For financial periods ending on or after December 15, 2008, the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") will certify annually the effectiveness of internal controls for financial reporting ("ICFR"). In addition, both the annual and interim certificate must include a statement identifying the control framework used to design ICFR.
Issuers listed on the TSX Venture Exchange ("TSX-V") and other "venture issuers" will not be subject to the above.
On April 18, 2008, the Canadian Securities Administrators ("CSA") published a revised instrument with respect to certifications by the CEO and CFO and ICFR. The final version of the revised instrument (National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings) was published on August 15, 2008 and will apply to annual and interim financial periods ending on or after December 15, 2008, subject to ministerial approval. The final version was not modified materially from the April 2008 version.
Annual Certificate & MD&A: Evaluation of ICFR
Under the revised instrument, the CEO and CFO of a non-venture issuer will certify in the annual certificate that:
- they have evaluated the effectiveness of the company's disclosure controls and procedures ("DC&P")and ICFR at the financial year end;
- the company has disclosed the conclusions of the CEO and CFO with respect to the effectiveness of DC&P and ICFR in its annual management's discussion and analysis ("MD&A"); and
- the company has disclosed in its annual MD&A a description of any material weakness relating to the operation of ICFR, its impact on financial reporting and ICFR, and the company's plans, if any, or any actions already undertaken, to remediate the material weakness.
The annual certificate will also include a certification that the certifying officer has disclosed to the auditors and the board or audit committee any fraud that involves employees who have a significant role in ICFR.
Annual & Interim Certificates and MD&A: Disclosure of Design Weakness in ICFR
Both the annual and interim certificate of a non-venture issuer will include a certification that the company has disclosed in its annual or interim MD&A, as applicable:
- a description of any material weakness relating to the design of ICFR, its impact on financial reporting and ICFR, and the company's plans, if any, or any actions already undertaken, to remediate the material weakness; and
- any change in its ICFR that occurred during the period that has materially affected, or is likely to materially affect, the company's ICFR.
"Material weakness" means a deficiency, or a combination of deficiencies, in ICFR such that there is a reasonable possibility that a material misstatement of the reporting issuer's annual or interim financial statements will not be prevented or detected on a timely basis.
Both the annual and interim certificate of non-venture issuers will include a statement identifying the control framework used to design ICFR.
Suggested control frameworks that may be used to design the issuer's ICFR include:
- Risk Management and Governance: Guidance on Control ("COCO Framework"), formerly known as Guidance of the Criteria of Control Board, published by the Canadian Institute of Chartered Accountants;
- Internal Control – Integrated Framework ("COSO Framework") published by The Committee of Sponsoring Organizations of the Treadway Commission;
- Guidance on Internal Control ("Turnbull Guidance") published by the Institute of Chartered Accountants in England and Wales; and
- Internal Control over Financial Reporting – Guidance for Smaller Public Companies published by COSO (addresses implementation of the COSO Framework by smaller companies)
The company may limit the scope of its design of DC&P and ICFR to exclude:
- a business that the issuer acquired not more than 365 days before the end of the financial period to which the certificate relates;
- a proportionately consolidated entity; or
- a variable interest entity.
Such limitations in scope must be stated in the annual and interim certificate and disclosed in the annual and interim MD&A. The limitation in scope for a proportionately consolidated entity or variable interest entity is only available where the certifying officers do not have sufficient access to the entity to design and evaluate controls, polices and procedures carried out by that entity.
Venture issuers are reporting issuers that are not listed on the Toronto Stock Exchange or an exchange or quotation and trade reporting system outside of Canada (not including certain markets such as the Alternative Investment Market of the London Stock Exchange). Venture issuers are not required to provide the certification and MD&A disclosure described above, although they may do so. Instead, the CEO and CFO of a venture issuer, such as a company listed on the TSX-V, will be required to provide a venture issuer basic annual and interim certificate essentially to the effect that:
- they have reviewed the annual or interim filings, as applicable;
- there are no misrepresentations in the filings; and
- the filings fairly present the financial condition of the company.
Both the annual and interim certificate for a venture issuer will contain cautionary language describing how the venture issuer basic certificate is different from the full certificate required for non-venture issuers.
The basic certificates described above have already been adopted by many venture issuers pursuant to a CSA Notice in November 2007 and subsequent actions by the provincial securities regulatory authorities permitting them to do so.
Alternative Interim Certificates and Exemptions
An alternative form of certificate, similar to the venture issuer basic certificate, may be filed for the first financial period after becoming a non-venture issuer, after an initial public offering or after certain reverse take-over transactions ("RTOs").
In addition, certain exemptions will be provided for financial periods ending before the issuer became a reporting issuer or before the completion of an RTO.
The above is a brief summary of National Instrument 52-109. Issuers will be required to use the prescribed form of each certificate contained in the revised instrument. Reference should be made to the revised instrument and Companion Policy in their entirety for further information.