The Ontario Securities Commission’s Continuous Disclosure Team has issued a report summarizing its activities for the year ended March 31, 2001, during which CD Review Program was initiated. .

Full-scale implementation of the program commenced on July 1, 2000. Between that date and March 31, 2001, 148 continuous disclosure reviews were initiated by the CD team.

Of these reviews, 75 were carried out as part of a targeted review of revenue recognition practices. The other 73 reviews initiated by the CD team consisted mainly of full reviews, along with various issue-oriented reviews to follow up on items identified through staff’s daily reviews of media reports, by an investor complaint, or through other sources.

The team also reviews a selection of CD materials at the same time as the “full review” of a prospectus and as part of the review of rights offerings circulars. One hundred and fifty-nine CD reviews of this kind were carried out during the year. In total therefore, 307 CD reviews were commenced during the year to March 31, 2001, representing 18% of Ontario-based reporting issues.

The OSC reports that, on the whole, staff was satisfied with the results of the CD Review Program for this year. Very few CD reviews were carried out in which staff failed to raise comments on potentially material issues. However, issuers generally responded to these comments in sufficient detail such that only limited further follow-up by staff was necessary.

In approximately one third of the reviews conducted to date, the issuer made a commitment to staff to change some aspect of its accounting or disclosure. In most of these cases, staff and the issuer agreed that these changes would acceptably be implemented within their next filed financial statements, either on a prospective or retroactive basis depending on the facts.

In three cases however, staff required that the issuer’s historical financial statements be retroactively changed. It was not necessary to deal with any financial statement-related matters arising from the CD Review Program through enforcement action.

Some of the areas of accounting or financial reporting in which comments are most commonly raised by staff in the course of a CD review include:

    revenue recognition practices

  • segment disclosures
  • restructuring and impairment charges
  • contingencies
  • impaired loans
  • differences with US GAAP
  • hedge accounting
  • earnings and cash flow measures differing from GAAP, and
  • assorted other areas.

The OSC says the policy identifying issuers in default of reporting duties will be applied much more actively than in the past. It will generally respond to a default in complying with financial statement filing requirements by issuing a cease trade order only on certain directors, officers and insiders.

OCS staff are currently conducting an issue-oriented review of interim financial reporting to assess compliance by issuers with new rules in this area, and with CICA Handbook.

The review will focus primarily on first quarter interim financial statements and MD&A filed by issuers for the quarter ended March 31, 2001.

Staff anticipates that approximately 100 issuers will be selected for a more detailed review. In addition to this issue-oriented review, staff will concentrate on meeting its goal of carrying out approximately 300 additional reviews during the year ended March 31, 2002, including review to be carried out in connection with reviews of prospectuses and rights offerings circulars.