The Candian Institute of Chartered Accountants on Wednesday issued new guidance to help companies improve management’s discussion and analysis disclosures about off-balance sheet arrangements and related exposures.

The new “interpretive release” is designed to encourage management to see MD&A as an opportunity to disclose more about its off-balance sheet arrangements than what may be included in the notes to the financial statements.

“Enron and similar corporate situations in the United States demonstrated the need for greater disclosure in this area,” said Chris Begy of the CICA’s Canadian Performance Reporting Board. “The MD&A is an excellent vehicle for helping investors understand the purpose and nature of a company’s off-balance sheet arrangements and their impact on results, and enables investors to hold management accountable for the performance and transparency of those arrangements.”

“According to this new guidance, management should use the MD&A to explain to investors why it is using off-balance sheet arrangements, how they impact results, what risks are involved and how they are being managed,” said Begy.

The guidance recommends that off-balance sheet arrangements should be disclosed if they have or are likely to have a material current or future effect on the entity’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.

Additional recommendations include:Explain the off-balance sheet arrangements in plain language, with candour and without jargon.

  • Disclose all significant off-balance sheet arrangements, including those entered into in previous years, but which still involve exposure.
  • Explain the business purpose and legitimacy of the off-balance sheet arrangements.
  • Disclose the extent to which off-balance sheet arrangements involve related parties.
  • Identify and disclose the key performance measures used to track and monitor the drivers important to the success of the off-balance sheet arrangements.
  • Disclose the effects of off-balance sheet arrangements on cash flow and earnings reported in prior and current periods, and their potential and likely effects on future cash flow and earnings.
  • Identify and discuss the risks associated with the company’s off-balance sheet arrangements, including potential adverse effects on the company’s business or financial condition.



    The IR is designed to supplement existing Canadian Securities Administrators’ MD&A disclosure requirements.