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Concept release commentiii

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Concept release comments, Disclosure effectiveness initiative. SEC reporting, Securities Regulation

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Concept release commentiii

  1. 1. CONCEPTRELEASE: BUSINESSAND FINANCIALDISCLOSUREREQUIREDBY REGULATION Request comment number Personal comments 67 Item301 isimportantto investors. Ido not know whyfive yearinformationonthe table,4or 3 yearswill not hurt 68 We can afford to eliminateitem301because of 3rd party offerof thistable. Itseliminationwill notincrease itscosts to investorsbecause itwillbe available online maybe forfree. Noadditional effortwill be provided to access thisinformationforfree 69 If we retainit, SEC shouldmodifyitwithafew yearsandreducedinstruction2to abide toinstruction1 ’the purposeof theselected financial data should beto supply in a convenientand readableformatselected financialdatawhich… ‘ 70 The problemof 5 yeartrendis that the item303 doesnot longerprovide inpractice 5year trenddisclosure, one of themshould. If 5 year periodisappropriate,there isnowaywe wouldeliminate thisdisclosure. Reductionof instruction2can improve the quality,desirability andattractivenessof thisitem(301) 71 No,we shouldnotrevise item301 to provide asimilaraccommodationforEGC and small businessbecause of lackof reliable informationandrapidgrowth 72 No, SEC shouldnotrequire item301 underthese circumstances 73 No, SEC shouldfocusonmakingcurrent disclosure desirable and attractive toinvestorswhentheyare makinginformedvotingandinvestmentdecision 74 Sophisticatedinvestorsare more likelytovalue item301 75 Withthe rightautomaticsystem, providingthisdatawill notrequire toomuchefforts 76 Instruction2 doesnotprovide the neededdisclosure. We shouldmodifythisitemtoincludeaflexible approach focusingonvoluntarydisclosure while providingthe reasonforchoosingeachitemfordisclosure. 77 We don’tneedapreferabilitylettersignedbyanyauditornotbecause itwill increase disclosure costsbut alsoit will be avoluntarydisclosure withsomelimitations 78 Listingof specificitemsof disclosure oninstruction2impactsthe way the registrantwill provideits disclosure. Itshowsthattheyare all requiredasa checklist. Itmustaddressitsdisclosure toall of these itemswitha prescriptiveapproach. 79 We shouldretain302 (a) while removing302 (a)(1) 80 It isimportantto the investingpublicbeside item(302)(a(1),the restisnotthat duplicative itiswhyitshould not be classifiedinthe removallist. 81 Investorsstill needinformationaboutpatternof corporate activitieswithtrendoverregistrantsegments 82 I objectto the auditorinvolvementanditspreferabilitylettersorreview will increase the costsof disclosure 83 Investorsuse some of the items302 (a) disclosure 84 Sophisticatedinvestorsvalue more thiskindof disclosure (item302(a)) 85 Item302 disclosure increasescostsof disclosure butithelpsinvestorsassessitssegments 86 The financial costswoulddecrease withthe eliminationof item302 butinvestors maynotbe informed effectivelytoassesssegments 87 Wouldinvestorsassesseffectivelysegmentswithoutitem302information,Idonot know the answerto that question 88 All item303 requirementsare importanttothe investingpublic. Itiswhy MD&A isthe nucleusof the full disclosure (10-K,10-Q). You cannotbe more informedabout10-Kor 10-Q if youdidnot read and understandthe discussionandanalysisof the MD&A. It is whyMD&A is the numberone frequently commentspartof the disclosure (44%). We can improve the quality anddesirability of MD&A by limiting aggressive language style andmakingsure thatregistrantsfollow aprescriptivecheckliststyledisclosure.
  2. 2. 89 The current disclosure focusonregistrantfinancial conditionandresultsof operation. Materiality standard isworking. It iswhyI believe the adoptionof othermethodsincludingthresholds(beenthere)willreduce the flexibilitythe registranthasnow inwritingitsanalysisfromthe eye of itsmanagement 90 Yes, SEC shouldconsolidate all the guidance relatedtoMD&A as a workshopforwriters,managementand regulators. Thisworkshopwill be afacilitator,youmustrememberthatMD&A ispresumed tobe writtenby managementof the registrant. Itdoesnotmatter whoisthe ghostwriter 91 I believeitwill be bettertorevise rulestorequire anexecutivelevel overview. Itwill be goodforthe registranttofollowachecklistwithacertainpresetsizesforvoluntarydisclosure 92 Like I didsay, the checklistcanhelptoreduce duplicativedisclosure 93 If we wantinvestorstogeta meaningful analysisinMD&A a combinationof eliminationof aggressive language style,prescriptive checklistorienteddisclosure andprescriptivesize forvoluntarydisclosure can help 94 Both sophisticatedinvestorsandreasonable investorsare takingtimestoreadMD&A. Whenitis to quantitative,sophisticatedinvestorsare more likelytovalue thatpart 95 I do notknowif taggedformatwill be better 96 A MD&A is a legal documentwrittenbythe management of the registrant,once auditorgetsinvolvedinthis part of the disclosure itwill notonlyincreasethe costof the disclosuresbutalsoshiftorshare liability 97 Item303 isexpensive anditcomeswithnon-financial andfinancialcosts. Ibelievethe reputationof the whole discussionisinline if the managementanalysiscanconflictwiththe otherpartsof the discussion creatingchallengestothe full disclosure. 98 Item303 helpsmanagementtell itsstoryof itsfinancial healthandoperation. Thisisthe testfor the management,testsof fairnessandtransparency 99 The two steptestfor disclosure of aknowntrend,demand,commitment,eventoruncertaintywill require a material testtoresultinthe most meaningfulforwardlookingdisclosure. The eventis‘reasonable likely’to occur whenthere isthe chance of the future eventoccurringismore than remote butlessthanlikely 100 Yes,we shouldrevise the twosteptest toconsiderrequiringadisclosure whenatrend,eventoruncertainty ismore likelythannotprobable orreasonablypossible tooccurrather than‘reasonablylikely’tooccur 101 SEC shouldrevise item303to incorporate the probability/magnitude standardfrom‘Basicv.Levinson’,itwill turnoutlike disclosurewhenatrend,eventoruncertaintyismore likelythannot,probable orreasonably possible tooccuror withtwo part test 102 It will make sense torevise item303 to specificallyrequire registranttothe extentpracticable,toquantify the material effectsof knowntrendsanduncertaintiesaswell asthe factorsthatcontributedtothose known trendsand uncertainties. Bydoingso,registrantwill share toolsitdiduse initsanalysis,itisprobable that some readerswill notshare the registrant’sconclusionbuttransparencywillprevail becauseitprovidesan understandingof the management’sanalysis 103 No,I believethatwe shouldrevise item303 to include aprescriptive checklistregistrantwill use intheir disclosure 104 Yes, SEC should require disclosure of anycommentary,analysis,performance indicatorsorbusinessdrivers relatedtoa registrant’skeyindicators. Ibelieve prescriptivechecklistcoupledwithprescriptive sizefor voluntarydisclosurewillbe more appropriate. 105 Reasonable investorswill value more industryspecifickeyperformance indicators 106 Managementiswell positioned whenitcomestothe identificationof standardizedperformance metric across an industry 107 SEC shouldretainaperiodbyperiodcomparisonprovidedinthe MD&A inorderto show changesfrom previous periods 108 Additional disclosuresaboutregistrant’sresultsof operationsare warranted. Forinstance,social mediacan provide factorstheyuse todetermine thatone userdoesnothave several accounts
  3. 3. 109 As farI am concerned,the 3 yearscomparisonismaterial informationtothe investingpublic. Itiswhythere isno needforchange. Whenit comesto comparison,the highestthe numberof yearsthe betterreaders and investorswillunderstand thistrend 110 SEC can allowregistrant’scrossreferencethe earliestof the 2 periods 111 Year to yearcomparisonmakesiteasyto understandthe trendandperformance of the registrant,itiswhy registrantsrelyonthismethod. Theyare formatsor presentationsthatcouldresultinadiscussionand analysisof the material informationnecessarytounderstandthe registrant’sprospectsforthe future. Itis betterfora registranttoprovide the yeartoyear comparisonina standardizedtabularformat. 112 Item303(a)(3) doesnotprovide useful informationaboutregistrantsthathave notyetgeneratedrevenueor begunoperations. 113 A separate disclosure willprovideaclearpicture of the liquidity,capital resourcesandprospectus of the future 114 Registrantsmustbe requiredtoprovide aseparate disclosureof the liquidityanditscapital resources. Doing so will encourage registranttodisclose if ittracksanyknowntrends,demands,events,commitmentor uncertainties developingthatiscausingamaterial impacton future liquidity 115 It isnet cash providedbyoperatingactivities,netcashused ininvestingactivitiesandnetcashprovidedby financingactivities. Definingthe term‘capital resource’willbe helpful forregistrants. Noall registrants currentlyinterpretthe term‘capital resources’includingfundscommittedfrommaterial capital expenditures and the sourcesof those funds. 116 I do notthinkso 117 Fiscal yearand interimperiods,Ibelieve these periodsare enough. Developmentsinthe mostrecentfiscal yearis not sufficienttoconstitute atrendasthe termisusedin item303 118 A sensitiveanalysisinthe discussionanalysisof liquidityandcapital resourcescanbe requiredforthe fiscal yearperiod 119 Registrantscanprovide additionalmeasuresof intraperiodliquiditywithaverage quarterlyliquidityorother measurescharts 120 Registrantmustbe requiredtoprovide liquidityriskmanagementpoliciesandmore 121 Disclosure aboutregistrantsreliance onshorttermborrowingisnotclarifybyitem303, registrantsmust describe all the sourcesof itsshort(long) termfunding(borrowing). 122 Yes,short termborrowingdisclosure 2010 proposal shouldbe revisited. Itwill resultinadditionaldisclosure, quantitativelyandqualitativelyof the shorttermborrowing 123 SEC shouldconsiderdifferentdisclosure requirementsforfinancial institutionsversusnon-financial institutions 124 Tabularrepresentation, chartingorgraphical representationof the shorttermborrowingdisclosure can increase the quality,desirabilityandattractivenessof thisdisclosure 125 Item303 (a)(4) isimportanttoinvestors 126 SEC shouldretain itthe wayit is. Yes, SEC shouldalsorevise itsrulestorequire registrantstoanalyze the risksand financial potential associatedwithoff balance sheetarrangements 127 The locationof thisdisclosure isnotimportant,itcan stay where itisbuttheyare a lot of challenges associatedwithauditingthisinformation 128 It will be verycostlytocompletelyeliminatingitem303(a)(3 129 Registrantcan provide disclosure aboutmattersthatwill resultinorisreasonablylikelytoresultinthe terminationormaterial reduction inthe availabilityof material off balance sheetarrangementstothe registrantsandthe course of action the registranthas takenor proposestotake to addresssuch circumstances 130 SEC shouldnotrequire additionaldisclosure of off balance sheetarrangementsthatoccurredduringa reportingperiodwithexhibit
  4. 4. 131 The table of contractual obligationprovidesmeaningfulinformationtoitsinvestors. There isnotenough room forimprovementtothistable. 132 SEC shouldrequire narrative disclosure toaccompanythe tabulardisclosure includingdiscussinghow registrantplanstomeetcurrentand future obligation 133 It doesnotmatter the location,comparabilityamongregistrantsisstillthe goal of investorinmaking on informed investmentdecisionandregistrantinevaluatingitsownperformance inthe peercompetition. A narrative disclosure canaddquality,desirabilityandattractivenesstothe disclosure andimprove readers abilitytounderstandthe disclosure 134 SEC shouldnotenhance item303(a)(5) byincludingothercategoriesof contractual obligationtothe 5 requiredcategories 135 Footnote disclosurecanprovide additional guidance suchasinterestpayment,repurchase agreementsortax liabilities 136 I do notbelieve that revisitingitem303 (a)(5) torequire registranttoseparate amountsinthe table of contractual obligationintothose thatare reflectedonthe balance sheetwill addquality,desirabilityand attractivenesstothe disclosure 137 Yes,SEC shouldrevise item303 to require disclosure aboutcritical accountingestimatesbecause this informationisimportanttoitsinvestors 138 SEC can use 2003 MD&A interpretive releasetodefine ‘critical accountingestimate’ 139 Registrantsrepeatthe discussionof accountingpoliciespresentedinthe notestothe financial statement because of lackof prescriptive checklistsguidance. Itwill helpthemtoavoidthisrepetition 140 2003 MD&A interpretive Release definitionof critical accountingestimatesisimportanttothe investing public. If it isincorporatedintoRegS-Kitwill be better 141 For competitivereason,SECshouldadoptpresumptiverequirementsrelatingtocritical accounting estimates. SECcan designand adopta prescriptive requirementsrelatingtocritical accountingestimates afterrevisitingcurrentissuesand rulemaking projects2001. Theyare accountingestimatescommontoa particularindustrythatare critical to all participantsinthatindustry (estimateonprice pershare of the currentperiods ) 142 SEC shouldrequire the disclosure of management’sjudgment(how didtheyassessmateriality) and estimatesthatformthe basisforMD&A disclosure 143 SEC shouldrequire managementtodisclosethe nature of itsassessmentsof errorsthatitdeterminedtobe material 144 SEC shouldrequire disclosure of othercritical accountingestimatessuchasthose that impactothermetrics or measures(numberof newcustomers,numberof subscribers,…)

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