New Rule on Internal Control Certifications Effective for December 2008 Year-Ends
On August 15, 2008, Canada’s securities regulatory authorities published National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”) regarding chief executive officer (CEO) and chief financial officer (CFO) certifications and related management’s discussion and analysis (MD&A) disclosure. Provided all necessary ministerial approvals are obtained, the new rule will come into force on December 15, 2008. The new rule will apply to annual and interim filings of all reporting issuers (except investment funds) beginning with periods ending on or after December 15, 2008.
Certification Requirements
The new rule requires an issuer’s CEO and CFO, or persons performing similar functions to a CEO or CFO (certifying officers), to personally certify that, among other things:
• the issuer’s annual filings and interim filings do not contain any misrepresentations;
• the financial statements and other financial information in the annual filings and interim filings fairly present the financial condition, results of operations and cash flows of the issuer;
• they have designed disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR),or caused them to be designed under their supervision;
• they have caused the issuer to disclose in its MD&A any change in the issuer’s ICFR that has materially affected the issuer’s ICFR; and
• on an annual basis they have evaluated the effectiveness of the issuer’s DC&P and ICFR and caused the issuer to disclose their conclusions about the effectiveness of DC&P and ICFR in the issuer’s MD&A.
Under the new rule, “venture issuers” are not required to include representations in their certificates relating to DC&P and ICFR. Venture issuers are also not required to discuss in their annual or interim MD&A changes in ICFR or the certifying officers’ conclusions about the effectiveness of DC&P or ICFR.
MD&A Disclosure of Material Weaknesses
If a material weakness exists in the design or operation of ICFR, the CEO and CFO will have to certify (quarterly for design weaknesses, but only annually for operational weaknesses) that the issuer’s MD&A discloses
• a description of the material weakness;
• the impact of the material weakness on the issuer’s financial reporting and ICFR; and
• the issuer’s current plans, if any, or any actions already undertaken for remediating the material weakness. A “material weakness” is defined to mean “a deficiency, or a combination of deficiencies, in ICFR such that there is a reasonable possibility that a material misstatement of the reporting issuer’s annual or interim financial statements will not be prevented or detected on a timely basis.”
New Form Requirement
The annual certification forms to be used by both non-venture issuers and venture issuers are reproduced below.
FORM 52-109F1
CERTIFICATION OF ANNUAL FILINGS
FULL CERTIFICATE
I, <identify (i) the certifying officer, (ii) his or her position at the issuer and (iii) the name of the issuer and (iv) if the certifying officer's title is not "chief executive officer" or "chief financial officer", indicate in which of these capacities the certifying officer is providing the certificate>
1. Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of ,
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, results of operations and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the financial year end
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i) material information relating to the issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1 Control framework:
The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is <insert the name of the control framework used>
<insert paragraph 5.2 or 5.3 if applicable. If paragraph 5.2 or 5.3 is not applicable insert "5.2 N/A" or "5.3 N/A" as applicable. For paragraph 5.3, include (a)(i), (a)(ii) or (a)(iii) as applicable, and subparagraph (b).>
5.2 ICFR - material weakness relating to design: The issuer has disclosed in its annual MD&A for each material weakness relating to design existing at the financial year end (a) a description of the material weakness; (b) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and (c) the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness.
5.3 Limitation on scope of design:
The issuer has disclosed in its annual MD&A
(a) the fact that the issuer’s other certifying officer(s) and I have limited the scope of our design of DC&P and ICFR to exclude controls, policies and procedures of
(i) a proportionately consolidated entity in which the issuer has an interest;
(ii) a variable interest entity in which the issuer has an interest; or
(iii) a business that the issuer acquired not more than 365 days before the issuer’s financial year end; and
(b) summary financial information about the proportionately consolidated entity, variable interest entity or business that the issuer acquired that has been proportionately consolidated or consolidated in the issuer’s financial statements.
<insert subparagraph 6(b)(iii) if applicable. If subparagraph 6(b)(ii) is not applicable, insert "(ii) N/A".>
(a) evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s DC&P at the financial year end and the issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and
(b) evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s ICFR at the financial year end and the issuer has disclosed in its annual MD&A
(i) our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and
(ii) for each material weakness relating to operation existing at the financial year end
(A) a description of the material weakness;
(B) the impact of the material weakness on the issuer’s financial reporting and its ICFR; and
(C) the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness.
7. Reporting changes in ICFR: The issuer has disclosed in its annual MD&A any change in the issuer’s ICFR that occurred during the period beginning on <insert the date immediately following the end of the period in respect of which the issuer made its most recent interim or annual filing, applicable>
8. Reporting to the issuer’s auditors and board of directors or audit committee: The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the issuer’s auditors, and the board of directors or the audit committee of the board of directors any fraud that involves management or other employees who have a significant role in the issuer’s ICFR.
Date: <insert date of filing>
[Signature]
[Title]
<If the certifying officer's title is not "chief executive officer" or "chief financial officer", indicate in which of these capacities the certifying officer is providing the certificate.>
CERTIFICATION OF ANNUAL FILINGS VENTURE ISSUER
BASIC CERTIFICATE
I, <identify (i) the certifying officer, (ii) his or her position at the issuer and (iii) the name of the issuer and (iv) if the certifying officer's title is not "chief executive officer" or "chief financial officer", indicate in which of these capacities the certifying officer is providing the certificate>
1. Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of <identify issuer>
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, results of operations and cash flows of the issuer, as of the date of and for the periods presented in the annual filings.
Date: <insert date of filing>
[Signature]
[Title]
<If the certifying officer's title is not "chief executive officer" or "chief financial officer", indicate in which of these capacities the certifying officer is providing the certificate.>
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
ii) a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.
If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.
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