SEC Solicits Comment on Disclosure Effectiveness

For years, the SEC staff has been urging companies to make reports shorter and more readable and has been previewing potential changes to its primary disclosure regime, Regulation S-K. In April, the SEC delivered a much-anticipated 341-page concept release, which is a precursor to rulemaking. The SEC requests public comment on 340 numbered questions and many more additional sub-questions regarding the presentation of business and financial information.

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Reconsidering the Concept of Quarterly Reporting

Included in the SEC’s concept release on Regulation S-K disclosure is an inquiry into the value of quarterly reporting and whether quarterly reports should be discontinued or made voluntary for U.S. public companies. According to the SEC, “Opponents of quarterly reporting argue that frequent financial reporting may lead management to focus on short-term results to meet or beat earnings targets rather than on long-term strategies.”

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Non-GAAP Financial Measures in the Spotlight

Non-GAAP financial measures, such as EBITDA and free cash flow, are used by a significant number of public companies in their periodic reports to supplement and explain financial statement data. During the past year, however, the SEC has been issuing comment letters regarding non-GAAP financial measures and has repeatedly expressed concerns about potentially misleading presentation techniques.

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Higher Crowdfunding Thresholds Suggested

Beginning May 16, 2016, new rules (known as Regulation Crowdfunding) will permit individuals to make small investments in securities offered by U.S. businesses on the Internet without meeting any financial or sophistication test. In order to increase the utility of these rules, U.S. Representative Patrick McHenry recently introduced legislation to raise from $1 million to $5 million the amount that companies may raise through crowdfunding offerings in a 12-month period, which is in line with an amendment previously proposed by the SEC.

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The Ticker shares recent developments in SEC compliance, capital markets, corporate governance, executive compensation and other matters important to public companies and their officers and directors.  It is published by Fredrikson & Byron’s Public Companies Group.