This week, the House passed the “Disclosure Modernization and Simplification Act of 2014.” Among other things, the bill would require the SEC:
- To adopt regs to permit issuers to submit a summary page to the Form 10-K that cross-references to the related material contained in the Form 10-K;
- To revise Reg S-K
- to further scale or eliminate requirements to “reduce the burden on emerging growth companies, accelerated filers, smaller reporting companies, and other smaller issuers, while still providing all material information to investors”; and
- to eliminate duplicative, outdated or unnecessary provisions for all issuers.
The bill also requires the SEC to conduct a study of Reg S-K for the following purposes:
- To determine how best to modernize and simplify requirements to reduce the costs and burdens on issuers while still providing all material information;
- To emphasize a “company by company approach that allows relevant and material information to be disseminated to investors without boilerplate language or static requirements while preserving completeness and comparability of information across registrants”; and
- To “evaluate methods of information delivery and presentation and explore methods for discouraging repetition and the disclosure of immaterial information.”
In conducting the study, the SEC must consult with the SEC’s Investor Advisory Committee and Advisory Committee on Small and Emerging Companies. The report to Congress on the study, due in 360 days after final passage, must include specific recommendations to modernize and simplify Reg S-K. The SEC must then propose implementing rules within another 360 days.
This is the kind of bill that makes you feel sorry for the SEC. In the bill, the 10-K summary is permissive, but there’s nothing currently preventing issuers from including a summary page. What is the point of requiring a rule change? In addition, in light of some of the opaque language used in the bill, interpreting the bill’s intent might present a challenge. Moreover, the SEC is already in the midst of a major “Disclosure Effectiveness” project to revise S-K disclosure, not to mention that just last year the SEC sent a report to Congress under the JOBS Act on modernizing and simplifying Reg S-K. In that light, you might think that requiring the SEC to do another S-K study is just piling on.
The bill has now been referred to the Senate, and we’ll have to wait to see what action, if any, the Senate decides to take on the bill. Hat tip to thecorporatecounsel.net blog for the reference to the bill as passed.