The Canadian Securities Administrators, with the exception of the B.C. Securities Commission, has published instruments setting out proposed internal control measures for Toronto Stock Exchange-listed issuers and modifying certification requirements for all publicly traded issuers.

The CSA says the objective of the proposals is to improve the quality and reliability of financial statements and other continuous disclosure by reporting issuers.

The CSA believes that this in turn will help to maintain and enhance investor confidence in the integrity of our capital markets.

Similar requirements were introduced first in the U.S. as part of the Sarbanes-Oxley Act, although the internal controls provision has been very controversial, as it has proved very expensive for companies.

The CSA notes that it did consider proposing alternative instruments or policies which would contain less onerous or different requirements. In evaluating each of these alternatives, its considered its potential to achieve the following objectives:

  • improvement in the quality and reliability of financial reporting in Canada;
  • promotion of an “internal control culture” through an enhanced focus on internal control over financial reporting in Canada; and
  • maintenance and enhancement of the reputation of the markets.

“We also balanced these objectives with the transparency of the alternative to the marketplace, the costs of compliance for issuers and the practicality of the alternative from the perspective of issuers, their auditors and the securities regulatory authorities,” it says, noting that none of the alternatives met all of the objectives as well as its proposals.

The provisions regarding internal control reports and internal control audit reports will apply for financial years ending on or after June 30, 2006.

There are three exemptions from this implementation date which result in implementation of the Proposed Internal Control Instrument being phased-in over four years: issuers with a market capitalization of $250 million or more but less than $500 million are exempt from the reporting requirements for financial years ending on or before June 29, 2007; issuers with a market capitalization of $75 million or more but less than $250 million are exempt from the reporting requirements for financial years ending on or before June 29, 2008; and, issuers with a market capitalization of less than $75,000,000 are exempt from the reporting requirements for financial years ending on or before June 29, 2009.

Market capitalization will be calculated on the basis of a 20 trading-day weighted average as of June 30, 2005.


Copies of the proposed instruments and explanatory staff notice are available on several CSA members’ Web sites.

Comments on the proposals are requested by June 6, 2005.