Recommendations for a Secondary Markets Disclosure Framework PDF

**RECOMMENDATIONS FOR A SECONDARY MARKETS DISCLOSURE FRAMEWORK** **Consultation Report** **NOTE: This post London draft includes comments by DSC members after the London meeting through 16 January 2025.** **INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS** **March 2025** **\ ** **Foreword** **\[Information to be added regarding the consultation.\]** **\ [TABLE OF CONTENTS]** **INTRODUCTION** **GLOSSARY** **CHAPTER 1 -- RECOMMENDATIONS APPLICABLE TO ALL DISCLOSURE** **Materiality and fair presentation** +-----------------------------------------------------------------------+ | Recommendations: | | | | \(i) Listed entities should be required to disclose material | | information. | +=======================================================================+ | \(ii) Listed entities should be required to present information | | fairly. | +-----------------------------------------------------------------------+ | \(iii) Listed entities should be required to ensure that information | | disclosed across all channels is consistent. | +-----------------------------------------------------------------------+ **Frequency and timeliness** +-----------------------------------------------------------------------+ | Recommendations: | | | | \(iv) Listed entities should be required to provide periodic and | | event-driven disclosure. | +=======================================================================+ | \(v) Listed entities should be required to disclose information on a | | timely basis. | +-----------------------------------------------------------------------+ | \(vi) Listed entities that are listed in more than one jurisdiction | | should be required to disclose information timely in all | | jurisdictions. | +-----------------------------------------------------------------------+ | \(vii) Listed entities should not disclose information to selected | | investors before it is released to the public. | +-----------------------------------------------------------------------+ **Access and availability** +-----------------------------------------------------------------------+ | Recommendations: | | | | \(viii) Listed entities should be required to file information with | | the relevant regulator. | +=======================================================================+ | \(ix) Listed entities should be required to publicly disseminate | | information. | +-----------------------------------------------------------------------+ | \(x) Listed entities should be encouraged to provide information in | | a machine-readable format. | +-----------------------------------------------------------------------+ | \(xi) Information should be stored in order to facilitate public | | access to it. | +-----------------------------------------------------------------------+ **CHAPTER 2 -- RECOMMENDATIONS APPLICABLE TO PERIODIC AND EVENT-DRIVEN DISCLOSURES** **Periodic disclosure** ***Annual reports*** +-----------------------------------------------------------------------+ | Recommendations: | | | | \(i) Annual reports should be required to contain audited financial | | statements. | +=======================================================================+ | \(ii) Annual reports should be required to contain a description of | | the listed entity's business and operations. | +-----------------------------------------------------------------------+ | \(iii) Annual reports should be required to contain information | | about material risks affecting the listed entity. | +-----------------------------------------------------------------------+ | \(iv) Annual reports should be required to contain management's | | discussion and analysis of financial condition and results of | | operations. | +-----------------------------------------------------------------------+ | \(v) Annual reports should be required to contain information | | related to market risk sensitive instruments. | +-----------------------------------------------------------------------+ | \(vi) Annual reports should be required to contain information on | | the capital structure of the listed entity. | +-----------------------------------------------------------------------+ | \(vii) Annual reports should include disclosure of | | sustainability-related information applying general principles of | | materiality. | +-----------------------------------------------------------------------+ | \(viii) Annual reports should be required to contain information on | | the listed entity's corporate governance practices. | +-----------------------------------------------------------------------+ | \(ix) Annual reports should be required to contain information on | | the compensation of directors and specified executive officers. | +-----------------------------------------------------------------------+ | \(x) Annual reports should be required to contain information | | regarding equity compensation plans and their potential dilutive | | impact on existing investors. | +-----------------------------------------------------------------------+ | \(xi) Annual reports should be required to contain information on | | the ownership of significant holders of voting securities. | +-----------------------------------------------------------------------+ | \(xii) Annual reports should be required to contain information on | | material related party transactions. | +-----------------------------------------------------------------------+ | \(xiii) Annual reports should be required to contain information | | about material legal proceedings affecting the listed entity. | +-----------------------------------------------------------------------+. ***Interim reports*** +-----------------------------------------------------------------------+ | Recommendations: | | | | \(xiv) Interim reports should be required to contain interim | | financial statements. | +=======================================================================+ | \(xv) Interim reports should be required to contain management's | | discussion and analysis of financial condition and results of | | operations. | +-----------------------------------------------------------------------+ **Event-driven disclosure** +-----------------------------------------------------------------------+ | Recommendation: | | | | \(xvi) Listed entities should be required to disclose material | | events or developments as they occur. | +-----------------------------------------------------------------------+ **CHAPTER 3 -- RECOMMENDATIONS APPLCABLE TO ACCOUNTABILITY AND CONTROLS** **Disclosure controls and procedures** +-----------------------------------------------------------------------+ | Recommendations: | | | | \(i) Listed entities should be required to maintain disclosure | | controls and procedures. | +=======================================================================+ | | +-----------------------------------------------------------------------+ **Internal controls over financial reporting** +-----------------------------------------------------------------------+ | Recommendations: | | | | \(iii) The responsible persons should be required to establish, | | maintain and assess the effectiveness of internal controls over | | financial reporting. | +=======================================================================+ | \(iv) Relevant disclosure on the listed entity's internal controls | | over financial reporting should be required. | +-----------------------------------------------------------------------+ **\ INTRODUCTION** For over 25 years, International Organization of Securities Commissions (IOSCO) principles, standards and recommendations have played a critical role in facilitating cross-border capital raising. Consensus among IOSCO members around such disclosure principles, standards and recommendations has enabled issuers to access the global markets more quickly and enhanced investor protection across jurisdictions. IOSCO has recognized that disclosure of reliable, accurate and timely information that is readily accessible contributes to liquid and efficient markets by enabling investors to make informed investment and voting decisions based on the information material to their decisions. The IOSCO *Objectives and Principles of Securities Regulation*[^1^](#fn1){#fnref1.footnote-ref} are endorsed by both the G20 and Financial Stability Board and include 38 Principles which represent consensus on sound practices for regulating securities markets. These practices may be practically implemented under the relevant legal framework of IOSCO members to achieve the "objectives of regulation," namely protecting investors, maintaining fair, efficient and transparent markets and addressing systemic risk. Principle 16 states: These Recommendations for a Secondary Markets Disclosure Framework (the "**Recommendations**") are intended to provide further guidance that relevant regulators may consider using in jurisdictions that are establishing or reviewing their securities regulations on the application of Principle 16 as it relates to disclosure by listed entities for the secondary markets. **Previous guidance issued by IOSCO** *Primary markets* To facilitate multinational issuers to make cross-border public offerings and initial listings of securities, IOSCO issued the *International Disclosure Standards for Cross-Border Offerings and Initial Listings by Foreign Issuers*[^2^](#fn2){#fnref2.footnote-ref} for equity securities in 1998 ("**International Equity Disclosure Standards**") and the *International Debt Disclosure Principles for Cross-Border Offerings and Listings by Foreign Issuers*[^3^](#fn3){#fnref3.footnote-ref} for debt securities in 2007 ("**International Debt Disclosure Standards**", and together with the International Equity Disclosure Standards, the "**Primary Market Disclosure Standards**"). At the time that it issued the International Equity Disclosure Standards, IOSCO recommended that its members accept in their respective home jurisdictions a disclosure document containing the information set forth in the International Equity Disclosure Standards, subject to host country review or approval processes. These standards represented an important step forward in developing an international consensus on disclosure standards for public offerings and initial listings of securities. *Secondary markets* Equally significant is the disclosure that is provided to the secondary markets after an issuer has made an initial listing of securities or a public offering of securities. Although in many jurisdictions retail investors may participate in primary offerings by issuers, as a practical matter retail investors in most jurisdictions tend to mainly participate in the market through secondary markets trading rather than initial public offerings. Reliable, timely secondary markets disclosure that is readily accessible is crucial so that investors have the information they need to determine whether to purchase or sell a security after it has been listed or to make voting decisions on securities they hold. Such information includes periodic disclosure covering designated periods of time (e.g., annual, quarterly), as well as event-driven disclosure of material events. In recognition of the importance of secondary markets disclosure, IOSCO published *Principles for Ongoing Disclosure and Material Development Reporting by Listed Entities*[^4^](#fn4){#fnref4.footnote-ref} ("**Ongoing Disclosure Principles**") in 2002. This guidance established a set of common, high-level principles for jurisdictions developing or reviewing a secondary markets disclosure reporting regime for listed entities, with particular focus on event-driven disclosure. Event-driven disclosure can provide current information for investors to better enable them to make informed investment and voting decisions. Listed entities disclose material events on a current basis rather than waiting until they are required to make periodic disclosure, such as annual reports and interim reports. Periodic disclosure facilitates investor decision making and monitoring of the markets by making it possible for investors to compare the performance, financial condition and future prospects of the same listed entity over regular intervals, and by enabling investors to make useful comparisons among different listed entities. Although the Ongoing Disclosure Principles set forth general guidelines for secondary markets disclosure, specific guidance on periodic disclosure is also important to help promote consistently high-quality disclosure provided in the periodic reports of listed entities whose securities are traded in the international, as well as domestic, markets. For this reason, IOSCO published the *Principles for Periodic Disclosure by Listed Entities*[^5^](#fn5){#fnref5.footnote-ref} in 2010 ("**Periodic Disclosure Principles**, and together with the Ongoing Disclosure Principles, the "**Secondary Markets Disclosure Principles**")*.* The Periodic Disclosure Principles were aimed at facilitating consensus on common high-level principles to provide guidance to jurisdictions that are developing or reviewing their periodic disclosure requirements for listed entities, so that retail investors who participate through secondary trading, and who are most in need of regulatory protection, can benefit from this type of disclosure on an ongoing basis. The fundamental principle of "full, accurate and timely disclosure" referred to in Principle 16 is that the listed entity should provide information that is material to an investor's investment and voting decisions. The body of information available to an investor should contain both information disclosed at the IPO stage, covered under the Primary Market Disclosure Principles, as well as secondary markets disclosure, covered by the Secondary Markets Disclosure Principles. *Other relevant guidance* Over the years, IOSCO has published other guidance directed at listed entities that is relevant to secondary markets disclosure by listed entities, in particular: - *General Principles Regarding Disclosure of Management's Discussion and Analysis of Financial Condition and Results of Operations* (February 2003);[^6^](#fn6){#fnref6.footnote-ref} - *Statement on Non-GAAP Financial Measures* (June 2016);[^7^](#fn7){#fnref7.footnote-ref} - *IOSCO Statement on Financial Reporting and Disclosure during Economic Uncertainty* (November 2022).[^8^](#fn8){#fnref8.footnote-ref} **Why IOSCO is issuing the Recommendations** Investors' needs and expectations related to disclosure by listed entities have evolved substantially over the years, including, but not limited to, disclosure of material risks and opportunities, which may include certain sustainability matters. Moreover, IOSCO's prior policy work on this topic has occurred over a period of decades in the form of various stand-alone publications. As such, the Recommendations update, consolidate and modernize the Secondary Markets Disclosure Principles so that all IOSCO relevant guidance pertaining to disclosure by listed entities for the secondary markets is contained in a single document. By doing so, the Recommendations seek to address issues regarding duplication, gaps in coverage and outdated references while providing more clarity and precision where necessary. The Recommendations therefore supersede the Secondary Markets Disclosure Principles (but not the Primary Market Disclosure Principles) for purpose of non-binding guidance to IOSCO members. Where relevant, they refer to other guidance issued by IOSCO. **Scope of the Recommendations** The Recommendations are primarily concerned with providing guidance to jurisdictions that are developing or reviewing their regulations for secondary markets disclosure by listed entities and entities with a public reporting obligation. They are not intended to apply in relation to non-reporting entities nor to collective investment schemes, although regulators may consider them for other entities with public reporting obligations. IOSCO, while recognizing that different regulatory approaches with varying levels of prescriptiveness may be taken in jurisdictions with respect to secondary markets disclosure, believes that these approaches should not preclude consensus at a high level, around the framework outlined below. These Recommendations should provide IOSCO members with a framework to consider for developing or reviewing their own disclosure regimes, in light of their own legal and regulatory regimes, and unique market characteristics. The principles-based format of the Recommendations allows for a wide range of application and adaptation by securities regulators. In some jurisdictions, the Recommendations could be used regardless of the type of securities issued by a listed entity, or whether or not it is domestic or foreign. In other jurisdictions, regulators may wish to consider adapting the Recommendations according to the characteristics of the listed entity such as its size when establishing the frequency for interim reports or reliance upon scaled disclosure requirements. In some places throughout this consultation report, the guidance contained in the Recommendations includes examples to illustrate how different approaches may be used to reach the same disclosure objective. The Recommendations do not cover disclosure that would be required in connection with a listed entity's annual or special meeting of shareholders, including proxy solicitation and voting results. These disclosures are generally part of the corporate law framework governing listed entities and are outside the scope of the Recommendations. However, under the laws and regulations of some jurisdictions, some of the annual disclosures referred to in Chapter 2, such as information regarding the listed entity's corporate governance practices, may be required to be provided in the listed entity's proxy statement. Accordingly, the purposes of the Recommendations are to complement the Primary Market Disclosure Principles by: - setting forth a recommended framework for secondary markets disclosure for listed entities, and - providing best practices for regulators and other relevant market participants to consider in developing or reviewing a secondary markets disclosure regime for listed entities.[^9^](#fn9){#fnref9.footnote-ref} **Structure of the Recommendations** The Recommendations are divided into three main parts: - Chapter 1 provides guidance that applies to secondary markets disclosure generally. This guidance pertains mostly to general issues such as materiality, frequency and timeliness of disclosure and access to and availability of information. Both periodic disclosure and event-driven disclosure seek to provide investors with decision-useful information and as such have many commonalities. - Chapter 2 provides guidance that applies specifically to either periodic disclosure or event-driven disclosure. This guidance pertains mostly to the content of such disclosures. Periodic disclosure and event-driven disclosure seek to provide investors with different kinds of information and as such require different guidance as to their content. - Chapter 3 provides guidance on accountability for disclosure and internal controls. These controls and procedures are essential to ensure that disclosure is timely and reliable. **GLOSSARY** In these Recommendations: "**Annual report**" means a single document or a set of documents containing information that covers a full financial year, whether or not referred to as an "annual report." **"Affiliate"** means a person who, directly or indirectly, either controls, is controlled by or is under common control with, a specified person or entity. **"Board of Directors"** or **"Board"** includes a listed entity's administrative or supervisory body or other body with similar functions and "**Director**" includes any member of such body. "**Event-driven disclosure**" means current disclosure of information in response to specific events or developments and not tied to a specific period. Some jurisdictions refer to "event-driven disclosure" as "current disclosure" or "ad hoc" or "price sensitive." "**Executive officer**" means the listed entity's president or any individual in charge of a principal business unit, division or function, and any other officer or person who has authority and responsibility for planning, directing and controlling the activities of the listed entity. Persons covered by this definition are determined by the requirements of the particular jurisdiction. "**GAAP**" means generally accepted accounting principles, such as a set of accounting rules, standards, and procedures issued or revised by the U.S. Financial Accounting Standards Board (FASB) or the International Accounting Standards Board (IASB). "**Listed entity**" means an entity organized in corporate form that has securities listed or admitted to trading on a regulated market in which retail investors participate and is subject to reporting requirements with a regulator. "**MD&A**" means management's discussion and analysis of financial condition and results of operations, also referred to as operating and financial review or management report or management commentary. "**Periodic disclosure**" means disclosure of information on a periodic basis (yearly, half-yearly or quarterly) and tied to a specific period. "**Regulator**" means the securities regulator in a jurisdiction and may include the stock exchange in jurisdictions where it has similar responsibilities to a securities regulator. **CHAPTER 1 -- RECOMMENDATIONS APPLICABLE TO ALL DISCLOSURE** **Materiality and fair presentation** -------------------------------------------------------------------------------------------------- **Recommendation (i):** **Listed entities should be required to disclose material information.** -------------------------------------------------------------------------------------------------- Material information is essential for investor decision-making. Listed entities should disclose information that would be material to an investor's investment decision.[^10^](#fn10){#fnref10.footnote-ref} Each jurisdiction defines materiality in the context of its own legal and regulatory regime. Some jurisdictions may define material information to be information that is likely to affect either an investors' assessment of value and prospects of the listed entity or its investment and voting decisions, or information that would reasonably be expected to have a significant effect on the market price or value of the securities of the listed entity. Laws and regulations may require a listed entity to determine what information is material or may specify what type of information is deemed to be material. Jurisdictions may also require listed entities to disclose specific information even without reference to materiality. ------------------------------------------------------------------------------------------------ **Recommendation (ii):** **Listed entities should be required to present information fairly.** ------------------------------------------------------------------------------------------------ Information disclosed should be fairly presented and not be misleading or deceptive, and should not omit material information (referred to as a material omission). Moreover, information should be presented in a clear and concise manner by using plain language to the extent possible. Information should be specific to the listed entity without reliance on boilerplate language and should not be biased. Material information should not be obscured. Material information may, for example, be obscured if information regarding a material item, transaction or other event is omitted, scattered throughout a report, or disclosed using language that is vague or unclear. Material information can also be obscured if dissimilar items, transactions or other events are inappropriately aggregated, or conversely, if similar items are inappropriately disaggregated. In addition, the ability of users to understand a report may be reduced if material information is hidden because of disclosure of immaterial information. Non-GAAP measures and forward-looking information are two areas for consideration for which many jurisdictions have developed guidance or rules on their presentation. For example, disclosure of non-GAAP measures should not be misleading or be more prominent than GAAP information. Sufficient information should accompany non-GAAP financial measures or be provided by reference to where the information is available in order to avoid investor confusion.[^11^](#fn11){#fnref11.footnote-ref} Another example is forward-looking information, such as projections, forecasts, financial outlooks or targets. A listed entity should have a reasonable basis for forward-looking information and may need to disclose the factors and assumptions on which the forward-looking information is based. ------------------------------------------------------------------------------------------------------------------------------------------ **Recommendation (iii):** **Listed entities should be required to ensure that information disclosed across all channels is consistent.** ------------------------------------------------------------------------------------------------------------------------------------------ Listed entities can use additional channels to disclose information that is contained in reports filed with regulators. Investors increasingly rely on social media for obtaining information. Listed entities that use social media or other channels to disclose information need to ensure symmetry of the information disclosed. Such information on a listed entity's website or social media accounts, along with information in interviews or shareholder presentations, should be consistent with the information in reports filed with regulators. Providing information through other channels that is inconsistent with the information provided in reports filed with regulators could be misleading. **Frequency and timeliness** ------------------------------------------------------------------------------------------------------------------ **Recommendation (iv):** **Listed entities should be required to provide periodic and event-driven disclosure.** ------------------------------------------------------------------------------------------------------------------ Because investors need periodic disclosure (annual and interim reports) as well as event-driven disclosure to make informed investment decisions, listed entities should be required to provide both types of information. *Annual reports* Annual reports provide prospective investors and existing securityholders of a listed entity with important information, including financial and non-financial information, which also may include certain sustainability-related information. The information provided in the annual report should normally cover an annual reporting period and include information for that period required by law or regulation. In addition, subsequent events that occur between the end of the reporting period and the date that report is filed may be required to be included. *Interim reports* Generally, interim reports should contain information that will enable investors to track the performance of a listed entity over regular intervals of time that are shorter than a year and should provide sufficient financial information to enable investors to assess the current financial status of a listed entity. Interim reports provide information about trends and developments in a listed entity's business and should update disclosure since the last annual report or interim report, as applicable. *Interim reports could be quarterly, half-yearly, or of such frequency as prescribed by law or listing rules.* *Event-driven disclosure* Listed entities should also be required to disclose information about certain events or developments as they occur, instead of waiting for the next periodic report. Refer to the Recommendation in Chapter 2 with respect to the content of the annual report, interim reports, and event-driven disclosures, including the type of events or developments that should be disclosed. ------------------------------------------------------------------------------------------------------------- **Recommendation (v):** ***Listed entities should be required to disclose information on a timely basis.*** ------------------------------------------------------------------------------------------------------------- An appropriate time period should be established by law or regulation for information to be made available to the public by listed entities. The appropriate time period *depends on whether the disclosure is periodic or event-driven:* - *For periodic disclosure, information should be disclosed within a reasonable amount of time from the end of the relevant reporting period, e.g., 30 to 90 days for interim reports, and 60 to 120 days for annual reports.* - For event-driven disclosure, an appropriate time period may mean promptly after the event or development has occurred or its materiality has been determined or within a prescribed but relatively short timeframe, e.g., 2 to 10 days. -------------------------------------------------------------------------------------------------------------------------------------------------------------------- **Recommendation (vi):** **Listed entities that are listed in more than one jurisdiction should be required to disclose information timely in all jurisdictions.** -------------------------------------------------------------------------------------------------------------------------------------------------------------------- A listed entity may have securities listed in more than one jurisdiction. In such situations, the material periodic disclosure and event-driven disclosure made available to one market should be made simultaneously or promptly available, depending on the jurisdiction's law or regulation, to all markets in which the entity is listed under its consent. ------------------------------------------------------------------------------------------------------------------------------------------ **Recommendation (vii):** **Listed entities should not disclose information to selected investors before it is released to the public.** ------------------------------------------------------------------------------------------------------------------------------------------ The disclosure of material information to selected investors or other interested parties before it is disclosed to the public may reduce investor confidence in the fairness of the markets. The prohibition of such disclosures reduces the likelihood of insider trading or abusive use of such information. Disclosure should be provided to all investors. However, in some jurisdictions, narrow exceptions to such disclosures may be allowed in certain circumstances. **Access and availability** -------------------------------------------------------------------------------------------------------------------- **Recommendation (xiii):** **Listed entities should be required to file information with the relevant regulator.** -------------------------------------------------------------------------------------------------------------------- Reports containing periodic and event-driven disclosures required to be filed should be filed with, or provided to, the relevant regulator to enable it to review the information, when appropriate, to ensure compliance with the relevant requirements. The means of filing may include transmission of the report to the relevant regulator, or sending the relevant regulator notice of the filing on a separate registry. -------------------------------------------------------------------------------------------------- **Recommendation (ix): Listed entities should be required to publicly disseminate information.** -------------------------------------------------------------------------------------------------- Listed entities should ensure that the information is promptly made available to the market by using efficient, effective and timely means of dissemination to assure easy and fast access by all investors to the disclosed information. Dissemination of information may be effected via different means, such as press releases and newspaper notices of the availability of the periodic reports on the listed entity's website or elsewhere, or by free public access to the periodic reports and event-driven disclosures on the regulator's website or an authorized repository when the reports are filed with the regulator. ----------------------------------------------------------------------------------------------------------------------- **Recommendation (x):** **Listed entities should be encouraged to provide information in a machine-readable format.** ----------------------------------------------------------------------------------------------------------------------- Regulators may require the use of machine-readable formats such as XBRL to provide a means for investors and others to extract, analyze and compare information that has been filed with regulators. The enhanced search and comparison capabilities afforded by the use of interactive data could improve investors' ability to understand the available information, and could enable listed entities to communicate information, including their financial results, more effectively. ------------------------------------------------------------------------------------------------------- **Recommendation (xi):** **Information should be stored in order to facilitate public access to it**. ------------------------------------------------------------------------------------------------------- Regulators should ensure that there is storage of the periodic and event-driven information in order to facilitate public access to it. The information should be stored electronically to the extent possible, whether with the relevant regulator or another authorized repository. Storage of the information should also be at the lowest cost possible for investors. Information stored electronically should allow investors to have access to it in a digital, user-friendly format or, if not stored electronically, to have access to it in a central location. Also, the information should be available for a sufficient period of time. **\ CHAPTER 2 -- RECOMMENDATIONS APPLICABLE TO PERIODIC AND EVENT-DRIVEN DISCLOSURES** **Periodic disclosure** ***Annual reports*** -------------------------------------------------------------------------------------------------------- **Recommendation (i):** **Annual reports should be required to contain audited financial statements.** -------------------------------------------------------------------------------------------------------- Financial information is the most elemental disclosure that is contained in an annual report and provides the basis of other related information that may be disclosed in the report, such as MD&A of the listed entity's past performance and prospects.[^12^](#fn12){#fnref12.footnote-ref} Accurate and reliable publicly available financial information enhances investors' confidence in the public markets. Accounting standards used by listed entities to prepare financial statements should be of a high and internationally acceptable quality. [^13^](#fn13){#fnref13.footnote-ref} *Contents of the financial statements* Listed entities should be required to provide a complete set of audited financial statements[^14^](#fn14){#fnref14.footnote-ref} that should at least comprise: - a statement of financial position (or balance sheet) as at the end of the most recent financial year, - a statement of financial performance (or profit and loss and other comprehensive income) for the financial year, - a statement of changes in equity for the financial year, - a statement of cash flows for the financial year, - comparative information in respect of the preceding period, - related notes and further statements, if relevant, required by GAAP.. Disclosure of distributions to securityholders, such as dividends, should be included in the financial statements. *Contents of the notes to the financial statements* The notes to the audited financial statements should contain disclosure of material information required by GAAP that faithfully represents the listed entity's assets, liabilities, equity, income and expenses, cash flow, and is comparable, both from period to period for a reporting entity and in a single reporting period. This should include disclosure of the following: - The judgments that management has made in the process of applying its accounting policies that have the most significant effect on the amounts recognized in the audited financial statements. - Information about the key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. - Material events after the reporting period covered by the audited financial statements. - The existence of related parties and transactions, outstanding balances, including commitments with such parties. Information provided outside the financial statements (e.g., MD&A, sustainability reports, investor presentations, press releases and earnings calls) should be consistent and complement information provided in the notes to the financial statements. *Independent Auditor's report* Annual reports should contain an independent auditor's report that covers each of the periods for which audited financial statements are required to be provided. Audits that are conducted on the listed entity's financial statements by an independent audit firm play a crucial role in fostering investor confidence in the reliability of the financial statements. Audit reports provide investors with reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. The independent auditor's report includes an opinion as to whether the financial statements present fairly, in all material respects, the financial position and financial performance of a listed entity. ------------------------------------------------------------------------------------------------------------------------------------- **Recommendation (ii): Annual reports should be required to contain a description of the listed entity's business and operations.** ------------------------------------------------------------------------------------------------------------------------------------- A listed entity should describe its business and operating segments that are reportable segments in the listed entity's financial information presented in its financial statements. Such a description could include the listed entity's products and services, production and distribution methods, principal markets, competitive conditions and dependencies. -------------------------------------------------------------------------------------------------------------------------------------- **Recommendation (iii): Annual reports should be required to contain information about material risks affecting the listed entity.** -------------------------------------------------------------------------------------------------------------------------------------- A listed entity should provide a discussion of the material factors that affect its business and make an investment in the listed entity speculative or risky. The risk factors discussion should be organized logically with relevant headings and each risk factor should be set forth under a sub-caption that adequately describes the risk. The presentation of risks that could apply generically to any company is discouraged. Risk factors should concisely explain how each risk affects the listed entity or the securities. ------------------------------------------------------------------------------------------------------------------------------------------------------------------ **Recommendation (iv):** **Annual reports should be required to contain management's discussion and analysis of financial condition and results of operations.** ------------------------------------------------------------------------------------------------------------------------------------------------------------------ In addition to their audited financial statements, listed entities should provide in their annual reports an MD&A. Through the MD&A, management provides material information relevant to an assessment of the financial condition and results of operations of the listed entity including an evaluation of the amounts and certainty of cash flows from operations and from outside sources. The MD&A should also highlight material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition. The MD&A enables investors to see the listed entity from management's perspective and improves the financial disclosure by providing the context within which financial statements should be analyzed.[^15^](#fn15){#fnref15.footnote-ref} Where the financial statements reflect material changes from year to year in one or more line items, an MD&A may include a discussion and analysis of the following: - underlying reasons for these changes in quantitative and qualitative terms for an understanding of the listed entity's business as a whole, - discussion based on segment information when it would be material to an understanding of the listed entity's business and its overall financial condition and operating performance, and - other information that management of the listed entity believes would be necessary for an understanding of its financial condition, changes in financial condition and results of operations. The MD&A may be required to include the following information: *Operating Results* -- Disclosure about the significant factors that materially affected the listed entity's income from operations, including nonrecurring events or new developments and the extent to which income was affected by these factors, facilitates a better understanding of the listed entity's results of operations. Significant factors could include, for example, the impact of inflation, the impact of foreign currency fluctuations, and any governmental economic, fiscal, monetary or political policies or factors that have materially affected, or could materially affect, the listed entity's operations. Disclosure about any significant components of revenues and expenses that are necessary to understand the listed entity's results of operations may also be useful. *Liquidity and Capital Resources* -- The MD&A may describe the listed entity's ability to generate and obtain adequate amounts of cash to meet its requirements and its plans for the short-term and the long-term. The discussion could analyze material cash requirements from known contractual and other obligations. Such disclosure could specify the type of obligation and the relevant time period for the related cash requirements. The disclosure may include: - the listed entity's internal and external sources of liquidity, - a discussion of the risk of illiquidity of assets that may be held to settle the liabilities of the listed entity, - any material, unused sources of liquidity, including a discussion of why these material sources of liquidity are not being used, - any material restrictions on all sources of liquidity, and - if a material deficiency is identified in the listed entity's ability to meet its cash obligations, the course of action that the listed entity has taken or proposes to take to remedy the deficiency. Examples of disclosure that may also be relevant include the level of borrowings at the end of the period covered by the financial statements and the characteristics and maturity profile of borrowings. With respect to capital resources, an example of disclosure that may provide important information about the listed entity's capital requirements is information about the listed entity's material commitments for capital expenditures as of the end of its latest financial year. This information could include the general purpose of such commitments and the anticipated sources of funds needed to fulfil such commitments. *Trends and Uncertainties* -- Disclosure about the facts and circumstances surrounding known material trends and uncertainties can help investors have a better understanding of the listed entity's prospects. Highly relevant information in that regard includes the potential impact of currently known trends, events and uncertainties that are reasonably likely to have material effects on the listed entity's net sales or revenues, income from operations, profitability, liquidity or capital resources or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition. Useful information could, for example, include disclosure of the most significant recent trends in production, sales and inventory, costs and selling prices since the latest financial year and changes among equity, debt, and any off-balance sheet financing arrangements. If a profit forecast is also included, a clear description of the assumptions upon which the listed entity has based its forecast would help investors assess the soundness of that forecast. *Accounting Estimates* -- In addition to disclosure related to accounting estimates in the financial statements as required by GAAP, disclosure of these estimates and assumptions in the MD&A may provide further transparency to investors. Qualitative and quantitative information may be necessary to understand the uncertainty and impact that the critical accounting estimates may have on the listed entity's financial condition or results of operations if material. ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- **\[Recommendation (v): Annual reports should be required to contain information related to market risk sensitive instruments.**[^16^](#fn16){#fnref16.footnote-ref} ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- Disclosure of the listed entity's exposures to market risk associated with activities in derivative financial instruments (e.g., futures, forwards, swaps, options), other financial instruments (e.g., investments, loans, structured notes, mortgage-backed securities), and derivative commodity instruments (e.g., commodity futures, commodity swaps) enable investors to more accurately assess the primary risk of loss to the listed entity. Market risk includes interest rate risk, foreign currency exchange rate risk, commodity price risk, and liquidity risk among other things. This disclosure is particularly relevant to investors in light of the sophisticated financial instruments that many public companies are increasingly relying on both to boost profitability and to hedge against identifiable financial risk. Quantitative information about market risk should be presented in the currency used to prepare the listed entity's financial statements. Relevant quantitative information includes the sensitivity of a listed entity's market risk sensitive instruments to potential changes in market conditions. The disclosure should indicate the nature and extent of the risks from these instruments, as well as how the issuer is managing those risks. For example, where disclosure of fair value is required under the applicable accounting standards, the disclosures should include both the amount of the fair value and the significant inputs used to determine (including how liquidity risk, credit risk and market risk are factored into the listed entity\'s fair value estimates). To reflect the different applicable accounting treatments, listed entities should categorize market risk sensitive instruments into instruments entered into for trading purposes, and instruments entered into for purposes other than trading. Disclosure about market risk helps investors analyze the quantitative information presented in the annual report. To the extent material, listed entities could disclose their primary market risk exposures, and how these exposures are managed. This disclosure could include a discussion of the objectives, general strategies, and instruments, if any, that are used to manage these exposures. Investors would also find it useful to know if there are changes in either the listed entity's primary market risk exposures or how those exposures are managed, when compared to what was in effect during the most recently completed financial year, as well as what is known or expected to be in effect in future reporting periods. ---------------------------------------------------------------------------------------------------------------------------------- **Recommendation (vi): Annual reports should be required to contain information on the capital structure of the listed entity.** ---------------------------------------------------------------------------------------------------------------------------------- Listed entities be required to describe their capital structure, including the description or the designation of each class of authorized security, and describe the material characteristics of each class of authorized security, including voting rights, provisions for exchange, conversion, exercise, redemption and retraction, dividend rights and rights upon dissolution or winding-up, that are material from a securityholder\'s standpoint. Constraints on the ownership of the listed entity's securities could also be described, as well as any credit ratings that were assigned to the securities. ------------------------------------------------------------------------------------------------------------------------------------------------------------ **\[Recommendation (vii):** **Annual reports should include disclosure of sustainability-related information applying general principles of materiality.** ------------------------------------------------------------------------------------------------------------------------------------------------------------ Listed entities should provide material information (see Recommendation 1(i)), which would include certain sustainability-related information that is material to an investment decision.[^17^](#fn17){#fnref17.footnote-ref} Sustainability-related risks and opportunities that are material to an investor\'s investment decision should be required to be disclosed. In addition, a listed entity may provide additional sustainability related information that is useful to investors in making investment and voting decisions. For example, many regulators require or plan to require listed entities to provide information on how they assess, identify and manage certain material sustainability risks and opportunities. Such disclosure could enable investors to better understand, evaluate and assess potential sustainability-related risks and opportunities facing a listed entity, including the potential impact on a listed entity's long-term performance. *Sustainability topics* Investors are increasingly interested in certain sustainability-related risks and opportunities and questions regarding the long-term viability of a business such as: - how certain material sustainability-related matters are considered and integrated into a listed entity's strategy, including the effect of its value chain - the magnitude and likelihood of these risks and opportunities, - their current and potential impact on the listed entity's business and financial performance, and - how the listed entity plans to mitigate or capitalize on these risks and opportunities over time. Sustainability-related information, if it is deemed material, may cover climate-related matters or other sustainability matters, such as: - environmental matters, such as air and water pollution, biodiversity and natural resource management and use, - social matters, such as reconciliation with Indigenous Peoples, diversity and inclusion, fair labor practices, human rights and fair taxation, and - governance matters, such as the role and responsibility of the board for sustainability-related matters. *Connectivity* Listed entities may need to consider enhancing the connectivity between financial performance and certain sustainability-related matters through their disclosures,for example, of the following: - specific references to certain sustainability-related risks when discussing material risk factors, including whether the impact of these risks may occur over the short-, medium- and long-term, - a discussion regarding the potential impacts of certain sustainability-related risks on the operations and business of the listed entity, as well as the potential financial impacts on the listed entity's financial position and results of operations, - necessary explanations and cross-references as regards the consistency of data and assumptions used in preparing the sustainability-related financial disclosures with the corresponding data and assumptions used in preparing the related financial statements, - the role and responsibilities of the board of directors in connection with oversight of principal risks, including sustainability-related risks, and how those risks are managed, - whether the audit committee or other board committee has a role in the oversight of the listed entity's sustainability-related disclosure, - the link between board and executive compensation and the listed entity's long-term performance, sustainability and resilience (and the use of sustainability indictors in compensation determinations), and - the link between narrative information and quantitative information (including related metrics and targets and information in the related financial statements). *Forward-looking information* Sustainability-related information is both retrospective and forward looking. If a listed entity provides disclosure regarding any target, the target should be transparent, clearly defined, supportable and based on reasonable assumptions. The listed entity's disclosure should enable investors to assess the credibility and progress towards meeting the target. *Assurance* Listed entities should clearly disclose whether their sustainability-related information was subject to third party assurance,[^18^](#fn18){#fnref18.footnote-ref} based on jurisdictional requirements or otherwise and, if so, listed entities should disclose the assurers, their credentials, the nature of the assurance engagement, including the level of assurance, and the standards under which such assurance was provided. Listed entities may be required to provide a copy of the assurance report. If sustainability-related information has not been assured, this should also be disclosed. Disclosure about market risk helps investors analyze the quantitative information presented in the annual report. To the extent material, listed entities could disclose their primary market risk exposures, and how these exposures are managed. This disclosure could include a discussion of the objectives, general strategies, and instruments, if any, that are used to manage these exposures. Investors would also find it useful to know if there are changes in either the listed entity's primary market risk exposures or how those exposures are managed, when compared to what was in effect during the most recently completed financial year, as well as what is known or expected to be in effect in future reporting periods. ------------------------------------------------------------------------------------------------------------------------------------------------ **Recommendation (viii):** **Annual reports should be required to contain information on the listed entity's corporate governance practices.** ------------------------------------------------------------------------------------------------------------------------------------------------ A listed entity's corporate governance practices can improve investor confidence that effective controls exist within the listed entity, that the directors and executive officers are held accountable for their actions, and that shareholders will be able to exercise their rights. Adequate disclosure helps investors assess a listed entity's corporate governance practices. Laws and regulations may require listed entities to comply with certain corporate governance requirements, while others recommend that certain corporate governance practices or codes be followed and require listed entities to either comply with these practices or codes, or explain why they are not being complied with, i.e., a "comply or explain" regime. In the "comply or explain" regime, listed entities may be required to disclose their current level of compliance with the relevant practice or code, as well as their anticipated level of compliance in the future. *Experience and qualifications of the Board and executive officers* Information about the listed entity's directors and executive officers assists investors in assessing the quality of the listed entity's leadership and potential performance. Because the listed entity's directors and executive officers are critical to the success of the listed entity's operations, the annual report should identify these individuals and provide key biographical details. The required details vary by jurisdiction and may include the following: - the country of residence and principal occupations of each director and executive officer, - business experience (including experience with a parent, subsidiary or other affiliate of the listed entity) and functions within the listed entity, - information about the nature of any family relationships between any directors and executive officers, - whether any of the directors serve as directors of other listed or non-listed entities, - the periods during which each director has served as a director of the listed entity and when the director's term will expire, - the shareholdings of each director and executive officer in the listed entity, - the indebtedness of each director and executive officer toward the listed entity, and - whether a director or executive officer of the listed entity has been, within a specified period of time, convicted in a criminal proceeding found by a court or regulator to have violated the securities law, or subject to a bankruptcy proceeding. Listed entities may also disclose how the board addresses board renewal, including any term or age limits for directors or other mechanisms for renewal. *Director independence* Directors play a critical role in the corporate governance of a listed entity and need to be able to exercise objective and independent judgment in order to carry out their duties effectively. It is important for investors to understand the level of independence that the board has from management. Disclosure in the annual report about which directors are independent, with reference to the applicable standards (such as company law or the standards of the regulated market on which the listed entity's securities are listed or admitted to trading) would be useful to investors.[^19^](#fn19){#fnref19.footnote-ref} Information about a director's relationship with shareholders, other directors and stakeholders may help investors to evaluate a director's independence. In addition, listed entities may be required to provide the following information: - whether a majority of directors are independent and if not, what the board of directors does to facilitate its exercise of independent judgement in carrying out its responsibilities, - if the chair of the board is not independent, whether there is an independent lead director, and - if the board has neither a chair nor a lead director who is independent, what the board does to provide leadership for its independent directors. *Standing committees* Board standing committees can serve an important role and can support a board's effectiveness. Board standing committees can develop policy options and recommendations for the board's consideration and carry out specific tasks on the board's behalf. It is important for investors to understand how the board has chosen to structure itself and organize its work in order to fulfil its obligations. Typically, a board of directors will have an audit committee, a compensation committee and a nominating committee. *Audit Committee* -- An audit committee is typically responsible for recommending the appointment of an external auditor to the board of directors for the purpose of preparing or issuing an auditor's report or performing other audit, review or attestation services for the listed entity, as well as setting the compensation of the external auditor.[^20^](#fn20){#fnref20.footnote-ref} Because the audit committee serves as a check and balance on a listed entity's financial reporting system by providing independent review and oversight of its financial reporting processes, internal controls and independent auditors, the following information may be provided with respect to the audit committee: - whether the board has an audit committee or a committee that performs similar functions (in cases in which the entire board is acting as the audit committee, this should be disclosed), - the mandate of the audit committee, - the identity of each committee member, - whether in the opinion of the listed entity's board of directors, the audit committee has at least one financial expert and whether that person is independent, - the relevant education and experience of each audit committee member, - whether the audit committee has reviewed and discussed the audited financial statements with management, as well as whether it has engaged in discussions with the external auditor, - any policies for the engagement of the external auditor for non-audit services, and - whether all of its members are non-executive directors. *Compensation Committee* -- A compensation committee is typically responsible for determining or recommending to the board compensation for the chief executive officer, other executive officers and directors. The following information may be provided with respect to the compensation committee: - whether the board has a compensation committee or a committee that performs similar functions, - the mandate of the compensation committee, - the identity of each committee member and whether that person is independent, and - if the board does not have a compensation committee, or if the compensation committee is not composed entirely of independent directors, what steps the board takes to encourage an objective process for determining director and executive compensation that mitigates the risk of conflicts of interest. Compensation decisions rendered by a board should be free of conflicts of interest. Interlocking relationships between listed entities and members of their respective compensation committees can present conflicts of interest. For example, a conflict can occur if an executive officer of the listed entity served as a member of the compensation committee or as a director of another entity, one of whose executive officers served on the listed entity's compensation committee. It can be helpful to investors to disclose this information. As a means of underscoring the compensation committee's responsibilities, the annual report may be required to contain a narrative analysis of compensation arrangements. *Nominating committee* -- A nominating committee may be responsible for identifying individuals qualified to become new board members or executive officers and recommending to the board the new director nominees for the next annual meeting of securityholders. The following information may be provided with respect to the nominating committee: - whether the board has a nominating committee or a committee that performs similar functions, - the mandate of the nominating committee, - the identity of each committee member and whether that person is independent according to the definition of independence used by the markets on which the listed entity's securities are listed or admitted to trading, - if the board does not have a nominating committee, or if the nominating committee is not composed entirely of independent directors, what steps the board takes to encourage an objective nomination process, - any written policy respecting the nomination process, - whether, and if so how, the nominating committee considers diversity in identifying nominees for director, and - how the board manages any conflicts of interest that arise or could arise during the nomination process. *Ethical business conduct* Ethical conduct is at the heart of good corporate governance. A board has a key role in setting high ethical standards for the listed entity. A board should adopt a code of ethical business conduct that establishes the framework for conduct by the board and executive officers. A code of ethics that deals with the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, and that encourages the prompt internal reporting by the board, executive officers and employees of violations of the listed entity's ethics code, helps promote investor confidence that the listed entity is committed to good corporate governance practices. Useful information to investors might include the following: - whether the board has adopted a written code of ethical business conduct that applies to its directors and executive officers, - if the board has adopted a code, how the board monitors compliance with the code and whether there have been any material departures from the code, and - if the board has not adopted a code, the steps that it takes to promote a culture of ethical business conduct. ---------------------------------------------------------------------------------------------------------------------------------------------------------- **Recommendation (ix):** **Annual reports should be required to contain information on the compensation of directors and specified executive officers.** ---------------------------------------------------------------------------------------------------------------------------------------------------------- Clear, concise and understandable disclosure of the compensation paid to the listed entity's directors and executive officers for all services rendered to the listed entity and its subsidiaries is highly relevant to investors. Information about director and executive officer compensation provides insight into the overall stewardship and governance of listed entities. The information helps investors understand: - how decisions about executive compensation are made, - the amount of the listed entity's resources that are being allocated to compensating directors and executive officers, - whether those decisions are aligned with investors' interests, and - how compensation incentives relate to the listed entity's overall performance. In addition, clear and comprehensible disclosure promotes comparability of this information for the same listed entity from year to year, as well as with other listed entities. *Quantitative information* Quantitative compensation disclosure should include the salaries, fees, bonuses, stock based compensation, any deferred payments and amounts set aside by the listed entity to pay pension or other similar benefits (including special severance packages or retirement benefits) with a view to providing insight into the total compensation package. Compensation information for directors and executive officers may be disclosed on an individual, rather than on an aggregate, basis. In some jurisdictions, aggregated information may be provided for the members of the supervisory body as a group. *Qualitative information* A narrative discussion that explains material information necessary to an understanding of the listed entity's compensation policies and decisions regarding executive officers should be provided. This narrative discussion should focus on the material principles underlying the listed entity's executive compensation policies and decisions and the most important factors relevant to an analysis of those policies and decisions. It should describe: - the objectives of the listed entity's compensation program, - what the compensation program is designed to reward, - each element of compensation, - why the listed entity chooses to pay each element, - how the listed entity determines the amount or formula of each element to pay, and - how each compensation element and the listed entity's decisions regarding that element fit into the listed entity's overall compensation objectives and affected decisions regarding other elements of compensation. ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- **Recommendation (x):** **Annual reports should be required to contain information regarding equity compensation plans and their potential dilutive impact on existing investors.** ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Because equity compensation grants and awards may result in a significant reallocation of ownership between existing securityholders and management and employees, information about a listed entity's equity compensation plans would be useful to investors. These plans have a potential dilutive effect, so information about the total number of securities that a listed entity has authorized for issuance under its equity compensation program would help investors to assess the effect that a listed entity's equity compensation plans could have on their ownership, or to compare the equity compensation plans of a listed entity with those of its competitors. In addition, some plans may be adopted without the approval of securityholders. As a result, these plans are not subject to securityholder scrutiny. To provide useful disclosure to investors, issuers should disclose certain information as of the end of its most recently completed financial year. The following information may be provided: - the number of securities to be issued upon the exercise of outstanding options, warrants and rights, or pursuant to any compensation plan and individual compensation arrangement of the listed entity under which equity securities of the listed entity are authorized for issuance or offered to employees, - the weighted-average exercise price of the outstanding options, warrants and rights, or issue price, - the number of securities remaining available for future issuance under equity compensation plans other than the securities to be issued upon the exercise of outstanding options, warrants or rights, and - for each compensation plan under which equity securities of the issuer are authorized for issuance that was adopted without the approval of security holders, the issuer should provide a narrative description of the material features of the plan. The disclosure of this information could apply to all equity compensation plans in effect as of the end of the issuer's last completed financial year. ----------------------------------------------------------------------------------------------------------------------------------------------------- **Recommendation (xi):** **Annual reports should be required to contain information on the ownership of significant holders of voting securities.** ----------------------------------------------------------------------------------------------------------------------------------------------------- Disclosure about the ownership of significant holders of voting securities of a listed entity can help investors monitor the accumulation of these securities by persons or companies who would have the ability or potential to control the listed entity. For any person (including any group[^21^](#fn21){#fnref21.footnote-ref}) who is known by the listed entity to be the owner of more than a specified percent of any class of the listed entity's voting securities, the listed entity should disclose: - the class of securities held and the voting rights they represent, - the identity of the owner, - the amount and nature of the ownership, and - the percent of the class of securities held. Ownership thresholds that trigger disclosure may vary depending on jurisdictional requirements. The information may be obtained from beneficial owners of the securities. Listed entities should also disclose any arrangements known to the listed entity that may result in a change in control of the listed entity at a subsequent date, or alternatively have an impact on the effective exercise of votes in a listed entity. This could include information about any pledge by any person of the securities of the listed entity or any of its parents, which may result in a change in control of the listed entity at a subsequent date. In some jurisdictions, listed entities are required to disclose ownership information for their directors and executive officers with respect to each class of equity securities or of any of their parents or subsidiaries. This information may be provided on an individual basis for all directors and relevant persons (who may, in some jurisdictions, include director nominees), and for certain executive officers (such as the principal executive officer, principal financial officer, and other highly compensated executive officers at the end of the last completed year). Disclosure of this information for the directors and executive officers of the listed entity as a group would also be useful. ---------------------------------------------------------------------------------------------------------------------------- **Recommendation (xii): Annual reports should be required to contain information on material related party transactions.** ---------------------------------------------------------------------------------------------------------------------------- Disclosure about material related party transactions is important to investors because it helps provide a materially complete picture of the issuer's financial relationships and identifies potential conflicts of interest. Related parties may include, among others: - senior management, - the listed entity's directors and nominees for director, - beneficial holders of a significant amount of the listed entity's securities, - close members of the family of all of these persons, and - affiliates of the listed entity. Related party disclosure usually includes items such as: - nature of the relationship, - description of the transaction, - business purpose, and - amount of the transaction entered into by the listed entity with the related party. In some jurisdictions, this disclosure also includes information about the listed entity's policies and procedures for the review, approval or ratification of transactions with related parties, such as whether a special committee is responsible for approving these transactions. --------------------------------------------------------------------------------------------------------------------------------------------------- **Recommendation (xiii): Annual reports should be required to contain information about material legal proceedings affecting the listed entity.** --------------------------------------------------------------------------------------------------------------------------------------------------- Listed entities should describe any material legal proceedings, other than ordinary routine litigation, and such proceedings known to be contemplated by government authorities. The information may be required to include: - the name of the court or agency where the proceedings are pending, - the date instituted, - the principal parties in the proceeding, - a description of the factual basis alleged to underlie the proceedings, and the relief sought. ***Interim reports*** ----------------------------------------------------------------------------------------------------------- **Recommendation (xiv):** **Interim reports should be required to contain interim financial statements.** ----------------------------------------------------------------------------------------------------------- Interim reports should contain either a complete set of financial statements or a set of condensed financial statements as of the end of the relevant period. Interim reports should provide an update on the latest complete set of annual audited financial statements to assist investors in assessing a listed entity's financial position and its operations and understand an entity's capacity to generate earnings and cash flows and its liquidity. Listed entities should provide interim financial statements that conform to the same recognition, measurement and disclosure principles as those applied in the annual report. Interim financial statements should include comparative statements for the comparable interim periods (current and year-to-date), except for the statement of financial position, with comparatives as of the end of the immediately preceding financial year. The interim financial statements also are most useful if they include selected explanatory notes that will explain events and changes that are significant to an understanding of the changes in financial condition and performance of the listed entity since the last annual reporting date. *Interim Review* Listed entities may be required to have any interim financial statements included in the interim report reviewed by an external auditor to enable the auditor to express a conclusion whether, on the basis of the review, anything has come to the auditor's attention that causes the auditor to believe that the interim financial information is not prepared, in all material respects, in accordance with an applicable financial reporting framework. If an independent auditor has performed such a review, a listed entity may be required to provide a copy of the auditor's interim review report in the interim report, depending on the law or regulation in such jurisdiction. In addition, in some jurisdictions, if the audit committee has reviewed the interim report, this is also disclosed to investors. If interim financial statements have not been audited or reviewed, this should also be disclosed. ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- **Recommendation (xv):** **Interim reports should be required to contain** **management's discussion and analysis of financial condition and results of operations**. ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- The interim report should contain an MD&A that updates the information provided in the last annual report, providing a year-to-date comparison, as well as a comparison of interim periods. This should include management's discussion and analysis of material events and factors that have affected the listed entity's financial condition and results of operation for the periods covered by the interim financial statements, to enable the reader to assess material changes in financial condition and results of operations since the most recent annual period. The MD&A should include a discussion of material changes from those discussed in the MD&A contained in the annual report. The MD&A should also include management's assessment of the factors and trends that are anticipated to have a material effect on the listed entity's financial condition and results of operations in the future. **\ Event-driven disclosure** ----------------------------------------------------------------------------------------------------------------------------- **Recommendation (xvi):** **Listed entities should be required to disclose material events or developments as they occur.** ----------------------------------------------------------------------------------------------------------------------------- Events or developments that should be disclosed under event-driven disclosure requirements should generally be events or developments that are material. The determination of the materiality of such events or developments can be left to the listed entity or some regulators may identify events or developments that are either *required* to be disclosed or that are *presumably* or *typically* material (sometimes based on quantitative thresholds) and would therefore generally be required to be disclosed. Generally, events or developments need to be sufficiently crystalized to require disclosure. Continued developments that affect the events or developments that have been disclosed may themselves be developments that would require further disclosure. Requirements for event-driven disclosure may provide for exceptions, or delays if certain conditions are met, depending on the relevant local regulatory and legal requirements. Event-driven disclosure should be factual, balanced and complete. Listed entities should provide a brief but accurate summary of the nature and substance of the event or development, which should contain sufficient information to enable a reader to appreciate the significance and impact of the event or development. +-----------------------------------------------------------------------+ | **Current events or developments required to be disclosed vary across | | jurisdictions. Below are examples, for illustrative purposes and | | without limitation, of current events or developments that may be | | material and required to be disclosed in some jurisdictions depending | | on the specific circumstances:** | | | | *Events or developments affecting the corporate structure of the | | listed entity* | | | | - Material reorganizations, amalgamations, or mergers | | | | - Material amendments to the articles of incorporation or bylaws | | | | *Events or developments affecting the capital structure of the listed | | entity* | | | | - Changes in share ownership that may affect control of the listed | | entity | | | | - Public or private issuance of additional securities | | | | - Repurchases or redemptions of securities | | | | - Splits of securities or offerings of warrants or rights to buy | | securities | | | | - Approval of stock option plans | | | | - Share consolidations, share exchanges, or stock dividends | | | | - Changes in the dividend payments or policies | | | | - Modifications to the rights of securityholders | | | | - Decision to privatize | | | | - Listing of securities on an exchange or quotation system | | | | - Movement of securities from one exchange or quotation system to | | another | | | | - Delisting of securities from an exchange or quotation system | | | | *Events or developments affecting the governance of the listed | | entity* | | | | - Changes to the board of directors | | | | - Changes in the executive management, including the departure or | | appointment of the CEO, CFO, COO or president (or persons in | | equivalent positions) | | | | - Waivers of corporate ethics and conduct rules for officers, | | directors, and other key employees | | | | - Notice of non-compliance with a listing standard | | | | - Regulatory actions against the listed entity, directors or | | executive officers. | | | | *Events or developments affecting the financial results of the listed | | entity* | | | | - Material increase or decrease in near-term earnings prospects | | | | - Unexpected changes in the financial results for any periods | | | | - Public announcement or release of results of operations or | | financial condition | | | | - Material changes in earnings guidance | | | | - Materially different information regarding key financial or | | operations trends from that set forth in periodic reports | | | | - Shifts in financial circumstances, such as cash flow reductions, | | major asset write-offs | | | | or write-downs | | | | - Material changes in the financial condition and business | | performance | | | | - Events triggering a direct or contingent material financial | | obligation, including any default or acceleration of an | | obligation | | | | - Material changes in the value or composition of the listed | | entity's assets | | | | - Creation of material direct or contingent financial obligations | | | | - Material write-off and restructuring charges | | | | - Material impairments | | | | - Bankruptcy or receivership of the listed entity | | | | *Events or developments affecting the accounting and auditing of the | | listed entity* | | | | - Material changes to the accounting policy | | | | - Change in auditor | | | | - Change in fiscal year | | | | - Notice that reliance on a prior audit is no longer permissible | | | | *Events or developments affecting the business and operations of the | | listed entity* | | | | - Material events or developments that affect the listed entity's | | resources, technology, products or markets | | | | - Material changes in capital investment plans or corporate | | objectives | | | | - Material new contracts, products, patents, or services | | | | - Termination or reduction of material business relationships | | | | - Material agreements not made in the ordinary course of business | | or termination of such material agreements | | | | - Material discoveries by resource company | | | | - Disputes with major contractors or suppliers | | | | - Commencement of, or developments in, material legal proceedings | | | | - Material effects of natural or other disasters | | | | *Material acquisitions and dispositions by the listed entity* | | | | - Material acquisitions or dispositions of assets, property or | | joint venture | | | | - Material acquisition or dispositions of other companies, | | including take-over bids | | | | *Events or developments affecting the credit arrangements of the | | listed entity* | | | | - Material new credit arrangements | | | | - Default under debt obligations, agreements to restructure debt, | | or planned enforcement procedures by a bank or any other creditor | | | | - Changes in rating agency decisions, issuance of a credit watch or | | changes in outlooks | | | | *Other events or developments affecting the listed entity* | | | | - Material labour disputes | | | | - Material cybersecurity incidents | +-----------------------------------------------------------------------+ **\ CHAPTER 3 -- RECOMMENDATIONS APPLICABLE TO ACCOUNTABILITY AND CONTROLS** Listed entities should have controls and procedures designed to ensure that information required to be disclosed in the listed entity's reports of periodic and event-driven disclosures is recorded, processed, summarized and reported. A key aspect of management\'s responsibility for the preparation of financial information is to establish and maintain an internal control system over financial reporting. Disclosures of internal control over financial reporting can have a positive impact on investors' confidence in a listed entity's financial reports. **Disclosure controls and procedures** ------------------------------------------------------------------------------------------------------------ **Recommendation (i): Listed entities should be required to maintain disclosure controls and procedures.** ------------------------------------------------------------------------------------------------------------ A listed entity should maintain disclosure controls and procedures for the reporting period. Periodic and event-driven information should be communicated to the listed entity's management, including its executive officers, to allow timely decisions regarding required disclosure. Management of the listed entity should assess and evaluate, with the participation of executive officers, the effectiveness of the listed entity's disclosure controls and procedures as of the end of the reporting period. ----------------------------------------------------------------------------------------------------------------------------- **Recommendation (ii):** **Specific persons within the listed entity should be responsible for disclosure of information.** ----------------------------------------------------------------------------------------------------------------------------- The persons responsible may be the directors or certain key executive officers of the listed entity. These persons should be identified within the periodic report or specified by law. The persons responsible may be required to state or certify that they have reviewed the periodic disclosure containing financial or non-financial information and, to the best of their knowledge, it does not contain any untrue statement of a material fact or omit to state a material fact that is necessary to ma

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