August 28, 2006
Canadian Internal Control over Financial Reporting Rules Are Kicking In
Today we are going to give SOX 404 a break and focus on its Canadian cousin - Multilateral Instrument 52-109: Certification of Disclosure in Issuers' Annual and Interim Filings (MI 52-109).
The Canadian capital market is noteworthy for its decentralized approach to securities regulation (provincially run) and the strong market returns of the last few years.
The Canadian approach has been to take elements of SOX 302 (CEO/CFO Certifications) and SOX 404 (Internal Controls over Financial Reporting - ICFR) and combine them into MI 52-109 and then apply the rule across both TSX and TSX Venture filers.
The first phase of MI 52-109 associated with CEO/CFO certification of Disclosure Controls - Design and Evaluation has been in place for fiscal years ending on/after March 30, 2005.
The second phase of MI 52-109 associated with CEO/CFO certification of Internal Controls - Design is now kicking in for fiscal years on/after June 30, 2006. If our U.S. experience is any indication there are going to be lots of late nights in the coming months in Canada as ICFR teams rush to ensure that at least the Design portion of their ICFR projects is completed.
The third and proposed phase of MI 52-109 (click here to read - CSA Notice 52-313), commencing for fiscal years ending on/after December 31, 2007, will require all issuers to provide a Management Evaluation of Internal Controls and related CEO/CFO certification (similar to SOX 404) and detailed discussion within the MD&A with respect to ICFR evaluation process and results. However, as proposed this last phase will not require the dreaded auditor attestation from the "externals". So, on the one hand the issuer will save money with respect to external audit costs, but the issuer's board of directors takes on more responsibility and perhaps more liability with respect to errors made in the financial statements and "core" documents.
Stay tuned for upcoming Public and Industry input with respect to this third phase of MI 52-109 as it is anticipated that the various provincial securities regulators and the Canadian Securities Administrator (CSA) will be issuing an amended version of MI 52-109 after Labor Day.
It will be interesting to see if the CSA members attempt to include some form of "management guidance with respect to ICFR" as is being contemplated by the SEC to improve the clarity and efficiency of the SOX 404 process for issuers.
If you a Canadian-based issuer needing to either meet the requirements of MI 52-109 or SOX 404, please go to the website of our exclusive Canadian ICFR distributor, Thomson-Carswell, at www.compliancepartner.ca to learn more about their market leading MI 52-109/SOX 404 product - Compliance Partner(TM).
The Canadian capital market is noteworthy for its decentralized approach to securities regulation (provincially run) and the strong market returns of the last few years.
The Canadian approach has been to take elements of SOX 302 (CEO/CFO Certifications) and SOX 404 (Internal Controls over Financial Reporting - ICFR) and combine them into MI 52-109 and then apply the rule across both TSX and TSX Venture filers.
The first phase of MI 52-109 associated with CEO/CFO certification of Disclosure Controls - Design and Evaluation has been in place for fiscal years ending on/after March 30, 2005.
The second phase of MI 52-109 associated with CEO/CFO certification of Internal Controls - Design is now kicking in for fiscal years on/after June 30, 2006. If our U.S. experience is any indication there are going to be lots of late nights in the coming months in Canada as ICFR teams rush to ensure that at least the Design portion of their ICFR projects is completed.
The third and proposed phase of MI 52-109 (click here to read - CSA Notice 52-313), commencing for fiscal years ending on/after December 31, 2007, will require all issuers to provide a Management Evaluation of Internal Controls and related CEO/CFO certification (similar to SOX 404) and detailed discussion within the MD&A with respect to ICFR evaluation process and results. However, as proposed this last phase will not require the dreaded auditor attestation from the "externals". So, on the one hand the issuer will save money with respect to external audit costs, but the issuer's board of directors takes on more responsibility and perhaps more liability with respect to errors made in the financial statements and "core" documents.
Stay tuned for upcoming Public and Industry input with respect to this third phase of MI 52-109 as it is anticipated that the various provincial securities regulators and the Canadian Securities Administrator (CSA) will be issuing an amended version of MI 52-109 after Labor Day.
It will be interesting to see if the CSA members attempt to include some form of "management guidance with respect to ICFR" as is being contemplated by the SEC to improve the clarity and efficiency of the SOX 404 process for issuers.
If you a Canadian-based issuer needing to either meet the requirements of MI 52-109 or SOX 404, please go to the website of our exclusive Canadian ICFR distributor, Thomson-Carswell, at www.compliancepartner.ca to learn more about their market leading MI 52-109/SOX 404 product - Compliance Partner(TM).
