(1) We believe investors should receive in a long form prospectus for an IPO no less than three years of audited historical financial statements and that relief from the financial statements requirements should be granted only in unusual circumstances and generally not related solely to the cost or the time involved in preparing and auditing the financial statements.
(2) In view of our reluctance to grant exemptions from the requirement to include audited historical financial statements, issuers seeking relief should consult with staff on a pre-filing basis.
(3) Considerations relevant to granting an exemption from the requirement to include financial statements, generally for the years immediately preceding the issuer’s most recently completed financial year, may include the following:
The issuer’s historical accounting records have been destroyed and cannot be reconstructed.
(a) In this case, as a condition of granting the exemption, the issuer may be requested by a securities regulatory authority or regulator to
(i) represent in writing to the securities regulatory authority or regulator, no later than the time the preliminary long form prospectus is filed, that the issuer made every reasonable effort to obtain copies of, or reconstruct, the historical accounting records necessary to prepare and audit the financial statements, but such efforts were unsuccessful, and
(ii) disclose in the long form prospectus the fact that the historical accounting records have been destroyed and cannot be reconstructed.
The issuer has emerged from bankruptcy and current management is denied access to the historical accounting records necessary to audit the financial statements.
(b) In this case, as a condition of granting the exemption, the issuer may be requested by a securities regulatory authority or regulator to
(i) represent in writing to the securities regulatory authority or regulator, no later than the time the preliminary long form prospectus is filed, that the issuer has made every reasonable effort to obtain access to, or copies of, the historical accounting records necessary to audit the financial statements but that such efforts were unsuccessful, and
(ii) disclose in the long form prospectus the fact that the issuer has emerged from bankruptcy and current management is denied access to the historical accounting records.
The issuer has undergone a fundamental change in the nature of its business or operations affecting a majority of its operations and all, or substantially all, of the executive officers and directors of the company have changed.
(c) The evolution of a business or progression along a development cycle will not be considered to be a fundamental change in an issuer’s business or operations. Relief from the requirement to include financial statements of the issuer required by the Instrument for the year in which the change occurred, or for the most recently completed financial year if the change in operations occurred during the issuer’s current financial year, generally will not be granted.
(4) If, in unusual circumstances, relief from Part 4 of the Instrument is granted, additional financial information will likely be requested to allow a reader to gain a similar understanding of the entity’s financial position and prospects as one would gain from the information required in Part 4 of the Instrument.
Examples of acceptable additional information include an audited interim financial report, audited divisional statements of comprehensive income or cash flows, financial statements accompanied by an auditor’s report that expresses a modified opinion, or audited statements of net operating income.