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On June 27 2003 most securities regulators in Canada published for comment draft rules regarding audit committees, the certification of financial disclosure and auditor oversight for public companies. These rules are substantially similar to the Sarbanes-Oxley Act, related SEC rules and proposed New York Stock Exchange and Nasdaq listing requirements. The final version of these rules will likely become effective on January 1 2004. If implemented, these new rules will require:

  • most senior issuers to have an audit committee comprised of at least three independent and financially literate directors, meaning that the issuer's board must be of the view that committee members have no material relationships with the issuer and the committee members must be able to read and understand financial statements.
  • external auditors to report directly to the audit committee.
  • annual public disclosure of certain information regarding the audit committee and its activities.
  • audit committees to, among other things:
    1. have a written charter outlining their mandate;
    2. be directly responsible for overseeing the auditor;
    3. pre-approve all non-audit services provided by the auditor;
    4. review all financial statements, management's discussion and analysis and earnings press releases before public disclosure; and
    5. establish procedures for the anonymous submission of concerns regarding questionable accounting practices.

The rules will also require the certification of financial disclosure.

In particular, chief executive officers and chief financial officers of most issuers will have to personally certify, based on their knowledge, that (a) their issuer's annual and interim filings do not contain any misrepresentations and fairly present the issuer's financial condition, results of operations and cash flows, and (b) they are responsible for establishing, maintaining, and annually evaluating the effectiveness of, disclosure controls and procedures and internal controls.

Finally, relating to auditor oversight, issuers will be obligated to file only auditor's reports issued by audit firms in good standing with the Canadian Public Accountability Board.

Bryce Kraeker and Kathleen Ritchie

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