Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part A Definitions

Question A-9

re meaning of “reverse takeover” under NI 51-102

Q: We have recently completed a transaction that involves an operating non-public enterprise and a non-operating public enterprise (i.e. a shell company). The transaction resulted in the owners and management of the operating non-public enterprise acquiring control of the combined enterprise. The accounting principles applicable to the issuer refer to this transaction as a reverse takeover or a reverse acquisition, even though the accounting principles specify that this type of transaction is not a business combination because the non-operating public enterprise does not meet the definition of a business. Would this type of transaction be included in the definition of a reverse takeover under NI 51-102? [Added May 4, 2007]

A: Yes. Although these reverse takeover transactions are accounted for as capital transactions (because they are not business combinations), they are still considered to be reverse takeovers under accounting principles and are included in the definition of reverse takeover under NI 51-102.

Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part B Financial statements

Question B-1

re notice about auditor review of interim financial statements

Q: My auditors did not review my interim financial statements. As a result, under NI 51-102 my interim financial statements must be accompanied by a notice. What form should this notice take?

A: NI 51-102 does not specify the form of notice that should accompany the financial statements. The notice accompanies, but does not form part of, the financial statements. The notice will normally be provided on a separate page appearing immediately before the financial statements, in a manner similar to an audit report that accompanies annual financial statements.

Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part B Financial statements

Question B-2

re notice about auditor review of interim financial statements

Q: Do I have to file a notice indicating that my interim financial statements have not been reviewed by my auditor, if a public accountant that is not my auditor, reviews them?

A: Yes. If your auditor does not review your interim financial statements, you must file the notice required by subsection 4.3(3) of NI 51-102, even if a public accountant reviews the statement. Refer to subsection 3.4(3) of 51-102CP for a discussion of what is meant by “review” if your annual financial statements are audited in accordance with Canadian GAAS, or auditing standards other than Canadian GAAS. If your annual financial statements are audited in accordance with Canadian GAAS, the relevant requirements for a review of interim financial statements by the auditor are set out in the Handbook section 7050. [Amended May 4, 2007]

Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part B Financial statements

Question B-3

re notice about auditor review of interim financial statements

Q: Do I have to file a notice indicating that my interim financial statements have not been reviewed if only the current period, and not the comparative interim period, have been reviewed by my auditor?

A: Yes. The review of the interim financial statements must cover all periods presented in the statements (subsection 4.3(3) of NI 51-102). [Amended May 4, 2007]

Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part B Financial statements

Question B-4

re annual request form

Q: When does the annual request form under section 4.6 have to be sent?

A: Once a year – at any time during the year.

Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part B Financial statements

Question B-5

re annual request form

Q: If I send my annual financial statements to my securityholders, do I still have to send a request form under subsection 4.6(1) of NI 51-102 in respect of my interim financial statements?

A: No. Subsection 4.6(5) is a complete exemption from having to send an annual request form, if you send your annual financial statements to your securityholders (other than holders of debt securities) within 140 days of year-end and in accordance with National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer (NI 54-101). You will still have to send a copy of your interim financial statements to any securityholder that requests a copy (subsection 4.6(3) of NI 51-102). [Amended May 4, 2007]

Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part B Financial statements

Question B-6

re auditor registration with CPAB

Q: My current auditor does not intend to register with the Canadian Public Accountability Board. As a result, I am changing my auditor in order to comply with National Instrument 52-108 Auditor Oversight (NI 52-108). Do I have to comply with the change of auditor requirements?

A: Yes, you must comply with the change of auditor requirements, even if the change in your auditor is only to comply with NI 52-108.

Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part B Financial statements

Question B-7

re timing of filing financial statements and MD&A vis a vis annual meeting

Q: Does the filing deadline in NI 51-102 for our annual financial statements and MD&A affect when we must hold our annual meeting and send our proxy-related materials? [Added February 11, 2005, amended May 4, 2007]

A: Under subsections 4.6(3) and 5.6(1) of NI 51-102, you must send your annual financial statements and MD&A by 10 calendar days after the filing deadline (a maximum of 100 days after your financial year end if you are a non-venture issuer, 130 days if you are a venture issuer) to all your securityholders who have previously requested these documents by either returning the request form or otherwise making a request. (If you receive a request after the filing deadline, the delivery deadline is 10 calendar days after you receive the request.)

As a result, the annual filing deadlines in NI 51-102 will, in effect, require you to either

send your annual financial statements and MD&A within 10 days after the filing deadline for your financial year end, to securityholders who previously requested them (if any). If the proxy-related materials are not available at that time, send those materials later, in a second mailing, in time for your annual meeting; or
if you want to do only one mailing, rely on the exemption in subsections 4.6(5) and 5.6(3) from the requirement to send a request form and send financial statements and MD&A on request, by mailing your annual financial statements and MD&A with your proxy-related materials to your securityholders (other than holders of debt instruments) within 140 days after your financial year end and in accordance with NI 54-101.

Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part B Financial statements

Question B-9

re filing financial statements for reverse takeover

Q: I am required to file financial statements for a reverse takeover acquirer under section 4.10 of NI 51-102. How do I file those documents on SEDAR? [Added May 4, 2007]

A: Financial statements required under section 4.10 of NI 51-102 for the reverse takeover acquirer are filed on SEDAR under the profile of the reporting issuer. You should file the financial statements within the same project that relates to the corresponding interim or annual period of the reporting issuer. You should attach the financial statements to the document type “Financial statements of operating entity”.

Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part B Financial statements

Question B-10

re change of year end

Q: We are changing our year-end from February 28 to December 31. Our transition year will be the 10 months ending December 31, 2007 and our interim periods in the transition year will end on May 31, August 31 and November 30, 2007. Does subsection 4.8(5) of NI 51-102 require the filing of interim financial statements for the 3 months ending November 30, 2007? [Added May 4, 2007]

A: No, you are not required to file financial statements for the interim period ending on November 30, 2007.

Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part C MD&A

Question C-1 General

re auditor review of MD&A

Q: Since my MD&A is filed with my financial statements, do my auditors have to review my MD&A before I file it?

A: NI 51-102 does not include a direct requirement for MD&A to be reviewed by an issuer’s auditor. However, under CICA Handbook section 7500 Auditor association with annual reports, interim reports and other public documents, an auditor is deemed to be associated with MD&A corresponding to annual financial statements on which the auditor has issued an auditor’s report. Also, an auditor is deemed to be associated with interim MD&A if the auditor has been engaged to audit or review the corresponding interim financial statements.

If an auditor is deemed to be associated with MD&A, the auditor must perform the procedures specified in section 7500 of the Handbook. The auditor’s specific aims when performing those procedures are to: (a) determine whether the financial statements, and when applicable, the report of the auditor, have been accurately reproduced; and (b) consider whether any of the other information in the document raises questions regarding, or appears to be otherwise inconsistent with, the financial statements.

Handbook section 7500 specifies that the auditor should arrange to obtain the MD&A prior to its release and perform the procedures set out in the section. Further, when circumstances prevent the auditor from obtaining the MD&A prior to its release, the auditor should perform the procedures required by Handbook as soon as possible after its release, and consider advising the audit committee of the circumstances.

If the reporting issuer’s annual financial statements are audited in accordance with auditing standards other than Canadian GAAS, then the auditor’s association with, and the requirement for procedures relating to, annual and interim MD&A would be determined by those other auditing standards.

Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part C MD&A

Question C-2 Form

re repeating information in MD&A from notes to financial statements

Q: Do I have to duplicate in my MD&A information already included in the notes to the financial statements?

A: Information specifically required by Form 51-102F1 must be included in the MD&A, and simply cross-referencing to a note in the financial statements would not be sufficient. For example, although the notes to the financial statements may include information about contractual obligations, Form 51-102F1 requires an issuer that is not a venture issuer to include in the MD&A a summary, in tabular form, of contractual obligations. In this example a cross-reference would not meet the Form 51-102F1 requirement.

Issuers should use their judgment to ensure the MD&A complements and supplements the financial statements. This may include a discussion and analysis, but not a repetition of details disclosed in notes to the financial statements that are not specifically required by Form 51-102F1.

Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part E Business acquisition reports (BAR)

Question E-1

re optional significance tests

Q: The optional significance tests in subsection 8.3(4) of NI 51-102 are based on financial information relating to my most recently completed interim period or financial year. In calculating the optional significance tests, can I use financial information relating to financial statements for a completed interim period or financial year that have not yet been approved by my board of directors or audit committee, and have not yet been filed?

A: Yes. However, you would want to consider the possibility that adjustments to the financial statements from subsequent review by your external auditors, audit committee or board of directors may change the results of the calculation. For example, the acquisition may be a significant acquisition based on the adjusted financial statements, when it initially did not meet the significance thresholds, in which case you may be in default of the BAR requirements. [Amended May 4, 2007]

Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part E Business acquisition reports (BAR)

Question E-2

re filing a BAR under confidentiality provisions and without financial statements

Q: If I am acquiring a business, there are no financial statements, and confidentiality provisions prevent disclosure of certain information about the business, how do I file a BAR?

A: Paragraph 8.1(4) of 51-102CP discusses the term “business” and indicates that whether or not the business previously prepared financial statements, an acquisition may be considered a business and trigger the requirement for financial statements in a BAR. As well, section 8.6 of 51-102CP provides guidance on the preparation of divisional and carve-out financial statements. If an issuer is considering the acquisition of a business, it must consider its obligations under NI 51-102 to file a BAR and the issuer must plan its acquisition in a manner that will ensure it can meet those obligations.

Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part E Business acquisition reports (BAR)

Question E-2.1

re cost method of accounting for equity investment

Q: Is an investment in equity securities of another company that is accounted for by the issuer using the cost method considered an acquisition of a business under subsection 8.1(1) of NI 51-102?

A: No. An investment accounted for by the cost method is not considered an acquisition of a business under subsection 8.1(1) of NI 51-102. However, investments that are consolidated or are accounted for by the equity method or by proportionate consolidation are considered acquisitions of a business as discussed in subsection 8.1(1). [Added June 18, 2004]

Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part E Business acquisition reports (BAR)

Question E-3

re equity method of accounting and auditor consent

Q: If I acquire a business that will be accounted for by the equity method and the acquisition qualifies for the exemption in section 8.6, does my BAR have to name the auditor of the investee and indicate that the auditor of the investee has not consented?

A: Section 8.6 of the NI 51-102 does not require an issuer to name the auditor of the financial information or underlying financial statements or to include the auditor’s report on the financial information or underlying financial statements. As a result, the issuer does not have to disclose the absence of consent from the auditor of the investee.

Frequently Asked Questions Re NI 51-102 Continuous Disclosure Obligations (CSA Staff Notice 51-311)

Part E Business acquisition reports (BAR)

Question E-4

re step acquisition when subsidiary acquires its own shares

Q: If an issuer’s subsidiary acquires shares in itself from interests outside the consolidated group, is that acquisition subject to the “step-by-step” provisions in Part 8 of NI 51-102?

A: Yes, the acquisition by the subsidiary of shares in itself increases the issuer’s proportionate interest in the subsidiary and so should be considered a step acquisition by the issuer. The provisions in section 8.11 for step-by-step acquisitions apply if the acquisition is a significant acquisition. [Added June 18, 2004]