CSA Multilateral Staff Notice 51-361 Continuous Disclosure Review
Program Activities for the fiscal years ended March 31, 2020 and
March 31, 2019
October 29, 2020
Introduction
The Canadian Securities Administrators
1
(CSA) have prepared this Staff Notice (Notice) to report on the
results of the reviews conducted by the CSA within the scope of its Continuous Disclosure Review Program
(CD Review Program). The goal of the program is to improve the completeness, quality and timeliness of
continuous disclosure (CD) provided by reporting issuers
2
(issuers) in Canada. This program was
established to assess the compliance of CD documents with securities laws, including CD rules, and to help
issuers understand and comply with their obligations under the CD rules so that investors receive high
quality disclosure to assist them in making informed investment decisions.
In this Notice, we summarize the key findings and outcomes of the CD Review Program for the fiscal year
ended March 31, 2020 (fiscal 2020) and the fiscal year ended March 31, 2019 (fiscal 2019). Appendix A -
Financial Statement, MD&A and Other Regulatory Deficiencies (Appendix A) describes common
deficiencies and includes some disclosure examples to help issuers address these deficiencies and to
illustrate our expectations.
Given the impact of the COVID-19 pandemic (COVID-19) on the Canadian and global economy and
potential impact on issuers’ operating performance, financial position, liquidity and future prospects,
Appendix A includes guidance on reporting the impact of COVID-19.
For further details on the CD Review Program, see CSA Staff Notice 51-312 (revised) Harmonized
Continuous Disclosure Review Program.
Results for Fiscal 2020 and Fiscal 2019
Issuers selected for a CD review (full or issue-oriented review (IOR)) are identified using a risk-based and
outcomes-focused approach using both qualitative and quantitative criteria. IORs are focused on a specific
accounting, legal or regulatory issue, an emerging issue or industry, implementation of recent rules or areas
where we believe there may be a heightened risk of potential investor harm. A review may also stem from
general monitoring of our issuers through news releases, media articles, complaints and other sources.
During fiscal 2020, a total of 583 CD reviews (fiscal 2019 – 514 CD reviews) were conducted with IORs
consisting of 73% of the total (fiscal 2019 - 70%). The nature of an IOR will impact the time spent and
outcome obtained from the review. The following charts outline the focus areas of the IORs conducted:
1
This Notice is being published in all jurisdictions except British Columbia. It includes the results of the reviews conducted by the British
Columbia Securities Commission (BCSC) as a result of its participation in the CD Review Program. The BCSC will advise of their approach
after the final provincial interregnum period is over in mid-November.
2
In this Notice “issuers” means those reporting issuers contemplated in National Instrument 51-102 Continuous Disclosure Obligations (NI 51-
102).
-2-
Figure #1
ISSUE-ORIENTED REVIEWS
FISCAL 2020
Material Change
Reports, 8%
Other, 32%
News Releases, 13%
Technical - Mining
Financial Statement/
and Oil & Gas, 25%
MD&A, 22%
Figure #2
ISSUE-ORIENTED REVIEWS
FISCAL 2019
Other, 22%
US Marijuana Related
Activities, 17%
Material Change
Reports, 6%
News Releases, 4%
Technical - Mining
Financial Statement/
and Oil & Gas, 43%
MD&A, 8%
CD Outcomes for Fiscal 2020 and Fiscal 2019
In fiscal 2020, 55% (fiscal 2019 – 67%) of our review outcomes required issuers to improve and/or amend
their disclosure, refile certain documents, or to file unfiled documents. Some of our reviews resulted in the
issuer being referred to enforcement, cease-traded or placed on the default list. The chart below summarizes
the key outcomes.
The “Other” category includes, but is not
limited to, reviews of:
Emerging industries (including
cryptocurrencies and cannabis)
Change of auditor notice
The “Other” category includes, but is
not limited to, reviews of:
Corporate governance
Review of quarterly
highlights
Change of auditor notice
-3-
Figure #3
Review Outcomes for Fiscal 2020 and Fiscal 2019
50%
41%
40%
34%
30%
29%
30%
23%
17%
20%
8%
10%
10%
4%
4%
0%
Referred to Enforcement/
Refiling
Prospective Changes
Education and Awareness
No Action Required
Cease-Traded/
Default List
2020
2019
We classify the outcomes of the full reviews and IORs into five categories as described in Appendix B -
Categories of Outcomes. Some CD reviews may generate more than one category of outcome. For example,
an issuer may have been required to refile certain documents and also make certain changes on a prospective
basis.
Given our risk-based approach noted above, the outcomes on a year to year basis may vary and cannot be
interpreted as an emerging trend as the issues as well as the issuers reviewed each year are different. In
fiscal 2020 and fiscal 2019, we continued to see substantive outcomes being obtained as a result of our
reviews.
Common Deficiencies
We have highlighted below some of the deficiencies that were encountered during our CD reviews in fiscal
2020 and fiscal 2019. We have discussed these deficiencies in further detail in Appendix A to this Notice.
Financial Statements: compliance with recognition, measurement and disclosure requirements
in International Financial Reporting Standards (IFRS) including impairment of non-financial
assets, recognition and measurement of intangible assets, and disclosure of operating segments.
Management’s Discussion and Analysis (MD&A): compliance with Form 51-102F1 including
forward-looking information, liquidity and capital resources, transactions between related parties,
discussion of operations, and non-GAAP financial measures.
Other Regulatory Requirements: compliance with other regulatory matters including overly
promotional disclosure, insider reporting, early warning reporting, material change reporting, and
mineral project disclosure.
In addition, Appendix A discusses disclosure considerations flowing from the impact of COVID-19.
Results by Jurisdiction
All CSA jurisdictions participate in the CD review program and some local jurisdictions may publish staff
notices and reports communicating results and findings of the CD reviews conducted in their jurisdictions.
Refer to the individual regulator’s website for copies of these notices and reports.
-4-
APPENDIX A - FINANCIAL STATEMENT, MD&A AND OTHER REGULATORY
DEFICIENCIES
Our CD reviews identified a number of financial statement, MD&A and other regulatory disclosure
deficiencies that resulted in issuers enhancing their disclosure and/or refiling their CD documents. To help
issuers better understand and comply with their CD obligations, we present the key observations from our
reviews. The Hot Buttons sections below include observations along with considerations for issuers
including the relevant authoritative guidance. We have also included some examples of deficient disclosure
contrasted against improved examples of entity-specific disclosure or a more in-depth explanation of the
matters we observed.
Issuers must ensure that their CD record complies with all relevant securities laws. The quantity of
disclosure filed does not necessarily equate to quality or level of compliance.
The following observations are provided for illustrative purposes only. This is not an exhaustive list and
does not represent all the requirements that could apply to a particular issuer’s situation.
Impact of COVID-19
COVID-19 is impacting the economy and posing business challenges for some issuers, including reporting
on and disclosing the effects of COVID-19. To support investors in making informed investment decisions,
issuers should provide transparent and entity-specific disclosures, including information about the impact
of COVID-19 on their operating performance, financial position, liquidity, and future prospects. Relevant
regulatory guidance can be accessed at the CSA COVID-19 Information Hub at https://www.securities-
administrators.ca/aboutcsa.aspx?id=1885.
The Hot Buttons and examples of deficient disclosure
describe additional potential disclosure
considerations in the context of the current environment; however, the observations below do not represent
an exhaustive list. Issuers should consider their business and operations to provide clear and transparent
disclosure of the impact of COVID-19.
1. FINANCIAL STATEMENT DEFICIENCIES
HOT BUTTONS
OBSERVATIONS
CONSIDERATIONS
FINANCIAL STATEMENTS
Intangible
For issuers who acquire intangible An intangible asset shall be recognized if, and
Assets:
assets
as
part
of
a
business
only if: it is probable that the expected future
Recognition
combination,
the
cost
of
that
economic benefits that are attributable to the
and
intangible asset is its fair value at
asset will flow to the entity; and the cost of the
Measurement
the acquisition date. Some issuers
asset can be measured reliably.
do not measure the fair value in Examples of future economic benefits from an
accordance
with
IFRS
13
Fair
intangible asset may include: revenue from the
Value
Measurement.
This
sale of products or services, cost savings, or
deficiency is often observed when
other benefits resulting from the use of the asset
the purchase price of a business or
by the issuer.
specific intangible asset is based on IFRS
specifically
prohibits
issuers
from
a fixed number of shares, and there
recognizing intangible assets for most costs
is a significant fluctuation in the
incurred
on
self-developed
assets
including
share price between the agreement
brands, mastheads, publishing titles, customer
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OBSERVATIONS
date and the date the transaction
closes. In this scenario, we observed
issuers
that
inappropriately
assigned the increase in the value of Measurement of intangible assets acquired as
the shares to the acquired intangible
assets,
without
using
valuation
techniques that were appropriate in
the circumstances and for which
sufficient
data
was available to
measure fair value.
Impairment
Some
issuers
only
test
for Issuers should consider whether any triggers for
of Non-
impairment of non-financial assets
Financial
on an annual basis and do not
Assets
consider
possible
indicators
of
impairment
at the
end of
each
interim period.
Operating
Some
issuers
do
not
provide In addition to providing guidance on operating
Segments:
required
entity-wide
disclosures
Disclosure
related to products and services,
geography, and major customers.
CONSIDERATIONS
lists and items similar in substance, as they
cannot
be
distinguished
from
the
cost
of
developing the business as a whole.
part of a business combination should be based
on the fair value of the asset on the acquisition
date. Fluctuations in the purchase price as a
result of variations in the acquiror’s stock price
should
not
influence
the
valuation
of
the
acquired intangible assets.
Issuers
should
consult
with
their
advisors
regarding the recognition and measurement of
intangible assets through both asset and business
acquisitions.
References: IAS 38 Intangible Assets, paragraphs
21, 33-37 and 63; IFRS 3 Business Combinations;
IFRS 13 Fair Value Measurement.
impairment are present for non-financial assets
at the end of each reporting period. Examples of
impairment indicators include: market value
declines, volatile markets with negative trends,
poor economic conditions, adverse changes to
laws, net assets of the company higher than
market capitalization, assets becoming idle, or
poorer than expected performance.
Issuers are reminded that impairment tests for
goodwill and intangible assets with an indefinite
useful life are required to be done annually and
whenever there is an indicator of impairment.
Other non-financial assets (e.g., property, plant
and equipment, non-indefinite life intangible
assets) are required to be tested whenever there
is an indicator of impairment.
References:
IAS
36
Impairment
of
Assets,
paragraphs 9-14; IFRIC 10 Interim Financial
Reporting and Impairment.
and reportable segments, and determining such
segments within an entity, certain entity-wide
disclosures are also required for all issuers.
Generally, these include disclosure of:
o
revenue
derived
from
external
customers for each individual type of
product and service or each group of
similar products and services;
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OBSERVATIONS
CONSIDERATIONS
o
revenues from external customers and
certain non-current assets on a country
by country basis, if material; and
o
the
extent
of
reliance
on
major
customers,
including
amongst
other
things, the amount of revenue attributed
to each major customer that contributes
to 10% or more of an entity’s revenues.
References:
IFRS
8
Operating
Segments,
paragraphs 31-34.
Significant
In light of the COVID-19 pandemic, Issuers’ management need to use the best
judgements
issuers
are
preparing
financial
available information in making well-reasoned
and
statements
in
an
evolving
and
judgements
and
estimates
and
provide
the
estimation
uncertain
environment,
with
required disclosure of significant judgements
uncertainties
potentially
imperfect
information
and estimation uncertainties required by IAS 1,
in the context
that could change after certain CD
Presentation of Financial Statements.
of COVID-19
filings are made publicly available. Detailed entity specific disclosure in an issuer’s
COVID-19
impacts
issuers
in
annual
or
interim
financial
statements
is
different ways and, as a result, new
important
because
issuers
with
similar
judgements or estimates may be
circumstances may have different judgements
needed in several areas including:
and
estimates
based
on
the
information
o
Going concern assessment;
available. IAS 34 Interim Financial Reporting
o
Impairment assessments;
requires entities to include in their interim
o
Fair value calculations;
financial report an explanation of events and
o
Government assistance;
transactions
that
are
significant
to
an
o
Revenue recognition; and
understanding
of
the
changes
in
financial
o
Deferred tax recoverability.
position and performance of the entity since the
end of the last annual reporting period. Given the
rapidly changing environment, condensing or
omitting certain disclosures in interim financial
reports may no longer be appropriate because the
information
disclosed
in
the
latest
annual
financial
statements
may
be
less
relevant.
Therefore, we remind issuers that they must
consider, as new information becomes available,
whether their judgements and estimates need to
be updated and prospectively reflected in their
interim financial reports.
Issuers are also reminded to consider events and
information up to the date of authorisation of the
financial statements in performing the going
concern assessment.
References:
IAS
1
Presentation
of
Financial
Statements;
IAS
12
Income
Taxes;
IAS
20
Accounting for Government Grants and Disclosure
of Government Assistance; IAS 36 Impairment of
Assets; IFRS 13 Fair Value Measurement; IFRS
15 Revenue from Contracts with Customers.
-7-
2.
MD&A DEFICIENCIES
HOT BUTTONS
OBSERVATIONS
CONSIDERATIONS
MD&A
Forward-Looking We continue to see issuers provide An
issuer
must
include
specified
Information
boilerplate
disclosure
of
FLI,
or
disclosure when disclosing material
(FLI)
disclosure that does not identify the
FLI.
Management
should
exercise
FLI, the material risk factors that
judgement when determining whether
could cause actual results to differ
information is material; however, we
materially
from
the
FLI,
or
the
generally
consider
future-oriented
material factors or assumptions used
financial
information
(FOFI)
and
to develop the FLI.
financial outlooks to be material.
An issuer must specifically identify the
FLI and avoid boilerplate disclosure.
Also,
an
issuer
must
identify
the
material factors or assumptions and the
material risk factors that are relevant to
the FLI. For example, projections of
revenue growth may be reasonable if
based
on
new
store
openings
or
increased capacity. Specific disclosure
with respect to these assumptions will
enable investors to understand the FLI
and
to
follow
the
progress
in
subsequent reporting periods.
Some issuers do not disclose their Issuers
must
generally
update
policies for updating FLI, or state
previously disclosed material FLI in
that they undertake no obligation to
their MD&A by including a discussion
publicly release the results of any
of:
revisions to FLI.
o
the events and circumstances
that occurred during the period
that are reasonably likely to
cause actual results to differ
materially
from
those
previously
disclosed
to
the
public and what the expected
differences are.
o
the
material
differences
between
the
previously
disclosed FLI and the actual
outcome.
Issuers must describe their policy for
updating
FLI
if
it
includes
any
procedures in addition to updates in the
MD&A.
Some issuers do not present FLI in a An issuer should present the FLI and
manner that allows an investor to
the required accompanying disclosures
readily
identify
it.
In
various
in an easy to read manner, for example,
instances, issuers referred readers to
by
providing
the
required
FLI
-8-
OBSERVATIONS
CONSIDERATIONS
a separate section of the disclosure
disclosure in close proximity to the
document, such as the “Risk Factors”
FLI statement. Also, an issuer may
section,
for
a
discussion
of
the
consider
using
tables
and
other
material risk factors related to the
methods of presentation that clearly
FLI.
link specific material risk factors and
material factors and assumptions to the
particular FLI.
Additional
considerations
in
light
of
COVID-19
During the uncertainty of COVID-19,
issuers should consider whether there
remains
a
reasonable
basis
for
previously announced FLI or FLI to be
disclosed in prospective CD filings. In
addition
to
updating
previously
disclosed FLI (as discussed above),
issuers
may
have
to
consider
withdrawing
previously
published
guidance and financial outlooks in the
event that these outlooks can no longer
be
supported
by
reasonable
assumptions and there is no longer a
reasonable basis for the achievement,
or accurate updating, of conclusions,
forecasts or projections in the FLI.
References: Part 4A, 4B and section 5.8
of NI 51-102; and Part 4A of Companion
Policy 51-102CP; CSA Staff Notice 51-
330 Guidance Regarding the Application
of
Forward-looking
Information
Requirements under National Instrument
51-102
Continuous
Disclosure
Obligations.
Liquidity and
We
continue
to
see issuers
that This section of the MD&A provides
Capital Resources
provide an incomplete, boilerplate
critical information on what an issuer’s
discussion
of
their
liquidity
and
cash requirements are, how they intend
capital
resources
or
simply
to fund them and any associated trends,
reproduce
numbers
from
their
fluctuations and risks.
financial
statements
without Cash
requirements:
Issuers
are
providing
helpful
contextual
required to present an analysis of their
information.
cash requirements, in both the short
and long term. This should include an
analysis of their commitments, capital
expenditures
and
working
capital
requirements. We remind issuers that
their
capital
requirements
should
consider both growth and sustaining
-9-
OBSERVATIONS
CONSIDERATIONS
capital, those expenditures that are
committed,
and
those
that
are
uncommitted but planned.
Funding:
Issuers
are
required
to
discuss how they intend to fund their
identified
cash
requirements.
This
includes disclosure of funding that the
issuer has currently arranged but not
yet used as well as other sources of
funding available to the issuer such as
private or public debt, equity, and/or
cash
from
operations.
We
remind
issuers
that
they
must
have
a
reasonable basis to assume the sources
of funding are available to them and
they
must
clearly
disclose
if
the
financing is not yet finalized (e.g. letter
of intent) or has conditions attached to
it.
Trends, fluctuations and risks: Issuers
are required to discuss any trends,
fluctuations and risks associated with
their cash requirements and funding
and
their
plans
to
manage
these.
Examples of items requiring disclosure
might
include
counterparty
risk
associated
with
working
capital
amounts,
credit
facilities
being
renewed
on
different
terms
(e.g.
interest
rate
changes,
principal
reductions), default on credit facilities,
the
impact
of
acquisitions
and
dispositions on cash flows, etc.
We observed a number of issuers that Issuers that have negative cash flow
had
negative
cash
flow
from
from operations or a material risk
operations or a material risk related
related to their ability to continue as a
to their ability to continue as a going
going
concern
might
consider
concern,
but
did
not
provide
a
disclosing:
sufficient
analysis
on
what
the
o
Their most current working
impact of this was on their operations
capital amount;
and how they intended to manage
o
Significant obligations that are
this risk.
maturing in the short term;
o
Their cash burn rate on a
monthly or quarterly basis;
o
The period of time that they
expect to be able to fund
operations;
o
How they intend to prioritize
expenditures in the short term;
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OBSERVATIONS
CONSIDERATIONS
o
Their ability to meet their asset
retirement obligations, etc.
Additional
considerations
in
light
of
COVID-19
COVID-19 will have a significant
impact on certain issuers’ liquidity and
capital resources. It will be particularly
important for those issuers to provide a
comprehensive discussion on both the
current and expected effects of the
pandemic, including quantifying the
impact where possible. Examples of
items
requiring
disclosure
might
include: any subsidies and/or funding
received from government programs,
increased
counterparty
risk
(A/R
collection), reduced cash flow from
operations as a result of decreased
demand,
delays
in
capital
project
plans,
impact
of
any
cost
cutting
initiatives (employee layoffs, reduced
hours),
changes
in
the
issuer’s
dividend policy, etc.
References: Items 1.6 and 1.7 of Form 51-
102F1.
Transactions
We continue to see issuers that do not Identifying
transactions
between
between Related
provide sufficient quantitative and
related
parties
provides
useful
Parties
qualitative information necessary for
information to investors as it draws
investors to understand the business
attention to the possibility that the
purpose and economic substance of
transaction amount or terms may have
transactions between related parties.
been affected by the existence of
related
parties.
IFRS
requires
disclosure of both the nature of the
related party relationship as well as
information about the transactions and
outstanding
balances,
including
commitments, necessary for users to
understand the potential effect of the
relationship
on
the
financial
statements.
Some issuers that enter into non-cash For
non-cash
transactions,
where
transactions between related parties
issuers determine the transaction price
do
not
provide
sufficient
and
by
measuring
the
consideration
transaction-specific disclosure about
received
at
fair
value,
required
the
measurement
basis
used
to
disclosure
about
the
measurement
determine
the
amount
of
the
basis includes the valuation technique
transaction.
management used to determine the fair
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OBSERVATIONS
MD&A DISCLOSURE EXAMPLES
a. DISCUSSION OF OPERATIONS AND THE IMPACT OF COVID-19
The MD&A is a narrative explanation, through the eyes of management, of how an issuer performed during
the period covered by the financial statements, and of an issuer’s financial condition and future prospects.
In discussing an issuer’s operations for the reporting period, an issuer should avoid boilerplate disclosure,
such as simply repeating information that is readily available in the financial statements. COVID-19 is
likely to have had a significant impact on an issuer’s operations and financial position. Disclosure of such
should not only be entity-specific and transparent, providing a detailed explanation and breakdown of the
impact of COVID-19, but also of any other factors contributing to period over period variances. For
example, an issuer should not incorrectly attribute or generally list COVID-19 as the sole reason for any
period over period variances or other negative news.
The impact of COVID-19 may vary significantly from industry to industry or issuer to issuer; therefore, an
issuer should discuss the specific impact on their operations that COVID-19 has had, as well as provide
detailed disclosures regarding the methodology used to determine the impact. For example, retailers that
have been forced to shut their doors during emergency orders will have decreased sales from their brick
and mortar locations, whereas a manufacturer may be impacted by issues in the supply chain or operating
with reduced staffing in order to practice safe social distancing. Providing entity-specific disclosure will
help investors understand the effect COVID-19 has had on operations and the mitigation measures that
have been put in place.
Example of Deficient Disclosure – Information on Impact of COVID-19 on Financial Performance
Results from the last quarter were impacted by COVID-19.
Revenues of $4.8 million, down by 20% and up by 5% when excluding the impact of COVID-19
pandemic.
Net earnings of $1.2 million, down by 25%.
Impact of COVID-19 represents a decrease in net earnings per share of approximately $0.05.
In the above example, the issuer discloses precise quantitative information on the impact of COVID-19 on
its financial performance. However, the MD&A does not provide disclosure on the methodology used by
CONSIDERATIONS
value, as well as the assumptions and
judgements
management
made
to
determine the exchange amount.
In explaining the measurement basis of
a non-cash related party transaction in
the
MD&A,
management
should
ensure it has evidence to support that
the transaction was entered into at
market terms, if disclosing this.
References: Item 1.9 of Form 51-102F1;
IAS 24 Related Party Disclosures; IFRS
13 Fair Value Measurement.
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the issuer to determine the impact of COVID-19 on revenues, net earnings and earnings per share. Further,
the issuer has not described the other factors that have contributed to the period over period variances.
It may be difficult for an issuer to determine with accuracy the quantitative impact of COVID-19 on its
financial performance. Therefore, in order to avoid misleading investors, the issuer should explain the
methodology used in its calculation and should provide information about the judgements and estimations
made by management in determining those impacts.
Example of Improved Disclosure – Information on Impact of COVID-19 on Financial Performance
As described above, we shut down 25 locations country-wide in mid-March, and these locations remain
closed as at the date of this MD&A. 14 locations remained open for take-out only. In order to mitigate the
impacts of store closures and reduced revenues, we have temporarily laid off certain staff. Our mitigating
efforts are described in further detail in the Recent Developments section.
Results from the last quarter were impacted by COVID-19, specifically, as mentioned above, with the
closure of 25 locations country-wide and 14 locations operating with limited capacity as take-out only.
Revenue decreased by $1.2 million, or 20% from the same period in the prior year. The closures noted
above were in effect for 2 weeks during the reporting period. Based on our forecasts for each location,
we estimate that the loss in revenues due to store closures was approximately $1 million for the period
ended March 31, 2020 (based on a 2-week average sales at those stores in prior periods). A further
reduction of revenue of $200 thousand is estimated from locations that remained open as take-out only
due to a reduction in revenue/hour from the loss of customers dining in and shorter operating times.
Cost of goods sold decreased by $800 thousand, or 15% from the same period in the prior year. The
decrease in cost of goods sold did not track the decrease in revenue exactly due to retaining staff
members in open locations with reduced traffic due to operating as take-out only.
Net earnings decreased by $400 thousand, or 25% from the same period in the prior year. The decrease
in net earnings is a result of the above decreases in revenue and cost of goods sold as certain fixed costs,
such as leases, head office salaries and depreciation remained consistent from the prior period despite
large decreases in revenue.
The above example provides a clear and detailed analysis of the impact of COVID-19, by providing entity-
specific disclosure while also discussing other factors that may have contributed to period over period
variances.
In uncertain times, clear and transparent disclosure is essential for investors to fully understand the impact
of macro-economic factors, and also to ascertain information about the issuer’s future prospects.
b. NON-GAAP FINANCIAL MEASURES (NGMs) – PROMINENCE AND LABELLING
(including appropriate use of adjustments as a result of COVID-19)
For a number of years, we have noted the proliferation of NGMs. Many of these measures are derived from
profit or loss determined under an issuer’s GAAP and, by omission or inclusion of selected items, generally
present a more positive picture of financial performance. While NGMs can supplement and explain
financial performance, cash flows or financial conditions, we remind issuers to accompany them with
appropriate explanatory disclosures, as contemplated in CSA Staff Notice 52-306 (Revised) Non-GAAP
Financial Measures (CSA SN 52-306).
-13-
We continue to see NGMs presented with greater prominence than the most directly comparable measure
presented in an issuer’s financial statements, or NGMs not properly labeled. Consistent with CSA SN 52-
306, in order to ensure that an NGM does not mislead investors, an issuer should present, with equal or
greater prominence to that of the NGM, the most directly comparable measure specified, defined or
determined under the issuer’s GAAP.
In addition, issuers are cautioned about adjustments or alternative profit measures defined as COVID-19
related. Not all COVID-19 effects are non-recurring and there may be a limited basis for management to
conclude that a loss or expense is non-recurring, infrequent or unusual. This includes where the impact of
COVID-19 crosses over multiple reporting periods. It could be misleading to describe an adjustment as
COVID-19 related if management does not explain how the adjusted amount was specifically associated
with COVID-19.
Example of Deficient Disclosure – NGMs in a News Release
COMPANY ABC REPORTS FINANCIAL RESULTS FOR Q2 2020 OF $10 MILLION
Highlights
Revenue decreased 2% from the same period in the prior year to $52 million.
Adjusted EBITDA* increased by 1% from the same period in the prior year to $10 million.
Net Earnings decreased 25% from the same period in the prior year to $4 million.
*Adjusted EBITDA is adjusted earnings before interest, taxes, depreciation, amortization and COVID-19
effects, as reflected below:
Net earnings
$4 million
Interest
$1 million
Depreciation
$2 million
EBITDA
$7 million
Increased costs due to COVID-19
1
$3 million
Adjusted EBITDA
$10 million
1. The increased costs are non-recurring and are due to the COVID-19 pandemic.
In the above example, the issuer presented in the news release title “Financial Results of $10 million”. In
this title, Financial Results are neither identified as being Adjusted EBITDA, an NGM, nor accompanied
by Net Earnings determined under the issuer’s GAAP. Investors may be confused and misinterpret the
“Financial Results” as being a GAAP measure.
When presenting an NGM it may be misleading to present it without labeling the NGM properly and
without identifying it as being an NGM. In this example, it is misleading to not present Net Earnings
calculated in accordance with the issuer’s GAAP with equal or greater prominence than the NGM.
-14-
In addition, the NGM, Adjusted EBITDA, includes an adjustment which is described as being non-recurring
as a result of COVID-19. However, the disclosure does not explain how management determined the
increased costs are related to COVID-19, the nature of the increased costs, why the measure provides useful
information for investors and the additional purposes, if any, for which management uses the NGM. Further,
describing the adjustment as ‘non-recurring’ may be misleading if there is little basis for management to
conclude that similar costs are unreasonably likely to occur within the next two years.
Example of Improved Disclosure – NGMs in a News Release
COMPANY ABC REPORTS NET EARNINGS OF $4 MILLION AND ADJUSTED EBITDA OF
$10 MILLION
Highlights
Revenue decreased 2% from the same period in the prior year to $52 million.
Net Earnings decreased 25% from the same period in the prior year to $4 million.
Adjusted EBITDA* increased by 1% from the same period in the prior year to $10 million.
*Adjusted EBITDA is a Non-GAAP Financial Measure. For more information, refer to the section on
Non-GAAP Financial Measures at the end of this news release, and below for a full reconciliation of
adjusted EBITDA to the most comparable GAAP measure.
Net earnings
$4 million
Interest
$1 million
Depreciation
$2 million
EBITDA
$7 million
Restructuring costs
1
$2.5 million
Safety measures implemented at plant A
2
$0.5 million
Adjusted EBITDA
$10 million
1. As a result of the COVID-19 pandemic, management expects decreased demand for our products for the
remainder of 2020 and 2021. As a result, management has reorganized its operations to streamline
production and reduce head office staff. These restructuring costs include the cost of laying off 10
employees and the cost of shifting the majority of the production to manufacturing plant A. Additional
restructuring costs are expected in the subsequent interim period, although the majority of the restructuring
costs have already been incurred. Please refer to the COVID-19 impact section of the company’s MD&A
and the restructuring costs note in the financial statements, filed concurrently with this news release, for
additional details on the impact of COVID-19 on the company’s operations.
2. As a result of public health directives, the company implemented safety measures at manufacturing plant
A to ensure the safety of our employees. These costs include the cost of reconfiguring certain equipment to
ensure physical distancing guidelines could be observed, the installation of physical barriers to production
areas where safe physical distancing cannot be observed, and increased overhead costs of running three
production shifts (previously two) to reduce the number of workers per shift. The costs relating to plant
reconfiguration and installation of barriers are one-time costs, but the increased overhead costs ($0.1M) are
expected to recur until physical distancing measures are no longer recommended.
-15-
These two adjustments to EBITDA provide useful information to investors as the resulting “Adjusted
EBITDA” measure is comparable to the prior year measure and provides investors with management’s
calculation of earnings resulting from the company’s ongoing business operations.
The above discussion focused on a few aspects of NGMs’ disclosure expectations. Issuers should ensure
that they refer to all of the guidance set forth in CSA SN 52-306 in preparing disclosure documents.
3.
OTHER REGULATORY DISCLOSURE DEFICIENCIES
HOT BUTTONS
OBSERVATIONS
CONSIDERATIONS
OTHER REGULATORY
Overly
We noted disclosure by some issuers Issuers are prohibited from making
Promotional
that is overly promotional and in
false
or
misleading
statements
or
Disclosure
certain circumstances, either untrue
omitting
facts
from
a
statement
or unbalanced to such an extent that it
necessary to make that statement true or
may mislead investors.
not misleading.
Disclosure
by
issuers
should
be
balanced, for example, by providing the
risks and contingencies associated with
positive news or events, in order to
avoid being misleading.
Disclosure of early-stage plans of a new
business,
objective,
or
strategy,
or
material
claims
about
an
issuer’s
business
and
the
corresponding
opportunity should be substantiated or
balanced
with
a
discussion
of
the
issuer’s business plans, milestones and
expected
timing
of
such,
capital
requirements, and associated risks.
Issuers announcing pending favourable
transactions should disclose material
conditions necessary to complete the
transaction, file the related material
contracts (if required by section 12.2 of
NI 51-102), and update the market
promptly
if
the
conditions
are
not
expected to be met or the transaction is
not completed.
Issuers should refrain from publishing
numerous news releases that disclose no
new material facts.
References:
National
Policy
51-201
Disclosure Standards; CSA Staff Notice
51-348 Staff’s Review of Social Media
Used by Reporting Issuers; CSA Staff
-16-
OBSERVATIONS
Insider Reporting Reporting insiders: We continue to Initial report: Reporting insiders are
observe
instances
where
reports are not being filed or not filed
on a timely basis on the System for
Electronic
Disclosure by
(SEDI). In particular, we frequently
observe that SEDI reports related to
securities issued under compensation Subsequent reports: Reporting insiders
arrangements established by issuers
are filed late, incorrectly or not filed
at all.
Reporting insiders: We have also In
observed a number of insider reports
being
filed
with
information;
in
particular,
frequently
observe
reports
inaccurate transaction dates.
Issuers:
We
continue
to
discrepancies between the number of
securities held by reporting insiders
as
disclosed
in
an
issuer’s
documents
(e.g.
information
circulars) and the reporting insider’s
SEDI filings. This often occurs when
an
issuer
grants
securities
reporting
insiders
compensation arrangements and they
do not communicate this issuance to
the reporting insiders on a timely
basis.
CONSIDERATIONS
Notice 51-356 Problematic Promotional
Activities by Issuers.
insider
required to file an initial insider report
within 10 days of becoming a reporting
insider if they own or control, directly
Insiders
or
indirectly,
securities
or
related
financial
instruments
involving
a
security of the issuer.
are required to file a report within five
days after any change in their holdings
occurs. For example, an acquisition or
disposition of securities, a grant or
expiration of options, warrants or other
securities issued under compensation
arrangements,
share
consolidations,
stock splits, etc.
instances
of
acquisitions
or
dispositions
of
securities,
the
inaccurate
transaction date to be reported is the
we
trade date, not the settlement date.
with
observe Issuers are encouraged to implement
internal processes to ensure that the
number
of
security
holdings
CD
communicated
to
them
by
their
reporting insiders are accurate and also
to ensure that securities granted under
compensation
arrangements
to
to
reporting insiders are communicated to
under
the insider on a timely basis. These
processes
will
help
to
ensure
consistency between the issuer’s CD
filings and SEDI, and will also allow
reporting insiders to avoid late fees for
filing insider reports after the prescribed
deadline.
References: National Instrument 55-104
Insider
Reporting
Requirements
and
Exemptions; CSA Staff Notice 55-315
Frequently
Asked
Questions
about
National
Instrument
55-104
Insider
Reporting Requirements and Exemptions;
CSA Staff Notice 55-316 Questions and
Answers on Insider Reporting and the
System
for
Electronic
Disclosure
by
Insiders (SEDI).
-17-
OBSERVATIONS
CONSIDERATIONS
Early Warning
We have observed a number of The early warning reporting system is
Reporting
3
instances where security holders do
intended to provide transparency to the
not
fulfill
their
early
warning
marketplace
when
a
significant
reporting requirements.
acquisition in the securities of an issuer
occurs. The purpose of the requirement
is to warn the marketplace that a take
over
bid
could
be
imminent.
The
acquiror must specifically disclose not
only the details of the transaction and
the percentage of securities held, but
also its intention and the purpose in
making the acquisition of securities.
The following events generally trigger
the early warning requirements:
o
10%
ownership:
beneficial
ownership of, or control or
direction over, voting or equity
securities of any class of an
issuer, or securities convertible
into voting or equity securities
of any class of an issuer, that,
together
with
the
acquiror’s
securities
of
that
class,
constitute 10% or more of the
outstanding securities of that
class;
o
2% increases or decreases in
the
ownership
percentage
reported in the security holder’s
most recent report;
o
Decreases to less than 10%
ownership
4
; and
o
A change in a material fact
reported in the security holder’s
most recent report.
When a security holder triggers the
early
warning
requirements,
such
security holder is required to inform the
marketplace by:
o
Issuing
and
filing
a
news
release
no
later
than
the
opening
of
trading
on
the
business
day
following
the
event; and
3
Note that the reporting requirements differ for eligible institutional investors that choose to report under the alternative monthly reporting
system. Refer to Part 4 of National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues for
additional information.
4
Note that in the case of a decrease to less than 10% ownership, security holders are not required to report any further change in ownership
unless they regain at least 10% ownership.
-18-
OBSERVATIONS
CONSIDERATIONS
o
Filing
Form
62-103F1
Required Disclosure under the
Early Warning Requirements,
no later than two business days
following the event.
A security holder is exempt from the
early warning requirements if a change
in their ownership percentage arises
solely by actions taken by the Issuer and
without any action being taken by the
security holder.
References: National Instrument 62-103
Early Warning System and Related Take-
Over Bid and Insider Reporting Issues;
Part 5 of National Instrument 62-104
Take-Over Bids and Issuer Bids; Part 3 of
National Policy 62-203 Take-Over Bids
and Issuer Bids.
Material Change Some issuers do not issue material The term ‘material change’ is generally
Reporting
change reports in relation to material
defined in each jurisdiction’s securities
changes, or do not do so in a timely
legislation and is usually based on a
manner.
market impact test.
Upon occurrence of a material change,
issuers are required to:
o
Immediately issue and file a
news release authorized by an
executive officer disclosing the
nature and substance of the
change; and
o
As soon as practicable, and in
any event within 10 days of the
date
on
which
the
change
occurs,
file
Form
51-102F3
Material Change Report.
Additional
considerations
in
light
of
COVID-19
Issuers should be aware of the impact of
COVID-19, or resulting governmental
or regulatory policies, that may be
unique or more significant to them than
to others in their industry. Examples of
potentially material information that
may result in a material change due to
COVID-19 are:
o
Significant disruptions to an
issuer’s
workforce
or
operations,
-19-
OBSERVATIONS
4. MINERAL PROJECT DISCLOSURE
National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101) governs public
disclosure of scientific and technical information about an issuer’s mining and mineral exploration projects
including written documents, websites, and oral statements. Issuers must base their scientific and technical
disclosure on information provided by a “qualified person” (QP), as defined in section 1.1 of NI 43-101.
NI 43-101 also requires issuers to file a “technical report”, in a prescribed format, Form 43-101F1
Technical Report (Technical Report), for significant corporate or mineral project milestones. The purpose
of the Technical Report is to support disclosure of the issuer’s exploration, development, and production
activities with additional information to assist current and prospective investors in making investment
decisions. In some circumstances, QPs authoring the Technical Report must be independent of the issuer
and the mineral property.
A major component of CSA mineral-industry reviews in 2018 and 2019 was a review of technical reports
supporting the disclosure of mineral resource estimates. CSA Staff Notice 43-311 Review of Mineral
Resource Estimates in Technical Reports provides detailed commentary on the results of the review and
guidance on regulatory requirements and expectations. The main results of the review are included in the
Hot Buttons below. Please note that this is not an exhaustive list.
HOT BUTTONS
OBSERVATIONS
MINERAL PROJECTS
Technical Report Some
Technical
Reports
Content: Mineral
include
adequate
disclosure
Resource
important criteria the QP used to
Estimates
determine that the mineral resource
has
demonstrated
prospects
for
eventual
extraction.
Specific
include omission of the proposed
mining
method(s),
metallurgical
recovery
factors,
selected
price(s) including justification for
the selection, and the cut-off grade
and how it was determined.
CONSIDERATIONS
o
Negative changes in markets,
economy or laws,
o
Supply
chain
delays
or
disruptions that are critical to
an issuer’s business,
o
Changes in credit arrangements
o
Increased
cost
of
goods
or
services,
o
Suspension of exports, etc.
References: Part 7 of NI 51-102, Form 51-
102F3 Material Change Report.
CONSIDERATIONS
do
not The
Technical
Report
requires
of
sufficient
discussion
of
the
key
assumptions, parameters, and methods
used to estimate the mineral resource
reasonable
for a reasonably informed reader to
economic
understand the basis for the mineral
examples
resource estimate and how it was
generated. Absent these disclosures, it
may be unclear if the mineral resource
metal
meets the threshold required by the
Canadian
Institute
of
Mining,
Metallurgy
and
Petroleum
(CIM)
-20-
OBSERVATIONS
CONSIDERATIONS
Definition
Standards
for
Mineral
Resources and Mineral Reserves.
Some
Technical
Reports
do
not “Data verification” is a defined term
adequately
describe
the
specific
and is not merely ensuring that assay
procedures
the
QP
undertook
in
results
have
been
accurately
verifying the data or provide the
transferred, for example, into a mineral
QP’s opinion on the adequacy of the
resource
estimation
database.
It
data used in the Technical Report.
encompasses all efforts by the QP to
This
deficiency
was
most
verify that the database is fit for
pronounced where the QP was using
purpose. A QP is required to disclose
data generated by earlier project
the steps they have taken to verify the
operators.
data used in the Technical Report and
the QP cannot rely on data verification
completed by other QP’s in previous
reports on behalf of other issuers.
Legacy
data,
collected
before
the
activities
of
the
current
project
operator, may have been generated
using
few
quality
assurance
procedures, and the results of earlier
verification may be unknown to the
current operator or the QP. If so,
efforts to verify the legacy data are
essential to ensure the integrity of the
mineral resource database.
Some
Technical
Reports
include Tables
showing
the
estimate's
tables showing the sensitivity of the
sensitivity
to
cut-off
grade
are
mineral resource estimate to changes
valuable, but the QP should ensure a
in cut-off grade without showing the
table like that is not misleading. The
base-case
estimate
clearly,
or
actual mineral resource estimate being
showing
unreasonable
cut-off
disclosed
in
the
Technical
Report
grades.
should be clearly marked (for example,
by bold type or shading). Tonnages
and grades at other cut-offs should still
have reasonable prospects for eventual
economic extraction. Cut-off grades
set lower than a plausible break-even
level could be interpreted as potential
mineral
resources,
and
so
are
potentially
misleading.
Moreover,
estimates with a zero cut-off grade
have no way of meeting the definition
of a mineral resource.
Risk disclosure, required in Item 25 Risks set out should be those that are
of the Technical Report, sometimes
specific to the mineral project that is
has the character of "boilerplate"
the subject of the Technical Report.
text, and is not specific to the subject
mineral project.
References: Items 11, 12, 14(a), 14(b) and
25 of Form 43-101F1; section 1.1 of NI
43-101.
-21-
OBSERVATIONS
Disclosure of
A common deficiency in routine Stand-alone
Estimates
disclosure
of
mineral
information is the failure to state both
tonnage
and
grade
of
resources or mineral reserves.
Another deficiency is the failure to Conventions
disclose whether mineral reserves
are included in, or excluded from, the
mineral resource estimate.
Compliance with Some issuers rely on hyperlinks in Issuers providing graphical or tabular
Part 3 of NI 43-
news releases or other System for
101
Electronic Document Analysis and
Retrieval
(SEDAR)
filings
provide maps, sections, or tables,
without
filing
the
information
on
SEDAR.
provided on the issuer's website, or
by dissemination services, may stop
working
and
the
information will not be retrievable by
users.
CONSIDERATIONS
disclosure
of
total
project
contained
metal
or
mineral
(e.g.,
ounces of gold, pounds of uranium
mineral
oxide, etc.) is contrary to NI 43-101.
Tonnage and grade must be disclosed
each time an estimate is cited. It is
insufficient, for example, to point to
earlier disclosure that complies with
NI 43-101.
on
the
disclosure
of
mineral
reserves
are
not
uniform.
Where an issuer discloses mineral
reserves, the disclosure should avoid
being misleading by showing, clearly
and prominently, the convention the
issuer
is
following:
whether
the
mineral resource includes the mineral
reserve, or is additional to the mineral
reserve.
References: Subsections 2.2(b), 2.2 (d)
and 3.4(b) of NI 43-101.
information in their filings should
include
this
information
in
the
to
document that is filed, as hyperlinks
may
be
broken
over
time.
If
relevant
information is important enough to be
Links
linked, it is important enough to be
included in the issuer's permanent
disclosure record on SEDAR.
required
References: Subsection 4.1(2) of NI 13-
101
System for
Electronic
Document
Analysis
and
Retrieval
(SEDAR);
subsection 7.2(e)(i)(B) of the SEDAR
Filer Manual.
-22-
APPENDIX B
CATEGORIES OF OUTCOMES
1.
Referred to Enforcement/Cease-Traded/Default List
If the issuer has substantive CD deficiencies, we may add the issuer to our default list, issue a
cease-trade order and/or refer the issuer to enforcement.
2.
Refiling
The issuer must amend and refile certain CD documents or must file a previously unfiled
document.
3.
Prospective Changes
The issuer is informed that certain changes or enhancements are required in its next filing as a
result of deficiencies identified.
4.
Education and Awareness
The issuer receives a proactive letter alerting it to certain disclosure enhancements that should be
considered in its next filing or when staff of local jurisdictions publish staff notices and reports on
a variety of continuous disclosure subject matters reflecting best practices and expectations.
5.
No Action Required
The issuer does not need to make any changes or additional filings. The issuer could have been
selected in order to monitor overall quality disclosure of a specific topic, observe trends and
conduct research.
-23-
Questions – Please refer your questions to any of the following:
Raymond Ho
Rebecca Moen
Senior Accountant, Corporate Finance
Securities Analyst
Ontario Securities Commission
Alberta Securities Commission
416-593-8106
403-297-4846
rho@osc.gov.on.ca
rebecca.moen@asc.ca
Heather Kuchuran
Patrick Weeks
Director, Corporate Finance
Analyst, Corporate Finance
Financial and Consumer Affairs Authority of
Manitoba Securities Commission
Saskatchewan
204-945-3326
306-787-1009
patrick.weeks@gov.mb.ca
heather.kuchuran@gov.sk.ca
Nadine Gamelin
Joe Adair
Senior Analyst, Continuous Disclosure
Senior Securities Analyst
Autorité des marchés financiers
Financial and Consumer Services Commission (New
514-395-0337, ext. 4417
Brunswick)
nadine.gamelin@lautorite.qc.ca
506-643-7435
joe.adair@fcnb.ca
Junjie (Jack) Jiang
Securities Analyst, Corporate Finance
Nova Scotia Securities Commission
902-424-7059
jack.jiang@novascotia.ca
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