On its own initiative and pursuant to laws enacted in the past few years, the Securities and Exchange Commission has initiated a program to review and revise its disclosure rules to eliminate outdated or duplicative rules, integrate overlapping rules, and simplify disclosure requirements. After soliciting public comment, the SEC has proposed its first set of rule changes.
These principally technical proposals arise from line-by-line comparisons of certain provisions of the SEC’s textual disclosure and financial statement regulations with U.S. generally accepted accounting principles (GAAP). In many cases, the SEC proposes to eliminate or modify its rules in favor of the same or substantially similar GAAP requirements.
Some of these changes would cause information that previously appeared in both the textual portion of a disclosure document and in the financial statement notes (and, in a few cases, in the textual portion only) to appear in the financial statement notes only, possibly affecting the prominence of the information. In addition, the SEC observed that information moved from the textual portion to financial statement notes would lose the statutory safe harbor for forward-looking statements, possibly deterring companies from voluntarily updating the information. It’s unclear, however, whether companies frequently rely on the safe harbor to update the kinds of information involved, such as dividends, R&D and seasonality.
Also, GAAP is not scaled for smaller reporting companies, so SRCs could be required to make disclosures not currently required under SEC rules, for example, regarding interim reporting of retroactive prior period adjustments and common control transactions or major customers.
Disclosure requirements that the SEC proposes to delete as outdated include:
- Ratio of earnings to fixed charges.
- Stock price disclosure.
- Foreign issuer currency exchange rate information.
- Development stage company cumulative financial information from inception.