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Canadian securities regulators reduce regulatory burden related to the interpretation of the primary business requirements

Apr 14, 2022

On April 14, 2022, the Canadian Securities Administrators (CSA) published changes to harmonize the interpretation of the financial statement requirements for a long form prospectus, such as in an issuer’s initial public offering (IPO). Specifically, the changes apply in situations where an issuer has acquired a business, or proposes to acquire a business, that a reasonable investor would regard as being the primary business of the issuer. The changes were informed by stakeholder feedback that certain inconsistent interpretations of the primary business requirements add time, cost and uncertainty for issuers.

The changes provide additional guidance on the interpretation of primary business including in what situations, and for which time periods, financial statements would be required. They provide guidance on the circumstances when additional information may be necessary for the prospectus to meet the requirement to contain full, true and plain disclosure of all material facts relating to the securities being distributed. The changes also clarify when an issuer can use the optional tests to calculate the significance of an acquisition, and when an acquisition of a mining asset would not be considered an acquisition of a business for securities legislation purposes.

Review the press release on the CSA's website and the changes on the OSC's website.

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In Brief – AcSB Exposure Draft – Customer’s Accounting for Cloud Computing Arrangements

Apr 14, 2022

On April 14, 2022, the Accounting Standards Board issued an In Brief, which provides an overview of Exposure Draft, "Customer’s Accounting for Cloud Computing Arrangements".

The proposals aim to simplify the accounting for cloud computing arrangements while ensuring entities can provide relevant information to their users.

Review the press release and publication on the AcSB's website.

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Canadian securities regulators seek input on disclosure standards for mineral projects

Apr 14, 2022

On April 14, 2022, the Staff of the Canadian Securities Administrators (CSA) published CSA Consultation Paper 43-401 "Consultation on National Instrument 43-101 Standards of Disclosure for Mineral Projects" seeking comments on Canada’s standards for disclosing scientific and technical information about mineral projects, as they consider ways to update and enhance those requirements. Comments are requested by July 13, 2022.

The CSA continually monitors the mineral disclosure requirements in NI 43-101, and has gathered data showing deficiencies in technical report disclosure identified through continuous disclosure reviews, prospectus reviews, and targeted issue-oriented reviews. These deficiencies include:

  • improper self-assessment by report authors of their independence, competence, expertise or relevant experience;
  • poor quality of scientific and technical disclosure for early stage exploration properties related to new stock exchange listings;
  • inadequate mineral resource estimation disclosure, including disclosure related to reasonable prospects for eventual economic extraction;
  • misuse of preliminary economic assessments; and inadequate disclosure of all business risks.

The consultation paper is seeking general comments and asking specific questions touching on a wide range of issues, including:

  • the application of innovative technologies to the requirement that a technical report author conduct a current personal inspection of a mineral project,
  • verification of data from previous property owners,
  • the broad, undefined range of precision of a preliminary economic assessment,
  • the independence of and qualifications for technical report authors,
  • disclosure requirements related to environmental matters, and
  • disclosure of the risks and uncertainties that arise as a result of the rights of Indigenous Peoples.

Review the following additional information:

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Yes, Investing in ESG Pays Off

Apr 13, 2022

Why are leaders so reluctant to make ESG investments? Even those who know they’ll pay off are reluctant to do so, for five key reasons. The authors outline each — the numbers hide the truth about the real cost, our biases trick us, we focus on short-term benefits, we think about costs in silos, and we miss the bigger existential costs — and propose a solution for getting past these flawed mental models.

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Webinar on the ISSB EDs

Apr 12, 2022

On April 12, 2022, the International Sustainability Standards Board (ISSB) announced that it is offering a live webinar on April 28 on its proposed standards on general sustainability-related disclosures and climate-related disclosures.

The webinar, hosted by ISSB Vice-Chair Sue Lloyd, will offer an overview of ED/2022/S1 General Requirements for Disclosure of Sustainability-Related Financial Information and ED/2022/S2 Climate-related Disclosures and will provide the opportunity to ask questions.

For the convenience of stakeholders in different time zones, there will be two sessions of the webinar, one a t 9:00 BST and one at 17:00 BST.

Registration for the webinar is now open on the IFRS Foundation's website.

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We Need Better Carbon Accounting. Here’s How to Get There

Apr 12, 2022

Any effective system of greenhouse gas (GHG) accounting needs to measure each company’s supply-chain carbon impacts accurately, providing visibility and incentives for it to make more climate-friendly product-specification and purchasing decisions. The current dominant system for carbon accounting, the GHG Protocol, misses this critical point by allowing companies to guestimate upstream and downstream emissions. To address this shortcoming, they introduced an E-liability accounting system, based on well-established practices from inventory and cost accounting, for accurately measuring GHG emissions across corporate supply-chains. In this article, they describe the basic flaw inherent in the GHG Protocol, explain why it has persisted, and offer a way forward for robust carbon accounting that does not involve rescinding the Protocol, which has been widely embedded in many global climate agreements. They conclude by identifying which companies stand to gain most from accurate GHG accounting and could be early adopters of the E-liability system.

PCAOB (US Public Company Accounting Oversight Board) (dark gray) Image

PCAOB requests comment on impact of auditing requirements related to estimates and specialists

Apr 11, 2022

On April 12, 2022, the Public Company Accounting Oversight Board (PCAOB) issued a Request for Comment on the initial impact of new requirements for auditing accounting estimates and using the work of specialists.

The PCAOB will evaluate comments received, along with other evidence obtained from the analysis, and consider whether additional guidance or other steps may be appropriate.

Review the following additional information on the PCAOB's website:

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Insurers face double hit from new accounting rules and new taxes

Apr 11, 2022

The federal government made a final decision on how it will implement IFRS 17 for insurance companies in the budget last week. IFRS 17 introduces a contract service margin (CSM) that defers revenue on new business value (NBV) gains related to insurance contract sales.

The government has decided to adopt IFRS 17 for income tax accounting purposes but to make an exemption for the CSM so that tax revenue is not deferred. Again, the total tax revenue does not change. Insurers simply cannot defer tax revenue by applying the CSM under IFRS 17.

Review the article on the Globe and Mail's website.

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Global ethics board expands universe of entities that are public interest entities

Apr 11, 2022

On April 11, 2022, the International Ethics Standards Board for Accountants (IESBA) released a revised definition of a PIE together with other revised provisions in the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code). The revised provisions specify a broader list of categories of entities as PIEs whose audits should be subject to additional independence requirements to meet stakeholders’ heightened expectations concerning auditor independence when an entity is a PIE.

To recognize diversity in jurisdictional contexts, the IESBA has taken a novel approach of expanding the PIE definition globally at a high level while providing guidance to regulators, national standard setters and other relevant local bodies on tailoring the broad definition for jurisdictional specificities. Among other matters, the revisions also:

  • Articulate an overarching objective for additional independence requirements for audits of financial statements of PIEs.
  • Provide guidance on factors to consider when determining the level of public interest in an entity.
  • Replace the term “listed entity” with a new term “publicly traded entity,” providing a definition of the latter term.
  • Recognize the essential role local bodies responsible for the adoption of the Code play in delineating the specific entities that should be scoped in as PIEs in their jurisdictions, encouraging them to properly refine the PIE categories and adding any other categories relevant to their environments.
  • Introduce a transparency requirement for firms to publicly disclose the application of independence requirements for PIEs where they have done so.

The IESBA coordinated the development of these revisions closely with the International Auditing and Assurance Standards Board (IAASB) given that some of the terms and concepts that were considered are common to both Boards’ standards. The IAASB is pursuing a project to consider a number of matters relevant to its standards arising from the finalization of the IESBA’s PIE provisions, including whether and how to address the transparency requirement noted above in the IAASB’s standards.

The revised PIE definition and related provisions become effective for audits of financial statements for periods beginning on or December 15, 2024. Early adoption is permitted and encouraged.

Review the press release and revised provisions on the IESBA's website.

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Climate Disclosure: Canada Mandates TCFD for Banks

Apr 11, 2022

The Canadian government unveiled its federal budget last week, with an entire chapter devoted to climate. As US companies assess the SEC’s climate disclosure proposal and shareholder demands, this requirement is another sign that regulators and investors are losing patience with voluntary disclosures about emissions and climate risks to companies, and moving towards mandates for comparable info.

Among other things, Section 3.4 of the budget calls on the investment industry and federally regulated financial institutions to support the “transition economy” on the path to net-zero emissions. Here’s an excerpt:

Climate Disclosures for Federally Regulated Institutions

  • The federal government is committed to moving towards mandatory reporting of climate-related financial risks across a broad spectrum of the Canadian economy, based on the international Task Force on Climate-related Financial Disclosures (TCFD) framework.
  • The Office of the Superintendent of Financial Institutions (OSFI) will consult federally regulated financial institutions on climate disclosure guidelines in 2022 and will require financial institutions to publish climate disclosures—aligned with the TCFD framework — using a phased approach, starting in 2024.
  • OSFI will also expect financial institutions to collect and assess information on climate risks and emissions from their clients.
  • As federally regulated banks and insurers play a prominent role in shaping Canada’s economy, OSFI guidance will have a significant impact on how Canadian businesses manage and report on climate-related risks and exposures.
  • Separately, the government will move forward with requirements for disclosure of environmental, social, and governance (ESG) considerations, including climate-related risks, for federally regulated pension plans.

This move follows a proposal last fall by the Canadian Securities Administrators to require TCFD-aligned reporting by issuers. That particular proposal is still under consideration.

Review the federal budget and climate chapter on the Government of Canada's website and summary on the Corporate Counsel's website.

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