March 13, 2006
Canadian Securities Administrators (CSA) Release Proposals on Harmonized Internal Control Reporting Requirements
Last Friday (just before the start of March school break for many Canadians) the CSA, which is the council of the securities regulators of Canada’s provinces and territories, announced a proposal (CSA Notice 52-313)that would both streamline the scope of internal control over financial reporting (ICFR) activities, while expanding the base of public companies required to address ICFR requirements.
Key highlights are:
1. All TSX (no surprise) and TSX-V companies (pleasant surprise), including those based in British Columbia, would be required to meet the expanded ICFR requirements as proposed under an expanded Multi-Lateral Instrument 52-109: Certification of Disclosures in Issuer's Annual and Interim Filings. These new requirements to begin for issuers' with fiscal years on or after December 31, 2007, will ask for a) management's evaluation and certification as to the effectiveness of ICFR, and b) a discussion of ICFR in the MD&A portion of the issuer's annual report (quite innovative).
2. Multi-Lateral Instrument 52-111: Reporting on Internal Control Over Financial Reporting is to be eliminated. Of particular note in MI 52-111 was the requirement for external auditor attestation on the effectiveness of the issuer's internal controls. The latest announcement eliminates this requirement and the related auditing expense. There will be tears and cheers on this front.
3. All TSX and TSX-V companies, excluding investment funds, will be required to meet the expanded MI 52-109 requirements for fiscal years ending on or after December 31, 2007. There will be no time phasing based on market capitalization.
4. The previous ICFR components of MI 52-109 in terms of "management must cause internal controls over financial reporting to be designed and implemented" are still in place and are on-track to begin phasing in as of June 30, 2006.
5. Canadian companies that are listed on both U.S. exchanges and Canadian exchanges will still need to comply with Sarbanes-Oxley. Depending on their market cap/revenue, they may or may not have auditor attestation under Section 404. This will depend on upcoming adoption of smaller public company recommendations being contemplated by the S.E.C.
All in all, the CSA appears to have taken a thoughtful approach to helping to ensure improved investor confidence while reducing the costs associated with typical SOX projects for SEC-based filers (particularly the auditor attestation cost and related auditor "chill").
As this blogger suggested to the CSA/OSC, in a letter last year (June 29, 2005), it is important to come up with a common standard for all public companies on this issue. Taking the public's money brings with it common responsibilities regardless of company size.
For more information on how both Canadian-based TSX and TSX-V companies can strengthen their ICFR, please go to the Compliance Partner(tm) website: www.compliancepartner.ca. For more general information on ICFR for US-based SOX filers please go to www.issuescentral.com.
Last Friday (just before the start of March school break for many Canadians) the CSA, which is the council of the securities regulators of Canada’s provinces and territories, announced a proposal (CSA Notice 52-313)that would both streamline the scope of internal control over financial reporting (ICFR) activities, while expanding the base of public companies required to address ICFR requirements.
Key highlights are:
1. All TSX (no surprise) and TSX-V companies (pleasant surprise), including those based in British Columbia, would be required to meet the expanded ICFR requirements as proposed under an expanded Multi-Lateral Instrument 52-109: Certification of Disclosures in Issuer's Annual and Interim Filings. These new requirements to begin for issuers' with fiscal years on or after December 31, 2007, will ask for a) management's evaluation and certification as to the effectiveness of ICFR, and b) a discussion of ICFR in the MD&A portion of the issuer's annual report (quite innovative).
2. Multi-Lateral Instrument 52-111: Reporting on Internal Control Over Financial Reporting is to be eliminated. Of particular note in MI 52-111 was the requirement for external auditor attestation on the effectiveness of the issuer's internal controls. The latest announcement eliminates this requirement and the related auditing expense. There will be tears and cheers on this front.
3. All TSX and TSX-V companies, excluding investment funds, will be required to meet the expanded MI 52-109 requirements for fiscal years ending on or after December 31, 2007. There will be no time phasing based on market capitalization.
4. The previous ICFR components of MI 52-109 in terms of "management must cause internal controls over financial reporting to be designed and implemented" are still in place and are on-track to begin phasing in as of June 30, 2006.
5. Canadian companies that are listed on both U.S. exchanges and Canadian exchanges will still need to comply with Sarbanes-Oxley. Depending on their market cap/revenue, they may or may not have auditor attestation under Section 404. This will depend on upcoming adoption of smaller public company recommendations being contemplated by the S.E.C.
All in all, the CSA appears to have taken a thoughtful approach to helping to ensure improved investor confidence while reducing the costs associated with typical SOX projects for SEC-based filers (particularly the auditor attestation cost and related auditor "chill").
As this blogger suggested to the CSA/OSC, in a letter last year (June 29, 2005), it is important to come up with a common standard for all public companies on this issue. Taking the public's money brings with it common responsibilities regardless of company size.
For more information on how both Canadian-based TSX and TSX-V companies can strengthen their ICFR, please go to the Compliance Partner(tm) website: www.compliancepartner.ca. For more general information on ICFR for US-based SOX filers please go to www.issuescentral.com.
