CSA Releases Guidance on Forward-Looking Information Requirements

On November 20, 2009, the Canadian Securities Administrators (CSA) released CSA Staff Notice 51-330, which provides guidance on the forward-looking information (FLI) requirements contained in National Instrument 51-102 Continuous Disclosure Obligations (the Rule). The guidance results from recent continuous disclosure reviews conducted by the CSA. The Staff Notice addresses the identification of FLI; disclosure regarding material risk factors and material factors or assumptions; updating practices; explanation of purpose of, and cautionary language related to, financial outlook or future-oriented financial information (FOFI); disclosure regarding goals or targets; and impact of the transition to International Financial Reporting Standards (IFRS) on FOFI or financial outlooks.

The CSA noted that many issuers identified material FLI solely though a cautionary paragraph at the beginning or end of a disclosure document. Although the Rule does not prescribe the manner in which reporting issuers must identify FLI, the Companion Policy to the Rule provides guidance that the disclosure should be presented in a manner that allows an investor to be able to readily identify the material FLI. According to the CSA, when identifying FLI, reporting issuers should avoid: (i) indicating that forward-looking statements are often, but not always, identified by words such as "believes," "may," "likely" and "plans"; (ii) indicating that all statements, other than statements of historical fact, are forward-looking statements; and (iii) stating that a document contains FLI when, to the reporting issuer’s knowledge, it does not. Instead, the CSA encourages reporting issuers to specifically identify the nature of the material FLI included in the document.

The Rule requires reporting issuers that disclose material FLI to include disclosure that identifies material risk factors that could cause actual results to differ materially from the FLI. The CSA advises that while reporting issuers are not precluded from incorporating by reference material risk factors and material factors or assumptions contained in other documents, when doing so, they should consider whether it enables the reader to readily identify the material risk factors and material factors or assumptions associated with the material FLI. Reporting issuers should avoid "boilerplate" disclosure and should present the disclosure in a user-friendly manner. In addition to the disclosure of material risk factors and material factors or assumptions, when disclosing FOFI or a financial outlook, reporting issuers should disclose the purpose of the information and caution readers that the information may not be appropriate for other purposes.

The Staff Notice reminds reporting issuers that they are required to update previously disclosed FLI in certain circumstances and that they should ensure that their policy for updating FLI is in compliance with the Rule. In addition, reporting issuers are generally expected to disclose a target or goal only if it is "possible" to achieve. Finally, since the Rule requires that FOFI or financial outlooks be based on the accounting policies that the issuer expects to use to prepare its historical financial statements for the period covered by the FOFI or the financial outlook, reporting issuers are reminded of the potential impact of the transition to IFRS.