CHAPTER 01 10 Regulatory and Judicial Developments That GCs and Boards Need to Know
8 | No Immunity for Issuers: COVID-19 Disclosure
In February 2021, the CSA published CSA Staff Notice 51-362 – Staff Review of COVID-19 Disclosures and Guide for Disclosure Improvements, releasing the results of its review of issuers’ continuous disclosure relating to the impact of COVID-19 on their respective businesses. Although CSA staff noted that most issuers reviewed were proactive in providing quality and detailed disclosure, several areas were noted as warranting improvement, including the following: – Many issuers’ MD&A did not include an adequate discussion of measures taken to reduce the impact of COVID-19, and did not disclose in detail issuers’ ability to meet working capital requirements or to fund developmental activities and capital expenditures. – With respect to financial statements, some issuers failed to adequately update their disclosure and assumptions impacted by COVID-19 in the context of testing impairments of goodwill and intangible assets, measuring fair value and estimating expected credit losses. – In certain cases, CSA staff found issues with non-GAAP measures that were not adjusted for the impact of COVID-19, insufficient disclosure of the assumptions used to develop forward-looking information and overly promotional disclosure by some issuers in the biotech/pharma industry.
KEY TAKEAWAYS
– There is no one-size-fits-all approach. What is appropriate for one issuer may not be appropriate for another. Issuers are expected to be transparent and to provide meaningful, entity-specific disclosure that enables market participants to understand the impact of COVID-19 on their operations, financial condition, risks, trends and uncertainties. In many respects, CSA staff’s guidance is a microcosm of the overarching trend in other areas, including ESG and cybersecurity, in which non-quantitative, boilerplate disclosure is coming under scrutiny and can potentially form the basis for litigation or enforcement action. – Regulators are continuing to monitor. CSA staff is likely to continue to monitor the impact of COVID-19 on issuers’ businesses. Given the publication of detailed guidance, regulators are unlikely to have much patience for non- compliance; issuers therefore need to be particularly vigilant regarding COVID-19-related disclosure in the future.
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Davies | dwpv.com
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