On February 25, 2021, the Canadian Securities Administrators (CSA) published Staff Notice 51-362 – Staff Review of COVID-19 Disclosures and Guide for Disclosure Improvements. The CSA notice details the results of a recently completed issue-oriented review conducted by the CSA regarding the continuous disclosure obligations of reporting issuers in light of the COVID-19 pandemic. The full CSA notice is available on the CSA website. This is a follow-up on the CSA's ongoing review of continuous disclosure obligations during the COVID-19 pandemic—see our review of the previous guidance.
The CSA reviewed the disclosures of the most recent interim reporting period ending September 30, 2020, for approximately 90 issuers with a December 31 financial year-end. The issuers selected varied by size and industry with approximately two-thirds of the issuers selected being TSX-listed issuers.
The reviews focused on issuers' compliance with disclosures of current and anticipated impacts related to COVID-19 on their respective operations, financial condition and reporting, liquidity and future prospects. Specifically, the CSA reviewed issuer's disclosure obligations under National Instrument 51-102 Continuous Disclosure Obligations, as well as compliance with certain recognition, measurement and disclosure requirements under International Financial Reporting Standards and CSA Staff Notice 52-306 (Revised) – Non-GAAP Financial Measures.
Generally speaking, there is no "one size fits all" model for COVID-19-related disclosures—disclosures should be transparent and balanced, while facilitating a detailed understanding and analysis of the current and expected impact of COVID-19 and tailored specifically to the issuer's operations and financial condition. Clients should be aware that CSA staff have already begun paying particular attention to COVID-19 related disclosures in reliance on the guidance in the CSA notice in connection with prospectus and other continuous disclosure reviews.
The following table summarizes various areas of improvement in their respective disclosures:
| Area of Disclosure | Deficiency | Recommendation |
| Management Discussion and Analysis (MD&A) | Disclosure limited to "lists" of measures employed to manage operational and liquidity risks due to COVID-19. Disclosure limited to quantitative variances related to COVID-19 (e.g., impact to sales), or limited disclosure of known trends or events related to COVID-19 that are likely to affect future performance. |
Issuers should include a more robust discussion and analysis of measures taken to reduce the impact of COVID-19 and describe how adopted measures will address the anticipated impact. Issuers should explain methodology used by management in determining how such fluctuations were isolated to COVID-19. |
| Financial Statements |
Lack of disclosure on liquidity and capital resources. Risk factor disclosure limited to "lists" of risks that only touched on general economic or societal impacts of COVID-19. Inadequate disclosure and assumptions regarding the impact of COVID-19 in the context of testing impairments of goodwill and intangible assets. Inadequate disclosure regarding significant judgments and measurement uncertainties. Inadequate disclosure regarding impairment of non-financial assets (e.g., only noting "negative economic impacts of COVID-19" as an impairment indicator for cash generating units). Disclosure regarding issuer's ability to continue as a going concern. |
Issuers should include detailed disclosure regarding their ability to meet working capital requirements, planned growth initiatives or to fund developmental activities and capital expenditures. Issuers should also address trends or expected fluctuations in liquidity, taking into account events or uncertainties related to COVID-19. Issuers should supplement risk factors with additional discussion and analysis regarding entity-specific COVID-19-related risks. Issuers should ensure their disclosures and assumptions have been updated to include the impact of COVID-19 in the context of testing impairments of goodwill and intangible assets, measuring fair value and estimating expected credit losses. Issuers should include entity-specific disclosure for significant judgments or measurement uncertainties, both in their MD&A disclosure and financial statements. Issuers should identify reasons for impairments and should further elaborate on the negative economic impacts of COVID-19 on cash generating units. Where issuers have breached financial covenants during the reporting period, they must disclose the implications of such breaches on the issuer's ability to continue as a going concern. Issuers should not only disclose "close call" situations but also mitigation actions that impacted their determination that there were no material uncertainties that cast significant doubt on an issuer's ability to continue as a going concern (e.g., successful negotiation of credit facilities subsequent to period end). |
| Non-GAAP Financial Measures (NGMs) |
Insufficient or lack of disclosure regarding government assistance received by the issuer. Failure to adjust NGMs for COVID-19. |
Issuers should be mindful to include the nature and extent of government assistance or the accounting policy adopted including the methods of presentation of such assistance. Issuers must present NGMs that are adjusted for the impact of COVID-19, and be wary of potentially misleading NGMs in relation to COVID-19 (e.g., adjusting for expenses attributable to COVID-19 without adjusting for government subsidies or "normalizing" revenue or expenses for the year-to-date period based on more positive results for one quarter). |
| Forward-Looking Information (FLI) | Insufficient disclosure regarding FLI. | Issuers must ensure sufficient disclosure of assumptions used to develop FLI and update the MD&A for events and risks that could cause actual results for future periods to differ materially than previously disclosed FLI. |
| Material Change Reporting | Disclosure of material changes as a result of COVID-19. | Where COVID-19 has had an equal effect throughout an issuer's industry, a material change report may not be required. Issuers should be wary of changes to their business, operations or capital that are more unique or significant to them than to others in their industry and disclose accordingly. |
| Promotional Disclosures | Misleading disclosures by issuers that are overly promotional or lacked specificity. | Some issuers concentrated in the biotechnology and pharmaceutical industry provided disclosure in relation to COVID-19 that was overly promotional and/or lacked specificity to fully address the issuer's business intentions and expected milestones. |
We will continue to monitor for any further updates regarding the impact of the COVID-19 pandemic on the continuous disclosure obligations of reporting issuers. If you have any questions regarding this article, please feel free to reach out to the Bennett Jones Capital Markets team.