Canada's Decentralized Regulatory System Failing Investors: Queen's Study

    Majority of companies listed on Canadian exchanges not disclosing key
    internal control information

    KINGSTON, ON, Oct. 30 /CNW/ - A new study at Queen's School of Business
has revealed that many publicly-traded Canadian firms are not revealing the
results of evaluations that assess the design of their own financial
safeguards against fraud, and that the Canadian regulatory system severely
lags its US counterpart in enforcing compliance consistently and effectively.
The study also exposes that within Canada, companies listed on the Canadian
Venture Exchange are far more likely to withhold voluntary disclosures and
ignore basic reporting requirements than those listed on the Toronto Stock
Exchange (TSX).
    The Queen's School of Business research provides tangible proof that
Canada's 10 provincial and three territorial regulators seemingly fail to
consistently enforce even the few guidelines they agree upon, such as
disclosure controls and procedures effectiveness opinions, compared to the
United States model, where a single, well-funded and rigorous national
securities regulator successfully enforces laws that require transparent
control safeguards.
    "While we are not advocates of mimicking the American system of over
detailed regulation, legalistic enforcement and a tick box mentality, we have
consistently advocated a strong, principled made-in-Canada system," says
Professor Steve Salterio, who led the research at Queen's School of Business.
"Unfortunately, what we have is a made-in-Canada mess."
    The study compared 158 Canadian firms that are cross-listed on US and
Canadian exchanges with 199 Canadian firms that are only listed on Canadian
exchanges (100 on the TSX and 99 on the Venture Exchange), and found that only
a minority of companies are voluntarily disclosing the results of the
mandatory evaluation of the design effectiveness of their own internal
controls. This contrasts the experience in the United States, where it is
mandatory for management to make and disclose this evaluation.

    Key findings:

    -  Among the study's sample of companies that are solely listed on the
       TSX, almost one in 10 (nine per cent) do not disclose anything about
       internal control design responsibility in their Management Discussion
       and Analysis, including large firms like Loblaw Companies, Power Corp,
       Power Financial and The Score Media.
    -  Among the 91 per cent that do, just over half (54 per cent) actually
       provide an opinion on the effectiveness of their own controls design,
       and fewer than half of the TSX-listed companies in the sample (46 per
       cent) evaluated their safeguards as being effective.
    -  Queen's School of Business researchers discovered that less than one
       third (29 per cent) of the sample's Venture Exchange-listed companies
       provide an opinion on their own financial controls, and of those, just
       45 per cent (or 13 per cent overall) evaluate their controls as being

    This last finding demonstrates a de facto two-tiered level of compliance
between companies listed on the TSX and the Venture Exchange, even though
securities regulations in this area are identical for the companies in the
study's samples.
    "Our sample of Venture companies was from among the oldest and largest
actively traded companies - the ones making up the Composite Index," says
Regan Schmidt, co-author of the study. "If these companies are problematic,
what would we have found in a random sample of all exchange companies?"
    The Queen's School of Business study also concludes that instead of
internal control evaluations and their disclosures acting as a deterrent to
corporate malfeasance and informing investors about investment risks, because
of the voluntary nature of disclosure, baseline compliance has become an
example of good corporate citizenship.
    "Instead of informing investors, our weak regulatory system is being used
as a prop in a beauty pageant, with companies that divulge little more than
the minimum required to report wearing the crown," says Professor Salterio.
    The solution, says Prof. Salterio and his colleagues at Queen's School of
Business, is a National Securities Regulator with proper powers to investigate
and penalize errant companies, auditors (and audit firms), lawyers and other
participants involved in accounting disclosure. In the meantime, he calls upon
the provincial government in Ontario to appoint a blue ribbon commission to
investigate and report quickly what are the impediments to the Ontario
Securities Commission becoming a more effective regulator.
    "Currently, the OSC is just not up to the standards set by other
countries regulators," says Professor Salterio.

    About Queen's School of Business

    Queen's School of Business ( is one of the world's
premier business schools, offering undergraduate and graduate degrees and
non-degree executive education programs. Programs include: Queen's full-time
MBA, ranked No. 1 in the world outside the US by BusinessWeek; Queen's-Cornell
Executive MBA, Queen's Accelerated MBA for Business Graduates and Queen's
Executive MBA offered by videoconference in cities across Canada; Queen's
Ottawa Executive MBA; the largest offering of open enrolment executive
development programs in the country, ranked in the top 15 by Financial Times
(UK) and BusinessWeek; Queen's Bachelor of Commerce, renowned for its rigorous
entrance standards; and Queen's MSc and PhD in Management programs, which
produce leading researchers for industry and academe.

For further information:

For further information: Josh Cobden or Amy Davidson, Environics
Communications, (416) 920-9000

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