The Ontario Securities Commission recently released the results of a review of the forward-looking information disclosure of 60 reporting issuers. In its review, the OSC notes that forward-looking information (FLI) is a key area of interest for investors and should provide valuable insight about the issuer’s business and how it intends to attain its corporate objectives and targets. This can be enhanced by incorporating key performance indicators into FLI, thereby providing ongoing disclosure of how the issuer is progressing towards such targets and objectives.
While the requirements relating to the original disclosure and updating of FLI have been in place for many years, there were most recently consolidated and added to National Instrument 51-102 Continuous Disclosure Obligations in 2007. NI 51-102 sets out specific requirements relating to disclosure of FLI, including future-oriented financial information and financial outlooks. The instrument also includes requirements to identify FLI as such, as well as the material factors or assumptions used to develop it and the issuer’s policy for updating FLI if it includes procedures in addition to those described NI 51-102. The issuer must also caution readers that actual results may vary and identify the material risk factors that could cause actual results to differ materially from what was disclosed. These requirements apply irrespective of where the FLI is located or the nature of the document, including website disclosure, news releases and MD&A. Some of these requirements also comprise elements of the defence to misrepresentations in FLI under the secondary market civil liability provisions of the Securities Act (Ontario) and similar provisions of the securities legislation of other provinces.
This is the first time since the requirements were incorporated into NI 51-102 in 2007 that the OSC has undertaken a targeted compliance review. Ultimately, the review identified four areas for improvement, namely with respect to:
- A lack of clearly identified entity-specific FLI. According to the report, FLI that is generic and boilerplate does not allow readers to appreciate that a forward-looking statement is being provided.
- A lack of disclosure of the material factors or assumptions used to develop FLI. According to the report, assumptions should be reasonable, supportable, entity-specific and, where possible, quantified.A majority of issuers, however, were found not to have quantified their assumptions. Similarly, a lack of specific risks and uncertainties also does not provide insight into how they relate to and impact the FLI being disclosed.
- Issues with updating previously disclosed FLI. The report specifically noted that providing an update of previously disclosed FLI without data relating to the underlying factors and assumptions fails to provide insight as to the reason for the change.
- A lack of comparisons between actual results and the future oriented financial information or financial outlook previously disclosed. The report notes that reporting issuers are required to provide such comparisons where actual amounts differ materially from previously disclosed FOFI or financial outlook for the relevant period.
The OSC's report also contains examples of frequently used boilerplate it considers non-compliant, along with examples of improved disclosure. The OSC also notes the following practice points as a means to assist issuers in providing clear and transparent disclosure:
- Assumptions should be reasonable and specific to a reporting issuer, and material factors and assumptions should be provided where FLI is disclosed.
- Ongoing progress as compared to previously disclosed FLI should be disclosed. This includes affirmation of targets and material differences.
- Financial and non-financial key performance indicators should be disclosed.
- FLI should be disclosed in a separate section to allow investors to easily distinguish between FLI and historical information.
Further, given the importance of FLI to investors, the OSC will continue to assess FLI in its continuous disclosure and prospectus review programs. For more information, see OSC Staff Notice 51-721.