On February 13, the Canadian Securities Administrators (CSA) published a second notice and request for comments (Revised Proposal) on proposed National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure (NI 52-112) and a related companion policy. As we noted in our September 2018 article on the CSA’s first proposal, the regulators are concerned that many issuers disclose a range of non-GAAP financial measures that are not standardized, lack context when disclosed outside the issuer’s financial statements, lack transparency as to their calculation, and/or vary significantly by issuer or industry.
According to the Revised Proposal, many commenters supported the objectives underlying proposed NI 52-112. However, concerns were expressed about the scope and application of NI 52-112, the proposed definitions, and the increased regulatory burden associated with the new rule. The CSA has responded to those concerns by, among other things:
- Limiting NI 52-112’s application to certain issuers (g. investment funds, “SEC foreign issuers” and “designated foreign issuers” will be exempt from the rule);
- Exempting certain disclosure, financial measures and documents;
- Narrowing and clarifying various definitions;
- Limiting disclosures for capital management measures and total of segments measures;
- Simplifying the prescribed disclosures for non-GAAP financial measures that are forward-looking information and for non-GAAP ratios;
- Better aligning disclosure requirements with those adopted by other securities regulators; and
- Seeking to reduce uncertainty by clarifying disclosure requirements and providing significant guidance.
Although investment funds and certain other issuers got their wish to be exempt from NI 52-112, non-reporting issuers that raise funds in reliance upon the offering memorandum (OM) exemption will be subject to the new rule.
Comments are due on the proposal by May 13, 2020. If you would like to discuss NI 52-112, please reach out to your usual AUM lawyer.
February 28, 2020