We understand the need for staying up to date on the current financial reporting issues for Canadian reporting issuers. This publication provides companies with a brief overview of the top reporting issues for the second quarter of 2016.
In this edition we cover:
Exempt market filings
The Canadian Securities Administrators (CSA) issued a notice that effective May 24, 2016 certain documents associated with exempt market filings will be required to be filed through System for Electronic Document Analysis and Retrieval (SEDAR) rather than in paper format, in all Canadian jurisdictions other than British Columbia and Ontario. British Columbia and Ontario have their own systems for submitting filings to their respective Securities Commissions.
What does this mean?...Essentially certain private placements documents that y weren’t easily available to the public and had to be requested from the securities commissions will now be publicly available for anyone to review. This includes the offering memorandum where the offering memorandum exemption is used and the crowdfunding offering memorandum where the crowdfunding prospectus exemptions is used.
The various filings required by the notice will be filed through SEDAR into one of following three categories:
- Auto-Public – publicly available through the SEDAR website;
- Private - filed through SEDAR but only the regulator will be able to view it, unless it’s changed to become publicly available by the regulator; or
- Private, Non-public – filed through SEDAR but will never be posted on the SEDAR website.
Exempt market filings required to be made on SEDAR include:
- Form 45-106F1 Report of Exempt Distribution (Form 45-106F1) and the related schedules,
- Materials to filed in connection with the offering memorandum prospectus exemption, the start-up crowdfunding prospectus exemption, the crowdfunding prospectus exemption, and
- Disclosure documents delivered to subscribers under section 37.2 of the Securities Regulation (Quebec) and financial statements of “mutual funds in the jurisdiction” as defined in National Instrument 81-106 Investment Funds Continuous Disclosure.
The CSA also posted Multilateral CSA Staff Notice 13-323 Frequently Asked Questions About Making Exempt Market Offering and Disclosure Filings on SEDAR to assist issuers that are required to make exempt market filings on SEDAR.
Proposed amendments to the TSX Company Manual
In May 2016, the TSX issued proposals to make certain changes to its corporate finance manual, which among other things would require:
- Listed issuers to maintain a publicly accessible website providing appropriate disclosure of specified files; and to
- Amend the disclosure requirements regarding security based compensation arrangements.
These changes will put the TSX in line with other significant stock exchanges such as the NYSE exchange and AIM exchange, where websites are required and there is a mandatory listing of information to be included on the site.
What is being proposed for required posting to a website? This would include:
- Constating documents, which are a company’s incorporation type documents;
- Corporate policies that impact shareholder meetings and voting;
- Rights plans and stock based compensation arrangements would also be posted; and
- Certain corporate governance documents
TSX is also proposing changes to expand the scope of the section of its manual regarding stock based compensation arrangements. These changes are being proposed to reflect changes in compensation arrangements over the last few years as companies move away from traditional stock options to items such as deferred share or restricted share unit plans. The proposals would also require all compensation plans to be approved by the majority of the directors; and shareholders.
As part of the proposed changes to stock based compensation, the TSX is proposing simplified disclosure requirements through some new disclosure initiatives aimed at more closely balancing the need for investors to understand a company’s compensation arrangements with the cost and burden associated with unnecessary disclosures or disclosure overload.
Clarifications to IFRS 15
The International Accounting Standards Board (IASB) has issued amendments to IFRS 15 Revenue from Contracts with Customers. The amendments address five keys related to the implementation of the standard:
Identification of performance obligations – The amendments clarify when goods or services are accounted for as a single performance obligation or bundled together (i.e. when items are “distinct”). A promised good or service is distinct when (1) a customer can benefit from it on its own or together with other resources and (2) the promise to transfer goods or services is separately identifiable from other promises in the contract.
Principal vs. agent – The amendments provide clarity on how to assess whether an entity is acting as a principal or an agent (i.e. gross vs. net revenue presentation). The amendments clarify:
- The unit of account for evaluation is the specified good or service, which is a distinct good or service (or a bundle);
- An entity is a principal if it controls the promised good or service before transferring to the customer; and
- A list of non-exhaustive factors indicating an entity is the principal in the transaction have been added.
Licensing Arrangements – The amendments clarify that the following activities significantly impact the intellectual property (IP) to which the customer had rights, which determines whether revenue is recognized over time, or at a point in time:
- change the form functionality of the IP; or
- changes that affect the ability of the customer to obtain benefit from the IP.
Sales and usage based royalties - the amendments clarify that when the predominant item to which the royalty relates is a license of IP, the royalty constraint is applied to the overall royalty stream. As well, arrangements that include sales-based or usage-based royalties would either be in the scope of the royalty constraint or are in the scope of the general variable consideration constraint, but not both.
Practical expedients - Two additional practical expedients were added to the standard:
- For completed contracts, an entity need not restate contracts that begin and end within the same annual reporting period or are completed contracts at the beginning of the earliest year presented. However, this is only available under the full retrospective method.
- For contracts that were modified before the beginning of the earliest period presented, an entity need not retrospectively restate the contract for those contract modifications. It will aggregate the effect of all the modifications that occur before the beginning of the earliest year presented or for all contract modifications before the date of initial application. This may be used if the cumulative effect method is used.
IFRIC Agenda Decisions
The IFRS Interpretations Committee has delivered a few agenda decisions during the past quarter. Should any of the following responses impact your company’s financial reporting, please refer to our webinar here for full details.
Variable payments for asset purchases – Accounting for variable payments to be made for the purchase of property, plant and equipment or an intangible asset, which are not part of a business combination.
Presentation – Classification of liability for a prepaid card - How would an entity classify a liability arising from the issue of a prepaid card? Specifically, one with no expiry, not refundable, redeemable only for goods or services, redeemable at select merchants and not containing any back-end fees.
Determining hedge effectiveness for net investment hedges - How should an entity determine hedge effectiveness when accounting for net investment hedges in accordance with IFRS 9? Specifically, should the ‘lower of’ test that is required for cash flow hedges also be applied for determining the effective portion?
Derecognition of modified financial assets - Clarification of the requirements in IFRS 9 and IAS 39 when a modification or exchange of a financial asset results in the original asset being derecognised
Accounting for repayable cash receipts - Whether the entity must recognize the cash received as a liability or in profit or loss when the cash is repayable only if the entity exploits and commercializes a project.
Recoverable amount and carrying amount of cash-generating unit - whether an alternative approach should be required, when considering recognized liabilities for determining the recoverable amount of a cash- generating unit (CGU) within the context of an impairment test for a CGU.
To learn more, contact your local BDO Canada LLP office or a member of Public Company Services Team.
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