For all of us with a December 31 fiscal year we are finally past the year-end finish line.\u00a0 It is always nice to look up after year-end and feel good that we made it through another busy season.\u00a0 Right after that celebration, however, the next thing we see is the challenge of first quarter-end!<\/p>\n
This is an opportune moment to take stock of our just filed Form 10-K and think about ways we may want to update, refine or improve our reporting.\u00a0 It is also a good idea to identify areas where we may need to adjust our on-going quarterly reporting for changes going on in the world around us.<\/p>\n
At PLI\u2019s 18th<\/sup>Annual Securities Regulation in Europe program on March 15, 2019, CorpFin Division Director William Hinman provided us with discussion of two areas<\/a>that we can use as stepping off points for this process, Brexit and sustainability disclosures.<\/p>\n Beyond reminders about these two important areas, Mr. Hinman also included important discussion about how the SEC\u2019s disclosure system works:<\/p>\n While Mr. Hinman\u2019s speech is fairly brief, it provides substantial food for thought.\u00a0 We will explore this speech in two posts:<\/p>\n These are two areas we may want to place on our disclosure committee or disclosure process agendas.<\/p>\n The SEC\u2019s Principles-Based Disclosure System<\/strong><\/p>\n One of the things that make Mr. Hinman’s speech<\/a>well worth reading is his discussion of the challenges in applying the principles-based disclosure guidance of the securities law to complex, uncertain and evolving risks.<\/p>\n One trap we sometimes fall into is the belief that if we disclose everything the SEC\u2019s rules address, if we check all the boxes in Regulations S-K and S-X, the SAB\u2019s and the SLB\u2019s, and all the other sources from the SEC, we will be ok.\u00a0 In our Workshops we emphasize that this is not the case! And losing this \u201ccheck-the-box\u201d mentality is crucial to get disclosure right in complex, uncertain and evolving areas.<\/p>\n In his remarks Mr. Hinman said:<\/p>\n \u201cThe flexibility of our principles-based disclosure requirements should result in disclosure that keeps pace with emerging issues, like Brexit or sustainability matters, without the need to for the Commission to continuously add to or update the underlying disclosure rules as new issues arise.\u201d<\/p>\n While it may seem a bit contradictory, the SEC actually has a rule saying that we need to think beyond the rules!<\/p>\n 240.12b-20\u00a0\u00a0\u00a0Additional information.<\/p>\n In addition to the information expressly required to be included in a statement or report, there shall be added such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made not misleading.<\/p>\n To emphasize this part of the SEC\u2019s disclosure regimen Mr. Hinman articulates the foundation of the disclosure system:<\/p>\n \u201cour disclosure requirements are intended to provide investors with the material information they need about companies and their securities offerings to make informed investment and voting decisions\u201d<\/p>\n In other words, while the SEC\u2019s rules and regulations provide a starting point, we need to consider the whole context of a situation and include all information material to investors.\u00a0He also provides this reminder about two of the most principles-based parts of periodic reports:<\/p>\n \u201cManagement\u2019s Discussion and Analysis (MD&A) and Risk Factors are examples of such disclosure requirements and are well-suited to elicit disclosure about complex and evolving areas\u201d<\/p>\n This is borne out in the very first sentence of Regulation S-K Item 303, the core guidance for MD&A:<\/p>\n 229.303\u00a0\u00a0\u00a0(Item 303) Management’s discussion and analysis of financial condition and results of operations.<\/p>\n (a)\u00a0Full fiscal years.\u00a0Discuss registrant’s financial condition, changes in financial condition and results of operations.<\/p>\n It is hard to imagine a broader, more principles-based requirement than this simple sentence!<\/p>\n In our next post we will delve more into how this principles-based framework provides direction for the two specific areas Mr. Hinman addressed, Brexit and sustainability disclosures.<\/p>\n As always, your thoughts and comments are welcome!<\/p>\n","protected":false},"excerpt":{"rendered":" For all of us with a December 31 fiscal year we are finally past the year-end finish line.\u00a0 It is always nice to look up after year-end and feel good that we made it through another busy season.\u00a0 Right after that celebration, however, the next thing we see is the challenge of first quarter-end! This … Continue reading Moving Forward After Year-End<\/span> \n
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