CSA Guidance on Forward-Looking Information Requirements

February 2010

On November 20, 2009, the Canadian Securities Administrators (CSA) published CSA Staff Notice 51-330 (the Staff Notice) providing guidance on the forward-looking information (FLI) requirements in Parts 4A and 4B of National Instrument 51-102 – Continuous Disclosure Obligations (NI 51-102) that came into effect on December 31, 2007.  The Staff Notice followed reviews conducted by the CSA on various disclosure documents such as annual information forms, management discussion and analyses, news releases and investor presentations on company websites.  The following is a brief summary of the items covered by the Staff Notice.

Identification of FLI

NI 51-102 does not prescribe the manner in which an issuer is required to identify material FLI, but as noted in the Companion Policy to NI 51-102, such disclosure should be presented in a manner that allows a reader to readily identify the FLI.  The CSA noted that many issuers identified material FLI solely through a cautionary paragraph at the beginning or end of the disclosure document.  Where issuers use this approach, rather than identifying material FLI as it is used, the CSA encourages issuers to give readers an indication of the nature of the material FLI covered in the document, as this would allow a reader to more readily identify material FLI when it is encountered in the document.  The CSA advises that general descriptions, such as identifying FLI only by referring to types of words that could identify FLI (such as "believes", "may", "likely" or "anticipates"), or by stating that all statements, other than statements of historical fact, are FLI, will not be adequate as they would not enable a reader to readily identify material FLI included in the document or disclosure.  Additional, more specific identification of material FLI needs to be included.  The CSA also encourages issuers to avoid including statements that a document contains FLI when this is not the case.

Disclosure regarding material risk factors and material factors or assumptions

NI 51-102 requires issuers that disclose material FLI to include disclosure that identifies material risk factors that could cause actual results to differ materially from the FLI.  In the CSA's view, neglecting to discuss the underlying factors or assumptions, or stating that there are factors or assumptions without identifying them, does not comply with the requirements of NI 51-102.  While incorporation by reference is not precluded, the CSA suggests that issuers consider whether incorporating by reference material risk factors and material factors or assumptions contained in another document enables a reader to readily inform himself or herself of these factors and assumptions associated with the material FLI.  The CSA also recommends that issuers should avoid "boilerplate" disclosure and should disclose material risk factors and material factors and assumptions that are relevant to the FLI.  Finally, the CSA encourages issuers to consider using user-friendly presentation methods, such as tables or other methods, that clearly link specific material risk factors and material factors and assumptions to particular FLI.

Updating practices

The CSA notes that issuers must update previously disclosed FLI in certain circumstances and therefore statements in disclosure documents that issuers have no obligation to update FLI are inappropriate. Issuers should ensure they have NI 51-102-compliant FLI updating policies.

Explanation of purpose of, and cautionary language related to, financial outlook or future-oriented financial information (FOFI)

The Staff Notice states that the obligations in NI 51-102 to disclose the purpose of disclosed FOFI or a financial outlook, and to caution readers that the FOFI or financial outlook may not be appropriate for other purposes, are in addition to the disclosure of material risk factors and material factors or assumptions required for FLI.  Disclosing material risk factors and material factors or assumptions contained in a cautionary paragraph at the beginning or end of a document will not generally satisfy this requirement.

Disclosure regarding goals or targets

The Staff Notice states that a goal or target could constitute FLI if the goal or target would be "possible" based on assumptions about future economic conditions and courses of action.  The CSA expects an issuer to disclose a target or goal only if it is "possible" to achieve.  In the view of the CSA, a disclosed target or goal can constitute FLI and, if material, the document containing the FLI should include disclosure regarding this goal or target that complies with the FLI requirements in NI 51-102, including the additional requirements required for FLI that constitutes a financial outlook.  The CSA advises that if management determines that a disclosed material target or goal does not constitute material FLI, management should consider including additional disclosure explaining the purpose of the information.

Impact of the transition to IFRS on FOFI or financial outlooks

NI 51-102 requires that FOFI or a financial outlook be based on the accounting policies that the issuer expects to use to prepare its historical financial statements for the period covered by the FOFI or the financial outlook. As IFRS will replace GAAP for public companies for fiscal years beginning on or after January 1, 2011, issuers should ensure that FOFI or financial outlooks that cover their 2011 fiscal year are based on the appropriate accounting policies.

This is only a brief summary of the Staff Notice and is not, nor should it be construed as, legal advice. You should contact your Lang Michener advisor directly for more information about the Staff Notice and FLI requirements.  The full text of the Staff Notice is available here.

David Mendicino is an associate in the Corporate Finance/Securities Law Group in Toronto. Contact him directly at 416-307-4053 or dmendicino@langmichener.ca.   

This article appeared in the Lang Michener LLP Securities/M&A Brief, Winter 2010. It aslo appeared as a Lang Michener LLP Securities Alert in December 2009. To subscribe to this publication, please visit our Publications Request page.