Independence and Financial Literacy of Audit Committee Members monitored by the AMF

Montréal – The Autorité des marchés financiers (AMF), together with the other members of the Canadian Securities Administrators (CSA), is issuing today CSA Staff Notice 52-312 Audit Committee Compliance Review. This notice discusses the results of review of the compliance with Regulation 52-110 respecting Audit Committees (the “Regulation”).

The Regulation was recently adopted as part of the Canadian initiatives to enhance investor confidence. Consequently, since July 1, 2005, all reporting issuers are required to have an audit committee under the Regulation.

The Instrument prescribes four broad sets of requirements:

  • an issuer must have an audit committee that complies with the Regulation;
  • all members of the audit committee must be independent and financially literate (venture issuers are exempt from these requirements);
  • an audit committee must have a written charter that includes prescribed responsibilities; and
  • an issuer must include certain disclosure in its AIF, management information circular or MD&A.

A sample of 95 issuers was selected from across the country. The sample included 20 issuers whose head office is located in Québec. The review focused on each issuer’s compliance with the Regulation’s requirements regarding audit committee composition and responsibilities.

According to the results of the review, 92% of TSX issuers had audit committees comprised solely of independent directors. Also, notwithstanding that venture issuers are not required to comply with the audit committee independence requirements, 31% of venture issuers had audit committees comprised solely of independent directors.

All audit committee members were determined to be financially literate. 64% of the audit committee charters reviewed set out all of the responsibilities prescribed by the Regulation. In our view, the overall compliance of 64% will have to be significantly improved in the next year.

CSA Staff Notice 52-312 Audit Committee Compliance Review will be available on the AMF website.

We intend to conduct additional reviews of compliance with these requirements in the near future. We will actively follow up on deficiencies identified in those reviews and will pursue appropriate remedies where we deem it appropriate.

The Autorité des marches financiers (AMF) is the regulatory and oversight body for Québec’s financial sector.

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