CSA release results of continuous disclosure review program

July 25, 2013

The CSA released a staff notice last week setting out the results of its continuous disclosure review program for fiscal 2013. Specifically, the CSA completed a total of 1,336 CD reviews during the year, resulting in 47% of issuers reviewed being required to take some action to improve disclosure. This was an improvement from the 56% of issuers that were required to take action in fiscal 2012. Meanwhile, 26% of reviews resulted in issuers being expected to provide enhanced continuous disclosure documents in future filings, including with respect to financial statements, MD&A and executive compensation disclosure.

Such review reports provide insight into regulatory staff’s views on how to interpret and apply form requirements relating to a wide range of disclosure obligations. As such, they can be used to enhance disclosure and clarify requirements that may be ambiguous or otherwise subject to varying interpretation. These, and other useful staff guidance, are tracked on our Continuous Disclosure Guide, which also cross-references the guidance to the relevant disclosure form.

Of the reviews completed, 72% were issue-oriented reviews, which included reviews of mining, oil and gas technical disclosure, cash-flow disclosure, IFRS transition disclosure and compliance with respect disclosure obligations regarding operating segments. A number of common deficiencies were identified in respect of these issues-based reviews, including: (i) inadequate classification of cash flows between operating, investing or financing activities in financial statements; (ii) incomplete or unclear discussion of the issuer's exposure to liquidity risks arising from financial instruments; and (iii) insufficient descriptions of the effect of IFRS transitions and the omission of certain reconciliations with previous Canadian GAAP - Part V.

Meanwhile, full reviews covering issuers' most recent annual and interim financial reports and MD&A filed before the start of the review were completed with respect to 28% of the issuers reviewed. The full reviews identified a number of deficiencies in financial statements, including with respect to disclosure of: (i) judgments made by management in the process of applying an entity's accounting policies; (ii) impairment of goodwill; and (iii) information regarding the issuer's ability to continue as a going concern. In these areas, the deficiencies related mainly to non-compliance with the requirements of the relevant accounting standard, such as paragraph 122 of IAS 1 Presentation of Financial Standards, which requires disclosure of judgments that management has made in the process of applying a company’s accounting policies. With respect to going concern-related disclosure, the Report also cited inconsistencies in the information provided in the company’s financial statements as compared to the corresponding disclosure in the auditor’s report. Staff also note that the MD&A should include a discussion on how the company expects to resolve uncertainties that cast doubt on its ability to continue as a going concern.

In respect of MD&A, the theme of deficiencies focused on issuers reproducing information from their financial statements without adding the additional discussion required for those same items under the MD&A form. The main areas highlighted were (i) liquidity; (ii) discussion of operations; and (iii) related party transactions.

For more information, see CSA Staff Notice 51-339.

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