Category Archives: Securities

Will the House now try to undo SOX?

by Cydney Posner

What’s next for the House after taking on Dodd-Frank in the Financial CHOICE Act? Apparently, it’s time to revisit SOX. The Subcommittee on Capital Markets, Securities, and Investment of the House Financial Services Committee held a hearing earlier this week entitled “The Cost of Being a Public Company in Light of Sarbanes-Oxley and the Federalization of Corporate Governance.” During the hearing, all subcommittee members continued bemoaning the decline in IPOs and in public companies, with the majority of the subcommittee attributing the decline largely to regulatory overload.  A number of the witnesses trained their sights on, among other things, the internal control auditor attestation requirement of SOX 404(b).   Is auditor attestation, for all but the very largest companies, about to hit the dust? Continue reading

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Task force provides framework and guidance for climate-related financial disclosures

by Cydney Posner

The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) has recently issued its exhaustive final report—Recommendations of the Task Force on Climate-related Financial Disclosures—and supporting materials, designed to provide a standardized framework and detailed guidance for “voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders.” To develop its recommendations, the task force spent 18 months consulting with a wide range of business and financial leaders.  According to the press release, “[o]ver 100 business leaders and their companies with a combined market cap of around $3.5tn and financial institutions responsible for assets of about $25tn have publicly committed to support the recommendations.”  The disclosure recommendations are organized around four core elements—governance, strategy, risk management and metrics and targets.  The Task Force also developed supplemental guidance for financial industries along with companies in energy, transportation, materials and building and agriculture food and forest products. This type of information is expected to enable markets to better “price risk” and allow investors to make more informed decisions.  The task force urged companies to include this information as part of their annual SEC or comparable filings to ensure the application of adequate governance processes. Although there is no specific timeframe for adoption, the task force encouraged companies to adopt as soon as possible, keeping in mind that climate reporting will certainly evolve over time. Continue reading

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SEC Chair Jay Clayton discusses principles guiding his tenure at the SEC

by Cydney Posner

In his first public speech as SEC Chair, Jay Clayton outlined for the Economic Club of New York eight principles that he aims to guide his tenure as Chair. In discussing these principles and some ways in which he plans to put them into practice, Clayton seemed to stress the need to focus more intently on the various costs of regulatory compliance—in dollars, in time, in effort, in complexity and in economic impact.  In particular, Clayton drew attention to a reduction in the number of public companies in recent years—a “roughly 50% decline in the total number of U.S.-listed public companies over the last two decades”—attributing the decline at least in part to the expansion of disclosure requirements, in some cases beyond materiality.  To address this issue, he asserted, the SEC “should review its rules retrospectively” from the perspective of the cumulative effect of required disclosure, not just each incremental slice. Finally, he noted that the SEC “has several initiatives underway to improve the disclosure available to investors, “ including implementation of recommendations contained in the SEC staff’s Report on Modernization and Simplification of Regulation S-K (see this PubCo post).  According to Clayton, the staff “is making good progress on preparing rulemaking proposals based on this report….”

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Adding hyperlinks to exhibits

by Cydney Posner

As discussed in more detail in this PubCo post, beginning September 1, 2017, registration statements and periodic and current reports that are subject to the Reg S-K Item 601 exhibit requirements (or filings on Forms F-10 or 20-F) will be required to include, in the exhibit index of these filings, an active link or hyperlink to each exhibit listed, whether or not the exhibit is incorporated by reference. In addition, because the ASCII format supports cross-references but not functional hyperlinks, to enable the inclusion of hyperlinks, registrants will be required to submit these form and report filings in HTML format. Non-accelerated filers and smaller reporting companies that submit filings in ASCII will not need to comply with these requirements until September 1, 2018. Instructions will be included in Chapter 5 of Volume II of the EDGAR Filer Manual, the final version of which will be available around July 17, but for a preview, a draft version (which is subject to change) is available online.

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Form what? CAQ offers help for audit committees in understanding and using Form AP

by Cydney Posner

Remember Form AP? That’s the form that the PCAOB is now requiring audit firms to use to name individual audit engagement partners. The form will also disclose the names and Firm IDs, locations and extent of participation of any other accounting firms, outside of the principal auditor, that participated in the audit, if their work constituted 5% or more of the total audit hours.  (See this PubCo post.) Should companies care? Yes, says the Center for Audit Quality: the disclosures made in Form AP can help audit committee members in satisfying their responsibilities to oversee the engagement audit firm as well as other audit participants.  Continue reading

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Corp Fin posts FAQs regarding extension of process for confidential submission of draft registration statements

by Cydney Posner

On June 29, Corp Fin announced that it was extending the process for confidential submission of draft registration statements, currently available only for IPOs of emerging growth companies, to IPOs of companies that are not EGCs, as well as for most follow-on offerings made in the first year after going public. The extension of this confidential process will allow more companies to defer the public disclosure of sensitive or competitive information until they are almost ready to market the offering—and potentially to avoid the public disclosure altogether if they ultimately decide not to proceed with the offering. The new process will become available on July 10, 2017. (See this PubCo post.) Subsequently, Corp Fin issued a series of FAQs to provide additional guidance.   Continue reading

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You no longer have to be an EGC to…

by Cydney Posner

…submit a confidential draft registration statement for IPOs, as well as for most offerings made in the first year after going public, Corp Fin announced yesterday.  Until now, that beneficial process, first permitted by the JOBS Act, has been available only to emerging growth companies. The extension of this confidential process will allow more companies to defer the public disclosure of sensitive or competitive information until they are almost ready to market the offering—and potentially to avoid the public disclosure altogether if they ultimately decide not to proceed with the offering. According to the press release, the change “will provide companies with more flexibility to plan their offering. The nonpublic review process after the IPO reduces the potential for lengthy exposure to market fluctuations that can adversely affect the offering process and harm existing public shareholders. By requiring a public filing period prior to the launch of marketing, the process incorporates a feature of the EGC review process that provides an opportunity for the public to evaluate those offerings.” The new process will become available on July 10, 2017. Continue reading

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