CSA Publishes Results of Annual Continuous Disclosure Reviews

The Canadian Securities Administrators (CSA) have released CSA Staff Notice 51-355 – Continuous Disclosure Review Program Activities for the fiscal years ended March 31, 2018 and March 31, 2017 (Staff Notice), summarizing the results of their continuous disclosure review programs for the past two years. 

In the Staff Notice, the CSA noted the following deficiencies, among others:

Financial Statements

Statement of Cash Flows

Some issuers incorrectly classify cash flows as investing or financing activities rather than operating activities, or reclassify items without disclosing the reasons for such reclassification.

Fair Value Investments - Level 3

Some issuers also do not provide sufficient disclosure of the valuation techniques, processes and policies used in the fair value measurements categorized within Level 3 of the fair value hierarchy or do not provide disclosure of quantitative information about the significant unobservable inputs.

Adoption of New Accounting Policies

Some issuers do not provide sufficient qualitative and quantitative disclosures regarding the possible impact of the adoption of new accounting policies.


Investment Entities/Non-Investment Entities

Some investment entities and non-investment entities that record investments at fair value do not provide sufficient qualitative and quantitative information about their investments or do not provide sufficient disaggregation of the investment portfolio in their annual and interim financial statements and management discussion and analysis (MD&A).

Non-GAAP Financial Measures

Some issuers include a full set of non-GAAP financial statements in MD&A, effectively unwinding the equity method of accounting required by IFRS 11 (International Financial Reporting Standards outlining the accounting by entities that jointly control an arrangement), or focus discussion on non-GAAP pro rata financial results, with little to no discussion of the comparable generally accepted accounting principles (GAAP) results.

Discussion of Operations – Disclosure of Capital Spending & Milestones

Some issuers fail to disclose sufficient information about significant projects in the early stages of development (particularly issuers who had a change of business or are in emerging industries). In order to meet MD&A requirements, issuers should disclose the overall plan for the project and/or business, the project timeline, the budget and the regulatory and licensing requirements in the MD&A, as well as updates on the status of the project in each MD&A.

Statement of Executive Compensation

Some issuers do not file the requisite disclosure concerning executive compensation (typically within a management information circular) within the required filing deadline (140 days after the end of their most recently completed financial year or 180 days in the case of a venture issuer). Further, some issuers with executive management services provided by an external management company do not adequately disclose the amounts paid to the “named executive officers” in the Summary Compensation Table.

Forward-Looking Information

Some issuers disclose forward-looking information for periods beyond the issuer’s next fiscal year end without providing both quantitative and qualitative assumptions that are reasonable in the circumstances.

Non-GAAP Financial Measures on Issuers' Websites

Some issuers also disclose non-GAAP financial measures (NGMs) in their corporate presentations, investor fact sheets or news releases or on social media and give excessive prominence to the NGMs. The CSA also noted an increasing prevalence of NGMs where the stated purpose and usefulness of the measure is unclear or where multiple NGMs are disclosed for the same or similar purpose. Disclosure explaining the usefulness of the NGM should be entity-specific and align with the nature of the adjustments included or excluded in the calculation of the NGM.  Additionally, some real estate issuers are not adequately transparent about the various adjustments made in arriving at NGMs. 

Social Media

Some issuers provide material information on social media sites before it is generally disclosed, which may constitute selective or early disclosure, or provide misleading or unbalanced information inconsistent with information already posted on SEDAR. The CSA recognize that in some cases it may be difficult to provide balanced disclosure on social media due to length restrictions, in which case issuers are urged to provide a link to additional information. 

Climate Change-Related Disclosure

Many issuers provide boilerplate disclosure or fail to provide disclosures of climate change-related risks and opportunities, or provide risks that are not sufficiently specific or do not disclose the potential impact resulting from climate change.

Related Party Transactions

Some issuers fail to provide the required disclosures pertaining to related party transactions (RPTs). Further, some issuers that disclose significant transactions that are not RPTs, but that are with a party with whom there was a familial or close similar relationship, fail to disclose the relationship and provide qualitative and quantitative disclosure sufficient for an investor to understand the relationship and terms of the transaction.

Change of Auditor Reporting Package

Some issuers file a letter from the predecessor auditor that is not in the required form or do not file the change in auditor reporting package within the required filing deadline (within 14 days after the date of auditor termination or resignation).

Mineral Project Disclosure

Some issuers provide errors, omissions and potentially misleading information regarding important criteria that a qualified person (QP) used to evaluate prospects for eventual economic extraction or specific procedures that the QP undertook to verify the data, the results of a preliminary economic assessment and historical estimates. Further, authors of some technical reports improperly rely on other experts for legal, political, environmental and tax matters or disclose reliances on other QPs for scientific and technical information.

You can view the Staff Notice here.

DISCLAIMER: This post is intended to convey general information about legal issues and developments as of the date above. It does not constitute legal advice and must not be treated or relied on as such.