a man on a precipice

Canadian securities regulators found fewer shortcomings in issuers’ continuous disclosure (CD) filings last year, but with the unprecedented Covid-19 outbreak weighing heavily on the economy, they’re calling on firms to provide investors with accurate, specific disclosure on the impact of the pandemic on their operations.

The Canadian Securities Administrators (CSA) published a report on Thursday setting out the results of their CD reviews for fiscal 2019 and fiscal 2020.

The report indicated that the number of reviews increased in 2020, rising from 514 reviews in fiscal 2019 to 583 reviews in the latest fiscal year (ended March 31).

While the number of reviews went up last year, the proportion of them that prompted regulatory action — such as a requirement to refile disclosure or a referral to enforcement — declined from 67% in 2019 to 55% in 2020.

“Some of our reviews resulted in the issuer being referred to enforcement, cease-traded or placed on the default list,” the report noted.

Looking ahead, the report also provided guidance on issuers reporting and disclosing the effects of Covid-19 on their businesses.

“To support investors in making informed investment decisions, issuers should provide transparent and entity-specific disclosures, including information about the impact of Covid-19 on their operating performance, financial position, liquidity, and future prospects,” the CSA said.

The report also highlighted key Covid-19 disclosure issues and detailed examples of deficient disclosure.

Areas the pandemic could affect in a fast-shifting and uncertain environment include revenue recognition, impairment assessments, fair value calculations, government assistance and “going concern” assessments.

“Given the rapidly changing environment, condensing or omitting certain disclosures in interim financial reports may no longer be appropriate because the information disclosed in the latest annual financial statements may be less relevant,” the CSA said.

The report also highlighted potential deficiencies in issuers’ management discussion and analysis (MD&A), such as the disclosure of forward-looking information and reporting on the effects of the pandemic on liquidity and capital resources.

“Market participants and investors expect reporting issuers to provide clear disclosure on how Covid-19 is impacting their business. The report will assist these issuers when preparing their financial statements and MD&A, including information about operating performance, financial position, liquidity and future prospects,” said Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers.