NIN 96/32 - Application of Sections 2(5), 2(6) and 2(7) of Securities Rules to the Multijurisdictional Disclosure System [NIN - Rescinded]

On July 1, 1991, the Commission published National Policy Statement No. 45, entitled Multijurisdictional Disclosure System ("the Policy"). The multijurisdictional system permits substantial Canadian issuers to distribute securities in the United States using Canadian disclosure documents and substantial U.S. issuers to distribute securities in Canada using U.S. disclosure documents. In this notice, "MJDS" means the requirements of the Policy as they have been waived or varied by the Commission or the Executive Director.

Under MJDS, an issuer offering securities pursuant to section 3.3. of the Policy must provide a reconciliation to Canadian generally accepted accounting principles ("Canadian GAAP") or International Accounting Standards ("IAS") of the financial statements contained or incorporated by reference in the preliminary prospectus or prospectus. However, reconciliation of financial statements to Canadian GAAP or IAS is not required for other offerings or securities exchange bids and business combinations made under MJDS.

MJDS does not deal with the reconciliation of financial statements under the continuous disclosure requirements of the Securities Regulation (now the Securities Rules). MJDS does not deal either with the standards applicable to an auditor's report or the procedures applicable to a public accountant's report on financial statements included, or incorporated by reference, in an offering document filed in Canada under MJDS.

MJDS was implemented by BOR#91/7. The BOR provides several exemptions from the requirements of the Securities Act and the Securities Regulation (now the Securities Rules). In particular, the BOR provides exemptions from division 2 of Part 7 of the Securities Regulation dealing with financial statements for permissible offerings and transactions provided a preliminary prospectus and prospectus that complies with MJDS is filed. The BOR also provides exemptions from the requirements of Forms 32 and 33 to include financial statements of the offeror or other issuer that would be included in a prospectus, in the case of a permissible securities exchange take-over bid, or of the issuer, in the case of a permissible securities exchange issuer bid, provided the required documentation is filed and delivered in compliance with MJDS. Finally, the BOR provides exemptions from the continuous disclosure requirements of the Securities Regulation, in particular exemptions from financial statement requirements, for U.S. issuers that file reports with the Securities and Exchange Commission, provided the issuers comply with MJDS.

Since the implementation of MJDS, the Securities Rules have come into effect on January 1, 1996. Section 2(5) requires that if financial statements are prepared in accordance with foreign generally accepted accounting principles, the financial statements be reconciled to Canadian GAAP. Section 2(6) requires that if an audit is performed and an auditor's report is prepared in accordance with foreign generally accepted auditing standards, the auditor's report explain any significant differences between these standards and the standards set out in the CICA Handbook. Section 2(7) requires that if a public accountant performs the procedures necessary to issue a public accountant's report and a public accountant's report is prepared in accordance with foreign procedures, the public accountant's report explain any significant differences between the foreign procedures and the procedures set out in the CICA Handbook. Sections 2(5), 2(6) and 2(7) apply to all financial statements.

Questions have been raised about whether sections 2(5), 2(6) and 2(7) of the Securities Rules apply to eligible U.S. issuers doing an offering or other transaction or filing continuous disclosure financial statements under MJDS.

BOR#91/7 sets out exemptions from the financial statement requirements of the Securities Act and Securities Regulation (now Securities Rules) that would otherwise apply to a distribution under a prospectus or under a securities exchange bid or to the filing of financial statements under continuous disclosure requirements, provided eligible U.S. issuers comply with MJDS. Some of these requirements were in sections 3 and 4 of the Securities Regulation. These requirements, as amended, are now found in sections 2 and 3 of the Securities Rules. On that basis, the Commission is of the view that BOR#91/7 provides exemptions from the requirements of sections 2(5), 2(6) and 2(7) of the Securities Rules provided eligible U.S. issuers comply with MJDS. In particular, eligible U.S. issuers distributing securities under section 3.3 of the Policy are required to comply with the reconciliation requirements of section 3.10 of the Policy.

DATED at Vancouver, British Columbia, on September 26, 1996

Douglas M. Hyndman
Chair

REF: BOR#91/7