CSA issues revisions to Staff Notice on non-gaap financial measures

Transcription

1 2016 Issue No January 2016 Financial Reporting Alert For publicly accountable entities Our Financial Reporting Alerts cover significant news, regulatory developments and changes that affect Canadian publicly accountable entities. They act as technical summaries to keep you on top of the latest issues. For more information, please contact your EY advisor. Refresher: Non-GAAP measures... 2 Refresher: disclosures accompanying non-gaap financial measures... 3 Transition... 3 CSA issues revisions to Staff Notice on non-gaap financial measures On 14 January 2016, the Canadian Securities Administrators (CSA) published a revision to Staff Notice , Non-GAAP Financial Measures, to reflect amendments to IAS 1 regarding additional subtotals presented in the financial statements. The primary purpose of CSA Staff Notice is to provide guidance to issuers that disclose non-gaap financial measures. The CSA believes that non- GAAP financial measures may mislead investors if not accompanied by appropriate disclosure, therefore the CSA continues to monitor the use of non- GAAP financial measures. Use of additional subtotals Staff Notice was formerly titled Non-GAAP and Additional GAAP Measures. Additional GAAP measures were previously defined as: A line item, heading or subtotal relevant to an understanding of the financial statements, but not a minimum line item mandated by IFRS, or

2 A financial measure in the notes to financial statements that is relevant to an understanding of the financial statements and is a measure not presented elsewhere in the financial statements. Existing IFRS requires presentation of such additional line items, headings, subtotals or other information, where relevant to an understanding of an entity s financial position and performance. The CSA guidance on additional GAAP measures was intended to ensure that such additional measures were not misleading to the public. In December 2014, the IASB issued Disclosure Initiative (Amendments to IAS 1). The amendments to IAS 1 were designed to address concerns expressed by constituents about existing presentation and disclosure requirements, and to encourage entities to use judgment in the application of IAS 1 when considering the layout and content of their financial statements. The amendments made to IAS 1 related to: Materiality and aggregation Information to be presented in the statement of financial position, the statement of profit or loss and other comprehensive income The structure of the notes to the financial statements The disclosure of accounting policies Of particular relevance to Staff Notice , the amendments to IAS 1 addressed presentation on the face of the statements, clarifying that subtotals, when used, should be labelled in a clear and understandable way, and made up of line items that are recognized and measured in accordance with IFRS standards. This amendment to IAS 1 was consistent with the previous guidance in Staff Notice related to presentation of additional GAAP measures. As a result, Staff Notice was revised to remove the general guidance on presentation of additional GAAP measures, which became redundant upon issuance of the amendment to IAS 1. The Staff Notice retained the existing guidance on disclosure of additional subtotals before filing of financial statements. This guidance addressed scenarios where an issuer chooses to present additional subtotals in a press release or some other location outside of its financial statements, before filing of the financial statements. In order to avoid confusion about these additional subtotals, Staff Notice recommends that issuers explain their composition, either by: Including a copy of the financial statement that contains these additional subtotals, or Reconciling these additional subtotals to the most directly comparable line item specified or defined by IFRS, that will be presented in the financial statements. Finally, the revised Staff Notice indicates that while the IAS 1 requirements for additional subtotals refer to subtotals presented in the statement of financial position, statement of profit or loss and statement of other comprehensive income, the guidance in IAS 1 will also help ensure additional subtotals presented in the cash flow statement do not mislead investors. The retained guidance regarding disclosure of subtotals before filing of financial statements applies equally to subtotals in the statement of cash flows. Refresher: non-gaap measures CSA Staff Notice defines a non-gaap financial measure as 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 (as that term is defined in National Instrument , Acceptable Accounting Principles and Auditing Standards) and is not presented in an issuer s financial statements. A non-gaap financial measure excludes amounts that are included in, or includes amounts that are CSA issues revisions to Staff Notice on non-gaap financial measures 2

3 excluded from, the most directly comparable measure specified, defined or determined under the issuer s GAAP. Non-GAAP financial measures are typically used by issuers in various disclosure documents, including press releases, management s discussion and analysis, prospectus filings, websites and marketing materials. Common non-gaap financial measures identified by the CSA include pro forma earnings, cash earnings, free cash flow, distributable cash, Adjusted EBITDA, adjusted earnings and earnings before non-recurring items. The revision to Staff Notice highlights that some issuers disclose performance measures that are calculated without financial measures (e.g., number of units or number of subscribers), or are calculated using financial information presented in the financial statements (e.g., sales per square foot, where the sales figure is extracted directly from the financial statements). In these scenarios, such performance measures are not considered non- GAAP financial measures. However, if a non- GAAP financial measure is used to calculate a performance measure (such as an adjusted earnings per unit measure), then this performance measure would be considered a non-gaap financial measure and Staff Notice would apply. Refresher: disclosures accompanying non-gaap financial measures CSA Staff Notice requires issuers to provide appropriate disclosures so that a non- GAAP financial measure is not misleading. The requirements under revised Staff Notice , which remain consistent to the 2012 notice, are to: State explicitly that the non-gaap financial measure does not have any standardized meaning under the issuer s GAAP and therefore may not be comparable to similar measures presented by other issuers Explain why the non-gaap financial measure provides useful information to investors and the additional purposes for which management uses the non-gaap financial measure Present with equal or greater prominence to that of the non-gaap financial measure the most directly comparable measure presented in the issuer s GAAP financial statements Provide a clear quantitative reconciliation from the non-gaap financial measure to the most directly comparable measure presented in the issuer s GAAP financial statements, referencing to the reconciliation when the non-gaap financial measure first appears in the document or, in the case of content on a website, in a manner that meets this objective Present the non-gaap financial measure on a consistent basis from period to period; however, where an issuer changes the composition of the non-gaap financial measure, explain the reason for the change and restate any comparative period presented Ensure that the non-gaap financial measure does not describe adjustments as nonrecurring, infrequent or unusual, when a similar loss or gain is reasonably likely to occur within the next two years or occurred during the prior two years The Staff Notice was also amended to more explicitly require non-gaap financial measure disclosures to name the non-gaap financial measure in a way that distinguishes it from disclosure items specified, defined or determined under an issuer s GAAP and in a way that is not misleading (e.g., in presenting EBITDA as a non- GAAP financial measure, it would be misleading to exclude amounts for items other than interest, taxes, depreciation and amortization). This is consistent with the previous guidance that the Staff Notice had provided for additional GAAP measures. Transition The amendment to IAS 1 is effective for fiscal year ends beginning on or after 1 January 2016, CSA issues revisions to Staff Notice on non-gaap financial measures 3

4 but early adoption is permitted. The revised Staff Notice does not address transition. However, to the extent that entities are not early adopting the amendment to IAS 1 in their 31 December 2015 financial statements, it would be appropriate to apply the Additional GAAP Measures guidance from the previous Staff Notice , which has been removed in the revision, for 31 December 2015 year ends. Learn more For more information on these and other financial reporting developments, please contact your EY advisor or one of the following professionals: Tom Kornya Canadian Assurance Leader tom.j.kornya@ca.ey.com Eastern Canada Sonya Fraser sonya.m.fraser@ca.ey.com Quebec Luc Bédard luc.bedard@ca.ey.com Tammy Mio tammy.mio@ca.ey.com Caroline Phisel caroline.phisel@ca.ey.com Ontario Laney Doyle laney.doyle@ca.ey.com Guy Jones guy.jones@ca.ey.com Blaine Hertzberger blaine.hertzberger@ca.ey.com Blake Langill blake.w.langill@ca.ey.com Elizabeth Maccabe elizabeth.maccabe@ca.ey.com Deanna Monaghan deanna.j.monaghan@ca.ey.com Boris Pavlin boris.pavlin@ca.ey.com George Prieksaitis george.w.prieksaitis@ca.ey.com Eric Spiekman eric.spiekman@ca.ey.com Winnipeg Mark Single mark.a.single@ca.ey.com Saskatoon Sam Whittaker Sam.Whittaker@ca.ey.com Calgary Matt Bootle matt.j.bootle@ca.ey.com Elena Bowes elena.s.bowes@ca.ey.com Kerry Clark kerry.clark@ca.ey.com Tammy Thompson tammy.g.thompson@ca.ey.com Edmonton Ross Haffie ross.m.haffie@ca.ey.com Vancouver Allan Russell allan.j.russell@ca.ey.com CSA issues revisions to Staff Notice on non-gaap financial measures 4

5 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. About EY s IFRS group The move to International Financial Reporting Standards (IFRS) is the single most important initiative in the financial reporting world, the impact of which stretches far beyond accounting to affect every key decision you make, not just how you report it. We have developed the global resources people and knowledge to support our client teams. And we work to give you the benefit of our broad sector experience, our deep subject matter knowledge and the latest insights from our work worldwide. It s how Ernst & Young makes a difference. For more information, visit ey.com/ca/tax Ernst & Young LLP. All rights reserved. A member firm of Ernst & Young Global Limited. This publication contains information in summary form, current as of the date of publication, and is intended for general guidance only. It should not be regarded as comprehensive or a substitute for professional advice. Before taking any particular course of action, contact Ernst & Young or another professional advisor to discuss these matters in the context of your particular circumstances. We accept no responsibility for any loss or damage occasioned by your reliance on information contained in this publication. ey.com CSA issues revisions to Staff Notice on non-gaap financial measures 5