Non-GAAP Financial Measures – New Rules

Non-GAAP Financial Measures in the Capital Markets

Public companies provide the market with non-GAAP financial measures to demonstrate their performance outside the metrics in their audited financial statements. Non-GAAP metrics may appear in companies’ press releases, MD&A, public offering documents and elsewhere. Investors analyze these non-GAAP metrics alongside companies’ financial statements; the metrics are useful for comparing companies to their competititors and benchmarking companies within industries.

Non-GAAP Measures Shouldn’t Be Misleading

At present, securities reguators permit the use of non-GAAP measures outside the audited financial statements but companies are expected to comply with the disclosure guidance in Staff Notice 52-306. The staff notice specifies cautionary information that should accompany all non-GAAP measures, to help ensure that investors are not mislead as to the non-GAAP measures’ meaning, limitations and relationship to the more formal audited metrics.

Stricter Rules are Coming

The staff notice mentioned above is soon being replaced by a stricter rule: National Instrument 52-112, accompanied by a companion policy. For details about transition timing, see Part 5 of the new rule.

Complying with the New Rules

Public companies, investment bankers and their counsel can research the new rules by sub-topic on Lexata’s non-GAAP financial measures page. There is a list of issues to filter by – such as reconciliation of non-GAAP to GAAP measures, presentation requirements, permissible adjustments, the meaning of capital management measures and supplementary measures, and so on.

Each of Lexata’s sub-topics presents the relevant sections of the existing staff notice and the new rules and companion policy. By presenting old and new together under sub-topics, Lexata aims to make it easier for companies to assess their current non-GAAP measures disclosures and make the transition to complying with the new rules.

Securities Law Definitions are Hard to Find

Why are definitions so hard to find in securities laws?

Securities laws are highly technical and include many defined terms. Unfortunately, the definitions are very hard to find. If you are reading the laws on public websites, you’ll notice that defined terms aren’t highlighted, capitalized or underlined, and there is no link to the definitions.

The Negative Impact of Inaccessible Defininitions

Definitions being inaccessible is just one reason why public companies, and any non-expert in the field, have trouble answering securities law questions for themselves, quickly and inexpensively, without always needing the help of experienced counsel. With modern technology, there is no reason why securities laws can’t be more accessible to companies, investment banks and their counsel. All that is needed is some creative thinking about how to merge legal rules and tech tools.

A Better Approach to Securities Law Definitions

Central Repository of Definitions

Two tech-driven features are needed to make legal definitions more accessible to experts and non-experts alike. First, a central repository of all definitions within a given legal domain. Lexata has a Definitions page where defined terms are shown in alphabetical order and by source, i.e., the National Instrument or legislation where the definition is found. This central repository also indicates whether a term is defined, identically or differently, in more than one place. (Hopefully, securities regulations will evolve to provide a single source of truth for defined terms.)

Make Defined Terms Obvious in the Rules with Links

Second, wherever a defined term appears in the text of a rule, there should be a link to the definition. For example, Section 6 of National Instrument 52-112 includes references to several defined terms, including the following:

In Lexata’s database, each of these defined terms is linked directly to its definition.


Simple tech-enabled features, like having a central repository of definitions and showing them as links in the text of legal rules, makes securities laws more accessible to non-experts, and also makes the work of expert practictioners faster, less tedious and less expensive. This is Lexata’s mission.