By James Langton

(March 13 – 12:40 ET) – A recent review by the Ontario Securities Commission has found shortcomings in the disclosure and accounting practices of Canadian issuers.

The OSC today released a preliminary report detailing the results of a review of corporate revenue recognition practices conducted by its Continuous Disclosure Team.

“The initial results of the review suggest a need for significant improvement in the nature and extent of disclosure in both the financial statements and Management’s Discussion and Analysis,” says the report.

“Staff have also identified certain situations in which they are continuing to investigate whether particular revenue recognition, measurement and presentation practices reflect an appropriate application of the relevant standards.”

As a result of the review, the OSC says that a number of issuers will be required to provide significantly more detailed disclosure in their financial statement notes or MD&A.

Other issuers may be required to revise their accounting policies or to restate previously issued financial statements to address issues raised in the report.

“The initial results of this review suggest that in many cases issuers have not looked to all appropriate sources of accounting literature when applying Canadian GAAP,” the report says.

OSC staff also found that the disclosure of revenue recognition practices provided for U.S. GAAP purposes was generally more detailed than that presented in the Canadian GAAP financial statements.

Apart from all the insufficient disclosure, the OSC review uncovered several issues relating to actual revenue recognition.

The OSC says its staff continue to correspond with issuers to obtain additional information and resolve the issues identified as a result of the review. A final report will be issued following the resolution of all issues. On completion of this review, staff are planning a targeted review of interim financial statements which will commence in April 2001.

The review was conducted by the commission’s new Continuous Disclosure Team of the Corporate Finance Branch. The team looked at the practices of a sample of Canadian reporting issuers in recognizing, measuring, presenting and disclosing revenue.

The review began in August 2000 with the objective of identifying whether the accounting practices of Canadian issuers in recognizing revenue “reflect an appropriate application of the standards set out in the Handbook of The Canadian Institute of Chartered Accountants”.

The issuers chosen for review were primarily in the technology and related industries. Of the sample chosen, 91% of the issuers are listed on the Toronto Stock Exchange, and 27% are listed in the U.S.