2. Scandals (in the public and private sector)  Enron  Worldcom  Livent  Nortel  HRDC  Sponsorship Scandal

4.  Section 302 (CEO/CFO CERTIFICATION)  Section 404 - (INTERNAL CONTROL EVALUATION AND EXTERNAL AUDITOR ATTESTATION) ▪ Effective November 15, 2004 or July 15, 2005

5.  President exchange public correspondence  Business and various groups debate  Time-lines for implementation  Does Canada need tighter regulations?  Principles or rules?  Effect on smaller listed companies?

6.  Canada has enacted its own solution to governance and financial reporting requirements, known as Bill 198. Bill 198 is an Ontario legislative bill effective April 7, 2003. Also known as the "Canadian Sarbanes and Oxley" Act or C-SOX, it provides for regulation of securities issued in the province of Ontario.

7.  NI 51-102 - Continuous Disclosure  NI 52-107 - Accounting Principles  NI 52-108 - Auditor Oversight  NI 52-109 - CEO/CFO Certification  NI 52-110- Audit Committee

8.  New filing deadlines:  annual financial statements within 90 days of year-end (previously 140 days)  interim financial statements within 45 days of quarter- end (previously 60 days)  Auditor Review:  Must disclose if no external auditor review of interim statements

9.  Public companies that are not SEC (USA) registrants  financial statements must be in accordance with Canadian GAAP  must be audited in accordance with Canadian GAAS (Auditing and Assurance Standards)

10.  Audit Report on public company financial statements:  prepared by an auditor registered with Canadian Public Accountability Board (CPAB)  auditor must be in compliance with CPAB

11. “Bare (Legal)” Certification (now in effect)  quarterly certification of financial statements  no misrepresentation or omission of material fact  fair representation of: ▪ financial condition ▪ results of operations ▪ cash flows

12.  Beginning with year-ends after January 1, 2005, additionally certify that:  designed disclosure controls (quarterly)  designed procedures and internal controls over financial reporting (quarterly)  evaluated the effectiveness of disclosure controls (annually)  reported changes in internal controls over financial reporting

13.  Certification of filings:  CEO & CFO must certify they have reviewed documents  No Misrepresentation:  based on their knowledge  disclosure and internal controls must be adequate to provide knowledge  Fair Presentation  based on their knowledge  present fairly in all material respects the financial condition, results of operations, and cash flows  present fairly goes beyond GAAP requirements

14. Applies commencing with Annual Meetings after July 1, 2004  written charter  composition - independence, financial literacy  external auditor relationship  pre-approve all non-audit services  procedures for receiving complaints and anonymous submissions concerning accounting, internal controls, or auditing matters (whistleblower rule)  additional disclosure

15.  Shareholder activisms  Banking, insurance regulations  Enterprise Risk Management  Accounting guidelines  Government scandals

16. OSC 58-201 Effective Corporate Governance  Best Practices for effective governance  Board Composition, mandate, training, etc  Code of Business Conduct and Ethics  Nominations  Compensation  Board Assessment

17.  Certification of effectiveness of internal controls over financial reporting  External Auditor attestation

18. Time, Cost, Distraction, Disclosure, Documentation……..

19. 4 key areas: 1. Certifications 2. Disclosure Procedures & Controls 3. Internal Controls over Financial Reporting 4. Whistleblowing

20.  Establish sub-certification process involving key executives/officers/others  determine who will be involved  how often and when  format of the certificates  Certifying all key financial info being disclosed externally - it must be provided to the sub- certifiers SHARING LIABILITY???

21.  Operating management more focused on financial reporting  Greater awareness of implications  Increased Legal Dept involvement  Time and cost

22. What does this mean?  Provide reasonable assurance that..  Required disclosure recorded, processed, summarized & reported on timely basis  such information is accumulated and communicated to management including the CEO & CFO

23. What do we need to do?  Establish a Disclosure Committee  Review current/existing practices for keeping “Corporate Office”/CEO/CFO up to date  Review financial statement “closing” procedures  Implement regular (eg. Quarterly) meetings between Disclosure Committee and key finance and operations management

24. What do we need to do?  Ensure continuous flow of communication from operating divisions to “corporate”  Implement a “review process” for all relevant external disclosure  Document everything  Minute meetings  Develop an ongoing disclosure review process - “evaluation” (eg. Internal Audit)

25. What are these?  Provide reasonable assurance regarding reliability of financial reporting  effected by BOD, management, & other personnel  focus tends to be on “detective” controls - eg. Would fraud be caught?

26.  Phase 1: Planning & Scoping  identify internal skills and resources  establish a project team with mgmt support  develop training plan  develop project scope  Phase 2: Risk Assessment and Prioritization  establish criteria for risk assessment  evaluate the identified processes and risk rank

27.  Phase 3: Documentation of Controls  determine who is responsible for documentation vs review of processes  complete an inventory of existing documentation  establish schedules and deadlines  establish documentation format  train team leaders on documentation process  complete documentation, including Control Environment and Computer General Controls

28.  Phase 4: Evaluation and Testing  review documentation and test controls for effectiveness  Phase 5: Identify & Correct Deficiencies  review identified issues and develop improvements  establish remediation plan and assign  Phase 6: Report on Controls  report results to CEO/CFO

29.  Audit Committee must ensure procedures are in place  method for employees and others to “safely” report concerns about financial reporting, fraud, etc.  determine who in the organization will be responsible for investigating and reporting  complaints must be tracked  investigation and follow-up documented  report statistics and significant issues to Audit Committee

30. Are there benefits beyond compliance?

31.  Increased management awareness of responsibilities for internal controls  Potential operational process improvement  Improved internal communications  Deterrent to fraud  Less surprises Increased Public Confidence…..maybe

32. Rules, regulations, structures, documentation, certification, reporting will help but…...