CSA Updates Guidance on Non-GAAP Financial Measures


On January 14, 2016, the Canadian Securities Administrators (CSA) updated its guidance on non-GAAP financial measures to reflect amendments to IAS 1 Presentation of Financial Statements regarding additional subtotals presented in financial statements. Issuers are reminded that this guidance applies to issuers that disclose non-GAAP financial measures to help ensure that the disclosure is not misleading to investors.

A non-GAAP financial measure is a numerical measure of an issuer’s historical or future financial performance, financial position or cash flow that is not specified, defined or determined under the issuer’s GAAP and is not presented in the issuer’s financial statements. The CSA notes that some issuers disclose non-GAAP financial measures in press releases, management’s discussion and analysis, prospectus filings, websites and marketing materials. The problem with non-GAAP financial measures is that these measures may present a more positive picture of financial performance by omitting selected items. Terms used to identify non-GAAP financial measures may include “pro forma earnings”, “cash earnings”, “free cash flow”, “distributable cash”, “Adjusted EBITDA”, “adjusted earnings”, and “earnings before non-recurring items”.

The CSA is concerned that investors may be confused or misled by non-GAAP financial measures since different issuers may use the same term to refer to different calculations. These concerns can be addressed by including appropriate disclosure with respect to non-GAAP financial measures. Therefore, issuers should be mindful of this guidance as regulatory action may be taken if an issuer discloses misleading information that may be harmful to the public interest.

The CSA guidance can be found here.

If you have questions about the guidance, contact any member of Clark Wilson’s Corporate Finance & Securities Group.