Anonymised, illustrative composite. Four acquisitions closed within two years. Four sets of books kept arriving in four different shapes, and none of them added up to one number the fund could report to its own investors.
At a glance
A platform acquired four operating businesses in the same industrial services sector over roughly two years, integrating each as a wholly owned subsidiary rather than merging their legal entities. Each business kept its existing bookkeeping arrangement after closing — in two cases an outsourced bookkeeper, in one an in-house controller, and in the fourth, a family member who had kept the books informally for years before the sale.
The result, eighteen months post-close, was four sets of monthly financials that each looked internally consistent but did not add up to one coherent consolidated picture. One subsidiary recognized revenue on invoicing, another on cash receipt. Two used different methods for costing work-in-progress inventory. Each company’s own definition of “adjusted EBITDA” included a different set of add-backs, none of them documented in writing.
None of this was unlawful at any single entity — each subsidiary was free to keep its books in whatever manner its own management chose, so long as the records were adequate. It became a real problem the moment the fund tried to report one consolidated set of numbers to its lender under a credit facility covenant, and a separate, comparable set to its own limited partners as part of quarterly reporting on the platform’s performance. Four different accounting conventions, added together, do not produce one trustworthy number; they produce an average of four different definitions of the same line item.
The operating partner’s instinct was to simply mandate uniformity from the top, but counsel flagged the legal boundary of that instruction: each subsidiary remains a separate corporation with its own statutory bookkeeping duty running to its own board, not a division of the parent that could simply be told what to do without a documented, adopted policy at each entity’s own level.
Four subsidiaries, four bookkeeping arrangements, one credit facility covenant and one limited partner reporting cycle that both required a single, comparable consolidated number — the mismatch surfaced first as a covenant compliance headache, and only then as the deeper policy problem it actually was.
Each subsidiary’s own record-keeping duty comes from CBCA s. 20(2), which requires every corporation to “prepare and maintain adequate accounting records,” and s. 20(2.1) requires those records to be retained for six years after the end of the financial year to which they relate. The same retention duty exists on the tax side: ITA s. 230(4)(b) requires books and vouchers to be kept “until the expiration of six years from the end of the last taxation year to which the records and books of account relate,” and s. 230(4.1) requires electronic records to be kept “in an electronically readable format” for the same period. Neither provision runs to the group; each runs separately to each of the four corporations, on each corporation’s own taxation year.
Harmonizing accounting policy therefore had to be layered on top of each entity’s own statutory duty, not substituted for it — and the boundary between what is prescribed and what is not needs stating precisely, because it is easy to get backwards. A CBCA corporation’s annual financial statements are not unregulated. Section 155(1)(a) requires the directors to place prescribed comparative financial statements before the shareholders at every annual meeting, and s. 71(1) of the Canada Business Corporations Regulations, 2001 requires those statements to “be prepared in accordance with Canadian GAAP” — defined in s. 70 as the principles set out in the CPA Canada Handbook — Accounting, with US GAAP available only to an SEC registrant, and s. 71(7) requiring a note saying which was used. Four subsidiaries filing four differently prepared sets of annual statements is therefore a compliance question, not merely an inconvenience.
What is genuinely unprescribed is everything the platform actually wanted. No provision dictates a common chart of accounts across a corporate group, mandates a single revenue-recognition trigger for internal reporting, or defines “adjusted EBITDA” at all — that measure is a negotiated construct, and the add-backs behind it are argued deal by deal. The platform did not find, and did not invent, a Canadian standard dictating the answer to those questions, because there is none.
The fix the fund adopted was its own designed convention, adopted formally at each subsidiary rather than imposed informally from the platform level: a board resolution at each of the four companies adopting a common chart of accounts, a single revenue-recognition policy tied to delivery rather than invoicing or cash receipt, one inventory-costing method, and one written definition of the add-backs permitted in reporting adjusted EBITDA to the fund’s lender and limited partners. The convention was disclosed to both as exactly that — the sponsor’s own reporting policy, sitting alongside rather than in place of the Canadian GAAP annual statements each of the four corporations still has to put before its own shareholders under s. 155(1)(a).
The negotiating-side counterpart to this file — whether the same three or four commonly owned businesses can lawfully coordinate on purchasing as well as on reporting — runs through a shared purchasing programme across three sites.
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