SEC Cracks Down on Balance Sheet ‘Window-Dressing’

Register now

The Securities and Exchange Commission voted unanimously on Friday to propose requiring public companies to disclose more information to investors about their short-term borrowing arrangements.

The SEC's proposal aims to shed more light on the short-term borrowing practices of companies, including what some refer to as balance sheet "window-dressing." The proposed rules are aimed to enable investors to better understand whether amounts of short-term borrowings reported at the end of reporting periods are consistent with amounts outstanding throughout the reporting periods.

"Under these proposed rules, investors would have better information about a company's financing activities during the course of a reporting period — not just a period-end snapshot," said SEC Chairman Mary L. Schapiro in a statement. "Investors would be better able to evaluate the company's ongoing liquidity and leverage risks."

Many financial institutions and other companies engage in short-term borrowing in order to fund their operations. The financing arrangements can range from commercial paper, repurchase agreements, letters of credit, promissory notes and factoring. They generally mature in a year or less.

The additional short-term borrowing disclosure information required under the proposed rules would be presented in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of a company's quarterly and annual reports.

The SEC also voted to issue an interpretive release that will provide guidance about existing requirements for MD&A disclosure about liquidity and funding.

Public comments on the proposed rules should be received by the Commission within 60 days after their publication in the Federal Register.

For reprint and licensing requests for this article, click here.