On September 6, the Canadian Securities Administrators (CSA) published for comment Proposed National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure (NI 52-112) and a related companion policy. The new instrument will apply to all issuers (including investment funds), except for SEC foreign issuers, and will apply to all documents (including Management’s Discussion and Analysis, press releases, annual information forms and prospectuses), as well as other written communications in websites and social media.

According to CSA staff, many issuers disclose a range of non-GAAP financial measures that are not standardized, lack context when disclosed outside the issuer’s financial statements, lack transparency as to their calculation and/or vary significantly by issuer or industry. Examples include terms such as “adjusted earnings”, “pro forma earnings”, “cost per ounce”, and “earnings before nonrecurring items”. To date, the CSA has been providing non-binding guidance on such measures through Staff Notice 52-306 (Revised) Non-GAAP Financial Measures (SN 52-306) and reports on disclosure practices. Despite this guidance, variability in disclosure practices has persisted. As well, there are some non-GAAP financial measures that fall outside the relevant definition in SN 52-306.

NI 52-112 is intended to provide regulators with a stronger tool to enforce standards for appropriate disclosure. However, it doesn’t go as far as some people would like. According to the CSA, some stakeholders wanted the CSA to prohibit the disclosure of certain financial measures in some circumstances and develop industry-specific, disclosure requirements. The CSA is proposing a less prescriptive approach. Instead, NI 52-112 will require an issuer to provide certain types of disclosure if it chooses to disclose non-GAAP financial measures. For example, NI 52-112 will, among other things: 

  • Regulate how the non-GAAP financial measure is labelled;
  • Regulate the non-GAAP financial measure’s prominence;
  • Require the presentation of non-GAAP financial measures for comparable periods; and 
  • Require disclosure of the fact that there is no standardized disclosure framework for the measure and that the measure may not be comparable to similar measures disclosed by other issuers.