Audit committee (CBCA section 171)

A buyer reading a corporation’s minute book or financial statements may see an audit committee mentioned. Under section 171 of the Canada Business Corporations Act (CBCA), it is a committee of directors with a set role in the company’s financial reporting. The CBCA is the federal statute, so this entry covers federally incorporated companies only.

What section 171 says

• Subject to subsection (2), a corporation described in subsection 102(2), a distributing corporation whose issued securities remain outstanding and are held by more than one person, shall have one. Any other corporation may.
• The committee is made up of a minimum number of directors, set in the section, a majority of whom are not officers or employees of the corporation or its affiliates.
• It reviews the financial statements before they are approved under section 158.
• The auditor is entitled to receive notice of every meeting and, at the corporation’s expense, to attend and be heard.

What to ask

Section 171 is subject to subsection (2), under which the Director may, on the corporation’s application, authorize it to dispense with a committee, on any reasonable conditions the Director thinks fit if satisfied that shareholders will not be prejudiced. Ask whether the target is a corporation of the kind described in subsection 102(2), whether it has a committee, and whether an authorization exists. For the related choice of skipping the auditor, see audit exemption. For what a review or audit gives a buyer, see when it is worth requiring a review or audit.