Essay About Ontario Securities Commission And Canada’S Response

Canada’s Response to Sarbanes Oxley
Joanne JonesThe articles, Why Good Accountants do Bad Audits and Enron as a Symptom of Audit Process Breakdown both discuss the ability of regulations (specifically Sarbanes Oxley) to improve auditor independence and competence. However, SOX is an American law which does not directly effect the Canadian auditors and reporting companies. Below is a discussion of the regulations that Canada has initiated since the introduction of SOX.Canada’s Response to Sarbanes OxleyAlthough Sarbanes-Oxley is an American Act, it has had a major impact on Canadian regulations, corporations, and auditors (Davis, 2004). For instance, since the majority of Canada’s large public corporations are cross-listed on the major American stock exchanges they are required to follow SOX in order to maintain their listings.[1] More importantly, the Act spurred the Ontario Securities Commission to pass Bill 198, which has similar requirements to SOX. Subsequently, through the Multilateral Instrument 52-110, all other provincial securities commissions (except B.C.) incorporated the new audit committee rules into their filing requirements. [2] Although Canada has adopted a similar approach as the Americans, it is important to note that it is not identical. Why not?First, Canada does not have a national securities commission. Securities regulation is a the provincial level. Second, a high percentage of Canadian public companies have a controlling shareholder – these shareholders want to be represented on boards which raises the issue of board member independence.Third, many Canadian public companies are relatively small and complying with SOX-style regulation would cause a significant financial and administrative burden.Some Background on the Canadian Regulatory Environment One of the first milestones in Canada was the MacDonald Commission’s Report, Report of the Commission to Study Expectations of Audits (CICA, 1987), which recommended that audit committees should be composed of independent directors and should have established auditor-audit committee communication guidelines (KPMG, 2002). Subsequent to the MacDonald report, the Toronto Stock Exchange issued its 1994 report, Where Were the Directors, and TSE Corporate Governance Guidelines in 1995 and 1999. In 2001, the Joint Commission on Corporate Governance was formed, which focused on evaluating Canada’s corporate governance and comparing it to international practices. The Joint Commission attempted “to influence cultural change through disclosure requirements rather than through structural recommendations or recommendations mandating “regulatory” enforcement” (KPMG, 2002: 6). Its recommendations aim to:Strengthen auditor independenceMake the audit committee more effectiveImprove accountability among the audit committee, external auditors, and management.Subsequent to the Joint Commission, the Ontario Securities Act (commonly referred to as Bill 198) and Multilateral Instrument 52-110 were introduced in 2002 and 2004 respectively. Apart from adopting the American regulatory approach, these regulations mark departure from the previous Canadian approach to audit committee regulations. The new regulations focus on disclosure, audit committee structure, and regulatory enforcement, which is more encompassing than the previous compliance through disclosure approach. This approach is very similar to the one taken by US securities regulators and the Sarbanes Oxley Act.