Volume 23, No. 12: The SEC Gets Reflective On Whether Disclosures Are Effective
There’s a long heritage of reviewing the financial statement package at the SEC and it goes something like this: when there’s relative calm in the standard-setting arena, it’s a good time to tinker with the information investors use to make decisions. The Commission’s thinking may not be as overt as “there are no deep flaws in reporting that need fixing, so we might as well rethink the whole package.” Yet with no major accounting or disclosure standards in the offing, it certainly seems like that’s what’s in mind.
In reality, there’s much more going on under the surface. In April 2012, Congress passed the “Jumpstart Our Business Startups Act” – the JOBS Act. That painfully-named law called for the SEC to examine whether reporting requirements were too burdensome for the startups the Act was intended to benefit. The SEC opted for a comprehensive approach to examining its disclosure requirements, which would include all registrants and not just the “emerging growth companies” as defined by the JOBS Act.
Mission creep? It sounds like it on the surface, but the comprehensive approach is better than just targeting certain companies for disclosure relief. With a two-tiered disclosure regime, it would be possible for companies to seek to be covered by the rules most beneficial for them – and that might not be beneficial for investors. What is less clear: what exactly is the mission? There have been hints, but the mission is still a work in progress. Whatever it may be, investors need to stay wary.