Non-GAAP Financial Measures: Canada's Securities Regulators Propose Stricter Rules

Canada's securities regulators are proposing new rules on how companies present non-GAAP financial measures like adjusted earnings, adjusted EBITDA, free cash flow, pro forma earnings, distributable cash, earnings before non-recurring items and others.

The new rules would have the force of law, unlike the existing regulatory guidance on non-GAAP financial measures. This means that the regulators would have stronger compliance and enforcement tools if a company's non-GAAP financial measures are misleading.

Comments on the proposed rules are due by December 5.

Overview of the Proposed Regime

Because of the ever-evolving nature of non-GAAP disclosures across a range of industries, the regulators decided not to prohibit any particular types of non-GAAP measures or impose any industry-specific requirements. Instead, the rules would formalize and expand on the existing staff guidance.