A recent continuous disclosure review by Canadian securities regulators suggests that the quality of accounting and disclosure practices of many income trusts continues to deteriorate, says Standard & Poor’s, in a new report.

The new report from S&P follows the Canadian Securities Administrators’ recent report on the disclosure practices of income trust issuers.

“The CSA’s findings are quite unsettling. When Standard & Poor’s raised these issues earlier this year we anticipated that a subsequent CSA review would confirm our initial findings,” said Kevin Hibbert, Canadian director of financial reporting, in a release.

S&P notes a couple of the more significant negative trends include the fact that in 2006, three times as many income trusts had to re-file disclosure documents or file disclosure documents that they did not previously file compared with 2004.

Also, S&P says that the CSA’s 2006 report mentions that covenant breaches and financial waivers occurred for which sufficient appropriate disclosure was lacking by certain trusts. “This issue was not mentioned by the CSA in the 2004 report. This is of critical importance to investors given the potential for distributions to be cut or suspended as a result of a financial covenant breach,” it adds.

Ronald Charbon, director of the stability ratings group, points out that Standard & Poor’s employs several measures that help to reasonably mitigate the potential effect of information risk and reporting distortions on the ratings process. “For instance, ongoing access to management provides the opportunity to discuss issues and events that might otherwise go undisclosed; furthermore, our analytical process focuses on distributable cash metrics that consider, but are not dictated by the as-reported numbers of management.”