You’ve got to just love the irony: the SEC’s amendments mandating the use of Inline XBRL aren’t even effective yet, and experts at an accounting conference have declared XBRL “nearly useless as an investment tool,” and “all but unnecessary.”
A couple of years ago, the SEC made a big push—through a series of staff oral admonitions and written guidance, as well as one enforcement action—toward requiring issuers to be more transparent and more consistent in the use of non-GAAP financial measures and to avoid altogether non-GAAP measures that were misleading. For example, companies were advised that they needed to present GAAP measures with equal or greater prominence relative to the non-GAAP measures. (See, e.g., this PubCo post.) And, as this article revealed, according to Audit Analytics, in 2016, over 25% of the companies in the S&P 500 index had shifted their presentations to put GAAP at the top of their quarterly earnings releases and 81% made GAAP numbers most prominent, compared with only 52% for the prior quarterly earnings releases. (See this PubCo post.) By the end of 2017, the SEC was apparently sufficiently satisfied with the response that the pendulum had swung back, and there was less staff focus and comment on non-GAAP financial measures. (See this PubCo post.) But is that really the end of the story? How “good” are the numbers that are fed to investors?
In October 2017, the SEC approved the PCAOB’s new auditing standard for the auditor’s report, AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, which will require auditors to include a discussion of “critical audit matters.” Given that, for larger companies, CAM disclosure is almost right around the corner, the Center for Audit Quality has made available this new resource, Critical Audit Matters: Key Concepts and FAQs for Audit Committees, Investors, and Other Users of Financial Statements, to help audit committees, investors and other users of financial statements to better understand the concept of CAMs.
Even though the SEC did not have an open meeting to consider its new proposal to amend Rules 3-10 and 3-16 of Reg S-X (see this PubCo post), Commissioner Kara Stein decided nonetheless to release a public statement about the proposal. While she voted in favor of issuing the proposal, she had some serious reservations.
SEC proposes to amend financial disclosure rules related to guaranteed or collateralized debt securities
Yesterday, the SEC voted to propose new amendments to Rules 3-10 and 3-16 of Reg S-X intended to streamline the financial disclosure rules related to registered debt offerings that involve guaranteed or collateralized securities. The proposed amendments to Rules 3-10 and 3-16 are “intended to provide investors with material information given the specific facts and circumstances, make the disclosures easier to understand, and reduce the costs and burdens to registrants.” Chair Jay Clayton is quoted in the press release as having “seen firsthand instances in which an issuer did not pursue SEC registration of a debt offering that included a subsidiary guarantee or pledge of affiliate securities as collateral because of the costs and, in particular, time burdens of these rules….The proposed rules are intended to make the disclosures easier for investors to understand and to encourage these offerings to be conducted on a SEC-registered basis.”
Will there be a JOBS Act 3.0? The JOBS and Investor Confidence Act of 2018 just passed the House by a vote of 406 to 4, so, even though Senators may often be chary of jumping on the House bandwagon—remember the doomed Financial Choice Act of 2016 and then 2017— the overwhelming and bipartisan approval in the House still makes the odds look better than usual.