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This research examines the application of professional judgement by the auditors for Sears Canada Inc. in the preparation of the company's 1989 financial operating and position statements. This examination is limited to the consideration of professional judgement applied to a specific aspect of the company's operation. The aspect of the Sears Canada operation examined involves the company's 44 percent equity interest in Photo Engravers & Electrotypers Limited, which is the company which prints Sears Canada catalogues.1

THE ASPECT OF SEARS CANADA'S OPERATIONS EXAMINED

Photo Engravers & Electrotypers Limited is an independent corporate entity, in which Sears Canada Inc. holds a 44 percent equity position. Although the company is an independent corporate entity, its operations are heavily dependent upon its business relationship with Sears Canada Inc.2 Approximately fourfifths of Photo Engravers' annual revenues are generated

1Sears Canada Inc., Annual Report 1989 (Toronto: Sears Canada Inc., 1990), 2, 11.

2Canadian Broadcasting Company, "Report on the Labor Dispute at Photo Engravers and Electrotypers Limited," Reported on "As It Happens," radio program, October 1989.

through the printing of catalogues for Sears Canada Inc.3 The loss of the Sears Canada catalogue business, thus, would be devastating for Photo Engravers.

In the Spring of 1989, the management at Photo Engravers lockedout union employees in a major labor dispute.4 As a consequence of the lockout position, Photo Engravers was unable to meet its commitments to print Sears Canada catalogues in 1989, and, at the time of the preparation of the 1989 financial operations and position statements, there were no firm indications as to when the labor dispute at Photo Engravers would be resolved.5

THE ACTUAL FINANCIAL EFFECTS FOR SEARS CANADAOF THE PHOTO ENGRAVERS LABOR DISPUTE

For 1989, the actual financial effects for Sears Canada of the labor...