Staff of several of the provincial securities regulators announced that they will soon begin compliance reviews of audit committees, focusing on two aspects of the audit committee rule—the composition of the audit committee and its responsibilities.

Public companies must comply with Multilateral Instrument 52-110, Audit Committees, beginning on the earlier of (a) the date of the first annual meeting of shareholders after July 1, 2004; and (b) July 1, 2005. To comply with the rule, public companies must do the following:

  • Replace any audit committee members that are not "independent", as defined in the audit committee rule.
  • Replace any audit committee members who are not financially literate unless they agree to become financially literate within a reasonable period of time.
  • Adopt an audit committee charter that meets the requirements set out in the audit committee rule.
  • Adopt a policy for the preapproval of all non-audit services to be provided by the external auditor unless the audit committee will specifically preapprove every engagement to be carried out by the auditor.
  • Develop whistleblower procedures for the (a) receipt, retention and treatment of complaints about accounting, internal control or auditing matters; and (b) confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
  • Develop procedures for the review of corporate disclosure that is derived or extracted from the financial statements, and periodically assess those procedures.
  • Adopt a policy regarding the hiring of current and former partners and employees of the current and former external auditors.
  • Disclose in the annual information form the mandated disclosure about audit committees.

A copy of CSA Staff Notice 52-309, Multilateral Instrument 52-110 Audit Committees Compliance Review, is available on the Ontario Securities Commission’s website at

www.osc.gov.on.ca/Regulation/Rulemaking/Current/Part5/csa_20050506_52-309_mi-52-110-auditco.jsp

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