SEC Lays Out Road Map On Disclosure Reform

Keith F. Higgins, Director, SEC Division of Corporation Finance, recently laid out the SEC staff’s approach to the much discussed disclosure reform initiative.  Highlights are as follows:

  • Mr. Higgins stated there are many investors who have expressed an appetite for more information, not less. If the staff identifies potential gaps in disclosure or opportunities to increase the transparency of information, the staff may very well recommend new disclosure requirements.
  • The SEC is launching a spotlight page on, and is asking companies, investors and other market participants to give the staff their views on how the SEC can make disclosure more effective.  The SEC is particularly interested in learning what information investors find most useful. As a few examples, the SEC is considering questions such as whether there is information that the SEC requires companies to include in their filings that investors routinely get elsewhere. Is there information that investors routinely ignore? What information do investors think is missing? And in the age of smartphones and tablets, how can information be easier to access and use?
  • The staff will start its review of disclosure requirements by focusing on the business and financial disclosures that flow into periodic and current reports, namely Forms 10-K, 10-Q and 8-K, and, in one way or another, make their way into transactional filings.
  • Corp Fin is forming teams to review specific requirements in Regulation S-K and the Industry Guides. Among the things these teams will do is identify potentially outdated disclosure requirements, such as the ratio of earnings to fixed charges — which is a requirement whose “one-size-fits-all” approach may result in disclosure that investors don’t find useful and companies wouldn’t otherwise calculate — or information that investors routinely find using other sources, such as historical stock prices.
  • The teams also will identify where SEC disclosure requirements result in redundancy or duplicative disclosures. For instance, a comment letter submitted in advance of the recent Regulation S-K report suggested that some disclosure requirements are no longer necessary because they were created to address voids in U.S. GAAP requirements, which have since evolved.
  • In reviewing parts of Regulation S-X, the staff will seek input to help it determine how investors use these separate financial statements  (for acquired businesses, equity method investees and guarantors) in their decision-making, how costly it is for companies to obtain them and whether the benefits justify the challenges of presenting them.
  • The staff also will consider whether to recommend a “company disclosure” or “core disclosure” system. Under this approach, certain information that does not change as frequently — such as the description of the business and certain other company information ­— would be disclosed in a “core” document and then supplemented by periodic and current reports. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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