BCN 2005/07 - Advance Notice of BC Instrument 52-509 Audit Committees [BCN - Lapsed]
The Commission expects to adopt BC Instrument 52-509 Audit Committees effective July 1, 2005, subject to obtaining the required Ministerial approval. The proposed rule accompanies this notice.
Summary of the Instrument
The Instrument is a streamlined rule that applies International Organization of Securities Commissions’ (IOSCO) standards for audit committees.
The Instrument requires that a majority of the audit committee members be independent as determined by an objective test. The Instrument also requires disclosure about the composition of the audit committee and the steps taken to ensure that the auditor is independent of the issuer. The disclosure requirements in section 6 would take effect for issuers’ financial years ending on or after June 30, 2005.
Why we are proceeding with the Instrument
The government of British Columbia has passed a new Securities Act (S.B.C. 2004, c. 43). Draft Securities Rules under the new Act were published for comment in June 2004. These draft Rules included the same requirements as those set out in the proposed Instrument that was published for comment.
In November 2004, the government decided to delay implementation of the new legislation to allow market participants more time to prepare. Because the Commission believes it is important for British Columbia to have an audit committee rule, the Commission has decided to proceed with the Instrument. When the new legislation is implemented the provisions in the Securities Rules will replace the Instrument.
Related CA instruments
On March 30, 2004, other members of the Canadian Securities Administrators adopted Multilateral Instrument 52-109 Certification of Disclosure in Companies’ Annual and Interim Filings (MI 52-109) and Multilateral Instrument 52-110, which is also entitled Audit Committees (MI 52-110). On June 27, 2003, the Commission published BC Notice 2003/25 setting out its reasons for proposing not to adopt these instruments.
Most British Columbia reporting issuers must comply with MI 52-110. It is not our intention that any issuer should have to comply with two different sets of standards. For this reason, the Instrument recognizes the independence test in MI 52-110 and exempts issuers that comply with MI 52-110.
Public comments received
A draft of the Instrument was published for comment on May 28, 2004. No submissions were received during the comment period on the Instrument. However, three submissions were received on the corresponding provisions of the Securities Rules when they were published for comment. A summary of those comments and our responses to them is attached to this notice. As a result of those comments and others, we made several non-material changes to the Instrument.
Please refer any questions to:
Senior Legal Counsel, Corporate Finance
British Columbia Securities Commission
P.O. Box 10142, Pacific Centre
701 West Georgia Street
Vancouver, BC V7Y 1L2
Fax: (604) 899-6814
Tel: (604) 899-6778
Or 1-800-373-6393 (In BC and Alberta)
February 4, 2005
Douglas M. Hyndman
Ref: Proposed BC Instrument 52-509 Audit Committees, Multilateral Instrument 52-109 Certification of Disclosure in Companies’ Annual and Interim Filings, Multilateral Instrument 52-110 Audit Committees, BCN 2003/25
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.
Summary of Public Comments
Audit Committee Provisions in Proposed Securities Rules
Section in published draft
One commenter requested a bright line test for independence and expressed concern that the test based on “reasonable person” would invite litigation.
We did not move to a bright line test for independence. The reasonable person standard is used in numerous places throughout the legislation. We do not anticipate litigation to result but, if it did, the courts are very familiar with dealing with that standard.
No change to the text is needed.
One commenter supported waiving the requirement to have a separate audit committee for small boards. This would relieve the pressure to add more independent directors for start-up companies.
No change to the text is needed.
Responsibilities of Audit Committee
One commenter suggested using “disagreements with management” rather than “contentious issues”. The term “disagreement” is well established in the CICA Handbook and in other documents dealing with communications between audit committees and auditors.
The text was changed to reflect standard industry terminology.
Commenters on Audit Committee Provisions
1. Canadian Listed Company Association, Bruce McLeod and Don Gordon
2. Clark Wilson, Bernard Pinsky
3. KPMG LLP, Alan Van Weelden