Canada: Securities And Capital Markets Bulletin - January 2012

Last Updated: January 19 2012
Article by David Surat, Dolores Di Felice and Paul G. Findlay

Most Read Contributor in Canada, November 2017


Each year we are asked what has changed to the continuous disclosure requirements for Canadian public companies. The purpose of this Bulletin is to answer that question. We should, however, caution those officers of reporting issuers responsible for continuous disclosure matters that they should not just update last year's continuous disclosure documents. You should always refer to the source of the obligations to ensure that you are complying with all of the requirements. For example, changes to the circumstances of a reporting issuer could give rise to the obligation to respond to an item of required disclosure that was inapplicable last year.

We expect that the transition to International Financial Reporting Standards will continue to be the primary focus for the Canadian securities regulators' continuous disclosure review program for the coming year. In addition, changes to the executive compensation disclosure requirements are now in force.

The Canadian Securities Administrators (the CSA) have provided guidance regarding the results of their continuous disclosure reviews in CSA Staff Notice 51-334 Continuous Disclosure Review Program Activities for the fiscal year ended March 31, 2011 (the CSA Notice). Similarly, the Alberta Securities Commission has published its annual Corporate Finance Disclosure Report and the Authorité des Marché Financiers has published an Activity Report for the Continuous Disclosure Review Program (the ASC Report and AMF Report respectively and, together with the CSA Notice, the Reports), which provide further guidance. Although this guidance does not change the continuous disclosure requirements, it does elaborate on the expectations of the regulators and/or the interpretation of the requirements.

Guidance and common deficiencies from the Reports are identified using the following symbols:

CSA Notice ♦

ASC Report ♠

AMF Report ♣


Executive Compensation Amendments

Form 51-102F6 Statement of Executive Compensation (the Compensation Form) has been amended in respect of financial years ended on or after October 31, 2011. The Compensation Form sets out the requirements for disclosure in an issuer's management information circular (or annual information form for issuers that do not send information circulars) relating to executive compensation. The bulk of the changes are to the Compensation Discussion and Analysis (CD&A), Summary Compensation Table and Pension Plan Benefits sections of the Compensation Form. An overview of the changes which will require your attention is set out below.

Compensation Discussion and Analysis

  • The Compensation Form provides for an exemption from the requirement to disclose specific performance goals or similar conditions in the CD&A if that disclosure would seriously prejudice the interests of the company. Companies relying on this exemption are now required to explicitly state that they are relying on the exemption and explain why disclosing the relevant performance goals or similar conditions would seriously prejudice the company's interests.
  • Consistent with rules adopted by the U.S. Securities and Exchange Commission, companies are now required to disclose whether the board of directors, or a committee of the board, considered the implications of the risks associated with the company's compensation policies and practices. If the company has completed a risk analysis, the company is required to disclose:
  • the nature and extent of the board's role in the risk oversight of compensation policies and practices;
  • any practices used to identify and mitigate compensation policies and practices that could potentially encourage a named executive officer or individual at a principal business unit or division to take inappropriate or excessive risks; and
  • the identified risks arising from the policies and practices that are reasonably likely to have a material adverse effect on the company.
  • The commentary to the Compensation Form lists examples of situations that could potentially encourage the taking of inappropriate or excessive risks, including:
  • policies at a unit or subsidiary of the company or for certain executive officers that are structured significantly differently from others within the company;
  • policies that do not include effective risk management and regulatory compliance as part of the performance metrics;
  • policies where the compensation expense to executive officers is a significant percentage of the company's revenue;
  • policies that vary significantly from the overall compensation structure of the company;
  • policies where incentive plan awards are awarded on the accomplishment of a task, while the risk to the company from that task extends over a significantly longer period of time;
  • policies that contain performance goals or similar conditions that are heavily weighted to short-term rather than long-term objectives; and
  • incentive plan awards that do not provide a maximum benefit or payout limit to executive officers.
  • Companies are required to disclose whether any named executive officer or director is permitted to purchase financial instruments that are designed to hedge or offset a decrease in the market value of equity securities granted as compensation or held, directly or indirectly, by the named executive officer or director.
  • The requirements to disclose information about compensation advisors retained by a company, including a description of the advisor's mandate and other work performed for the company, have been expanded to include a requirement to disclose a breakdown of all fees paid to compensation advisors for each service provided. The disclosure requirements relating to compensation governance in National Instrument 58-101 Corporate Governance Disclosure are now included in new section 2.4 of the Compensation Form, requiring disclosure in the CD&A of the process by which the board determines compensation for the company's directors and officers. Consequential amendments to Form 58-101F1 and 58-101F2 clarify that companies may satisfy the disclosure requirements regarding compensation practices by incorporating the CD&A disclosure by reference.
  • Additional disclosure requirements include disclosure of whether each member of the compensation committee is independent, and a description of the skills and experience of each member that enable the committee to make decisions on the suitability of the company's compensation policies and practices.
  • The commentary now lists disclosure of whether the company will be making any significant changes to its compensation policies and practices in the next financial year as an example of an item that may be a significant element of compensation disclosure.

Summary Compensation Table

  • The Compensation Form has been amended to clarify that the presentation of the Summary Compensation Table must not be altered by adding columns or other information. Companies may choose to add another table and other information, but the additional information must not detract from the Summary Compensation Table as prescribed.
  • Companies are required to disclose the methodology used to calculate grant date fair value of all equity-based awards, including key assumptions and estimates used for each calculation and must explain why the company chose that methodology, regardless of whether there are any differences with the accounting fair value.

Incentive Plan Awards

  • If a company has granted options in a different currency from that reported in the incentive plan awards table, the company must include a footnote describing the currency and the exercise or base price.
  • A new column has been added to the table for share-based awards requiring disclosure of the aggregate market value or payout value of vested share-based awards that have not yet been paid out or distributed.

Pension Plan Benefits

  • For purposes of calculating the annual lifetime benefit payable at the end of the most recently completed financial year for defined benefits plans, the company must now assume that the named executive officer is eligible to receive payments or benefits at year end. Companies may calculate the annual lifetime benefit payable in accordance with the formula included as commentary in the Compensation Form, or in accordance with another formula if the company reasonably believes that the other formula produces a more meaningful calculation of the annual lifetime benefit payable at year end.
  • The requirement to disclose in the defined contribution plans table non-compensatory amounts, including employee contributions and regular investment earnings on employer and employee contributions, for defined contribution plans has now been removed. Any company contribution made on behalf of the named executive officer to a personal savings plan such as an RRSP should be reported in the Summary Compensation Table, under the "all other compensation" column.


  • Where an external management company provides services to the company as well as another company, disclosure of the entire compensation the external management company paid to a named executive officer or a director for services provided to the company, the parent or a subsidiary of the company must be disclosed.
  • Disclosure under the Compensation Form must now be presented in plain language to provide a reasonable person an understanding of how decisions about compensation for named executive officers and directors are made, and how specific named executive officer and director compensation relates to the overall stewardship and governance of the company.

Common Executive Compensation Disclosure Deficiencies

The AMF Report noted that there continue to be common deficiencies in the required disclosure, including:

  • boilerplate analysis;
  • not disclosing performance goals;
  • not clearly disclosing discretionary annual bonuses;
  • not using grant date fair value for options in the summary compensation table;
  • not providing complete disclosure of assumptions used to calculate fair value;
  • omitting share-based or option-based compensation for directors; and
  • not disclosing other compensation that is not specifically required under the form.


Transition to IFRS

The Alberta Report outlines staff's expectations for the first annual IFRS filings.

Equal Prominence of all Financial Statements

IFRS 1 requires the presentation of an opening statement of financial position as part of the financial statements. This statement must be presented as a primary financial statement and not as part of the notes to the annual financial statements.

Accounting Policy Disclosure

Several issuers included boilerplate accounting policy disclosure in connection with their first interim IFRS statements. Complete, clear and entity-specific accounting policy disclosure is expected for the annual statements.


IFRS 1 requires reconciliations for the transition to IFRS. Staff expect these reconciliations to use the figures reported under Canadian GAAP as the starting point and to distinguish the correction of any errors from changes in accounting policies. Quantitative and qualitative disclosure is expected in the explanatory notes. The impact of each adjustment should be shown separately, not just on an aggregate basis.

Disclosure of Judgments and Estimation Uncertainty

IAS 1 requires the disclosure of judgments made in applying the issuer's accounting policies, such as the determination of control or significant influence. This requirement is in addition to the disclosure regarding assumptions made about the future and other sources of estimation uncertainty.

Common Financial Statement Deficiencies

The Reports identify several areas of common deficiencies in the financial statements, including the following:


  • Issuers generally comply with the measurement requirements but frequently do not provide all of the required disclosure. For example, if a write-down of inventories is reversed, the circumstances or events that led to the reversal must be disclosed.♦♣
  • The amount of inventories or a write-down of inventories, recognized as an expense must be disclosed.♣

Related Party Transactions

Issuers tend to be too generic in their disclosure of related party transactions. Details such as the specific nature of the transaction and the relationship with the related party are required. In addition, staff note that issuers may be required to revisit their related party disclosure under IFRS since the definition of related party is broader under IFRS than under old Canadian GAAP and disclosure regarding executive compensation arrangements is required.♦

Decommissioning and Restoration Provision

  • Issuers conducting activities that would give rise to decommissioning and restoration liabilities are generally required to recognise a provision under IAS 37.♠
  • In the rare circumstances where such a provision is not required, staff expect the issuer to disclose the liability as a contingent liability.♠
  • ASC staff also noted insufficient disclosure regarding the estimates and assumptions used in measuring these provisions.♠


  • Issuers are expected to clearly disclose events and circumstances that led to the recognition of impairment losses.♠

Financial Instruments

  • Obligations to issue shares for a price that is not fixed in the issuer's functional currency is generally classified as a derivative liability and measured at fair value, with changes recognised in the statement of net income and comprehensive income in accordance with IAS 39.♠
  • Issuers commonly provide incomplete disclosure of the categories of their financial instruments. The methods and assumptions used to determine the fair value of each category of financial asset or financial liability should be disclosed.♠♣
  • Risk disclosure should be complete and sufficiently entity-specific to enable the evaluation of the nature and extent of the risks arising from financial instruments.♠
  • A sensitivity analysis for each type of market risk related to financial instruments, including the methods and assumptions, should be disclosed.♠♣

Asset vs. Business Acquisitions

  • IFRS 3 may capture a wider range of transactions in the scope of business combination than was the case under Canadian GAAP. Inappropriately accounting or a business combination as an asset acquisition may impact the measurement of the acquisition.♠

Functional Currency

  • Each entity within a group is required to determine its functional currency in accordance with IAS 21.♠
  • Disclosure required by IAS 21 must be provided, including the reason for using a different presentation currency and the judgments made to determine the most reasonable functional currency.♠

Additional / Non-GAAP Measures

  • Issuers should not include non-GAAP measures in their financial statements.♠
  • It is not appropriate to include untitled subtotals in the financial statements and refer to such subtotals, with a name, in the MD&A.♠

Stock Based Compensation and Other Stock Based Payments

  • Complete descriptions of plans and vesting requirements should be disclosed.♣
  • The number and weighted average exercise prices of options should be disclosed.♣
  • The weighted average grant-date fair value of options granted should be disclosed.♣

Segment Disclosures

  • Information regarding geographic areas should be provided.♣
  • Information about major customers should be provided and not aggregated.♣

Revenue Recognition

  • A complete description of the revenue recognition policy should be provided.♣
  • The method for attributing revenue from each product or service should be disclosed.♣


Form of Certificate

The form of certificates required for an issuer's filings under IFRS are different from those filed under old Canadian GAAP. Issuers should ensure that the appropriate form of certificate is used.

Common Certification Deficiencies

  • Issuers must not amend the wording of the form of certificates under NI 52-109.♦♣
  • Issuers must include the correct dates of the financial periods covered by certificates.♣


There are no changes of substance to the MD&A form from last year; however, the form has been updated to use IFRS terminology.

Common MD&A Deficiencies

The Reports provide guidance on the following common MD&A deficiencies:

Changes in Accounting Policies

  • Complete disclosure about milestones and timelines associated with the key elements of the transition to IFRS should be disclosed for those issuers that have not completed the transition.♣
  • Significant differences between Canadian GAAP and IFRS must be disclosed.♣

Discussion of Operations

  • Complete analysis of operations, with a balanced comparison to the prior financial year that quantifies all material variances, is expected.♦♣
  • Discussion of immaterial information should be avoided.♦
  • Meaningful analysis of gross profit should be disclosed.♣
  • Analysis of significant projects that have not yet generated revenue should be provided.♣

Fourth Quarter and Quarterly Discussion

  • Issuers must discuss and analyse items that had a material impact on the fourth quarter as well as the year as a whole.♦
  • If a separate MD&A is provided for the fourth quarter, it must be properly referred to in the annual MD&A.♦


  • Any known or expected fluctuations and trends in liquidity should be discussed with a complete analysis.♦♣
  • The discussion of liquidity fluctuations is particularly important for issuers with negative cash flows or that have breached their debt covenants.♦

Related Party Transactions

  • The business purpose of the transaction and the identity of the related parties must be disclosed.♣

Non-GAAP Financial Measures

  • An explanation of why the non-GAAP financial measure is meaningful to investors and any additional purpose for which management uses the non-GAAP financial measure should be provided.♦
  • Additional GAAP measures must be both relevant and appropriate. Exclusions and adjustments for specific items that affect comparability of such measures should be considered in assessing relevance and appropriateness.♠
  • Disclosure expectations regarding non-GAAP measures outside the financial statements have not changed as a result of the broader range of GAAP measures available under IFRS.♠
  • Non-GAAP financial measures, such as "free cash flow", must be identified as such and presented with the most directly comparable GAAP measure.♣
  • A clear quantitative reconciliation to the most directly comparable GAAP measure must be presented.♦

Forward Looking Information

  • Boilerplate disclosure should be avoided.♦♠
  • The risk factors and material factors and assumptions used to develop forward looking information must be disclosed.♦♠
  • Forward looking information must be based on the GAAP the issuer expects to use for the period covered by the information.♦

Venture Issuer Disclosure

  • Venture issuers without significant revenue must provide a breakdown of material components of capitalized or expensed expenditures.♦♠
  • For mining issuers, the analysis must be presented on a property-by-property basis.♦♠

Environmental Disclosures

  • Issuers should disclose environmental risks in a meaningful way and avoid boilerplate disclosures.♠
  • Issuers should integrate the role of committees related to environmental matters with the financial reporting function.♠
  • Venture issuers that do not file an AIF must disclose environmental risks in their MD&A.♠

Certification Disclosure

  • Issuers must fully disclose, the certifying officers' conclusions about the effectiveness of internal control over financial reporting (ICFR) or disclosure controls and procedures (DC&P) in their MD&A without qualifications.♦♣
  • Venture issuers that filed basic certificates who voluntarily discussed ICFR or DC&P in their MD&A, must include the cautionary language discussed in section 15.3 of Companion Policy NI 52-109CP.♦♣


There are no changes of substance to the Annual Information Form from last year; however, the form has been updated to use IFRS terminology.

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