It is either a wonderful, or awful time — depending on your point of view — to be a securities regulator in Washington these days.
If you love challenges there’s certainly no shortage of high-profile issues to address, and I have neither the space, nor the patience to list them here. Therefore, sitting around in an office surfing Google or Travelocity.com won’t comprise a good deal of the workday, unlike those jokes made about the workdays of many government employees.
Conversely, there’s no shortage of lawmakers who want to tell you how to do your job.
So, if you are the sensitive type and get easily offended by criticism or want to avoid waves of emails and proposals along the lines of "Here’s what you should be doing," I suggest you ply your legal and/or accounting talents, elsewhere.
But one of the issues that SEC chairman Harvey Pitt promised to address upon his confirmation and has, is improved disclosure by publicly held companies.
Last week the commission voted 3-0 on a rule that would prompt companies to offer more "transparent" information in its annual reports.
The commission’s rule would, in simple terms, mandate company management to disclose in easy-to-understand-terms, those factors and assumptions that have an affect on company performance.
The proposal would include a separately captioned section regarding accounting policies in the MD&A (management’s discussion and analysis) registration and proxy statements.
Following the Enron disaster, the SEC urged companies to begin offering clearer and far more concise data in their respective annual reports – a voluntary procedure that went over as well as a cash bar at a wedding.
The annual reports that the SEC subsequently reviewed following its plea showed very little improvement — hence its stab at a new disclosure rule.
Much like clean water or pollutant free air, I doubt there are many people (save for those company executives keeping at least two sets of books) who don’t want better disclosure. I mean, how many non-financial professionals want to pour over pithy explanations and MD&A to find out why this quarter’s dividend check couldn’t buy a round-trip subway token?
But the improved disclosure door swings both ways.
If you’re an investor, it’s incumbent upon you, to glean a basic understanding of how to read an annual report, or to learn the definition of a term like "non-recurring charge."
If a man approached you on the street with a sure-fire deal, you probably wouldn’t just hand over your checkbook and say "Have at it."
But it’s astounding how many people on little more than "water cooler" advice, invest thousands in a company without doing basic research or sans knowledge of how to understand an earnings statement.
The SEC will eventually get improved disclosure — Enron has seen to that. But for the investor, it’s what they don’t know that will hurt them.
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