New certification rules
by Allan Cheskes

In March 2006, the Canadian Securities Administrators (CSA) announced it would not require Canadian reporting issuers to file independent auditor reports on the effectiveness of the company’s internal controls over financial reporting (ICFR). Instead of proceeding with a proposal similar to the much-publicized Section 404 of the Sarbanes-Oxley Act of 2002 (SOX S. 404) in the United States, the CSA is proposing National Instrument 52-109 (NI 52-109). NI 52-109 is viewed by some as an attempt to avoid the perceived high costs of SOX S. 404-type compliance by increasing management’s accountability for ICFR.

The key new proposed rules, effective for fiscal years ending on or after June 30, 2008, would require company CEOs and CFOs to certify their evaluation of the effectiveness of their ICFR, and:

• That they have disclosed to the issuer’s auditors, Board of Directors and Audit Committee any fraud involving management or others who have a significant role in the ICFR;
• That the issuer’s management discussion and analysis (MD&A): describes the process used to evaluate the controls; discloses the CEO and CFO’s conclusions about the effectiveness of the controls; and identifies reportable deficiencies and describes related remediation plans.

The proposed rules will also make changes to existing requirements to allow certifying officers to qualify their certification of the design of disclosure controls and procedures (DC&P) under certain circumstances.

Under the current rules, a Canadian reporting issuer’s CEO and CFO must certify the following:

• That filings don’t contain any misrepresentations;
• That financial information fairly presents the condition of the company and results from operations and cash flows;
• The design of DC&P;
• An evaluation of the effectiveness of DC&P (included in annual certificate only);
• The disclosure in MD&A of conclusions about the effectiveness of DC&P (included in annual certificate only);
• The design of ICFR;
• The disclosure in MD&A of any recent changes in the issuer’s ICFR.

Allan Cheskes is an Assurance & Advisory Partner with the Public Company Team. He can be reached at (416) 644-4381 or by e-mail at allan_cheskes@mintzca.com.

The Statement is an e-newsletter written by the Public Company Team of Mintz & Partners LLP. Please go to http://www.mintzca.com/index.php?section=pcdirectory to learn more about our Public Company Team The issues raised are for information purposes only. Readers are urged to contact their professional advisors before acting on the basis of the material contained herein.

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