18 Creating an audit committee Public companies listed in Canada must have an audit committee. This is a cornerstone of corporate governance and financial reporting. Audit committees of companies with international operations should have knowledge of Canadian securities laws and financial reporting, and be conversant in the languages and customs of the country or countries in which any international business is conducted. The minimum qualifications for an audit committee are: Toronto Stock Exchange Listed Companies The audit committee members must be independent and financially literate. • Independence is defined as not having a direct or indirect material relationship with the company. A material relationship is one that could, in the view of your company’s Board of Directors, reasonably be expected to interfere with the exercise of a member’s independent judgment. • Financial literacy is the ability to read and understand financial statements containing the breadth and complexity of issues that can reasonably be expected to be raised by your company’s financial statements. TSX Venture Exchange Listed Companies • The audit committee must be comprised of at least three directors, the majority of whom are not officers, employees, or control persons of your company, or any of its associates or affiliates. Responsibilities of the audit committee The audit committee of a company listed on either Exchange must fulfill the following responsibilities, although there may be some transitional relief immediately prior to going public and for a short period afterwards. Your audit committee must: 1. Have a written charter that sets out the audit committee mandate and responsibilities. 2. Recommend to the Board of Directors: a. the compensation of the external auditor; and b. the external auditor to be nominated. 3. Be directly responsible for overseeing the work of the external auditor, including the resolution of disagreements between management and the external auditor regarding financial reporting. 4. Pre-approve all non-audit services to be provided to your company or its subsidiary entities by the external auditor. 5. Review your company’s financial statements, management discussion and analysis (MD&A), and annual and interim earnings press releases before your company publicly discloses this information. 6. Be satisfied that adequate procedures are in place for reviewing your company’s public disclosure of financial information extracted or derived from the company’s financial statements, and periodically assess the adequacy of those procedures. 7. Establish procedures for: a. the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing; and b. the confidential anonymous submission, by employees of your company, of concerns regarding questionable accounting or auditing matters. 8. Review and approve your company’s hiring policies regarding partners, employees and former partners and employees of any present or former external auditor.
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