On May 27, 2021, the Canadian Securities Administrators (CSA) released the final forms for National standard 52-112 Non-GAAP Information and Other Financial Measures (Regulation 52-112) and its related policy (Companion Policy), which provide binding disclosure requirements and related guidance for non-GAAP (generally accepted accounting principles) and certain other financial measures disclosed by reporting issuers and certain other issuers.
NI 52-112 and Policy Statement will replace the current CSA guidance on the disclosure of non-GAAP financial measures in CSA Staff Notice 52-306 (revised) Non-GAAP financial measures (SN 52-306) and are expected to come into force on August 25, 2021. The transitional provisions of the final version of Regulation 52-112 state that it will not apply to information provided by reporting issuers in respect of documents. filed for fiscal years ending before October 15, 2021, as well as certain information provided by non-reporting issuers until after December 31, 2021.
For reporting issuers whose upcoming fiscal year ends on October 31, November 30 or December 31, 2021 (and thereafter), this means that NI 52-112 will apply immediately, effective August 25. 2021, to any subsequent disclosure with respect to those fiscal years (or any interim period during such fiscal year), despite the fact that NI 52-112 does not apply to prior information regarding such fiscal years (or any interim period ) made before 25 August 2021 (for example, with regard to the first and second quarters of 2021)).
On February 13, 2020, the CSA issued revised proposals for NI 52-112 and Companion Policy (collectively, the revised proposals), which contained substantial changes to the original CSA proposals for NI 52-112 and the Companion Policy. Supplementary Instruction, which were first posted for comment on September 6, 2018. For more information see our February 2020 Blake Bulletin: CSA Proposes Revised Non-GAAP Rule and Other Financial Measures.
In their May 27, 2021 publication, the CSA state that the final versions of NI 52-112 and Companion Policy contain targeted and not significant changes from the revised proposals, which are intended to clarify and streamline the application of the Regulation. Regulation 52-112. and the disclosure requirements contained therein. As NI 52-112 and Policy Statement have been issued in final form, there is no further comment period on them.
Regulation 52-112 applies to:
- all reporting issuers (other than investment funds, “designated foreign issuers” or “foreign SEC issuers”) with respect to the disclosure of non-GAAP financial measures (historical or prospective), ratios non-GAAP, the total of industry measures, capital management measures and additional financial measures (collectively, the specified financial measures) in a document that is intended to be, or reasonably likely to be, made available from the public, and
- non-reporting issuers with respect to the disclosure of financial measures determined in a document made available to the public and subject to prospectus requirements, filed with the securities regulatory authorities in connection with a distribution of securities made on the basis of on the exemption offering memorandum, or submitted to a recognized stock exchange in the context of an eligible transaction, a reverse takeover, a change of activity, a request for listing, a significant acquisition or similar transaction.
CHANGES FROM REVISED PROPOSALS
As a result of its stakeholder awareness and engagement process with respect to the revised proposals, the CSA made the following changes to the revised proposals in the final versions of NI 52-112 and Companion Policy:
Introduction of new exceptions to the scope of Regulation 52-112;
Various restricted and clarified definitions and disclosure requirements;
Incorporation by reference for certain (but not all) required information relating to specified financial measures included in an earnings press release;
Enlarged incorporation by reference in the issuer’s MD&A for certain information required for all specified financial measures; and
Additional exceptions to the application of Regulation 52-112
In addition to the scope exceptions that were included in the revised proposals, the final form of NI 52-112 will not apply:
- the disclosure of a financial measure specified by an issuer where the calculation of that measure is derived from a financial commitment in a written agreement to which the issuer is a party (ie a credit agreement);
- reports prepared by a person or company, other than the issuer that is the subject of the specified financial measure (for example, the specified financial measures contained in valuation reports or fairness opinions prepared by a third party that are filed or incorporated by reference into a document filed by an issuer), although any specified financial actions arising from third party reports that are taken and disclosed by the issuer are subject to NI 52-112; and
- disclosure of financial measures specified by registered dealers, advisers or investment fund managers (collectively, listed companies), if the document in which a disclosure is made is intended to be, or is reasonably likely to be, made available to a client or prospect client of the registered firm and the measure does not relate to the financial performance, condition or cash flow of the registered firm.
Compared to the revised proposals, the final version of NI 52-112 also contains a partial exception for certain specified financial measures that must be disclosed under Form 51-102A6 Executive compensation statement (form 51-102F6) or form 51-102F6V Statement of Executive Compensation – Venture Issuers. However, in deviation from the current requirements of Form 51-102F6 regarding the disclosure of performance objectives or similar conditions that are non-GAAP financial measures, Regulation 52-112 will require applicable reporting issuers, close to the first disclosure of every historical non-GAAP financial measure, total industry measures and any capital management measure that is not disclosed as a ratio, fraction, percentage or similar representation, disclose (directly or by incorporating by reference of their MD&A) in the format, a quantitative reconciliation of the measure to the most directly comparable financial measure disclosed in the issuer’s main financial statements.
Incorporation by reference
While the revised proposals allowed issuers to incorporate by reference certain separate information (including quantitative reconciliations) from the issuer’s MD&A, the revised proposals did not allow such incorporation by reference for press releases on the issuer. results filed by an issuer. The final version of NI 52-112 allows issuers to incorporate by reference in their MD&A most of the required information (but not the quantitative reconciliations) with respect to specified financial measures included in their earnings press releases . As such, reporting issuers will now be required to include full quantitative reconciliations of non-GAAP financial measures, total industry measures and capital management measures, as well as a description of any material differences between a prospective non-GAAP financial measure. GAAP and its historical equivalent, in their earnings press releases. In our experience, this will be a change for many issuers who, until now, have simply referred the reader to this information in their MD&A.
Finally, the final version of NI 52-112 also specifies that issuers cannot incorporate by reference the information required with respect to specific financial measures from one MD&A to another.
Regulation 52-112 and Companion Policy are expected to come into force on August 25, 2021, provided all necessary ministerial approvals are obtained. As noted above, NI 52-112 will apply to applicable disclosures of non-GAAP financial measures and other financial measures specified by reporting issuers in respect of fiscal years ending on or after October 15, 2021 and by non-reporting issuers applicable after December 31. 2021. Prior to the application of NI 52-112 and the Companion Policy, issuers should continue to follow the guidelines of NI 52-306, which will be withdrawn following the transition to NI 52-112 and Companion Policy. finished.