





CITATION:
Barrington v. The
          Institute of Chartered Accountants of Ontario, 2011 ONCA 409



DATE: 20110527



DOCKET: C52711 and C52683



COURT OF APPEAL FOR ONTARIO



Winkler C.J.O., and
          Lang and Karakatsanis JJ.A.



BETWEEN



J. Douglas Barrington, F.C.A.



Applicant/Respondent in Appeal (C52683)



and



The Institute of Chartered Accountants of Ontario



Respondent/Appellant (C52683)



AND BETWEEN

Anthony Power, F.C.A. and Claudio Russo, C.A.



Applicants/Respondents in Appeal (C52683)



and



The Institute of Chartered Accountants of Ontario



Respondent/Appellant (C52683)






AND BETWEEN

Anthony Power, F.C.A. and Claudio Russo, C.A.



Applicants/Appellants (C52711)



and



The Institute of Chartered Accountants of Ontario



Respondent/Respondent in Appeal (C52711)



Brian Bellmore
          and Paul Farley, for the Institute of Chartered Accountants of Ontario

Peter H. Griffin
          and Kristian Borg-Olivier, for J. Douglas Barrington

J.L. McDougall, Q.C, Brian R. Leonard, and Jeremy Millard, for Anthony
          Power and Claudio Russo



Heard: April 19 and 20, 2011



On appeal from the order of the Divisional Court (J. Wilson, Lederman
          and Swinton JJ.), dated March 21, 2010, with reasons reported at (2010), 260
          O.A.C. 199.



Karakatsanis J.A.:



[1]

These appeals arise from professional disciplinary
    proceedings brought against Barrington, Power and Russo (the members) by the
    Institute of Chartered Accountants of Ontario (ICAO). The charges brought
    against the three members by the ICAOs Professional Conduct Committee (PPC)
    relate to their roles with regard to Livent Inc.s 1997 audited financial
    statements.

[2]

After a 37-day disciplinary hearing, the
    ICAOs Discipline Committee (DC)  concluded that all three members were guilty of professional misconduct
    for two instances of failing to ensure that the 1997 financial statements were
    in accordance with Generally Accepted Accounting Standards (GAAP).  Power and Russo were also convicted of a
    third breach of GAAP and five instances of failing to perform an audit in
    accordance with Generally Accepted Auditing Standards (GAAS).

[3]

The DC reprimanded the three members,
    required them to post notices of its decision, fined each of them $100,000, and
    ordered them to pay costs in the amount of $1,251,000, apportioned equally.

[4]

The members appealed to the ICAOs Appeal
    Committee (AC), which affirmed the DCs decision.

[5]

The members then brought applications for
    judicial review to quash the DCs and the ACs decisions. They were partly
    successful. The Divisional Court quashed four of the eight convictions against
    Power and Russo, and all of the convictions against Barrington. The Divisional
    Court also quashed the DCs costs order and directed that the DC reconsider the
    penalty imposed on Power and Russo.

[6]

Power and Russo now appeal, with leave,
    from the Divisional Courts decision, seeking to have the four remaining
    convictions against them quashed. The ICAO, in turn, appeals, with leave, from
    the Divisional Courts decision, seeking to have the DCs convictions and costs
    award reinstated.

[7]

The main issue in these appeals is one of
    fairness: whether the members had adequate notice in relation to the charges
    and the case they had to defend; and whether the DC provided adequate reasons
    for rejecting the defence expert evidence and finding misconduct. With respect
    to costs, the issue raised is whether subsequent legislative amendments have
    retroactive effect to validate the costs award.

[8]

This case is important to the ICAO and the
    self-regulation of the accounting profession. The panels for both the hearing
    and the appeal included four chartered accountants. The hearing was the longest
    in the history of the Institute.  More
    significantly, the issues of audit process and opinion go to the heart of the
    integrity of our commercial system. The public, shareholders, investors,
    lenders, and business partners of public companies depend upon the objectivity
    and professionalism of the auditors of financial statements.

[9]

Obviously, this is also an important case
    for the professional members who have had successful and even distinguished
    careers. The DC referred to the audit team as experienced and competent
    (para. 209) and also noted evidence of the members integrity.  While the ICAO did not revoke their
    professional designations, it reprimanded and fined them. They have a right to
    natural justice and procedural fairness in the defence of their reputations and
    to know the reasons for any finding of misconduct.

[10]

For the reasons that follow, I would allow the ICAOs
    appeal and I would dismiss Powers and Russos appeal. The decisions of the DC,
    including the costs award, should be re-instated.

BACKGROUND

[11]

Livent Inc. was a public company that promoted live
    musical entertainment and musical theatre in Canada and the United States. It
    was also involved in the construction and management of theatres. At the
    relevant time, Garth Drabinsky and Myron Gottlieb were Livents largest
    shareholders and its two most senior officers.

[12]

Deloitte & Touche LLP was Livents auditor for the
    fiscal years 1989 to 1997.  Power, Russo,
    and Barrington were senior members of the Deloitte audit team responsible for
    the 1997 Livent audit. Peter Chant was also a senior member of the team.

[13]

In April 1998, Deloitte released an unqualified audit
    opinion approving the 1997 financial statements of Livent. Later in 1998, under
    new management, serious financial irregularities were discovered in Livents
    books. An internal investigation resulted in the re-statement of Livents 1996
    and 1997 financial statements, and criminal fraud charges were brought against
    Drabinsky and Gottlieb.

[14]

The ICAO, the licensing and governing body of
    chartered accountants in Ontario, subsequently brought charges of professional
    misconduct against the four senior Deloitte accountants involved in the 1997
    audit: Power, Russo, Barrington, and Chant. They were charged with professional
    misconduct for allegedly having failed to adhere to accounting and auditing
    standards.

(a) The Charges

[15]

The PPC, the ICAOs investigatory and
    prosecutory arm, brought two charges, each with multiple particulars, alleging
    that attaching an unqualified audit opinion to the 1997 financial statements
    constituted a failure to comply with generally accepted standards of practice
    of the profession contrary to Rule 206 of the ICAOs
Rules of Professional Conduct
.

[16]

The first charge, referred to as the GAAP
    charge, alleges multiple failures to comply with generally accepted accounting
    standards. The second charge, referred to as the GAAS charge, alleges
    multiple failures to comply with generally accepted auditing standards.

[17]

The charges, which were the basis for the DCs
    findings of misconduct and which are the subject of these appeals, are set out
    in Appendix A to this decision.

[18]

Charges 1(i) and (iii) concern the recognition
    of income from: (i) the sale of naming rights to AT&T Canada Enterprises
    Inc. of the Pantages Theatre and a new theatre to be built as part of a new
    Pantages complex in Toronto; and (iii) from the sale of density rights to
    Dundee Realty Corporation arising out of an agreement to develop the Pantages
    complex. The PCC alleged that the recognition of the income was not in
    accordance with GAAP because significant acts remained to be completed under
    the agreements.

[19]

Charges 1(iv) and 2(viii) concern the
    recognition of the transfer of receivables by Livent to First Treasury
    Financial Inc. as a sale, rather than as financing, with the result that
    liabilities in the financial statement were reduced by $3.7 million. The PCC
    alleged in relation to charge 1(iv) that the recognition of the transaction as
    a sale was not in accordance with GAAP because First Treasury had recourse
    against Livent. In relation to charge 2(viii), the PCC alleged that, having
    decided to treat the transaction as a sale, the auditors should have disclosed
    in a note to the financial statements the contingency that First Treasury had
    recourse against Livent.

[20]

Finally, a number of
    the particulars under charge 2 relate to the sufficiency of audit evidence or
    audit procedures in relation to:

2(ii)  the recoverability of pre-production costs;

2(iii)  the last minute acceptance of managements
    additional $27.5 million write-down of pre-production costs;

2(iv)  the finding of cut-off errors (i.e. accounts
    payable recorded in the wrong period) in the testing of accounts payable;

2(v)  the finding of unsupported transactions in its
    sample-based testing of additions to fixed assets.

The PCC alleged in these particulars that Power and Russo
    did not follow generally accepted auditing standards, failed to obtain
    sufficient appropriate audit evidence, failed to ascertain the reliability of
    managements budgets, failed to re-assess the reliability of managements
    representations, and failed to re-evaluate audit procedures as required under
    the circumstances.

(b)

The Put

[21]

At the heart of the
    dispute about procedural fairness  the main issue raised on both appeals  is
    evidence relating to the Put agreement between Livent and Dundee.

[22]

The Put was an element of
    Livents agreement with Dundee to develop the Pantages complex. It provided
    Dundee with a limited right to exit i
ts investmen
t
by transferring its shares and debentures back to the
    development corporation that was created by the two parties to carry out the
    project. Dundees involvement in the development project would end.

[23]

The first controversy relating to the Put flared up in
    the summer of 1997. Livent wished to recognize the revenue it would receive
    under the Dundee agreement in the second quarter ending June 30, 1997. The
    Deloitte audit team advised Livent that it could not do so: as long as the Put
    was in existence, recognition of the income would not be in accordance with
    GAAP. Moreover, it was inappropriate to recognize it in the second quarter
    since the agreement closed in the third quarter. Despite clear instructions
    from the auditors, Livent management announced its second quarter financial
    results in an August 1997 press release, and included the revenue from the
    Dundee density rights transaction, contrary to Deloittes advice.

[24]

Deloitte took the position that the statements were
    materially misstated and the audit team refused to be associated with the
    statements and threatened to resign from the audit unless the second quarter
    statements were corrected.

[25]

There were two meetings between Livents Audit
    Committee and Deloitte in August 1997 to resolve those issues. Deloitte was
    represented by Barrington, Chant, and a third Deloitte partner. Barrington
    testified Gottlieb told him on August 22 that the Put had been removed from the
    agreement. The removal was confirmed by legal counsel for Livent and Dundees
    CEO. The agreement between the parties was amended to indicate that the
    provision relating to the Put had been intentionally deleted.

[26]

Livent issued a press release in September 1997,
    stating that it would be adjusting its second quarter results so that the
    Dundee/Livent revenue would be recognized in the third quarter.

[27]

The second controversy concerning the Put arose in
    April 1998, just as the audit of the 1997 financial statements was nearing
    completion, when it came to light that the Put had been re-established in a
    side agreement. A Deloitte partner working on the audit of Dundee was provided
    with a Put Side Agreement dated August 15, 1997, signed by Gottlieb and
    Dundees CEO. It included a confidentiality clause. Livent had not disclosed this
    document to Deloitte during its audit.

[28]

Deloitte held an emergency internal meeting on April 3,
    1998 to address the issue and decide whether its relationship with Livent
    should continue. Chant testified that he expressed the view at the meeting that
    Deloitte should withdraw because it had been lied to three times by Livent
    management. He left the meeting upset, slamming the door. The remaining members
    of the audit team agreed that specific criteria were required to satisfy them
    that the Put Side Agreement had been rescinded by the end of the third quarter
    of 1997. Relying upon evidence that fell short of its own criteria and that the
    DC found was
insufficient,
the audit team concluded
    that the Put Side Agreement had been cancelled shortly after August 15, 1997,
    which was the date of the Agreement.

[29]

Chants dissent did not come to light until the DC
    hearing. Prior to the hearing, the PCC investigators had been advised (without
    Chants approval) that all decisions taken by Power, Russo, Barrington, and
    Chant were on a consensus basis.

[30]

Ultimately, the DC acquitted Chant on all charges.

THE ICAO APPEAL
(
C52683)

[31]

The Divisional Court granted the members applications for
    judicial review and quashed the findings of misconduct
against
    Barrington, Power, and Russo on charges 1(i) and (iii)
, on the grounds that the DC breached the rules of
    natural justice and procedural fairness by finding the members guilty
on
    a basis that did not form part of the charges and the case disclosed and led
    against them: para. 123.


[32]

In addition, the Divisional Court quashed the findings of
    misconduct under charges 1(iv) and 2(viii) against Power and Russo on the basis
    that the DC did not provide adequate reasons for its decision.

[33]

The ICAO appeals from the quashing of those
    convictions.

[34]

The issues in this appeal are:

1.
whether the members had adequate notice in relation to
    charges 1(i) and (iii) and the case they had to defend;

2.
whether the DC provided adequate reasons for finding
    misconduct for charges 1(iv) and 2(viii); and

3.

whether
the legislative amendments subsequent
    to the Divisional Courts decision have retroactive effect to validate the DCs
    costs order.

I:
    CHARGES 1(i) AND (iii)  DID THE DIVISIONAL COURT ERR IN FINDING A DENIAL OF
    PROCEDURAL FAIRNESS?

[35]

The Divisional Court concluded that the members had been found guilty of
    acts of professional misconduct that had not been alleged in charges 1(i) and
    (iii): that the DC found that they breached the GAAP standard because of their
    failure to have sufficient appropriate audit evidence respecting the Put.

[36]

The Court also held that the events surrounding the Put were not relevant
    to charges 1(i) and (iii), as laid and particularized, and that the DC erred in
    considering that evidence because the members actions taken respecting the
    Put did not form part of those charges: para. 132.

[37]

In the Courts view, the allegation with respect to
    the treatment of the Put was a new allegation that arose during the hearing
    and because of the DCs own conclusions about what should have been charged:
    para. 133.

[38]

The Divisional Court concluded the Put was not part of the charges, the
    case disclosed, the case led or even the submissions made, and that the members
    were not given notice that their conduct respecting the Put agreement was
    allegedly a breach of GAAP: para 136.

[39]

As a result, the Divisional Court concluded that the members had been
    denied natural justice and were prejudiced by the DCs focus on the Put. The
    Divisional Court concluded that the AC, like the DC, erred in law in ignoring
    the particulars of the charge and the case disclosed and led. The applicants
    were denied natural justice by the DC, and the AC failed to recognize this:
    para. 144.

[40]

The
ICAO
    submits that the DC properly considered the evidence regarding the Put, as the
    evidence was relevant to the issue raised by the members that they had
    reasonable assurance that the significant act of construction would be
    completed and therefore that the revenues would be received at a future date.


[41]

The members take the position that neither the charges nor
    the disclosure nor the submissions put them on notice that they would be
    required to defend themselves in relation to their actions in April 1998 in
    response to the disclosure of the Put. They note that the PCC chose not to amend
    the particulars at any stage of the hearing. They contend that, as a result,
    they did not know the case they had to meet and were found guilty of offences
    with which they were not charged.  They
    assert that they never raised reasonable assurance as a defence.

[42]

In my view, the Divisional Court mischaracterized the nature
    of the charge and the decision of the DC and erred for the reasons set out
    below. In summary:

1.
The Put was not a new allegation, a particular or an
    essential element of charges 1(i) and (iii).

2.
The DC did not find the members guilty of breaching GAAP
    standards by failing to obtain sufficient audit evidence regarding the Put. It
    found the members guilty of recognizing income even though there was no
    reasonable assurance that the significant act of construction would be
    completed.

3.
The Put was evidence that was relevant to the charge based
    upon the DCs interpretation of the
CICA
    Handbook
[1]
and GAAP.

4.
The DC was entitled to consider the evidence led by the
    members despite the fact that no concerns were raised about the Put in the Investigator
    Report or in the evidence led by the PCC. The DC was entitled to take a
    different route to liability.

5.
The members were not surprised or prejudiced by the DCs
    reliance on the evidence surrounding the Put in finding the members guilty of
    charges 1(i) and (iii).

[43]

In the end, there can be no doubt that the members were aware
    of the case they had to meet. Although the members response to the Put had not
    been challenged in the Investigator Report, the members had not disclosed
    Chants reaction to the disclosure of the Put to the investigators. The members
    led the evidence themselves, no doubt because of Chants evidence and their own
    experts opinion that there could be no recognition of income if the Put existed.

[44]

The Put occupied a substantial portion of the evidence in the
    hearing of these charges. It was the centrepiece of the prosecutions
    submission that the members failed to exercise professional judgment or
    professional scepticism in a high risk audit environment and that they were not
    justified in relying upon management representations and good faith.

[45]

I have concluded that there is no reason to disturb the DCs
    finding, upheld by the AC, that the members were not surprised and not
    prejudiced by the consideration of this evidence.

Analysis

1.
    The Put was not a new allegation or particular of the charge for which the
    members were found guilty.

[46]

The Divisional Court described the Put as a particular of the
    charge or as a new allegation in relation to the charge  that their conduct
    respecting the Put agreement was allegedly a breach of GAAP: para. 136. This
    conclusion appears to rest on the Divisional Courts view that the precise
    evidentiary route to liability was a particular or essential ingredient of the
    offence.

[47]

However, properly characterized, the matter of the Put was
    evidence that arose during the course of the hearing and that became relevant
    to the DCs determination given its interpretation of the GAAP standards, and
    in particular the
CICA Handbook
. It
    was the basis for a finding of fact that ultimately supported the finding of
    misconduct. The essential elements of the offences charged in 1(i) and (iii)
    remained the same.

[48]

As noted above, charge 1(i) relates to Livents
    sale to AT&T of the naming rights to the Pantages Theatre and a new theatre
    to be built in Toronto. The fee for the rights was payable over 12 annual
    instalments, the first falling due in November 1997. Charge 1(iii) relates to
    Livents sale to Dundee of the density rights over the existing Pantages
    Theatre.

[49]

The particulars in charges 1(i) and (iii) allege that
    recognition of $9.2 million as revenue from the AT&T naming rights
    transaction and $5.6 million as revenue from the Dundee density rights
    transaction did not comply with the GAAP principle set out in

s. 3400.07 of the
CICA Handbook
, because all significant acts under the agreements
    had not been completed. The disclosure from the PCC, which consisted of the
    Investigator Report and documents referred to in the Report, made clear that
    the significant acts in issue included construction of the new theatre and
    complex.

[50]

Section 3400 of the
CICA
    Handbook
provides:



.06       Revenue from sales and service transactions
should be
    recognized when the requirements as to performance set out in paragraphs
    3400.07 and .08 are satisfied, provided that at the time of performance
    ultimate collection is reasonably assured.

.07       In a transaction involving the sale of
    goods,
performance should be regarded as
    having been achieved when the following conditions have been fulfilled:

(a)       the seller of the goods has transferred to
    the buyer the significant risks and rewards of ownership, in that all
    significant acts have been completed
and the seller retains no continuing
    managerial involvement in, or effective control of, the goods transferred to a
    degree usually associated with ownership; and

(b)
reasonable
assurance exists regarding the measurement of the
    consideration that will be derived from the sale of goods, and the extent to
    which goods may be returned. [Emphasis added.]

[51]

The essential elements of charges 1(i) and (iii) were:

1.
the member was responsible for the unqualified audit opinion;

2.
the audit opinion was released;

3.
the revenue was included in the financial statements; and

4.

all
significant acts necessary to
    transfer the significant risks and rewards of ownership had not been completed.

[52]

The Put was not a necessary element of the charges laid and
    particularized by the PCC as prosecutor. Nor was the theory of the prosecution about
    the evidentiary basis for liability an essential element of the charges.

2. The DC did not find that the Put was a breach of GAAP.

[53]

The Divisional Court erred in its characterization of the
    decision of the DC. The DC did not conclude that the members actions
    respecting the Put constituted a breach of GAAP standards. Indeed, it is common
    ground that the failure to obtain sufficient audit evidence regarding the Put
    could not itself be an accounting error or a breach of GAAP standards. The DC
    found the members recognized income before the probable completion of all
    significant acts under the agreements, which was a failure to comply with GAAP
    as charged. A review of the position of the parties and the DCs decision makes
    this clear.


a. The position of
    the parties

[54]

In the disclosure and in the evidence led, the PCCs position
    was that the recognition of revenue for naming rights under charge 1(i) did not
    comply with GAAP since all significant acts under the agreement had not been
    completed. Similarly, it maintained the position that the recognition of
    revenue from the sale of density rights under charge 1(iii) did not comply with
    GAAP since all significant acts under that agreement had not been completed.
    The PCCs position was that the construction of the theatre or the buildings
    was a significant act that had not been completed.

[55]

The theory of the PCC did not change throughout the hearing.
    In its final submissions, the PCC continued to assert its position that revenue
    ought not to have been recognized in the absence of construction.

[56]

The members primary position was that construction of the
    buildings was not a significant act that needed to be completed in order to recognize
    the income.  However, as the Divisional
    Court noted, the members and their experts also put forward an alternative
    argument that GAAP compliance could be met where there was probability or
    reasonable assurance that significant acts would be completed: para. 126.

[57]

The defence called four audit experts on their behalf: Frank
    Kelly, David Yule, Keith Vance, and J.R. Hanna. Their expert evidence was that
    there was no requirement for Livent to defer revenue recognition under GAAP
    pending construction of the second Pantages Theatre because the significant
    risks and rewards of ownership of the naming rights and the excess density
    rights could be transferred without reference to the state of construction.

[58]

For instance, with respect to charge 1(iii), Keith Vance
    noted:

The performance criteria, which include the
    transfer of the significant risks and rewards of ownership, were satisfied
    since Livent had clear title to the asset and transferred title to Dundee.
    Whether or not the future development occurred would not affect the transfer of
    title to the assets transferred. The only factor that would have impacted on
    this criterion was the put option. Since there was evidence that this was
    rescinded, there were no further obstacles to meeting these criteria.

[59]

Thus, it was clear that existence of the Put would have
    precluded the recognition of the revenue from the sale of density rights, even
    if the DC ultimately accepted that construction was not a necessary act to be
    completed.
With regard to charge 1(iii), as long as the Put was in
    effect, it could not be said that the ownership rights had been transferred.

[60]

At least three of the defence experts examined the likelihood
    that the project would be completed and suggested that it would be sufficient
    if construction was reasonably assured or that the risk that the buildings
    would not be constructed was very low or remote.

[61]

In its analysis of charge 1(i) with respect to the naming
    rights transaction, the Vance report noted that building approval had been
    obtained and there was a contract with Dundee to develop the project. Vance
    concluded: Therefore, given the status of this project, as at December 31,
    1997 it was
reasonably assured
that
    the project would be completed, consistent with the going concern basis used in
    preparing the financial statements (emphasis added).

[62]

The Yule report noted the prosecution position on charge 1(i)
    and stated:

In my opinion I prefer to look at the revenue
    recognition issue in terms of dealing with it as an issue of the remoteness of
    the occurrence of the contingency and this becomes a judgement based on all the
    facts available at the time. With $22 million invested in the development of
    this project, with city approvals in place and with development agreements in
    place, all combined with an optimistic business outlook, it seems reasonable to
    me to accept the contingency of not building the project as remote.

[63]

With respect to charge 1(iii), Yule noted his own reading of
    the Dundee contract was that there was no ability by Dundee to return the
    density rights and recover its payments.

[64]

Similarly, Kellys opinion was in part: Given the
    significant investment by Livent in the Pantages Project and with the
    development agreement with Dundee in place, it is my opinion that the risk the
    project would not be completed was very low.

[65]

The PCC cross-examined the experts on the issue of
    probability/reasonable assurance. Chants lawyer submitted in closing that the
    tribunal had to consider the probability of occurrence when looking at the
    significant act clause of the
CICA
    Handbook
.


b. The Nature of
    the DCs Findings

[66]

The DC did not accept the PCCs position that s. 3400.07(a)
    required that construction had to be completed. Nor did it accept the members
    position that construction was not a significant act. Although the members
    suggest that the DC did not find construction to be a required significant act,
    it was a necessary implication of the DCs findings that reasonable assurance
    relating to the construction was required: paras. 273 and 277.

[67]

The DC accepted the position of the members experts and gave
    the members the benefit of a broader interpretation of CICA s. 3400.07(a). The DC
    concluded, at para. 267, that the
CICA
    Handbook
did not preclude recognition of revenue provided there was
    reasonable assurance that the significant acts would be completed:

It was the position of the members that the revenue
    from the naming rights contracts could be recognized when the right to name the
    building had been sold, provided that there was reasonable assurance that the
    theatre would be built and open to the public. The members submitted that
CICA Handbook
s. 3400.07 did not
    preclude the concept of reasonable assurance. The panel agreed with the members
    and the experts for the members.

[68]

However, the DC was not satisfied on the evidence before it
    that the members could conclude that there was reasonable assurance that the
    buildings would be completed. The construction of the Pantages complex had not
    been completed. As long as the Put was in effect, there was no reasonable
    assurance that it would be constructed. Accordingly, the DC held, at paras. 272-73,
    that the revenues could not be recognized in the 1997 financial statements
    under GAAP and that charges 1(i) and (iii) were proven:

With respect to the
    recognition of revenue from the sale of the naming rights of the Pantages
    Theatre complex to AT&T, the panel concluded that as the suspicions about
    the Put had not been dispelled, it was not appropriate to recognize all the
    revenue from the AT&T naming rights agreement.

...

The auditors were not
    entitled to conclude that there was reasonable assurance that all significant
    acts under the arrangement to build the Pantages Theatre complex would be
    completed because the suspicions about the likely existence of the Put had not
    been dispelled.  Therefore, it was not appropriate
    to recognize all of the revenue from the AT&T agreement to name the
    Pantages Theatre complex.

[69]

The members contend that they never raised a defence of
    reasonable assurance and that the DC was confused in para. 267. They suggest
    that the DC  introduced the concept of
    reasonable assurance of completion of significant acts in error, apparently
    conflating the significant acts have been completed language in s. 3400.07(a)
    with reasonable assurance exists regarding the measurement of the
    consideration that will be derived from the sale language in s. 3400.07(b).

[70]

I do not agree. Only the question of completion of
    significant acts, which is an integral part of s. 3400.07(a), was at issue in
    charges 1(i) and (iii).  While
    characterizing it as a defence may be somewhat confusing, there is no doubt
    that the issue of probable completion of significant acts was raised directly
    by the members and their experts.

[71]

The members also submit that on the plain language of the
    decision, the DC found them guilty based upon their conduct and actions in
    relation to the Put. The DC noted that the members did not have sufficient
    appropriate audit evidence to dispel their suspicions of the continued
    existence of the Put: para. 251. It noted that as long as the Put was in
    effect, it could not be said that effective ownership of the rights had been
    transferred:  para. 281.
At
para. 329, the DC concluded with respect to the Dundee transaction
    that:

[T]he essential nature of the
    misconduct  [was] an improper exercise of professional judgment with respect
    to the reasonable suspicions about the Put and the failure to reconsider their
    planned auditing procedures.

[72]

There is no doubt that once the DC determined that the
CICA Handbook
standard permitted the
    recognition of revenue if there was a reasonable assurance that the significant
    acts would be completed, the evidence relating to the existence of the Put
    played a central role in the DCs finding that no such probability existed. The
    sufficiency of the audit evidence about the rescission of the Put was evidence
    that the DC considered in determining whether the charge as particularized had
    been proven  that the members did not comply with GAAP because significant
    acts, including construction of the building, remained outstanding.

[73]

Thus the Divisional Court erred in characterizing the
    decision of the DC as a finding that the members actions regarding the Put constituted
    a breach of the GAAP standards.

3.
    The Put was evidence relevant to the charge based upon the DCs interpretation
    of the
CICA Handbook
and GAAP.

[74]

The Divisional Court was of the view that the evidence
    relating to the Put was not relevant to charges 1(i) and (iii) as laid and
    particularized.

[75]

Had the DC accepted the PCC position that the completion of
    construction was required, a finding of guilt would automatically have followed
    in this case and the Put would not have been relevant to that theory of
liability.


[76]

Indeed, even if the DC had accepted the members position
    that construction was not a significant act to be completed in order to transfer
    the significant risks and rewards of ownership, it is clear from the members
    own expert that the existence of the Put would have precluded the recognition
    of the revenue from the sale of the density rights. As long as the Put was in
    effect, Dundee could back out of the construction contract and
it could
    not be said that the ownership rights had been transferred. Thus the evidence
    relating to the existence of the Put was relevant to the members primary
    position on the requirements of the
CICA
    Handbook
standards.

[77]

When the DC accepted the members position and accepted the
    broader interpretation of the
CICA
    Handbook
guidelines, the evidence of the Put was relevant to the issue of
    whether there was reasonable assurance that the buildings would be completed.
    The circumstances surrounding the disclosure of the Put and the members
    response to that disclosure was evidence upon which the DC could consider
    whether there was a probability that the significant act  construction  would
    be completed.

[78]

Thus, the issue to be determined in charges 1(i) and (iii)
    was whether there was a failure by the members to ensure the financial
    statements (in particular, revenue recognition) complied with GAAP, having
    regard to the audit evidence.

[79]

Barrington submitted that he was subject only to the
    (accounting) GAAP charge but that he had been found guilty, based upon the
    sufficiency of audit evidence regarding the Put, for breach of an (auditing)
    GAAS charge, which was the subject of charge 2.  However, I agree with the AC, at para. 111, that the evidence was
    potentially relevant to both charges and that to some extent the offences were
    intertwined:

In conducting an audit sufficient audit evidence
    must be obtained to satisfy the auditor that the financial statements comply
    with the accounting standards of the profession. The two facets of the auditing
    process are intertwined and cannot be separated.

[80]

The sufficiency of audit evidence clearly relates to GAAS.
    While the first charge relates to the members failure to ensure that the
    financial statement complied with GAAP, the audit evidence was relevant to the conclusions
    about such compliance. It was relevant to whether the Put was cancelled or
    whether the members reasonably reached the conclusion that the Put was
    cancelled. The DC was therefore entitled to consider the evidence about the Put
    given its interpretation of the GAAP and
CICA
    Handbook
.

4.
    The DC was entitled to consider the evidence led by the members. The DC was
    entitled to take a different route to liability.

[81]

The Divisional Court found that no issue was ever raised in
    the disclosure or the evidence led by the PCC or in its written submissions
    concerning the treatment of the Put agreement and its significance for charges
    1(i) and (iii). The Court appears to conclude, at paras. 135-
36,
    that
the members were prejudiced as they would not have known it was
    part of the case they had to meet because it was not in the Investigator Report
    or in the evidence led by the PCC: [T]hey had formulated a defence, obtained
    expert evidence and presented their case in response to the PCC's framing of
    the case. The Divisional Court emphasized that the PCC made no submissions
    that the members did not have reasonable assurance that significant acts
    remained to be completed because of the Put: para. 128.

[82]

However, these conclusions fail to reflect the broader
    circumstances in this case. The Investigator Report and the case led by the PCC
    was premised upon the representation that there was consensus on the part of
    the audit team and was limited by the non-disclosure of Chants response to the
    re-emergence of the Put. While the PCCs submissions with respect to charges
    1(i) and (iii) remained that construction was a precondition to the recognition
    of the revenue, the PCCs submissions dealt at length with the circumstances
    surrounding the Put. Further, the DC was entitled to rely upon the evidence led
    by the members themselves, despite the fact that no concerns were raised about
    the Put in the Investigator Report or in the evidence led by the PCC. The DC was
    not confined to the evidence of the PCC or to the theory of the prosecution. It
    was entitled to take a different route to liability.

a.

The Disclosure  the PCCs
    case

[83]

There is no question that the April 1998 events surrounding
    the Put and Chants reaction to the disclosure of the continued existence of
    the Put became a central issue in the case as it unfolded.

[84]

The Investigator Report stated that the members had
    sufficient audit evidence to satisfy themselves that the Put had been
    rescinded. In reply, Allan Wiener, who was one of the investigators who
    prepared the Report and the PCCs only witness, confirmed the opinions
    expressed in the Report, although he was not specifically asked about the Put.

[85]

However, the DC found that the members had left the investigators
    with false and misleading information until the hearing and did not advise them
    of Chants dissenting opinion that management had repeatedly lied to the
    auditors and that they should disassociate themselves from the audit: paras. 258-61.

[86]

Thus, the PCC did not have all of the relevant evidence
    necessary to determine whether or not the suspicions with respect to the Put
    had been properly dispelled: para. 263. The investigation may well have
    progressed differently had the investigators been aware of Chants significant
    concerns about management representations. In these circumstances, they cannot
    now complain that the disclosure did not raise the issue or challenge their conclusions
    about the existence of the Put.

[87]

In any event, the expert tribunal was entitled to make its
    own findings about the sufficiency of the audit evidence and the Put.

b.
    Submissions

[88]

In concluding that the DC erred in finding that charges 1(i)
    and (iii) had been proven and that the PCC never alleged that the members
    breached the GAAP standard because of their actions respecting the Put, the
    Divisional Court stated at para. 128:

The PCC made no
    submissions that the [members] did not have reasonable assurance that
    significant acts remained to be completed because of the Put. This was not part
    of the case disclosed, nor the charges
laid
, nor even
    the argument made.

[89]

The Divisional Court agreed with the members submission that
    counsel for the PCC never suggested that the discovery of the Put in April 1998
    had anything to do with charges 1(i) and (iii) or that it was relevant to rebut
    a reasonable assurance defence.

[90]

Of course, it was not necessary for the PCC to specifically
    address the members evidence that it was sufficient under s. 3700.07(a) of the
CICA Handbook
if there was a
    reasonable assurance that the significant acts would be completed. The PCC
    continued to submit that construction itself was required.

[91]

Nonetheless, I do not accept the members submission that
    they had no notice that the Put was part of charges 1(i) and (iii) even in the
    final submissions of the PCC.

[92]

The DC noted that one fundamental disagreement between the
    PCC and the members was the extent to which the members were entitled to rely
    on the representations made by management. The PCC took the position that the
    members did not have sufficient appropriate audit evidence to rely on the
    representations of management in reaching their accounting conclusions.
    Obviously, Chants evidence and the events surrounding the Put were
key
to this issue.

[93]

The circumstances regarding the members reaction to
    disclosure of the Put was prominent in the PCCs written submissions. The
    submissions explicitly challenged the professional judgment of the members
    relating to GAAP in light of the high risk context identified by the auditors
    themselves, including Chants concerns about management representations and the
    April events surrounding the Put. The submissions relating to professional
    judgment, professional scepticism and the reliance on managements
    representations and good faith all refer at some length to the April 1998
    events surrounding the discovery of the Put Side Agreement.


c. The DC was
    entitled to base its decision on defence evidence.

[94]

The DC was entitled to consider and rely on the evidence led
    by the members, despite the fact that no concerns were raised about the Put in
    the Investigator Report or in the evidence led by the PCC.

[95]

Having acknowledged that the Put precluded recognition of the
    revenues and having led evidence that they had reasonable assurance it was
    cancelled, the members themselves placed the matter of the Put in issue. The PCC
    sought to undermine their evidence of reasonable assurance in
    cross-examination.

[96]

Finally, the DC was entitled to use its own expertise to
    assess the evidence and to make findings as to liability on another basis than
    that proposed by the PCC. As the Supreme Court of Canada noted in
R. v. Pickton
, [2010] 2 S.C.R. 198, a
    trier of fact is not bound by the prosecution theory of the case but is
    entitled to follow other routes to liability.

5. There was no surprise or prejudice.

[97]

The Divisional Court concluded that the prejudice was obvious
    because [w]ith respect to charges 1(i) and (iii), they were not given notice
    that their conduct respecting the Put agreement was allegedly a breach of
    GAAP. As noted above, the Court observed that the members formulated a
    defence, obtained expert evidence and presented their case in response to the
    PCCs framing of the case: para. 136.

[98]

The members submit that they conducted their cross-examination
    of Wiener and presented evidence to rebut the charges and the Investigator Report.
    All the expert auditors called as witnesses at the hearing testified that the
    auditors had sufficient appropriate audit evidence that the Put had been
    rescinded.

[99]

However, the events surrounding the discovery of the Put Side
    Agreement were within the knowledge of the members. Furthermore, Chant had put
    the members on notice by way of letter that he disagreed with the suggestion
    conveyed to the investigators that there was consensus on the audit team
    regarding the Put and that he would tell the truth when testifying. The members
    would have been keenly aware, well before the commencement of the hearing that
    they would have to deal with the Chant evidence, the resulting questions about
    their acceptance of the assurances that the Put had been cancelled and their
    decision to issue an unqualified audit opinion. The members were not taken
    unawares by these issues.

[100]

Not surprisingly, the
    members led extensive evidence about the Put Side Agreement and its purported
    cancellation. As the expert report prepared by Vance stated unequivocally, the
    revenue from the sale of density rights could not have been recognized if there
    was a Put.
Having led this evidence
, they
could not have been prejudiced or surprised
    when they were challenged in cross-examination or when the DC relied on this
    evidence to decide that there was no reasonable assurance about construction of
    the project.
They
    cannot now say that if they had known the Put was an issue they would have led
    more evidence.

[101]

The DC specifically found at
    para. 264:

The members knew that the sufficiency and
    appropriateness of the evidence accepted to dispel their suspicions about the
    Put, and the implications which followed, were issues they would have to face,
    and did face, at this hearing.  They were
    not prejudiced by any failure of the Professional Conduct Committee to identify
    this issue as part of the case they had to meet.

[102]

The DC noted, at para. 251,
    that it might have come to the same conclusions as the experts about the
    sufficiency of the audit evidence regarding the Put if it had not been aware of
    Chants evidence and the resulting evidence led by the members about the April
    events surrounding the Put. It noted, at para. 227, that the only expert called
    after that evidence was led was Vance, who had read the transcript but was not
    present during their testimony. It is obvious that the DC discounted the
    evidence of experts because the factual foundation for their opinions on this
    issue had changed. As an expert tribunal, it was entitled to use its expertise
    to assess the evidence before it: see AC reasons, paras. 128-30.

[103]

In conclusion, had the DC
    accepted the position of the PCC on charges 1(i) and (iii) that actual
    construction was a significant act that should have been completed,
then
a finding of guilt would have followed. The members
    were unable to persuade the DC that construction was not a significant act.
    However, they were successful in persuading the DC that s. 3400.07(a) of the
CICA Handbook
permitted reliance on the
    reasonable probability that construction would be completed. The evidence about
    whether the Put was rescinded therefore became relevant and ultimately persuasive
    to this issue. The members were not surprised and not prejudiced by the DCs
    consideration of this evidence on these charges.

II: CHARGES 1(iv) AND 2(viii)  The First Treasury
    Transaction

[104]

The ICAO also appeals from the quashing of the
    convictions against Power and Russo on charges 1(iv) and 2(viii).

[105]

The Divisional Court quashed the convictions
    against Power and Russo on charges 1(iv) and 2(viii) relating to the First
    National transactions, on the basis that the DC had failed to explain why the
    conduct in question constituted such a significant departure from the standards
    of the profession so as to constitute professional misconduct.

[106]

These
    charges are inter-related, arising out of the same transaction.
In 1997, Livent entered into
    an agreement with First Treasury Financial Inc. to transfer receivables owing from
    Ford Motor Company arising out of the sale of naming rights to its Chicago and
    New York theatres. The First Treasury transactions were recorded as sales in
    1997. There was no note in the 1997 financial statements disclosing any
    contingency related to the transaction.

[107]

Charge 1(iv) alleged that
    the transaction did not meet the conditions required under GAAP to qualify as a
    sale (rather than as financing) because of First Treasurys right to seek
    recourse from Livent in certain circumstances.  Particular 2(viii) alleged that, having decided to treat the transaction
    as a sale, GAAS required the auditors to disclose in the financial statements
    the contingency that Livent had continuing obligations under the First Treasury
    agreement.

[108]

Power
    and Russo had initially determined that it was not appropriate to recognize the
    transaction as a sale. They subsequently accepted managements view that it was
    a sale because they considered the recourse provided by Livent to be reasonable
    in relation to the losses expected to be incurred on the receivables. They did
    not include a note disclosing possible recourse to a material amount of money.
    The defence experts agreed with their position.

[109]

In
    finding the members guilty of charge 1(iv), the DC held that the transfer
    should not have been treated as a sale under GAAP, and that the resulting $3.7
    million reduction of Livents liabilities in the 1997 audited financial
    statements was material. In addition, it found that having made the decision to
    treat the transaction as a sale, GAAS required the auditors to disclose the
    significant continuing obligations Livent had to First Treasury.  As the contingency was not disclosed, the DC
    found the members guilty of particular (viii) of charge 2.

[110]

The Divisional Court quashed
    Powers and Russos convictions on these two charges as unreasonable, finding
    that:

·

the DC did not provide any explanation or line of
    reasoning as to why Power and Russos
characterization
    of the First Treasury transaction was an error of judgment amounting to a
    breach of the standard, given the expert evidence before it:  at para. 232


·

even
if the DC was of the view that
    there was a breach of the standard, there was no explanation as to why the
    error in judgment was so significant a departure from the standards of the profession
    as to constitute professional misconduct:
paras.
    233, 239

·

the
DC appears to have misstated the concept of professional
    judgment by focussing on the correctness of the conclusion: para. 162

a.

Adequacy of reasons

[111]

After reviewing the standard
    of reasonableness in
Dunsmuir

v. New Brunswick
, [2008] 1 S.C.R. 190,
    the Divisional Court found the DCs decision to be unreasonable because the tribunal
    did not provide any explanation or reasoning as to why it rejected Powers and
    Russos evidence and that of their experts. The Court clearly viewed the
    evidence on these particulars, including the evidence of the experts, as
    establishing that these were matters of professional judgment within the range
    of acceptable standards: para. 229. The Court noted that both the prosecution
    expert and Chant testified that the assessment of the losses on the transferred
    receivables raised a question of professional judgment: paras. 227-28.

[112]

Having reviewed the evidence, the Divisional Court disagreed with the
    DCs findings of fact that the transactions should not have been treated as a
    sale of receivables given Livents retention of the foreign exchange risk. It
    was not entitled to do so. The DC was an expert tribunal dealing with
    professional standards and its finding was entitled to deference.

[113]

The reasons for decision in
    professional discipline cases must address the major points in issue in the
    case. A failure to deal with material evidence or a failure to provide an
    adequate explanation for rejecting material evidence precludes effective
    appellate review:
Gray v. Ontario
(2002
),
59 O.R. (3d) 364 (C.A.), at paras.
    22-24;
Law Society of Upper Canada

v. Neinstein
(2010), 99 O.R. (3d) 1
    (C.A.), at paras. 61 and 92.

[114]

A tribunal is not required
    to refer to all the evidence or to answer every submission.
In
    the words of this Court in
Clifford
v.
Ontario Municipal Employee Retirement System
(2009), 98 O.R. (3d) 2010 (C.A.), at para.
29,
leave to appeal refused [2009] S.C.C.A. No. 416, the DC was required to
    identify the path taken to reach its decision.  It was not necessary to describe every
    landmark along the way.

[115]

In my view, the Divisional
    Court erred in finding that the DCs decision was unreasonable because it did
    not provide adequate reasons for its decision. While very brief on the analysis
    of the particulars, the reasons of the DC disclose the basis for its decision.

[116]

The
    DC concluded that the transaction should not have been treated as a sale. There
    was evidence to support that finding. W
hile the DC adverted to the defence evidence, it
    preferred and accepted the opinion of Wiener and Chant that the transactions
    should not have been treated as a sale of receivables given Livents retention
    of the foreign exchange risk: at paras. 287-288. Chant, the auditing partner
    with the expertise in standards, had advised Power and Russo that, in his
    opinion,
there was no sale because Livent had retained
    the foreign exchange risk. The DC referred to E1C-9 Transfers of Receivables
    and the fact that foreign exchange risk was listed as one of the examples of
    the significant risk and rewards of ownership that should be transferred before
    the transfer may be recognized as a sale. The DC also referred to the fact that
    there was no support in the working papers for the members change of view on
    this issue. Further, it is implicit that the DC accepted the PCCs submissions
    that management wanted to avoid reporting a material $3.7 million dollar
    liability. The DC gave extensive reasons for finding that the members did not
    exhibit sufficient professional scepticism. I do not agree with the Divisional
    Court that professional scepticism played no role in these particulars.

[117]

With
    respect to charge 2(viii), the DC adverted to its findings that First Treasury
    had recourse against Livent and that Livent retained the foreign exchange risk:
    para. 325. The DC had found that First Treasurys recourse against Livent was
    material.
It is
    obvious that the DC did not accept the members evidence that the contingency
    relating to the recourse available to Livent on the transfer to First Treasury
    was unlikely or remote. The interpretation of professional standards fell
    within the expertise of the tribunal and its reasons are entitled to deference.

[118]

The reasons should be
    reviewed bearing in mind that this is a statutory tribunal comprised of non
    lawyers possessing training and expertise in the standards of their profession.
    The legislature determined that members of the self-governing profession are
    best qualified to determine whether the professionals fall short of the
    standards of professional conduct.

b.

Whether it amounted to misconduct

[119]

The Divisional Court
    considered that the DC at most made a finding of a mere error in professional judgment
    and did not examine whether the breach fell outside the range of acceptable conduct
    or was serious enough to constitute misconduct
. At para. 233, the
    Court stated:

However,
    even if the DC was of the view that there was a breach of the standard here,
    given their acceptance of Wiener and Chants evidence, it did not explain, in
    respect of charges 1(iv) and 2(viii), why the error in judgment was so
    significant as to constitute professional misconduct warranting disciplinary
    sanction. One may surmise that the DC was concerned about the impact of the
    error  that is, a failure to report a liability of $3.7 million, which was in
    excess of one percent of liabilities  but the DC did not expressly state that
    that was the basis for its finding.

[120]

I do not agree that the DC applied an incorrect test or that
    its decision was unreasonable in finding that Power and Russo committed
    professional misconduct.

[121]

Read as a whole, and in the
    context of an expert tribunal reviewing technical standards, the reasons
    provide the basis for its decision and are sufficient for appellate review.

[122]

The
    DC articulated the proper test and the requirement that any departure from the
    standards of the profession must be so significant that it constitutes
    professional misconduct: para. 54. Similarly, after making the findings that
    the particulars were proven, the DC specifically addressed the issue of whether
    the departures from the required standards and the failure to comply with GAAP
    constituted professional misconduct. It found
that the breaches by the members were significant
    enough, in and of themselves, to constitute professional misconduct:
paras. 327-29.

[123]

The
    DC measured both the nature of the departure and its impact. The auditors set
    materiality at $2 million.  The DC
    expressly found that the effect of the breach of the standard on the 1997
    financial statements was to understate Livents liability by $3.7 million,
    which exceeded the level of materiality the auditors themselves had set for the
    audit. By definition, for this expert tribunal, the impact of the breach was
    obvious and significant.

[124]

With
    regard to charge 2(viii), the facts underlying this particular were undisputed:
    the transaction had been treated as a sale and the fact of possible recourse
    for a material amount of money was not disclosed. The DC found the particular
    had been proven and referred in its reason to its earlier findings with respect
    to 1(iv) that First Treasury had recourse against Livent.

[125]

While
    t
he Divisional
    Court referred to these reasons as conclusory, the conclusion
did not require further elaboration. As experts, the DC understood the implication
    of failing to comply with GAAP and GAAS in these circumstances. Reading the
    reasons in their entirety reveals that the panel members turned their minds to
    the proper test, set out the issues and key evidence relied upon, applied their
    expertise and articulated their conclusions.

c.

The correctness standard

[126]

The DC noted at para. 237:

The panel heard considerable evidence about the
    exercise of professional judgment and what it entailed. One fundamentally
    important exercise of professional judgement at issue in this hearing related
    to the reasonable suspicions about the Put and the proper procedures, analysis
    and conclusions reached by the auditors to dispel these suspicions. The proper
    exercise of professional judgment requires the auditor to reach a correct
    conclusion. It is not enough for the auditor to have an appropriate process, to
    identify the issues and to correctly set out what should be done.

[127]

In
    the Divisional Courts view, the DC concluded that there was only one correct
    conclusion: the suspicions about the Put had not been dispelled. The Divisional
    Court stated, at para. 162, that the DC appears to have misstated the concept
    of professional judgment by focusing on the correctness of the conclusion in
    para. 237 of the DCs reasons.

[128]

I
    prefer the ACs interpretation of the DCs reference at para. 140:

What
    then is this standard of correctness? The Appeal panellists note that there is
    an ability among accountants when exercising professional judgment to reach a
    correct conclusion. That, however, does not mean that only one answer
    exists.  The Discipline Committees
    Reasons refers to
a
correct conclusion, not
the
correct
    conclusion.  The contrary argument about
    this text submitted by the appellants removes it from its context. [Emphasis
    added by AC.]

[129]

Finally,
the members submit
    that these charges are inherently inconsistent, and that contrary to the DCs
    express finding, this charge presumes the First Treasury transactions could be
    recorded as sales. However, the charges represent two different breaches
    relating to the same conduct. Charge 1(iv) relates to the auditors decision to
    account for the transaction as a sale in relation to GAAP. Having decided to
    treat the transaction as a sale, charge 2(viii) deals with the auditors
    failure to disclose the risk under GAAS. The DC was clearly alive to the fact
    that these charges arose out of the same transaction.

III: COSTS

[130]

Finally, the ICAO challenges the Divisional Courts
    decision to quash the DCs costs award. The Divisional Court concluded that the
    DC did not have the jurisdiction to order costs in that s. 17.1 of the
Statutory Powers Procedure Act,
R.S.O.
    1990, c. S.22

(SPPA), prevailed over
    the DCs by-law adopted pursuant to s. 8 of the
Chartered Accountants Act, 1956
,
S.O. 4-5
    Elizabeth II, c. 7.

[131]

The ICAO does not argue that the Divisional Court was
    wrong in its interpretation of the relevant legislation at the time of its
    decision. It submits that the Divisional Courts decision on costs should be
    overturned in light of s. 38 of the
Chartered
    Accountants Act, 2010
, S.O. 2010, c. 6, Sched. C, enacted two months after
    the Divisional Courts decision. The ICAO contends that the effect of s. 38 is
    to validate all costs orders that were made by the DC after December 6, 2000.

[132]

Section 38 of the new Act
    provides in part:

38. (1)
The
discipline committee may award the costs of a proceeding
    before it under section 35 or 36 against the member who or firm that is the
    subject of the proceeding, in accordance with its procedural rules
.

(3)  The
    costs ordered under subsection (1) or (2) may include costs incurred by the
    Institute arising from the
    investigation, including any further investigation ordered under subsection 35
    (4), prosecution, hearing and, if applicable, appeal of the matter that is the
    subject of the proceeding.
(4)  An
    order for costs made under
The Chartered Accountants Act, 1956
is deemed
    to have been validly made if the order was made,

(a)
on
or after December 6, 2000;

(b)
by
a committee established by by-laws made under clause 8 (1)
    (g) or (h) of that Act; and

(c)
in
respect of a proceeding referred to in subclause 8 (1)
    (g) (ii) of that Act or an appeal of that proceeding.



(6)  This
    section applies despite section 17.1 of the
Statutory Powers Procedure Act
.

[133]

Thus, the new Act expressly provides that s.
    38 takes precedence over s. 17.1 of the SPPA, which restricts when a tribunal
    may order costs. Section 38 also expressly applies to validate orders made on
    after December 6, 2000.

[134]

The members contend, however, that s. 38 does not have
retroactive
    effect. They refer to the presumption that legislation is not intended to be
    applied retroactively, and the presumption that the legislature does not intend
    to take away rights accruing under a judgment, even when it enacts retroactive
    legislation.

[135]

The members rely on
Zadvorny
    v. Saskatchewan v. General Insurance
(1985), 11 C.C.L.I. 256 (Sask. C.A.),
    leave to appeal to S.C.C. refused (1985), 60 N.R. 78. At para. 9 of the
    decision, the Court distinguishes between retroactively changing a law of
    general application and the extinguishment of a judgment. The Court states
    that it would take the clearest of language to deprive the respondent of his
    judgment. The Court expresses concern about depriving a plaintiff of the
    fruits of a successful suit.

[136]

Here, the members are not being deprived of the fruits
    of a successful suit. They have not obtained a judgment in a suit. Rather, they
    have been subject to disciplinary proceedings.

[137]

In my view, the language is sufficiently clear: s.
    38(4) expressly deems orders for costs to have been validly made if such an
    order was made on or after December 6, 2000 and the other conditions of the
    section are met. It is difficult to see why this provision would have been
    included in the new Act if it were not intended to validate costs orders
    retroactively.

[138]

I conclude that the effect
    of s. 38 of the
Chartered Accountants
    Act, 2010
is to retroactively validate the DCs costs award.

CONCLUSIONS

[139]

In conclusion, I would allow
    the ICAOs appeal, set aside the decision of the Divisional Court as it relates
    to charges 1(i), (iii) and costs, and reinstate the decision of the DC.

THE POWER AND RUSSO APPEAL (C52711)

[140]

The Divisional Court declined to quash the
    further findings of misconduct against
Power and
    Russo on charges 2(ii) to (v).  On
    appeal, Power and Russo challenge their convictions on these charges.

[141]

They submit that the DC found them guilty based upon
    the Put although it was not relevant to any of the charges, including these particulars;
    applied the wrong legal test for professional misconduct; and failed to
    adequately address the expert evidence that professional standards had not been
    breached.

[142]

This appeal raises many of the same issues
    discussed above in the ICAO appeal:

1.

did
the Divisional Court convict Power and Russo of something that was not the
    subject of the charges?

2.
Did the DC fail to apply
    the correct test for professional misconduct on charges 1(iv) and 2(viii)?

3.
Did the DC ignore the
    exculpatory evidence of the experts?

[143]

Under charge 2(ii), it
    was alleged that they failed to obtain sufficient appropriate audit evidence to
    properly assess the recoverability of preproduction costs because they failed
    to compare the 1997 production budgets prepared by management in 1996 to actual
    results in 1997 and thereby failed to ascertain the reliability of managements
    budget.

[144]

Under charge 2(iii),
    it was alleged that, in accepting an additional $27.5 million write-down of
    pre-production costs after the audit was virtually completed without
    reassessing managements representations throughout the audit, they failed to
    obtain sufficient appropriate audit evidence to enable them to express an
    unqualified opinion on the financial statements.

[145]

Under charge 2(iv), it
    was alleged that, having found cut-off errors (i.e., accounts payable recorded
    in the wrong period) in the testing of accounts payable, Power and Russo failed
    to re-evaluate the nature, extent and timing of planned audit procedures in
    violation of GAAS.

[146]

Finally, under charge 2(v), it was alleged that, having
    decided on a sample-based testing of additions to fixed assets, Power and Russo
    failed to obtain sufficient appropriate audit evidence for unsupported
    transactions.


[147]

For
    the reasons that follow, I would uphold the decision of the Divisional Court
    confirming the finding of misconduct in relation to these charges.

1. The DC was entitled to consider the evidence about the Put.

[148]

Power and Russo submit that
    the DC denied them a fair hearing by convicting them of alleged misconduct that
    was not the subject matter of the charges, or of the case led by the PCC.
    Further, they argue that while the Put may have been relevant to professional
    scepticism in carrying out their work, professional scepticism did not form
    any part of the charges 2(ii) to (v). Thus, they take the position that the
    Divisional Court erred in accepting the ACs observation that the real issue
    as to charges was whether Power and Russo had exercised sufficient
    professional scepticism in carrying out their work and that the DC had found
    that they had not.

[149]

I do not agree. Powers and
    Russos position is founded upon an overly narrow approach to the nature of the
    charges. The DC explained that professional scepticism was an integral part of
    professional judgment and was relevant to the members acceptance of audit
    evidence in this case. In its conclusion on whether the breaches constitute
    professional misconduct, the DC stated at para. 329:

As these departures individually constitute
    professional misconduct, it follows that collectively, they constitute
    professional misconduct. Also, collectively, they reveal the essential nature
    of the misconduct, namely an improper exercise of professional judgment with
    respect to the reasonable suspicions about the Put and the failure to
    reconsider their planned auditing procedures. The auditors said that their
    scepticism was sky high. However, with respect to the impugned conduct, the
    evidence disclosed that the auditors failed to exercise the professional
    scepticism required in the circumstances.

[150]

Furthermore, the DC examined
    each of the particulars individually and determined that the members had
    breached the relevant standards of the profession, and in some cases, their own
    audit guidelines. As noted by Power and Russo, charges 2(ii) to (v) all raise
    questions relating to GAAS.

[151]

In any event, for the
    further reasons set out above in relation to the ICAOs appeal, I would give no
    effect to this ground.

2. The DC applied the correct legal test for professional
    misconduct.

[152]

The issue of whether the DC misunderstood
    the concept of professional judgment and the applicable test for misconduct was
    also raised in this appeal. As noted above, I do not agree that the DC appears
    to have misstated the concept of professional judgment by focusing on the
    correctness of the conclusion in para. 237.

[153]

For the reasons set out in the ICAOs appeal relating
    to this issue, I would not give effect to this ground of appeal.

3. The DC did not ignore the expert evidence.

[154]

It is true that the DC did
    not refer extensively to the defence experts. It noted however that the experts
    did not have the benefit of hearing the evidence of Chant and the details of
    the events surrounding the Put in April 1998. The DC recognized that to the
    extent that the factual foundations for their opinions changed as the evidence
    unfolded, the expert opinions would be of little assistance. The AC, itself an
    expert tribunal, dealt extensively with the issue of the expert evidence that
    indicated that the members met professional standards. The AC concluded that
    there were sound reasons to question whether the defence experts provided the DC
    with a representative professional assessment and noted that they certainly did
    not provide a fully informed assessment.

[155]

It is clear from the reasons
    that the DC referred to the defence experts opinions: see, for example, paras.
    267, 287, 307, and 320. The decision is replete with instances where it
    accepted the opinions of the defence experts and found the members not guilty
    of misconduct on some particulars, including charge 2(vi).

[156]

Ultimately, these are
    findings of fact in a technical area by an expert tribunal.
The
    members turned their minds to the proper test, set out the issues and key
    evidence relied upon, applied their expertise and articulated its conclusions.
They are entitled to
    deference.

[157]

Accordingly, I would dismiss
    this appeal and affirm the decision of the Divisional Court upholding the
    convictions on charges 2(ii), (iii) (
iv
) and (v).

DISPOSITION

[158]

I would allow the ICAOs appeal and I would dismiss
    Powers and Russos appeal. The decisions of the DC, including the costs award,
    should be re-instated.

[159]

The ICAO should have its
    costs of both these appeals, fixed in the total amount of $60,000, inclusive of
    disbursements and applicable taxes, to be divided equally among Barrington,
    Power, and Russo.

RELEASED:  May 27,
    2011 AK

Karakatsanis
    J.A.

I
    agree Winkler C.J.O.

I
    agree S. E. Lang J.A.


APPENDIX A

THE CHARGES

1.

THAT,
    the said Anthony Power, Claudio Russo, Peter Chant and Doug Barrington, in or
    about the period January 1, 1998 to March 27, 1998, while involved as Lead
    Client Service partner, Audit Client Service partner, Advisory partner and
    Advisory partner respectively with Deloitte & Touche in an engagement to
    perform an audit of the consolidated financial statements of Livent Inc. as at
    December 31, 1997 (Financial Statements), and having attached to the
    Financial Statements an unqualified audit opinion, failed to perform their
    professional services in accordance with generally accepted standards of
    practice of the profession, including the Recommendations set out in the CICA
    Handbook, contrary to Rule 206 of the Rules of Professional Conduct, in that:

(i)

In
    accepting the client's recognition of $9.2 million as revenue on the sale of
    naming rights of the existing Pantages Theatre and a new theatre to be
    constructed to AT&T Canada Enterprises Inc., they failed to ensure that the
    Financial Statement complied with generally accepted accounting principles
    since all significant acts under the agreement had not been completed;

(ii)

In
    accepting the client's recognition of $7.7 million as revenue on the sale of
    naming rights of the Oriental Theatre in Chicago to Ford Motor Company, they
    failed to ensure that the Financial Statements complied with generally accepted
    accounting principles since all significant acts under the agreement had not
    been completed;

(iii)

In
    accepting the client's recognition of $5.6 million as revenue on the sale of
    density rights over the existing Pantages Theatre to Dundee Realty Corporation,
    they failed to ensure that the Financial Statements complied with generally
    accepted accounting principles since all significant acts under the agreement
    had not been completed;

(iv)

In
    accepting the client's recognition of a loss of $1.2 million on a transaction
    with First Treasury Financial Inc., they failed to ensure that the Financial
    statements complied with generally accepted accounting principles since the
    transaction should not have been accounted for as a sale when all the
    conditions required to account for the transaction as a sale were not met.

2.

THAT,
    the said Anthony Power, FCA and Claudio Russo, CA, in or about the period
    January 1, 1998 to March 27, 1998, while involved as Lead Client Service
    partner and Audit Client Service partner respectively with Deloitte &
    Touche in an engagement to perform an audit of the consolidated financial
    statements of Livent Inc. as at December 31, 1997 (Financial Statements), and
    having attached to the Financial statement an unqualified audit opinion, failed
    to perform their professional services in accordance with generally accepted
    standards of practice of the profession, including the Recommendations set out
    in the CICA Handbook, contrary to Rule 206 of the Rules of Professional Conduct,
    in that:

(i)

They
    failed to identify a change in accounting policy with respect to the
    amortization of preproduction costs and failed to ensure that there was
    disclosure of the change in this policy and the effect of the change on the
    Financial Statements;

(ii)

In
    having failed to compare 1997 production budgets prepared by management in 1996
    to actual results in 1997, they did not ascertain the reliability of
    management's budgets and accordingly, failed to obtain sufficient appropriate
    audit evidence to enable them to properly assess the recoverability of
    preproduction costs;

(iii)

In
    accepting an additional write-down of preproduction costs of specific shows
    totalling $27.5 million after the audit was virtually complete, they failed to
    reassess management's representations made throughout the audit and accordingly
    failed to obtain sufficient appropriate audit evidence to enable them to
    express an unqualified opinion on the Financial Statements;

(iv)

Having
    determined that a selection of 22 items was an appropriate sample size in their
    search for unrecorded liabilities, they found errors but failed to re-evaluate
    the nature, extent and timing of planned audit procedures;

(v)

Having
    decided on a sample based testing of additions to fixed assets, they failed to
    obtain sufficient appropriate audit evidence for unsupported transactions;

(vi)

They
    failed to identify that the amortization policy for preproduction costs as
    explained in the significant accounting policy note to the Financial Statements
    was not in conformity with the method followed by the Company in computing the
    amortization;

(vii)

They
    failed to disclose that the policy with respect to the translation of the
    foreign currency denominated financial statements of the subsidiary companies
    was not in accordance with generally accepted accounting principles in that the
    foreign subsidiaries were not financially and operationally independent as
    required to treat them as self-sustaining operations;

(viii)

They
    failed to ensure, in respect of a transaction with First Treasury Financial
    Inc., that the Financial Statements disclosed the contingency that First
    Treasury Financial Inc. had recourse against Livent under certain
    circumstances.





[1]
This is
    the handbook of the Canadian Institute of Chartered Accountants.


