accounting principles for private enterprises (ASPE)?
e. Is it common for security holders to request annual
financial statements? Do they request audited financial
f. What do you estimate as the annual cost of preparing the
proposed audited annual financial statements?
g. Do you anticipate that issuers will mail annual financial
statements to security holders or place them on a
h. What do you estimate as the cost of making annual
financial statements available to security holders?
Assumptions: For purposes of this Question 7, we have
assumed based on the commentary in the Proposed Amendments
that: (a) the questions below relate to any ongoing financial
statement disclosure that may or may not be provided by an
issuer after an offering has been completed where capital was
raised under the OM Exemption. We note that the OM Exemption
requires the inclusion of audited financial statements save and
except under specific circumstances as set out in the blanket
orders (as referenced in Question 16 below); and (b) private
issuers (or non-offering corporations under the Ontario Business
Corporations Act) are exempt from the audited financial statement
requirements if all of the shareholders have consented in writing to
the exemption for that financial year.
7) How common is it for an issuer that relies on the OM
Exemption to make annual financial statements available to
If a dealer is involved, then it would typically require an issuer
that raised funds under the OM Exemption to continue to provide
audited annual financial statements to its investors.
If a dealer is not involved, the answer depends on a number
of factors, including whether certain sophisticated investors are
involved, such as angel and/or venture capital investors, who
would typically require audited annual financial statements as a
condition of investing.
If no dealer or angel/venture investor or lender is involved,
the investor or lender, where certain borrowing thresholds have
been reached would typically request annual financial statements
so they have an idea of the issuer’s financial position at least
once a year, or more regularly if available. Our view is that issuers
generally do not have an issue with providing financial statements
to investors, the issue is whether they are audited and that is
typically a cost issue (see answer in 7(b)).
(a) How is this done? Are they delivered?
If an issuer is a corporation, its financial statements are
typically delivered to shareholders electronically or by mail with
its meeting materials in advance of its annual general meeting.
Many issuers are now either e-mailing the materials or having the
materials available for viewing on a web portal or platform.
(b) Are those financial statements typically audited?
Whether the financial statements of an issuer are audited
depends on the financial situation of the company, any specific
investor requirements, and the stage in which the company is
operating. Most start-up companies and small and medium sized
enterprises (SMEs) do not have the resources to pay for audited
financial statements – opting instead for either financial statements
created in-house or a review engagement from outside auditors.
If they are contemplating an investment from a venture capital
firm or investment fund, then an audit may be a pre-requisite to
such an investment, and if so, they will retain an assurance firm to
conduct an audit.
Many investment funds and venture capital firms require audits
to be conducted on an annual basis after the initial investment,
however, if a company is struggling financially, and the resources
to spend on an audit are best used in retaining valuable employees
and/or suppliers, then the shareholders may have an option
to waive the audit requirement for a time period. This would be
determined by the shareholders at an annual meeting if the issuer
was a corporate issuer. If the issuer was a limited partnership,
trust or other form of legal entity, one would have to review its
constating documents to consider any audit requirement.
(c) If the financial statements are not typically audited, is there
an auditor involved and, if so, what standard of engagement is
Whether an auditor is involved depends on the stage of the
company, (e.g., start-up, growth or emerging company, however, an
engagement review could be provided by an auditor at a lesser cost
and is typically the second step taken (after the in-house prepared
balance sheet) as a company grows. We note the time, money and
effort involved in preparing audited financial statements is challenging
for startups and SMEs, given their (typical) limited resources.
(d) Do issuers that prepared financial statements in accordance with
IFRS for inclusion in their OMs typically continue to prepare financial
statements in accordance with IFRS or do they transition to generally
accepted accounting principles for private enterprises (ASPE)?
It should be noted that in Alberta, the experience is that most
issuers that are not reporting issuers use ASPE. However, there
are some that use IFRS. Typically, where issuers have prepared
financial statements in accordance with IFRS for inclusion in their
OMs, they continue to prepare their financial statements on the
same basis and do not transition to ASPE.
(e) Is it common for security holders to request annual financial
statements? Do they request audited financial statements?
Yes - securityholders commonly request annual financial
statements and, depending on a number of factors, would prefer
audited financial statements. Whether the financial statements are