On April 13, 2016, the Securities and Exchange Commission (SEC) issued a concept release (Release) soliciting comments on updating and possibly modernizing and streamlining all of the business and financial disclosures required by Regulation S-K.
The Release was issued as part of the Disclosure Effectiveness Initiative, which began in 2013, as required by the JOBS Act. Specifically, the Release concerns itself with the issue of whether the business and financial disclosures required in all periodic reports and registration statements continue to provide information that is both relevant and important, and delivered in a form that is easily comprehensible, to modern investors when they are attempting to make well-informed investment decisions. The Release opens for question all aspects of business and financial disclosures, from whether information presented in tables and graphs is preferable to narrative discussions, to the periods required for disclosure in MD&A and selected financial summaries, to even the appropriateness of quarterly disclosure itself. However, the Release did not address the disclosure rules relating to executive compensation, as those rules have already been significantly revised in the past.
In addition, the Release focuses on how to make the business and financial disclosures less burdensome for public companies. For example, the Release contemplates and seeks comment on expanding the use of different tools that could be used more frequently to deliver disclosures, such as the following:
- Cross-referencing information from one section to satisfy disclosure in another
- Incorporation by reference
- Hyperlinks (to Company websites and exhibits on other SEC filings)
Anything the SEC can do to help companies avoid having to continuously repeat themselves in these periodic reports and statements will undoubtedly be much appreciated by public companies. Moreover, the rest of the population in our country continues to rapidly evolve by using technology to obtain various sources of information, so it makes sense for the SEC to also adapt the format of the presentation of publicly-disclosed information so the information can reach modern investors in their preferred format.
It remains to be seen whether the SEC will actually implement any of the noted potential changes in the business and financial disclosures in Regulation S-K. Longtime observers of SEC rulemaking will remember a number of proposed overhauls of the disclosure system, including company registration and the so-called “aircraft carrier” proposals, many of which never came to pass. There will be more to come after the 90-day comment period, which began upon the publication of the Release in the Federal Register.