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Summary
Part 12 identifies those corporations that must retain a public accountant,
his or her qualifications and obligations and what type of review they
must undergo. It also establishes criteria the public accountant must
meet and to what oversight they are subject.
The Part defines "designated corporation" as those with revenues
less than or equal to the amount prescribed by the regulations (proposed
at $50,000 for soliciting corporations and $1M for non-soliciting corporations).
(Section 178)
Public accountants must meet the membership, licensing, and independence
standards in the Act. Independence is defined for the purpose of this
Part. The effect of impediments to independence is addressed. (Section
179)
This Part addresses the appointment, remuneration, resignation, removal
and replacement of public accountants. If a designated corporation meets
the prescribed standard, the members may unanimously resolve not to retain
a public accountant. (Sections 180-186)
Public accountants are entitled to attend all meetings of members and
to speak at these meetings. (Section 186)
The type of financial review required (i.e., a review engagement or
an audit) is determined by the level of annual revenues and whether or
not the corporation is soliciting or non-soliciting. Members of some
designated corporations may, by special resolution, resolve to undergo
a review engagement as opposed to an audit. Whether the public accountant
performs an audit or review engagement, they must provide a report in
the prescribed manner, which will subsequently be placed before the members.
(Sections 187-189)
The Part identifies documents on which the public accountant may reasonably
rely and provides the ability to require production of documents. (Sections
190-91)
While an audit committee is optional, if established, such a committee
must be composed of at least three directors, the majority of whom are
not officers or employees of the corporation or its affiliates. The audit
committee is responsible for reviewing the financial statements of the
corporation before they are approved. (Section 192)
The procedures and duties that must be complied with in the event an
error or mis-statement is discovered in financial statements are included.
(Section 193)
The requirement that corporations prepare financial statements and present
them to the members and, if necessary, the Director allow members and
the public to be kept informed about the financial state of the corporation.
While the Act determines the default type of review in some circumstances
members can change that (i.e., require an audit instead of a review engagement,
or vice versa). Corporations will be designated as low, medium or high
revenue corporations and the work of the public accountant will be dependent
on those designations. The identification of a corporation as soliciting
or non-soliciting will also be relevant as, for example, the revenue
levels that permit a soliciting corporation to be identified as low revenue
are significantly lower than for a non-soliciting corporation. Corporations
with low revenues will be required to undergo a review engagement, which
is less stringent than an audit, unless the members unanimously agree
to forego any review. Medium revenue soliciting corporations will undergo
an audit unless the members, by special resolution, resolve to undergo
a review engagement. High revenue corporations must undergo an audit.
It was determined that having a more varied regime would be beneficial,
particularly for small corporations for which an audit would be a significant
cost burden. Because soliciting corporations seek contributions from
outside their membership, thresholds, as established by regulation, determining
whether revenues are low, medium or high, will be significantly lower
than for non-soliciting corporations.
Briefing Book
An Act Respecting Not-for-Profit Corporations and
Other Corporations Without Share Capital
Top
Bill Clause No. 178
Section No. 178
Topic: Public Accountant
Proposed Wording
178. In this Part, "designated corporation" means
(a) a soliciting corporation with annual revenues equal
to or less than the prescribed amount; and
(b) a non-soliciting corporation with annual revenues equal to or
less than the prescribed amount. |
Rationale
This is a straightforward technical section that defines the term "designated
corporation" for the purposes of Part 12 which deals with the appointment
of a public accountant and financial reporting requirements. The term "designated
corporation" is defined since the members of these corporations can, under
section 181, unanimously resolve not to appoint a public accountant. As a result,
the members of these corporations have the option not to have an audit or a review
engagement undertaken as to the financial state of their corporation. The prescribed
amount in paragraph 178(a) is proposed at $50,000; in paragraph 178(b)
at $1,000,000.
Present Law
None.
Top
Bill Clause No. 179
Section No. 179
Topic: Public Accountant
Proposed Wording
179. (1) In order to be a public accountant of a corporation, a person shall
(a) be a member in good standing of an institute or association
of accountants incorporated by or under an Act of the legislature
of a province;
(b) meet any qualifications under an enactment of a province for performing
any duty that the person is required to perform under sections 187 to 189; and
(c) subject to subsection (6), be independent of the corporation, any
of its affiliates, or the directors or officers of the corporation or its affiliates; |
(2) For the purposes of this section,
(a) independence is a question of fact;
and
(b) a person is deemed not to be independent if that person or their
business partner |
| |
(i) is a business partner, a director, an officer
or an employee of the corporation or any of its affiliates, or
is a business partner of any director, officer or employee of the
corporation or any of its affiliates,
(ii) beneficially owns or controls, directly or indirectly, a material interest
in the debt obligations of the corporation or any of its affiliates, or
(iii) has been a receiver, receiver-manager, liquidator or trustee in bankruptcy
of the corporation or any of its affiliates within two years before their proposed
appointment as public accountant of the corporation. |
(3) For the purposes of subsection (2), a person's business partner includes
a shareholder or member of that person.
(4) A public accountant who becomes disqualified under this section shall,
subject to subsection (6), resign immediately after becoming aware of the disqualification.
(5) On the application of an interested person, a court may make an order
declaring a public accountant to be disqualified under this section and the
office of public accountant to be vacant.
(6) On the application of an interested person, a court may, if it is satisfied
that the order would not unfairly prejudice the members of the corporation,
make an order on any terms that it thinks fit relieving a public accountant
from meeting any requirement under subsection (1). The order may have retrospective
effect.
Rationale
This section establishes the standard that an individual must meet in order to
serve as the public accountant of a corporation incorporated under this Act.
Subsection 179(1) establishes the professional credentials that must be obtained
in order to hold the position of public accountant. These include, meeting
the qualifications and membership requirements of the provincial body governing
accountants and being independent of the corporation. This is a standard requirement
and ensures that public accountants for federal not-for-profit corporations
have the proper training and accreditation.
Subsection 179(2) establishes the standard for the independence requirement
in subsection 179(1). By making independence a question of fact, this section
replaces a potentially problematic subjective determination with a straightforward
assessment based on precise criteria, thereby ensuring that all public accountants
will be held to the same standard.
Subsection 179(3) defines the term "business partner" for the purpose
of establishing the standard of independence for public accountants.
Subsection 179(4) addresses the disqualification or the potential disqualification
of public accountants under this section. The general rule is that if a public
accountant does not meet the requirements established in the first three subsections
they may not be appointed public accountant or, if they already hold the position,
they must resign or be removed.
Subsection 179(5) provides that any interested party can apply to a court
for an order declaring a public accountant disqualified. Given the seriousness
of such an action, the process is court directed to ensure that it is conducted
with all proper procedures and safeguards.
In the interests of flexibility and fairness, subsection 179(6) provides that
any interested party may make an application to a court for an order to relieve
a public accountant from meeting any requirement related to professional credentials.
This is to ensure that rigid and formalistic adherence to the rules does not
hinder a corporation where there is no threat to its members.
Present Law
Canada Corporations Act:
131. (1) Except as provided in subsection (2), no person shall be appointed
as auditor of a company who is a director, officer or employee of that company
or an affiliated company or who is a partner, employer or employee of any such
director, officer or employee.
(2) Upon the unanimous vote of the shareholders of a private company, present
or represented at the meeting at which the auditor is appointed, a director,
officer or employee of that company or an affiliated company, or a partner,
employer or employee of that director, officer or employee may be appointed
as auditor of that company.
(2.1) Subsection (2) does not apply if the company is a company to which paragraph
128(1)(b) applies, or if the company is a subsidiary of a company incorporated
in any jurisdiction in Canada that is not a private company within the meaning
of this Act.
(3) A person appointed as auditor under subsection (2) shall indicate in his
report to the shareholders on the annual financial statement of the company
that he is a director, officer or employee of the company or an affiliated
company or a partner, employer or employee of the director, officer or employee.
Top
Bill Clause No. 180
Section No. 180
Topic: Public Accountant
Proposed Wording
180. (1) Subject to section 181, members of a corporation shall, by ordinary
resolution, at each annual meeting, appoint a public accountant to hold office
until the close of the next annual meeting.
(2) A public accountant appointed under section 128 is eligible for appointment
under subsection (1).
(3) If a public accountant is not appointed at a meeting of members and if
no resolution is taken under section 181, the incumbent public accountant continues
in office until a successor is appointed.
(4) The remuneration of a public accountant may be fixed by ordinary resolution
of the members or, if not so fixed, shall be fixed by the directors.
Rationale
This section deals with the appointment of a public accountant of a corporation.
Subsection 180(1) requires the members of a corporation to appoint a public
accountant, through an ordinary resolution (50% plus 1), at the annual meeting.
The public accountant's term runs until the close of the next annual meeting.
Subsection 180(2) permits the public accountant appointed at the time of incorporation
to be reappointed at the annual meeting.
Subsection 180(3) provides that an incumbent public accountant holds the position
until such time as a successor is appointed.
Subsection 180(4) allows members to set the public accountant's remuneration.
If they choose not to do so, it falls to the directors.
Present Law
Canada Corporations Act:
130. (1) The shareholders of a company at their first general meeting shall
appoint one or more auditors to hold office until the close of the next annual
meeting, and, if the shareholders fail to do so, the directors shall forthwith
make such appointment or appointments.
(2) The shareholders of a company at each annual meeting shall appoint one
or more auditors to hold office until the close of the next annual meeting,
and, if an appointment is not so made, the auditor in office continues in office
until a successor is appointed.
[...]
(6) The remuneration of an auditor appointed by the shareholders shall be
fixed by the shareholders or by the directors, if they are authorized to do
so by the shareholders, and the remuneration of an auditor appointed by the
directors shall be fixed by the directors.
[...]
Top
Bill Clause No. 181
Section No. 181
Topic: Public Accountant
Proposed Wording
181. (1) Members of a designated corporation may resolve not to appoint a public
accountant, but the resolution is not valid unless all the members entitled
to vote at an annual meeting of members consent to the resolution.
(2) The resolution is valid until the following annual meeting of members.
Rationale
Undergoing an audit or a review engagement by a public accountant could represent
a financial burden on corporations with relatively low revenue levels. It is
also debatable whether a public accountant is required for relatively small corporations
that derive their revenues from their membership base and do not solicit funds
from the public or the government. As such, under subsection 181(1), the members
of a designated corporation with revenues less than a prescribed amount (proposed
to be at $50,000 for soliciting corporations and $1,000,000 for non-soliciting
corporations) can unanimously resolve not to appoint a public accountant. While
this means there may be no independent review of the financial statements for
such corporations, the requirement for unanimity amongst the members entitled
to vote provides assurance the members retain full authority.
Subsection 181(2) stipulates that a resolution not to appoint a public accountant
is only effective until the next annual meeting. This ensures that the decision
is reviewed by the membership annually.
Present Law
None.
Top
Bill Clause No. 182
Section No. 182
Topic: Public Accountant
Proposed Wording
182. (1) A public accountant of a corporation ceases to hold
office when the public accountant
(a) dies or resigns; or
(b) is removed under section 183. |
(2) A resignation of a public accountant becomes effective at the time a written
resignation is sent to the corporation or at the time specified in the resignation,
whichever is later.
Rationale
This section states the circumstances and timing under which a public accountant
ceases to hold office.
Present Law
None.
Top Bill Clause No. 183
Section No. 183
Topic: Public Accountant Proposed Wording
183. (1) The members of a corporation may by ordinary resolution at a special
meeting remove a public accountant from office, other than a public accountant
appointed by a court under section 185.
(2) A vacancy created by the removal of a public accountant may be filled
at the meeting at which the public accountant is removed or, if not so filled,
may be filled under section 184.
Rationale
This section deals with the removal of the corporation's public accountant
by members.
Subsection 183(1) permits members to remove the corporation's public accountant
through an ordinary resolution (50% plus 1). However, a public accountant appointed
by a court, pursuant to section 185, may not be removed by members.
Subsection 183(2) states that a public accountant removed pursuant to subsection
183(1) may be replaced at the same meeting of members. However, if the vacancy
is not filled by the members and the articles of the corporation do not state
that the public accountant should be appointed by the members only, the directors
are required to immediately appoint a public accountant.
Present Law
Canada Corporations Act:
130. [...]
(5) The shareholders, by a resolution passed by at least two-thirds of the
votes cast at a general meeting of which notice specifying the intention to
pass such resolution was given, may remove any auditor before the expiration
of his term of office, and shall by a majority of the votes cast at that meeting
appoint another auditor in his stead for the remainder of his term.
[...]
Top
Bill Clause No. 184
Section No. 184
Topic: Public Accountant
Proposed Wording
184. (1) Subject to subsection (3), the directors shall immediately fill a
vacancy in the office of public accountant.
(2) If there is not a quorum of directors, the directors then in office shall,
within the prescribed period after a vacancy in the office of public accountant
occurs, call a special meeting of members to fill the vacancy and, if they
fail to call a meeting or if there are no directors, the meeting may be called
by any member.
(3) The articles of a corporation may provide that a vacancy in the office
of public accountant shall only be filled by vote of the members.
(4) A public accountant appointed to fill a vacancy holds office for the unexpired
term of the public accountant's predecessor.
Rationale
The section deals with the filling of a vacancy in the office of public accountant.
Subsection 184(1) states that the directors are required to immediately appoint
a public accountant if there is a vacancy in that office. However, the directors
are only permitted to do so if the articles of the corporation do not state
that the public accountant should be appointed by members only.
Subsection 184(2) is self-explanatory. The prescribed period is proposed at
21 days.
Subsection 184(3) allows the corporation to choose to include in its articles
of incorporation a provision stating that only the members may determine who
will fill the role of public accountant.
Subsection 184(4) simply states that the appointment of a public accountant
will only last until the next annual meeting of members (i.e., for the unexpired
term of his/her predecessor).
Present Law
Canada Corporations Act:
130. [...]
(4) The directors may fill any casual vacancy in the office of auditor, but
while the vacancy continues the surviving or continuing auditor, if any, may
act.
[...]
Top
Bill Clause No. 185
Section No. 185
Topic: Public Accountant
Proposed Wording
185. (1) If a corporation does not have a public accountant, a court may, on
the application of a member or the Director, appoint and fix the remuneration
of a public accountant, who holds office until a public accountant is appointed
by the members.
(2) Subsection (1) does not apply if the members have resolved under section
181 not to appoint a public accountant.
Rationale
This section complements section 184 and deals with the situation where the directors
or members of a corporation fail to fulfill their duties with respect to appointing
a public accountant.
Subsection 185(1) permits a member or the Director Appointed Under the Act
to apply to a court to have the court a appoint public accountant for the corporation
and determine that person's remuneration.
Subsection 185(2) clarifies that no such application can be made where the
members of a designated corporations have unanimously resolved not to appoint
a public accountant.
Present Law
Canada Corporations Act:
130. [...]
(7) Where for any reason no auditor is appointed, the Minister may, on the
application of any shareholder, appoint one or more auditors to hold office
until the close of the next annual meeting and fix the remuneration to be paid
by the company for his or their services.
[...]
Top
Bill Clause No. 186
Section No. 186
Topic: Public Accountant
Proposed Wording
186. (1) The public accountant is entitled to attend a meeting of members at
the expense of the corporation and be heard on matters relating to the public
accountant's duties.
(2) If a director or member, whether or not the member is entitled to vote
at the meeting, gives written notice not less than the prescribed period before
a meeting of members to the public accountant or a former public accountant
of the corporation, the public accountant or former public accountant shall
attend the meeting at the expense of the corporation and answer questions relating
to their duties.
(3) A director or member who sends the notice shall send a copy of the notice
to the corporation at the same time.
(4) A public accountant is entitled to submit to the corporation a written
statement giving reasons for resigning or for opposing their removal or replacement
if a meeting of directors or members is called at which any of those matters
will be dealt with.
(5) If a meeting is called to replace the public accountant, the corporation
shall make a statement respecting the reasons for the replacement and the proposed
replacement public accountant may make a statement respecting the reasons.
(6) The corporation shall immediately give notice to the members of the statements
referred to in subsections (4) and (5) in the manner referred to in section
162 and shall immediately send a copy of the statements to the Director.
(7) No person shall accept an appointment or consent to be appointed as public
accountant of a corporation to replace a public accountant who has resigned,
been removed or whose term of office has expired or is about to expire until
the person has requested and received from that public accountant a written
statement of the circumstances and the reasons, in that public accountant's
opinion, for their replacement.
(8) A person otherwise qualified may accept an appointment or consent to be
appointed as a public accountant if, within the prescribed period after making
the request, the person does not receive a reply.
(9) The appointment of a person who does not make the request is void.
Rationale
This section is primarily concerned with preventing the summary dismissal of
the corporation's public accountant. These safeguards are particularly important
where the public accountant is in disagreement with management. The provisions
ensure that the public accountant is able to explain his/her version to the members
before the members make a determination to remove the public accountant from
office.
Subsection 186(1) permits the public accountant, at the expense of the corporation,
to speak at meetings of members on matters related to his/her duties. This
is standard in corporate law.
Subsection 186(2) allows any director or member, including any member not
entitled to vote at the meeting in question, to give notice of a meeting to
the public accountant and, therefore, compel him/her to attend the meeting
at the expense of the corporation.
Subsection 186(3) is self-explanatory.
Subsection 186(4) allows the corporation's public accountant to submit a statement
to the corporation outlining the reasons of his/her resignation or why he/she
opposes being removed or replaced, should a meeting of directors or members
be held to discuss these matters. This will help ensure that a public accountant
is not replaced arbitrarily or to hide a misuse of the corporation by the directors
Subsection 186(5) requires the corporation to provide statements regarding
the replacement of the current public accountant in the event that a meeting
is called to replace the public accountant of the corporation. The replacement
public accountant may also provide a statement.
Subsection 186(6) obliges the corporation to send to the members and the Director
Appointed Under the Act the statements of the corporation, as well as those
of the current and proposed public accountant, regarding the current public
accountant's resignation or his/her removal and replacement. Subsections 184(4)
to (6) ensure that it is clear to all parties why the current public accountant
is being replaced.
Subsection 186(7) prevents a person from replacing another public accountant
unless he/she requests and receives from the incumbent public accountant a
written statement of the circumstances and the reason why, in the opinion of
the incumbent public accountant, he/she is to be replaced. This section ensures
that the incoming public accountant is properly apprised of the situation in
order to properly fulfill the required duties.
Subsection 186(8) states that a replacement public accountant can accept an
appointment if he/she has not received the incumbent public accountant's statement
within the prescribed period. The prescribed period is proposed at 15 days.
Subsection 186(9) nullifies the appointed of a new public accountant if that
person does not request a statement from the former public accountant under
subsection 186(7).
Present Law
Canada Corporations Act:
132. [...]
(5) The auditor of a company is entitled to attend any meeting of shareholders
of the company and to receive all notices and other communications relating
to any such meeting that any shareholder is entitled to receive, unless waived
by such auditor, and to be heard at any such meeting that he attends on any
part of the business of the meeting that concerns him as auditor.
(6) A company, upon receipt, not less than seven days before a meeting of
shareholders, of a written application of shareholders holding not less than
ten per cent of the issued shares of the company that the auditor of the company
be requested to attend the meeting, shall forthwith in writing request the
auditor to attend that meeting of shareholders, and the auditor or his representative
shall so attend.
Top
Bill Clause No. 187
Section No. 187
Topic: Public Accountant
Proposed Wording
187. (1) Subject to subsection (2), the public accountant of a designated corporation
shall conduct a review engagement in the prescribed manner.
(2) The public accountant of a designated corporation shall conduct an audit
engagement in the prescribed manner if the corporation's members pass an ordinary
resolution requiring an audit engagement.
(3) The resolution is valid only until the following annual meeting of members
or for the period specified in the resolution.
Rationale
Subsections 187(1) and (2) state that corporations that have the prescribed
revenue levels to meet the definition of a designated corporation (i.e.,
a soliciting corporation with revenues less than $50,000 and a non-soliciting
corporation with revenues under $1,000,000) must undergo an annual review
engagement. To allow flexibility and promote confidence in the corporation,
this section permits the members, by an ordinary resolution (50% plus one)
to require the corporation to undergo an audit instead of a review engagement.
It should be noted that, under section 181, the members of a designated corporation
can unanimously resolve not to appoint a public accountant and, therefore,
choose not to have an independent review of the financial state of the corporation.
The prescribed manner for conducting a review or audit engagement is determined
by the Canadian Institute of Chartered Accountant's Handbook. This Handbook
sets the generally accepted accounting principles (GAAP) for Canada.
Subsection 187(3) ensures that the decision is reviewed on an annual basis
to permit the assessment of changing circumstances.
Present Law
Canada Corporations Act:
132. (1) The auditor shall make such examination as will enable him to report
to the shareholders as required under subsection (2).
[...]
Top
Bill Clause No. 188
Section No. 188
Topic: Public Accountant
Proposed Wording
188. (1) Subject to subsection (2), the public accountant of a corporation
that is not a designated corporation shall conduct an audit engagement in
the prescribed manner.
(2) The public accountant of a soliciting corporation that is not a designated
corporation shall conduct a review engagement in the prescribed manner if
(a) the corporation has annual revenues that are equal to
or less than the prescribed amount; and
(b) its members pass a special resolution requiring a review engagement. |
(3) The resolution is valid only until the following annual meeting of members.
Rationale
This section concerns the financial review requirements for corporations that
are not defined as designated corporations.
Subsection 188(1) requires all corporations that are not designated corporations
(soliciting corporations with revenues greater than $50,000 and non-soliciting
corporations with revenues greater than $1,000,000) to undertake an audit.
Subsection 188(2) states that certain soliciting corporations (those with
revenues greater than $50,000 but less than $250,000) can opt to undergo a
review engagement rather than an audit, if the members pass a special resolution
(2/3 majority) to that effect. This provides some flexibility to these corporations
to choose a lower standard of financial review, should 2/3 of the members agree.
The prescribed manner for conducting a review or audit engagement is determined
by the Canadian Institute of Chartered Accountant's Handbook. This Handbook
sets the generally accepted accounting principles (GAAP) for Canada.
Subsection 188(3) ensures that the resolution is reviewed annually.
Present Law
Canada Corporations Act:
132. (1) The auditor shall make such examination as will enable him to report
to the shareholders as required under subsection (2).
[...]
Top
Bill Clause No. 189
Section No. 189
Topic: Public Accountant
Proposed Wording
189. After conducting an audit engagement or a review engagement, the public
accountant shall report in the prescribed manner on the financial statements
required by this Act to be placed before the members, except any financial
statements or part of those statements that relate to the period referred
to in subparagraph 172(1)(a)(ii).
Rationale
This section simply establishes the reporting duties of the public accountant
on completion of the audit or review engagement of the most recently completed
financial year. The report must be in the prescribed manner, that is, in accordance
with the Handbook of the Canadian Institute of Chartered Accountants. This Handbook
sets the generally accepted accounting principles (GAAP) for Canada.
Present Law
Canada Corporations Act :
132. [...].
(2) The auditor shall make a report to the shareholders on the financial statement,
other than the part thereof that relates to the period referred to in subparagraph
118(1)(a)(ii), to be laid before the company at any annual meeting
during his term of office and shall state in his report whether in his opinion
the financial statement referred to therein presents fairly the financial position
of the company and the results of its operations for the period under review
in accordance with generally accepted accounting principle applied on a basis
consistent with that of the preceding period.
(3) The auditor in his report shall make such statements as he considers necessary
in any case where
(a) the financial statement of the company is not in agreement
with the accounting records;
(b) the financial statement of the company is not in accordance with
the requirements of this Act;
(c) he has not received all the information and explanation that he
has required; or
(d) proper accounting records have not been kept, so far as appears
from his examination. |
[...]
Top
Bill Clause No. 190
Section No. 190
Topic: Public Accountant
Proposed Wording
190. (1) Despite section 191, a public accountant of a holding corporation
may reasonably rely on the report of a public accountant of a body corporate
or an unincorporated business the accounts of which are included in whole
or in part in the financial statements of the corporation.
(2) For the purpose of subsection (1), reasonableness is a question of fact.
(3) Subsection (1) applies whether or not the financial statements of the
holding corporation reported on by the public accountant are in consolidated
form.
Rationale
Subsection 190(1) establishes the propriety of a public accountant relying on
the report or reports of public accountants who have reported on the financial
statements of affiliated corporations. The requirement, in subsection 190(2),
that the reliance be reasonable ensures that the public accountant uses the previous
report in a proper manner and does not turn a blind eye to errors or other flaws
that should be readily apparent to a properly qualified public accountant. Subsection
190(3) is self-explanatory.
Present Law
None.
Top
Bill Clause No. 191
Section No. 191
Topic: Public Accountant
Proposed Wording
191. (1) At the request of a public accountant of a corporation, the present
or former directors, officers, employees, agents or mandataries of the corporation
shall furnish the following, if they are reasonably able to do so and if,
in the opinion of the public accountant, it is necessary to enable the public
accountant to conduct the review or audit engagement required under section
187 or 188 and to make the report required under section 189:
(a) any information and explanations; and
(b) access to records, documents, books, accounts and vouchers of
the corporation or any of its subsidiaries. |
(2) On the demand of the public accountant of a corporation, the directors
of the corporation shall
(a) obtain from the present or former directors, officers,
employees, agents or mandataries of any subsidiary of the corporation
the information and explanations that they are reasonably able to furnish
and that are, in the opinion of the public accountant, necessary to enable
the public accountant to conduct the review or audit engagement required
under section 187 or 188 and to make the report required under section
189; and
(b) furnish the public accountant with the information and explanations
so obtained. |
(3) A person who in good faith makes an oral or written communication under
subsection (1) or (2) is not liable in any civil proceeding arising from having
made the communication.
Rationale
To properly fulfill their duties, a public accountant must have full and ready
access to all relevant materials. This section makes it clear that directors,
officers, et al. have a duty to provide information to the public accountant.
Subsection 191(1) establishes the basic duty of directors, officers, et al.
with respect to furnishing information requested by the public accountant.
Subsection 191(2) elaborates on the duty established in subsection 191(1),
including the requirement to seek information in the possession of former directors
and officers.
Subsection 191(3) states that a person, who in good faith, provides information
to the public
accountant, pursuant to subsections 191(1) and (2), is not liable in any civil
proceeding.
Present Law
Canada Corporations Act:
132. [...]
(4) The auditor of a company shall have access at all times to all records,
documents, books, accounts and vouchers of the company, and is entitled to
require from the directors and officers of the company
(a) such information and explanations,
(b) such access to all records, documents, books, accounts and vouchers
of any subsidiary company, and
(c) such information and explanations from the directors and officers
of any subsidiary company, as in his opinion may be necessary to enable him
to report as required by subsection (2). |
[...]
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Bill Clause No. 192
Section No. 192
Topic: Public Accountant
Proposed Wording
192. (1) A corporation may have an audit committee and if it does, the committee
shall be composed of not less than three directors, a majority of whom are
not officers or employees of the corporation or any of its affiliates.
(2) The audit committee shall review the financial statements of the corporation
before they are approved under section 177.
(3) The corporation shall send the public accountant notice of the time and
place of any meeting of the audit committee. The public accountant is entitled
to attend the meeting at the expense of the corporation and be heard, and shall
attend every meeting of the committee if requested to do so by one of its members.
(4) The public accountant or a member of the audit committee may call a meeting
of the committee.
Rationale
An audit committee is an important part of the modern corporate governance
structure. The audit committee provides a more in-depth review of financial
statements and any public accountant's reports. At the very least, an audit
committee allows for another set of eyes when the determination regarding
the accuracy of the corporation's financial statements is made. However,
given the varying sizes of corporations falling under this Act, and the potential
burden of having to create an audit committee for a small corporation, it
has been determined that the creation of an audit committee will be at the
discretion of the corporation. (Subsection 192(1))
Subsection 192(2) establishes the basic duties of the audit committee.
Under subsection 192(3), the public accountant is to be provided with notice
of committee meetings and the corporation is to pay for costs associated with
attendance of the public accountant at the meetings. Given the specialized
role that the audit committee fulfills, close contact between the committee
and the public accountant is highly desirable.
Subsection 192(4) is self-explanatory.
Present Law
None.
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Bill Clause No. 193
Section No. 193
Topic: Public Accountant
Proposed Wording
193. (1) A director or an officer of a corporation shall immediately notify
any audit committee and the public accountant of any error or misstatement
of which the director or officer becomes aware in a financial statement that
the public accountant or a former public accountant has reported on.
(2) A public accountant or former public accountant of a corporation who is
notified or becomes aware of an error or misstatement in a financial statement
on which they have reported shall, if in their opinion the error or misstatement
is material, inform each director accordingly.
(3) When the public accountant or former public accountant informs the directors
of an error or misstatement in a financial statement,
(a) the directors shall prepare and issue revised financial
statements or otherwise inform the members, and
(b) the corporation shall send the Director a copy of the revised
financial statements or a notice of the error or misstatement, if the corporation
is one that is required to comply with section 176. |
Rationale
It is imperative that, in the event an error or misstatement in the corporation's
financial statements is discovered, the relevant parties are informed as soon
as possible. It is for this reason that subsection 193(1) requires directors
and officers to notify the public accountant immediately upon discovering such
an error.
Subsection 193(2) establishes the corresponding duty for public accountants
to inform the directors if it appears the error is a material one.
Subsection 193(3) identifies the requirements regarding revising the corporation's
financial statements in the event of an error or misstatement.
Present Law
None.
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Bill Clause No. 194
Section No. 194
Topic: Public Accountant
Proposed Wording
194. Any oral or written statement or report made under this Act by the public
accountant or former public accountant of a corporation has qualified privilege.
Rationale
This section gives qualified privilege to statements made by a public accountant.
The privilege permits public accountants to provide full and frank statements
with respect to the financial state of the corporation. However, the privilege
is qualified to the extent that it does not extend to malicious statements that
are defamatory.
Present Law
None
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