Perspectives

Increasing disclosure effectiveness

Breaking down financial statement disclosure requirements

Forward-looking organizations aren’t waiting for the SEC’s disclosure effectiveness initiative to be finalized to start making their filings more clear, focused, and insightful. Learn the five actions you can take today to bring your company’s disclosures in line with the higher regulatory expectations coming in the future.

Keeping up with financial statement disclosure requirements

The SEC’s disclosure effectiveness initiative is aimed at easing the compliance burden for SEC registrants while making disclosures more meaningful for investors. The focus is on two federal securities laws, Regulation S-K and Regulation S-X, that inform registrants about disclosures required in their filings. So far, the effort has resulted in a number of final amendments that have recently gone into effect, as well as a series of proposed amendments that are under evaluation today.

While the rule changes are helpful and provide registrants more flexibility to tailor their disclosures, CFOs needn’t wait for regulatory action to improve the way they’re communicating to investors. Already, certain organizations are taking the SEC’s cue and tightening up their filings for clarity, focus, and insight.

Five actions CFOs can take now to make financial disclosures more meaningful to investors

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).

Understanding the needs of your company’s stakeholders and how your company communicates with them allows you to tailor your disclosure goals.

Get a jump on disclosure effectiveness

The SEC’s disclosure modernization effort is 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.

Learn more about SEC reporting services

The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances.

This article contains general information only and Deloitte is not, by means of this article, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional adviser. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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