Financial Reporting for Public Companies: What You Need to Know – Q1, 2017 Update

May 30, 2017

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Don’t have much time, but need to keep informed on financial reporting issues for Canadian reporting issuers?  This publication provides a quick overview of the top issues over the past quarter to help you ensure your company’s continuous disclosure obligations are met. For additional details, view our Public Company Financial Reporting Quarterly Update: Q1 2017 webinar

In this edition:

 

 


Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers

The CSA have recently issued a consultation paper requesting input from stakeholders on ways to reduce the regulatory burden for non-investment fund reporting issuers.  The CSA have provided similar amendments in the past and aim to provide further ease of regulation while continuing to protect stakeholder interests.  This paper sets out a number of potential options and encourages stakeholders to provide comments on the proposals and put forward other options not yet identified by the CSA.

The potential options outlined in the paper include:

  • Extending the application of streamlined rules to smaller reporting issuers
  • Reducing the regulatory burdens associated with the prospectus rules and offering process
  • Reducing ongoing disclosure requirements
  • Eliminating overlap in regulatory requirements
  • Enhancing electronic delivery of documents

Further details of the potential options presented in this paper are discussed in our webinar.  We encourage all interested parties to review the paper and consider providing feedback on the proposal to the CSA.

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Social Media Disclosure Review by the CSA

As we have all experienced, information flowing to us through a myriad of social media applications has emerged in recent years and has become a common and important venue for reporting issuers to connect with potential customers, shareholders and other stakeholders. Securities regulators are increasingly interested in the disclosures made through social media within their security reporting obligations.

A review was completed by the CSA staff, culminating in a Staff Notice based on a study of 111 reporting issuers.  This review delved into disclosures provided by reporting issuers on the following platforms:

  • Facebook
  • Twitter
  • YouTube
  • LinkedIn
  • Instagram
  • Google+
  • Issuer’s own websites, including on any message boards or blogs hosted on those websites

The CSA noted that while the majority of the reporting issuers in their sample did not raise securities-related concerns, they still considered the results to be significant, as approximately 30% of the reporting issuers in the sample took action to improve their disclosure in response to issues raised by the CSA.   

Under the CSA’s disclosure standards, it is considered fundamental that everyone investing in an entity’s securities should have equal access to information that would reasonably be expected to have an impact on their investment decision.  In their survey, the CSA cautioned reporting issuers about the following concerns:

  • Unbalanced and misleading disclosure
  • Selective disclosure
  • Forward-looking information
  • Lack of coordination about the timing of social media announcements
  • Third party posts on social media suggesting missing disclosure
  • Misleading or untrue statements
  • Analyst reports and other articles provided

As expected, the CSA strongly recommends that companies should implement a governance framework over information posted in the social media realm.  Specific examples of governance practices suggested for social media disclosures include defining:

  • Who can post on social media
  • What type of sites can be used
  • What type of information can be posted on social media
  • What, if any, approvals are required before information can be posted
  • Who is responsible for monitoring the reporting issuer's social media accounts, including third party postings about the reporting issuer

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Support for the Technology Industry by the BCSC

As part of their consultation work, the BCSC conducted a survey in February 2017 with various businesses and stakeholders active in the BC technology industry. They will consider their findings from the survey and their industry outreach work to determine how best to address the needs of BC technology stakeholders.  Types of BC technology sectors that the BCSC regulates are robo-advisors, online lenders and crowdfunding portals.

Robo-advisors are firms that provide financial advice or portfolio management online, with minimal human intervention.  The digital advice they provide is based on mathematical rules or logarithms using data derived from the “know your client” information submitted by an individual.  The entities behind these advisors are either registered as portfolio managers or as investment dealers. The BCSC has registered 10 robo-advisory firms to date.

Online lenders use the internet to process loan applications and assess creditworthiness of potential lenders, once again with minimal human intervention. 

Crowdfunding portals are used to raise a small amount of money from a large number of people and are regulated by the securities commissions in Canada.   The BCSC has published a guide for funding portals.  The funding portals must be registered with the BCSC unless they have received exemptive relief from doing so.  Currently, The BCSC has exempted seven firms from registration as crowdfunding portals and registered a further nine portals as exempt market dealers. 

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XBRL Now Mandated for Foreign Private Issuers Filing IFRS Financials

In 2009, the U.S. Securities and Exchange Commission (SEC) introduced regulation that requires companies to publish their financial statements in a format called XBRL. This format allows users of its financial information to download that information for analysis. These rules apply to all public companies and foreign private issuers that report using U.S. GAAP as well as foreign private issuers that report using IFRS.   

Until recently, foreign private issuers reporting under IFRS were exempt from using XBRL format until a taxonomy for IFRS was completed. On March 1, 2017, the SEC published an XBRL format for IFRS.  Although the existing rules require affected issuers to submit financial data in XBRL immediately upon publication of the IFRS taxonomy, the SEC has indicated that such issuers may first submit financial data in XBRL with their first annual report on Form 20-F or 40-F for a fiscal period ending on or after December 15, 2017.

Companies impacted by this change are reminded that this process will add time to their filing process, and that they should download the templates during the year to determine the amount of work that will be required to map their currently trial balance to the XBRL format.

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IFRS Update: New or Amended Standards and Interpretations

IFRIC 22, Foreign Currency Transactions and Advance Consideration, clarifies the date of the transaction in a foreign currency transaction when consideration is paid in advance (e.g. sales where consideration is paid prior to revenue recognition). This amendment is effective for periods beginning on or after January 1, 2018.

IFRS 1, First Time Adoption of International Financial Reporting Standards, has been amended to remove short-term exemptions dealing with IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits and IFRS 10 Consolidated Financial Statements. The reliefs provided are no longer applicable and had been available to entities for reporting periods that have now passed. This annual improvement is effective for periods beginning on or after January 1, 2018.

Amendments have been made to clarify the scope of IFRS 12, Disclosure of Interests in Other Entities, in respect of interests in entities within the scope of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Specifically it clarifies that entities are not exempt from all of the disclosure requirements in IFRS 12 when entities have been classified as held for sale or as discontinued operations. The standard as amended to clarify that the disclosure requirements set out in paragraphs B10 – 16 do not need to be provided for entities within the scope of IFRS 5. This annual improvement must be applied retrospectively for periods beginning on or after January 1, 2017. No transitional relief is available. 

IAS 28, Investments in Associates and Joint Ventures, has been amended to clarify that a venture capital organization, mutual fund, unit trust and similar entities (including investment-linked insurance funds) may choose, on an investment by investment basis, to account for its investments in joint ventures and associates at fair value or using the equity method. The amendment also makes it clear that the method chosen for each investment is to be made on initial recognition. This annual improvement must be applied retrospectively for periods beginning on or after January 1, 2018. No transitional relief is available.

IAS 40, Investment Property, requires a property to be transferred to, or from, investment property only when there is a change in use. The amendment clarifies that a change in management’s intentions for the use of a property does not in isolation provide evidence of a change in use. An entity may apply the amendment retrospectively to each prior reporting period presented applying IAS 8,  Accounting Policies, Changes in Accounting Estimates and Errors, but only if it is possible to do so without applying hindsight. Otherwise it applies the amendment to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments (the date of initial application). The amendment is effective for periods beginning on or after January 1, 2018.

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IFRS Discussion Group Update

The IFRS Discussion Group (IDG) meetings, while not technically authoritative, often provide useful insight into IFRS financial reporting issues.  Several of the topics discussed at their November 2016 meeting are particularly relevant to our public company client base, including the following:

  • Consider a financial instrument with a non-viability contingent conversion feature and whether the holder is allowed to make an irrevocable election to present fair value changes in other comprehensive income (IFRS 9)
  • Consider the implications of adopting IFRS 16, Leases, including the practical expedients available
  • Consider whether the gain or loss from the settlement of a shareholder loan should be recognized in profit or loss or treated as a capital transaction and recognized in equity (IAS 39, IFRIC 19)
  • Consider the IASB’s recent tentative decision to amend IAS 16, Property, Plant and Equipment and discuss how to best move forward with raising the issue of when an asset is capable of operating in the manner intended by management
  • Sources of exchange rates (IAS 21)
  • Change in tax rate for indefinite life intangible assets 
  • (IAS 8 and IAS 12)

Should any of these items impact your company’s financial reporting, please refer to our webinar for further details or access the IDG meeting notes or listen to the audio here.

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IFRS Interpretation Committee Agenda Decisions

The IFRS Interpretations Committee (IFRIC) held a meeting in March 2017 during which several agenda decisions were finalized, including:

  • IFRS 10 Consolidated Financial Statements—Investment entities and subsidiaries.
  • IAS 12 Income Taxes—Deferred taxes when acquiring a single-asset entity that is not a business 
  • IAS 28 Investments in Associates and Joint Ventures—Fund manager’s assessment of significant influence
  • Commodity loan transactions  (A bank borrows commodity from a third party and then lends that gold to a different third party for the same term and for a higher fee) 

Further, several tentative agenda decisions were discussed:

  • FRS 1 First-time Adoption of International Financial Reporting Standards—Subsidiary as a first-time adopter 
  • IFRS 9 Financial Instruments—Modifications or exchanges of financial liabilities that do not result in derecognition 
  • IAS 12 Income Taxes—Interest and penalties related to income taxes 
  • IAS 19 Employee Benefits—Discount rate in a country that has adopted another country’s currency 
  • IAS 32 Financial Instruments: Presentation—Centrally cleared client derivatives 
  • IAS 33 Earnings per Share—Tax arising from payments on participating equity instruments 
  • IAS 41 Agriculture—Biological assets growing on bearer plants 

 


Should any of these items impact your company’s financial reporting, please refer to our webinar.

Should you have any further questions on this or any matter related to public companies, we encourage you to contact a member of our Public Company service team or your BDO Advisor.