The Securities and Exchange Commission formally adopted amendments in November to modernize financial disclosure requirements to ease the compliance burden for SEC registrants and make disclosures more meaningful for investors. The updates focused on federal securities law Regulation S-K and are intended to “improve the quality and accessibility of the disclosure that companies provide their investors, including, importantly giving investors greater insight into the information management uses to monitor and manage the business,” SEC Chair Jay Clayton noted at that time. Amendments aimed at similar goals have been made to Regulation S-X.
The rule changes are indeed helpful and provide registrants more flexibility to tailor their disclosures. CFOs, however, should always be looking for ways beyond regulatory action to improve the way they communicate to investors. And some leading organizations are taking the SEC’s cue and tightening up their filings to provide stakeholder with better clarity, focus and insight. Here, at a high level, are some initial actions organizations can consider:
- Remember, the SEC’s updates are concurrent with updates from the Financial Accounting Standards Board to U.S. GAAP. It may be appropriate to evaluate filings broadly — financial statements and the information outside of them — for user friendliness and regulatory compliance.
- Reevaluate the push for disclosure effectiveness in light of a principles-based approach. Prescriptive rules may not be popular and are sometimes ineffective, but they do provide a level of certainty. As regulatory bodies ease away from them, however, organizations likely will have to evaluate how they want to maintain the spirit of each underlying rule.
- Finally, consider engaging internal and external assistance, including the management team, to nail down what’s important to the company and investors.
To further assist CFOs, we have identified the following five steps that may help improve the effectiveness of their disclosures: