Canada's MI52-109 avoids AS2 fault.

This spring, the Canadian Securities Administrators (CSA) released its proposed revisions to the controversial Multilateral Instrument 52-109 (MI52-109-Certification of Disclosure in Issuer's Annual and Interim Filings), an approach for additional provisions relating to internal control over financial reporting (ICFR), known as "SOX 404 North."

The main point of departure from the U.S. version is that CSA does not require an issuer to obtain an internal control audit opinion concerning management's assessment of the effectiveness of ICFR. This was met with a collective sigh of relief from the majority of FEI members.

Another difference relates to the definitions of significant deficiency/material weakness in internal controls, in Canadian English a "reportable deficiency." The differences between the two definitions reflect three underlying issues. First, Canadian regulators were intent on avoiding the interpretive complexities, and what could be considered definition myopia, that occurred in the U.S. under Auditing Standard 2. Second, under MI52-109, the assessment and evaluation of the severity of a reporting deficiency is left up to management and, ultimately, to the "reasonable person" reading the companies' financial reports.

Finally, with MI52-109, though reporting deficiencies must be disclosed in the company's MD & A, there is no formal regulatory requirement to remediate. In this way, market participants will decide whether a deficiency should be remediated, essentially by voting with their feet.

The auditor's role seems to have been relegated to the position of risk consultant. However, there may still be some indirect, yet important external audit implications resulting from MI52-109.

While it's too early to tell, it has been suggested that MI52-109 will have the same benefits of SOX 404, but without the significant audit and management costs ... or so Canadians hope.

--Contributed by Ramona Dzinkowski ([e-mail])