On April 18, 2008, the Canadian Securities Administrators (CSA) issued Proposed National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings (the Proposed National Instrument). The Proposed National Instrument amends the proposal published for public comment on March 30, 2007. It sets out disclosure and filing requirements for all reporting issuers, other than investment funds, and is proposed to be effective for financial years ending on or after December 15, 2008. The objective of these proposed requirements is to improve the quality, reliability and transparency of annual filings, interim filings and other materials that issuers file or submit under securities legislation. The deadline for submission of written comments on the Proposed National Instrument is June 17, 2008.

Significant changes in the Proposed National Instrument
The Proposed National Instrument contains significant revisions to certain aspects of Multilateral Instrument 52-109.  The accompanying proposed Companion Policy, which describes how the provincial and territorial securities regulatory authorities intend to interpret and apply the provisions of the Proposed National Instrument, also includes significant additional and expanded interpretive material.  Many issuers will find that the Proposed National Instrument and related Companion Policy, taken together, will require careful consideration and, in many cases, likely result in changes to current assessments and related supporting documentation. 

The CSA has indicated that these revisions were made after extensive review and consideration of the comment letters it received and the feedback received through four roundtables held across the country to capture the views of smaller issuers.  Issuers are encouraged to read the Proposed National Instrument and Companion Policy in detail and to submit their comments by June 17, 2008. 
 
The following are the significant proposed changes to Multilateral Instrument 52-109: 

1. A new form of certificate for venture issuers, called the “venture issuer basic certificate”, is proposed. It no longer includes representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR);
2. Non-venture issuers must use a control framework to design its ICFR and must disclose the control framework used in the annual and interim certificates;
3. The threshold for reporting a weakness in ICFR is now a “material weakness” which is consistent with the corresponding U.S. definition.  The previously-proposed term “reportable deficiency” has been eliminated;
4. An issuer does not have to remediate a material weakness; however, an issuer must disclose
   • A description of the material weakness
   • The impact of the material weakness on the issuer’s financial reporting and ICFR
   • Any current plans or actions already undertaken for remediating the material weakness;
5. An issuer may limit the scope of its design of DC&P and ICFR to exclude controls, policies and procedures of a business that the issuer acquired not more than 365 days before the end of the financial period to which the certificate relates; and
6. The extent of guidance provided has been increased through an accompanying Companion Policy.

Recommended actions for issuers
Non-venture issuers
Non-venture issuers should reassess their current practices in light of the many proposed changes and the likely effective date of the Proposed National Instrument.  Non-venture issuers should determine whether they have followed a top-down, risk-based approach and have completed a risk assessment in an appropriate level of detail.  Non-venture issuers should also determine whether their internal controls are aligned with an established control framework and are appropriately designed, and placed in operation, to adequately mitigate financial reporting and disclosure risks.  Non-venture issuers should assess whether they have tested the design and operating effectiveness of DC&P and ICFR in line with the new proposals.  These assessments should be performed sufficiently in advance of year-end to allow for remediation of any control deficiencies, where necessary. A reasonable period of operating effectiveness in advance of year-end is prudent in order to assert operating effectiveness as at year-end.  The implications of existing civil liability for continuous disclosure provisions should be considered in determining the extent of control systems and evaluative procedures performed.  The expanded guidance in the Companion Policy should be carefully considered in the issuer’s assessment.

Venture issuers
While the CEO and CFO representations related to DC&P and ICFR are no longer included in the certificates, venture issuers should be aware that they are responsible for the quality, reliability and transparency of their annual filings, interim filings and other materials that they file. Additionally, the certifications concerning the completeness and accuracy of these filings and the fair presentation of the company’s financial statements and other financial information are still required with respect to CEO and CFO review of the company’s filings. 

The CEO and CFO of a venture issuer should ensure that they have designed and implemented appropriate procedures to enable the CEO and CFO to sign, in good faith, the proposed venture issuer basic certificate. Venture issuers should also satisfy themselves that they have conducted a reasonable investigation pursuant to existing civil liability for continuous disclosure provisions where such provisions are applicable (e.g., in Ontario, Quebec, Manitoba and British Columbia). 

For more information with respect to the Proposed National Instrument, how the Instrument may impact your organization, or for assistance in re-assessing your existing practices and/or assistance in responding to the Proposed National Instrument, please contact your local Deloitte professional.