On July 18, 2013 the Canadian Securities Administrators (CSA) released the annual summary of the results of their continuous disclosure reviews of reporting issuers carried out in the year ended March 31, 2013, in the form of CSA Staff Notice 51-339, Continuous Disclosure Review Program Activities for the fiscal year ended March 31, 2013. This includes results from both "full" reviews and "issue-oriented" reviews.
In total 1336 full and issue-oriented reviews were completed in the year (+7% compared to 2012). Overall the percentage of reviews that resulted in a request to take action significantly decreased compared to 2012. More specifically, the requests for 'prospective changes', 'refiling' and 'education and awareness' decreased while the 'enforcement referral/default list/cease trade order' outcome slightly increased.
As a result of their reviews the Staff Notice highlights a number of common deficiencies identified in each of three areas of i) financial statements, ii) MD&A, and iii) other regulatory deficiencies.
Judgments — Staff noted deficient and not entity-specific disclosure about judgments that have the most significant effect on the amounts recognized in the financial statements. Some issuers omitted to provide information about judgments even if the title of their note referred to judgments and estimates in the financial statements. Other issuers listed the items involving judgments but did not disclose the judgment made.
Impairment of goodwill — Some issuers disclosed incomplete information about cash-generating units (or groups of CGUs) with material goodwill and indefinite lived intangibles. Examples of deficiencies include incomplete description of each key assumption (e.g. revenue growth, gross margin percentage) relating to the cash flows projections and lack of description of management's approach in determining the value assigned to them (including comparison with past experience and external sources of information) when the CGU recoverable amount is based on value in use. The carrying amount of goodwill allocated to these CGUs was also not provided.
Going concern — Staff sometimes noted inconsistent going concern disclosure between the financial statements and the auditor's report. For example, some issuers disclosed indications of financial difficulty, sometimes under a going concern heading, without explicitly stated that these uncertainties may cast significant doubt on the ability to continue as a going concern whereas the auditor's report explicitly stated this. Staff reminded issuers that the MD&A should also provide a discussion and analysis on how issuers expect to resolve going concern uncertainties.
Cash flow disclosure (from issue-oriented reviews) — Issuers did not always adequately classify their cash flows between operating, investing or financial activities. In addition, they did not always provide a complete and clear discussion about their exposure to liquidity risks arising from financial instruments, such as short and long-term borrowings.
IFRS transition (from issue-oriented reviews) — As in their 2012 report, the CSA noted insufficient and unclear description of the effect of the transition and omission of certain reconciliations with previous Canadian GAAP - Part V when reviewing the first IFRS interim financial reports of issuers with non calendar year ends.
Operating segments (from issue-oriented reviews) — In their financial statements, issuers provided incomplete or omitted information about geographic areas and major customers, failed to combine and disclose in an 'all other segments' category information about business activities that are not reportable and failed to restate the comparative period segment data reflecting a change in reportable segments.
Liquidity (from both full and issue-oriented reviews) — As in their 2012 report, the CSA continue to note incomplete and unclear disclosure relating to liquidity. Many small issuers who focus their resources on completing a project or on expanding their operations simply reproduce information from their financial statements. Required information on liquidity in the MD&A includes discussion of (i) issuers' ability to generate sufficient liquidity in the short and long term to maintain their capacity, to fund their development activities and to meet planned growth, (ii) any working capital requirements and (ii) how they will meet their obligations as they become due and address working capital deficiencies. Issuers should also provide complete and clear discussion about (i) certain non-GAAP cash flow financial measures and (ii) the status of their debt facilities, including amounts of facilities drawn and remaining, details of covenants, and when a material risk of default exists, how they intend to remedy the default or address the risk.
Discussion of operations — As in their 2012 report, the CSA reminded the information required in the MD&A with respect to operations. Staff highlighted that many issuers simply reproduce information from the statement of comprehensive income without explaining (and quantifying when useful) the factors that explain the changes in their operations. For revenues, for example, the discussion should include changes caused by selling prices, volume or quantity of goods or services being sold, introduction of new products & services and of new competitors. For issuers who present more than one reportable segment in their financial statements, the results should be discussed by reporting segment.
Related party transactions — Issuers commonly reproduced the related party transactions note of their financial statements or simply refer to that note. However, the disclosures required in the MD&A go beyond IAS 24. Issuers should identify the related parties, describe the business purpose of transactions, describe the measurement basis used and discuss the ongoing commitments resulting from the transactions.
Operating segments (from issue-oriented reviews) — Staff noted incomplete analysis of operating segments that are reportable segments.
The Staff Notice also identified a number of common disclosure deficiencies with respect to:
Please find attached below the CSA Staff Notice 51-339.
|CSA Staff Notice 51-339 Continuous Disclosure Review Program (180 KB)
Download the full PDF.
Ontario Securities Commission (OSC) Staff Notice 52-721
On September 20, 2013 the Ontario Securities Commission (OSC) released a Financial Reporting Bulletin (OSC SN 52-721), prepared by the Office of the Chief Accountant of the OSC. The Bulletin sets out the observations of the OSC staff on certain disclosures in reviewing annual and interim IFRS financial reports in 2011 and 2012. OSC staff specifically focused their review on asset impairment and segment reporting. As indicated above, these two topics are also areas of focus for the CSA. Issuers with transactions or events relating to these areas should be aware of Staff's expectations over accounting and disclosure.
The issues covered by the Bulletin are:
Asset impairment: In its Financial Reporting Bulletin on IFRS adoption (OSC Staff Notice 52-720), the OSC already provided recommendations with respect to impairment disclosure and indicators of impairment. In this new Bulletin, the OSC went further and highlighted the following common deficiencies:
Segment reporting: Investors and analysts have emphasized the importance of transparent disclosure about operating segments to give a view of the business as it is seen by management. In this context, staff highlighted the following:
Please find attached below the OSC Staff Notice 52-721.
|OSC Staff Notice 52-721 OCA Financial Reporting Bulletin (689 KB)
Download the full PDF.