Summary of Revised Proposed NI 52-109
On April 18, 2008, the Canadian Securities Administrators (CSA) released a revised version of National Instrument 52-109 (NI 52-109) to repeal and replace Multilateral Instrument 52-109 for a 60-day comment period. The proposed NI 52-109 would require non-venture reporting issuers, other than investment funds, to report on the operating effectiveness of internal control over financial reporting for financial years ending on or after December 15, 2008.

The new proposed NI 52-109 contains significant amendments to the original proposal issued on March 30, 2007 including the following:

  • Certifying officers of venture issuers will no longer have reporting requirements relating to disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR).

  • Non-venture issuers will be required to use a control framework for the design of ICFR.

  • The previous concept of a “reportable deficiency” will be replaced with the concept of a “material weakness”, which will be the same as the U.S. definition.

  • Reporting issuers may exclude from the scope of its design of DC&P and ICFR the controls and procedures of businesses acquired within 366 days before the end of the financial period the certificate relates to.

  • The companion policy will include expanded guidance.

MNP Perspective
We anticipate that the CSA will receive significant pressure to delay the proposed effective date. However, given that the evaluation process for operating effectiveness can be a challenging process and the proposed effective date is only eight months away for issuers with a December 31 year end, we recommend that reporting issuers proceed with their compliance efforts on the presumption that the proposed effective date will be approved.

Companies that have effectively applied a top-down, risk-based approach to assess the design of ICFR will have a solid foundation for evaluating the operating effectiveness of ICFR. However, non-venture issuers should be taking advantage of the current decision period to address internal control gaps identified during the design phase and to develop a comprehensive evaluation plan.

We urge companies to commence testing the operating effectiveness of ICFR as soon as possible, at least on a limited sample size basis until the CSA makes a final decision. Companies acting now will be in a stronger position to support their operating effectiveness certifications with confidence.

For more information, contact the local MNP advisor in your area or Gordon Chan, CA, CFE, Director of Enterprise Risk Services at 1.877.500.0792.

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