For those of you who have been waiting for those big changes to Dodd-Frank to materialize, don’t hold your breath; at least as far as the SEC is concerned, the vast majority of those rules are expected to remain in place. In case you missed it, SEC Chair Jay Clayton, speaking at the annual meeting of the WSJ’s CFO Network, said that “regulators are evaluating how postcrisis rules have performed in practice, and that he had concerns about some of the unintended side effects from some regulations. But any changes will be around the edges, keeping the core of postcrisis overhauls in place, he added. ‘I don’t think Dodd-Frank is changing a great deal, just to put a pin in it,’ he said.” And that tinkering may well be focused primarily on bank-related rules. Of course, there’s always the possibility that Congress may act, but so far it’s been all hat and no cattle. Case in point: the much ballyhooed Financial Choice Act of 2017, which passed the House, but went nowhere in the Senate. (See this PubCo post.)
Clayton also continued the usual handwringing about the decline in the number of public companies, especially for small- and medium-sized companies, stressing the importance of the US remaining competitive for listings with other countries. He also discussed the importance of audits, particularly the need to bring international audit standards up to US levels. Although some European regs require mandatory auditor rotation every 10 years, Clayton also noted that “mandatory rotation of company auditors ‘is not something that is front and center in my mind.’” (See this PubCo post.)
Corp Fin Director William Hinman also made an appearance at the meeting. According to the WSJ, he said that his team has looked for areas where the SEC can reduce the burden for companies without disadvantaging investors. With respect to the new revenue recognition rules, Hinman reportedly said that the staff understands that the rule is complex to apply and is focused on helping issuers comply; the staff doesn’t “have a particular agenda or standard comments…We don’t expect to repeat the same comment for five different companies.” He contrasted the staff’s approach to revenue recognition with its approach to compliance with the SEC’s guidance on non-GAAP financial measures or compliance with GAAP, where the staff would often issue standard comment letters.
With regard to Reg S-X Rule 3-13 waivers, Hinman reportedly advised issuers to skip the 30-page treatises; first talk with the staff.
In addition to Hinman, Clayton and others have also encouraged the use of the Rule 3-13 waiver process. In the event that mandated disclosures are burdensome to generate, but may not be material to the total mix of information available to investors, companies can seek waivers under Rule 3-13 to modify their financial reporting requirements. (See this PubCo post and this PubCo post.) Apparently, the process is not often used, but relief is almost always granted, according to the Corp Fin Chief Accountant. However, that may be because companies have been guided in their submissions by the experience of audit firms as to what will fly. Companies were also advised to streamline their request letters to focus on key issues. There’s no harm in asking, and companies should first speak with the experts identified in the Corp Fin Financial Reporting Manual to get a feel for what will work. Expedited turnaround time is around five days. (See this PubCo post.)
Hinman reportedly admitted that he was “embarrassed” that the adopting release attempting to clean up the overlap between SEC and GAAP disclosure requirements is expected to be about 200 pages: “There’s a lot of clean up to be done there.” He’s probably talking about the “Disclosure Update and Simplification Proposing Release,” an interim step in the SEC’s disclosure effectiveness project. When proposed in 2016, the release weighed in at 318 pages, so 200 pages would be an improvement. (See this PubCo post.)