Disclosure Falling Short — Results of the CSA Continuous Disclosure Review for 2011

On July 15, 2011, the Canadian Securities Administrators (CSA) published the summary of the results of their annual continuous disclosure (CD) review program of reporting issuers (other than investment funds) for fiscal year 2011 in CSA Staff Notice 51-334 – Continuous Disclosure Review Program Activities for the fiscal year ended March 31, 2011 (Staff Notice).



Under the CD review program, the CSA conducts both "full reviews" and "issue-oriented reviews" in order to identify material disclosure deficiencies in a reporting issuer’s continuous disclosure record. The summary of the CSA’s findings is provided to (i) help reporting issuers understand and comply with their disclosure obligations; and (ii) give examples of areas of common deficiencies.

This year’s issue-oriented reviews were conducted in the following areas: International Financial Reporting Standards (IFRS) transition disclosure (see CSA Staff Notice 52-320 and CSA Staff Notice 52-326); certification (see CSA Staff Notice 52-327); oil and gas technical disclosure; corporate governance disclosure (see CSA Staff Notice 58-306); material contracts; and review of press releases and complaints lodged by investors and other external stakeholders. See our related article, "CSA Staff Conducts IFRS Transition Disclosure Review," dated August 26, 2010.

In Canada, there are approximately 4,100 reporting issuers, not including investment funds. The number of "full reviews" conducted in fiscal 2011 was 436, a decrease of 17per cent from the previous year, while the number of "issue-oriented reviews" was 915, an increase of 11 per cent. See our article for last year’s review.

Reported Deficiencies

In their review, the CSA identified common material deficiencies in the areas of MD&A, financial statements and regulatory compliance.


  • using non-GAAP financial measures without an explanation of why the non-GAAP financial measure is meaningful to investors;
  • missing clear quantitative reconciliations from non-GAAP financial measures to the most directly comparable measure calculated in accordance with Canadian GAAP;
  • failing to identify material forward-looking information in disclosure and using boilerplate language instead of describing the material factors or assumptions used to develop the forward looking information;
  • referring to immaterial information without inclusion of material information in the discussion of operations in a reporting issuer’s most recently completed financial year;
  • providing inadequate disclosure regarding liquidity fluctuations, particularly in the case of reporting issuers with negative cash flows from operations or negative working capital positions or, reporting issuers that have breached their debt covenants; and
  • failing to disclose or analyze items or events that have had a material impact in the fourth quarter of a reporting issuer’s financial year.

Financial Statements

  • omitting the required disclosure in connection with the measurement of inventories; and
  • providing generic disclosure of related party transactions without identifying the nature of the transaction and the description of the relationship with the related party.

Regulatory Compliance Deficiencies

  • providing inadequate disclosure of performance goals or similar conditions as well as the benchmark group used for specific levels of compensation in executive compensation disclosure.

The results of the annual CD program provide guidance for reporting issuers in terms of navigating through their continuous disclosure obligations and avoiding inadequate disclosure. In particular, with the changeover to IFRS, reporting issuers should pay particular attention to describing the impact on their financial statements and operations in their transition disclosure and to the different requirements of the new system when preparing disclosure materials. For 2012, the CSA will continue to focus on IFRS transition.

Drafting Tips for Reporting Issuers

Reporting issuers should review their disclosure and take note of the suggestions offered in the Staff Notice when preparing this year’s disclosure documents. The following tips can be derived from a review of the Staff Notice.


  • If non-GAAP financial measures are used, ensure that an explanation of why the non-GAAP measure is meaningful to investors is included, together with a clear quantitative reconciliation from the non-GAAP financial measure to the most directly comparable measure calculated in accordance with the issuer’s GAAP presented in the financial statements.
  • Include a non-boilerplate list of factors and assumptions supporting management’s assessments if forward-looking information is included.
  • Provide a balanced discussion of the issuer’s results of operations, including quantification of all material variances and an analysis of the reasons for the changes discussed.
  • Identify any known or expected fluctuations and trends in the issuer’s liquidity and disclose any defaults or risk of defaults of debt covenants and how the issuer intends to cure the default or otherwise address the risk.
  • Discuss and analyze events that had a material impact in the issuer’s fourth quarter; if a separate fourth quarter MD&A is filed, ensure it is adequately referenced.

Form 51-102F6

  • If benchmarking is used by the issuer, disclose the name of all the individual companies included in the benchmark group and discuss why those companies were selected to be part of the group.
  • Disclose performance goals or similar conditions that are either quantitative or qualitative performance targets achieved by the issuer on which the issuer has based its decision to award compensation. If a target is based on a subjective measure, ensure that the analysis and discussion clearly discloses that compensation decisions with respect to this target are not based on objective identifiable measures.

We would be delighted to assist you in the preparation of disclosure or to provide further guidance regarding the Staff Notice.

To view the Staff Notice, click here.