SECURITIES LAW – CSA Report on Continuous Disclosure Deficiencies and Best Practices

Highlights from the CSA’s Biennial Report on Continuous Disclosure Deficiencies and Best Practices


On July 19, 2018, the Canadian Securities Administrators (the “CSA”) published CSA Staff Notice 51-355 (the “Notice”) outlining results from the biennial Continued Disclosure Review Program (the “Program”). The Program seeks to improve completeness and quality of reporting issuers’ disclosures by conducting (mostly) issue-oriented reviews for deficiencies within the continuous disclosures (“CDs”) of approximately 1,000 public companies each year.


This memorandum is intended to provide a summary of findings most relevant to the firm’s public company client base. Please do not hesitate to reach out to any of our securities law professionals listed below for additional information.


Common deficiencies in disclosures found by the CSA are categorized into three areas: (1) Financial statements, (2) Management’s discussion and analysis (“MD&A”) and (3) Other disclosure areas.

1.                  Financial Statements

The CSA focused on compliance with recognition, measurement and disclosure requirements in International Financial Reporting Standards (“IFRS”), which included, but was not limited to, statement of cash flows, fair value measurements, disclosure of accounting policies, accounting for business combinations, revenue recognition, related party transactions and significant judgements and estimates.  Below is a summary of the key deficiencies identified by the CSA that may be relevant to the firm’s public company client base.


Statement of Cash Flows

In particular, the CSA noted that some issuers incorrectly classify cash flows as investing or financing activities on the statement of cash flows when they should be classifying them as operating activities. Issuers are reminded that:


  • Cash flows that are primarily derived from the principal revenue-producing activities of the issuer should be classified as cash flows from operating activities.


The CSA also noted that some issuers reclassify items on the statement of cash flows without disclosing the reasons for the reclassification.  Issuers are reminded that:


  • If an entity changes the presentation or classification of items in its financial statements in a period, it should reclassify comparative amounts unless reclassification is impracticable.
  • When an entity reclassifies comparative amounts, it should disclose: (1) the nature of the reclassification; (2) the amount of each item or class of items that is reclassified; and (3) the reason for the reclassification.


Adoption of New Accounting Policies

The CSA also noted that some issuers do not provide sufficient qualitative and quantitative disclosures regarding the possible impact that the initial adoption of an IFRS standard is expected to have on its financial statements in the period of initial application. They also underscore that some issuers provide general disclosures about the new IFRS standard without providing entity-specific effects the new IFRS standard will have on the issuer.  Issuers are reminded that:


  • Issuers should provide progressively more detailed qualitative and quantitative information in their filings about the expected effect a new IFRS standard will have on their financial statements as they progress in their implementation efforts and the effective dates approach. This is particularly important if the new IFRS standard is expected to have a material impact.
  • If the quantitative impact cannot yet be reasonably estimated, issuers should consider providing additional qualitative information to enable users to understand the expected impact on future financial statements, including the anticipated directional impact of applying the new IFRS standard.
  • If the impact of adopting a new IFRS standard is not expected to be material, issuers should disclose this fact.
  • IFRS 16 Leases is effective for years beginning on or after January 1, 2019, and the CSA reminds issuers to provide the required disclosure for this upcoming standard in their CD documents during the fiscal year.


Fair Value Measurement

The CSA also provided guidance in respect of disclosure for fair value measurements – level 3.  We encourage readers to review the Notice if this is relevant to their public company.

2.         Management’s Discussion and Analysis

The CSA reviewed compliance with Form 51-102F1 (“Form 51-102F1”) of National Instrument 51-102 – Continuous Disclosure (“NI 51-102”), which included, but was not limited to, non-GAAP financial measures, discussion of operations including disaggregation of investment portfolios, additional information about concentrated investments, liquidity, related party transactions and forward-looking information.  Below is a summary of the key deficiencies identified by the CSA that may be relevant to the firm’s public company client base.


Discussion of Operations – Disclosure of Capital Spending & Milestones

The CSA noted that they continue to see issuers disclose or announce significant projects that are in the early stages of development but fail to disclose sufficient information about the project. This deficiency is often observed with issuers who had a change of business and/or are in emerging industries (which includes cannabis).  Issuers are reminded that in order to meet the requirements of the MD&A and provide investors with sufficient information, issuers should disclose the following:


  • Overall plan for the project and/or business: This should include a discussion of both current and long-term plans. The disclosure should be robust and include a discussion of the key milestones and what specific events need to occur for the issuer to meet those milestones.
  • Project Timeline: The expected timeline of the project must be clearly disclosed, including the issuer’s progress compared to the timeline and the date at which it expects to begin generating revenues.
  • Budget: The estimated total expenditures related to the project, expenditures to date, expected timing of remaining expenditures and how the issuer anticipates funding the remaining expenditures.
  • Regulatory and licensing requirements: A discussion of license(s) and regulatory approval(s) the issuer must obtain. The discussion should include the anticipated timeline and expenditures associated with obtaining the license/regulatory approval and risks and associated impact if regulatory approval and licenses are not obtained.
  • Updates: The issuer must include an update on the status of the project in each MD&A, including any delays in the disclosed timeline and/or anticipated cost overruns. In addition, the MD&A must include a discussion of events and circumstances that occurred during the period that are reasonably likely to cause actual results to differ materially from material forward-looking information previously disclosed and the expected differences.


Related Party Transactions

The CSA also noted that they continue to see issuers that fail to provide the required disclosures pertaining to related party transactions. In particular, they noted that many issuers do not identify the related person or entity (e.g. naming a director and/or officer), and do not discuss the business purpose of the transaction.  In addition, they note that some issuers disclose the recorded amount of the transaction but do not describe the measurement basis used.  Issuers are reminded that:


  • Issuers should identify the related person or entity. In addition to identifying the related party as the issuer’s president, chairman, CEO or CFO, issuers should disclose the name of a director and/or an officer, where it is necessary, to specifically identify the individual.
  • Issuers should discuss the business purpose of the related party transaction. The discussion should be specific and include both qualitative and quantitative characteristics that are necessary for an understanding of the transaction’s business purpose and economic substance. For example, the CSA often sees consulting fees paid to related parties without an appropriate discussion of the nature and purpose of those fees.
  • Issuers are required to describe the measurement basis used for recording the amount of related party transactions. However, issuers should refrain from disclosing that related party transactions were recorded at the exchange amount, which is equivalent to fair value, unless such terms can be substantiated.


Forward-Looking Information

Forward-looking information (“FLI”) is disclosure regarding possible events, conditions or financial performance that is based on assumptions about future economic conditions and courses of action and includes future-oriented financial information with respect to prospective financial performance, financial position or cash flows that is presented as a forecast or a projection. Many issuers disclose FLI in news releases, MD&A, prospectus filings, marketing materials, investor presentations or on their website. This FLI disclosure is subject to the requirements of Parts 4A and 4B of NI 51-102.


The CSA noted that some issuers disclose FLI for a period beyond the issuer’s next fiscal year end without providing reasonable and sufficient assumptions to support the FLI. Issuers must not disclose a financial outlook unless the financial outlook is based on assumptions that are reasonable in the circumstances. The FLI must be limited to a period for which the information in the financial outlook can be reasonably estimated. In many cases, that time period will not go beyond the end of the issuer’s next fiscal year. Where FLI is presented for multiple years and is not sufficiently supported by reasonable qualitative and quantitative assumptions, the CSA may ask issuers to limit the disclosure of FLI to a shorter period (for example, one or two years), for which reasonable support exists. For investors to assess whether the assumptions underlying the issuer’s FLI are reasonable, the issuer should disclose those assumptions, both quantitatively and qualitatively. For example, an issuer projecting aggressive growth targets without the benefit of historical experience should be able to show (i) a reasonable basis for those targets, including the key drivers behind the projected growth with reference to specific plans and objectives that support the projected growth, and (ii) why management believes that each of the targets/FLI are reasonable.


Non-GAAP Financial Measures

Non-GAAP Financial Measures (“NGMs”) are frequently used by issuers to supplement and explain changes in financial performance, cash flows or financial condition. When used and disclosed appropriately, NGMs can provide investors with additional insight. However, the CSA notes that they are continuing to see an increased prevalence of NGMs where the stated purpose and usefulness of the measure is unclear and fails to align with the nature of the adjustments that are being made in the reconciliation. Without clear disclosure accompanying NGMs and the adjustments being made, there is the potential that investors may be confused or even misled.


When presenting NGMs, it may be misleading to present an NGM without an accompanying statement explaining why the NGM presents useful information to investors. This disclosure should be entity-specific and should clearly align with the nature and type of adjustments that are being included or excluded in the calculation of the NGM.


In addition, when multiple NGMs are disclosed for the same or similar purpose, issuers should carefully consider whether this will obscure the most directly comparable GAAP measure and if all NGMs are useful.


Investments Being Recorded at Fair Value

The CSA noted that they continue to see entities record investments at fair value without providing sufficient qualitative and quantitative information about their investments or not providing sufficient disaggregation of the investment portfolio in their annual and interim financial statements and MD&A.  We encourage readers to review the Notice if this is relevant to their public company.

3.         Other Disclosure Deficiencies

The CSA also reviewed compliance with other regulatory matters, which included, but was not limited to, gender diversity disclosure, executive compensation disclosure, climate change, unbalanced and misleading social media posts, 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. Below is a summary of the key deficiencies identified by the CSA that may be relevant to the firm’s public company client base.


Summary of Executive Compensation

The CSA reminds issuers that if an external management company employs or retains any Named Executive Officers or directors, the issuer must disclose compensation paid by the external management company to the individual that is attributable to the services they provided to the issuer directly or indirectly. In addition, the deadline for filing the summary of executive compensation is within 140 days after the end of the issuer’s most recently completed financial year, or 180 days in the case of a venture issuer.


Non-GAAP Financial Measures on Issuers’ Websites

Many issuers disclose NGMs in their corporate presentations, investor fact sheets, news releases, or on social media and give excessive prominence to the NGMs. In some instances, the most directly comparable measure specified, defined or determined under the issuer’s GAAP is not presented or discussed, or is disclosed in a less prominent location, most often when the GAAP measure is less favourable.  Issuers are reminded:


  • To avoid the potential to mislead investors when disclosing NGMs on websites, news releases or investor presentations, the CSA reminds issuers that the guidance in CSA Staff Notice 52-306 applies to all public disclosures, including materials posted on the issuer’s website.
  • NGMs should not be the primary focus of the issuer’s website content or the key messaging conveyed to investors.


Social Media

The CSA also notes that some issuers: (1) provide material information on social media sites before it is generally disclosed to all investors, which may constitute selective or early disclosure or (2) some issuers provide misleading or unbalanced information that may be inconsistent with information already posted on SEDAR or exceedingly promotional. Issuers are reminded:


  • Issuers should have a robust social media governance policy that specifies, amongst other things, who is authorized to post what type of information on which social media websites.
  • Issuers should be mindful of commonly observed pitfalls in social media disclosure, such as FLI that is selectively disclosed on social media websites alone.
  • In some cases, it may be difficult to provide balanced disclosure on social media due to length restrictions often inherent to social media posts. In these cases issuers should provide a link to additional information.


Disclosure of Material Relationships

The CSA notes that some issuers that disclosed significant transactions with a party with whom there was a familial or similar close relationship failed to disclose the relationship. Issuers are reminded that:


  • When an issuer discloses a significant transaction and that transaction is with a party with whom the issuer or its principals has a familial or similar close relationship, the omission of that fact may be considered misleading or a misrepresentation.
  • In these circumstances the CSA may expect the issuer to provide qualitative and quantitative disclosure sufficient for an investor to understand the relationship and terms of the transaction.


Climate Change-Related Disclosure

Many issuers across a wide range of industries could be materially impacted by climate change. Many of these issuers either provide boilerplate disclosure or fail to provide disclosures of climate change-related risks and opportunities.  We encourage readers to review the Notice if this is relevant to their public company.


Consequences of CSA Reviews

The CSA classifies the outcomes of the full reviews and issue-oriented reviews into five categories, as described below. 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.


Referred to Enforcement/Cease-Traded/Default List

If the issuer has substantive CD deficiencies, the CSA may add the issuer to its default list, issue a cease trade order and/or refer the issuer to enforcement.  This is an extreme action by the CSA.



The issuer must amend and refile certain CD documents or must file a previously unfiled document.


Prospective Changes

The issuer is informed that certain changes or enhancements are required in its next filing as a result of deficiencies identified.  This is often the course of action.


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 provincial securities commissions publish staff notices and reports on a variety of continuous disclosure subject matters reflecting best practices and expectations.


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.







LaBarge Weinstein LLP’s securities law professionals are available to answer questions or review your company’s continuous disclosure documents.


Debbie Weinstein                                                 613-599-9600 ext. 202


Randy Taylor                                                         604-484-1060 ext. 106


Shane McLean                                             613-599-9600 ext. 262


Brigitte LeBlanc-Lapointe              613-599-6900 ext. 255


Kyle Lavender                                          604-484-1060 ext. 105


Tayyaba Khan                                                  613-599-9600 ext. 279



This blog post is intended to provide general information and does not constitute legal advice. You should consult a lawyer for advice regarding your individual situation.


Every effort has been made to ensure the contents of the blog post were accurate as of the date it was written, however, the law can change and we cannot guarantee that the information remains accurate.  In addition, because the comments above are of a general nature, they may not apply for every situation.  If you have questions, please contact us and we would be happy to discuss your individual circumstances, and whether there have been any changes to the law that would affect the information presented.



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