The latest round of continuous disclosure reviews by the Canadian Securities Administrators (CSA) found deficiencies with almost two-thirds of reporting issuers, the CSA announced on Monday.
According to Staff Notice 51-346 Continuous Disclosure Review Program Activities for the fiscal year ended March 31, 2016, 62% of the reviews uncovered deficiencies that either required issuers to take action to improve their disclosure, or resulted in more significant regulatory action such as a referral to enforcement or a cease trade order.
This was up slightly from 2015 when 59% of the issuers reviewed had to either improve disclosure or faced some further regulatory action.
The reviews uncovered deficiencies in a variety of areas, including: firms using non-GAAP financial measures; inadequate disclosure about liquidity and capital resources; and insufficient discussion of operations by venture issuers; among other concerns.
For example, the staff notice indicates that regulators continue to see issuers that fail to disclose the most directly comparable GAAP measures when they use non-GAAP measures in their financial statements or news releases.
“We often see issuers that highlight the [non-GAAP measure], sometimes in bold print and mention the most directly comparable GAAP measure in a less prominent location in the disclosure, most often when the GAAP measure is less favourable,” the staff notice says.
In terms of liquidity risk disclosure, the regulators report they “continue to see issuers provide a boilerplate discussion of liquidity and capital resources, or merely reproduce amounts from their statements of cash flows without providing any analysis.” Also, the reviews found issuers that have refinanced their debt but fail to discuss the implications of new borrowing arrangements that may include more restrictive covenants and a decreased borrowing capacity.
Some issuers are providing market risk disclosure that is “not reflective of the reasonably possible changes in the relevant risk atthe date of the financial statements and/or is not meaningful in light of the current economic environment,” the staff notice adds.Additionally, the reviews continue to find a variety of deficiencies with insider reports filed by insiders of issuers of all sizes.
“We strongly encourage issuers to review the CSA’s report and use the findings to strengthen their compliance with continuous disclosure requirements,” said Louis Morisset, chairman of the CSA and chairman and CEO of the Autorité des marchés financiers (AMF), in a statement announcing the publishing of the results of the reviews.