In August 2020, Canadian Securities Administrators (CSA) published amendments to National Instrument 51-102, Continuous Disclosure Obligations (NI 51-102), and its companion policies related to business acquisition report (BAR) requirements for non-venture reporting issuers. The amendments were intended to reduce regulatory burden for non-venture reporting issuers, and came into effect on Nov. 18, 2020.
The purpose of BAR requirements is to provide investors with relatively timely access to historical and, in the case of non-venture reporting issuers, pro forma financial information on a significant acquisition by filing a BAR after completing a significant acquisition.
Why this change?
Commentators have raised concern over the BAR in that the BAR disclosure is of limited value to investors given its lack of timeliness and the high cost of its preparation. It can also impede the completion of a transaction. The amendments made by the CSA to NI 51-102 do the following:
- Increase the number of triggers to meet the significance tests criteria from one of the three tests (i.e., the asset test, the investment test, or the profit or loss test) to two of the three tests.
- Increase the 20 per cent significant threshold for each of the significance tests to 30 per cent.
These amendments are expected to result in a lower number of non-venture reporting issuers being required to follow BAR filing requirements.
What does filing a BAR require from the issuer?
If the acquisition meets the amended criteria, the venture reporting issuer must comply with Part 8 BAR of N51-102. Part 8 relating to a BAR filing requires a venture reporting issuer to file:
- Audited financial statements of each business or related businesses for the most recently completed financial period prior to the acquisition
- Interim financial statements of the acquired business for the most recently completed interim period after the date of the audited balance sheet and before the acquisition date, and for a comparable period in the preceding financial year of business for the interim financial statements
- Pro forma financial statements as if the business acquisition had taken place at the reporting date
The annual and interim financial statements are required to be prepared in compliance with International Financial Reporting Standards (IFRS). IFRS requires companies (subsidiaries, joint ventures and associate companies) within a group to follow accounting policies similar to those of the reporting issuer, and this would require acquired companies to convert to IFRS, if they were following Accounting Standards for Private Entities or other local generally accepted accounting principles (GAAP).
The processes of reporting and conversion are complicated and require specialized skills as well as considerable effort and attention from a finance department. It would be advisable to assess these requirements early on in a business acquisition and plan for BAR requirements.