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The state of sec disclosure effectiveness its history

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SEC regulation, financial reporting

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The state of sec disclosure effectiveness its history

  1. 1. The state of SEC Disclosure Effectiveness and Simplification Initiative (from Bad to Worse) A brief History By Arthur Mboue Research conducted by Arthur Mboue 1
  2. 2. Chronological Events dates Events 1995- 1996 Task Force on Disclosure Simplification; Organized in August 1995, in March 1996, the Task Force presented these recommendation s to the SEC . • Elimination of rules and forms including • Amendment of more than 25 additional rules 1995 Report of the Advisory Committee on the capital Formation and Regulatory Process: To advise on, among other things, the regulatory process and disclosure requirements for public offering. 1998 Aircraft Carrier Concept Release: Why ‘aircraft carrier’ because the proposed changes was supposed to be like maneuvering an ‘aircraft carrier’. The proposed changes included the current system of securities regulation, rules on corporate communications during the registration process, prospectus delivery requirements, periodic reports and Integration of public and private offerings 1998 Plain English The rules intended to improve the readability of prospectuses by promoting clear, concise and understandable disclosure. These rules required registrants to write the cover page, summary and risk factors section of prospectuses in plain English 2007 Advisory Committee on Improvement to Financial Reporting CiFiR Advisory Committee did not recommend specific changes to Reg. S-K, several of its suggestions sought to improve the usefulness of information in periodic reports. 2008 21st Century Disclosure Initiative: The report was released on January 16, 2009 with a claim of helping investors access relevant disclosure at no cost. 5 guiding principles were put on display: • Disclosure information should be submitted and stored in an interactive format • The SEC should consider the creation of a data warehouse for managing the data • The SEC should consider providing for multiple submission methods for disclosures including Section 16 filings • The SEC should consider providing multiple dissemination methods for disclosures so that information could be accessed either from the SEC web site or other channels • SEC should consider establishing an advisory committee composed of filers, investors, information intermediaries and other market representatives to consider ideas to be recommended to the SEC Research conducted by Arthur Mboue 2
  3. 3. Chronological Events dates events July 2009 FASB Disclosure framework project added to the agenda with the goal of establishing an overarching framework intended to make financial statement disclosure more effective July 2012 FASB disclosure framework-discussion paper issued for comments July 2013 CFA published Financial Reporting disclosures, investor perspectives on transparency, trust, and volume. October 2013 FASB disclosure framework project Q & A issued December 2013 SEC detailed report to Congress provided the staff’s preliminary conclusions and recommendation about disclosure reform. The report is mandated by Section 108 of the Jumpstart Our Business Startups (JOBS) Act December 20, 2013 SEC issued staff report on public company disclosures March 2014 FASB proposed Concept Statement-Conceptual Framework for Financial Reporting. September 2015 The FASB’s proposed Accounting Standards Updated (ASU), Conceptual Framework for financial reporting chapter 3. Sept. 2015 The FASB’s proposed ASU, notes to financial statements (235) Sept 2013 SEC Effectiveness of financial disclosures about entities other than the registrant (release no 33-9929) Sept 25, 2015 SEC published requests for comment on Reg S-X April 15, 2016 SEC solicited public comment on business and financial disclosures requirements in Reg S-K May3, 2016 SEC adopted Amendments to implement JOBS Act and FACT Act changes for Exchange Act Registration Requirements related to Section 12 (g) of the SEA of 1934. “With the adoption of these amendments, the commission has completed all of the rulemaking mandated under the Jobs Act’ Marie Jose WhiteResearch conducted by Arthur Mboue 3
  4. 4. • Fast (Fixing America’s Surface Transportation Act of 2015) Act requirements include: – Summary page for Form 10-K • Permitting issuers to submit a summary page on Form 10-K if each item identified in the summary includes a cross reference (by electronic link or otherwise) to the material contained in Form 10-K – Simplify Reg S-K – Study on modernization and simplification of Reg S-K • Consider how best to modernize and simplify its requirements • Emphasize a company by company approach that allows material information to be disseminated w/o boilerplate language or static requirements • Evaluate methods of information delivery and presentation and explore methods for discouraging repetition – Forward incorporation on Form S-1 for smaller reporting companies Disclosure Simplification Research conducted by Arthur Mboue 4
  5. 5. Disclosure Effectiveness Projects • Definition: the ongoing broad based review by the staff of the disclosure requirement and the presentation and delivery of the disclosures which the commission may consider whether to review. SEC does not review executive compensation, governance, FPI, business development companies or other categories of registrants • Review of the disclosures requirements in rules and forms – Reg S-K-contains the disclosure requirements for the nonfinancial statement portions of the filing to the SEC. It was created as a single repository for the uniform non financial statement disclosure requirements under both Securities Act and Securities and Exchange Act. It originated in Schedule A with two disclosure requirements (description of business and description of properties), it lists 27 items now – Reg S-X-contains disclosures requirements that dictate the form and content of financial statements to be included in filings with the Commission. It addresses both registrant financial statements and financial statements of certain entities other than the registrant. – Related rules for presentation and delivery of reliable and material information to the investing public • Consideration of factors external to rules that may have contributed to length and complexity of company filings and compliance costsResearch conducted by Arthur Mboue 5
  6. 6. Director Keith Higgins, Director “ there is a lot that you…can do to improve the focus and navigability of disclosure documents in the absence of rule changes. You can step up your game right now” Research conducted by Arthur Mboue 6
  7. 7. Keith Higgins “ Our effort will truly succeed only if all of the stakeholders in our current disclosure system companies, investors, legal and accounting professionals and other market participants contribute to the dialogue about the improvements that could be made to the quality and effectiveness of disclosure so that it is less burdensome both for companies to prepare and for investors to read” Research conducted by Arthur Mboue 7