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The proposed Audit Committees rules require the following:

• The external auditor must report directly to the audit committee. The audit committee is responsible for the appointment, compensation and oversight of the external auditor, including the resolution of disagreements between management and the external auditor;
• The audit committees responsibilities include:
  • Pre-approval of all non-audit services to be provided by the external auditor (de minimus exception exists);
  • Reviewing the issuer's financial statements, MD&A and earnings press release before they are publicly disclosed;
  • Ensuring that they are satisfied that adequate procedures are in place for the review of the issuer's disclosure of financial information;
  • Establishing "Whistleblower" procedures. This means that they must establish procedures for the receipt, retention, and treatment of complaints regarding accounting, internal accounting controls or auditing matters and procedures for handling the confidential anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters;
  • Reviewing and approving the issuer's hiring policies regarding partners, employees and former partners and employees of the present and former external auditors of the issuer; and
  • Having the authority to engage independent counsel and other advisors, funded by the issuer.
  • Having a written charter that sets out its mandate and responsibilities.
• The composition of the issuer's audit committee is a minimum of 3 members who are all directors of the issuer - each member must be independent and financially literate.Venture issuers are exempt from this requirement. However, both issuers and venture issuers must disclose the names of the audit committee members whether or not they are (i) independent, and (ii) financially literate.
  • For a company going public through an initial public offering, only one member of the issuer's audit committee must be independent at the time of listing. Within 90 days after listing, the majority of the audit committee must be independent, and within one year after listing, the full audit committee must be independent.
  • To be considered independent, the rules require that the person have no direct or indirect material relationship with the issuer. A material relationship is defined as one that, in the view of the board of directors, could reasonably interfere with the exercise of the members' independent judgment.
  • To be considered financially literate, the rules require that the person has the ability to read and understand a set of financial statements that present breadth and level of complexity of accounting issues comparable to those that can be reasonably be expected to be included in the preparation of the issuer's financial statements.

Effective Date

The effective date is the earlier of the first annual meeting of the issuer after July 1, 2004 and July 1, 2005.