New proposals will see Canada get its own version of the Sarbanes-Oxley Act. Public companies will have to prove to the Canadian Securities Administrators that they have effective internal controls over financial reporting, though, unlike SOX in the U.S., the new law will not require the services of expensive external auditors.
Canadian public companies will soon have to prove to investors that they have effective mechanisms in place to control internal financial reporting that are capable of preventing corporate fraud, Reuters reports.
The Canadian Securities Administrators (CSA), an umbrella group of regulators, have just released the new rules. Market analysts have already christened the regulations the “Canadian SOX" because the requirements virtually repeat those set out in section 404 of the Sarbanes-Oxley Act in the neighboring U.S.
The rules outlined in the new Canadian SOX affect corporations represented on the Toronto Stock Exchange and on the Venture market. A total of 3,765 companies are listed on the two exchanges.
The main difference between the Canadian and U.S. regulatory measures is that Canadian companies will not have to get the opinion of an external auditor when reporting on their internal controls. Analysts have already pointed out that this will allow smaller corporations to save on expensive auditor services. Larger corporations that are represented on both Canadian and U.S. stock exchanges will still have to meet the requirements of SOX, however.
Representatives of big business such as Canadian insurance giant Manulife Financial Corp., which is registered in both countries, have already raised objections to the new Canadian regulations, saying compliance on both sides of the border will cost as much as $26 million per year.
Despite those complaints, the Canadian version of SOX will come into force on Dec. 31, 2007. The task of checking the internal controls will fall on the regulators themselves. A CSA representative has already said that it probably won't entail auditing every stage of the control mechanisms, but it will nevertheless require the allocation of additional resources.
“The adoption of this kind of law can only be welcomed. Furthermore, I'm convinced that every country in the world that is interested in the growth of its securities market needs a law like SOX. A number of countries have already got their own standards, while others are only starting out along that road," says Denis Zenkin, marketing director at InfoWatch.
Source: Reuters
