It is generally accepted that, year after year, public company disclosure grows in length and complexity. Companies tend to expand their existing disclosure by incorporating new information while retaining disclosure that may no longer be relevant or material. Likewise, few companies can claim to have maintained disclosure free of immaterial or boilerplate information. As a result, investors, regulators and other market participants have routinely expressed concerns regarding the difficulty in deciphering and navigating public company disclosure documents. In response, the U.S. Securities and Exchange Commission initiated a comprehensive analysis of its disclosure rules in order to recommend changes for more effective disclosure. This article discusses the SEC’s disclosure effectiveness initiative as well as recommendations made by the SEC for companies to consider implementing while the initiative is ongoing.
Disclosure Effectiveness Initiative
The SEC’s focus on disclosure effectiveness originated from a December 2013 study by the commission staff of the disclosure requirements in Regulation S-K, which was mandated by the Jumpstart Our Business Startups Act of 2012. In the study, the staff recommended that the SEC conduct a comprehensive analysis of its disclosure requirements for the purpose of improving disclosure, primarily focusing on the business and financial disclosures required under Regulation S-K and Regulation S-X. This analysis is currently under way, and the SEC has formed teams within the Division of Corporation Finance dedicated to reviewing specific disclosure requirements to identify potential improvements. The SEC has also established a spotlight page on its website to provide updates regarding the initiative. The spotlight page is available at http://goo.gl/jgQuNu. The SEC requested that companies, investors and other market participants submit comments through the spotlight page regarding how to make disclosure more effective.
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