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2018-012: 2017 Alberta Securities Commission Disclosure Report
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Overview: The Alberta Securities Commission released their annual report on observations from their continuous disclosure review programs conducted during their most recent cycles. In this newsletter we attach a copy of the report.
The Alberta Securities Commission released their annual report on observations from their continuous disclosure review programs conducted during their most recent cycles.
The report focuses on the following continuous disclosure related areas:
- Climate change-related disclosure;
- Gender diversity;
- MI 61-101 Protection of Minority Security Holders in Special transactions;
- Inappropriate CEO and CFO certifications or inconsistent information between the certifications and the reporting issuer’s MD&A;
- Requirements when information about conditional agreements or letters of intent are included in the MD&A;
- Classification issues noted in the Statement of Cash Flows;
- Pro forma information including clarifications about oil and gas property statements; and
- Insider reporting requirements.
The report also covers the following important information related to offering document
- Common issues noted in the calculation of earnings coverage ratios;
- Financial information required in Information Circulars;
- Non-GAAP financial measures, specifically issues identified with non-GAAP measures in marketing materials; and
- A reporting issuer’s responsibility for third-party information included in offering documents.
Key take-aways from the report
Climate change related disclosure
Issuers are reminded to consider Staff Notice 51-333 Environmental Reporting Guidance which considers disclosure of material environmental risk and the management and oversight of such risks.
An issue oriented review found that improvements could be made by clarifying the link between general risks and the incremental impact of climate change and by tailoring the discussion to be more entity specific. Where material risks are identified a qualitative and quantitative discussion (where reasonably available) of the current and anticipated impact could provide valuable insight to readers and in particular additional quantitative impact disclosure of current regulations may be warranted. The Report provides examples of risks and the potential impacts that may be disclosed.
Conditional agreements or letters of intent
The ASC has indicated that disclosure of conditional agreements and letters of intent relating to projects or contracts may be considered misleading when insufficient details are disclosed regarding those agreements. Reporting issuers are required to provide any material information for a user of the financial statements to understand the nature, timing and obligations related to those agreements. Further disclosure of these types of agreements should be limited to those agreements that are reasonably likely to occur and any future-oriented financial information (FOFI) should be limited to periods for which the information can be reasonably estimated. Finally, any material differences between actual results for a period, once the agreement has been executed, and previously disclosed FOFI should be disclosed.
Statement of Cash Flows
Throughout 2017 there has been an increase in the number of financial statement restatements related to cash flow presentation matters. Items identified in this report include:
- Exploration and evaluation expenditures being classified as investing activities when those expenditures did not result in a recognized asset (i.e., where the company’s policy was to expense exploration and evaluation costs as incurred);
- Incorrect classification of payments to acquire assets held for rental and subsequently held for sale as investing activities;
- Inappropriate treatment of non-cash transactions such as amounts for shares issued in exchange for goods and services being added to share capital proceeds in financing activities; and
- Incorrect allocation of working capital movements to incorrect cash flow categories.
The ASC further reminds readers that unlabeled subtotal lines in the Statement of Cash Flows is not appropriate and to either remove the subtotals or label them in a way which describes their composition.
Pro forma statements and information
The ASC clarified that in a situation where a reporting issuer acquires two or more significant businesses and at least one of those acquisitions qualifies for the exemption under Section 8.10 of NI 51-102 to present operating statements, a subtotal for “pro forma operating income (loss)” must be disclosed.
In addition, issuers are reminded that if pro-forma information is presented in news releases or other filings, the source of the information and material factors and assumptions should be disclosed.
For further information please refer to the full Alberta Securities Commission Corporate Finance Disclosure Report attached.
2017 ASC Corporate Finance Disclosure Report (pdf 469kb)
The ASC has also released its 2017 Oil and Gas Review Report.
2017 ASC Oil and Gas Review Report (pdf 822kb)
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