The Ontario Securities Commission issued OSC Staff Notice 51-721 – Forward-Looking Information Disclosure providing recommendations arising from a targeted review of forward-looking information (FLI) disclosure in public documents.
The review follows Canadian Securities Administrators Staff Notice 51-330 – Guidance Regarding the Application of Forward-looking Information Requirements under NI 51-102 Continuous Disclosure Obligations issued in 2009.
The OSC staff identified four areas for improvement of FLI disclosure:
- Clear identification of FLI
- Identifying the material factors and assumptions used in preparing FLI
- Updating previously disclosed FLI
- Comparing actual results to previously disclosed FLI.
What is FLI?
FLI is disclosure about possible events, conditions or financial performance that is based on assumptions about future economic conditions and courses of action. FLI provides investors with insight about a company's business and how that company intends to achieve its targets and objectives. FLI includes future-oriented financial information (FOFI) and financial outlook. Both FOFI and financial outlook are FLI regarding a company's future financial performance, financial position or cash flows; however, FOFI is presented as a historical financial statement.
FLI Requirements and Exceptions
FLI is subject to the requirements of National Instrument 51-102 – Continuous Disclosure Obligations (NI 51-102) whether disclosed in a news release, management's discussion and analysis, website, or other disclosure document.
FLI requirements relate to the initial disclosure of FLI and require companies to continuously update FLI, compare actual results to FLI and, where appropriate, withdraw previously disclosed FLI.While the FLI rules do not apply to FLI presented orally, transcribed oral statements are subject to the requirements under NI 51-102. In addition, section 138.3(2) of the Securities Act (Ontario) attaches liability for misrepresentations made in secondary market disclosure (including public oral statements made by a company) that contains FLI, unless the cautionary language of section 138.4(9) of the OSA is provided. Certain requirements of NI 51-102 do not apply to the disclosure of FLI that is subject to National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities or National Instrument 43-101 – Standards of Disclosure for Mineral Projects.
OSC Staff's Findings
The OSC staff's review of FLI of Ontario reporting issuers across industries identified the following deficiencies:
- 47% clearly identified FLI
- 31% provided detailed assumptions specific to FLI
- 36% updated previously disclosed FLI with updated quantified differences
- 33% provided comparisons of actual results to previously disclosed FLI.
The Notice makes clear that general boilerplate disclosure concerning FLI does not satisfy the FLI requirements. To help companies improve disclosure, the Notice provides examples of frequently identified non-compliant disclosure as well as suggestions to improve disclosure and examples of entity-specific compliant FLI.
The Notice provides the following practice points to assist issuers and their advisors in complying with FLI requirements:
- Assumptions should be reasonable and specific to a reporting issuer, providing both qualitative and quantitative assumptions
- Updating ongoing progress and comparing to previously disclosed FLI enables investors to assess corporate performance. Examples provided by OSC staff include affirmation of targets, disclosure of actual and expected material differences, and updates on trends reasonably likely to affect future performance.
- Including key performance indicators conveys to investors how well a company is progressing toward its objectives.
- Providing a standalone FLI section in disclosure documents allows investors to easily identify FLI and separates it from historical information.
- A company's board of directors and audit committee both play a key role in the oversight of FLI and should consider reviewing and approving all FLI disclosure, determining whether updates are required, questioning management on the assumptions being used to develop FLI, and approving the targets before they are disclosed publicly.