Placeholder Image

Subtitles section Play video

  • Hi, welcome to Deloitte financial reporting updates. Our webcast series for issues and

  • developments related to the various accounting frameworks. This presentation is bringing

  • clarity to an IFRS world and IFRS quarterly technical update.

  • I’m am Jon Kligman, your host this webcast and I am joined by others from our National

  • Office. As you are aware, this webcast has been prerecorded. It could be accessed at

  • any time at www.deloitte.com/ca/update. So, please let your colleagues know of its availability.

  • Now, onto our agenda. First, you will hear from Julia Suk who will

  • discuss the Canadian securities administratorscontinuous disclosure review program. After

  • Julia, Clair Grindley will provide an update on IFRS 15 Revenue from Contracts with Customers,

  • discuss the exposure draft on IAS 19 and IFRIC 14, and then provide an update on upcoming

  • IASB projects. I would like to remind our viewers that our

  • comments on this webcast represent our own personal views and do not constitute official

  • interpretive accounting guidance from Deloitte. Before taking any action on any of these issues,

  • it is always a good idea to check with a qualified advisor.

  • I would now like to welcome our speakers. Julia Suk is a Senior Manager with National

  • Assurance and Advisory Services of Deloitte Canada. In this role, Julia is responsible

  • for monitoring quality standards for Deloitte’s public company client filings. Julia also

  • provides consultative advice to attest and non-attest clients on general securities filings

  • and financial reporting matters. In the past, Julia also completed a one year secondment

  • to the Ontario Securities Commission, working within the office of the Chief Accountant.

  • Clair Grindley is a partner at Deloitte’s National Office and is a member of both the

  • Technical Consultations Group for the Canadian firm and Deloitte’s IFRS Leadership Team.

  • Subjects of focus for Clair include employee benefits, impairment and joint arrangements.

  • And she is also a member of the IFRS Discussion Group or IDG, a subgroup of the Canadian Accounting

  • Standards Board. Over to you Julia.

  • Thanks Jon. Hi everyone. As traditionally done in the past, the CSA has reported on

  • their annual staff notice on their Continuous Disclosure Review Program conducted throughout

  • the year. Their fiscal year ends in March and so, their report generally comes out mid-summer

  • and for this year, it was published July 16. The Continuous Disclosure Review Program was

  • established in 2004 by the staff of the CSA for which the main goal was to improve the

  • completeness, quality and timeliness of the continuous disclosure provided by reporting

  • issuers in Canada. It really aims to assess the compliance of the continuous disclosure

  • documents filed by the reporting issuers and to help companies understand and comply with

  • their obligations under the continuous disclosure rules so that the investors receive high quality

  • disclosure. The Staff notice 51-344 consists of the main body of the report, which contains

  • a summary of their findings and then in the appendices the CSA includes information about

  • areas where common deficiencies were noted with examples to assist companies address

  • the noted deficiencies and give some best practices where applicable.

  • The current year results are shown on the slide here. In total, Tthere were 1,058 reviews

  • performed in total where 580 of them were full reviews and the rest for issue-oriented

  • reviews or IORs. This is a 7% increase in the number of reviews compared to the prior

  • year where the total was 991 reviews with 221 of them being full reviews and the rest

  • were IORs. The bar graph at the bottom illustrates the

  • results from this year. The CSA Class 5, the outcomes of the reviews into five categories

  • as done in the past. The first one is referred to enforcement, cease-traded or on the default

  • list. Second is re-filings required. Third in the middle is prospective changes that

  • were made as a result of the reviews. Education and awareness, this is where there were enhancements

  • that should be considered in its next filings that were discussed with the issuers or the

  • staff of the local jurisdictions ended up publishing staff notices and reported on a

  • variety of continuous disclosure subject matter reflecting best practices and expectations,

  • and of course the last category being no action is required. This year 59% of the outcomes

  • required issuers to take some kind of action to improve or amend their disclosures in their

  • filings or resulted in the issuer being referred to enforcement, cease-traded or placed on

  • the default list. The result in the last year was 60%, which is comparable, although as

  • you can tell from the graph, the distribution is somewhat different with more re-filings

  • being required this year than last. Just as a reminder, re-filings are significant events

  • that should be clearly and broadly disclosed to the marketplace in a timely manner. This

  • appears to not always have happened and when discussed, some issuers indicated that the

  • delay was due to the fact there were no scheduled audit committee meetings or board meetings

  • where the news release could be approved and then waited for the next scheduled meeting.

  • The CSA staff states in the report that this is not an appropriate reason and the news

  • release filings cannot be delayed for such reasons. They refer back to the requirements

  • in NI 51-102, Section 11.5, which requires that if there is issuer decides, it will refile

  • a document under 51-102 and the information in the refiled document or restated financial

  • information will defer materially from the information originally filed, the issuer must

  • immediately issue and file a news released authorized by an executive officer disclosing

  • the nature and substance of the change or proposed changes. This may involve audit committee

  • approval or board member approval prior to their next scheduled meeting, and this is

  • required because they need to provide timely news release as required.

  • The CSA when performing their full reviews applies a risk-based approach for selecting

  • reporting issuers. A full review is broader in scope than an IOR and covers many different

  • types of disclosures including selected issuers most recent annual and interim financial statements,

  • the management discussion and analysis file before the start of the review. For all other

  • continuous disclosure documents, the review covers a period of approximately 12 to 15

  • months. In certain cases, the scope of the review may be extended in order to cover prior

  • periods. The issuers continues to disclose documents or monitors until the review is

  • completed. A full review also includes an issuer’s technical disclosures such as technical

  • reports for oil and gas, and mining issuers, AIFs, annual reports, information circulars,

  • news releases, material change reports, BARs, corporate websites, certifying officers

  • certifications and material contracts. The selection for the IORs or issue-oriented

  • reviews are based on targeted objective or subject matter of the review. An IOR focused

  • on a specific accounting, legal or regulatory issue, and may focus on emerging issues, implementation

  • of recent rules or on matters where the staff believe there may be heightened risk of investor

  • harm. During this year, a total of 74% of all continuous disclosure reviews completed

  • were IORs compared to 78% last year. The category shown on the graph to the right in the slide

  • are some of the IORs conducted by one or more jurisdictions. The other category accounting

  • for 16% of the total IORs this year related to non-financial topics, which are MD&A topics,

  • material change reports, redistributions, complaints, referrals and other regulatory

  • requirements. For the MD&A related findings, you can see

  • on the slide here for the six main areas. The securities rules pertaining to the MD&A

  • disclosures are given in National Instrument 51-102, Form 1 (F1). Findings on liquidity

  • and capital resources from the reviews related to issuers, failures and providing sufficient

  • analysis. For example, issuers often reproduce information in their MD&A that was already

  • provided in the financial statements like a repeat of cash flow balances that come from

  • operating, investing and financial activities. Rather the regulators are expecting to see

  • much more focus on an issuer’s ability to generate sufficient liquidity in the short-

  • and long-term in order to find a plan growth, development activities and expenditures necessary

  • to maintain the capacity. Also they are expecting to see an analysis of capital resources including

  • the amount, nature and purpose of the commitments and expected sources of funds to meet these

  • commitments. The CSA staff emphasize this information is even more critical when issuers

  • have negative cash flows from operations, negative working capital position or deteriorating

  • financial position because this disclosure is intended to help the users to assess how

  • the issuer will meet its long- and short-term obligations and objectives. For discussion

  • relating to results of operations, the observation was that some issuers just provided a boilerplate

  • disclosure and repeated the financial statement information and disclosure. The discussion

  • of the year over year change of balances should really provide sufficient detail to discuss

  • key drivers and reasons contributing to the change for the period. Trends, commitments,

  • risks and uncertainties that will impact company should be discussed. Forward-looking information,

  • non-GAAP measures as in the past couple of years, failures of such disclosures in this

  • area came up again as a hot button for the CSA staff and the reviews. It seems that companies

  • that use forward looking information and non-GAAP measures and their continuous disclosure documents

  • have not clearly identified them as such and/or included the appropriate disclosures that

  • go with this type of information. The concern from the staff here is that the users may

  • be misled if the disclosures are not provided as required by the rules in National Instrument

  • 51-102 as well as CSA Staff Notice 52 306. Redistribution is came up as a hot button

  • this year as it was noted that some reach to clear distributions, which exceed the cash

  • they generate from their operations, but do not provide the relevant disclosures in the

  • MD&A and AIF. The disclosure is required to signal to the investor that excess distributions

  • have occurred during the period as well, as information on how they were financed and

  • that they represented a return of capital amongst other things. The CSA emphasized that

  • this is important to alert the investor so that they are not misled in such circumstances.

  • In their review of related party transactions, they observe that some issuers provided a

  • boilerplate disclosure, which is not useful to the users rather they remind issuers that

  • the discussion should really provide both qualitative and quantitative information that

  • is necessary for the readers to understand the business purpose and economic substance

  • of such transaction. I will go through the last point presented here relating to the

  • staff’s findings relating to management certifications on the next slide.

  • The staff this year discussed in some great detail the certification disclosures and their

  • findings. The requirement around certification disclosures are included in NI 52-109 and

  • requires issuers to file certificates of annual and interim filing signed by an issuer CEO

  • and CFO. Non-venture issuers are required to design or have caused to be designed, DC&P,

  • which is disclosure controls and procedures, and ICFR, internal controls over financial

  • reporting on an annual basis and on an annual basis evaluated or caused to be evaluated

  • under their supervision, the effectiveness of DC&P and ICFR. The issuer is also required

  • to disclose in its annual MD&A, the CEO and CFO’s conclusion about the effectiveness

  • of DC&P and ICFR. When the certifying officers determine that there is a material weakness

  • relating to the design or operations of ICFR, or when there has been a limitation on the

  • scope of the design, issuers must include certain information as dictated by form requirements

  • in National Instrument 52-109 in their certification as well as including disclosure in the MD&A

  • describing the material weakness or summary financial information relating to the entities

  • subject to the scope limitation. Upon their CD reviews, they have identified three common

  • areas of deficiencies. First they found out there were inconsistencies between the certificate

  • and the MD&A disclosure. For example, where they have indicated on the certificate that

  • there was a material weakness, there was no discussion in the MD&A of the material weakness.

  • Secondly, material weakness disclosure. For instance, some issuers did not describe the

  • material weakness in sufficient detail. Rather it was vague and gave little insight about

  • the impact of the issuers financial reporting. It was also noted that certain issuers reported

  • material weakness for a number of consecutive years and during that time had experienced

  • significant growth in their operations. Other remediation of an identified material weakness

  • is not required under the rules. It would be useful to an investor if the issuer discussed

  • whether they have committed or will commit to a plan to remediate the material weakness

  • and whether there are any mitigating procedures that reduced the risks that have not been

  • addressed as a result of identified material weakness. There is further discussion of such

  • in the Companion Policy 52-109, Section 9.7, so issuers are reminded to refer to the policy

  • when this is applicable. They also remind issuers that a meaningful discussion of an

  • unremediated material weakness should be updated in each MD&A to ensure that the impact of

  • the material weakness continues to be properly reflected as the company grows or goes through

  • other changes in their operation. This will be further discussed using an example in the