CSA revises proposal on alternative disclosures

New requirements set out for issuers that use non-GAAP financial metrics, like adjusted earnings

CSA revises proposal on alternative disclosures

The Canadian Securities Administrators (CSA) has revised a proposal that aims to protect investors from misleading financial performance disclosures.

The revised proposal, which sets new disclosure requirements for issuers that use non-GAAP financial metrics, like adjusted earnings, in their disclosure to clients, has been sent out for a second comment period.

The CSA has concerns that these alternative metrics don’t have standardized definitions and lack context and transparency.

“In response to stakeholder feedback, we have reviewed and reduced the scope of the proposed rule and simplified disclosure requirements,” said Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers. “We believe these changes will result in a cost-effective proportionate regulatory framework that maintains appropriate investor protections.”

Following stakeholder consultation, the CSA has made substantive changes to the proposed rule that:

  1. Limit the application to certain issuers;
  2. Exempt certain disclosures, financial measures and documents;
  3. Narrow the scope of what is considered a non-GAAP financial measure; and
  4. Reduce and simplify disclosures.

The proposed rule was originally published for comment on September 6, 2018 and would replace Staff Notice 52-306 (Revised) Non-GAAP Financial Measures. The CSA conducted 38 outreach sessions across seven Canadian cities and reviewed 42 comment letters from issuers, investors, accounting firms, standard setters, industry associations and law firms.