Importance of Issuer Specific Disclosure During COVID-19 Highlighted by CSA Continuous Disclosure Review Program

November 3, 2020

The Canadian Securities Administrators (CSA) have published a Staff Notice reporting on the results of their continuous disclosure review program (Review Program) which, in light of current circumstances, has a particular focus on guidance for issuers in addressing the impact of COVID-19, including examples of both deficient and improved disclosure specifically related to COVID-19.

  • The Staff Notice highlights deficiencies related to financial statement disclosure, management’s discussion and analysis (MD&A) and other general regulatory requirements.
  • Issuers are specifically reminded that disclosure should be transparent and entity-specific, especially in light of the current economic climate and the COVID-19 pandemic.

COVID-19 Specific Guidance

While the Staff Notice outlines general deficiencies found in financial statements, MD&A and other regulatory requirements, there is a significant focus on COVID-19 specific disclosure, some of which reiterates guidance previously provided by the CSA earlier this year in their presentation COVID-19 Continuous Disclosure Obligations and Considerations for Issuers, as we had discussed.

Issuers looking to improve their disclosure, particularly as it relates to any impacts of COVID-19, should consider the recommendations included in the Staff Notice, as described below.

Management’s Discussion & Analysis

Disclosure addressing liquidity and capital resources in an issuer’s MD&A should be tailored to the particular issuer and reflect COVID-19 specific impacts. Issuers are reminded to provide a comprehensive discussion of both the current and expected effects of the COVID-19 pandemic. Quantifying the impact is highly recommended where possible. To assist issuers, the CSA have provided examples of items that may require disclosure, including:

  • Any government subsidies and/or funding
  • Increased risks of accounts receivable collection
  • A reduction in demand leading to reduced cash flow
  • The impact of any cost cutting initiatives (i.e., employee layoffs, reduced hours of operations)
  • Delays in capital project plans
  • Changes in dividend policies.

With respect to an issuer’s discussion of operations, the CSA have provided examples of deficient disclosure along with recommendations for improvement:

Deficient Disclosure

Improved Disclosure


Deficient disclosure may provide specific quantitative information but does not include details about the methodology used by the issuer to determine the impact of COVID-19 on financial performance (revenues, net earnings, and earnings per share).

For example:

Results from the last quarter were impacted by COVID-19. Net earnings of $1.2 million, down by 25%.

 Improved disclosure will not only discuss the specific impact on operations that COVID-19 has had but will also provide detailed disclosure of the methodologies used to determine such impact. The methodologies should be explained in detail and information about any judgments and estimations used by management should be outlined.

For example:

Results from the last quarter were impacted by COVID-19, specifically, with the closure of 25 locations country-wide and 14 locations operating with limited capacity as take-out only. Net earnings decreased by $400 thousand, or 25% from the same period in the prior year. The decrease in net earnings is a result of the above described decreases in revenue and cost of goods sold as certain fixed costs, such as leases, head office salaries, and depreciation remained consistent from the prior period despite large decreases in revenue.

The CSA also remind issuers of the importance of providing contextual information regarding liquidity and capital resources and sufficient quantitative and qualitative information necessary for investors to understand the business purpose and economic substance of related party transactions.

Forward Looking Information

During their continuous disclosure review, the CSA made a number of observations with respect to forward-looking information (FLI). Issuers are reminded that they must include specified disclosure when disclosing material FLI. The CSA will generally consider future-oriented financial information (FOFI) and financial outlooks to be material. Boilerplate disclosure should be avoided in identifying FLI and issuers should aim to enable investors to understand FLI and its progress through the use of specific disclosure of material assumptions and risk factors relevant to the FLI.

More specifically related to COVID-19, issuers are urged to consider whether there remains a reasonable basis for previously disclosed FLI. If such basis no longer exists and FLI is no longer supported by reasonable assumptions, updates should be made, and where appropriate, FLI should be withdrawn.

Given the uncertainty created by COVID-19, a number of issuers have withdrawn their outlook or other forward-looking information over the past several months. While there may be pressure to reinstate it over the coming months, issuers will need to consider carefully whether they are able to comply with the application requirements relating to provision of FLI before doing so, including a discussion of materials assumptions and risks as outlined above.   

Non-GAAP Financial Measures

The CSA have observed the frequent use of non-GAAP financial measures (NGMs) through their Review Program. NGMs may be used by issuers to supplement and explain financial performance and financial conditions but may also be misleading to investors when not properly described. The Staff Notice provides examples of inadequate disclosure of NGMs and provides advice as to how issuers may improve their disclosure:

Deficient Disclosure

Improved Disclosure

Deficient disclosure will present NGMs with greater prominence than the most directly comparable measure presented in the issuer’s financial statements. NGMs may not be properly labelled. Adjustments and alternative measures related to COVID-19 may be used and may be described as non-recurring, even when there is limited basis for making such conclusion.

For example:

Financial Results of $10 million

Adjusted EBITDA* increased by 1% from the same period in the prior year to $10 million. Net earnings decreased 25% from the same period in the prior year to $4 million.

*Adjusted EBITDA is adjusted earnings before interest, taxes, depreciation, amortization and increases costs due to COVID-19. These increased costs are non-recurring and are due to the COVID-19 pandemic.

Improved disclosure will identify and label NGMs. The most directly comparable financial measure to the NGM will be presented with equal or greater prominence to that of the NGM. Issuers should explain how management has determined any NGMs and why the information is useful to investors. In addition, not all COVID-19 effects are non-recurring, particularly where the impact crosses over multiple reporting periods. Issuers are reminded of the guidance found in Staff Notice 52-306 (Revised) Non-GAAP Financial Measures, when describing losses or expenses as non-recurring, infrequent or unusual if it is reasonably likely that a similar loss will occur within a two-year period.

For example:

Company Reports Net Earnings of $4 Million and Adjusted EBITDA of $10 Million

Net earnings decreased 25% from the same period in the year to $ million. Adjusted EBITDA* increased by 1% from the same period in the prior year to $10 million.

*Adjusted EBITDA is a Non-GAAP Financial Measure. For more information refer to the section on Non-GAAP Financial Measures at the end of this news release, and below for a full reconciliation of adjusted EBITDA to the most comparable GAAP measure.

As a result of the COVID-19 pandemic, management expects decreased demand for our products for the remainder of 2020 and 2021. As a result, management has reorganized its operations to streamline production and reduce head office staff….Additional restructuring costs are expected in the subsequent interim period.

As a result of public health directives, the company implemented safety measures at manufacturing plan A to ensure the safety of employees. These costs include the cost of reconfiguring certain equipment to ensure physical distancing…The costs related to plant reconfiguration and installation of barriers are one-time costs, but the increased overhead costs ($0.1M) are expected to recur until physical distancing measures are no longer recommended.

These two adjustments provide useful information to investors as the resulting “Adjusted EBITDA” measure is comparable to the prior year measure and provides investors with management’s calculations of earnings resulting from the ongoing business operations. 

Issuers should refer to CSA Staff Notice 52-306 (Revised) Non-GAAP Financial Measures for additional guidance on NGM disclosure.

Financial Statement Disclosure

In reviewing financial statement disclosure, the CSA found that new judgments or estimates may be needed in several areas, including going concern assessment, impairment assessments, fair value calculations, government assistance, revenue recognition and deferred tax recoverability. The CSA acknowledge that issuers’ management are preparing financial statements based on potentially imperfect information, in an uncertain and ever-changing environment. Issuers are expected to make well-reasoned judgments based on the best available information at the time. Disclosure of significant judgments and estimation of uncertainties required by IAS 1, Presentation of Financial Statements should be included in financial statements.

Entity-specific disclosure is also important in financial statements as different judgments and estimates will be used by different issuers, even those that are similarly situated. Issuers are cautioned against condensing or omitting disclosure in interim financial statements where the information disclosed in the issuers’ latest annual financial statements has become less relevant in the rapidly changing environment.

The CSA also reminds issuers that consideration should be given to events and information up to the date that the financial statements are authorized in performing the going concern assessment.

Other areas highlighted as “hot button” issues related to financial statement disclosure include recognition and measurement of intangible assets, impairment of non-financial assets and disclosure with respect to operating segments.

Material Change Reports

The Staff Notice observes that some issuers do not issue material change reports in relation to material changes. As we have previously discussed, issuer specific impacts may require the filing of a material change report and issuers should remain aware of any COVID-19 impacts or governmental and regulatory policies that may be unique or more significant to them as compared to other issuers. Events and occurrences that impact the market or an industry generally would not usually constitute a material change in respect of the particular issuer, however  this requires a fact-specific and contextual analysis.

The CSA has provided examples of certain types of developments related to  COVID-19 that may constitute a “material change” in respect of an issuer:

  • Significant disruptions to an issuer’s workforce or operations
  • Negative changes in markets, economy or laws
  • Critical supply chain disruptions or delays
  • Increased costs of goods
  • Changes in credit arrangements

Assessment as to whether something is material to an issuer or is a material change should take into account a number of factors, including the nature of the information, the volatility of the issuer’s securities and prevailing market conditions. 

Overly Promotional Disclosure

In addition to the COVID-19 related observations and guidance described above, the Staff Notice also discusses more general matters that issuers should consider in satisfying their continuous disclosure obligations. In particular, the CSA observed disclosure that was overly promotional and at times untrue or unbalanced. Issuers are reminded that disclosure should be balanced and reflect both positive and negative developments, as we have previously discussed. Risks and contingencies related to new developments should also be disclosed.   The Staff Notice reminds issuers that when announcing pending favourable transactions they should also disclose the applicable material conditions to completion and provide updates if conditions are not expected to be met or the transaction is not completed. 


In addition to the matters discussed above, the Staff Notice also included observations related to insider reporting, early warning reporting and mineral project disclosure required under National Instrument 43-101 Standards of Disclosure for Mineral Projects.

The Staff Notice outlines the CSA’s Review Program and summarizes key findings and outcomes from the Review Program for the fiscal years ended March 31, 2019 and 2020. During 2019 and 2020, the CSA reviewed a total of 514 and 583 issuers, respectively. The majority of these reviews were issue-oriented reviews (70% in fiscal 2019 and 73% in fiscal 2020). Specific issues addressed during these periods included financial statements and MD&A, material change reports, news releases and technical reporting for the mining and oil & gas industries, among other things. In fiscal 2019, 17% of the issue-oriented reviews were specifically related to US marijuana related activities. With respect to results of the Review Program, in fiscal 2020, 55% of review outcomes required issuers to improve and/or amend disclosure, refile documents or to file documents that were originally unfiled. In fiscal 2019, these outcomes represented 67% of reviews.  

For further information, please see CSA Multilateral Staff Notice 51-361 Continuous Disclosure Review Program Activities for the fiscal years ended March 31, 2020 and March 31, 2019.

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