CSA Staff Review of Non-GAAP and Other Financial Measures Disclosure

January 17, 2023
TSX Building


On November 3, 2022, the Canadian Securities Administrators (CSA) published CSA Staff Notice 51-364 (the “Report“) to summarize the results of continuous disclosure reviews conducted by CSA staff over two years ending March 31, 2022. The Report appended a summary resulting from the CSA’s review of approximately 85 issuers to assess compliance with certain aspects of National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure (“NI 52-112“), replacing the guidance in CSA Staff Notice 52-306 (Revised) — Non-GAAP Financial Measures.

NI 52-112 and Companion Policy 52-112 Non-GAAP and Other Financial Measures Disclosure (the “Companion Policy“) came into effect on August 25, 2021. NI 52-112 codified new requirements for the disclosure of non-GAAP financial measures and ratios, and other financial measures (e.g., capital management measures, total of segments measures and supplementary financial measures).

Financial Reporting and Disclosure During Economic Uncertainty

As part of the CSA’s continuous disclosure review program activities in 2021 (the “CD Review“), the CSA reviewed certain disclosure documents (i.e., annual MD&As, related earnings releases and investor presentations) and have highlighted key areas of deficiencies in Appendix B to the Report. Appendix B also describes the common deficiencies noted in the CD Review and provides guidance for meeting the requirements of NI 52-112.

The Report identified and highlighted the potential impacts of the current economic environment on financial reporting and other disclosures. In particular, supply chain issues, the COVID-19 pandemic, labour shortages, high energy costs, inflationary pressures, rising interest rates, and more. These are all factors that are affecting current economic conditions and increasing economic uncertainty, which may impact issuers’ operating performance, financial position, and future prospects. As a result, issuers should carefully evaluate and explain how economic uncertainty and changes in assumptions affect their operations and the amounts reported in the financial statements. Audit committees and external auditors must be diligent in fulfilling their responsibilities to ensure that investors receive accurate, transparent, and timely information that supports investment decisions. Issuers must also consider how economic uncertainty impacts the application of MD&A and other disclosure requirements when filing a prospectus-level disclosure documents with securities regulatory authorities.

The Report identified the following common deficiencies based on the continuous disclosure documents and investor presentations that were reviewed:

What is a Non-GAAP Financial Measure?

A “non-GAAP financial measure” is defined in NI 52-112 as a financial measure disclosed by an issuer that (a) depicts the historical or expected future financial performance, financial position or cash flow of an entity, (b) with respect to its composition, excludes an amount that is included in, or includes an amount that is excluded from, the composition of the most directly comparable financial measure disclosed in the primary financial statements of the entity, (c) is not disclosed in the financial statements of the entity, and (d) is not a ratio, fraction, percentage or similar representation.

The Companion Policy clarifies that the following items are not considered “non-GAAP financial measures” for the purposes of NI 52-112:

  • Amounts that do not depict historical or future “financial performance”, “financial position” or “cash flow”, which relate to elements of the financial statements, such as share price, market capitalization, or credit rating;
  • Financial information that does not have the effect of providing a financial measure that is different from a financial measure presented in the financial statements, such as the addition or subtraction of an identical line item, subtotal or total originating from multiple periods of primary financial statements; and
  • Non-financial information, such as number of units, number of subscribers, volumetric information and number of employees.

Earnings Releases

The Report states that an earnings release that discloses a non-GAAP financial measure (either historical or forward-looking), a total segments measure, or a capital management measure, must, amongst other things, include the required quantitative reconciliation in the earnings release. This is enumerated in subsection 6(1)(e)(ii)(C) of NI 52-112. It is important to note however, that incorporating a reconciliation previously disclosed in an MD&A by reference is not permitted.

The Report further reminds issuers that a non-GAAP financial measure should not be presented with more prominence that that of the most directly compatible measure disclosed in the primary financial statements. These factors are discussed in depth in paragraph 6(1)(d) of the Companion Policy.

Non-GAAP Financial Measures that are Forward-Looking Information (“Non-GAAP FLI”)

Issuers must disclose significant differences between the Non-GAAP FLI and its equivalent historical non-GAAP financial measure. It is insufficient to only disclose material factors and assumptions used to develop the Non-GAAP FLI; although these material factors and assumptions may supplement the disclosure of the significant differences between Non-GAAP FLI and its historical non-GAAP counterpart. In other words, if a reporting issuer discloses Non-GAAP FLI (e.g., adjusted net income for 2023), it must also disclose: (i) its 2022 historical figure (i.e., the 2022 adjusted net income) and the required disclosures relating to non-GAAP historical financial information in NI 52-112; as well as (ii) any significant differences between the two measures and an explanation as to what caused this expected increase/decrease (i.e., reasons for the expected increase/decrease in adjusted net income such as expanded/decreased capacity at the issuers facility).

Total of Segments Measured

A “total of segments measure” is defined in section 1 of NI 52-112 as “a financial measure disclosed by an issuer that (a) is a subtotal or total of two or more reportable segments of an entity, (b) is not a component of a line item disclosed in the primary financial statements of the entity, (c) is disclosed in the notes to the financial statements of the entity, and (d) is not disclosed in the primary financial statements of the entity”. The Report states that the CSA found that some issuers did not appropriately identify a total of segments measure and, as a result, failed to include required disclosures. The Report states that the mere inclusion of a financial measure among information on reportable segments is not sufficient, on its own, to conclude that the financial measure meets the definition under NI 51-112. In other words, a total of segments measure disclosed in the notes to the financial statements of an entity must contain additional disclosure when disclosed outside of the financial statements.

If the CSA views a total of segments measure as being included in a manner that is not consistent with the core principle of IFRS 8 Operating Segments, CSA staff can request the removal of the total of segments measure from the issuer’s financial statement notes. In such a case, the financial measure is deemed to be disclosed outside the financial statements and becomes a non-GAAP financial measure.

This distinction is important because NI 52-112 has differing disclosure requirements for “total of segment measures” and “non-GAAP financial measures.” These differences are critical for issuers to understand as these measures may be inappropriately used somewhere else in the financial statements without full disclosure.

Supplementary Financial Measures

The Report provides that reporting issuers need to be specific and consistent when labelling supplementary financial measures to avoid unintentionally misleading investors. NI 52-112 states that if an issuer chooses to disclose a supplementary financial measure in a document, they:

  1. must be labelled using a term that:
    1. given the measure’s composition, describes the measure; and
    2. distinguishes the measure from totals, subtotals, and line items disclosed in the primary financial statements of the issuer; and
  2. in proximity to the first instance of the supplementary financial measure in the document, the document discloses, directly or by incorporating it by reference,1 an explanation of the composition of the supplementary financial measure.

The rationale behind this is to avoid instances where a measure’s composition is inconsistent with well-established expectations as to that term’s composition. The Report provides an example with respect to the use of “Backlog”. The CSA notes that while it has been well-established that “Backlog” represents an issuer’s firm purchase orders, “Backlog” has been used to include other orders such as letters of interest or proposals outstanding.

Investor Presentations

With respect to investor presentations, the Report advises issuers to be cautious about incorporating disclosures by reference to MD&A’s that have not yet been filed or possess information about the specific financial measures disclosed in the investor presentation. The Report also reminds issuers that NI 52-112 requires issuers to specify the location of the information being incorporated by reference from an MD&A (e.g., the reference should identify the financial reporting period of the MD&A, as well as the specific section or page reference within the MD&A or provide a hyperlink). For example, a general reference such as “see the non-IFRS measures section in the MD&A” is insufficient.


The Report also noted the following deficiencies:

  • failure to provide required comparative information, such as a quantitative reconciliation, for all comparative periods presented; and
  • failure to disclose each non-GAAP financial measure that is used as a component of the non-GAAP ratio (including non-GAAP ratios that contain forward-looking information).

Key Takeaways

Issuers that use non-GAAP financial measures, non-GAAP ratios and other specified financial measures should carefully review the Report to ensure that their relevant disclosures are compliant with NI 52-112. Issuers that were found to not be in compliance may be faced with regulatory actions such as the refiling of financial statements and MD&A as well as other fines and penalties imposed by the securities regulatory authorities as a result of their failure to comply with the requirements set out in NI 52-112.


1 To the extent permitted under section 5 of Chapter 5 — Part 3 — Specified Financial Measure Disclosure of NI 52-112.

This publication is intended for general information purposes only and should not be relied upon as legal advice.