The CSA is setting out a revised proposal that would set disclosure requirements for certain non-GAAP financial measures, non-GAAP ratios and other financial measures (as defined) and would apply to fewer documents and issuers than originally proposed in an earlier version of this proposed NI in 2018. The disclosure requirements have also been simplified in response to feedback and regulatory burden reduction considerations and to better align disclosure requirements with those of the SEC. The proposals are intended to deal with financial measures that may lack standardized meanings and lack transparency, or that lack context when reviewed outside of the financial statements.
The proposals codify current guidance which currently applies to all issuers that disclose non-GAAP financial measures, but would exempt investment funds, SEC foreign issuers and designated foreign issuers. In addition, incorporation by reference to an issuer’s MD&A of certain information would be permitted. The scope of the term “non-GAAP ratio” has also been reduced to only include ratios where a non-GAAP financial measure is used. Disclosure requirements for forward-looking non-GAAP financial measures has been reduced, particularly with respect to the reconciliation requirements.
Specific documents would not be included within the scope of the rules, such as pro forma financial statements and valuation reports, or financial measures disclosed as required by law or an SRO. The rules would only apply to non-reporting issuers in certain contexts, such as those using the offering memorandum prospectus exemption.
Overview of the Council’s Comments:
The CAC agrees with the analysis that non-GAAP financial measures lack standardized meaning, context when disclosed outside of financial statements, and transparency as to their calculation.
We support the CSA in the developments on the IASB’s Primary Financial Statements Project. We would suggest that the adoption of the Proposed Instrument should be a milestone in an ongoing CSA policy project to improve issuer disclosures across the range of financial and non-financial metrics that form a substantive portion of issuer disclosure, with the goal of pursuing quality, clarity, consistency, and ultimately usability, by investors. For example, a second-stage review of the requirements could include reviewing sector specific financial reporting requirements, including for oil and gas issuers and mining companies.
We also understand that the scope of application of the Proposed Instrument has been substantially narrowed. We agree with the decision to exclude certain investment funds, designated foreign issuers and SEC foreign issuers from the requirements of the Proposed Instrument. While we support the Proposed Instrument as a whole, we do note that many of the changes that have occurred since it was originally published involve deletions, and not additional investor protection safeguards.
Our opinion is that non-GAAP financial measures must be presented with no more prominence than the most comparable financial measure presented in the issuer’s primary financial statements to which the non-GAAP financial measure relates. We believe this disclosure requirement is a key feature of the Proposed Instrument.
We are concerned about the lack of guidance provided with respect to the use of oral statements (or transcripts thereof) in the proposed Companion Policy. However, we are supportive of the requirement to consider website and social media platforms as documents subject to the requirements of the Proposed Instrument.