Headnote
Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief applications in Multiple Jurisdictions – Exemption from requirement in subsection 4.11(4) of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards (NI 52-107) to reconcile acquisition statements to the issuer’s GAAP – The issuer wants relief from the requirement to include in a reconciliation to Canadian GAAP in annual financial statements of the acquired business – The issuer will prepare pro forma financial statements as set out in section 8.7(9) of Companion Policy 51-102CP as it applies to financial years beginning on or after January 1, 2011 for all periods presented.
Applicable Legislative Provisions
National Instrument 52-107 Acceptable Accounting Principles and Auditing Standard, s. 5.1
In the Matter of the Securities Legislation of Ontario (the Jurisdiction)
and
In the Matter of the Process for Exemptive Relief Applications in Multiple Jurisdictions
and
In the Matter of Altus Group Limited (the Applicant)
Decision
Background
The principal regulator in the Jurisdiction has received an application from the Applicant for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Applicant from the requirement in subsection 4.11(4) of National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency (NI 52-107) that it reconcile the financial statements of Realm Solutions, Inc. (Realm) to be filed with the BAR (as defined below) to Canadian GAAP (as such term is defined below, and such requested relief referred to herein as the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) The Ontario Securities Commission is the principal regulator for this application (the Principal Regulator), and
(b) The Applicant has provided notice that pursuant to paragraph 4.7(1)(c) of Multilateral Instrument 11-102 – Passport System (MI 11-102), the requested approval and relief under MI 11-102 is to be relied upon by the Applicant with respect to the equivalent provisions of the legislation of the local jurisdictions of the Provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador Yukon, Northwest Territories and Nunavut.
Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 52-107 have the same meanings if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Applicant:
The Applicant is a company incorporated under the laws of the Province of Ontario pursuant to the Business Corporations Act (Ontario).
The head office of the Applicant is located in Toronto, Ontario.
The Applicant is a reporting issuer under the securities legislation of each of the provinces and territories of Canada.
The common shares of the Applicant are listed and posted for trading on the Toronto Stock Exchange under the trading symbol “AIF”.
Transaction
Pursuant to an agreement and plan of merger, dated April 11, 2011, the Applicant indirectly acquired all of the issued and outstanding shares of Realm for consideration of US$130 million on June 1, 2011.
Under Part 8 of National Instrument 51-102 – Continuous Disclosure Obligations (NI 51-102), the Applicant is required to file a business acquisition report (BAR) for any significant acquisitions that it completes. The applicant has determined that the acquisition of Realm is a significant acquisition and therefore it intends to file a BAR.
As required by Part 8 of NI 51-102, the BAR filed by the Applicant will contain (or incorporate by reference):
(a) the audited consolidated financial statements of the Applicant for the years ended December 31, 2010 and December 31, 2009 which have been prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP);
(b) the unaudited interim consolidated financial statements of the Applicant for the three month periods ended March 31, 2011 and March 31, 2010 (the Applicant Interim Statements) which have been prepared in accordance with international financial reporting standards (IFRS);
(c) the audited consolidated financial statements of Realm for the years ended December 31, 2010 and December 31, 2009 (the Realm Annual Statements) which have been prepared in accordance with United States generally accepted accounting principles (US GAAP);
(d) the unaudited interim consolidated financial statements of Realm for the three month periods ended March 31, 2011 and March 31, 2010 (the Realm Interim Statements) which have been prepared in accordance with US GAAP; and
(e) the pro forma financial statements of the Applicant (the Pro Forma Statements) which reflect the completion of the Transaction as if it had occurred as at the beginning of the Applicant’s most recently completed financial year and carried through the most recent interim period for the purposes of the pro forma consolidated statement of operations (being the year ended December 31, 2010 and the three month period ended March 31, 2011), and as of March 31, 2011 for the purposes of the pro forma balance sheet, all of which have been prepared in accordance with IFRS.
For financial years beginning before January 1, 2011, Section 4.11(4) of NI 52-107 requires that acquisition statements prepared using accounting principles that are different from the issuer’s GAAP (in this case, the Realm Annual Statements) be reconciled to the issuer’s GAAP, with further disclosure required in the notes to such financial statements (the Reconciliation Requirement).
Although Realm prepared the Realm Interim Statements using US GAAP, the Reconciliation Requirement does not apply to the Realm Interim Statements as they relate to a financial year beginning on or after January 1, 2011.
TheApplicant’s Interim Statements and the Pro Forma Statements will be prepared in accordance with IFRS. The Realm Interim Statements were prepared using US GAAP, however, the Reconciliation Requirement does not apply to them as they relate to a financial year beginning on or after January 1, 2011. Due to these facts, it is the Applicant’s view that the reconciliation of the Realm Annual Statements to Canadian GAAP will not provide investors with any incremental or useful information as they would not be directly comparable to the Pro Forma Statements, nor would they be directly comparable to the Applicant Interim Statements.
The cost of preparing a reconciliation of the Realm Statements to Canadian GAAP, and the time required to prepare such a reconciliation, would outweigh any benefit that investors may get from such reconciled financial statements. In fact, in the Applicant’s view the filing of such reconciled financial statements may be confusing to investors since such financial statements would not be directly comparable to other financial statements filed with the BAR.
Decision
The Principal Regulator is satisfied that the decision meets the test set out in the Legislation for the Principal Regulator to make the decision.
The decision of the Principal Regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) the pro forma financial statements are prepared as set out in section 8.7(9) of Companion Policy 51-102CP as it applies to financial years beginning on or after January 1, 2011 for all periods presented; and
(b) the BAR otherwise complies with the requirements of Form 51-102F4.
DATED this 18th day of August, 2011.
“Cameron McInnis”
Chief Accountant
Ontario Securities Commission