Current Developments: Canadian Securities and Auditing Matters

Transcription

1 Current Develpments: Canadian Securities and Auditing Matters March 2017 kpmg.ca

2 Canadian Securities and Auditing Matters This editin prvides a summary f newly effective and frthcming regulatry and auditing matters in Canada frm January 1, 2017 t April 6, Canadian Securities: New guidance Review f Investment Entities Scial Media Used by Reprting Issuers Disclsure f Cyber Security Risks and Incidents Reducing Regulatry Burden fr Nn-Investment Fund Reprting Issuers Auditing Matters Auditr Reprting Mdel Nn-cmpliance with Laws and Regulatins 2

3 Canadian Securities: New guidance Canadian Securities: New guidance Review f Investment Entities In March 2017, the Canadian Securities Administratrs (CSA) issued Staff Ntice (SN) Reprt n the Review f Investment Entities and Guide fr Disclsure Imprvements. The reprt highlights bservatins frm staff in Ontari, Saskatchewan and Alberta frm a targeted review f reprting issuers wh determined they met the definitin f an investment entity under IFRS 10 Cnslidated Financial Statements and are subject t the requirements f Natinal Instrument Cntinuus Disclsure Obligatins, as the issuers d nt meet the definitin f an investment fund under Natinal Instrument Investment Fund Cntinuus Disclsure. Twelve f eighteen investment entities that have Ontari as its principal regulatr were reviewed representing ver 90% f the market capitalizatin. Five f the twelve reviews resulted in the entity being placed n the OSC Refilings and Errrs List fr material nn-cmpliance issues. Deficiencies included: management Discussin & Analysis (MD&A) insufficient discussin f the investment entity s peratins, investments (including prtfli changes) and risks and prminence f nn-gaap measures in MD&A; annual Infrmatin Frm (AIF) lack f specific risks and peratinal infrmatin regarding the investment entity s significantly cncentrated investments r investments in emerging markets; technical disclsure a technical reprt was nt filed t supprt the disclsure f mineral reserves and resurces. In additin, the reviews resulted in many prspective disclsure enhancements related t the fllwing: financial statements changes t the valuatin apprach fr investments in private cmpanies, fair value disclsures fr investments in private cmpanies, related party transactin disclsure and further disclsure f prtfli cmpsitin; MD&A enhanced analysis f fair value changes and valuatin methdlgies, trends and risks fr material investments, related party transactins and management cmpany fee disclsure and summary financial infrmatin fr significantly cncentrated investments; AIF mre detailed disclsure fr investment selectin and criteria, related party transactins, crprate structure, investee specific risk factrs and material cntracts; and infrmatin circular enhanced disclsure fr management cntracts and executive cmpensatin. Other ntable utcmes included the filing f insider and early warning reprted nt previusly filed and changes t internal insider reprting plicies. The highlights frm the review may als be applicable t nn-investment entities that recrd investments at fair value. crprate gvernance executive cmpensatin, crprate gvernance r audit cmmittee disclsure were nt included in the investment entity s filings; material cntracts cntracts nt filed; and 3

4 Canadian Securities: New guidance Scial Media Used by Reprting Issuers In March 2017, the CSA issued SN Staff s Review f Scial Media Used by Reprting Issuers based n a review f scial media use by 111 reprting issuers. The review included a review f infrmatin prvided n websites such as Facebk, Twitter, YuTube, LinkedIn, Instagram and GglePlus, as well as issuer s wn websites, message bards r blgs hsted n thse websites. The review identified three key areas where issuers are expected t imprve their disclsure practices: selective r early disclsure when sme investrs receive material infrmatin thrugh scial media that ther investrs d nt receive because it is nt generally disclsed; misleading and unbalanced scial media disclsure where infrmatin is nt sufficient t prvide a cmplete picture r is incnsistent with infrmatin already disclsed by issuers n SEDAR; and insufficient scial media gvernance plicies in place t supprt scial media activity. Where deficient disclsure was identified, ne r mre f the fllwing utcmes ccurred: issuers prvided clarifying disclsure n SEDAR and/r remved scial media disclsure; and/r The SN sets ut guiding principles t be fllwed in rder t prevent unbalanced, misleading r selective disclsure and als summarized disclsure requirements applicable t the presentatin f frward-lking infrmatin. Disclsure f Cyber Security Risks and Incidents In January 2017, the CSA issued SN Disclsure r Cyber Security Risk and Incidents t reprt the findings f staff frm British Clumbia, Ontari and Quebec frm a review f the annual filings f 240 issuers n the S&P/TSX Cmpsite Index related t cyber security matters. The SN summarizes sme f the key bservatins frm reviewing the annual filings. It was bserved that 61% f issuers identified cyber security issues in their risk factr disclsures. Issuers generally disclsed that their dependence n infrmatin technlgy systems renders them at risk fr cyber security breaches. Few issuers prvided disclsure regarding their particular vulnerability t cyber security incidents. Sme issuers als addressed the risk that third parties culd expse them t cyber security risks. Issuers are reminded that t the extent an issuer has determined that cyber security risk is a material risk, t prvide disclsure that is as detailed and entity specific as pssible; hwever, it is nt expected that issuers prvide disclsure details that are f a sensitive nature r culd cmprmise their cyber security. Materiality in cases f a cyber security risk turns n an analysis f the prbability that a breach will ccur, and the anticipated magnitude f its effect. issuers cmmitted t imprving prspective scial media disclsure and/r internal cntrls and plicies. 4

5 Canadian Securities: New guidance The SN lists factrs t cnsider when preparing disclsures. The SN als reminds issuers wh are required t establish and maintain disclsure cntrls and prcedures t apply such disclsure cntrls and prcedures t detected cyber security incidents, in rder t ensure these incidents are cmmunicated t management and a decisin regarding whether and what t reprt is made in a timely manner. In cnsidering whether and when t disclse a cyber security incident, the issuer must determine whether it is a material fact r material change that requires disclsure in accrdance with securities legislatin. The SN reminds issuers that as indicated in SN Cyber Security, it is expected that issuers will address in any cyber attack remediatin plan hw materiality f an attack wuld be assessed t determine whether and what, as well as when and hw, t disclse in the event f an attack. In the assessment, issuers shuld cnsider the impact n the cmpany s peratins and reputatin, its custmers, emplyees and investrs. Where an issuer has determined a cyber security incident shuld be disclsed, it may be apprpriate t prvide visibility as t the anticipated impact and csts f the incident. 5

6 Canadian Securities: New guidance Reducing Regulatry Burden fr Nn-Investment Fund Reprting Issuers In April 2017, the CSA released Cnsultatin Paper Cnsideratins fr Reducing Regulatry Burden fr Nn-Investment Fund Reprting Issuers t identify and cnsider areas f securities legislatin applicable t nn-investment fund reprting issuers where regulatry requirements culd be mdified withut cmprmising investr prtectin r the efficiency f the capital market. eliminating verlap in regulatry requirements; and enhancing electrnic delivery f dcuments Cmments must be submitted in writing by July 7, The CSA asks fr cmments n a number f ptins t reduce the regulatry burden assciated with bth capital raising in the public markets and the nging csts f remaining a reprting issuer including: extending the applicatin f streamlined rules fr venture issuers t smaller nnventure reprting issuers; reducing the regulatry burdens assciated with the prspectus rules and ffering prcess by: reducing the audited financial statements requirement in an initial public ffering prspectus; streamlining ther prspectus requirements; streamlining public fferings fr reprting issuers; and ther ptential areas reducing nging disclsure requirements by: remving r mdifying the criteria t file a business acquisitin reprt; reducing disclsure requirements in annual and interim filings; and permitting semi-annual reprting 6

7 Auditing Matters Auditing Matters Auditr Reprting Mdel Backgrund Mre insight and transparency In respnse t calls frm users fr the auditr s reprt t prvide mre than a pass/fail pinin, the Internatinal Auditing and Assurance Standards Bard (IAASB), has issued new requirements n auditr reprting. Withut changing the scpe f an independent audit, these requirements pen the dr fr the auditr t give users mre insight int the audit and imprve transparency. Fr listed cmpanies, the engagement partner s name will need t be disclsed, as will the key audit matters (i.e., thse areas where there were significant judgments r in which the auditr fcused n during the audit). Fr mre details, refer t KPMG s Audit Pint f View article. Update n the new auditr reprting requirements Internatinal Canada United States New and revised auditr reprting standards issued by the IAASB effective fr years ending n r after December 31, Auditing and Assurance Standards Bard (AASB) is deliberating cmments received n its invitatin t cmment. Cnsideratins include deferral f adptin date and whether t allw early adptin. On May 11, 2016, the PCAOB issued its reprpsal f The Auditr s Reprt n an Audit f Financial Statements when the auditr expresses an unqualified pinin. N adptin date has been specified. In Nvember 2016, the Chair f the AASB in Canada issued an update n auditr reprting indicating the AASB cntinues t deliberate ver the new and revised standards including whether key audit matter reprting shuld be required fr ther listed entities (TSX-V). The AASB expects key audit matters will first be required by TSX-listed entities and will cnduct research n expanding this requirement t ther listed entities. The PCAOB expects t finalize the U.S. auditr reprting standard in 2017 which will allw the AASB t determine the impact fr Crss-Listed Reprting Issuers by spring The AASB currently des nt anticipate making the CASs effective prir t perids ending n r after December 31, 2018; hwever, early adptin will be permitted, r in sme cases may be required by law r regulatin. Fr mre details, refer t the AASB update. 7

8 Auditing Matters Nn-cmpliance with Laws and Regulatins The AASB apprved revisins t CAS 250, Cnsideratin f Laws and Regulatins in an Audit f Financial Statements, and cnfrming amendments t ther standards, related t adptin f the IAASB s limited amendments t address nn-cmpliance with laws r regulatins. The AASB cncluded that changes made in finalizing the standards were nt significantly different frm the prpsals in the Expsure Draft and, therefre, n re-expsure is necessary. The Basis fr Cnclusins - CAS 250 summarizes the prcess fllwed in develping revisins t this standard and the cnclusins reached by the AASB. The amendments will be effective fr financial statement perids ending n r after December 15,

9 ( KPMG Internatinal ), a Swiss entity. All rights reserved. The KPMG name and lg are registered trademarks r trademarks f KPMG Internatinal. The infrmatin cntained herein is f a general nature and is nt intended t address the circumstances f any particular individual r entity. Althugh we endeavur t prvide accurate and timely infrmatin, there can be n guarantee that such infrmatin is accurate as f the date it is received r that it will cntinue t be accurate in the future. N ne shuld act n such infrmatin withut apprpriate prfessinal advice after a thrugh examinatin f the particular situatin. Print Back Hme 9