Canada: Recent CSA Reviews Of Continuous Disclosure And Certification: A Reminder To Issuers To Ensure Compliance With Requirements

The Canadian Securities Administrators (CSA) have recently released, under separate notices, the results of their first certification compliance review and their annual continuous disclosure (CD) review program for the fiscal year ended March 31, 2009.

In CSA Staff Notice 52-325 Certification Compliance Review, the CSA summarized the results of its review of compliance with the requirements in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings that came into force on December 15, 2008 (see our September 2008 Legal Update discussing this instrument). The CSA said the purpose of National Instrument 52-109 is to improve the quality and reliability of reporting issuers' annual and interim disclosure, which, in turn, is intended to help maintain and enhance investors' confidence in the integrity of Canadian capital markets.

For its review of certification compliance, the CSA selected a sample of 198 non-venture issuers and 53 venture issuers with a December 31, 2008 year-end. Thirty-eight per cent of the sample appeared to substantively comply with the requirements of National Instrument 52-109 such that no action was required. Of the 62 per cent that were in some way non-compliant, almost half of those were so deficient that the issuers were required to re-file their annual management discussion and analysis (MD&A) and/or certificates of disclosure. The other half of the non-compliant issuer group was required to make prospective changes in future filings. Additional details about the review can be obtained by reading CSA Staff Notice 52-325.

In CSA Staff Notice 51-329 Continuous Disclosure Review Program Activities for the Fiscal Year Ended March 31, 2009, the CSA summarized the results of its CD review program of reporting issuers, other than investment funds, for that fiscal year. The CSA has conducted an annual review of various CD requirements for the past several years. While the number of full reviews conducted in fiscal 2009 was consistent with the previous year, the number of issue-oriented reviews increased by 53 per cent. This increase is a result of the CSA's increased scrutiny of the quality of the issuers' disclosure in the last half of the fiscal year, in response to the credit crisis and market turmoil. As we previously reported in our February 2009 issue, the CSA had indicated that they would undertake increased scrutiny of certain areas of continuous disclosure in the challenging economic environment.

The CSA listed common deficiencies identified in full reviews under the categories of MD&A, financial statements, and other CD documents. Deficiencies included:

  • in MD&A, repeating information from financial statements without providing sufficient analysis and absence of any or sufficient discussion about the risks and uncertainties expected to affect an issuer's future performance, given current economic conditions;
  • in financial statements, failing to appropriately measure financial instruments in accordance with accounting standards (such as fair value) and failing to disclose the credit, liquidity and market risks associated with financial instruments, as well as the methodology and assumptions used to determine fair value; and
  • in other CD documents, failing to provide disclosure required in National Instrument 52-110 Audit Committees and in National Instrument 58-101 Disclosure of Corporate Governance Practices, and failing to file mining and oil and gas technical reports in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects and with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities.

This year's issue-oriented reviews were conducted in the following areas: market turmoil and credit crisis, asset-backed commercial paper, defined-benefit pension plan disclosure, financial instruments, forward-looking information, inventory, material contracts, mining technical disclosure, and oil and gas technical disclosure. Deficiencies under these categories are discussed in CSA Staff Notice 51-329.

Together, these CSA reviews are a useful reminder to reporting issuers to ensure that they are not making the same errors and to assist them in avoiding such shortcomings. Several areas of focus for fiscal 2010 are also noted in CSA Staff Notice 51-329, and should be borne in mind by issuers. These include valuation of goodwill, intangibles and asset impairments, going-concern issues, disclosures of IFRS changeover plans in the MD&A, and disclosure relating to executive compensation.

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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