Canada: Proposed National Instrument 52-112: Non-GAAP And Other Financial Measures Disclosure

Last Updated: October 4 2018
Article by Stewart L. Muglich and Shannon Tseng


In January of 2016, the Canadian Securities Administrators (the "CSA") published CSA Staff Notice 52-306 Non-GAAP Financial Measures (the "Staff Notice") for the primary purpose of providing guidance to reporting issuers in Canada with respect to public disclosure of the issuers' use of non-GAAP financial measures. Although the contents of the Staff Notice are not binding, its commentary assists issuers in providing disclosure of their use non-GAAP financial measures to ensure that financial information disclosed by the issuer is not misleading to investors.

The CSA recently issued a request for comment on proposed National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure (the "Proposed Instrument"), an instrument which imposes binding disclosure requirements on issuers with respect to the issuers' use of non-GAAP and certain other financial measures. If adopted, the Proposed Instrument will replace the Staff Notice.

Proposed Regime


The Proposed Instrument broadly applies to all issuers other than "SEC Foreign Issuers" (as defined in National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers) and to almost all forms of written and electronic communication, but does not apply to oral statements unless the issuer posts a written transcript of the oral statement.

Some exceptions are provided. The Proposed Instrument does not apply to:

  1. disclosure of a specific financial measure in accordance with a requirement of Canadian securities legislation or the laws of a jurisdiction of Canada, such as earnings coverage ratios prescribed by securities legislation;
  2. documents referred to in paragraphs 12.1(1)(a) to (e) of National Instrument 51-102 Continuous Disclosure Obligations, such as the constating documents of an issuer, trust agreements, rights plans, etc.;
  3. any contract that an issuer or any of its subsidiaries is a party to that is material to the issuer; or
  4. the supporting documents referred to in any of clauses 2.3(1)(a)(iv)(A) to (C) of National Instrument 81-101 Mutual Fund Prospectus Disclosure, such as constating documents, trust agreements, etc.

Key Definitions

The following are certain key definitions for terms used in the Proposed Instrument:

"non-GAAP financial measure" means:

  1. a financial measure of financial performance, financial position or cash flow that is not disclosed or presented in the financial statements, and that is not a disaggregation, calculated in accordance with the accounting policies used to prepare the financial statements, of a line item presented in the primary financial statements; or
  2. a financial outlook for which no equivalent financial measure is presented in the primary financial statements;

"primary financial statements" means an issuer's statement of financial position, statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows;

"presented" means, with respect to a financial measure, included in the primary financial statements;

"disclosed" means, with respect to a financial measure, included in the notes to the financial statements; and

"financial outlook" means 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.

Pursuant to the above definitions, financial measures that are a disaggregation of a line item presented in the issuer's financial statements, if calculated in accordance with the accounting policies used to prepare the financial statements (e.g. the provision of more granular information regarding revenues, by certain products or by division), would not be considered non-GAAP financial measures.

Requirements Regarding Disclosure of Non-GAAP Financial Measures

The Proposed Instrument requires that:

  1. non-GAAP financial measures be labelled appropriately, given their composition, and in a way that distinguishes them from totals, subtotals and line items presented in the issuer's primary financial statements;
  2. non-GAAP financial measures be presented with no more prominence in the document than the most directly comparable financial measure presented in the issuer's primary financial statements, subject to certain exceptions for ratios;
  3. the first time each non-GAAP financial measure appears in each document, the document:

    (a) identify the non-GAAP financial measure as such, subject to certain exceptions;

    (b) state that the non-GAAP financial measure does not have a standardized meaning under the financial reporting framework used to prepare the issuer's financial statements and may not be comparable to similar financial measures presented by other issuers;

    (c) explain how the non-GAAP financial measure provides useful information to a reasonable person and explains the additional purposes, if any, for which management uses the non-GAAP financial measure; and

    (d) provide a quantitative reconciliation, to the most directly comparable financial measure presented in the issuer's financial statements, subject to certain exceptions for ratios and financial outlook;

  4. the reason for a change, if any, in the label, composition or calculation of a non-GAAP financial measure is explained;
  5. the issuer present the same non-GAAP financial measure for the comparative period.

Prominence of Non-GAAP Financial Measures

Determining whether a non-GAAP financial measure is presented with "no more prominence" than the most directly comparable financial measure presented in an issuer's primary financial statements is a matter of judgment, taking into account the overall disclosure and the facts and circumstances in which the disclosure is made. In the proposed companion policy to the Proposed Instrument (the "Proposed Companion Policy"), the CSA has provided a non-exhaustive list of circumstances in which a non-GAAP financial measure would be considered more prominent than the most directly comparable measure presented or disclosed in the financial statements. The list includes some new examples not previously included in the Staff Notice, such as omitting the most directly comparable measure from a press release headline or caption that includes a non-GAAP financial measure, or describing a non-GAAP financial measure as, for example, "record performance" or "exceptional" without at least an equally prominent descriptive characterization of the most directly comparable measure.

The Proposed Companion Policy clarifies that "a location is not more prominent if it allows an investor who reads the document, or other material containing the non-GAAP financial measure, to be able to view the discussion and analysis of both the non-GAAP financial measure and the most directly comparable measure contemporaneously. For example, within the previous, same or next page of the document."

Most Directly Comparable Financial Measure

The Proposed Companion Policy notes that when determining what constitutes the "most directly comparable financial measure" it is important for an issuer to consider the context of how the non-GAAP financial measure is used. For example, where the non-GAAP financial measure is discussed primarily as a performance measure used in determining cash generated by the issuer or its distribution-paying capacity, its most directly comparable GAAP measure will be from the statement of cash flows.

The Proposed Instrument requires that any requisite quantitative reconciliation to the most directly comparable financial measure presented in the primary financial statements is disaggregated and explained in a way which provides a reasonable person with an understanding of the reconciling items.

Presentation of Non-GAAP Financial Measure for Comparative Period

  Although the Proposed Instrument does not explicitly provide an exemption from the requirement set out in paragraph 5 above to present the same non-GAAP financial measure for the comparative period, the Proposed Companion Policy suggests that compliance with that requirement will not be required where it would not be feasible, noting that this would be "only in rare circumstances, such as in the first period of operations where no comparative period exists". The Proposed Companion Policy also states that where comparative non-GAAP financial measures are presented for a previous period, a reconciliation to the corresponding most directly comparable measure should also be provided for that previous period.

The Proposed Companion Policy provides that determining the appropriate period for requisite comparative or historical disclosures is a matter of judgment, taking into account the time period covered by the financial outlook (if applicable), the nature of the issuer's industry and the extent to which the business of the issuer is cyclical or seasonal. If an issuer has a seasonal business, the comparative or historical disclosure could be for the same period from the prior year, whereas if the issuer's business is not seasonal, the comparative or historical disclosure could be for the most recently completed period of the same length.

Disclosure of Non-GAAP Financial Measures on Social Media

The Proposed Companion Policy notes that issuers should not disclose non-GAAP financial measures, segment measures, capital management measures or supplementary financial measures on social media if character limits would preclude full compliance with the requirements of the Proposed Instrument. Issuers should also be aware that if the issuer uses social media to provide links to a publication, such publication would be within the scope and application of the Proposed Instrument.

Request for Commentary

The CSA has requested that comments on the Proposed Instrument and Proposed Companion Policy be provided in writing on or before December 5, 2018.

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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Stewart L. Muglich
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