Stacked white books on rules and regulations

Following a long-running consultation process, the Canadian Securities Administrators (CSA) have published final rules setting out disclosure requirements for companies that use non-standard accounting measures.

The national instrument, which will take effect Aug. 25, sets some ground rules for companies when they use financial metrics that don’t adhere to generally accepted accounting principles (GAAP).

The CSA’s rules are intended to ensure that when companies voluntarily use non-GAAP measures to provide additional insight into their financial results, these disclosures are presented in a way that provides investors with some consistency and transparency.

In a notice, the CSA indicates that the final rules are relatively flexible and don’t impose specific limitations, or set industry-specific requirements, on how to calculate non-GAAP measures.

Instead, the rules aim to provide “clarity and consistency with respect to an issuer’s disclosure obligations aimed at improving the quality of information provided to investors about such measures,” the regulators said.

The CSA acknowledged that some would prefer a more prescriptive approach to non-GAAP disclosure, but that “due to the numerous types of ever-evolving financial measures disclosed across a range of industries, we continue to believe that disclosure requirements are best suited to respond to investor needs for quality information without being overly prescriptive.”

In a release, Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers (AMF), said, “This new rule will provide investors with the transparency they have asked for, consistent terminology and a standardized framework.”

The new requirements will apply to financial year-ends that fall after Oct. 15 for reporting issuers and after Dec. 31 for non-reporting issuers.

The CSA first made proposals in this area back in 2018, and revised those proposals in February 2020 after consultations that included 38 outreach sessions in seven cities.

The second set of proposals was also subjected to further consultations and outreach, but most of the changes that resulted were minor, enabling the CSA to finalize the rules.

“We believe we struck the right balance in the final rule by adjusting the scope and simplifying the disclosure requirements in response to stakeholder feedback,” Morisset said.