Tag Archives: SECI

Ever Been to an SEC Event? Mark out April 13 for a webcast!

Uncategorized, , , , , , , , , , , , , , , , , , , , , ,

In our workshops we sometimes joke (a bit) about how fun it is to listen to a webcast of an SEC meeting. And yes, we do say the same thing about FASB meetings. (Total Geek-Out For Sure!)

These meetings are interesting in that you can observe the process the SEC Commissioners and the FASB follow. The depth of the discussions and their careful consideration of the issues is always fascinating to observe.

These meetings generally do not tell you what might happen in the short-term, but do provide a longer-term glimpse into the directions of policy-making and standard setting.

Disclosure effectiveness is a major longer-term initiative at the SEC right now. On April 13, 2016 the SEC is going to discuss “whether to issue a concept release seeking comment on modernizing certain business and financial disclosure requirements in Regulation S-K.”

As you know, this kind of change is something the SEC staff has wanted to do for years. In addition, provisions of both the JOBS Act and the FAST Act focused on disclosure effectiveness. And here is the logical next step – this meeting will likely help illuminate the future direction of disclosure effectiveness.

 

In addition, this meeting may offer ideas that you can implement now to help make your disclosure more direct and useful to investors.

 

So, perhaps this is the time to listen to one of the meetings? You could play it on your computer, have the sound coming out of your speakers, and think how many of your colleagues would join you and listen! SEC Party time perhaps? If you can’t make the live webcast, you can find all of the archived meetings at http://www.sec.gov/news/openmeetings.shtml

 

You can learn more at:

sec.gov/news/openmeetings/2016/ssamtg033016.htm

 

where the original meeting was announced and at:

www.sec.gov/news/openmeetings/2016/ssamtg041316.htm

where the date was changed from March 30 to April 13, 2016.

 

As always, your thoughts and comments are welcome!

Known Trends and Self-Fulfilling Prophecies

SEC Hot Topic, , , , , , , , , , , , , , , , , , , ,

Forewarning disclosures, the “known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations” are one of the topics we discuss occasionally in our blog posts. This MD&A disclosure can be very problematic because the information disclosed may alarm investors or make management nervous about creating a “self-fulfilling prophecy”.

We are always watching how companies deal with these issues, and here are two examples from both ends of the potential disclosure spectrum.

The first example, dealing with goodwill impairment, is from a company that has been in the news a lot lately, Yahoo. Along with all the issues they have dealt with involving their investment in Alibaba, Yahoo continues to work on building their core business. As part of this process in June of 2013 they acquired Tumblr, the blog-hosting website. The purchase price was $990 million and in connection with the acquisition Yahoo recorded $749 million in goodwill. (See note 4 about acquisitions in the consolidated F/S in the 2015 10-K)

Fast forward the acquisition to December 31, 2015 and in note 5 to the consolidated F/S dealing with impairments Yahoo says:

As identified above, in step one, in 2015, the carrying value of the U.S. & Canada, Europe, Tumblr and Latin America reporting units exceeded the estimated fair value. The Company completed an assessment of the implied fair value of these reporting units, which resulted in an impairment of all goodwill for the U.S. & Canada, Europe, and Latin America reporting units and a partial impairment for the Tumblr reporting unit. The Company recorded goodwill impairment charges of $3,692 million, $531 million, $230 million and $8 million, associated with the U.S. & Canada, Europe, Tumblr, and Latin America reporting units, respectively, for the year ended December 31, 2015. The impairments were a result of a combination of factors, including a sustained decrease in our market capitalization in fourth quarter of 2015 and lower estimated projected revenue and profitability in the near term.

 

So, from June 2013 to December 31, 2015 the $749 million in Tumblr related goodwill was reduced by $230 million. In the tech world, these things happen.

But what about the future? In an interesting spot, Critical Accounting Estimates in their 2015 10-K MD&A Yahoo included this statement:

Given the partial impairment recorded in our Tumblr reporting unit in 2015, it is reasonably possible that changes in judgments, assumptions and estimates we made in assessing the fair value of goodwill could cause us to consider some portion or all of the remaining goodwill of the Tumblr reporting unit to become impaired, which comprised $519 million of our remaining $808 million goodwill balance as of December 31, 2015. In addition, a future decline in market conditions and/or changes in our market share could negatively impact the estimated future cash flows and discount rates used in the income approach to determine the fair value of the reporting unit and could result in an impairment charge in the foreseeable future.

 

This is a direct warning, using the S-K words “reasonably possible”.

 

Here is the second example. These comments are from a letter to a retailing company, and you can see the SEC is asking whether the company effectively dealt with an uncertainty in their future:

  1. Please expand this section to discuss any known material trends, events or uncertainties that have had or are reasonably expected to have a material impact on your liquidity or revenues or income from continuing operations. In this regard, we note (i) persistent comparable store sales decreases in fiscal year 2014 and through the first three quarterly periods of 2015 and (ii) that the company has scaled back its previously planned strategic retail expansion for fiscal year 2016 and beyond.

We also note management’s concern, as expressed in recent earnings calls, regarding the cannibalization effect from new retail stores, coupled with softer than expected new store performances. Please discuss whether you expect comparable store sales to continue to decrease, due to continued cannibalization or otherwise, and the short and long-term actions that you are taking to address any perceived trends. In this regard, your discussion should address your past and future financial condition and results of operation, with particular emphasis on the prospects for the future. See Item 303(a) of Regulation S-K and SEC Release No. 33- 8350.

 

One really interesting part of this comment is how the staff went well beyond the company’s filings to information disclosed in earnings calls.

 

 

As always, your thoughts and comments are appreciated!

Comment of the Week – Market Risk Reminder

Comment of the Week, , , , , , , , , , , , , , , , , , , , , , , , ,

 

We have been discussing the topic of Market Risk Disclosures a lot in this environment of volatile exchange rates, bumpy commodity prices and uncertain interest rates. This disclosure is one of the most confusing parts of Regulation S-K. Without going into a whole lot of details about S-K Item 305 (which we covered in an earlier blog at seciblog.pli.edu/?p=489), as we move towards the end of the first quarter it will continue to be important to focus on getting this disclosure right.

 

So, with this post as a reminder, here is a quick example in a recent comment:

Item7A. Quantitative and Qualitative Disclosures About Market Risk, page 63

  1. Please provide an analysis on whether your “cash flow hedges,” discussed in the second- to-last paragraph of page 63, are material, such that you would need to provide the disclosure in Item 305(a) of Regulation S-K. Please see General Instruction 5.B to Item 305(a) and (b).

 

As usual, your thoughts and comments are welcome!

Form 10-K Tip Eight – Conflict Minerals and Form SD Disclosure

10-K Tips, , , , , , , , , , , , , , , , , , , , , , ,

 

In our One-Hour Briefing presenting our thoughts on key issues for 2016 Form 10-K’s we discussed Conflict Mineral Reporting. Companies need to continue to refine their reporting processes as they gain experience with the rule and also watch for developments in the continuing legal challenges to the rule.

 

The short and sweet news here is that not a lot has changed since last year. That said, since this is a calendar year reporting requirement for all companies with a May 31 due date, there is time for change to occur before the due date.

 

One are that is not different is that because of the April 2014 court decision, issuers are still not required to report whether any of their products have “not been found to be DRC conflict free”.  You can review the SEC Order for the Partial Stay of the rule at:

www.sec.gov/rules/other/2014/34-72079.pdf

 

 

Corp Fin issued a Statement about the Court of Appeals decision which is at:

www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370541681994

 

 

And there are SEC FAQ’s available at:

www.sec.gov/divisions/corpfin/guidance/conflictminerals-faq.htm

 

The FAQ’s do provide some process guidance, but the bottom line is that this area is still evolving.

 

As always, your thoughts and comments are welcome!

 

 

 

PS You can review the Form 10-K Tune-up Briefing and obtain CLE and CPE credit at:

www.pli.edu/Content/OnDemand/Second_Annual_Form_10_K_Tune_Up/_/N-4nZ1z116ku?fromsearch=false&ID=278540

 

Climate Change – An MD&A Heads-Up

SEC Hot Topic, , , , , , , , , , , , , , , , , , ,

In our One-Hour Briefing discussing MD&A Hot Topics on February 8, 2016 we included climate change disclosures as one of the SEC’s current focus areas. We reviewed the SEC’s climate change disclosure guidance in FR 82 along with current developments in this area, including example SEC comments. This is clearly a very challenging uncertainty to deal with for many companies.  You can find FR 82 at:

www.sec.gov/rules/interp/2010/33-9106.pdf

 

If you are in an industry that is faced with this disclosure issue, WilmarHale’s Energy, Environment and Natural Resources Practice is in the process of presenting an eight-week series into this and other challenges facing the energy sector. You can read their thoughts about climate change disclosures and find the other posts in their blog at:

www.wilmerhale.com/pages/publicationsandnewsdetail.aspx?NewsPubId=17179880687

 

First Annual Dealing with MD&A Hot Topics.  Link to our one hour briefing by using the link below:

http://www.pli.edu/Content/First_Annual_Dealing_with_MDA_Hot_Topics/_/N-1z10wp5Z4n?ID=280193

 

Hope this helps, and as always your thoughts and comments are welcome!

10-K Tip Number Six for 2016 – The SEC’s Disclosure Effectiveness Initiative

10-K Tips, , , , , , , , , , , , , , , , , ,

As a starting point in this post, we want to be clear, the SEC continuously focuses on making disclosure effective. This is an important part of their mission, to provide information to investors. Over the years projects like Plain English and the MD&A guidance in FR 72 have clearly helped improve disclosure.
And, in large part thanks to the JOBS Act, disclosure effectiveness is a formal initiative at the SEC right now. This, of course, is why we included it as a hot topic on our 2016 Form 10-K Tune-Up, which is now available on-demand with CLE and CPE credit at:

www.pli.edu/Content/OnDemand/Second_Annual_Form_10_K_Tune_Up/_/N-4nZ1z116ku?fromsearch=false&ID=278540

 

The JOBS Act formalized this process with its requirement to study various S-K disclosures. Going beyond the JOBS Act, the SEC has sought comment on other matters including certain parts of Regulation S-X. Late last year the FAST Act created required next steps in this process. All of these projects, and the others that will come, will hopefully result in a modernization and refocusing of the whole disclosure process. You can read about all the different parts of this initiative at the Disclosure Effectiveness section of the SEC’s web page:

www.sec.gov/spotlight/disclosure-effectiveness.shtml

 

 

(If you would like to read more about the FAST Act check out this post:

seciblog.pli.edu/?p=515 )

 

 

These elements of the SEC’s process are clearly longer-term, and the regulatory steps involved need time for constituent input and careful consideration of the impact of possible change. This does not mean that there are not steps you can take right now to help make information better for investors. In fact, in numerous public forums the SEC Staff has consistently focused on three themes you can use right now to improve disclosure. They are:

Reduce repetition

 

Focus disclosure

 

Eliminate outdated and immaterial information

 

You can get the SEC’s perspective on these issues in this speech by Corp Fin Director Keith Higgins:

www.sec.gov/News/Speech/Detail/Speech/1370541479332

 

And this speech from December 2015 by Chief Accountant James Schnurr touches on things to do now, particularly using judgment:

www.sec.gov/news/speech/schnurr-remarks-aicpa-2015-conference-sec-pcaob-developments.html

 

 

One last issue – if you have questions about something such as a whether to continue a disclosure related to an SEC comment from prior years that is immaterial today, the staff actually encourages that you call them to discuss the issue!

 

As always, your thoughts and comments are welcome!

Form 10-K Tune-Up Tip Number Five for 2016

10-K Tips, , , , , , , , , , , , , , , , , , , , , , , , , , ,

The next topic from our 2016 Form 10-K Tune-up One-Hour Briefing is SAB 74 disclosures. You can listen to the briefing on-demand with CPE and CLE credit available at:

www.pli.edu/Content/OnDemand/Second_Annual_Form_10_K_Tune_Up/_/N-4nZ1z116ku?fromsearch=false&ID=278540

 
To begin, what does SAB 74, which is Topic 11-M in the SAB Codification, actually require? You can read the whole SAB at:

www.sec.gov/interps/account/sabcodet11.htm#M

 
Here are a few highlights.

First, it is clear that this disclosure is not required for all new Accounting Standards Updates:
“The Commission addressed a similar issue and concluded that registrants should discuss the potential effects of adoption of recently issued accounting standards in registration statements and reports filed with the Commission. The staff believes that this disclosure guidance applies to all accounting standards which have been issued but not yet adopted by the registrant unless the impact on its financial position and results of operations is not expected to be material.”
This part of the SAB dovetails very nicely with an important part of the SEC’s Disclosure Effectiveness Initiative, which is to eliminate immaterial disclosures that potentially “clutter up” a report and potentially obscure material information.
Here are two examples to explore this issue.

CocaCola did not mention recently issued accounting standards in their 2014 Form 10-K MD&A. They apparently made the judgment that there was no material impact in the current year from new accounting standards. They did include SAB 74 disclosures in their financial statements in note 1. You can check it out at:
www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/2015/02/2014-annual-report-on-form-10-k.pdf

 
Intel treated this disclosure in exactly the same way, and you can find their 2014 10-K at:
www.intc.com/secfiling.cfm?filingID=50863-15-15

 
So, the first theme for SAB 74 is focus on material information.

 

 

The second point to think about with this disclosure is what do we need to say about new standards that we believe will be material.

The SAB contains four disclosure requirements:

 
1. “A brief description of the new standard, the date that adoption is required and the date that the registrant plans to adopt, if earlier.

 
2. A discussion of the methods of adoption allowed by the standard and the method expected to be utilized by the registrant, if determined.

 
3. A discussion of the impact that adoption of the standard is expected to have on the financial statements of the registrant, unless not known or reasonably estimable. In that case, a statement to that effect may be made.

 
4. Disclosure of the potential impact of other significant matters that the registrant believes might result from the adoption of the standard (such as technical violations of debt covenant agreements, planned or intended changes in business practices, etc.) is encouraged.”

 

 

As you consider these disclosures, the first thing that arises is that over time there will be a progression in the detail of the disclosure.

For example, most companies at this point in time will not know which method they will use to implement the new revenue recognition standard. But, as we go through next year, we will get closer to that decision. When the decision is made, the disclosure should be updated to inform investors about which method will be used. The same issue applies to quantifying the impact of a change.

 
The fourth disclosure, the potential impact on other significant matters, points out that when such a situation exists, this information may not be appropriate to disclose in the financial statements, but would be disclosed in MD&A.

This means that this disclosure should not always be exactly the same in the financial statements and MD&A.
As a brief PS, we have blogged about this topic before and suggested some wording for SAB 74 disclosures about the new revenue recognition standard. You can read that post at:
seciblog.pli.edu/?p=171

 

As always, your thoughts and comments are welcome!

10-K Tip Number Four for 2016 – COSO and ICFR

10-K Tips, , , , , , , , , , , , , , , , , , , ,

This is the fourth of our deeper dives in the topics we discussed in our Second Annual Form 10-K Tune-up One-hour Briefing on January 7. (This One-Hour Briefing will be available on-demand soon.)

The topics for this post are:

The COSO framework, and

Internal Control Over Financial Reporting.
COSO

The easier of these two topics to discuss, although it presents some very gray issues, is the 2013 revision of the COSO framework. If you have not yet adopted the updated framework, what are the implications in your SEC reporting?

The SEC has not made any bright-line statements or mandates about this transition. And, in fact, many companies have not yet adopted the framework.

In December of 2013, Paul Beswick, The SEC’s Chief Accountant at that time, said in a speech:

“SEC staff plans to monitor the transition for issuers using the 1992 framework to evaluate whether and if any staff or Commission actions become necessary or appropriate at some point in the future. However, at this time, I’ll simply refer users of the COSO framework to the statements COSO has made about their new framework and their thoughts about transition.”

In addition to this cautionary language, the SEC Staff also discussed this issue at a meeting of the Center For Audit Quality’s SEC Regulations Committee. Here is that section of the minutes:

Ms. Shah stated that the staff is currently referring users of the COSO 1992 framework to the following statements made on the COSO web site:

“COSO believes that users should transition their applications and related documentation to the updated Framework as soon as is feasible under their particular circumstances. As previously announced, COSO will continue to make available its original Framework during the transition period extending to December 15, 2014, after which time COSO will consider it as superseded by the 2013 edition. During the transition period (May 14, 2013 to December 15, 2014) the COSO Board believes that organizations reporting externally should clearly disclose whether the original Framework or the updated Framework was utilized.”

Exchange Act Rule 13a-15(c) requires management’s evaluation of the effectiveness of internal control over financial reporting to be based on a framework that is “a suitable, recognized control framework that is established by a body or group that has followed due-process procedures…” In Release 33-8328, the SEC stated that ” [t]he COSO Framework satisfies our criteria and may be used as an evaluation framework for purposes of management’s annual internal control evaluation and disclosure requirements.”

The staff indicated that the longer issuers continue to use the 1992 framework, the more likely they are to receive questions from the staff about whether the issuer’s use of the 1992 framework satisfies the SEC’s requirement to use a suitable, recognized framework (particularly after December 15, 2014 when COSO will consider the 1992 framework to have been superseded by the 2013 framework).

Clearly there is no hard and fast rule about when to transition, but if a company were to use the old framework much longer, questions about the suitability of the old framework increase in importance. Issues such as what kinds of problems that the new framework might identify that the old framework could miss, (where are there gaps in other words) would need to be addressed.

As a last note, this blog post from the WSJ reports that 73% of 10-K filers for 2014 adopted the new framework:

blogs.wsj.com/riskandcompliance/2015/04/29/the-morning-risk-report-companies-adopting-updated-coso-framework-newsletter-draft/
ICFR

Since its inception the SOX 404 processes used to assess the effectiveness of internal control over financial reporting by management and external auditors have been evolving. In the last few years there have been a number of developments and companies, auditors and regulators have all been raising questions about the process. Some observers have even called this period a “perfect storm” of ICFR evaluation issues.

So, what is behind the perfect storm? Here are a few of the underlying sources of this ongoing issue.
The SEC has asked some challenging questions, including “Where are all the material weaknesses?” In this speech, Deputy Chief Accountant Brian Croteau addresses for the second year in a row how most restatements are not preceded by a material weakness disclosure, raising the question about whether managements’ assessments and external audits are appropriately identifying material weaknesses:

www.sec.gov/News/Speech/Detail/Speech/1370543616539

The PCAOB in their inspection reports have found what they believe to be a significant number of issues in ICFR audits. In the Overall Findings section of their first report on ICFR inspections the Board reported:

In 46 of the 309 integrated audit engagements (15 percent) that were inspected in 2010, Inspections staff found that the firm, at the time it issued its audit report, had failed to obtain sufficient audit evidence to support its audit opinion on the effectiveness of internal control due to one or more deficiencies identified by the Inspections staff. In 39 of those 46 engagements (85 percent) where the firm did not have sufficient evidence to support the internal control opinion, representing 13 percent of the 309 integrated audit engagements that were inspected, the firm also failed to obtain sufficient audit evidence to support the financial statement audit opinion.

Since this report the PCAOB has summarized issues they have found in ICFR audits in other documents, including Staff Audit Practice Alert No. 11: Considerations for Audits of Internal Control Over Financial Reporting. You can find the alert at:
pcaobus.org/Standards/QandA/10-24-2013_SAPA_11.pdf
The issues addressed in the Alert are very similar to those addressed in the summary inspection report and include:

Risk assessment and the audit of internal control

Selecting controls to test

Testing management review controls

Information technology (“IT”) considerations, including system- generated data and reports

Roll-forward of controls tested at an interim date

Using the work of others

Evaluating identified control deficiencies
In particular, testing management review controls and relying on system-generated data have been common and particularly difficult challenges to deal with in the ICFR process. This combination of challenging areas to deal with and questions about identifying and reporting all material weaknesses in ICFR will likely continue to make this a difficult area in future years.

 

As always, your thoughts and comments are welcome.

 

The whole briefing is now available on-demand with CPE and CLE credit at:

www.pli.edu/Content/OnDemand/Second_Annual_Form_10_K_Tune_Up/_/N-4nZ1z116ku?fromsearch=false&ID=278540

 

10-K Tip Number Three for 2016

10-K Tips, , , , , , , , , , , , , , , , ,

This post continues the series of deeper dives into the 10-K reporting issues we highlighted in our January 7, 2016 One-Hour Briefing, “PLI’s Second Annual Form 10-K Tune-Up”. (This One-Hour Briefing will be available on-demand soon.) This is the third topic in the briefing, audit committee disclosures.

In the Fall of 2015 we did a series of posts about audit committee issues, a topic that has been under discussion by the SEC and the reporting community. The SEC’s concept release about audit committee disclosures and a study by The Center for Audit Quality and Audit Analytics that shows that many companies are making audit committee disclosures well beyond those required by the SEC, the Exchanges and the NASDAQ brought this discussion to a new level of importance.

This is, of course, why we included this topic in our One-Hour Briefing. And, rather than repeat all the issues, here are the blog posts which you can peruse and dive into more deeply at your leisure:

 

 

Part One – Overview and Some History seciblog.pli.edu/?p=447

Part Two – Independence Oversight seciblog.pli.edu/?p=450

Part Three – Audit Fee Disclosures –A Few Common Problem Areas in This Independence Disclosure  seciblog.pli.edu/?p=456

Part Four – The SEC’s Concept Release seciblog.pli.edu/?p=462

Part Five – Voluntary Disclosures in the News   seciblog.pli.edu/?p=486

Part Six – Some Next Steps  seciblog.pli.edu/?p=496

 

 

 

As always, your thoughts and questions are welcome!

 

Keeping up with the IPO Market – An IPO Resource Update

IPO UPDATE, , , , , , , , , ,

Last December the US Government passed the Fixing America’s Surface Transportation Act or FAST Act……um, wait, isn’t this an SEC Reporting Blog? Well, as frequently happens when a “must pass” bill is in the legislative process congress members and senators add many amendments that are unrelated to the original bill. One of those ride-along areas in the FAST Act turns out to be SEC reporting related.

Several of the provisions relate to Emerging Growth Companies and their path through the IPO process. Others relate to disclosure effectiveness and improving the reporting system. Check the last section of this post and you can read a summary of these legislative changes.

Congress tinkering with the IPO process raises the question, just what is the state of the IPO market?

One great resource that provides a weekly update about the IPO market with details by industry and other factors is PWC’s weekly newsletter “Capital Markets Watch”. You can find the current and past issues at:

www.pwc.com/us/en/deals/publications/ipo-watch-weekly.html

The IPO market here in the US was fairly strong last year. That said, uncertainty and market volatility have a strong impact on IPO demand and given this year’s start in the capital markets it is difficult to predict how IPO’s will fare this year. One thing for sure, it will be interesting to watch!

One of the things you learn as you watch the ebb and flow of IPO’s is that there is a clear seasonal pattern in this market, which companies should allow for in their planning. Fall is usually a strong period in this market. Which means it is important to begin the process early in the year.

If you are in the process of considering an IPO, PLI has a wealth of resources. Our treatise “Initial Public Offerings: A Practical Guide to Going Public” will help you build a thorough understanding of the process. You can learn about it at:

www.pli.edu/Content/Treatise/Initial_Public_Offerings_A_Practical_Guide/_/N-4lZ1z12nwi?fromsearch=false&ID=158941

Our full-day conference “Securities Offerings 2016: A Public Offering: How It Is Done”, which will be on March 11 this year, is a good deep-dive into the process. The program will be presented live in New York and is available via webcast also. You can learn all about the program at:

www.pli.edu/Content/Seminar/Securities_Offerings_2016_A_Public_Offering/_/N-4kZ1z11hzm?fromsearch=false&ID=259900

Lastly, here is a brief summary of the major SEC related provisions of the FAST Act.

This Act:

Updates certain provisions of the Jumpstart Our Business Startups Act (JOBS Act), and

Requires the SEC to review and update certain SEC reporting requirements.

The Act’s goal is to make capital raising by smaller companies easier. Some of the changes are self implementing and will take effect immediately, others will require SEC rulemaking.

Under the original provisions of the JOBS Act a company could lose EGC status during the IPO process. This would happen for example if revenues exceeded $1 billion before the effective date of a registration statement. The FAST Act allows a company in the IPO process to “lock in” its EGC status. This status will last for up to one year after the company fails to qualify as an EGC. In this case a company will be treated as an EGC through its IPO date, or one year after it ceases to meet the EGC criteria, whichever is earlier. This provision is effective immediately.

The original provisions of the JOBS Act require that all confidential submissions be made public at least 21 days before marketing the company’s stock. The FAST Act changes this to 15 days before marketing, or effectiveness if there isn’t a road show. (Typically marketing begins with the road show.)   This provision is effective immediately.

Under the FAST Act an EGC may omit financial information from a confidential submission or public filing if the company reasonably believes that it will not be required under the rules when the registration statement is declared effective. For example, prior year F/S would not be required if a company believes they will not be required when the registration statement is declared effective. This could be true for certain interim information also. The SEC has already considered extending this provision to all companies.

The Act also requires the SEC to amend its rules to allow a summary page in Form 10-K. Each item should include a cross-reference to where the relevant information is included in the annual report.  This may be a hyperlink. While the SEC is required to do this within 180 days a company could actually do this now.

The Act also requires the SEC to review and amend Regulation S-K to provide additional scaling or eliminate requirements for accelerated filers, EGCs, SRCs and other smaller issuers to reduce reporting burdens while still providing all material information to investors. This review is also designed to remove redundant, outdated or unnecessary disclosures for all issuers. The SEC is required to do this within 180 days

The Act requires a second S-K study to be done in conjunction with the SEC’s:

Investor Advisory Committee and

Advisory Committee on Small and Emerging Companies

The focus of this review is to:

Modernize and simplify requirements

Reduce costs and burdens

Still provide all material information to investors

 

This review should:

Emphasize a “company-by-company” disclosure model

Reduce boilerplate language

Maintain completeness

Provide for comparability across companies

Evaluate methods of information delivery and presentation

Explore methods for reducing repetition and the disclosure of immaterial information

The SEC must complete the study and issue a report to Congress including detailed recommendations with 360 days and then propose rules 360 days after the first study is issued.

The FAST Also includes a new exemption for private companies, Section 4(a)(7) of the Securities Act, which will provide for private re-sales of restricted securities. Purchasers will have to be accredited investors and general solicitation and advertising will not be permitted.

The FAST Act also provides for forward incorporation in Forms S-1 and F-1 by smaller reporting companies. This will obviate the need to file prospectus supplements or post-effective amendments.

Savings & loan holding companies now have the same registration thresholds as banks and bank holding companies.

The SEC has already update some JOBS Act FAQs and has even discussed broadening some of the provisions.

There is a lot here, and if you would like to learn more about the FAST Act we have a recorded program with details at:

www.pli.edu/Content/OnDemand/FAST_Act_Securities_Law_Provisions/_/N-4nZ1z10zk8?fromsearch=false&ID=276456

As always, your thoughts and questions are welcome!