The deadline for comment on the Canadian Securities Administrators’ proposed new internal control reporting rules for public companies is June 30.

Proposed Multilateral Instruments 52-109 and 52-111 have the potential to affect Canada’s markets positively, but experience in the U.S. with the equivalent rules — Section 404 of the Sarbanes-Oxley Act (SOX) — shows it is critical to get the implementation right the first time, says the Institute of Chartered Accountants of Ontario (ICA0).

To ensure that the regulators received a wide range of opinions from financial professionals, ICAO recently partnered with the Ontario Chamber of Commerce to organize and facilitate a roundtable discussion bringing together senior finance and compliance officers representing organizations involved in industries ranging from banking and insurance to retail and manufacturing. The goal was to craft constructive recommendations to assist the CSA in developing new rules that would balance the rights of shareholders with the needs of business.

“At the roundtable, no one argued with the spirit of rules promoting improved internal control reporting and that the CSA was on the right track with their proposed changes to financial reporting requirements,” said Brian Hunt, ICAO president and CEO. “However, participants felt there must be fine-tuning of the regulations and a better explanation of how companies and auditors are to comply with them.”

Hunt added there is reason to be confident that the CSA is listening to input from the business community. In fact, on June 2, just hours after receiving the roundtable submission, the Ontario Securities Commission announced that it was extending the deadline for comment on the proposed measures from June 6 to June 30, 2005. That extension was the first of five recommendations made by the roundtable.

The other four roundtable submission recommendations, with some explanatory comments, are:

  1. The CSA and OSC publicly commit tothe same standards of compliance and enforcement that the U.S. Securities and Exchange Commission and Public Company Accounting Oversight Board (PCAOB) committed to on May 16, 2005. SEC and PCAOB have taken the position that many of the perceived problems associated with SOX 404 could have been avoided if the financial community better understood the regulation.
  2. The CSA and OSC specifically commit to high-level principles that will help define the assessment process proposed under 52-111 for all concerned.
  3. Establishing a Canadian equivalent to the Securities and Exchange Commission Advisory Committee on Smaller Public Companies to look for ways to help small companies comply. The SEC is looking at ways to make it easier for small issuers to meet the requirements of SOX and, with proportionately more small issuers, Canada’s regulators need to take a similar approach.
  4. Reassuring audit firms that the use of reasonable judgment will be recognized and respected by regulators. Auditor conservatism, spurred by increased liability, played a role in the U.S. implementation problems

.