BCN 2003/35 - Publication for Comment of Proposed Multilateral Instrument 52-108 Auditor Oversight [BCN - Rescinded]

The Commission is publishing for comment proposed Multilateral Instrument 52-108 Auditor Oversight (Oversight Instrument). On June 27, 2003, all other members of the Canadian Securities Administrators (CSA) published the Oversight Instrument. Please refer to the Ontario Securities Commission website at www.osc.gov.on.ca for a copy of their notice on the Oversight Instrument, which includes a discussion of the substance of the instrument and information on the Canadian Public Accountability Board (CPAB).

Summary of the Oversight Instrument
The Oversight Instrument would require reporting issuers to engage auditors that:

• participate in an independent oversight program established by the CPAB for public accounting firms that audit the financial statements of public companies, and
• are participants in good standing with the CPAB.

In addition, the Oversight Instrument would impose direct requirements on public accounting firms that audit reporting issuers to:

• participate in the CPAB oversight program,
• be participants in good standing with the CPAB, and
• provide notice to their audit clients and securities regulators of any sanctions or restrictions imposed by the CPAB.

The Commission does not propose to adopt these direct requirements in British Columbia. We do not have clear authority under the Act to regulate public accounting firms directly, and do not consider these requirements necessary to achieve the purpose of the Oversight Instrument. The commissions in Alberta and Manitoba are also proposing not to adopt the direct requirements for public accounting firms.

Other proposed “investor confidence” instruments
On June 27, 2003, our CSA colleagues also published the following proposals to adopt Canadian requirements based on the U.S. Sarbanes-Oxley Act of 2002:

• proposed Multilateral Instrument 52-109 Certification of Disclosure in Companies' Annual and Interim Filings (Certification Instrument), and
• proposed Multilateral Instrument 52-110 Audit Committees (Audit Committee Instrument).

The Commission published BC Notice 2003/25 setting out its reasons for not adopting the Certification and Audit Committee Instruments. Generally, we think the issues these instruments are trying to address would be dealt with more effectively through our draft “BC Model” legislative proposals published on April 15, 2003. We recognize that most British Columbia reporting issuers would have to comply with the Certification and Audit Committee Instruments if they are adopted by the other jurisdictions, and would accept compliance with those instruments as meeting our requirements. Please refer to BC Notice 2003/25, on our website at www.bcsc.bc.ca for a complete discussion of our approach to these other “investor confidence” instruments.

Request for Comments
We are seeking comments on all aspects of the Oversight Instrument. We have also raised specific issues and repeated certain questions asked by our CSA colleagues and in BC Notice 2003/25.

1. Do you agree that the simpler approach in the BC draft legislation requiring auditors of public companies to be subject to oversight by the CPAB is preferable to the more complex and detailed requirements of the Oversight Instrument?

2. There is no exemption in the Oversight Instrument for public accounting firms in foreign jurisdictions. Do you agree that public accounting firms in foreign jurisdictions should be required to participate in the CPAB oversight program? If not, what other alternatives should be considered? For example, should a public accounting firm based outside Canada that is subject to oversight by a comparable body in a foreign jurisdiction, such as the United States Public Company Accounting Oversight Board, be treated differently?

3. Should the Commission seek clear legislative authority so that it can impose requirements directly on public accounting firms that audit reporting issuers?

4. Do you agree with the Commission’s decision to not adopt the Certification and Audit Committee Instruments for the reasons discussed in BC Notice 2003/25?

Comments
You can deliver comment letters in hard copy, by fax or by e-mail. Please address your submission to:

Susan Toews
Senior Legal Counsel, Legal & Market Initiatives
British Columbia Securities Commission
P.O. Box 10142, Pacific Centre
701 West Georgia Street
Vancouver, BC V7Y 1L2
Fax: (604) 899-6814
Tel: (604) 899-6764
Or 1-800-373-6393 (In BC and Alberta)
stoews@bcsc.bc.ca

All comments received by November 3, 2003 will be considered.

September 3, 2003

Douglas M. Hyndman
Chair

This Notice may refer to other documents. These documents can be found at the BC Securities Commission public website at www.bcsc.bc.ca in the Commission Documents database or the Historical Documents database.