Compliance Blog

Given the massive amounts of publicity that Sarbanes-Oxley Section 404 has gotten ever since its adoption in 2002, the Canadian legislators have had a chance to see what the American experience and leadership has brought out over the last three years.

Canadian legislative approach has been to be somewhat equal to the US legislation but not more stringent. So they have chosen to take a position that makes public companies accountable for their disclosure and internal controls over financial reporting. Wise move. Good strategy.

With ever more restatements by public companies, not the least of which is Nortel, Canadian companies are not exempt from problems in investor confidence. Hopefully, Nortel does not set a record on number restatements. So no country is exempt from corruption.

• Where there is capitalism, there is the potential for fraud. The CSA has wisely decided to keep this need for money and growth with public company accountable.
  
  Canadian public companies have the choice to take this seriously or not. The $64,000 question is whether they will take 52-109 as seriously as they did the proposed 52-111. Without the auditor attestation, it is all up to the CFO and CEO. Little outside oversight except for the provision to discuss the process for internal controls over financial reporting in the MD&A.
  
  The recommendation to eliminate auditor attestation was taken from the SEC Advisory Committee for Smaller Public Companies recommendations published December 2005.
• Their recommendation was to stratify the companies based on market cap and a revenue threshold and have the smallest public companies (below $128 Million in market cap and below $10 million in revenue) be exempt from signing Section 404 but still sign Section 302 which discusses internal controls as well as report material weaknesses).
• The next category, below $787 million and below $250 million in revenue would perform the Section 404 activities but not be subject to Auditor Attestation). These are still proposed but look likely to be adopted.

So Canadian public companies have the opportunity to step up to the plate and take this legislation seriously. If they do not, the CSA stands ready to institute the auditor attestation.

Early indications are that Canadian public companies are taking this opportunity to do a good job and avoid more cost and headaches that are associated with the revised Canadian legislation.

If your company is based in Canada and must work to document both disclosure controls and internal controls over financial reporting, see www.compliancepartner.ca . If your company is based in the US or other nations, see www.issuescentral.com to see how you can rapidly and effectively document internal controls and test their effectiveness.