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Although not required to do so until fiscal 2007, FundSERV plans to adopt the new Canadian Institute of Chartered Accountants (CICA) 5970 audit standard this year. This new mandatory standard replaces the previous 5900 standard and is more aligned with the U.S. statement on auditing standards no. 70 (SAS 70) governing publicly traded companies. While FundSERV is not publicly traded, it provides services to clients who are not only public, but also may have operations or be publicly traded in the U.S.

The new standards are being adopted because of an increased focus on internal controls that grew out of the infamous Enron and Worldcom accounting scandals and resulting legislation, such as the Sarbanes-Oxley Act (SOX) in the U.S. and Bill C198 in Canada. Furthermore, as public companies increasingly outsource their non-critical and in some cases, critical operations to third parties, there is a concern that control over these operations, particularly financial transactions and information technology, is also being transferred. As a result, companies such as FundSERV will be subject to the new rules of the 5970 standard.

The new standard requires external auditors to be much more rigorous in their examination of a service provider's internal controls. For example, instead of auditing a point in time consisting of a couple of weeks as was the case under the old standard, FundSERV's external auditors are now required to examine a minimum of six months of FundSERV data and preferably, a full 12-month period.

The enhanced disclosure required by the standard will examine five key areas:

1. Control objectives (what are FundSERV's objectives in establishing specific controls?)
   
   
2. Controls (description of the applicable controls)
   
   
3. Testing performed (what tests did the auditor perform to validate the controls?)
   
   
4. Results
   
   
5. Exceptions noted

"We are focused on meeting CICA requirements while helping our customers meet their own regulatory needs," says David Purewal, director of internal audit for FundSERV. "The audit is really an opportunity for us to demonstrate how we manage and mitigate risk on behalf of our customers. In fact, the 5970 audit is better aligned with our actual practices, and we have been making the required preparations to assist our auditors. I'm very confident that we are ready to meet the new standard."

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