Canada to allow smaller companies to report financials twice per year
Taking a cue from United States President Donald Trump, market regulators in Canada will allow smaller, publicly traded companies to report their financials twice a year instead of four times a year.
The shift to semi-annual financial reporting from quarterly upends decades of practice in Canada and is intended to reduce costs and administrative burden placed on small companies, according to the Canadian Securities Administrators (CSA), which harmonizes capital market regulations across all provinces and territories.
The CSA launched the semi-annual reporting initiative this week as part of a pilot project . For now, it is only open to companies with $10 million in revenue or less, listed on either the TSX Venture Exchange (TSX-V) or the Canadian Securities Exchange . Participation is voluntary, but there are other requirements, such as at least 12 months of continuous financial reporting.
“The semi-annual financial reporting pilot is the result of … ongoing efforts to support the competitiveness of Canadian capital markets,” Stan Magidson, CSA chair and chair and chief executive of the Alberta Securities Commission, said in a statement.
In the U.S., Trump has been advocating for a shift to semi-annual reporting since at least 2018. Last year, he raised the policy shift again in social media posts, saying it would reduce the short-term focus of many companies.
U.S. Securities and Exchange Commission chair Paul Atkins has also expressed support for the change and is expected to introduce an amendment to the quarterly reporting rules shortly.
U.S. companies have been required to report their financial reporting on a quarterly basis since 1970, according to a post by the Harvard Law School Forum on Corporate Governance.
The same practice became uniform for private companies in Canada in 2004 with the adoption of National Instrument 51-102.
Some jurisdictions, including the European Union and the United Kingdom, already require financial reporting on a semi-annual basis.
Harvard’s post said semi-annual reporting can reduce costs and support longer-term thinking by companies, but it could also leave investors with less information.
Nevertheless, there is a movement afoot in Canada to widen eligibility of the pilot program to more publicly traded companies.
The CSA has said “it intends to engage in a broader rule-making project related to voluntary semi-annual reporting.”
Loui Anastasopoulos, chief executive of the Toronto Stock Exchange and global head of capital formation at TMX Group Ltd., which owns the TSX and TSX-V, has said he wants the pilot project to be opened up to all companies on the TSX-V.
“This framework will meaningfully reduce regulatory burden, improve capital efficiency, and enhance the competitiveness of Canada’s public venture ecosystem,” he said in a December letter to the CSA.
John McKenzie, chief executive of TMX Group, earlier this week said the pilot also should be opened to companies on the TSX because it would meaningfully reduce costs and administrative burdens.
Catherine Kee, a TMX spokesperson, said there are about 1,500 companies listed on the TSX-V, although not all would be eligible for the pilot. She could not provide details on how many would be eligible by the time of publication.
But not everyone is supportive of the reduction in reporting.
Richard Leblanc, a professor who studies corporate governance at York University, said quarterly reporting is better for investors because it creates more timely accountability.
He said waiting six months to find out what’s happening at a company is too long.
“I don’t think we should be unduly influenced by anything happening south of the border,” he said. “Transparency is generally good, and if you’re getting public money, you should have public accountability.”
• Email: gfriedman@postmedia.com