The corporate governance landscape in Canada
The Sarbanes-Oxley Act started a revolution in corporate governance. Here's an overview of corporate governance in Canada
The Sarbanes-Oxley Act (SOX) was signed into law in the United States in July 2002. Since then, SOX has had a significant and lasting impact on corporate directors, CEOs, CFOs and auditors. The Canadian version of SOX has been introduced through various separate yet interrelated instruments and pieces of legislation over the past several years, making it a challenge for stakeholders to keep abreast of the regulatory requirements. To help directors, executives and companies understand what's required of them, Deloitte provides an overview of the The CSA's Revised Certification Flight Plan, a colour-coded graph that outlines what is required of each phase and when it comes into effect. The accompanying Annual certificate for CEOs and CFOs outlines what they are required to certify.
The first phase (represented in green boxes on the CSA's Revised Flight Plan ), required the CEO and the CFO to separately certify on the "content" of their quarterly and annual regulatory filings. This certification, which started in 2004, included statements that, to the best of their knowledge, there were no material misstatements or omissions and that the financial information fairly presented, with no reference to GAAP, the results of operations, cash flows and financial condition of the issuer.
The second phase (represented in orange) began in 2005, when the annual certificates were expanded to include a certification that the CEO and CFO had designed disclosure controls and procedures (DC&P) and evaluated their effectiveness to provide reasonable assurance that material information relating to the issuer, including its consolidated subsidiaries, is made known to them by others within those entities. This certification indicates that the CEO and CFO have instituted controls that ensure their knowledge is complete.
The third phase of the certification (represented by the top two purple boxes) will occur in the annual certificates for 2006, when the CEO and the CFO will be required to state that they have designed internal control over financial reporting (ICFR) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
The fourth phase of the certification process (represented by the final purple box) has not yet been finalized, and will come into effect at the earliest for year-ends ending on or after December 31, 2007. The fourth phase will require CEOs and CFOs of reporting issuers to evaluate the operating effectiveness of internal control over financial reporting (ICFR) on an annual basis. This certification process is intended to apply to all Canadian reporting issuers, including venture issuers.