CSA Releases Results of Annual Continuous Disclosure Review Program

The Canadian Securities Administrators (CSA) have released CSA Staff Notice 51-346 Continuous Disclosure Review Program Activities for the fiscal year ended March 31, 2016 (Notice), summarizing the results of its members’ continuous disclosure (CD) review programs for the past year. The Notice includes information about areas where common deficiencies have been identified by the CSA, with examples in certain instances, to help issuers address these deficiencies and illustrate best practices.


During the past year, CSA members conducted 902 CD reviews (1,058 CD reviews in the prior year), with 69 per cent of such reviews focused on specific issues rather than a full issuer CD review. Of the issues-focused reviews, 33 per cent were focused on mining/oil and gas technical disclosure issues, 12 per cent concerned gender diversity disclosure, nine per cent were on management’s discussion and analysis (MD&A) disclosures, eight per cent were on financial statement matters, six per cent were on non-GAAP financial measures, five per cent were on press releases/material change reports, and 27 per cent concerned other matters (e.g., corporate governance, management information circulars, material contracts, public complaints and other regulatory requirements).

Over the past year, 31 per cent of issuers reviewed by the CSA were required to make prospective changes to their disclosures, 23 per cent had to refile documents and eight per cent were referred to enforcement, cease traded or placed on the default list. In particular, refilings of issuers’ CD records included some of the following areas:

  • Financial Statements: Compliance with recognition, measurement and disclosure requirements in International Financial Reporting Standards (IFRS), including impairment, accounting for acquisitions, revenue, going concern disclosures, and significant judgments.
  • MD&A: Compliance with Form 51-102F1 of NI 51-102 (Form 51-102F1), including non-GAAP financial measures, discussion of operations, liquidity, related party transactions and forward-looking information (FLI).
  • Other: Compliance with other regulatory matters, including mining technical reports, investor presentations, gender diversity disclosure, business acquisition reports, executive compensation disclosure, filing of previously unfiled documents (such as material contracts), and clarifying news releases or material change reports to address concerns around unbalanced or insufficient disclosure.


In the Notice, the CSA have provided observations along with considerations for issuers as follows (see Notice for applicable regulatory guidance):

Financial Statements

Market Risk – Sensitivity Analysis: Issuers present sensitivity analysis that is not reflective of the reasonably possible changes in the relevant risk at the date of the financial statements and/or is not meaningful in light of the current economic environment.

Contingent Consideration in Business Combinations: Issuers fail to identify and account for contingent consideration and inappropriately account for settlements as a measurement period adjustment.

Goodwill and Intangible Assets Recognized in Business Combinations: Issuers allocate the entire purchase price to one intangible asset, although disclosure indicates the presence of other identifiable intangible assets or goodwill. Issuers do not explain how they determined the useful life for finite-lived intangible assets or why an intangible asset has an indefinite useful life. Issuers also inappropriately determine an indefinite useful life for an intangible asset that has a finite useful life.

Functional Currency: Issuers change their functional currency at a time that does not correspond to a change in the underlying circumstances.

Operating Segments: Issuers aggregate several operating segments into a single operating segment for reporting purposes.


Liquidity and Capital Resources: Issuers that face going concern and liquidity risks and provide a boilerplate discussion of liquidity and capital resources, or merely reproduce amounts from their statements of cash flows without providing any analysis. Issuers have refinanced or entered into new debt facilities that generally resulted in more restrictive covenants and a decreased borrowing capacity, but failed to discuss the actual and expected changes in the source of funds required to meet any shortfall resulting from the decreased borrowing capacity. Issuers that have debt covenants that they have breached or may breach in the near term do not discuss how they intend to cure the default or address the significant risk of default.

FLI: Issuers disclose FLI in their MD&A, news releases and other CD documents, but do not update this information as required. Issuers withdraw previously disclosed material FLI without providing the required disclosure, in particular, when actual results vary negatively from the previously disclosed FLI.

Overall Performance (Discussion of Operating Segments): Issuers identify segments in their MD&A that are inconsistent with those identified in their financial statements. Issuers fail to provide an analysis of financial performance by operating segment using the segment performance measures presented in the financial statements.

Investment Entities: Issuers relying on the investment entity definition in IFRS 10 Consolidated Financial Statements do not provide sufficient information, both qualitative and quantitative, for their material investments and related investment and operating activities.

Other Regulatory

Material Contracts: Issuers make prohibited redactions in a material agreement, including redactions of debt covenants and ratios in financing or credit agreements or key terms necessary for an understanding of the impact of the contract on the business. Issuers fail to provide a description of the redacted information. Inconsistencies exist between the material contracts filed on SEDAR and those listed as material contracts in the annual information form (AIF).

Management Information Circular: Circulars prepared in situations of restructuring under which securities are to be changed, exchanged, issued or distributed do not provide prospectus level disclosure. Issuers who spin out a new entity or complete a reverse take-over transaction fail to provide a full description of the proposed business and related financial information. Issuers do not incorporate by reference the management information circular related to a restructuring transaction into their material change report or the material change report does not include the required disclosure.

AIF: Issuers do not provide sufficient description of their business and the applicable risk factors in their AIF.


Credit Risk

Given continued economic challenges, the CSA advises that although many issuers have experienced an increase in their aged account receivables, their financial statement disclosure in respect of their accounts receivable and related allowances are insufficient for readers to understand the underlying credit risk.

Non-GAAP Measures

Issuers fail to disclose and discuss the most directly comparable GAAP measure as presented in the financial statements when they present and discuss non-GAAP measures or give greater prominence to non-GAAP measures in their MD&As or news releases. The CSA advise that determining whether inappropriate prominence is given to a non-GAAP measure is a matter of judgment, taking into account the manner in which the non-GAAP measure is presented (e.g., ordering and font style and size) as compared to the related GAAP measure, as well as the emphasis of the related commentary. In particular, the Notice provides that it would be inappropriate for an issuer to discuss results and trends of its non-GAAP measures without at least providing an equally prominent discussion of the most directly comparable GAAP measure. See also our February 2016 Blakes Bulletin: CSA re: Non-GAAP, TSX NCIB FAQs and Other Acronyms.

Insiders Reporting

See OSC Staff Notice 51-726 – Report on Staff’s Review of Insider Reporting and User Guides for Insiders and Issuers.

Oil and Gas Reporting

The Notice provides that observed disclosure deficiencies often involve errors, omissions and potentially misleading information of abandonment and reclamation costs; resources other than reserves and type wells; and drilling locations and required associated information. Also see CSA Staff Notice 51-345 Disclosure of Abandonment and Reclamation Costs in National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities and Related Forms and our January 2015 Blakes Bulletin: CSA Implements Amendments to Oil and Gas Disclosure Requirements.

For further information, please contact:

Matthew Merkley        416-863-3328

or any member of our Capital Markets group.

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