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Securities Law

52-101 - Future-Oriented Financial Information [NI Proposed - Lapsed]

Published Date: 1997-07-18

Concurrently Published:

NATIONAL INSTRUMENT 52-101
FUTURE-ORIENTED FINANCIAL INFORMATION


PART 1TITLEPAGE

PART 1 DEFINITIONS AND INTERPRETATION 1
1.1 Definitions 1
1.2 Interpretation 2

PART 2 APPLICATION 2
2.1 Application 2
2.2 Restrictions 2
2.3 Exceptions 3

PART 3 REQUIREMENTS OF GENERAL APPLICATION 4
3.1 Preparation of FOFI 4
3.2 Forecasts and Projections 4
3.3 Maximum Period of FOFI 4
3.4 Incorporation by Reference 4
3.5 Effective Date of Assumptions 4
3.6 Inclusion of Actual Results with FOFI 5

PART 4 REQUIREMENTS APPLICABLE TO THE USE OF PROJECTIONS 5
4.1 Disclosure 5
4.2 Hypotheses 5
4.3 Use of More than One Projection 6
4.4 Projections Reflecting Capital Appreciation 6

PART 5 COMPARISON OF FOFI WITH ACTUAL RESULTS 6
5.1 Review to Identify Material Differences 6
5.2 Disclosure of Results of Review 7

PART 6 UPDATING FOFI 8
6.1 Requirement to Update 8
6.2 Disclosure of Obligation to Update 8
6.3 Filing and Delivery of Updated FOFI 9

PART 7 AUDITOR INVOLVEMENT 10
7.1 Auditor’s Report 10

7.2 Performance of Audit 10
7.3 Comfort and Consent Letters 10

PART 8 EXEMPTION 11
8.1 Exemption 11
8.2 Evidence of Exemption 11

PART 9 EFFECTIVE DATE 12
9.1 Effective Date 12

APPENDIX A







NATIONAL INSTRUMENT 52-101
FUTURE-ORIENTED FINANCIAL INFORMATION1

1This proposed Instrument is derived from National Policy Statement No. 48 ("NP48"). This Instrument is expected to be adopted as a rule in each of British Columbia, Alberta, Ontario and Nova Scotia, as a Commission regulation in Saskatchewan and as a policy in each of the other jurisdictions represented by the CSA.
PART 1 DEFINITIONS AND INTERPRETATION2

2A national definition instrument has been adopted as National Instrument 14-101 Definitions. It contains definitions of certain terms used in more than one national instrument. National Instrument 14-101 also provides that a term used in a national instrument and defined in the statute relating to securities of the applicable jurisdiction, the definition of which is not restricted to a specific portion of the statute, will have the meaning given to it in that statute, unless the context otherwise requires. National Instrument 14-101 also provides that a provision or a reference within a provision in a national instrument that specifically refers by name to a jurisdiction, other than the local jurisdiction, shall not have any effect in the local jurisdiction, unless otherwise stated in the provision.


1.1 Definitions - In this Instrument
"capital assets" has the meaning ascribed to that term in paragraph 3060.04 of the Handbook;3
3The term "Handbook" is defined in National Instrument 14-101 Definitions. The definition is "the Handbook of the Canadian Institute of Chartered Accountants, as amended from time to time".
"FOFI" has the meaning ascribed to the term "future-oriented financial information" in paragraph 4250.03 of the Handbook;
"forecast" has the meaning ascribed to that term in paragraph 4250.04 of the Handbook;
"general purpose document" means a prospectus, preliminary prospectus, offering memorandum described in Appendix A to this Instrument, rights offering circular, information circular, document delivered or filed under the continuous disclosure, proxy and proxy solicitation or take-over bid and issuer bid requirements of securities legislation4
4The term "securities legislation" is defined in National Instrument 14-101 Definitions as meaning the particular statute and legislative instruments of the local jurisdiction set out in an appendix to that instrument and generally includes the statute, regulations and, in some cases, the rules, forms and rulings and orders relating to securities in the local jurisdiction. The term "local jurisdiction" is defined in National Instrument 14-101 Definitions. The definition is "in a national instrument adopted or made by a Canadian securities regulatory authority, the jurisdiction in which the Canadian securities regulatory authority is situate". The term "Canadian securities regulatory authorities" is defined in National Instrument 14-101 Definitions as meaning the securities commissions or similar regulatory authorities set out in an appendix to that instrument. The term "jurisdiction" is defined in National Instrument 14-101 Definitions as meaning a province or territory of Canada, except when used in the term foreign jurisdiction.

, and a document incorporated by reference into, or that amends, any of those documents;
"hypotheses" has the meaning ascribed to that term in paragraph 4250.13 of the Handbook;
"projection" has the meaning ascribed to that term in paragraph 4250.05 of the Handbook; and
"start-up issuer" means an issuer whose current business has been conducted for 24 months or less.

1.2 Interpretation - The terms "material" and "materiality" used in sections 2.2, 4.1, 4.2, 5.1, 5.2, 6.1 and 6.3 of the Instrument shall be interpreted in accordance with paragraph 1000.17 of the Handbook.


PART 2 APPLICATION

2.1Application- Subject to section 2.3, this Instrument applies to FOFI that is disseminated in connection with a distribution of securities of an issuer or a transaction or other matter involving an issuer, in each case for which a general purpose document has been or is required to be prepared.

2.2 Restrictions
(1) FOFI may only be disseminated if it is presented in a general purpose document, except that it may also appear in another document if the FOFI forming part of that other document is in the same form as presented in the general purpose document.
(2) FOFI shall not form part of a general purpose document in connection with a distribution of securities if a material portion of the net proceeds of the distribution are intended to be applied, directly or indirectly, to finance either the acquisition of undetermined or unidentified capital assets or the acquisition of inventory outside the ordinary course of the business of the issuer to which the FOFI relates as described in the general purpose document.

2.3Exceptions - This Instrument does not apply to
(a) discounted future cash flow data provided by an issuer in a general purpose document in accordance with securities legislation that is extracted from an engineering or geologist's report to which specific reference is made in the general purpose document;5
5National Policy Statement Nos. 2-A and 2-B prescribe requirements as to, among other things, the preparation and content of reports submitted to securities regulatory authorities concerning mining and oil and gas properties. These reports may contain reserve values calculated on the basis of cash flow forecasts. Paragraph 2.3(a) provides for an exception from the application of the proposed Instrument to disclosure drawn from such reports which, given the broad definition of the term "FOFI", may constitute FOFI.
(b) forward-looking financial information required to be provided in an issuer's disclosure of management's discussion and analysis of financial condition and results of operations or otherwise specifically required to be disclosed in a general purpose document under any provision of securities legislation other than this Instrument;6
6Securities legislation may establish requirements for disclosure, such as MD&A or use of proceeds which, given the broad definition of the term "FOFI", may constitute FOFI. Paragraph 2.3 (b) provides for an exception from the application of the proposed Instrument to such required disclosure.
or
(c) FOFI disseminated in connection with a distribution of securities for which the minimum aggregate acquisition cost to a purchaser purchasing the securities offered as principal is at least $500,000.



PART 3 REQUIREMENTS OF GENERAL APPLICATION

3.1Preparation of FOFI - FOFI shall be prepared in accordance with Canadian GAAP7
7The term "Canadian GAAP" is defined in National Instrument 14-101 Definitions. The definition is "generally accepted accounting principles determined with reference to the Handbook".
and the requirements of this Instrument.

3.2 Forecasts and Projections
(1) Except as provided in subsection (2), FOFI shall be prepared in the form of a forecast.
(2) FOFI pertaining to a start-up issuer shall be prepared in the form of either a forecast or a projection, but not both8.

8Subsection 4.1(2) of NP48 permits certain issuers with more than two years of operating history to use projections. Under this Instrument, an issuer other than a start-up issuer will be required to make an application for exemption pursuant to section 8.1 to use a projection.

3.3Maximum Period of FOFI - The period covered by FOFI shall not exceed the period of 24 months immediately after the date of the general purpose document of which the FOFI forms part.

3.4 Incorporation by Reference
(1) FOFI may be incorporated by reference in a general purpose document if a copy of the FOFI is delivered with the general purpose document and filed with or delivered to the securities regulatory authority concurrently with the filing or delivery of the general purpose document.
(2) FOFI incorporated by reference in a general purpose document forms part of that general purpose document for the purposes of this Instrument.

3.5 Effective Date of Assumptions
(1) The effective date of the assumptions underlying FOFI shall not precede by more than 120 days the date of the general purpose document of which the FOFI forms part.
(2) If FOFI forms part of a prospectus, the restriction in subsection (1) applies separately to each of the preliminary prospectus and the prospectus as well as to an amendment to either that includes an amendment to the FOFI.

3.6 Inclusion of Actual Results with FOFI - If FOFI forming part of a general purpose document includes actual results of an issuer for part of the period covered by the FOFI, those results shall be disclosed separately in the general purpose document.


PART 4 REQUIREMENTS APPLICABLE TO THE USE OF PROJECTIONS

4.1 Disclosure - A projection shall include a cautionary note in bold-face type immediately following the heading under which the projection has been set out to the effect that the projection is based on hypotheses and that actual results achieved for the period covered by the projection will vary from the information presented in the projection and that the variations may be material.

4.2 Hypotheses
(1) Any material part of a projection shall be based to a greater extent on reasonable and supportable assumptions than on hypotheses, where reasonable and supportable assumptions have the meaning set out in paragraph 4250.11 of the Handbook.
(2) Each hypothesis used in a projection relating to an issuer shall be based on economic conditions or courses of action that are consistent with the courses of action that the issuer intends to adopt and that are disclosed in the general purpose document.
(3) A projection shall be accompanied by a note disclosing that each hypothesis used in a projection is based on economic conditions or courses of action that are consistent with the courses of action disclosed elsewhere in the general purpose document.
(4) If more than one projection forms part of a general purpose document, each projection shall be accompanied separately by the note required by subsection (3).


4.3 Use of More than One Projection - A general purpose document shall not include two or more projections unless it is reasonable to conclude that the results projected by one projection are not significantly more likely to occur than those projected by any other projection to be included in the general purpose document.

4.4 Projections Reflecting Capital Appreciation
(1) A projection shall not show the potential effect of capital appreciation in the future unless it is presented in the format of a sensitivity analysis that demonstrates the effects of an equal range of projected capital appreciation and depreciation.
(2) The maximum projected rate of capital appreciation presented in a projection shall not exceed the historic rate of capital appreciation for a recently completed period of time that is comparable in length to the period covered by the projection.
(3) Despite subsection (2), the maximum projected rate of capital appreciation presented in a projection shall be less than the historic rate of capital appreciation referred to in subsection (2) if it can be reasonably concluded that the historic rate of capital appreciation shows significant volatility or that the historic rate may not be sustainable in the future.


PART 5 COMPARISON OF FOFI WITH ACTUAL RESULTS

5.1 Review to Identify Material Differences
(1) Subject to subsection (2), an issuer required to file annual and interim financial statements under the continuous disclosure requirements of securities legislation shall, if the period covered by the financial statements is also covered by FOFI prepared by or on behalf of the issuer, review the FOFI in the course of preparing those financial statements to identify any material differences between the FOFI and actual results for the period.
(2) FOFI that forms part of an offering memorandum but not any other general purpose document is not required to be reviewed under subsection (1).
(3) Despite subsection (2), FOFI that forms part of an offering memorandum filed in Quebec shall be reviewed under subsection (1)9.

9In Quebec, any FOFI included in an offering memorandum must be compared with audited annual actual results in accordance with the requirements of section 18 of QSC Policy Statement No. 11.

5.2 Disclosure of Results of Review
(1) If an issuer identifies material differences between FOFI and actual results in the course of a review required by subsection 5.1(1), the differences shall be disclosed by the issuer in accordance with subsection (3).
(2) If no material differences are identified by an issuer in the course of a review required by subsection 5.1(1), the issuer shall disclose in accordance with subsection (3) that the FOFI has been compared with actual results and that no material differences were identified.
(3) The disclosure required by subsections (1) and (2) shall be filed concurrently with the filing of the annual or interim financial statements with which the FOFI has been compared and shall include a statement signed by a senior officer of the issuer that the disclosure accurately discloses the results of the review required by subsection 5.1(1)10.

10The signed statement requirement has been added on the basis that FOFI included in most general purpose documents is certified as to its accuracy by senior management, and the CSA consider it appropriate to ensure some level of responsibility in respect of the comparison disclosure as well. The text of the statement is based on the statement of senior officer required to be included in a material change report under the securities legislation of several jurisdictions.
(4) Any disclosure required to be filed by subsection (3) shall be delivered to those securityholders of the issuer to whom the issuer is required by securities legislation to deliver the financial statements referred to in subsection (3), concurrently with the delivery of those financial statements.11

11This provision has been added to ensure that the results of the comparison with actual results are delivered to securityholders if that comparison disclosure is included in a document accompanying financial statements. The provisions of securities legislation do not otherwise require the delivery of any such accompanying document to securityholders.


PART 6 UPDATING FOFI

6.1 Requirement to Update
(1) An issuer shall update FOFI if a change in information or in the assumptions, including hypotheses, used to prepare FOFI occurs, and it is reasonable for the issuer to conclude that actual results will be materially different from the FOFI.
(2) FOFI that forms part of an offering memorandum but not any other general purpose document is not required to be updated under subsection (1).
(3) Despite subsection (2), FOFI that forms part of an offering memorandum filed in Quebec shall be updated under subsection (1).
(4) If an issuer is required to update FOFI, the FOFI to be updated shall not be disseminated after the issuer is required by subsection (1) to update the FOFI except as part of an issuer's disclosure of the review required by subsection 5.1(1).
(5) If FOFI is incorporated by reference in a general purpose document, the general purpose document may not be delivered after the issuer is required by subsection (1) to update the FOFI unless accompanied by the disclosure required by subsection 6.3(1) and the statement signed by a senior officer of the issuer required by subsection 6.3(2), and the disclosure required by subsection 6.3(1) has been filed in accordance with subsection 6.3(2).12

12Subsection 6.1(3) has been added to the provisions contained in section 7.3 of NP48 in order to ensure that updated FOFI is delivered with a general purpose document that incorporates by reference the original FOFI.

6.2 Disclosure of Obligation to Update - An issuer that is required to update FOFI under subsection 6.1(1) shall disclose the obligation to update the FOFI and the reason for which the obligation to update the FOFI arises in the manner and by the time required under securities legislation upon the occurrence of a material change in the affairs of an issuer.


6.3 Filing and Delivery of Updated FOFI
(1) An issuer that is required to update FOFI under subsection 6.1(1) shall disclose, in the manner required by subsections (2) and (3)
(a) that circumstances having a material effect on the original FOFI have arisen that require the original FOFI to be updated;
(b) the reason for which the obligation to provide updated FOFI arises;
(c) the updated FOFI required under subsection 6.1(1);
(d) the dates of each of the original FOFI and the updated FOFI; and
(e) the differences between the original FOFI and the updated FOFI.
(2) The disclosure required by subsection (1) shall be filed by the issuer concurrently with the first annual or interim financial statements that the issuer is required to file under the continuous disclosure requirements of securities legislation after the issuer is required by subsection 6.1(1) to update the FOFI, and shall include a statement signed by a senior officer of the issuer that the disclosure required by paragraphs (1)(a), (b), (d) and (e) is accurate.13

13See footnote 10 regarding signed statement requirement.
(3) Any disclosure required to be filed by subsection (2) shall be delivered to those securityholders of the issuer to whom the issuer is required by securities legislation to deliver the financial statements referred to in subsection (2), concurrently with the delivery of those financial statements.14

14See footnote 11
PART 7 AUDITOR INVOLVEMENT

7.1 Auditor's Report
(1) FOFI other than FOFI forming part of a preliminary prospectus shall be accompanied by a Canadian auditor's report15

15The term "Canadian auditor's report" is defined in National Instrument 14-101 Definitions. The definition is "an auditor's report prepared in accordance with Canadian GAAS". The term "Canadian GAAS" is defined in National Instrument 14-101 Definitions. The definition is "generally accepted auditing standards determined with reference to the Handbook"
. on the FOFI, which report shall not contain any reservation of opinion.
(2) Despite subsection (1), FOFI that is updated under subsection 6.1(1) is not required to be accompanied by a Canadian auditor's report.

7.2 Performance of Audit - An audit of FOFI, including the preparation of a Canadian auditor's report, shall be performed in accordance with Canadian GAAS and Canadian Institute of Chartered Accountants Auditing and Related Services Guideline No. 6, as the provisions of that Guideline may be amended from time to time.

7.3 Comfort and Consent Letters
(1) An issuer that files a preliminary prospectus that does not contain a signed auditor's report on FOFI forming part of the preliminary prospectus shall file, at the time the preliminary prospectus is filed, a signed copy of a letter to the regulator16

16The term "regulator" is defined in National Instrument 14-101 Definitions as meaning, in a local jurisdiction, the person set out in an appendix to that instrument opposite the name of the local jurisdiction.
from the auditor prepared in accordance with the Handbook indicating that on the basis of the auditor's procedures to date relating to the examination of the FOFI, the auditor has no reason to believe that the FOFI
(a) is premised on assumptions that are not reasonable, supportable or consistent with the issuer's plans;
(b) does not reflect the assumptions on which it is premised; or
(c) does not comply with the presentation and disclosure standards for FOFI under Canadian GAAP.
(2) If FOFI forms part of a prospectus, the auditor's written consent required by securities legislation to be filed with the regulator in connection with the filing of a prospectus shall contain a specific reference to the FOFI.


PART 8 EXEMPTION

8.1 Exemption
(1) The regulator or the securities regulatory authority17

17The term "securities regulatory authority" is defined in National Instrument 14-101 Definitions as meaning, for a local jurisdiction, the securities commission or similar regulatory authority set out in an appendix to that instrument opposite the name of the local jurisdiction.
may grant an exemption to this Instrument, in whole or in part, subject to such conditions or restrictions as may be imposed in the exemption.
(2) Despite subsection (1), in Ontario only the regulator may grant such an exemption.

8.2 Evidence of Exemption - Without limiting the manner in which an exemption under section 8.1 may be evidenced, the issuance by the regulator of a receipt for a prospectus or an amendment to a prospectus is evidence of the granting of the exemption if
(a) the person or company that sought the exemption has delivered to the regulator, on or before the date that the preliminary prospectus or an amendment to the preliminary prospectus was filed, a letter or memorandum describing the matters relating to the exemption, and indicating why consideration should be given to the granting of the exemption; and
(b) the regulator has not sent written notice to the contrary to the person or company that sought the exemption.



PART 9 EFFECTIVE DATE

9.1 Effective Date - This National Instrument comes into force on , 1997.


NATIONAL INSTRUMENT 52-101

APPENDIX A

OFFERING MEMORANDA SUBJECT TO NATIONAL INSTRUMENT 52-101

In each jurisdiction, offering memoranda subject to this Instrument are those provided in connection with the distribution of a security under the provisions of the securities legislation noted below:


JURISDICTION SECURITIES LEGISLATION REFERENCE

ALBERTA Clause 107(1)(d), 107(1)(p) or 107(1)(q) of the Securities Act (Alberta).

BRITISH COLUMBIA Clause 74(2)(4) of the Securities Act (British Columbia), (where a person advertises in connection with the distribution), or rule 128(a), 128(b), 128(c) or 128(h) of the Securities Rules.

MANITOBA Clause 91(b) of the regulation under the Securities Act (Manitoba).

NEWFOUNDLAND Clause 73(1)(d), 73(1)(p) or 54(3)(f) of the Securities Act (Newfoundland).

NOVA SCOTIA Clause 77(1)(d), 77(1)(p), 77(1)(w) or 77(1)(ag) of the Securities Act (Nova Scotia) or subsection 127(p) of the regulations under such Act.

ONTARIO Clause 72(1)(d) or 72(1)(p) of the Securities Act (Ontario), or section 2.5 of Ontario Securities Commission Rule 45-501 Exempt Distributions [section of proposed OSC Rule based on reformulation of clause 14(g) of the Regulation under the Securities Act (Ontario).

QUEBEC Section 47, 48 or 52 of the Securities Act (Quebec).