On July 19, 2012, the Canadian Securities Administrators (the “CSA”) published Staff Notice 51-337, which reports on the results of the CSA’s review of continuous disclosure filings for the fiscal year ended March 31, 2012.

Much of the CSA’s review focused on the transition from Canadian GAAP to IFRS.  However, the Staff Notice also provides guidance on a number of other disclosure requirements.

Deficiencies Identified

The Staff Notice identifies several areas of common deficiencies, including those outlined below.

  • Financial Statements– The CSA notes deficient disclosure, and provides sample disclosure, in the following areas, each of which has been impacted by the changeover from Canadian GAAP to IFRS:
    • the classification of a liability as current;
    • disclosure relating to business combinations; and
    • disclosure relating to flow-through shares.
  • MD&A– The CSA identifies three principal areas in which MD&A disclosure continues to be deficient:
    • discussion of operations (which requires issuers to analyze operations during the most recently completed financial year, including a comparison
    • against the previously completed financial year);
    • disclosure relating to liquidity (which must include an identification and discussion of any known or expected fluctuations and trends in liquidity); and
    • general MD&A disclosure (the objective of which is to complement and supplement financial statement disclosure so that investors may assess the current financial condition of the issuer and its future prospects).

The CSA provides guidance on how issuers might more adequately comply with their disclosure requirements in each of these areas.  

  • Statement of Executive Compensation – The CSA notes that the grant date fair value of share-based and option-based awards must be reported in the summary compensation table in the year of grant (irrespective of whether any or all of the award relates to multiple financial years or payout is subject to performance goals and similar conditions), and that issuers must disclose key assumptions and estimates used to calculate the fair value of the grant.  The CSA also provides sample disclosure relating to NEO (named executive officer) compensation discussion and analysis.
  • Corporate Governance Practices – The CSA provides sample disclosure relating to the process by which an issuer’s board identifies new candidates for board nomination.
  • Oil and Gas Technical Disclosure – The CSA notes various areas in which it expects to see future improvements relating to disclosure under National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities, such as disclosure relating to resources other than reserves, and disclosure of significant factors and uncertainties that affect reserves data or that affect the anticipated development or production activities on properties with no attributed reserves.  The CSA also cautions that issuers must:
    • include all required signatures on Form 51-101F3 – Report of Management and Directors on Oil and Gas Disclosure;
    • provide appropriate cautionary language concerning the 6:1 boe conversion ratio of natural gas to oil so as to clearly discern between the energy equivalency and the market price equivalency; and
    • be consistent and accurate in the use of units of measurement and disclosure of reserves within and between disclosure documents. On August 2, 2012, the Alberta Securities Commission released its 2011 Oil and Gas Review Report, which provides additional disclosure guidance to issuers with oil and gas activities.  
  • Disclosure for Mineral Projects – The CSA highlights several types of deficiencies relating to disclosure under National Instrument 43-101 – Standards of Disclosure for Mineral Projects, which was amended effective June 30, 2011.  The deficiencies include non-compliant certificates and consents of qualified persons for technical reports, and the omission of the name of the qualified person in documents containing scientific and technical information.  The CSA also notes that issuers had provided incomplete or inadequate disclosure of:
    • preliminary economic assessments, mineral resources and mineral reserves; and
    • historical estimates and exploration targets.  

Areas of Focus for Fiscal 2013

During fiscal 2013, the CSA advises that its focus will be on the first annual IFRS report.  Some of the topics that may receive greater attention by the CSA’s continuous disclosure review program include disclosure relating to asset impairments, business combinations, and judgments and sources of estimation uncertainty.