On 22 February 2010 the Technical Committee of the International Organization of Securities Commissions (IOSCO) published its final report on principles for periodic disclosure by listed entities. IOSCO recognises that the increasingly globalised securities markets necessitate the development of widely accepted international disclosure standards to facilitate cross-border capital raising. Disclosure of reliable and timely information, including the disclosure of periodic reports, enables current and prospective investors to make investment decisions, which in turn contributes to the liquidity and efficiency of the markets.
The Technical Committee has developed these principles to facilitate agreement on common high level principles that will assist jurisdictions developing or reviewing their periodic disclosure requirements for listed entities. The principles are primarily concerned with setting guidance for the periodic reports of companies listed or traded on a regulated market and they follow on from a consultation document IOSCO issued in July 2009.
The Technical Committee has identified the following principles as essential for any periodic disclosure regime:
- Annual reports - information provided in the annual report should be provided as at the latest practicable date except where the applicable law or regulation requires it to be provided as at a different date. Annual reports should also contain the following information:
(a) Audited financial statements - these should cover the entire prior financial year and the audit report must be given by an independent audit firm that is subject to oversight by a body that acts and is seen to act in the public interest. Audited consolidated financial statements should also be provided which should include at least a balance sheet, an income statement, a statement showing changes in equity, a cash flow statement and related notes and schedules required by the body of accounting standards pursuant to which the financial statements are prepared. Any significant change which has occurred since the date of the financial year covered by the annual report should also be highlighted.
(b) Management’s Discussion and Analysis (MD&A) - management should explain the factors that have affected the company’s financial condition and results for the period covered by the financial statements and disclose the causes of any material change. There should also be disclosure of significant factors that affected operating results, liquidity and capital resources, trend information and critical accounting estimates.
(c) Material related party transactions - disclosure of this information enables investors to identify the issuer’s key financial relationships and identify any potential conflicts of interest.
(d) Compensation disclosure - information about director and senior management compensation and risk management practices provides investors with key information about incentives offered by the issuer and whether they are aligned with investors’ interests and enables them to monitor the extent to which the issuer’s resources are used for this purpose.
(e) Corporate governance disclosure - issuers should disclose the extent to which they have complied with corporate governance practices. This can help to improve investor confidence. Information about the issuer’s directors and senior management, director independence, the audit committee, the compensation committee and code of ethics should be included.
(f) Disclosure related to market risk and sensitive instruments - this information will enable an investor to assess the level of risk involved in investing in the issuer.
(g) Security ownership in the issuer - disclosure of information concerning the ownership of certain significant shareholders in the voting securities of the issuer can help an investor to establish the risk of such a shareholder having the ability to exercise control over the issuer.
- Interim periodic reports - such reports should contain the following information:
(a) Information to enable investors to track the performance of the company over regular intervals and enable investors to assess the current financial status of the company.
(b) MD&A or management statement as appropriate.
(c) Other disclosures, such as related party transactions disclosure or other updates to the information provided in the most recent annual report.
- All periodic reports should include details of the persons responsible for the financial statements in those periodic reports, and should state that the financial information is fairly presented.
- All companies should have in place internal procedures for financial reporting which should be regularly assessed or reviewed by the issuer’s board of directors, audit committee or senior management.
- Each periodic report should be made available to the public on a timely basis. Factors such as the size of the issuer or relevant laws, regulations or listing rules may affect when such reports should be made available to the public. Periodic financial information should also be stored in such a way that investors can access the information and at the lowest possible cost to investors.
- The information disclosed in periodic reports should be fairly presented, not misleading or deceptive and not contain any material omission. It should also be presented in a clear and concise manner.
- Each periodic report should be filed with the relevant regulator.
- No report should be disclosed to certain investors or other interested parties before it is made available to the public as this will reduce the likelihood of insider trading or other abuse of the information. All investors should have access to the financial information at the same time. Such information should also be made available in each jurisdiction in which the company is listed or admitted to trading at the same time.