NIN 88/10 - "Full Disclosure" in Financial Statements [NIN - Rescinded]

Published Date:	1988-06-03
Effective Date:	1988-06-02

Section 44(l) of the Securities Act and Section 116 of the Regulation (the "Regulations") thereunder call for "full" disclosure of all material facts relating to distributions of securities under prospectuses and statements of material facts, which includes financial information contained in those documents. The principle of full disclosure can also be applied to financial statements filed pursuant to Division (1) of Part 10 of the Regulations.

Financial statements are integral to investment decisions. They enable an investor to review how an issuer has managed its financial resources in the past which may be helpful in assessing future performance. Consequently, the information contained in the financial statements, when combined with the disclosure made in the body of an offering document, should enable an investor to make an informed investment decision.

Section 1500.01 of the Handbook of the Canadian Institute of Chartered Accountants states that:

"Financial reporting is essentially a process of communication of information. While the success of this communication depends upon the appropriateness of the accounting principles followed and ultimately upon the degree of understanding by the readers of the financial statements, it also depends upon the extent of disclosure in the financial statements." (emphasis added).

A fundamental objective of this office is to ensure that prospective investors, as well as existing shareholders, are provided with "full" disclosure. Balanced against this need is recognition of the fact that if there is too much data, material items may become lost in a sea of immaterial detail.

Our Corporate Finance department has noted a recurring tendency to present information in financial statements as aggregate accumulations of data without providing a specific analysis of same.

For example, an issuer may provide an income statement showing "general, administrative and selling expenses" as a one-line item with no further elaboration. Consequently, neither we nor the public are given any useful information with respect to the magnitude of items such as rent, salaries and wages, travel, promotion, and advertising. Similarly, "deferred research and development" and "deferred exploration and development" costs frequently appear as one-line entries on balance sheets with no supporting detailed analysis found in either the financial statement notes or as separate schedules. Finally, "Note" disclosure often appears to suffer from a lack of adequate detail, for example, in the provision of information pertaining to related party transactions.

The use of certain aggregations may be appropriate for well established companies, with proven track records, where annual changes in the level of revenues/expenditures are, comparatively speaking, stable. Investors in such companies are primarily concerned with gross revenues/profit, net income and earnings/loss per share information. In contrast, such presentation does not usually constitute sufficient or adequate disclosure for the majority of issuers approaching the British Columbia venture capital market for public funds.

Local reporting companies filing pursuant to Local Policy 3-02, Local Policy 3-26 or Division (1) of Part 10 of the Regulations are encouraged to provide sufficiently detailed disclosure in their financial statements, either in the body of the statements themselves or in the notes and schedules attached thereto, to provide the extent of disclosure necessary to facilitate informed investment decisions.


DATED at Vancouver British Columbia this 2nd day Of June, 1988.

Neil de Gelder
Superintendent of Brokers
British Columbia Securities Commission