OSC Review Shows Issuers Must Improve Disclosure of Going Concern Risks

TORONTO – The OSC today published Staff Notice 52-719 Going Concern Disclosure Review, which provides results of a review on the adequacy and timeliness of disclosure to investors of an issuer’s ability to continue business operations in the face of significant risks.

OSC Staff reviewed going concern disclosure within regulatory filings of 105 reporting issuers, most of which were junior issuers. The review is a result of the OSC’s response to developments in the markets in 2008-09. Among the issuers reviewed for going concern disclosure, 76 were operating with an elevated risk of financial difficulty, while 29 issuers had recently ceased operations.

Of the operating issuers, the OSC found:

• In their notes to financial statements, operating issuers disclosed material uncertainties. However, 41 per cent did not state these uncertainties may cast significant doubt upon their ability to continue as a going concern;
• In their management’s discussion and analysis (MD&A), 17 per cent of operating issuers did not discuss going concern risk. Another 61 per cent provided generic or incomplete disclosure;

Of the issuers which had recently ceased operations, the OSC found:

• In financial statements, 28 per cent had not disclosed any going concern risk, while another 20 per cent had provided incomplete disclosure;
• Within the MD&A, 21 per cent had not discussed going concern risk, while another 52 per cent provided incomplete disclosure.

“Issuers must provide transparency of the uncertainties which may affect their ability to continue as a going concern,” said Leslie Byberg, Director, Corporate Finance at the OSC. “By providing timely and robust disclosure on going concern matters such as operations, liquidity and capital, issuers can help investors make decisions that potentially avoid or minimize negative consequences.”

The OSC notice provides additional guidance and examples to help issuers improve going concern disclosure in future filings. The OSC will continue to monitor continuous disclosure and prospectus filings for disclosure of going concern risks. If disclosure is deficient, issuers should expect requests for prospective enhancements or requests for refilings. The notice is available on the OSC Website.

 

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