The Securities and Exchange Commission issued a staff report Friday to Congress on its disclosure rules for U.S. public companies, as part of the SEC’s efforts to modernize the disclosure requirements and reduce compliance costs for emerging growth companies.
As part of the effort, the SEC’s Office of the Chief Accountant will coordinate with the Financial Accounting Standards Board to identify ways to improve the effectiveness of disclosures in corporate financial statements and to minimize duplication with other existing disclosure requirements.
The report was mandated by Congress in the Jumpstart Our Business Startups, or JOBS, Act of 2012. It offers an overview of the SEC’s Regulation S-K governing public company disclosure, in addition to the staff’s preliminary conclusions and recommendations.
“This report provides a framework for disclosure reform,” said SEC chair Mary Jo White in a statement. “As a next step, I have directed the staff to develop specific recommendations for updating the rules that dictate what a company must disclose in its filings. We will seek input from companies about how we can make our disclosure rules work better for them and will solicit the views of investors about what type of information they want and how it can be best presented. The ultimate objective is for the Commission to improve the disclosure regime for both companies and investors.”
“Updating our rules is only one step—albeit an important one—in improving company disclosures,” said Keith F. Higgins, director of the SEC’s Division of Corporation Finance. “For their part, companies should examine how they can improve the quality and effectiveness of their disclosures and how our rules can be improved to facilitate clear and effective communications to investors. Better disclosure benefits everyone in the marketplace, and we plan to work with companies and investors to achieve this common goal.”
Title I of the JOBS Act created a new category of issuer known as an “emerging growth company,” defined as a company that had not completed its first registered sale of common equity securities on or before Dec. 8, 2011 and has total annual gross revenues of less than $1 billion during its most recently completed fiscal year. Among other things, emerging growth companies can take advantage of a variety of scaled disclosure and other accommodations, under the JOBS Act, including exemptions from or modifications to certain Regulation S-K disclosure requirements.
To identify the areas of Regulation S-K that might be appropriate for simplification or modernization as they relate to emerging growth companies, the SEC staff concluded that it would be important to first understand and consider the history of all the provisions in Regulation S-K and that a full review of Regulation S-K would be appropriate since there might be simplifications, modernizations, revisions or eliminations that would be suitable for all issuers, regardless of size.
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