The author wishes to thank Gilles Leclerc for his advice and contributions.

“Nothing happens. Nobody comes, nobody goes. It’s awful.” This quote from Estragon, one of the main characters in Samuel Beckett’s play “Waiting for Godot”, summarizes well the previous year from an economic and social perspective. Today, while the hopes of a vaccine rollout and economic recovery are looming on the horizon,
the Covid-19 pandemic continues to have a material adverse impact on our economy. It poses widespread challenges for many businesses, including challenges in reporting and disclosing the effect of Covid-19 to investors.

In a series of bulletins[1] published last year, we highlighted the guidance provided by both the Canadian Securities Administrators (“CSA“) and the U.S. Securities Exchange Commission relating to the continuous disclosure obligations of public issuers in the context of Covid-19. On February 25, 2021,  CSA issued Staff Notice 51-362 (the “Staff Notice“) to report the results of  their review of the disclosure provided by reporting issuers on the impact of Covid-19 on their business. CSA examined the filings of approximately 90 issuers

Content of the CSA’s Staff Notice

The Staff Notice is divided into “Executive Summary”, “Scope and Methodology”, and “Results and Key Themes” sections. It also include some  examples and guidance to assist issuers and their advisors indisclosing and reporting on the impact of COVID-19 on their business and operations.

The “Executive Summary” section presents the high-level considerations and suggestions of CSA’s Staff regarding the disclosures provided by reporting issuers on the impact of COVID-19 on their business, while the .”Results and Key Themes” section highlights the areas and documents in which issuers provided quality and detailed disclosures. Concurrently, this section identifies topics for which issuers could improve their disclosure.

In addition, Appendix “A” to the Staff Notice details and expands on the significant issues identified in the Staff’s reviews and disclosure guidance, while Appendix “B’ provides examples of deficient disclosure contrasted against improved entity-specific disclosure. The Staff Notice, and more specifically the Appendixes, will be beneficial for issuers preparing the disclosure documents and, in particular, for those with a December 31 year-end that are currently in the middle of finalizing their annual disclosure.

Takeaways from the CSA’s Staff Notice

In general, the CSA was encouraged by the quality of disclosure provided by many issuers who have significantly expanded their MD&A to provide detailed operational updates addressing the pandemic’s impact.

However, the Staff Notice pointed out that the issuers failed to provide entity-specific details and, more often than not, provided unbalanced and overly promotional disclosure for non-GAAP financial measures and forward-looking information.

That being said, almost a year after Covid-19 was declared a pandemic, issuers must thoroughly assess their operations and favour disclosure of specific facts about the past and the likely future effect of the virus instead of adopting general and broad language that presents the risk in the hypothetical. In other words, just like each Covid-19 variant is country-specific, the disclosure of each issuer must be entity-specific.

Issuers must tailor their disclosures to provide investors with an entity-specific level of insight to understand the operational challenges, financial impacts, risk profile and the issuer’s operational responses related to the COVID-19 pandemic. The CSA noted that such information is necessary to meet securities requirements and foster investor confidence in the current environment. In particular, the CSA emphasized the following areas that ought to be considered in the issuers’ upcoming continuous disclosures:

  • The impact of COVID-19 on the issuer’s operations and financial condition (i.e., liquidity and capital resources)
  • The key risks that the COVID-19 pandemic presents to the issuer
  • Known trends, demands, events, or uncertainties related to the pandemic could materially affect the issuer’s future revenues, expenses or projects
  • The operational changes and other measures taken by management in response to Covid-19
  • Impact of Covid-19 on the issuer’s capacity to meet working capital requirements, debt covenants, planned growth or funding of future development activities and capital expenditures
  • Impact of Covid-19 on the issuer’s areas of financial reporting subject to significant judgement and measurement uncertainty in the current environment
  • Impairment of non-financial assets given the extended impact of the pandemic
  • Disclosures relating to key assumptions should be both realistic and supportable
  • The accounting policy for, the nature and extent of government grants recognized in the financial statements

Management’s Discussion & Analysis Reporting (“MD&A”)

Below are some key observations and disclosure considerations noted by the CSA and derived from Appendix A of the Staff Notice.

Operational Status

Many issuers provided “lists” of measures employed to manage operational and liquidity risks, but did not provide sufficient details to address the anticipated impact. The CSA also noted that some of these issuers provided operational updates in press releases but did not include such detailed disclosure in their MD&A filings. The same goes for disclosures regarding the measures taken in responses to the pandemic. Issuers should not merely list the actions taken but should provide sufficient detail to understand the measure’s impact on the business.

The CSA recommends providing detailed and transparent discussions on how Covid-19 impacted the issuer’s industry and day to day operations. For instance, CSA suggests having a separate “Covid-19” section in the MD&A preceding the discussion of financial results, which could provide a practical framework in understanding the issuer’s analysis of financial performance, condition and liquidity.

Here are some considerations to keep in mind:

  • Impact of health and safety guidelines on operations
  • Impact of the current environment on issuer’s demand or ability to provide products and services (both adversely and positively)
  • Details of operational closures and restrictions
  • Information presenting the impact of shutdowns and closures
  • Data to assist with understanding restrictions and other impacts to the issuer’s business
  • Discussing how customers and suppliers have been impacted and the effect on the issuer
  • Discussing the impact for each segment or geographic location to the extent operations are impacted differently
  • Explaining how industry and economic factors have uniquely impacted the issuer

Overall Performance and Operations

CSA highlighted that approximately 20% of reviewed issuers disclosed Covid-19 as the reason for period-over-period variances, but failed to analyze entity-specific factors. In particular, the CSA noted three issues.

First, certain issuers did not clarify how certain costs, in particular restructuring costs, were fully attributable to COVID-19 when the issuer had pre-existing operational problems. Second, issuers that quantitatively disclosed variances related to Covid-19 (e.g., impact to sales) did not explain the methodology used by management in determining that fluctuations were isolated to COVID-19. Finally, many issuers mentioned received government assistance, but did not fully disclose impacts that such assistance 19 had on their performance, operations and cash flows.

The CSA urges issuers to avoid making boilerplate statements attributing negative results to Covid-19. Instead, issuers should provide a meaningful discussion of the pandemic’s material impacts (both positive and negative) on the issuer’s operations. Issuers should quantify the impact on demand for products and decrease in sales, the number of employees it furloughed, detailed revenues and expenses by segment, the monetary value of cancelled or suspended contracts, the costs incurred in transforming or adapting the business model to COVID-19 operations, deferred capital expenses, etc. For instance, issuers in the retail/service industry are encouraged to disclose the number of store closures, the  CSA acknowledged that it may be difficult for an issuer to determine with accuracy the quantitative impact of Covid-19. If a detailed assessment is impossible, issuers should disclose what is available and focus on explaining the methodology used in their calculation and provide information about the judgements.

Here are some considerations to keep in mind:

  • Whether and how decreases or increases in demand for products and services impacted financial results
  • How costs, including changes in prices, influenced results
  • Effect of altered terms with customers, lessees, and borrowers
  • Impact on supply chains or distribution channels
  • Changes to planned projects and development activities
  • Details of restructuring plans and related costs
  • A discussion of any breaches of material contracts

Known Trends and Events that are Reasonably Likely to Affect Future Performance

Out of 90 issuers, approximately 30 provided generic, boilerplate disclosure in this area. It appears that the uncertainty related to Covid-19 makes it too difficult to predict the coronavirus’s overall impact on the issuer’s future performance.

Although no one can predict the future, it is still essential for issuers to provide transparent and tailored disclosure on general trends and uncertainties that are likely to impact future performance. For instance, issuers should use the “Outlook” section of the MD&A to discuss (i) how future periods may be affected differently compared to the current period, (ii) whether the coronavirus will continue to impact the issuer’s industry post-pandemic, and (iii) whether the issuer anticipates material restructuring charges in the future.

Liquidity and Capital Resources

The majority of issuers reviewed had indicators of liquidity risk, but some disclosure was insufficient again. More specifically, certain issuers did not disclose trends or expected fluctuations in their liquidity and capital resources. Although many issuers discussed various remedies to address liquidity uncertainties, very few actually quantified the impact or said remedies’ duration.

No doubt: Covid-19 had a significant impact on many issuers’ liquidity and capital resources, creating unique challenges and the need for new financing resources. As such, the CSA recommends that issuers provide a clear picture of their working capital, working capital needs and how those needs relate to business plans and milestones. Moreover, if applicable, issuers should discuss the impact of altered payment terms with customers and lessees. If possible, issuers should also discuss how long other remedies to address liquidity concerns are anticipated to be in effect and the issuer’s risks when remedies expire.

Debt Covenants

In general, issuers have properly disclosed compliance with debt covenants, but the level of details varied significantly. The CSA encouraged issuers with debt covenants to discuss the terms and conditions of the debt covenants, especially when a breach of the covenant could trigger a material funding requirement or early repayment. Moreover, if the issuer is on the verge of breaching debt covenants or is at risk of default, such information is material and must be disclosed.

Risk Factors

In our previous review of public disclosure documents filed on SEDAR, we noted that issuers favoured a broad and all-inclusive approach to drafting risks related to disease outbreaks and pandemics, while inserting, where applicable, references to COVID-19. [3] The CSA’s Staff Notice appears to arrive at a similar conclusion. More than a third of issuers provided “lists” of risks or disclosures that only touched on general economic or societal impacts of COVID-19 and did not describe entity-specific COVID-19- related risks.

The CSA reiterated the importance of entity-specific risk factor disclosure, which should be sufficiently detailed to allow investors to understand the current and potential impact of COVID-19 on the issuer’s business. Below are some risk factors suggested by the CSA, and which should be disclosed in the order of seriousness from the most serious to least severe:

  • Disruptions to day-day operations resulting from health and safety measures and government-imposed closures
  • Human resource/staff constraints
  • Cybersecurity or information technology risks that may be heightened with the pandemic
  • Ability to sustain changes in revenues/expenses/negative cash flow from operations
  • Changes in consumer demand
  • Ability to access government funding
  • Requirements under lending agreements
  • Changes in commodity prices
  • Volatility in the capital markets and access to financing and capital on reasonable terms
  • Limitations on the ability of issuers’ customers to perform and make timely payments
  • Reliance on significant customers that have decreased operations
  • Disruption to supply chains
  • Temporary or longer-term delays to projects and development plans
  • Financial statement impacts related to restructuring, impairment and measurement uncertainty
  • Change to consumer behaviour resulting from the pandemic and impact on future operations
  • Additional litigation risks resulting from the pandemic
  • The issuer’s ability to recover from the pandemic that may be unique to the issuer or its industry

Financial Statements

CSA highlighted specific findings that ought to be carefully considered by management in the Staff Nootice.

First, issuers must adequately update their disclosures and assumptions impacted by the pandemic in the context of (i) testing impairments of goodwill and intangible assets and (ii) measuring fair value and estimating expected credit losses. Perhaps issuers should favour probability-weighted scenarios in making estimates of fair value instead of a single best estimate.

Second, issuers should identify material uncertainties that impair their ability to continue as a going concern in light of a deterioration in their business since the onset of the pandemic. In a similar vein, if an issuer describes “close call” situations, said issuer must also disclose the mitigating actions that impacted its determination. For instance, if the issuer breaches financial covenants during the reporting period, it should (i) tell how the breaches will affect the company’s ability to continue as a going concern and (ii) reclassify the loan as a current liability.

Third, although issuers supplement the discussion of significant judgments and measurement uncertainty in the MD&A, they must also do so in the notes to the annual financial statements. The CSA encourages issuers to update their interim and annual financial statements in order to include (i) timely and entity-specific disclosure of significant judgements and measurement uncertainties and (ii) explain the nature of estimation uncertainty and sensitivity analysis to help investors fully understand the potential impact of estimates.

Other Regulatory Matters

Non-GAAP Financial Measures

The CSA noted that less than five per cent of reviewed issuers disclosed non-GAAP measures adjusted for impacts relating to the coronavirus. Among them, certain issuers did not adequately explain how adjustments were attributable to the pandemic. CSA’s Staff  found a few instances where the disclosure of non-GAAP measures was misleading. As such, issuers are encouraged to thoroughly consider how non-GAAP measures can assist investors and whether they are a valuable and meaningful alternative to explain the pandemic’s impact.

Forward-Looking Information and Financial Outlooks

CSA’s Staff noted several instances of insufficient disclosure of assumptions and risks related to forward-looking information.

Material Change Reporting

Many issuers issued news releases relating to Covid-19 and its impact on the issuer’s business. However, CSA’s Staff reminded issuers that the term “material change” is based on a market impact test. In other words, if Covid-19 has an equal effect throughout an issuer’s industry, a material change report may not be required. In order to determine whether a filing is necessary, the issuers should refer to their principal regulator’s applicable securities legislation for the definition of “material change”.


In conclusion, it appears that the majority of the issuers reviewed by the CSA were proactive in providing quality and detailed disclosures. There is room for improvement, but considering the speed at which the virus spreads and events unfold, this might be easier said than done. However, one thing is certain; the CSA Staff Notice will be a helpful resource for issuers looking to perfect and complete their continuous disclosure documents. Last but not least, although the pandemic is omnipresent in our daily lives, we remind issuers that other events, changes and impacts not related to Covid-19 should be disclosed with equal prominence.

[1] (1) ; (2) ; (3)

[2] For a more detailed discussion on risk factors stemming from the COVID-19, please refer to our bulletins published on March 20 and April 21, 2020.