Odds are high that the public disclosure you are approving
includes one or more "non-GAAP financial measures", being
financial measures that do not meet the criteria under the relevant
accounting principles (GAAP) for inclusion in
financial statements. Measures like EBITDA, Cash Cost/Ounce,
Adjusted Earnings, Adjusted EBITDA, Funds From Operations, Adjusted
Funds From Operations, Net Operating Income, Free Cash Flow, All in
Cash Cost and Net Debt are all examples of non-GAAP financial
measures. Investors and financial analysts have come to rely on
these metrics, as they can provide additional insight into overall
performance, financial position or cash flow or may measure matters
specific to the issuer's industry. Disclosure containing such
metrics often raises concerns however, as there is no standard
method to calculate these measures, creating comparability
difficulties across similar issuers and across time for the same
The securities regulators have previously provided their views
on the manner in which non-GAAP financial measures should be
presented in CSA Staff Notice 52-306 – Non-GAAP Financial
Measures and Additional GAAP Measures. Their expectations have
been published for over 10 years. However, if you ask the OSC how
issuers are doing with their disclosure of non-GAAP financial
measures, the answer is "disappointing". Following a
review of the disclosure of 50 issuers, OSC staff identified
concerns in the disclosure of 86% of the issuers reviewed. The OSC
is concerned that absent improvements, investors may be confused or
potentially misled when non-GAAP financial measures are not
When approving disclosure documents, the following checklist for
any non-GAAP financial measures being presented can assist in
meeting the expectations of the regulators and producing more
Define the measure:
Disclosure should be carefully reviewed for financial measures
that may be "non-GAAP financial measures".
Explain the objectives for using the measure, including why the
measure is meaningful to investors and why management uses
It is important to avoid boilerplate language in doing
State that there is no standardized meaning and that it is not
comparable to other issuers.
Present with equal or greater prominence the most directly
comparable GAAP measure.
Provide a quantitative reconciliation to the most directly
comparable GAAP measure.
Explain any changes in the measure from prior disclosure.
The OSC has provided a number of useful examples of good
disclosure in various situations (and some examples of poor
disclosure) in OSC Staff Notice 52-722 Report on Staff's
Review of Non-GAAP Financial Measures and Additional GAAP
Measures, a copy of which can be found here. Issuers should also refer to CSA Staff
Notice 52-306 – Non-GAAP Financial Measures and Additional
GAAP Measures which provides guidance on disclosure, a copy of
which can be found here.
While issuers generally do a better job with MD&A
disclosure, the same rules apply for non-GAAP financial measures
contained in any disclosure document, including press releases,
websites and marketing materials. Issuers are reminded of their
responsibility to ensure non-GAAP financial measures publicly
disclosed are not misleading. Regulatory action may be taken
against issuers that disclose information in a manner considered
misleading and therefore potentially harmful to the public
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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