CSA NI 52-112 Non-GAAP and other financial measures

December 5, 2018

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CSA NI 52-112 Non-GAAP and other financial measures

Letter Summary:

The proposal and its Companion Policy sets out requirements for the use of Non-GAAP financial measures (such as “adjusted EBITDA”) and other financial measures (such as the newly defined terms of segment measures. While the rules would not contain specific limitations or industry-specific requirements, they will establish disclosure requirements that must be met in order to use Non-GAAP and other financial measures and help investors appreciate the context of such measures. The proposed rules replace (and are substantially aligned with) existing CSA guidance on the use of such measures, which may lack standardized meaning, context, transparency or vary significantly by issuer. Disclosure rules would include certain labelling and prominence requirements, as well as certain reconciliation requirements. 

Overview of the Council’s Comments:

The CAC expressed strong support for the proposed NI 52-112 and related amendments. In the council’s view, the proposal creates a set of enforceable standards that will further meaningful disclosures to investors without unduly limiting the ability of an issuer to tell their own story using what it deems to be the appropriate financial measure. The CAC believes the use of APMs reflect the investors’ demand for such measures. However, while most APMs are useful measures, they may lack many of the secondary characteristics of a high-quality performance measure such as consistency, comparability and verifiability. Therefore, the proposed rule will help address such deficiencies by requiring APMs to be more clearly identified, labeled, and reconciled back to GAAP measure. 

We also noted that Canadian companies compete in and raise capital in a global market and Canada’s regulations should therefore position our issuers to succeed on the global stage. A harmonization of standards across Canada and with international standards is ideal. More importantly, the Council believes investors will benefit from a more transparent, consistent and comparable reporting regime that includes industry specific APM disclosures. However, we cautioned against overly being prescriptive in this approach because excessive disclosure risks overwhelming investors with unnecessary information. In fact, excessive disclosure relating to APMs measures may actually dis-incentivize issuers from communicating fully with their investors and place less emphasis on written materials that are broadly available to investors. Lastly the CAC stated that formalizing the already existing Staff Notices into a National Instrument should not be overly burdensome to Canadian issuers. Therefore, this process should help regulators establish the necessary enforcement and compliance tools.