This article explores some of the financial reporting requirements for a company deciding whether to list on a Canadian stock market.
From the IFRS Institute - August 2017
Some US companies have chosen to raise capital in Canada as an alternative to US public capital markets. While SEC registrants can use their US GAAP financial statements for their initial and ongoing reporting requirements in Canada, private US companies have to adopt IFRS.
Deciding where to list is a complex decision that encompasses many factors, including liquidity, competitor listings, periodic reporting requirements and ongoing compliance costs. This article explores some of the financial reporting requirements for a company deciding whether to list on a Canadian stock market.1
Canada has a number of stock exchanges, but here we focus on the Toronto Stock Exchange (TSX), which is the largest exchange, and the TSX Venture Exchange (TSXV), which caters to small and early-stage companies. Since 2015, $5.5 billion of equity capital was raised on the TSX and TSXV by US companies, and 117 US companies were listed on the TSX or TSXV as of July 31, 2017 (see Figure 2).
For a US company that is not an SEC registrant, the basis of preparation of the financial statements is required to be IFRS, as issued by the IASB.
For companies listing on the TSX through an initial public offering, a prospectus must be filed. The audited IFRS financial statements to be included in the prospectus comprise:
Although there are certain exceptions, the accompanying audit opinions need to be unqualified.
Unaudited quarterly financial statements, prepared in accordance with IAS 34, Interim Financial Reporting, are also required if the latest quarter ended more than 45 days before the date of a TSX listing application, or 60 days for a TSXV listing application.
Other required components of the prospectus include (not exhaustive):
Once a company is listed on the TSX or TSXV, it becomes a reporting issuer and is subject to ongoing reporting and disclosure obligations, which require the company to file:
As a result, any private US company that is contemplating a possible listing on the TSX or TSXV should plan for a potential conversion of its financial reporting from US GAAP to IFRS. An IFRS conversion can be a challenging undertaking that may affect a company’s timeline to file its prospectus.
In addition to IFRS financial statement requirements, companies considering a listing should also be aware of other prospectus reporting requirements, including risk factors, management discussion and analysis, and pro forma financial information.