2011-07-19 CSA Staff Notice 51-334 - Continuous Disclosure Review Program Activities for the Fiscal Year ended March 31, 2011

The CSA has recently released the results of its continuous disclosure reviews carried out in the year ended March 31, 2011, in the form of CSA Staff Notice 51-334, Continuous Disclosure Review Program Activities for the fiscal year ended March 31, 2011("the Notice"). These reviews include results from "full" reviews, which are a review of all the recent continuous disclosure documentation filed by a reporting issuer, and from "issue-oriented" reviews.

Financial Statement Deficiencies

The CSA continue to comment on insufficient "boilerplate" disclosures within Management's Discussion and Analysis (MD&A) and financial statements. The Notice provides several examples of robust entity-specific disclosures in areas where they commonly identified deficiencies. Deficiencies were commonly found in the following areas:

Inventory Insufficiently detailed disclosures over impairment reversals and cost formulas used to measure inventory.
Related Party Transactions Omission of disclosures of the nature of the transaction and the description of the relationship with the related party.


Similar to the comments on financial statement deficiencies, the CSA note continued use of "boilerplate" disclosures in the MD&A that do not change from year to year, do not provide entity-specific discussion, and frequently repeat disclosures from the financial statements without any analysis. Deficiencies were commonly found in the following areas:

Non-GAAP Financial Measures Disclosures often do not include an explanation of why the non-GAAP financial measure is meaningful to investors.
Clear quantitative reconciliation from the non-GAAP financial measure to the most directly comparable measure calculated in accordance with the issuer's GAAP was frequently missing.
Forward Looking Information Material forward looking information was not identified as such.
There was insufficient disclosure of the material factors or assumptions underlying the forward-looking information.
Discussion of Operations Disclosures included immaterial items, did not include discussions of material items and/or did not provide a balanced and sufficient analysis of why changes have occurred.
Liquidity There were weak discussions of known or expected fluctuations and trends in an issuer's liquidity, particularly over disclosure of any defaults or risk of defaults on debt covenants and how the issuer intends to cure the default or otherwise address the risk. The Notice emphasizes that this disclosure is required for all issuers, but it is especially important when issuers have negative cash flows from operations, a negative working capital position or have breached their debt covenants.
4th Quarter discussion There was inadequate discussion of items and events that have had a material impact in the fourth quarter.
Venture issuers Venture issuers without significant revenue from operations frequently omitted the breakdown of material components of capitalized or expensed exploration costs. For mining exploration, the analysis must be presented on a property by property basis.

Significant issue-oriented reviews for 2011 covered the following areas:

  • IFRS Transition Review
  • Certification of Internal Control over Financial Reporting and Disclosure Control and Procedures (NI 52-109 certification)
  • Corporate Governance Disclosure
  • Filing of Material Contracts
  • Oil and Gas Technical Disclosure
  • Mining Technical Disclosure

Areas of Focus — Fiscal 2012

We were not surprised that the CSA confirmed that over the next year the focus of their reviews will be on IFRS transition.

Although this was not discussed in the Notice, we note that in May 2011, the OSC released OSC Staff Notice 51-718, Key Considerations Relating to an Auditor’s Involvement with Interim Financial Reports, and we expect that disclosure of auditor review of an interim financial report will continue to be an area of focus across the CSA over the next year.

Full Report

A copy of the full report can be obtained from the OSC web site at http://www.osc.gov.on.ca/documents/en/Securities-Category5/csa_20110715_51-334_cd-review-program.pdf.