ISSUE 465: The high-tech office- Sept
The Year 2000 bug is moving from a tech issue
to a broader social and business problem
As we get closer to the end of this millennium,
it becomes clear that the Year 2000 situation is moving from purely a
technology issue to a much broader social and business problem.
Here are some of the ways the Y2K crisis is making
news among accountants, lawyers and the insurance industry.
The Canadian Institute of Chartered Accountants
has released Y2K guidelines for accountants and auditors. Canada is the
first G7 country to require Y2K-preparedness financial disclosures.
In an August 10 story in Computing Canada,
CICA president Michael H. Rayner stated that the Canadian
Accounting Standard Board is requiring both public and private
companies to indicate in their financial statements whether they could
experience Y2K-related problems. The idea is to make potential
investors aware of potential mishaps.
In most circumstances, a minimal statement discussing
the uncertainty of future financial results caused by the issue is all
that is required.
As well, companies are encouraged to disclose
qualitative information about this issue in communications with
stockholders through media such as annual reports.
Rayner pointed out that currently these are only
required for companies filing financial statements under the terms of
the GATT trade and tariff agreement, but that similar disclosures may
soon be required by banks, stock exchanges and others.
He noted that even companies that feel that they are
Y2K-compliant should point out the uncertainty stemming from the
potential for problems somewhere along their supply chain.
As far as auditors are concerned, they are not
responsible for providing assurance that a business is Y2K-ready, but
rather for discovering errors or misstatements in the financial
statements. Copies of the guidelines are available at www.cica.ca.
Similarly, the Canadian Bar Association's
Working Group on the Year 2000 has reported in.
That group's document, Countdown to 2000: The
legal issues, is available for download from the CBA Web site (www.cba.org).
Locally, the law firm of Clark, Wilson is
publishing The Millennium Challenge, subtitled "A Y2K Risk
Management Newsletter for Business."
The summer issue includes information on directors'
and officers' liability, which notes that "directors and officers may
be personally liable." As well, there are reviews of Y2K lawsuits that
have already begun to appear on the court dockets.
For copies, call Clark, Wilson at 687-5700 or e-mail firstname.lastname@example.org.
Meanwhile, you don't have to worry about losses due to
Y2K -- you're insured, right?
Maybe not. The insurance industry is trying to exclude
damage due to Y2K issues from business coverage. Customers, of course,
are not impressed.
According to an August 14 InfoWorld article,
insurers suggest that customers have known about the possibility of
loss due to Year 2000 problems and therefore those losses are not
fortuitous (i.e., unexpected).
Up until now, insurance compan-
ies have been undecided whether
to add specific wording excluding Y2K losses, since that might imply
that such losses were covered under previous policies.
However, reinsurers, who insure the insurance
companies, have indicated that they will no longer cover policies that
lack such exemptions; expect to see them showing up in policies written
or renewed by the end of the year.
It's suggested that multiyear policies extending
beyond 2000 may not include such exemptions and might be the best bet
for businesses looking for coverage that includes Y2K-related losses.
And if you can find coverage, expect to pay a hefty
According to William Kelly, president of the International
Federation of Risk and Insurance Management Associations, some
proposed policies would provide a maximum of US$200 million coverage,
but cost US$20 million.
It's been pointed out the cash reserves of the entire
North American insurance industry total US$380 billion, while some
estimates of Y2K litigation could reach US$1 trillion.
The Millennium Challenge newsletter ends with
this disclaimer: "The information contained in this newsletter should
not be treated by readers as legal advice, and ought not be relied on
without legal counsel being sought."
I'm neither an accountant, a lawyer nor an insurer;
this column can't give you the final word on how to deal with the
effects of the Year 2000 in any of those areas. But it is clear that
the Year 2000 will have broad-reaching effects.
It's not going to be enough to make sure that your
computers are Y2K-
You absolutely need to be aware of the potential
effects in all areas of your business. *