Last week, the Ontario Securities Commission
issued a report setting out the
findings of its review of the non-GAAP financial measures and
additional GAAP measures commonly disclosed by issuers in public
documents. The report, which found that issuers in almost all
industries use some type of non-GAAP or additional GAAP financial
measure considered common to their particular industry, also found
that there is often no standard method in calculating the industry
measure. Commonly used non-GAAP financial measures include EBITDA,
adjusted earnings and net debt; commonly used additional GAAP
measures include operating income and cash flow from operating
activities before changes in non-cash working capital.
In preparing the report, the OSC reviewed the disclosure of 50
Ontario-based reporting issuers and focused on where non-GAAP
financial measures or additional GAAP measures were reported and
how they were calculated, presented and disclosed.
In the report's summary of findings, the OSC expressed
disappointment at the review's results, identifying concerns
with the disclosure of 86% of issuers reviewed. The OSC also noted
that 82% of issuers reviewed committed to enhancing disclosure in
future filings, including by making changes to address missing or
inadequate quantitative reconciliations to the most directly
comparable GAAP measure, explaining why the measures are meaningful
to investors and the additional purposes, if any, for why
management uses these measures and providing meaningful names when
additional GAAP measures are presented in the financial
The report also reiterated the OSC's disclosure expectations
as outlined in CSA Staff Notice 52-306, most recently updated in February 2012. Based
on its review, the OSC identified the following areas for
improvement: (i) explaining the objectives for using the non-GAAP
financial measures or the additional GAAP measure; (ii) providing a
clear quantitative reconciliation between the non-GAAP financial
measure and its most directly comparable GAAP measure; (iii)
providing meaningful names for additional GAAP measures that are
not confusing; and (iv) disclosing how the additional GAAP measures
are calculated in relation to minimum disclosure items required by
Common concerns raised by the OSC included, among others: (i)
the use of boilerplate language in MD&A and press releases for
an explanation of the issuer's use of non-GAAP financial
measures; (ii) giving non-GAAP measures greater prominence than the
most directly comparable GAAP measure; (iii) failure to reconcile
the non-GAAP financial measure to the most directly comparable GAAP
measure, clearly or at all; (iv) failure to adequately explain why
an additional GAAP measure provides relevant information to
investors and how it facilitates the investor to better understand
the issuers financial position and performance; and (v) failure to
adequately disclose how an additional GAAP measure was calculated
in relation to the minimum disclosure items required by IFRS.
The OSC also noted that where key performance indicators are
used by an issuer that contain financial information sourced from
financial statements, issuers should carefully consider whether
such KPIs are non-GAAP financial measures. If so, the KPIs should
be treated in accordance with CSA Staff Notice 52-306. Furthermore,
issuers were reminded of their responsibility to ensure that
publicly disclosed non-GAAP financial measures and additional GAAP
measures are not misleading and that action may be taken against
issuers that disclose information in a manner considered misleading
and therefore potentially harmful to the public interest.
The OSC will continue to monitor and review disclosure of
non-GAAP financial measures and additional GAAP measures as part of
its normal course continuous disclosure review program. For further
details please see OSC Staff Notice 52-722.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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