By Farah Merchant, Business Wire
SEC Chair Mary Jo White recently issued a staff report to Congress on disclosure reform initiatives. The report, mandated by Congress in the 2012 Jumpstart Our Business Startups (JOBS) Act, offers an overview of the SEC’s Regulation S-K.
Regulation S-K pertains to disclosure, and first applies to companies upon IPO that register with the SEC using form S-1, and refers to ongoing reporting requirements in Forms 8-K and 10-K.
White’s primary concern is the risk of information overload to investors, and she defined information overload as, “a phenomenon in which ever-increasing amounts of disclosure make it difficult for an investor to wade through the volume of information they receive to ferret out the information that is most relevant.”
She believes the guidance needs to be updated as there is repetition in disclosure, where certain items appear in more than one section, i.e., information on legal proceedings that appears in its own section but also in the notes to financial statements, risk factors and MD&A.
White addressed the need for input from market participants for the following proposed recommendations:
- Recommending that companies file a “core document” or “company profile” with information that changes infrequently (needs to be reworded)
- Amending the filing process by streamlining and simplifying disclosure requirements to reduce administrative costs
- Researching ways to enhance the presentation and communication of information; and to use technology to address these issues
Click here for a copy of the full SEC report.
Is less disclosure more helpful or harmful to investors?
According to a recent Fortune article, the early opinion on the street is that although the disclosure requirements of the SEC may need an updated and possible streamlining, the information currently available is useful and helpful.
Although it may be true that not all investors read a filing in full, there are many that do, as the full filing provides insight on investment and voting decisions. By having more information available, investors feel that they can be more diligent in assessing risks. If nothing else, the recent financial crisis has taught investors a valuable lesson and that is to be more informed, more educated and to not discount risks.
So already we have a difference of opinion. On one hand you have the SEC looking to ‘simplify’ their disclosure process, with the possibility of reducing the amount of information necessary for companies to meet disclosure requirements. On the other hand, you have the street, which at first blush is more than happy with the amount of content and would be happy to receive even more granular details.
So where do you stand on SEC disclosures: More, less, or just right?