Good Evening, Ladies and Gentlemen.

No one needs to be reminded of the events that have transpired in the financial community over the past year and certainly no one will deny that changes are long overdue. Apart from pointing our fingers at greedy CEOs as the cause of recent scandals, the main "culprits" that have been identified as bearing responsibility for these events have been auditors and boards of directors. Thus, this evening, I will speak about what, in my opinion, these groups of professionals must do in order to regain public trust.

The Big Four accounting firms have already reacted to the call for independence by divesting themselves of their consulting divisions. At the same time, regulatory reforms called for by the American and Canadian accounting and financial oversight bodies are aiming to address transgressions against sound financial practices.

In the US this has occurred most notably through the Sarbanes-Oxley Act, which was enacted on August 29th, whereby a company's chief executive officer is now required to certify corporate financial statements.

In Canada, where the focus has been more on flexible guidelines and self-regulation rather than regulatory control, critics have advocated for a more regulatory and punitive approach consistent with the emerging US rules and regulations.

It appears that in the current climate of distrust, regulatory control stands out as the favoured means to achieving greater transparency and accountability - the ultimate goal being to regain public confidence. It remains questionable, however, whether tighter regulatory control is the most effective means of increasing the level of auditor independence and enhancing the financial information flow now being demanded by the investor community.

Clearly, focusing on the existing framework of flexible guidelines and self regulations, which have been around for almost a century, is no longer sufficient. Over time, countless rules have been added to the original framework, without a complete overhaul of the system itself. There is no denying that, during the past century, the financial world has become a far more complex arena. These complexities have meant perhaps an over-reliance on financial experts who themselves were completely taken aback by recent developments. At the same time, the accounting profession has been criticised for not keeping up with the dizzying pace of change and has even been accused of resisting change altogether.

We are not only talking about professional conflicts in accounting and auditing, there are other conflicts as well. Let's take a look at the concept of the auditor being the monitor on a restructuring, OR, better still, in a recent file where the monitor became the receiver and the Trustee in Bankruptcy.

Here in Canada, we have managed to "dodge the bullets" thus far and indeed Canadian chartered accountants continue to enjoy a healthy reputation for ethical practices. According to a recent poll, CAs ranked third in ethical credibility after doctors and university professors. This survey also identified a need to educate the public on corporate governance and the vital role played by independent auditors as well as audit committees of Boards of Directors.

Despite this positive image, the public perception of conflict of interest where audit firms providing non-audit services are concerned, could currently not be greater. While accounting firms have already responded, industry critics have called for measures as draconian as the licensing of audit firms and the government appointment of audit firms to publicly traded companies.

Interestingly, researchers at the Leventhal School of Accounting University of Southern California have found that fees received by firms performing both auditing and consulting do not impede the ability of auditors to keep their dual roles separate.

Nonetheless, as we all know, it is all about perception and expectations and thus the onus is now upon the accounting profession to judge the independence and integrity of their own members and to ensure that the highest level of investor confidence is restored.

Where the issue of corporate governance is concerned, a very good example of a board "asleep at the switch" is the leveraged buyout of Dylex, which we have been reading about. Despite what appeared to be a board comprised of experts, the board appears to have failed in their governance duties. The board included an author of a book on corporate governance, - he was also the head of the corporate governance committee that never met; another member was an economist, and another member was an investment manager. The board members claimed ignorance as to Dylex's true financial situation; the questionable reputation of the company behind the buyout and the acquisition agreement that denied creditors and suppliers a single penny while senior officers collected almost $5 million in change-of-ownership payments.

The Dylex scenario demonstrates a clear example of conflict of interest with the chairman having worked on the deal with his investing firm partner who was also on Dylex's payroll.

Canadian companies are not required to report their governance practices. While in the US, listed companies are required to disclose their governance practices; and in the UK, the Institute of Directors has introduced a professional qualification requirement for board members; in Canada, regulatory efforts are focusing on the issue of board member independence, particularly the independence of the chairman. Proposed independence regulation is also calling for a maximum of two insiders members on a corporate board; the need for audit committees made up of wholly independent directors; and the ban on professional advisors to the firm serving on the board.

With some companies having difficulty finding competent directors because the pool of potential directors is fairly small, the counter-argument to board independence is that outsiders may have too little knowledge of the company; a concern that cannot not be ignored. Consequently, the real question remains as to whether regulation regarding independence is the only and most effective way to go.

While popular belief advocates more independence, the Institute of Corporate Directors has proposed changes that call for a code of conduct; effective monitoring systems and fine tuning of the ethical practices that provide assurance to shareholders about the integrity of a company's financial practices, and financial reporting.

What should not be forgotten in all of this is that organizations are comprised of to organizational culture and the individuals who create that culture. Ultimately, it is impossible to regulate personal and organizational ethics. However, organizational culture very much depends on one simple ingredient, that of communication, based on the transmission of clear and relevant information as well as interdependence between those involved in a company's business practices: management; the board; and ultimately the firm's auditors.

Thus far, the responsibility of disclosure and communication has rested with the company and its executives. A shift needs to take place whereby everyone involved in the business operations of a firm takes responsibility for effective communication. Auditors and boards should not rely solely on management for accurate information and disclosure. It is not only for the auditor to determine his own independence, it will also be the obligation of companies to satisfy themselves as to the independence of the auditor.

Equally, shareholders should not have to rely only on traditional financial statements. Enhanced communication proposals will include non-financial information on the dynamics of a company's business activities.

Finally, what concrete steps can be taken to regain the confidence of the public? This can be achieved through action and reaction by members of the accounting profession. The acronym "R-E-A-C-T-I-O-N" summarizes eight simple steps that can be taken to ensure that the accounting profession regains the trust of the public:

Compliance and regulatory action are clearly not enough anymore. Changes in substance and behaviour are required, not just recommendations and guidelines. Constant vigilance, communication, independence and interdependence safeguards, in a joint effort between members of the profession and regulators will allow the accounting community to continuously drive up standards of ethical practices and good corporate governance in an effort to move beyond today's best practices towards tomorrow's norms.

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