BCN 2004/13 - Adoption of National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency and Related Instruments effective March 30, 2004 [BCN - Rescinded]

Substance and purpose of the Instrument
National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency (the Instrument) establishes a harmonized set of accounting principles and auditing standards that will be acceptable for purposes of preparing and auditing financial statements included in documents filed with securities regulators in Canada.

The Instrument sets out the accounting principles that issuers (other than investment funds) and registrants may use to prepare their financial statements and the auditing standards that may be applied to audit those financial statements. These same principles and standards apply to financial statements

• included in a prospectus,
• filed in connection with continuous disclosure obligations, or
• otherwise required to be filed with or, in the case or registrants, delivered to a securities regulatory authority.

Companion Policy 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency (the Policy) provides guidance on how we interpret the Instrument.

Prior publications
We first published proposed rules relating to acceptable accounting principles and auditing standards when we first published for comment National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) and National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers (NI 71-102).  We subsequently decided that the rules related to accounting principles and auditing standards should be in a separate instrument, which was published for comment on May 16, 2003. On January 16, 2004, we published advance notice that, subject to government approval, we expected to adopt the Instrument as a rule effective March 30, 2004 (BCN 2004/04). 

Consequential amendments
National Amendments
National Policy No. 50 Reservations in an Auditor’s Report is revised so it applies only to reporting issuers that are investment funds. The amended National Policy is set out in Appendix A to this Notice. National Policy No. 27 Canadian Generally Accepted Accounting Principles, which has been rescinded in British Columbia, has been amended in the other jurisdictions in Canada so it also applies only to reporting issuers that are investment funds.

CSA Staff Notice 42-301 and 52-302 Dual Reporting of Financial Information is rescinded effective March 30, 2004.

Local Amendments
We are amending the Securities Rules and amending or repealing certain local instruments in conjunction with implementing the Instrument. In particular, effective March 30, 2004, BC Instrument 52-508 US GAAP and US GAAS for SEC Issuers will be revoked and BC Notice 52-702 Use of Non-U.S. Foreign Accounting Principles and Non-U.S. Foreign Auditing Standards is rescinded.

The amendments to the Securities Rules are set out in Appendix B.

Questions
You may refer questions to:

Rosann Youck
Senior Legal Counsel
Legal and Market Initiatives
British Columbia Securities Commission
(604) 899-6656
(800) 373-6393 (in B.C. and Alberta)
ryouck@bcsc.bc.ca

March 26, 2004

Douglas M. Hyndman
Chair

Ref:  National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency
 Companion Policy 52-107CP Acceptable Accounting Principles, Auditing Standards and Reporting Currency
 National Policy No. 27 Canadian Generally Accepted Accounting Principles
 National Policy No. 50 Reservations in an Auditor’s Report Securities Rules
 BC Instrument 52-508 US GAAP and US GAAS for SEC Issuers
 BC Notice 52-702 Use of Non-U.S. Foreign Accounting Principles and Non-U.S. Foreign Auditing Standards

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

 
Appendix A

National Policy Statement No. 50
Reservations in an Auditor’s Report filed by an Investment Fund

Table of Contents

1 Purpose

2 Application

3 Financial statements to be Prepared in Accordance with Canadian GAAP

4 Audits to be Performed in Accordance with Canadian GAAS

5 Reservation in an Auditor’s Report

5.1 Acceptability of financial statements accompanied by an auditor’s report containing a reservation in opinion
5.2 Meaning of reservation of opinion
5.3 Financial statements accompanied by a reservation of opinion acceptable in limited circumstances
5.4 Example of application of section 5.3
5.5 Action by securities regulatory authorities where financial statements accompanied by a reservation of opinion

6 Financial Statements of Non-Canadian Issuers

6.1 Financial statements of Non-Canadian Issuers accompanied by an auditor’s report containing a reservation of opinion
6.2 Financial statements of Non-Canadian Issuers where reservation not required by Canadian GAAS
6.3 Example of application of section 6.2

7 Discretion Available to Applicable Regulator

8 Effective Date

8.1 Effective date
8.2 Policy statement repealed

Part 1 Purpose
This policy statement sets out the position of the securities regulatory authorities with respect to the acceptability of the financial statements of an issuer that is an investment fund (collectively an “Issuer”) required to file financial statements with a securities regulatory authority in any province or territory in Canada in accordance with the requirements of the statutes concerning the regulation of securities markets and trading in securities in a jurisdiction, and the regulations in respect of these statutes (“Securities Legislation”), where the financial statements are accompanied by an auditor’s report containing a reservation of opinion.

Part 2 Application
This policy statement applies to all financial statements filed by an Issuer, that are required to be audited, under the requirements of the Securities Legislation of any jurisdiction, unless otherwise specified in, or exempted by, the specific provisions of the Securities Legislation of that jurisdiction. The application of this policy statement to the audited financial statements that are required to be audited of an Issuer incorporated or organized in a jurisdiction other than Canada or a province of Canada (a “Non-Canadian Issuer”) is set out in part 6

Part 3 Financial Statements to be Prepared in Accordance with Canadian GAAP
The Securities Legislation of certain jurisdictions requires, subject to certain exceptions, that financial statements be prepared in accordance with generally accepted accounting principles in Canada (“Canadian GAAP”) and with any applicable provisions of the Securities Legislation. Where the Securities Legislation of a jurisdiction is silent on the issue of compliance with generally accepted accounting principles, the securities regulatory authorities nonetheless require that Issuers prepare their financial statements in accordance with Canadian GAAP. See National Policy Statement No. 27 for a discussion of the meaning of “Canadian GAAP” and information on the additional disclosure requirements that may be imposed by certain jurisdictions._

Part 4 Audits to be Performed in Accordance with Canadian GAAS
Where an Issuer is required to file audited financial statements, the Securities Legislation of certain jurisdictions requires that the auditor make the necessary audit to be able to prepare an auditor’s report in accordance with generally accepted auditing standards as set out in the Handbook of the Canadian Institute of Chartered Accountants (“Canadian GAAS”) and with any applicable provisions of the Securities Legislation. In these jurisdictions, as well as in jurisdictions where the Securities Legislation is silent on the issue of compliance with generally accepted auditing standards, the securities regulatory authorities expect that the auditor will complete the audit, and prepare the auditor’s report, in accordance with Canadian GAAS. For a full discussion of the meaning of “Canadian GAAS”, see section 5100 of the Handbook of the Canadian Institute of Chartered Accountants

Part 5 Reservations in an Auditor’s Report
5.1 Acceptability of financial statements accompanied by an auditor’s report containing a reservation of opinion
Where financial statements accompanied by an auditor’s report containing a reservation of opinion are filed with the securities regulatory authorities, the securities regulatory authorities will generally take the position that the Issuer has not filed financial statements that are in compliance with the requirements of the Securities Legislation.

5.2 Meaning of reservation of opinion
The expression “reservation of opinion” is used when an auditor

(1) forms a positive opinion on the financial statements as a whole, but qualifies that opinion with respect to a departure from generally accepted accounting principles or a limitation in the scope of the audit (a “Qualified Opinion”);

(2) forms an opinion that the financial statements are not presented fairly in accordance with generally accepted accounting principles (an “Adverse Opinion”); or

(3) is unable to form an opinion on the financial statements as a whole because of a limitation in the scope of the audit (a “Denial of Opinion”)

See section 5510 of the Handbook of the Canadian Institute of Chartered Accountants for a discussion of the circumstances when the auditor is unable to express an opinion without reservation on financial statements

5.3 Financial statements accompanied by a reservation of opinion acceptable in limited circumstances
The securities regulatory authorities recognize that, in certain limited circumstances, it may be in the public interest to accept, for the purpose for which they are filed, financial statements on which the auditor is not able to express an opinion without reservation. Subject to part 7 where the Securities Legislation gives the appropriate representative of the securities regulatory authority (the “Applicable Regulator”) the discretion to accept financial statements accompanied by an auditor’s report in which the auditor is not able to express an opinion without reservation, these financial statements will generally be accepted except where the reservation is:

(1) due to a departure from Canadian GAAP; or

(2) due to a limitation in the scope of the auditor’s examination that

(a) results in a Denial of Opinion,

(b) is imposed or could reasonable be eliminated by management, or

(c) could reasonably be expected to be recurring._

5.4 Example of application of section 5.3
Financial statements will generally be accepted where the reservation of opinion is due to a limitation in the scope of the auditor’s examination resulting from an event that clearly limits the availability of accounting records that substantiate a specific financial statement balance to such an extent that the Issuer is unable to provide its auditor with sufficient appropriate audit evidence to afford a reasonable basis for the auditor to express an opinion without reservation on the financial statements as a whole. In such a circumstance, for the financial statements to be considered for acceptance the auditor must have performed all of the other procedures necessary and reasonable under the circumstances and as required by Canadian GAAS on the financial statements except those that cannot be performed because of the limiting event.

5.5 Action by securities regulatory authorities where financial statements accompanied by a reservation of opinion 
Subject to part 7, where financial statements accompanied by an auditor’s report containing a reservation of opinion are filed with the securities regulatory authorities in circumstances other than those acceptable to the securities regulatory authorities, the securities regulatory authorities may:

(1) require the Issuer to revise its financial statements or provide its auditor with the necessary information, as is appropriate in the circumstances, such that the financial statements are prepared in accordance with Canadian GAAP and the audit is completed, and auditor’s report is prepared, in accordance with Canadian GAAS,

(2) issue a cease trading order, if the financial statements are filed as part of an Issuer’s continuous disclosure obligations under the Securities Legislation,

(3) suspend, cancel or restrict the registration of an Issuer, if the financial statements are filed as part of the Issuer’s obligation to file financial statements under the Securities Legislation,

(4) refuse to issue a receipt for a preliminary or final prospectus, if the financial statements form part of, or are incorporated by reference into, that prospectus, or

(5) use the remedies available under the Securities Legislation, if the financial statements form part of, or are incorporated by reference into, an offering memorandum or a take-over bid circular.

Part 6 Financial Statements of Non-Canadian Issuers
6.1 Financial statements of Non-Canadian Issuers accompanied by an auditor’s report containing a reservation of opinion
Where the financial statements of a Non-Canadian Issuer are accompanied by an auditor’s report that contains a reservation of opinion due to either

(1) a departure from the applicable Non-Canadian generally accepted accounting principles (“Non-Canadian GAAP”), or

(2) a limitation in the scope or application of the audit under the applicable non-Canadian generally accepted auditing standards (“Non-Canadian GAAS”),

the principles set out in part 5 will apply. The principles set out in part 5 will also apply where Non-Canadian GAAS does not require the expression of a reservation of opinion in situations where Canadian GAAS would require a reservation to be included.

6.2 Financial statements of Non-Canadian Issuers where reservation not required by Canadian GAAS
Where Non-Canadian GAAS requires the expression of a reservation of opinion in situations where Canadian GAAS would not require such a reservation, and in all other respects the financial statements and auditor’s report comply with all of the requirements of the applicable Securities Legislation, the securities regulatory authorities will generally take the position that the Non-Canadian Issuer has filed financial statements that are acceptable for the purpose for which they were filed. This position will also be taken when the auditor’s report that accompanies a Non-Canadian Issuer’s financial statements includes additional emphasis paragraphs in situations that do not represent or require of opinion a reservation under Canadian GAAS.

6.3 Example of application of section 6.2
A report prepared in accordance with generally accepted auditing standards in the United States may include an additional emphasis paragraph where there is uncertainty as to an issuer’s ability to continue to operate as a going concern. Although Canadian GAAS does not permit this reference when there is adequate disclosure in the financial statements, the securities regulatory authorities will generally take the position that the Non-Canadian Issuer has filed financial statements that are acceptable for the purpose for which they were filed, if, in all other respects,

(1) the financial statements are prepared in accordance with generally accepted accounting principles in the United States,

(2) the audit has been performed in accordance with generally accepted auditing standards in the United States, and

(3) there is adequate disclosure of the uncertainty in the financial statements

Part 7 Discretion Available to Applicable Regulator
Where an Issuer, including a Non-Canadian Issuer, or the Issuer’s auditor believes that the auditor’s report on the Issuer’s financial statements will contain a reservation of opinion that is not, or may not be, otherwise acceptable to the securities regulatory authorities, the Issuer together with its auditor should discuss the situation with the Applicable Regulator. The Applicable Regulator may, if it has the necessary authority under the Securities Legislation of that jurisdiction and it considers it to be in the public interest,

(1) at the request of the Issuer, and

(2) upon receipt in writing from the

(a) Issuer of all relevant information, and

(b) Issuer’s auditor of the impact of the relevant information on the preparation of the financial statements in accordance with Canadian GAAP or the auditor’s ability to complete the audit in accordance with Canadian GAAS or Non-Canadian GAAS, as applicable, together with the anticipated form of the auditor’s report,

sufficiently in advance of the filing deadline applicable to the financial statements that will be accompanied by an auditor’s report containing a reservation of opinion, exercise its discretion to accept financial statements that are accompanied by an auditor’s report containing a reservation of opinion when the financial statements are filed. In certain jurisdictions the Applicable Regulator may require the holding of a public hearing as part of its consideration of the Issuer’s request.

Part 8 Effective Date
8.1 Effective Date
This policy statement is effective March 30, 2004.

8.2 Policy statement repealed
National Policy Statement No. 50 dated December 31, 1992 is repealed upon the coming into effect of this policy statement.

Appendix B

SCHEDULE

1 Section 1 (2) of the Securities Rules, B.C. Reg. 194/97 is amended by repealing the defi-nitions of “Canadian public accountant’s report”, “foreign public accountant’s report”, “notice to reader”, “public accountant” and “public accountant’s report”.

2 Section 2 is amended

(a) in subsection (1) by striking out “Except for an issuer incorporated or organized under the laws of the United States of America or of a political division of the United States of America, “ and substituting “Unless otherwise permitted by NI 52-107,”,

(b) in subsection (1) by repealing paragraph (b) and substituting the following:
(b) financial statements accompanied by a foreign auditor’s report. ,

(c) in subsection (2) by striking out “If financial statements” and substituting “Unless otherwise permitted by NI 52-107, if financial statements”, and

(d) by repealing subsection (3) and substituting the following:
(3) Unless otherwise permitted by NI 52-107, if an audit is performed on an issuer’s financial statements and the auditor’s report on those financial statements is prepared in accordance with foreign GAAS, the auditor’s report must be accompanied by a statement of the auditor that describes any material differences in the form and content of the auditor’s report as compared to an auditor’s report prepared in accordance with Canadian GAAS.

3 Section 3 is amended

(a) by repealing subsection (1) and substituting the following:

(1) In this section,
(a) subsections (3), (5) and (6) do not apply if the financial statements are prepared in compliance with NI 52-107 ,
(b) subsections (9), (12) and (13) do not apply if the financial statements are prepared in compliance with NI 51-102, and
(c) subsections (4) and (14) do not apply if the financial statements are prepared in compliance with NI 52-107 and NI 51-102.
(1.1) For the purposes of subsection (2), “joint regulatory bodies” means the Montreal Exchange, the Toronto Stock Exchange, the TSX Venture Exchange and the Investment Dealers Association of Canada.

(b) in subsection (4) by striking out “103 (2)”,

(c) in subsection (5) by striking out “or a public accountant’s report”,

(d) by repealing subsection (9) and substituting the following:

(9) A schedule or note to financial statements must contain, if the period or date presented is a financial year or a financial year end, and the issuer is an investment issuer, an analysis of shares, bonds, debentures and other investments held by the issuer at the end of its financial year showing separately
(a) the name of each issuer of the securities held,
(b) the class or designation of each security held,
(c) the number of each class of shares or aggregate face value of each class of other securities held, and
(d) the cost and market value of each class of securities held and, if the carrying value is other than average cost, the basis of valuation. ,

(e) by repealing subsections (10) and (11), and

(f) in subsection (12) by striking out “the financial statements required to be filed by the Act or the regulations” and substituting “the financial statements required to be filed by the Act or the regulations, other than interim financial statements of an exchange issuer filed under section 144,”.

5 Section 120 (2) (h) is repealed.