As 2009 begins and issuers prepare to satisfy their annual public disclosure obligations, we would like to highlight some of the developments in Canadian continuous disclosure obligations during the past year. Current economic conditions will lead to a new focus on public disclosure. New rules regarding executive compensation, financial reporting (i.e. the introduction of International Financial Reporting Standards), and new CEO and CFO certification requirements have now come into force. In addition to updating practices and documents to incorporate these new rules, issuers must ensure that forward-looking information previously disclosed is updated as required, and that due consideration is given to environmental reporting, as the Ontario Securities Commission has renewed its focus on issuers’ disclosure (or lack thereof) of environmental liabilities.

Current Economic Conditions

The Canadian Securities Administrators have provided guidance on specific areas where the current economic conditions may present challenges in financial reporting and disclosure in CSA Staff Notice 51-328 Continuous Disclosure Considerations Related to Current Economic Conditions. The guidance provides an indication of the areas that regulators may focus on during the upcoming year when reviewing issuers’ continuous disclosure documents. The noted areas are:

  • Management’s Discussion & Analysis, including:
    • general considerations;
    • liquidity and capital resources;
    • distributed cash;
    • critical accounting estimates;
    • forward-looking information;
  • going concern;
  • impairment of goodwill, intangible assets and long-lived assets;
  • financial instruments;
  • capital disclosures;
  • defined benefit pension plans;
  • non-GAAP financial measures; and
  • additional considerations for junior resource companies.

Please click here, for a copy of CSA Staff Notice 51-328

New Executive Compensation Disclosure Requirements

Together with current required disclosure obligations, as of December 31, 2008 the new rules require:

  • the inclusion of a revised form of summary compensation table, which includes the requirement to set out the total compensation as a single dollar value for each named executive officer;
  • a narrative discussion on executive compensation, including the objectives of any compensation program or strategy, each element of compensation payable and how payment amounts are determined;
  • a narrative discussion on how the trend shown by the performance graph compares to the trend in the company’s executive compensation; and
  • disclosure of director compensation.

The new form requirements also include (a) new consolidated disclosure requirements for compensation paid under incentive plans, (b) disclosure of equity-based compensation based on grant date fair value, and (c) expanded pension and termination or change of control payments disclosure.

Please click here for a more detailed summary of the new rules.

New Financial Reporting Requirements – Implementation of IFRS

On January 1, 2011, International Financial Reporting Standards (IFRS) will become the mandatory accounting standards and replace Canadian generally accepted accounting principles (Canadian GAAP) for all Canadian “publicly accountable enterprises” (which include publicly traded companies, investment funds and other reporting issuers).

Canadian issuers are required to provide timely and meaningful information to investors and market participants during the period leading up to the issuer’s changeover to IFRS given that the changeover may materially affect an issuer’s reported financial position, results of operations and business functions. Beginning three years prior to an issuer’s changeover to IFRS, an issuer must disclose in its annual and interim MD&A relevant information and details of its changeover to IFRS, including the status of the changeover, timing and the expected impacts of the changeover; similarly, an investment fund must disclose such information in its annual and interim Management Reports of Fund Performance.

An issuer may choose early adoption of IFRS for financial periods prior to January 1, 2011. The staff of the Canadian securities regulators have indicated that they are prepared to recommend exemptive relief on a case-by-case basis in order to permit early adoption of IFRS.

New CEO and CFO Certification Requirements

New CEO and CFO certification requirements came into force on December 15, 2008, which apply to all annual and interim filings for financial periods ending on or after this date. The new rules require CEOs and CFOs to certify that they have performed an evaluation of the issuer’s internal controls over financial reporting (ICFR), in addition to the disclosure controls and procedures (DC&P). Issuers are also required to discuss in their annual MD&A their conclusions regarding the effectiveness of their ICFR, DC&P, any changes to the issuer’s ICFR and any fraud that involves management or other employees who have a significant role in the issuer’s ICFR, as well as identify and discuss any material weakness in the issuer’s ICFR. In their interim MD&A issuers are required to discuss any changes to, or material weaknesses in, their ICFR.

Please click here for a more detailed discussion of the certification requirements.

Obligations to Update Forward-Looking Information

Under rules imposed on December 31, 2007, issuers have an obligation to update previously issued forwardlooking information for a period that is not yet complete, where events or circumstances have occurred that are reasonably likely to cause actual results to differ materially from previously disclosed material forwardlooking information, or where an issuer decides to withdraw previously disclosed material forward-looking information. It is important that issuers maintain a record of their publicly disclosed forward-looking information and regularly consider whether this information needs to be updated in their MD&A. In addition, the issuer will need to file a press release and a material change report if the change constitutes a material change for the issuer.

Environmental Reporting

In February, 2008 the OSC reported that the disclosure of known and contingent environmental liabilities contained in the continuous disclosure documents of many Canadian-listed issuers fell short of the applicable disclosure requirements. Issuers with known and contingent environmental liabilities are reminded that the environmental disclosure contained in their annual filings may come under increased scrutiny in light of the OSC’s focus on this area.

Please click here for a more detailed discussion of the OSC Staff Notice 51-716 Environmental Reporting.