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Q1 disclosure in the age of COVID-19

Author(s): Andrew MacDougall, John M. Valley, Kai Sheffield

Apr 17, 2020

For further information on the changes below, please contact one of the authors above or any member of our Corporate Governance Group.

As Canadian public companies assess their financial results for the end of the first quarter of 2020, they are grappling with the question of how to frame discussions of the rapidly evolving COVID-19 pandemic and its unprecedented effects on their businesses. This article highlights some key disclosure considerations presented by the pandemic and provides suggestions on how public companies should approach Q1 disclosure in light of applicable form requirements and recent market practice.

The conventional approach will not be feasible

The COVID-19 pandemic evolved rapidly over the course of the first quarter of 2020. The outbreak of a new coronavirus in Wuhan, China was identified on January 7. On January 30, the World Health Organization (WHO) declared the outbreak a “global public health emergency.” By the end of February, case counts spiked in Italy, Iran and South Korea and stock markets dived sharply. It was not until March 11 that COVID-19 was declared a pandemic by the WHO. In the following days and weeks the governmental response in Canada kicked into high gear, beginning with the Ontario government’s announcement of temporary public school closures on March 12 and the Québec government’s declaration of a public health emergency on March 14. Further closures and restrictions at all levels of government across the country, including social distancing requirements, were put in place in the ensuing days and weeks.

Given the rapid pace at which the crisis unfolded, it is no surprise that there is limited disclosure relating to the impact of COVID-19 in Canadian public companies’ annual management discussion and analysis (MD&A) or annual information forms (AIFs) for 2019. We reviewed the SEDAR filings for Toronto Stock Exchange-listed companies (excluding investment funds) with December 31 year-ends.  Based on that review, we found that:

  • Approximately 67% of those issuers filed their annual MD&A on or before March 14, and approximately 44% had filed their AIFs on or before March 14.
    • Many of these “early-filing” issuers were silent as to the potential impact of the virus.
    • Those that included COVID-19-related disclosure often included a brief risk factor cautioning in general terms that the disruption caused by COVID-19 — sometimes lumped together with other outbreaks of disease, natural disasters, acts of terrorism and other calamities—could adversely affect the forward-looking information about the business in a variety of ways.
  • For the approximately 100 issuers with over $500 million in assets that filed their MD&A on or before March 14 and their AIFs after that date, a substantial majority, approximately 89%, increased the nature and extent of the COVID-19-related disclosure in the AIF as compared to the MD&A.
    • This reflects many issuers’ active monitoring of the rapidly evolving situation and also the need for issuers to pay even closer attention to Q1 MD&A given the further developments in the intervening weeks. 
    • The additional COVID-19-related disclosure was often in the form of a risk factor, with the extent of the risk factor and the degree of customization varying significantly, though some issuers also included additional discussion of the effect or anticipated effect of COVID-19 on their operations, either in their AIF or subsequently in press releases.

It has become clear that the near-term economic, political and social consequences of the pandemic and the extraordinary measures to contain its spread will have substantial impact that is likely to be longer-lasting than originally anticipated. Actions taken by businesses in the face of economic turmoil, social distancing and governmental restrictions, and any changes in management’s expectations on the likely impact of the pandemic on financial performance are of particular interest to investors and necessitate a bespoke approach to disclosure this quarter.

Reexamine your approach to earnings guidance

Canadian companies which have provided earnings guidance need to reexamine their approach to their guidance in order to comply with securities law requirements. Under National Instrument 51-102 – Continuous Disclosure Obligations, a Canadian public company must not disclose forward-looking information (FLI) unless it has a reasonable basis for such information, and must not disclose FLI that is future-oriented financial information (FOFI) or a financial outlook unless such information is based on assumptions that are reasonable in the circumstances. In light of COVID-19 and governmental measures implemented in response to the pandemic, the facts and assumptions underlying previously disclosed FLI are likely to have changed, and the reasonableness of the basis and assumptions for such disclosure will need to be reconsidered. In addition, a reporting issuer is generally required to discuss in its MD&A any events and circumstances that are reasonably likely to cause actual results for future periods to differ materially from previously disclosed material FLI, and disclose and discuss material differences between actual results for the most recently completed period and any previously disclosed FOFI or financial outlook for such period. Reporting issuers must also discuss any withdrawal of previously disclosed material FLI.

Many issuers have already disclosed that they have decided to withdraw or revise their previously issued guidance or may revise their guidance in the future.

We have summarized Canadian reporting issuers’ statements on guidance made between February 15 and March 31 and have summarized our findings in the table below by industry.


A substantial majority of oil and gas companies revised their guidance or indicated that they may do so (although none withdrew their guidance). Companies in the consumer products and services, financial services and life sciences industries were also more likely to withdraw, revise or indicate that they may revise their guidance than to expressly confirm previously issued guidance. Companies in the mining and technology sectors were more of a mixed bag, with approximately 40% of them expressly confirming their guidance despite the COVID-19 pandemic.

Key areas of focus for Q1 MD&A in 2020

Interim MD&A is required in order to provide an update of the content of the company’s most recent annual MD&A. There is no need to provide discussion and analysis that is duplicative of the discussion and analysis contained in the most recent annual MD&A if the previous disclosure is still applicable.

Form 51-102F1 requires that MD&A discuss, among other things, important trends and risks that have affected the financial statements and are likely to affect them in the future, and information that will assist investors in determining if past performance is indicative of future performance. Companies will need to provide more detail and specificity around the impact of the COVID-19 pandemic on their business in their Q1 MD&A than the limited risk factor disclosure that was typical for many annual MD&A and AIFs. Issuers will also need to take particular care to review their most recent annual MD&A and update any elements of the discussion and analysis that are no longer applicable in light of the changed facts and circumstances arising from COVID-19.

Key areas of focus include the following:

  • Risk factors: Normally, reporting issuers disclose few, if any, risk factors in their Q1 MD&A because there have not been significant changes in the facts and assumptions underlying the extensive risk factor disclosure in their annual MD&A. This quarter, however, that will not be the case for many reporting issuers. As highlighted by the evolution in the extent and detail of the COVID-19-related disclosure we observed based on issuers with early-filed MD&A and later-filed AIFs, the ongoing rapid evolution of the COVID-19 crisis in recent weeks will require many issuers to update and expand their existing risk factor disclosure to reflect these developments.  
  • Discussion of operations: Many companies have taken, or have been required to take, specific measures in response to COVID-19 that have impacted and will continue to impact their operations, revenues and profits, and the risks and uncertainties affecting their operations going forward. Some businesses have been classified as non-essential services and have been required to shut down operations entirely, while other businesses have been required to limit their operations to protect employees, customers and others, or in response to shortages of available labour, supply or customer demand. Additional facts that merit discussion may include, among other things, the implementation of a business continuity plan and the establishment of a pandemic response team or working group.
  • Liquidity and capital resources: Investors, creditors and employees will be keenly interested in the section of the MD&A that contains management’s analysis of the company’s liquidity and capital resources. This disclosure must include, among other things, an analysis of trends or expected fluctuations in the company’s liquidity and capital resources, an analysis of any defaults or arrears, or significant risk thereof, on the company’s ability to make key payments and its ability to satisfy its debt covenants, a discussion of how the company intends to address any actual or potential default, and the expected source of funds to meet the company’s capital expenditure commitments.

In response to COVID-19, many companies have taken steps to bolster their cash reserves or reduce anticipated capital expenditures in response to the pandemic. These steps may include drawing down available credit facilities as a cautionary measure, implementing salary reductions, reducing or suspending dividends and deferring upcoming capital expenditures. This disclosure may also include, where appropriate, discussion of whether the company expects to receive financial support from any government stimulus program, or expects that its customers or suppliers will receive such support, and how the company’s business will be affected if such support does not materialize.

  • Critical accounting estimates: As is the case for risk factors, Q1 MD&A typically does not contain updated discussion of critical accounting estimates as these estimates normally will not have changed from those set out in the most recent annual MD&A. Critical accounting estimate disclosure must include a discussion of, among other things, underlying assumptions that relate to matters highly uncertain at the time the estimate was made, and any known trends, commitments, events or uncertainties that the issuer reasonably believes will materially affect the methodology or the assumptions described. The impact of COVID-19 may engage these disclosure requirements and necessitate updated disclosure relating to critical accounting estimates.
  • Going concern risk: Form 51-102F1 does not explicitly call for discussion of a going concern risk, but MD&A must address this risk if the financial statements have identified the existence of a material uncertainty that casts doubt upon an issuer’s ability to continue as a going concern. Under Canadian Generally Accepted Accounting Principles, it is management’s responsibility to assess the issuer’s ability to continue as a going concern. The existence of a material uncertainty in this regard will be relevant to a number items discussed in the MD&A, including overall performance, discussion of operations, liquidity and capital resources. At least one TSX-listed issuer, a junior mining company, disclosed a going concern risk in connection with COVID-19 in its annual MD&A for 2019.
  • CEO and CFO certifications: The chief executive officer and chief financial officer must provide certifications relating to the design of the company’s disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR). Under Form 52-109F2 – Certification of Interim Filings (Form 52-109F2), the CEO and CFO must certify that they designed DC&P to provide reasonable assurance that any material information relating to the company is made known to them and that information required to be disclosed by the company is reported within applicable time periods, and that they designed ICFR to provide reasonable assurance regarding the reliability of the issuer’s financial reporting and financial statements. Any changes that materially affect the company’s ICFR must be disclosed in the MD&A.

Reporting issuers must consider whether any COVID-19-related changes, such as the transition to remote working for employees, may impede the effectiveness of existing DC&P or ICFR. As part of this analysis, issuers should consider what effect this will have on the design and operating effectiveness of their DC&P and ICFR. A company may need to revise the design of their DC&P or ICFR and/or consider whether there has been a change in ICFR which must be disclosed in the interim MD&A so that the CEO and CFO certifications can be provided.  

SEC guidance may offer a helpful roadmap

Canadian Securities Administrators have not released specific guidance to issuers on COVID-19-related disclosure. However, the U.S. Securities and Exchange Commission issued a public statement on April 8 on the topic of Q1 earnings statements and calls.[1] The SEC’s recommendations, which can be summarized as follows, underscore the importance of providing detailed, company-specific disclosure, as reflected in recent trends we have observed in the Canadian market:

  • Companies should provide as much information as is practicable regarding their current operating status and their future operating plans under various COVID-19-related mitigation conditions. Robust, forward-looking disclosures will benefit investors and companies and will substantially contribute to the effort to fight and recover from COVID-19.
  • Detailed discussions of current liquidity positions and expected financial resource needs would be particularly helpful to investors and markets.
  • The impact of company actions and policies in respect of protecting worker health and well-being and customer safety may be of material interest to investors, and disclosures that address that interest are encouraged.
  • If financial assistance under COVID-19-related governmental programs have materially affected, or are reasonably likely to have a material future effect upon, financial condition or results of operations, the affected companies should provide disclosure of the nature, amounts and effects of such assistance.
  • While it may be tempting, in light of the challenges in forecasting the time frames for COVID-19 social distancing guidelines and other mitigation-related requirements, to resort to generic or boilerplate disclosures that do little to inform investors of company-specific status, operational strategies and risks, companies and their advisors should make all reasonable efforts to convey information that provides investors a level of insight that allows them to see the key operational and financial considerations and challenges the company faces through the eyes of management.


The efforts of Canadian public companies to comply with social distancing requirements and adapt to the myriad of other challenges presented by the COVID-19 pandemic will add considerable complexity to Q1 MD&A disclosure preparation. Blanket relief has been promulgated by the Canadian Securities Administrators that permits an automatic extension of the filing deadline by up to 45 days to comply with Q1 filing requirements, provided the reporting issuer issues a news release before the filing deadline stating that it intends to rely on such relief.[2] Canadian public companies should make a realistic assessment of their ability to comply with the filing deadline (i.e., May 15 for issuers with a December 31 year end) well in advance of that time. Furthermore, reporting issuers should bear in mind that circumstances surrounding the COVID-19 pandemic will continue to change rapidly, and market practice with respect to continuous disclosure will continue to evolve as the extent and duration of the impact of the pandemic become clearer.

The authors would like to thank Kojo Hayward, Alexandra McLennan and Emery White for their contributions to this publication.


[2] Periodic filings required to be made on or before June 1, 2020 may be eligible for a 45-day extension under temporary blanket relief promulgated by the Canadian Securities Administrators. See