The PLI 48th Annual Institute on Securities Regulation conference was held from Nov. 2-4, 2016. Below are some of the highlights from the conference:

  •  SEC Applying Commonsense Approach to Non-GAAP Financial Measures. The Staff of the SEC Division of Corporation Finance stated that it is taking a commonsense approach to non-GAAP disclosures in registrants’ filings. For example, the Staff indicated that:
    • presenting non-GAAP measures without equally prominent GAAP measures in a CEO’s earnings release quote may not violate the equal or greater prominence rule if the rest of the earnings release is balanced, and

    • issuers need not necessarily discuss and analyze GAAP measures each time non-GAAP measures are discussed and analyzed in the MD&A.

  • The Staff also highlighted three areas of concern that may lead to non-GAAP measures being materially misleading:

    • the exclsuion of normal, recurring, cash operating expenses,

    • excluding non-cash charges without excluding corresponding gains, and

    • the use of individual tailored accounting principles.

  • Boilerplate disclosure on Revenue Recognition Is Not Sufficient. SEC Chief Accountant Wes Bricker stated that the Staff expects that 2016 Form 10-Ks will include, at a minimum, qualitative disclosure on the effects of the new revenue recognition accounting standard – even though the standard does not go into effect until 2018. Mr. Bricker warned issuers that, at this stage, boilerplate disclosure indicating that the issuer is still evaluating the impact of the change will not be sufficient in most cases and could trigger an SEC comment. He further clarified that even if an issuer has not yet quantified the impact of the new standard, it should still provide disclosure regarding:

    • the directional effects of the new standard,

    • how it is handling the implementation of the new standard, and

    • the status of the issuer’s implementation plan.

  • Regulation S-K Concept Release. The Staff highlighted some of the comments it received in response to the SEC’s Regulation S-K concept release, including those that suggested:

    • mandating environmental, social and governance (ESG) disclosures,

    • consolidating MD&A guidance in one location and eliminating comparative analysis for the third fiscal year in Form 10-K, and

    • opposing a magnitude/probability risk factor framework suggested in the release and any limitations on length of risk factor disclosures.

  • Stricter Scrutiny for Exclusion of Shareholder Proposals. In light of the upcoming proxy season, the Staff clarified its position with respect to Rule 14a-8 exclusion requests. Specifically:

    • the presence of proxy access in a company’s bylaws does not mean the proposal has been substantially implemented,

    • in response to a request to exclude on vagueness grounds, the Staff will not quibble with mere disagreements over language in the proposal,

    • the materially false or misleading standard will only apply to truly “major” materially false or misleading statements, and

    • the Staff will not object to the use of charts and graphs in shareholder proposals, though issuers may still challenge their relevance in seeking to exclude them.

  • Management Responsible for Going Concern Analysis.The Staff reminded registrants that, effective for the 2016 fiscal year, management, not auditors, will bear the responsibility of assessing whether there is a going concern issue under FASB ASU 2014-15.