LITIGATION UNLEASHED - Stikeman Elliott

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Support of the Canadian Public Accountability Board
Under Multilateral Instrument 52-108, financial statements of public companies can be audited only by a firm that is in good
standing with the Canadian Public Accountability Board (“CPAB”). Good standing is maintained by entering into and
abiding by a “participation agreement” with the CPAB, under which the audit firm agrees to submit to CPAB oversight,
including ongoing inspections. The initial application must also be approved. Because the Alberta and Manitoba commissions
do not have the authority to make rules governing auditors, firms in those provinces are technically not required to enter into
participation agreements, as the Instrument recognizes.
In all participating provinces except Alberta and Manitoba, audit firms will be required to notify the audit committee of any
reporting issuer by which it has been engaged to issue an auditor’s report, as well as (in many cases) the local securities regulator,
in the event that it is sanctioned by the CPAB. This notification must occur within 5 business days of the imposition of the
sanctions. However, in the case of less serious “quality control” deficiencies, the audit firm will have the opportunity to correct
the problem within an agreed period without issuing a notification to clients. Comments are being sought as to whether 5
business days is a sufficient time.
Most foreign issuers reporting in jurisdictions in which Multilateral Instrument 52-108 is adopted will be deemed in
compliance with the requirement to use only auditors in “good standing” if they comply with the regulations of their home
jurisdictions. However, their auditors will be required to enter into participation agreements with the CPAB. The Notice and
Request for Comments accompanying the Instrument specifically requests comments on this point, and suggests that the
CPAB may enter into reciprocal arrangements with oversight bodies in other jurisdictions with respect to foreign audit firms.
These three proposed rules are Canadian measures designed to restore investor confidence. The participating jurisdictions
believe that they will be as robust as those implemented in the U.S., but have designed them to reflect the differences in
Canadian markets, especially the significant number of controlled companies and the generally smaller size and resources of
Canadian public companies.
78 LITIGATION UNLEASHED STIKEMAN ELLIOTT LLP