Canadian firms reporting under the Sarbanes-Oxley Act have as many, if not more, internal control problems than American companies, according to a new study authored by a Toronto-based academic.
Reviewing a sampling of cross-listed public companies, Queen's University School of Business accounting professor Steven Salterio found that a higher percentage of cross-listed Canadian companies reported internal control weaknesses during the first year of compliance with the SOX law. Specifically, Salterio reported that for Year 1, 13 percent of all U.S. companies disclosed weaknesses in internal control. Meanwhile, 19 percent of cross-listed Canadian companies reported a higher incidence of problems.
The study also discovered that two-thirds of Canadian companies with material weaknesses did not disclose those problems until they were preparing for SOX auditors.
In March, the Canadian Securities Administrators, a group for provincial and territorial market regulators, proposed that publicly listed companies on Canadian exchanges would not have to get outside audits of internal controls. However, that same month, after having proposed a similar plan, Canadian regulators reversed course and announced that chief executives and chief financial officers would still have to vouch for the internal controls in place.
All large and midsized Canadian cross-listed companies will be required to file SOX reports for the year ended 2006.
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