Deficiencies in financial reports of small entities

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04 Feb 2006

The Canadian Securities Administrators (the consortium of securities regulators in Canada) have recently published a summary of some of the most common deficiencies they find when they review financial reporting by smaller issuers.

Although the review focused on companies with assets under $5 million, the CSA believes the guidance in their report will also be useful to larger issuers. The most common deficiencies found are in the following four areas:

1. Financial Statements

  • Enterprises in the Development Stage
  • Revenue Recognition
  • Interim Financial Statements
  • Related Party Transactions
  • Cash Flow Statements
  • New GAAP Requirements 2. Management's Discussion & Analysis (MD&A;)
  • Frequently, the MD&A; of smaller issuers contains superficial analyses that merely repeat the information in the accompanying financial statements, particularly on the following MD&A; topics:
    • Operational Analysis
    • Liquidity and Capital Resources
    • Projects Under Development
    • Related Party Transactions
    3. Mining and Oil and Gas Industries
  • Deficiencies in non-technical disclosures 4. Other Disclosure Issues
  • Issuer and Insider filing requirements
  • Timely Disclosure: The requirement for issuers to maintain an ongoing communication with the capital markets
  • Audit Committees: The mandatory role of audit committees and their involvement with corporate disclosure
  • Certification: CEO and CFO certifications of their issuer's annual and interim filings
Click to (PDF 325k).

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