Originally published in Blakes Bulletin on Securities Regulation, October 2007
The Canadian Securities Administrators (CSA) are rescinding National Policy 48 – Future-Oriented Financial Information (NP 48) and making complementary amendments to National Instrument 51-102 – Continuous Disclosure Obligations (NI 51-102). The changes are proposed to be effective December 31, 2007.
NI 51-102 will address forward-looking information (other than forward-looking information contained in oral statements) that is released by reporting issuers, including future-oriented financial information (FOFI) and financial outlooks. FOFI is defined in NI 51-102 as "forward-looking information about prospective results of operations, financial position or cash flows, based on assumptions about future economic conditions and courses of action, and presented in the format of a historical balance sheet, income statement or cash flow statement"; and "financial outlook" is defined in the instrument as "forward-looking information about prospective results of operations, financial position or cash flows that is based on assumptions about future economic conditions and courses of action and that is not presented in the format of a historical balance sheet, income statement or cash flow statement".
Under the amended instrument, reporting issuers will be required to have a reasonable basis for disclosing forward-looking information. Forward-looking information must be identified as forward-looking information; caution users that actual results may vary from the forward-looking information; state the material factors or assumptions used to develop the information; and describe the issuer’s policy for updating the information.
For FOFI and financial outlooks, issuers will also be required to use assumptions that are reasonable and appropriate; limit the period covered by FOFI or the financial outlook to one that can be reasonably estimated; and use the accounting policies that the issuer expects to use to prepare its historical financial statements for the period covered by the FOFI or the financial outlook. The disclosure of FOFI and financial outlooks will have to also state the date of management approval, explain the purpose of the FOFI or financial outlook, and caution that the information might not be appropriate for other purposes.
Issuers that have disclosed forward-looking information in a public disclosure document will be required to discuss, in their management discussion and analysis (MD&A), events and circumstances that occurred during the MD&A period that are reasonably likely to cause actual results to differ materially from the previously released material forward-looking information, including earnings guidance. With regards to comparison with actual results, a reporting issuer must disclose in its MD&A material differences between actual results for the period and any FOFI or financial outlook for the period that the reporting issuer disclosed previously. If an issuer decides to withdraw previously disclosed material forward-looking information, it will be required to disclose this in its MD&A.
The civil liability provisions of Part XXIII.1 of the Securities Act (Ontario) (OSA) with respect to "forward-looking information" are not directly affected by the changes to NI 51-102. Issuers should continue to include cautionary language identifying information as forward-looking in documents and public oral statements containing forward-looking information and to otherwise comply with the defences against civil liability in the OSA.
National Policy 41-201 – Income Trusts and Other Indirect Offerings has been clarified to provide that although securities legislation does not prohibit the use of projections in preparing estimated distributable cash information, a forecast prepared in accordance with the CICA Handbook section 4250 Future-Oriented Financial Information is more appropriate.
National Policy 51-201 – Disclosure Standards has been clarified to recommend that the board of directors and audit committee of companies review financial outlooks and FOFI.
In addition to the above-noted changes to NI 51-102, the CSA approved consequential amendments to NI 51-102, Form 51-102F2 – Annual Information Form, Form 51-102F5 – Information Circular, companion policy CP 51-102 and consequential amendments to various other national instruments and multilateral instruments, effective December 31, 2007.
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