Increasing disclosure effectiveness

Keeping up with financial statement disclosure requirements

The SEC’s disclosure effectiveness initiative aimed at easing the compliance burden for SEC registrants while making disclosures more meaningful for investors. The focus was on two federal securities laws, Regulation S-K and Regulation S-X, that inform registrants about disclosures required in their filings. The effort resulted in a number of amendments.

The rule changes are helpful and provide registrants more flexibility to tailor their disclosures, and many CFOs have taken the SEC’s cue and tightened up their filings for clarity, focus, and insight.

Five actions you can take now with your organization’s disclosures

1. Evaluate your disclosure goals: Tailor them based on an understanding of stakeholder needs and how your company communicates with them.
2. Analyze your disclosures against those from peer companies: Use analytics tools for a data-driven view of disclosure effectiveness and evaluate results that are outliers as potential opportunities for improvement.
3. Stick to what matters: Consider what your investors need to know in the context of your disclosure goals while turning a critical eye toward your existing disclosure documents to enhance or pare back content.
4. Reduce repetition: Reduce extraneous information that can confuse investors and distract them from what’s important.
5. Make use of visualization: Use charts, tables, and other visuals, including structured text such as text boxes and bulleted lists, to help investors home in on key information in your management discussion and analysis (MD&A).

Get a jump on disclosure effectiveness

The SEC’s disclosure modernization effort was more than a set of specific rule changes. It’s a challenge to rethink how corporate filings can become sleeker, more intuitive, and more attuned to what investors need while confirming that all material information is provided to investors. Where can public company CFOs take it from here?

• With the current environment potentially causing significant resource constraints, such as budget cuts and headcount reductions, the importance of focusing on what matters increases. CFOs can save costs, reduce preparation and review time, and perhaps even enhance controls over specific data and disclosures.
• Consider engaging internal and external assistance. Between those resources and the management team, you’ll want to nail down what’s important to your company and your investors.
• Keep in mind that the SEC’s updates have been concurrent with comparable updates that the Financial Accounting Standards Board (FASB) has been making to US GAAP. It may be appropriate to evaluate your filings—financial statements and information outside them—for user-friendliness as well as compliance with the rules.
• Reevaluate the push for disclosure effectiveness in light of a principles-based approach. Prescriptive rules may not be popular—nor always effective—but they can provide a degree of certainty. As regulatory bodies ease away from them, however, organizations likely will have to step up with a culture of mindfulness that accentuates the spirit of each underlying rule.

Regulators and standard-setters are busy making changes at their end. CFOs and the organizations they represent can meet them halfway by telling a focused, insightful story of their vision and results, as well as their inextricable link to the business they’re in.