What is a Audit Committee Resolution?
An Audit Committee Resolution is a crucial corporate governance document used when a board of directors needs to formally establish, modify, or document decisions regarding its audit committee. This document type is particularly important in the Canadian regulatory environment, where companies must comply with federal legislation (such as the Canada Business Corporations Act) and provincial securities regulations. The resolution typically includes specific details about committee composition, independence requirements, financial expertise requirements, and committee responsibilities. It serves as evidence of proper corporate governance and regulatory compliance, particularly important for public companies listed on Canadian exchanges. The Audit Committee Resolution should be drafted with careful consideration of National Instrument 52-110 and other relevant securities regulations, as well as stock exchange requirements if applicable.
About the Audit Committee Resolution
An Audit Committee Resolution is a formal board document that establishes, modifies, or documents decisions regarding your company's audit committee. This resolution serves as official evidence of compliance with Canadian corporate governance requirements and securities regulations, ensuring your organization meets the strict oversight standards mandated by law.
When do you need this document?
You need an Audit Committee Resolution when incorporating a new company that will become a reporting issuer, when existing companies become subject to securities regulations, or when making changes to your current audit committee structure. Public companies listed on Canadian exchanges must establish audit committees with specific independence and expertise requirements. You'll also need this resolution when appointing new independent directors to the committee, updating committee responsibilities following regulatory changes, or demonstrating compliance during regulatory reviews or audits.
Key legal considerations
The resolution must address critical governance elements including committee composition with the required number of independent directors, financial literacy requirements for all members, and the designation of at least one financial expert. You must clearly define the committee's authority and responsibilities, including oversight of external auditors, review of financial statements, and evaluation of internal controls. The document should reference your company's bylaws and establish procedures for committee meetings, reporting to the full board, and annual performance evaluations. Consider including provisions for committee access to management, external advisors, and company records to ensure effective oversight.
Legal requirements in Canada
Under the Canada Business Corporations Act (CBCA), federally incorporated companies subject to securities regulations must establish audit committees composed entirely of independent directors. National Instrument 52-110 mandates specific requirements including financial literacy for all committee members and at least one member with accounting or financial expertise. The committee must have a written charter outlining its responsibilities, including oversight of external auditor selection and compensation, review of financial statements and disclosure documents, and evaluation of internal control systems. Provincial securities commissions enforce additional requirements, and companies listed on the Toronto Stock Exchange must comply with TSX governance standards. The resolution must demonstrate compliance with Canadian Auditing Standards (CAS) oversight requirements and establish procedures for handling complaints about accounting or auditing matters through appropriate whistleblower mechanisms.
Governing law
Applicable law
This Audit Committee Resolution is drafted to comply with Canada law. Key legislation includes:
National Instrument 52-110 Audit Committees: Key securities regulation that establishes requirements for audit committees including independence, financial literacy, and responsibilities
National Instrument 51-102 Continuous Disclosure Obligations: Establishes reporting requirements that audit committees must oversee, including financial statements and MD&A
Canadian Auditing Standards (CAS): Professional standards that govern how audits must be conducted in Canada, which audit committees must understand and oversee
Toronto Stock Exchange (TSX) Company Manual: Contains additional requirements for audit committees of TSX-listed companies
Provincial Securities Acts: Provincial legislation (such as Ontario Securities Act) that governs securities regulation and establishes requirements for audit committees in each province
Corporate Governance Guidelines (NP 58-201): Provides guidance on corporate governance practices, including recommendations for audit committee operations
Sarbanes-Oxley Act Compliance (if cross-listed): For companies also listed in the US, SOX compliance requirements must be considered in audit committee operations
