Companies that list on the TSX Venture Exchange usually prepare thoroughly for the listing itself and considerably less thoroughly for what follows. The listing is a project with a deadline and advisers. Continuous disclosure is a permanent operating requirement with no end date, and it lands on a finance function that was often already stretched.
The rhythm
Once you are a reporting issuer, your year has a shape.
Annual audited financial statements, with management’s discussion and analysis and CEO and CFO certifications. Interim financial reports with MD&A and certifications, three times a year. An annual information form for issuers required to file one. Material change reports whenever a material change occurs, which is not on a schedule at all.
Venture issuers get longer deadlines than non-venture issuers on both annual and interim filings. That accommodation is real and useful. It is also frequently absorbed as slack rather than used as preparation time, with the result that the filing is assembled in the same panic it would have been under the shorter deadline.
Where venture issuers get into difficulty
Materiality judgements on material change reports. The requirement is to disclose promptly. The difficulty is deciding whether something is a material change and when it occurred. A drill result, a financing that is agreed but not closed, a management departure, a dispute with a counterparty. Getting this wrong in either direction is a problem: late disclosure attracts regulatory attention, and premature disclosure of a transaction that then fails is its own difficulty.
This is the single area where taking advice before deciding is most obviously worth it.
MD&A that repeats the financial statements. MD&A is meant to explain, from management’s perspective, what the numbers mean, what drove the changes, what the risks are and what is expected. A large proportion of venture issuer MD&A restates the financial statements in prose. Regulators comment on this regularly and it is one of the most common review findings.
Going concern in an exploration or development stage entity. Many venture issuers are pre-revenue and funded by successive financings. The going concern assessment is difficult, the disclosure is scrutinised, and the auditor will require evidence rather than optimism about the next raise.
Flow-through share accounting. The premium on flow-through shares, the recognition of the renunciation, and the deferred tax consequences. It is a distinctly Canadian area and it is not intuitive. Errors here surface in the audit and sometimes in a regulator review.
Mineral property accounting under section 3061. Capitalisation and impairment judgements on exploration and evaluation expenditure. Whether costs are capitalised or expensed, and when a property becomes impaired, are judgement calls that materially change the balance sheet.
Certifications signed without the underlying work. The CEO and CFO certifications carry personal responsibility, including in relation to disclosure controls and procedures. Signing them without an actual assessment of whether those controls operated is a genuine exposure and it is done more often than it should be.
Timeliness against the auditor’s timetable. Filing deadlines are absolute. If the audit is not finished, the filing is late, and a late filing has consequences including potential cease trade orders. Building the audit timetable backwards from the filing deadline, with contingency, is basic and regularly skipped.
What good looks like
The venture issuers that handle this comfortably do a few things.
They close monthly, not quarterly. Producing an interim report from a monthly close that already exists is a fundamentally different exercise from constructing three months of accounting after the quarter ends.
They maintain a disclosure calendar with every filing deadline, working backwards to the audit and review timetable, and they treat those internal dates as fixed.
They have a disclosure committee, even an informal one, that considers whether an event is a material change before someone decides alone.
They prepare the MD&A alongside the financial statements, not afterwards, so the narrative and the numbers are built from the same understanding.
They appoint an auditor who has done this before. Flow-through shares, section 3061 and exploration-stage going concern are not areas to be learned on your file.
The underlying point
Continuous disclosure is a system, not a series of events. Issuers who build the system in the first year find the obligation manageable and largely invisible. Issuers who treat each filing as a discrete emergency spend more, file later, and eventually attract a review that costs more again.