cra-business-account. Also, to find out more about the audit process, please refer to CRA pamphlet RC4188 “What you should know about audits” which can be found at canada.ca/forms and publications.

PROTECTED B Page 2 of 9 Should you have any questions, please do not hesitate to contact me at _________. You can also reach my team leader, _____________. Sincerely, ______________ Audit Division Tax Services Office: 61 - Toronto East Website: canada.ca/revenue-agency Attachments: Appendix A and B

PROTECTED B Page 3 of 9

Appendix A

Required Books and Records

Please ensure the following documents, with reference to the Canada Emergency Wage Subsidy (CEWS) reporting periods March 15, 2020 to August 29, 2020 are available for our review by September 28, 2020. If you anticipate delays in providing these documents, please contact the auditor to discuss the reason(s) for delay. You have the option of sending the documents through the Submit documents service which is located in the My Business Account (MyBA) and Represent a Client (RAC) portals. Submit documents is a secure online service that allows registrants to send their information to the CRA electronically. If you choose to submit the information electronically, please reference case # ______ in order for your transmission to be successful. For more information, please go to canada.ca/cra-submit-documents-online. If you have difficulty setting up the MyBA or RAC, please contact ___________. Please provide the information requested below: 1. Documents from the minute books of ____________, which include the following: a) Any excerpts of governance documents included in the corporate minute book as they relate to the CEWS claim. b) Various agreements including partnership agreements, banking resolutions and directors’ resolutions that demonstrate the decision-making process and approvals for making a CEWS claim. c) Shareholder register d) A list of the entities and businesses within the corporate group that includes their names, the type of entity and their business number: i. Corporations ii. Exempt entities pursuant to paragraphs 149(1)(e),(j), (k) or (l) of the Income Tax Act (ITA) iii. Trusts iv. Partnerships v. Joint ventures vi. Registered charities vii. Public institutions viii. Prescribed corporations e) Did the type and status of the entities change from the 2019 taxation year? i. Are there any newly incorporated or amalgamated entities? If yes, provide the information listed in Items #2 and #3 below. ii. Were any of the entities recently wound up or dissolved? If so, provide details of this windup or dissolution including the information requested in #2 and #3 below with respect to the related entities. f) Agreements with respect of inter-company loans/advances g) Agreements with respect to employee loans.

PROTECTED B Page 4 of 9 2. Revenues in respect of the 2019 taxation year: a) General ledger data for 2019 b) Year-end trial balance c) Monthly trial balances d) Revenues:

• i. Monthly sales reports that break down sales by revenue type and

source

• ii. Sales journals
• iii. Cash receipts journals
• iv. Bank statements
• v. Adjusting entries that affect monthly and year end revenues
• vi. A reconciliation of revenues from monthly revenue reports to trial

balances

• vii. A reconciliation of revenues from trial balances to year-end financial

statements

• viii. Working papers detailing how qualifying revenues were determined

3. Revenues in respect of the 2020 taxation year: a) Monthly general ledger data for 2020 b) Monthly trial balances c) Revenues:

• i. Monthly sales reports that break down sales by revenue type and source
• ii. Sales journals
• iii. Cash receipts journals
• iv. Bank statements
• v. Adjusting entries that affect monthly and year-end revenues
• vi. A reconciliation of revenues from monthly revenue reports to trial

balances

• vii. A reconciliation of revenues from trial balances to year-end financial

statements

• viii. Working papers detailing how qualifying revenues were determined

4. Revenue information for purposes of computing the CEWS revenue decline percentages: a) Provide detailed working papers substantiating your computation of qualifying revenue for the:

• i. Current reference period
• ii. Prior reference period.

b) Provide your revenue recognition policy for all items included in revenues. c) If the entity has deferred revenues, holdbacks, unearned revenues, please provide a copy of the revenue recognition policy for these items. d) Provide a brief description of your normal business activities. e) Provide a summary of:

• i. The source of revenues
• ii. Revenues by geographic location (Canadian vs foreign jurisdictions).

f) Provide supporting information with respect to qualifying periods that were deemed pursuant to subsection 125.7(9) of the ITA to meet the revenue decline test because they met the revenue decline test for the prior qualifying period.

PROTECTED B Page 5 of 9 5. General payroll information a) Payroll journal

• i. Detailed version: Gross, CPP, EI, QPP, QPIP, Tax, Net
• 1. By pay period
• 2. By employee
• 3. Including SIN
• ii. For CEWS claim periods: March 15, 2020 to present
• iii. For baseline remuneration period:
• 1. 2020 – January 1 to March 15
• r
• 2. 2019 – March 1 to May 31 (*new option for employers)
• iv. Working papers reconciling payroll data to lines A to C on the CEWS

application. b) Manual calculation data that aligns irregular pay periods with weekly periods for purposes of CEWS

• i. Provide a copy of the manual calculation data
• ii. If not available, we will require the following detailed pay

information.

• 1. If employees are paid hourly, provide their time sheets in
• rder to determine how much was paid on which day.
• 2. If the employees are salaried, provide what days of the week

they worked. Is it Monday to Friday, a four-day work week, (and if so, which days they worked), etc. c) List of Furloughed employees and dates

• i. Including the CPP, EI, QPP, QPIP, breakdown used to fill in Lines D

and E on the application.

• ii. If your payroll cycle does not align with the CEWS for the claim

periods, provide a manual calculation to reflect the remuneration paid in respect of that claim d) Employment contracts

• i. Include employee S.I.N #s

e) Bank statements

• i. Provide bank statements for all CEWS periods as well as the baseline

remuneration period. f) Proof of payment to employees

• i. Provide the following:
• 1. Bank statements
• 2. Disbursement journals if employees were paid in cash
• 3. Any additional documents that will demonstrate that the

employee was paid. 6. Information relating to other subsidies and other government programs that impact the CEWS claim. a) 10% Temporary Wage Subsidy

PROTECTED B Page 6 of 9

• i. Supporting documentation related to amounts claimed for the 10%

Temporary Wage Subsidy

• 1. Provide a working paper or reconciliation to the amount

claimed on the CEWS application. b) Work-sharing amounts

• i. Supporting documentation related to amounts claimed under

Employment and Social Development Canada’s Work-Sharing Benefit program.

• 1. Provide a working paper or reconciliation to the amount

claimed on the CEWS application. 7. Please provide a signed copy of the Attestation filed with your application for the periods covered in this letter. The form can also be found at https://www.canada.ca/en/revenue-agency/services/forms- publications/forms/rc661.html 8. If you are utilizing an exception or making an election with respect to CEWS, please provide the following information for the exceptions/elections that you filed: a) If a group of eligible entities normally prepares consolidated financial statements and each member of the group has determined its revenue separately on a non- consolidated basis pursuant to paragraph 125.7(4)(a) of the ITA, then provide the following information:

• i. Provide the information referred to in items #2 and #3 above for the

eligible entity

• ii. If revenues include revenues that were earned in a foreign jurisdiction,

provide a reconciliation to show how you arrived at revenues that arose in Canada. b) If an eligible entity and each member of an affiliated group of eligible entities

• f

which the eligible entity is a member jointly elect to use a consolidated basis for determining qualifying revenues pursuant to paragraph 125.7(4)(b) of the ITA, then provide the following information:

• i. The names and business account numbers for the eligible entities in

the consolidated group.

• ii. Detailed financial statements for the prior reference period
• iii. Canadian consolidated financial statements for the prior reference

period

• iv. Consolidation workbook by Canadian legal entities for the prior

reference period

• v. Group reporting package including supporting schedules/commentary
• vi. Eliminating entries that tie into the consolidation workbook
• vii. If consolidated revenues include revenues that were earned in a

foreign jurisdiction, provide a reconciliation to show how you arrived at revenues that arose in Canada

• viii. For 2020, provide the monthly consolidating trial balances for each

entity

• ix. For 2020, provide the monthly consolidating workbook
• x. For 2020, provide any adjusting and eliminating entries

PROTECTED B Page 7 of 9

• xi. Provide detailed working papers that show the computation of

qualifying revenues for both the current and prior reference periods. c) If an election under paragraph 125.7(4)(c) of the ITA was made by an eligible entity in respect of a joint venture, then provide the following information:

• i. The names and business account numbers for the eligible entities in

the consolidated group

• ii. The financial statements of those entities
• iii. Provide the information referred to in items #2 and #3 above for the

eligible entity

• iv. If the joint venture’s revenues include revenues that were earned in a

foreign jurisdiction, provide a reconciliation to show how you arrived at revenues that arose in Canada. d) If a joint election was made by the eligible entity with each person or partnership with whom it does not deal at arm's length and from whom the employer earns all

• r substantially all of its qualifying revenue under paragraph 125.7(4)(d) of the

ITA (non-arm’s length revenue) then provide the following: i. The names and business account numbers for the eligible entities in the consolidated group ii. The financial statements of those entities iii. Provide the information referred to in items #2 and #3 above for the eligible entity iv. If revenues include revenues that were earned in a foreign jurisdiction, provide a reconciliation to show how you arrived at revenues that arose in Canada. v. Working papers detailing how qualifying revenues were computed for those entities e) If an election under paragraph 125.7(4)(e) of the ITA (cash method) was made, provide the following information: i. A copy of your revenue recognition policies. ii. Provide the information referred to in items #2 and #3 above for the eligible entity iii. If consolidated revenues include revenues that were earned in a foreign jurisdiction, provide a reconciliation to show how you arrived at revenues that arose in Canada iv. Working papers detailing how qualifying revenues were computed for those entities f) If an election under subparagraph (b)(ii) of the definition "prior reference period" in subsection 125.7(1) of the ITA (prior reference period election) was made, please provide i. An explanation why this method was selected ii. If this method was selected because the entity did not exist prior to March 1, 2019, provide incorporation documents or documents validating the formation of the eligible entity

PROTECTED B Page 8 of 9 iii. Provide the information referred to in items #1 and #2 above, except reference to the 2019 year in #2 above will read as January and February 2020. g) If an election under subparagraph (a)(ii) or (b)(ii) of the definition "qualifying revenue" in subsection 125.7(1) of the ITA (election by registered charity or not- for-profit to exclude government funding) was made, please provide i. A working paper reconciling revenues in the general ledger to qualifying revenues ii. Provide supporting information with respect to the government funding that is being excluded from revenues. 9. Remuneration - Exclusions a) Provide a list of any employees who were not receiving eligible remuneration for 14 or more days in a qualifying period. b) Provide a list of any employees who are independent contractors with respect to a qualifying period. c) Provide a list of employees who were not dealing at arm’s length with the eligible entity during the qualifying period. d) Provide a list of employees that are also employed by an entity that is related to

__________ and indicate whether any of these employees have been claimed by both entities. e) Provide a summary of severance payments and retiring allowances paid to employee(s) during the each qualifying period. f) Provide a summary of employees receiving stock option benefits and details of those benefits for each qualifying period. g) Provide a list of non-resident employees and the weeks they worked in Canada for the following periods: i. January 1, 2020 to March 15, 2020

• r

ii. March 1, 2019 to May 31, 2019 and iii. during the qualifying period. h) Provide a list of amounts that were repaid (or are expected to be repaid) to the eligible entity, person or partnership not dealing at arm’s-length with the eligible entity.

• 10. Qualifying Revenue - Exclusions, please provide a breakdown of these items:

a) Extraordinary items b) Revenues from non-resident related parties c) Revenues from non-arm’s length persons d) Government subsidies

PROTECTED B Page 9 of 9

Appendix B

Procedures for Information Requests

This Appendix outlines general procedures for requesting and communicating information in regard to the Canada Emergency Wage Subsidy (CEWS) audit of _____________. Due to the exceptional circumstances currently being felt by Canadians because of the ongoing COVID-19 pandemic, the Canada Revenue Agency (CRA) is following temporary protocols to facilitate communications with taxpayers. As a result, in almost all circumstances during the course of this audit, the auditor will be conducting this audit virtually away from the taxpayer’s place of business using the current protocols in place for data capturing and communicating taxpayer information. Information Request Turnaround Time: It is anticipated that the turnaround time for the vast majority of information requests should be not more than 10 business days if the electronic transmission of the information is a viable

• ption and the information is readily available given that the CEWS claims have recently been

submitted to the CRA. Where it appears that a response will require additional time, please advise us as soon as possible with an explanation. A revised response date may then be established. Electronic Portal: The preferred method for submitting and/or receiving documents electronically is through the CRA’s secure portals. As mentioned in the cover page to this letter, My Business Account (MyBA) and Represent a Client (RAC) which, in addition to facilitating electronic documents transfer, allow you to view and control many other services such as filing a return or election and authorize representatives who can submit records on your behalf. For more details or to register for MyBA or RAC please go to the CRA website: canada.ca/cra-submit-documents-online. To the extent that this portal is a viable option for transmitting documents electronically, it will be used extensively during the course of this audit.