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CSA Highlight Common Deficiencies in Continuous Disclosure

August 6, 2018

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 (Notice), summarizing the results of its members’ continuous disclosure review programs for the past two years. The Notice includes information about areas where the CSA have identified common deficiencies, with examples in certain instances, to help issuers address these deficiencies and illustrate best practices.


In the Notice, the CSA provided observations along with considerations for issuers regarding the following deficiencies, among others:

Forward-Looking Information (FLI): Some issuers disclose FLI for periods beyond the issuer’s next fiscal year end without providing both quantitative and qualitative assumptions that are reasonable in the circumstances (e.g., reasonable bases for aggressive growth targets including key drivers with reference to specific plans and reasons for why such targets are reasonable).

Related Party Transactions (RPTs): Some issuers fail to provide the required disclosures pertaining to RPTs, including failing to: identify the related person or entity, discuss the business purpose of the transaction or describe the measurement basis used for recording the amount of RPTs. For more information, please see our July 2017 Blakes Bulletin: Regulators Shine Spotlight on Material Conflict of Interest Transactions. 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.

Non-GAAP Financial Measures (NGMs): Some issuers include a full set of non-GAAP financial statements in management discussion and analysis (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. Some issuers also disclose NGMs in their corporate presentations, investor fact sheets or news releases or on social media and give excessive prominence to the NGMs (most often when the GAAP measure is less favourable). 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. For more information, please see our February 2016 Blakes Bulletin: CSA re: Non-GAAP, TSX NCIB FAQs and Other Acronyms. Additionally, some real estate issuers are not adequately transparent about the various adjustments made in arriving at NGMs (such as adjusted funds from operations). For more information, please see our April 2018 Blakes Bulletin: Securities Regulators Find Gaps in Non-GAAP and Distribution Disclosures by REITs and REOCs.

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 (System for Electronic Document Analysis and Retrieval). In some cases, the CSA recognize that it may be difficult to provide balanced disclosure on social media due to length restrictions, in which case issuers should provide a link to additional information. For more information, please see our October 2017 Blakes Bulletin: CSA Comment on Registrants’ Cybersecurity and Social Media Practices and our March 2017 Blakes Bulletin: New Medium, Same Expectations: CSA Cautions Canadian Public Issuers on Use of Social Media.

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. For more information, please see our April 2018 Blakes Bulletin: Highlights from CSA’s Report on Climate Change-Related Disclosure Project.

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). In addition, 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.

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.

Investment Entities (IEs): Some IEs 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 MD&A.

Financial Statements: In their cash flow statements, 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. 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 (e.g., cannabis issuers need to account for biological assets at fair value, less costs to sell) or do not provide disclosure of quantitative information about the significant unobservable inputs. Further, some issuers do not provide sufficient qualitative and quantitative disclosures regarding the possible impact of the adoption of new accounting policies.

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 party (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 (e.g., unverified estimates prepared before the issuer obtained an interest in the property). Additionally, 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.

For further information, please contact:

Matthew Merkley           416-863-3328
Kendall Grant                416-863-3065

or any other member of our Capital Markets group.