Each year we are asked what has changed to the continuous disclosure requirements for Canadian public companies. The purpose of this Bulletin is to answer that question. We should, however, warn those officers of reporting issuers responsible for continuous disclosure matters that they should not just update last year’s continuous disclosure documents. You should always refer to the source of the obligations to ensure that you are complying with all of the requirements. For example, changes to the circumstances of a reporting issuer could give rise to the obligation to respond to an item of required disclosure that was inapplicable last year.

The major change that will affect continuous disclosure obligations for Canadian reporting issuers this year is the changeover to International Financial Reporting Standards (IFRS) for financial years commencing on or after January 1, 2011. This change has several indirect effects, such as on the CEO and CFO certificates and disclosure in MD&A.

The Canadian Securities Administrators (the CSA) has in the past year reported on its reviews of certain continuous disclosure obligations. Although these reports do not change the continuous disclosure requirements, they do elaborate on the expectations of the regulators and/or the interpretation of the requirements. Reporting issuers would be prudent to review these reports prior to preparing the relevant continuous disclosure documents.

Issuers in the oil and gas industries should also note that amendments to National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities came into effect on December 30, 2010.


The most significant change to the continuous disclosure obligations for 2011 is the changeover from Canadian GAAP to IFRS for financial years commencing on or after January 1, 2011 (although this changeover has been deferred one year for investment funds and certain rate-regulated entities). The CSA has amended the financial statement requirements and made consequential amendments to other rules in order to reflect the transition to IFRS.

Deadline for First IFRS Interim Financial Report

A 30-day extension to the filing deadline for the first IFRS interim financial report has been provided in recognition that the preparation of the first IFRS statements may take longer than normal. Accordingly a non-venture issuer with a December 31 fiscal year-end will have until June 14, 2011 to file its first IFRS interim report and a venture issuer will have until June 29, 2011.

Amendments to the Financial Statement Requirements

The CICA Handbook has been amended to incorporate IFRS as “Canadian GAAP for publicly accountable enterprises”. The financial statement requirements in National Instrument 51-102 Continuous Disclosure Obligations and National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards have been amended to accommodate the transition to IFRS, with specific requirements applicable to financial years beginning on or after January 1, 2011.

Under the amended requirements:

  • an issuer is required to provide an opening IFRS statement of financial position in its first IFRS interim financial report and first IFRS financial statements;  
  • in certain instances, where an issuer applies an accounting policy retrospectively, makes a retrospective restatement of items in its financial statements or reclassifies items in its financial statements, it must provide a statement of financial position as at the beginning of the earliest comparative period;  
  • interim financial statements require only a statement of cash flows for the year to date period and the corresponding comparative period (cash flow statements for the three month period ending on the last day of the interim period and the corresponding comparative interim period are no longer required);  
  • additional disclosure is required for the statement of comprehensive income based on the presentation options available under IFRS;  
  • the GAAP requirements for financial statements used to apply the significance tests and the adjustments required for pro forma financial statements for significant acquisitions have been modified;  
  • an SEC issuer that previously used Canadian GAAP and changed to US GAAP is no longer required to reconcile its financial statements to Canadian GAAP for two years.  

Ontario Securities Commission Issuer Guide Top 10 Tips for Public Companies Filing their First IFRS Interim Financial Report, available here, provides guidance on the application of the new financial requirements to the first interim report.  

Non-GAAP Financial Measures

On November 9, 2010 the CSA published revised CSA Staff Notice 52-306 Non-GAAP Financial Measures and Additional GAAP Measures, available here, which has been amended to address the disclosure of financial measures in an IFRS environment. This notice clarifies that additional disclosure required to comply with IFRS and alternative disclosure permitted under IFRS will not be regarded as non-GAAP financial measures. The types of disclosure that are now permitted include:

  • additional line items, headings and subtotals when such presentation is relevant to an understanding of an entity’s financial position and performance;  
  • note disclosure that is not presented elsewhere in the financial statements, but is relevant to an understanding of an y of them; and  
  • alternative financial measures, such as alternative earnings per share, if certain conditions are met.  

Common Financial Statement Deficiencies

The CSA has identified several areas of common deficiencies based on the results of their continuous disclosure reviews. CSA Staff Notice 51-332 Continuous Disclosure Review Program Activities for the fiscal year ended March 31, 2010 (the CD Review Notice), available here, indicates the following as common financial statement deficiencies:

  • Financial instruments – Incorrect measurement and failure to disclose:  
    • methods and assumptions for fair value determinations,  
    • credit and liquidity risks,  
    • aging analysis of past due accounts receivable, and  
    • sensitivity analysis related to market risk.  
  • Revenue recognition – Policy disclosure should be clear and concise regarding triggers for recognition and the basis for revenue for each product or service, including credit terms, rights of return or conditions.
  • Goodwill – Inadequate disclosure of the methodology and assumptions for impairment testing.  
  • Capital disclosure – Insufficient to enable investors to evaluate the objectives, policies and processes for managing capital and failure to provide summary quantitative data regarding what is managed as capital.  

Going Concern Disclosure

Staff of the Ontario Securities Commission recently conducted a review of the disclosure of 105 issuers regarding the going concern assumption. The results of this review are summarized in OSC Staff Notice 52-719 Going Concern Disclosure Review (the Going Concern Notice), available here. An issuer’s financial statements must include disclosure of the material uncertainties related to events or conditions indentified by management’s assessment that may cast significant doubt on an issuer’s ability to continue as a going concern.

OSC staff reviewed the disclosure of issuers with indications of financial difficulty that had no going concern disclosure. They were generally satisfied with management’s assessment that there was no going concern risk that required disclosure. Unusual or one-time charges, forecasts and improvements in operations or changes in circumstances were generally cited to justify the conclusion that there were no material uncertainties creating a going concern risk.

Issuers that did include going concern disclosure generally disclosed material uncertainties, but often failed to explicitly differentiate in the notes to their financial statements the material uncertainties that may cast significant doubt upon the issuer’s ability to continue as a going concern from those that did not.

Environmental Liabilities

CSA Staff Notice 51-333 Environmental Reporting Guidance (the Environmental Notice), available here, provides guidance regarding disclosure of environmental liabilities and some key differences between Canadian GAAP and IFRS that may impact the financial reporting of environmental-related liabilities.


Transition to IFRS

Certifying officers for issuers with a calendar year-end will be required to certify the first IFRS interim financial report and related MD&A for the period ending March 31, 2011. The forms for certification have been changed to reflect IFRS terminology, so officers cannot simply use last year’s forms. No substantive changes have been made to the certification requirements. However, the transition to IFRS from Canadian GAAP may have a material impact on an issuer’s internal controls over financial reporting (ICFR) and disclosure controls and procedures (DC&P). Accordingly, these changes may impact the certification process.

Common Certification Deficiencies

CSA Staff Notice 52-327 Certification Compliance Update (the Certification Notice), available here, summarizes the results of the CSA’s follow-up review of compliance with National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings. While CSA staff found moderate levels of improvement in compliance, they suggest that further focus on certification by issuers is warranted. The Certification Notice includes examples of disclosure and identifies common areas of non-compliance, including the following:  

  • Form of certificates – CSA staff noted that some issuers modified the form of the prescribed certificates. Issuers are required to include the exact wording of the certificates without modifying the content or sequence of the paragraphs. Paragraphs that are not applicable should be noted as such rather than omitted.  
  • Dates of certificates – Certificates must be dated the date that they are filed. If an AIF is filed after financial statements and MD&A, the certificates must be filed concurrently with the AIF. The reference date for disclosure of changes in ICFR in paragraph 7 of the annual certificate must refer to the date immediately following the end of the period covered by the issuer’s most recent interim filing.


Transition to IFRS

MD&A will be significantly affected by the change to IFRS, since it requires a discussion of financial reporting and accounting judgments. However, the changes to the MD&A form are primarily limited to updating the terminology to reflect the terms used under IFRS.

The CSA has indicated in CSA Staff Notice 52-320 Disclosure of Expected Changes in Accounting Policies Relating to Change over to International Financial Reporting Standards, available here, that the annual 2010 MD&A for issuers transitioning to IFRS should clearly communicate the potential impact of the transition. Detailed disclosure of the changeover plan and information about key decisions on policy choices under IFRS is expected.

Disclosure of expected changes in accounting policies should include a discussion of the expected effect on the issuer’s financial statements, including quantitative impacts.

Post-IFRS Transition MD&A Disclosure

The MD&A filed in the first interim period after the transition to IFRS should include a detailed discussion of the transition from management’s point of view, including:

  • the impact of significant accounting policy choices and the selection of IFRS elections and exemptions used by the issuer;  
  • changes that result from IFRS requirements that differ from Canadian GAAP; and  
  • whether reported changes in financial performance relate to the adoption of different accounting standards or relate to a change in the issuer’s business.  

Form 51-102F1 Management’s Discussion & Analysis requires the presentation of information that predates the IFRS transition year, such as the requirement to include financial information for the eight most recently completed quarters. Accordingly, information will have to be presented in mixed GAAPs in some situations. Issuers should clearly identify the basis of presentation of all information to avoid investor confusion and focus the discussion of mixed GAAP information on the important trends and risks that have affected the business during these periods, rather than the change in accounting policies.

ICFR and DC&P Disclosure

National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings requires MD&A disclosure regarding DC&P and ICFR. The Certification Notice identifies the following common deficiencies regarding these requirements:

  • Transition to IFRS – The transition to IFRS may have a material impact on an issuer’s ICFR and DC&P due to changes in accounting policies and financial disclosure reporting requirements. Any changes that are likely to materially affect ICFR must be disclosed in the period in which the change first impacts the reliability of financial reporting and the preparation of the issuer’s financial statements.  
  • Conclusions on the effectiveness of ICFR and DC&P – Non-venture issuers are required to include in annual MD&A the certifying officers’ conclusions regarding the effectiveness of the issuer’s ICFR and DC&P.  
    • The conclusions should not be qualified and must extend to all ICFR and DC&P, without limitation.  
    • If an issuer has a material weakness in ICFR or a weakness that is significant in DC&P, the certifying officer cannot conclude that the issuer’s ICFR and DC&P are effective.  
  • Disclosure regarding material weaknesses.  
    • If financial statements have been refiled, issuers should consider if the misstatement in the financial statements was due to a material weakness in ICFR and reflect this in the MD&A disclosure, including conclusions regarding effective-ness and material changes to ICFR.  
    • Material weaknesses must continue to be disclosed in MD&A until they are remediated.  
    • Changes made to ICFR to remedy a material weakness must be disclosed in MD&A.  
  • Voluntary disclosure about ICFR and DC&P by venture issuers – If a venture issuer elects to discuss ICFR and DC&P in its MD&A, but files a basic certificate, it should include cautionary language to avoid conflicting with the “Note to Reader” included in Form 52-109FV1 and Form 52-109FV2. Venture issuers that choose to comply with the requirements applicable to non-venture issuers may consider filing full certificates on a voluntary basis.

Common MD&A Deficiencies Identified by CSA

The CD Review Notice identifies several areas of common weakness in MD&A disclosure:

  • Operations – Lack of meaningful analysis of operating results, financial condition and liquidity and failure to provide quantitative and qualitative explanations of material movements in the income statement to assist investors to determine whether past performance is indica tive of future performance.  
  • Working capital deficiency – Failure to discuss the ability to meet obligations as they become due and plans to remedy the deficienc y.  
  • Risks – Failure to disclose material risks and uncertainties including the effects of current economic conditions.  
  • Related party transactions – Failure to disclose quantitative and qualitative aspects to allow investors to understand the economic substance and business purpose of the transaction.  
  • Critical accounting estimates – Failure to discuss the methodology and assumptions to allow investors to evaluate the significance of the estimates.  

In addition, in the Going Concern Notice, OSC staff found the following common areas of weakness in MD&A disclosure for issuers that identified a going concern risk:  

  • risks and uncertainties resulting from the doubt that the issuer would be able to continue as a going concern;  
  • impact of the going concern risk on the issuer’s financial condition;  
  • impact of the going concern risk on the issuer’s liquidity requirements, including mitigating factors and plans.  

Environmental Disclosure

The Environmental Notice provides guidance to issuers regarding disclosure of environmental matters that are material to an issuer. In relation to MD&A, the CSA suggest that issuers consider whether environmental matters should be disclosed as (i) material information that may not be fully reflected in the financial statements, such as contingent liabilities or other contractual obligations, and (ii) important trends and risks that have affected the financial statements, and trends and risks that are reasonably likely to affect them in the future. The Environmental Notice provides examples of questions that reporting issuers should consider and liabilities that should be disclosed.


Corporate Governance Disclosure

National Instrument 58-101 Disclosure of Corporate Governance Practices mandates disclosure regarding corporate governance practices in an issuer’s information circular if it solicits proxies for the purposes of electing directors. For issuers that do not solicit proxies, the disclosure must be included in their AIF or annual MD&A. The CSA surveyed the disclosure by 72 reporting issuers and published the results of this review in CSA Staff Notice 58-306 2010 Corporate Governance Disclosure Compliance Review (the Corporate Governance Notice), available here.

CSA staff concluded that the level of compliance was unacceptable, with 55% of the issuers reviewed required to make prospective improvements to their disclosure, and indicated that corporate governance disclosure will continue to be a focus of the continuous disclosure review program for the coming year.

The Corporate Governance Notice provides numerous examples of disclosure and questions that could be considered by an issuer in formulating its disclosure. The level of detail provided in the notice suggests that CSA staff are interpreting the disclosure requirements of National Instrument 58-101 Disclosure of Corporate Governance Practices in an expansive manner.

The CSA identified the following areas of frequent disclosure deficiencies:

The Board of Directors

  • Identity of non-independent directors and basis for determination – The majority of issuers disclosed the directors that were not considered independent but failed to explain the basis for the determination. Vague and general statements that the board the considered factual circumstances in making its determination are insufficient.  
  • Meetings of independent directors – Some issuers disclosed that they held meetings of independent directors, but did not disclose the number of meetings or if meetings were held regularly. Issuers that indicated that meetings of the independent directors were not held generally failed to discuss how the board facilitates open and candid discussion among independent directors.  
  • Independent chair and independent lead director – An issuer should clearly disclose whether the chair or lead director is independent. Where this is not the case, the issuer should describe the specific steps that the board takes to provide leadership for independent directors. If the board does not take such steps it should disclose that fact and explain why.  

Position Descriptions for the Chair of the Board, each Committee and the CEO  

  • If written descriptions have not been prepared for these positions, the issuer is required to explain how the board delineates the roles and responsibilities for each position.  
  • The descriptions are not required to be disclosed; however, CSA staff suggest that making these descriptions available may be helpful.  
  • It is not sufficient to disclose that the issuer relies on a mutual understanding of the roles and responsibilities.  

Orientation and Continuing Education  

  • Orientation of new directors – The majority of issuers limited disclosure to whether formal orientation and training exists. Specific measures taken to orient new directors must be disclosed, whether or not the board has a formal process.  
  • Continuing education – Issuers are expected to provide meaningful disclosure on how they encourage directors to maintain the skill and knowledge necessary to meet their obligations. It is not sufficient to state that education will be available when needed.  

Ethical Business Conduct  

  • Code of conduct – The majority of issuers disclosed that they had adopted a code of conduct but did not describe how the board monitors compliance. CSA staff consider blanket statements that the board monitors compliance, without specific discussion of the procedures implemented, to be insufficient.  

Nomination of Directors  

  • Nomination process – Many issuers included statements that they had a process in place for identifying candidates for the board but failed to describe the process. CSA staff noted that this was an area of significant disclosure deficiencies. Issuers are expected to describe the actual process, whether or not it has been formalized.  

Assessments of Effectiveness  

  • Regular assessments conducted – Many of the issuers that indicated assessments of the board were conducted failed to describe the process or indicate how often they are conducted.  
  • Regular assessments not conducted – Issuers that indicated that they did not have a formal process in place failed to describe how the board satisfies itself that the board, its committees and its independent directors are performing effectively.  

Risk Management  

  • Increased scrutiny – In view of the increased scrutiny on risk management practices, the CSA expects that an issuer’s disclosure regarding board mandates and board committees should provide investors with insight into the:  
    • development and periodic review of the issuer’s risk profile;  
    • integration of risk oversight and management into the issuer’s strategic plan;  
    • identification of significant elements of risk management; and  
    • board’s assessment of the effectiveness of risk management policies and procedures.  

Environmental Matters

The Environmental Notice provides guidance regarding disclosure of oversight and management of environmental risks and how these matters may be reflected in board and committee mandates.

Executive Compensation Disclosure

Form 51-102F6 Statement of Executive Compensation has been amended to reflect the change to IFRS, but is unchanged in other respects. We expect that executive compensation disclosure will continue to receive close scrutiny this year, particularly with respect to the link between pay and performance.  

Additional changes to these requirements are under consideration. The CSA has published for comment proposed amendments to the executive compensation disclosure requirements, available here. OSC Staff have also requested comment on whether shareholders advisory votes on executive compensation and “golden parachute” payments (also know as Say-on-Pay) should be required under securities law in OSC Staff Notice 54-701 Regulatory Developments Regarding Shareholder Democracy Issues (the Shareholder Democracy Notice), available here. OSC staff note that such votes are currently required in the United Kingdom, Australia and some European countries and are expected to be required in the United States.  

Developments in Proxy Voting System

Although there are currently no proposed reforms, the Shareholder Democracy Notice indicates OSC staff are assessing whether securities laws should be amended to facilitate individual director voting and majority voting for director elections and to more effectively ensure that shareholders are able to make informed voting decisions and that their votes are counted at shareholders meetings.

In addition, the CSA is in the process of considering comments on proposed amendments to National Instrument 54-101 Communications with Beneficial Owners of Securities of a Reporting Issuer, which were published for comment in April, 2010.

The proposed amendments are intended to:

  • provide reporting issuers with the option of adopting a notice and access system for electronically communicating materials for annual meetings;  
  • simplify the beneficial owner proxy appointment process;  
  • enhance the disclosure in information circulars regarding the distribution of proxy ma terials to objecting beneficial owners; and  
  • adopt stricter rules regarding the use of non-objecting beneficial owners information by third parties.  

The proposed amendments and the comments received are available here.  


Form 51-102F2 Annual Information Form (the AIF Form) is generally unchanged from last year, other than to update the terminology in certain items to be consistent with IFRS.  

Environmental Disclosure

The Environmental Notice includes examples of questions that issuers should consider regarding environmental-related risks when complying with the requirement under item 5.2 of the AIF Form to disclose risks and uncertainties related to the issuer’s business.


Going Concern Disclosure

OSC staff noted in the Going Concern Notice that there is a need for improvement in both the timeliness and robustness of going concern disclosures. They also indicate that this area will continue to be an area of focus in continuous disclosure and prospectus reviews and that they will require refiling of documents where appropriate. The Going Concern Notice indicates that a number of the issuers that had recently ceased operating had failed to draw attention to their going concern risk in their disclosure leading up to ceasing operations. OSC staff remind issuers to consider whether the occurrence of a going concern risk constitutes a material change that should be disclosed on a timely basis.

Environmental Disclosure

The Environmental Notice indicates that there are increasing investor concerns regarding environmental matters and includes a general discussion regarding the potential for environmental matters to rise to the level of material information. The CSA suggest several considerations that should guide materiality determinations:  

  • No bright-line test – Issuers should take into account both quantitative and qualitative factors when making the materiality determination as there is no quantitative threshold to rely on when doing so. The materiality of information may vary on a case by case basis.  
  • Context – Some facts may be material on their own, but where this does not appear to be the case, issuers should consider materiality in light of all available information.  
  • Timing – Early disclosure of a matter may be important to a reasonable investor where the impact of the information might be expected to increase over time.  
  • Trends, demands, commitments, events and uncertainties – The materiality determination respecting a known environmental trend, demand, commitment, event or uncertainty requires an analysis of the:  
    • probability of occurrence of the trend, demand, commitment, event or uncertainty, and  
    • anticipated extent of its impact.  
  • Err on the side of materiality – When in doubt, issuers should consider information to be material and disclose it.