The Corporate Finance Branch (CFB) of the Ontario Securities Commission has issued a year end report on its compliance activities, revealing ongoing deficiencies with executive compensation disclosure and management discussions, and plans for a review of insider filings.

As a follow-up to its 2002 review of executive compensation disclosure, the CFB reviewed the same group of issuers to ensure they had addressed any prospective changes they had agreed to make. “In general, the reporting issuers in the original sample addressed the comments raised by us during our first review, and improved the disclosure on executive compensation in their most recent information circular,” it reports. “However, we continue to see poor disclosure of issuers’ Statement of Executive Compensation. The disclosure in this area tends to be vague and the use of boilerplate language is common.” The OSC says it’s planning to publish a notice shortly that will provide further guidance.

From April 1, 2003 to March 31, 2004, the CFB completed 635 reviews in all, including 461 continuous disclosure (CD) reviews.

CFB reports that 37% of CD reviews resulted in no significant changes, down from last year’s 39%. “As we continually reassess our risk-based approach to our reviews, we believe that we are spending a greater proportion of our time focusing on the companies that have potential disclosure problems,” it says.

In 18% of the CD reviews, primarily relating to smaller issuers, the CFB identified filings that were so deficient that the issuers were required to refile continuous disclosure materials, to make retroactive changes or to file materials that had not previously been filed.

In reviewing the management discussion and analysis (MD&A) filings of 47 companies, the CFB found that 72% filed their MD&A with one or more deficiencies. The most common deficiency was a failure to provide explanations of material variances or to analyze material variances, followed by failure to adequately analyze identified risks and to disclose selected quarterly financial information.

For the coming fiscal year, the CFB reports that it will do a targeted review of insider reports which will include reviewing:

  • SEDI transactions for completeness and accuracy;
  • issuer’s corporate disclosure policies and monitoring procedures related to insider trading; and
  • compliance with the requirements and recommendations for reporting equity monetization transactions.