From the Regulators

Firms could provide an unaudited version of their financials to clients who request them

By James Langton |

Securities regulators are proposing a new rule that would allow dealers to provide clients that request a copy of their financials with unaudited numbers.

The Investment Industry Regulatory Organization of Canada (IIROC) published for comment proposed amendments to its rule that requires dealers to provide clients with information about the firm's financial condition. The proposals would allow firms to provide an unaudited version of their financials to clients that request them.

IIROC's notice indicates this has become an issue with the adoption of new accounting and auditing standards, which would require auditors to conduct more extensive audits for a firm's financials that are provided to the public. The current financial disclosure that firms provide to clients reflects an audit that is only intended for the dealer and regulators.

"IIROC staff believe that expanded audit work would give rise to significant costs for many [dealers] and the regulatory benefits would be limited," it says in its notice. Instead, it is proposing to amend the rules so that firms can provide either audited or unaudited financials to clients. The notice says this would be "a cost effective and practical solution to address the independent auditors' concerns."

Rather than obtaining an auditor's report, the proposed amendments would allow firms to provide a new standard summary statement of financial position, and accompanying note disclosures, to clients on an unaudited basis. The new standard summary statement would be generated by the dealer, using the Securities Industry Regulatory Financial Filings system (SIRFF), and it would have to be certified by the dealer's chief financial officer.

IIROC notes that it is important for clients to be able to obtain a statement of the dealer's financial position, and that, "the clients receive comfort that the summary statement of financial position is based on either audited statutory financial statements or audited regulatory financial statements."

The proposals are out for comment until Sept. 24.