Capital Markets


Jennifer Woo

The Ontario Securities Commission recently issued OSC Staff Notice 52-722 Report on Staff's Review of Non-GAAP Financial Measures and Additional GAAP Measures providing recommendations arising from a targeted review of disclosure for Ontario reporting issuers.     

OSC staff identified four areas for improvement:

  • Explaining objectives for using non-GAAP financial measures or additional GAAP measures.
  • Providing clear quantitative reconciliation between the non-GAAP financial measure and its most directly comparable GAAP measure.
  • Providing meaningful names for additional GAAP measures that are not confusing.
  • Disclosing how the additional GAAP measures are calculated in relation to minimum disclosure items required by the International Financial Reporting Standards (IFRS).



A non-GAAP financial measure is a numerical measure of an issuer's historical or future financial performance, financial position or cash flow that does not meet one or more of the criteria of an issuer's GAAP for presentation in financial statements.



An additional GAAP measure is a line item, heading or subtotal in financial statements that is relevant to an understanding of financial statements and is not a minimum line item mandated by IFRS; and a financial measure in the notes to financial statements that is relevant to an understanding of the financial statements and is a measure not presented elsewhere in the financial statements. IFRS requires additional measures when such presentation is relevant to an understanding of an entity's financial position and performance. Because IFRS requires such additional measures, they are not considered non-GAAP financial measures.



The review follows Canadian Securities Administrators' Staff Notice 52-306 Non-GAAP Financial Measures and Additional GAAP Measures updated in February 2012 (CSA Guidance 52-306), that sets out the disclosure expectations relating to non-GAAP financial measures and additional GAAP measures.

Guidance on Non-GAAP Financial Measures

To ensure that a non-GAAP financial measure does not mislead investors, CSA Guidance 52-306 provides that an issuer should:

  • Define and explain its relevance.
  • State that the non-GAAP financial measure does not have any standardized meaning and therefore is unlikely comparable to measures presented by other issuers.
  • Non-GAAP measures should be equal or less prominent to comparable GAAP measures.
  • Explain why non-GAAP measures are useful to investors.
  • Provide quantitative reconciliation to the most directly comparable measure calculated in accordance with the issuer's GAAP and presented in its financial statements.
  • Explain any changes when compared to previously disclosed measures.


Guidance on Additional GAAP Measures

CSA Guidance 52-306 provides that an issuer should:

  • Ensure the name for the additional GAAP measure is meaningful and distinguishable from disclosure items required by IFRS.
  • Avoid IFRS terms within the name for additional GAAP measure unless the IFRS meaning applies.
  • Present the additional GAAP measures in a manner that does not confuse, obscure, or exceed the prominence of disclosure items required by IFRS.
  • Explain why the additional GAAP measure is useful.
  • Ensure that readers can easily determine how the additional GAAP measure is calculated.
  • Present additional GAAP measures consistently over time.



The OSC staff's review of disclosure of Ontario reporting issuers across industries identified the following deficiencies:

  • 86% of the disclosure reviewed raised substantive concerns.
  • Non-GAAP Measures: 10% of issuers provided boilerplate disclosure of non-GAAP financial measures which is not meaningful; 15% of issuers gave greater prominence to non-GAAP measures; 20% of issuers did not reconcile to most directly comparable measure; and 15% of issuers identified adjustments as non-recurring, unusual or infrequent when a similar adjustment occurred during prior two years.
  • Additional GAAP Measures: 20% of issuers included line items as "income before the undernoted" or "income before operating expenses;" 75% of those issuers who disclosed additional GAAP measures did not adequately explain relevance to investors; 15% of issuers did not adequately disclose how it was calculated in relation to the minimum disclosure items; and 77% of issuers included a subtotal for operating income, however, 15% of such issuers excluded expenses that were operating in nature from this subtotal.
  • Press releases/website materials: 30% of issuers failed to identify non-GAAP financial measures used in earnings releases, marketing materials or investor presentations and 33% of issuers did not explain why the non-GAAP financial measure provides useful information.
  • MD&A: MD&A should generally discuss and analyze these measures and explain why they are relevant to a user of financial statements.
  • Key Performance Indicators (KPIs):Where KPIs contained financial information sourced from financial statements, issuers did not identify them as non-GAAP financial measures. Ratios such as return on assets that use an amount for assets, profit or loss that differs from amounts presented in the financial statements are non-GAAP financial measures. Even though a ratio may not have a directly comparable GAAP measure required under IFRS, ratios should be defined and reconciliation of how a ratio has been calculated in relation to line items in the financial statements.


To help companies improve disclosure, the notice provides examples of boilerplate-type disclosure which is not meaningful, as well as suggestions to improve disclosure and examples of entity-specific disclosure.



The notice makes clear there is room for improvement for issuers disclosing non-GAAP financial measures or additional GAAP measures. Some of the key points for issuers to consider include:

  • Issuers should refer to CSA Notice 52-306 when presenting non-GAAP financial measures or additional GAAP measures.
  • Issuer's MD&A should discuss and analyze additional GAAP measures.
  • Non-GAAP financial measures generally should not describe adjustments as non-recurring, infrequent or unusual when a similar loss or gain is reasonably likely to occur within the next two years or occurred during the prior two years.
  • "Income before the undernoted items" is generally not meaningful because "undernoted items" does not sufficiently describe the elements that are missing from "income."


If you have any questions concerning OSC Staff Notice 52-722, please contact Jennifer Woo at 416-863-2609 or jennifer.woo@blakes.com, or any other member of our Capital Markets group.

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