NIN 98/25 - Proposed National Instrument 52-103 Change of Auditor [NIN - Rescinded]
| Published Date: | 1998-05-29 |
|---|---|
| Effective Date: | 1998-05-27 |
Substance and Purpose of Proposed National Instrument
The proposed National Instrument regulates the preparation, filing and delivery of the disclosure applicable in the event of a change of auditor of a reporting issuer. Certain additional issuers that distribute securities in Quebec pursuant to an offering memorandum are also subject to the requirements of the proposed National Instrument.
The proposed National Instrument is based on and will replace National Policy Statement No. 31: Change of Auditor of a Reporting Issuer ("NP31"). It is anticipated that NP31 will be rescinded effective upon the date that the proposed National Instrument comes into force. A Table of Concordance comparing NP31 to the proposed National Instrument is set out as Appendix A to this Notice.
The proposed National Instrument is an initiative of the CSA. It is expected to be adopted as a rule in each of British Columbia, Alberta, Ontario and Nova Scotia, as a Commission regulation in Saskatchewan and as a policy in each of the other jurisdictions represented by the CSA.
Terms used in the proposed National Instrument that are defined or interpreted in a definition instrument in force in the jurisdiction should be read in accordance with that definition instrument, unless the context otherwise requires.
Summary of Proposed National Instrument
The proposed National Instrument requires the disclosure of a change of auditor to securityholders. The requirements of the proposed National Instrument are triggered in the event of the termination of an issuer's auditor. The proposed National Instrument defines "termination" as the earliest to occur of certain events including removal of an auditor before expiration of its term of appointment, failure to reappoint an auditor upon expiration of the term of appointment and resignation of an auditor.
Within 10 days after termination of a former auditor, an issuer is obligated to provide a change of auditor notice to the former auditor. The proposed National Instrument, like NP31, sets out the detailed requirements for this notice. The change of auditor notice is required to include disclosure of the following:
- the date the termination occurred;
- whether the former auditor resigned or declined to stand for reappointment of the auditor's own initiative or at the issuer's request;
- whether the termination of the former auditor and any appointment of a successor auditor were considered or approved by the issuer's audit committee or board of directors;
- whether the former auditor's report on any of the issuer's financial statements relating to the "relevant period", being the issuer's two most recently completed financial years and any subsequent period prior to the former auditor's termination, contained any reservation; and
- whether there was a reportable event, which is either a disagreement with the former auditor or a consultation with the successor auditor during the relevant period, and if so, certain particulars of that event.
The proposed National Instrument introduces a new requirement that the change of auditor notice be signed by two representatives of the issuer's board of directors.
The proposed National Instrument, like NP31, requires an issuer to request a former auditor to review the issuer's change of auditor notice and to deliver to the issuer a letter addressed to the securities regulatory authority stating, to the former auditor's knowledge, whether or not the change of auditor notice states correctly all required information and if not, all required information that has not been stated correctly.
The proposed National Instrument, like NP31, requires an issuer to provide its successor auditor with a copy of the change of auditor notice, and to request a letter based on the successor auditor's review of the change of auditor notice similar to the letter to be requested from the former auditor.
The change of auditor notice and the letters received by the issuer from its former auditor and successor auditor constitute the "reporting package" under the proposed National Instrument. If a reportable event has occurred, the issuer is required to issue a news release that describes the content of the reporting package and the reportable event within 30 days after termination of the former auditor. If, as a result of the appointment of the successor auditor not occurring concurrent with the termination of the former auditor, the issuer has not received the letter from its successor auditor, that letter would not comprise part of the reporting package. However, upon the appointment of a successor auditor, the issuer is required to re-file the reporting package including the letter received from the successor auditor. The issuer is also obligated to issue and file a further press release disclosing the appointment of the successor auditor if there has been a reportable event. If the timing of the termination of the former auditor and the appointment of the successor auditor permits, a single press release may be issued and filed to satisfy the requirements of the proposed National Instrument. A copy of the reporting package is to be included in the information circular required to be sent to securityholders in connection with the meeting held to approve the change of auditor or, if such approval is not required, the first meeting to be held following the preparation of the reporting package.
The proposed National Instrument introduces a new exemption from its requirements in the event that there is a change of auditor in connection with an amalgamation, arrangement, take over bid or similar transaction if that change has been disclosed in a news release or other disclosure document and there has been no disagreement or consultation in the relevant period.
The proposed National Instrument provides a further exemption to its requirements for certain issuers that are registered or otherwise subject to reporting obligations under the Securities Exchange Act of 1934 of the United States of America, as amended. This exemption is available if the issuer complies with the requirements of item 304 of SEC Regulation S-K, which governs reporting of a change of auditor and is substantially similar to the proposed National Instrument.
Anticipated Costs and Benefits
The proposed National Instrument requires disclosure in respect of a change of auditor of a reporting issuer and certain additional issuers in Quebec, including disclosure of any disagreements between the issuer and the former auditor and any consultations between the successor auditor and the issuer. In the CSA's view, such disclosure requirements promote fair and efficient capital markets, and assist the investor by identifying any circumstances in connection with a change of auditor that may be relevant to making an informed investment decision.
The costs of compliance with the proposed National Instrument relate primarily to the involvement of management in the consideration of the requirements of the proposed National Instrument and the preparation of disclosure that complies with those requirements, and the costs associated with the involvement of the successor auditor and former auditor in addressing those requirements. As the proposed National Instrument substantially maintains the status quo, it does not impose any significant incremental costs.
Comments
Interested parties are invited to make written submissions with respect to the proposed National Instrument. Submissions received by August 27, 1998 will be considered.
Submissions, in duplicate, should be addressed to all of the Canadian securities regulatory authorities listed below in care of the Ontario Securities Commission:
British Columbia Securities Commission
Alberta Securities Commission
Saskatchewan Securities Commission
The Manitoba Securities Commission
Ontario Securities Commission
Office of the Administrator, New Brunswick
Registrar of Securities, Prince Edward Island
Nova Scotia Securities Commission
Department of Government Services and Lands, Newfoundland and Labrador
Registrar of Securities, Northwest Territories
Registrar of Securities, Government of the Yukon Territory
c/o Daniel P. Iggers, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario M5H 3S8
Submissions should also be addressed to the Commission des valeurs mobilières du Québec as follows:
Claude St. Pierre, Secretary
Commission des valeurs mobilières du Québec
800 Victoria Square
Stock Exchange Tower
P.O. Box 246, 17th Floor
Montréal, Québec H4Z 1G3
A diskette containing the submissions (in DOS or Windows format, preferably WordPerfect) should also be submitted. As securities legislation in certain provinces requires that a summary of written comments received during the comment period be published, confidentiality of submissions received cannot be maintained.
Questions may be referred to any of
Carla-Marie Hait
British Columbia Securities Commission
(604) 899-6726
Chris Courtland
Alberta Securities Commission
(403) 297-4223
Ram Ramachandran
Ontario Securities Commission
(416) 593-8253
Christianne LeBreux
Commission des valeurs mobilières du Québec
(514) 873-5009 Ext. 172
DATED at Vancouver, British Columbia, on May 27, 1998
Douglas M. Hyndman
Chair
REF: NP 31
APPENDIX A
TABLE OF CONCORDANCE
National Policy Statement No. 31
Proposed National Instrument 52-103 - Change of Auditor
Section Reference
in National Policy Section Reference in Proposed
Statement No. 31National Instrument
1.1 deleted
1.2 deleted
2.1 deleted
2.2 1.2
2.3 1.1 definitions of resignation and termination
2.4 deleted
2.5 3.2
2.6 deleted
3.1 deleted
3.2 1.1 definition of relevant period
3.3 1.1 definition of reportable event
3.4 1.1 definition of disagreement
3.5 1.1 definition of disagreement
3.6 1.1 definition of disagreement
3.7 1.1 definition of disagreement
3.8 1.1 definition of consultation
4.1 2.1(a) - (c) and 2.2(a) and (b)
4.2 1.1 definitions of reporting package and relevant
information circular; balance in 2.1(g)
4.3 2.1(d) and (e) and 2.2(c) and (d)
4.4 2.1(f) and 2.2(e)
4.5 deleted
4.6 2.3
4.7 2.4
4.8 deleted
4.9 2.5
4.10 2.1(a) and 2.2(a)
4.11 2.4 and 2.5
4.12 2.1(d) - (f) and 2.2(c) - (e)
5.1 deleted