Current Develpments: Canadian Securities and Auditing Matters March 2017 kpmg.ca
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, 2017. 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
Canadian Securities: New guidance Canadian Securities: New guidance Review f Investment Entities In March 2017, the Canadian Securities Administratrs (CSA) issued Staff Ntice (SN) 51-349 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 51-102 Cntinuus Disclsure Obligatins, as the issuers d nt meet the definitin f an investment fund under Natinal Instrument 81-106 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
Canadian Securities: New guidance Scial Media Used by Reprting Issuers In March 2017, the CSA issued SN 51-348 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 51-347 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
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 11-332 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
Canadian Securities: New guidance Reducing Regulatry Burden fr Nn-Investment Fund Reprting Issuers In April 2017, the CSA released Cnsultatin Paper 51-404 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, 2017. 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
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, 2016. 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 2017. 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
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, 2018. 8
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