GAO issues annual report on conflict minerals filings in 2017
Under Dodd-Frank, the GAO is required to assess annually the effectiveness of the SEC’s conflict minerals rules in promoting peace and security and to report on the rate of sexual violence in the DRC and adjoining countries. The GAO has released its annual study on conflict mineral disclosures filed with the SEC in 2017. The report is based on a random sample of 100 Forms SD, interviews with company representatives and other stakeholders.
Right after celebrating its second birthday, proposal to change the definition of “smaller reporting company” is adopted (updated)
[This post has been updated to reflect the adopting release, which has now been posted here, as well as posted statements from the Commissioners.] The pressure has been coming from all directions—the Congress, the Treasury—indeed, there’s been nary an advisory committee that hasn’t weighed in on this topic: time for the SEC to change the definition of “smaller reporting company.” After all, the proposal has just celebrated its second birthday—has it aged like a fine wine or is it moldy and stinky like an old piece of cheese? The verdict: moldy cheese that made no one happy, but they all ate it anyway.
SEC proposes changes to its whistleblower program
Yesterday, the SEC voted (by a vote of three to two) to propose amendments to the rules related to its whistleblower program. According to Chair Clayton, the program has been a resounding success in providing incentives to individuals to blow the whistle on wrongdoing. The press release reports that “[o]riginal information provided by whistleblowers has led to enforcement actions in which the Commission has ordered over $1.4 billion in financial remedies, including more than $740 million in disgorgement of ill-gotten gains and interest, the majority of which has been, or is scheduled to be, returned to harmed investors.” The proposal is intended to improve the program by increasing efficiencies and providing more tools and more flexibility to the SEC, enabling the SEC to adjust, within certain limitations, the amounts payable as awards under the program. The amendments also modify the requirements for anti-retaliation protection to conform to SCOTUS’s recent decision in Digital Realty v. Somers (see this PubCo post).
SEC adopts mandatory Inline XBRL
This morning, the SEC voted (by a vote of four to one) to adopt rules mandating the use of Inline XBRL (eXtensible Business Reporting Language) for the submission of financial statement information for operating companies. The rulemaking is part of the SEC’s disclosure modernization initiative. For the most part, the Commissioners showed a lot more enthusiasm for this proposal than for the changes to the definition of “smaller reporting company” also adopted earlier today. (See this PubCo post.)
On its second birthday, proposal to change the definition of “smaller reporting company” is adopted
The pressure has been coming from all directions—the Congress, the Treasury—indeed, there’s been nary an advisory committee that hasn’t weighed in on this topic: time for the SEC to change the definition of “smaller reporting company.” After all, today is the second birthday for this proposal—has it aged like a fine wine or is it moldy and stinky like an old piece of cheese? The verdict: moldy cheese that made no one happy, but they all ate it anyway.
This morning, the SEC unanimously voted to amend the definition of “smaller reporting company” to allow more companies to take advantage of the scaled disclosures permitted for companies that meet the definition. (Here is the press release.) The amendments raise the SRC cap from “less than $75 million” in public float to “less than $250 million” and include as SRCs companies with less than $100 million in annual revenues if they also have either no public float or, in a change from the proposal, a public float that is less than $700 million. The change was intended to promote capital formation and to reduce compliance costs for small public companies. (The SEC also voted to mandate Inline XBRL and to propose a number of changes to the whistleblower program, but those will be covered in subsequent posts.)
A tiny nugget from the SEC’s new FOIA rules
Yesterday, the SEC posted final amendments to its rules related to FOIA, the Freedom of Information Act, to conform to the FOIA Improvement Act of 2016 and to otherwise update and streamline the regulations. The changes will become effective 30 days after publication in the Federal Register. Due to the scope of the amendments, these final FOIA rules replace the SEC’s existing FOIA rules in their entirety, revamping the organization of the rules. What does that mean? It means that your standard form FOIA SEC rule references are probably soon to be out of date.
Audit Analytics reviews financial restatements in 2017
Audit Analytics has published its annual review of financial restatements, which this year covered a 17-year period. The review showed a double-digit percentage decline in the total number of restatements for the last three years in a row, resulting in a new 17-year low of 553 total restatements. Compare that to 1,859 restatements in 2006! As discussed in this article in Compliance Week, the percentage decline was 19% in 2017, 10% in 2016 and almost 12% in 2015. Stepping back, what the data shows is that, following SOX, the number of restatements skyrocketed, as the new act imposed “new discipline to the financial reporting process through its requirement to report on the effectiveness of internal control over financial reporting.” But by 2007, companies seemed to have gained a better handle on the demands of SOX, as the numbers of restatements began to decline.
SEC to vote next week on raising the public float cap for smaller reporting companies and mandatory Inline XBRL
The SEC has noticed an open meeting for next week. Among the matters on the agenda:
whether to adopt amendments to the definition of “smaller reporting company” and other rules and forms in light of the new definition; and
whether to adopt amendments requiring the use of the Inline XBRL (eXtensible Business Reporting Language) for the submission of financial statement information.
SEC releases strategic plan
Yesterday, the SEC released for public comment a draft of its proposed strategic plan, which outlines the SEC’s priorities through FY 2022. The plan identifies three strategic goals related to investors, innovation and SEC performance. According to the press release, the plan “highlights the SEC’s commitment to serving the long-term interests of Main Street investors; becoming more innovative, responsive, and resilient to market developments and trends; and leveraging staff expertise, data and analytics to bolster performance.” While not exactly long on detail, the plan does provide a general idea of SEC priorities.
Should the prospect of CAM disclosures cause audit committees to rethink company disclosures?
What are auditors and audit committees doing to get ready for the impending disclosure of CAMs in audit reports ? You remember that, under AS 3101, the new auditing standard for the auditor’s report, auditors will be required (in 2019 for large accelerated filers and phased in for others) to include a discussion of “critical audit matters,” that is, “matters communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involved especially challenging, subjective, or complex auditor judgment.” (See this PubCo post.) Essentially, the concept is intended to capture the matters that kept the auditor up at night, so long as they meet the standard’s criteria. The selection of and disclosure regarding CAMs will certainly present a challenge for both audit committees and auditors. This article from Compliance Week reports that, beyond that challenge, the prospect of CAM disclosure should precipitate a reassessment by audit committees and companies of related corporate disclosure to ensure that companies stay ahead of the curve.
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