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CSA Announces Results of Continuous Disclosure Review for Fiscal Years 2017 and 2018


Lawyer William (Bill) Gorman, Brad Ross
Area Corporate Finance and Securities


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On July 19, 2018, the Canadian Securities Administrators (CSA) published Staff Notice 51-355 (the “Staff Notice”), summarizing the results of its Continuous Disclosure Review Program (the “CD Review Program”) for fiscal years ending March 31, 2017 and March 31, 2018. As previously announced in July 2017, the CSA is now publishing the results of the CD Review Program on a biennial basis.

During fiscal years 2018 and 2017, 840 and 1,104 issuers were selected for the CD Review Program respectively. Approximately half of these reviews resulted in the issuer being required to take some type of remedial action (including refiling historical documents or improving disclosure on a prospective basis) or the issuer being referred to enforcement, cease traded or placed on the default list.

In the Staff Notice, the CSA categorized deficiencies as relating to: (i) financial statements; (ii) management’s discussion and analysis (MD&A); or (iii) “other regulatory requirements,” including: executive compensation disclosure, climate change, social media disclosure and mining technical reports. Of note, the Staff Notice reflects the CSA’s continued focus on the disclosure relating to non-GAAP financial measures (“NGMs”) and forward-looking information (“FLI”).

Financial Statements

Statement of Cash Flows. The CSA noted some issuers incorrectly classified their cash flows as investing or financing activities, when they should have been operating activities. Cash flows predominantly derived from the issuer’s main revenue-producing activities (e.g., cash advances or loans for financial institutions; payments to acquire assets held for rental and the cash receipts from rents for rental companies) should be classified as cash flows from operating activities. The CSA also observed that some issuers reclassified items on their statement of cash flows without explaining such reclassification.

Fair Value Measurements. The CSA found some issuers did not sufficiently disclose their valuation techniques, processes and policies used in the fair value measurements under IFRS.  The CSA also noted some issuers did not provide sufficient quantitative information about the significant unobservable inputs used in the fair value assessments.

Adoption of New Accounting Policies. Some issuers only provided general disclosure about the new IFRS standard being implemented without discussing specifics about how the standard will impact the issuer. The CSA remarked there should be more qualitative and quantitative information on how the initial adoption of IFRS standards would impact the issuer’s financial statements during the period of initial application.


Investments at Fair Value. The CSA observed some investment entities and non-investment entities only provided records of their investments at fair value without sufficient qualitative and quantitative information about their investments. The CSA noted that, at minimum, issuers should disclose summary financial information about a material investee company in the issuer’s MD&A including a discussion of those results.

Non-GAAP Financial Measures for the Real Estate Industry. In the CSA’s view, several real estate issuers’ disclosures did not contain enough transparency about the various adjustments made in arriving at their NGMs, such as adjusted funds from operations, especially when such adjustments are estimates from management (e.g., those relating to maintenance capital expenditures). In addition, the CSA raised concerns in situations where real estate issuers with equity-accounted joint ventures include a full set of non-GAAP financial statements in the MD&A, creating a NGM for each financial statement line item, and then focus their MD&A discussion on these non-GAAP pro-rata financial results with little to no discussion of the comparable GAAP results.

Discussion of Operations - Disclosure of Capital Spending & Milestones. The CSA continues to see issuers (particularly those who have had a change of business and/or are in emerging industries) disclose or announce significant projects that are in the early stages of development, but fail to disclose sufficient information about the project.

Related Party Transactions. The CSA expressed continued concern with disclosures pertaining to related party transactions. In particular, the CSA noted many issuers do not identify the related person or entity (e.g., naming a director and/or officer), and do not discuss the business purpose of the transaction.

Other Regulatory Disclosure Deficiencies

Forward-Looking Information. The CSA expressed continued concern with disclosure of FLI in news releases, MD&A, prospectus filings, marketing materials, investor presentations or on their website. The CSA noted that issuers continue to disclose forward-looking information for a period beyond the issuer’s next fiscal year-end without providing reasonable and sufficient assumptions to support such information. In the CSA’s view, forward-looking information must be limited to the period over which the information can be reasonably estimated, which, in many cases, will not surpass the issuer’s next fiscal year. Where FLI is presented for multiple years and is not sufficiently supported by reasonable qualitative and quantitative assumptions, the CSA may ask issuers to limit the disclosure of FLI to a shorter period (for example, one or two years), for which reasonable support exists. For investors to assess whether the assumptions underlying the issuer’s FLI are reasonable, the issuer should disclose those assumptions, both quantitative and qualitative. For example, an issuer projecting aggressive growth targets without the benefit of historical experience should be able to show (i) a reasonable basis for those targets, including the key drivers behind the projected growth with reference to specific plans and objectives that support the projected growth, and (ii) why management believes that each of the targets are reasonable.

Non-GAAP Financial Measures (Generally). The CSA found many issuers giving “excessive prominence” to NGMs in their corporate presentations, investor fact sheets, news releases and social media materials. The CSA also noted that issuers must explain the purpose of the NGM and why it provides useful information to investors. The disclosure should be entity-specific and clearly align with the nature and type of adjustments that are being included or excluded in the calculation of the NGM. The CSA reminded issuers to abide by the guidance provided in CSA’s Staff Notice 52-306 (Non-GAAP Financial Measures).

Statement of Executive Compensation. If an issuer has an external management company provide executive management services, the compensation paid to such executives should be disclosed in the issuer’s summary compensation table. In addition, some issuers failed to file the disclosure of executive compensation within the required filing deadline, which is 140 days after the end of the issuer’s most recently completed financial year, or 180 days for venture issuers.

Social Media. The CSA observed some issuers disclosed material information on social media before it is disseminated more widely to all investors, which could constitute selective or early disclosure. Issuers should consider implementing a thorough social media governance policy outlining who is authorized to post what type of information on which social media channels.

Climate Change-Related Disclosure. The CSA noted that issuers’ annual information forms must disclose climate change risk factors specific to the issuer, which must consider a wide range of risks including physical, regulatory, reputational and business model risks. In general, issuers tended to discuss climate change-related risks in an overly general manner that does not consider the issuer and its operations.

Disclosure of Material Relationships. In its review, the CSA found when some issuers entered into transactions with a party with whom there is a familial or other close relationship, they did not disclose such relationship.

Change of Auditor Reporting Package. The CSA noted when an auditor change occurs, issuers should file the letter from the predecessor auditor in the form required under securities laws, rather than a resignation letter or other communication intended for the issuer only.

Common Deficiencies Related to Standards of Disclosure for Mineral Projects

In addition to the regulatory requirements discussed above, the CSA outlined common deficiencies specifically related to public disclosure of scientific and technical information about an issuer’s mining and mineral exploration projects governed by National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101), including:

Technical Reports. The CSA found that some technical reports required under NI 43-101 did not include adequate disclosure of important criteria that the Qualified Person (as defined in NI 43-101) used in the report to determine that the resource has demonstrated reasonable prospects for eventual economic extraction, such as mining method, metallurgical recovery factors, metal prices and cut-off grade (among other things). Moreover, the CSA noted authors of certain technical reports improperly relied on the work of other qualified persons (or failed to describe the procedures used to verify the work of other qualified persons) and too broadly disclaimed responsibility of other experts for legal, political, environmental and tax matters.

Preliminary Economic Assessments. “Preliminary economic assessment” (“PEA”) is a defined term under NI 43-101. The CSA noted disclosing PEAs after mineral reserves have been determined on a property can be potentially misleading to investors if the results have the effect of adding, combining, or integrating the PEA outcomes with the economic analysis, cash flows, production schedules, or mine life based on a pre-feasibility, feasibility study, or life of mine plan. If mineral reserves have been determined on the property, the results of a PEA must be reported as a separate analysis that is separate and distinct from a pre-feasibility or feasibility study.

Disclosure of Historical Estimates. When disclosing historical estimates on their websites or in investor presentations and marketing materials, some issuers did not provide information related to the estimate’s original source and date, and failed to include the required cautionary statements required under section 2.4 of NI 43-101.

For further information on the Staff Notice or continuous disclosure requirements, please contact any member of our Corporate Securities Group.

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