The SEC intends to streamline corporate disclosure documents.The Securities and Exchange Commission has issued a proposal that would allow companies to use an abbreviated financial statement in annual reports delivered to shareholders. Companies would still be required to file full financial statements with the SEC that would be provided to shareholders without charge on request. Comments on the proposed amendments are due by October 10, 1995. The SEC said the growing complexity and volume of financial information, particularly that required in footnotes to financial statements, have made the annual report too complicated for general shareholders. The proposal said the simplification should allow registrants to communicate more effectively with shareholders by highlighting key financial items. The proposal also said simplification should reduce the costs of preparing and delivering annual reports. At an open SEC meeting, Arthur Levitt, chairman of the SEC, said the financial statements of one major U.S. company would be reduced from 43 pages to 13 simply by removing the footnotes. However, not all CPAs in industry believe abbreviated financial statements will provide real cost savings. Mary Molloy, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , vice-president of Chase Manhattan Bank The Chase Manhattan Bank, now part of JPMorgan Chase, was formed by the merger of the Chase National Bank and the Bank of the Manhattan Company in 1955. The bank is headquartered in New York City. in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. , told the Journal that an abbreviated financial statement would not be a real benefit to her company from a cost savings standpoint. Instead, Molloy said, abbreviated statements would provide an intangible value to the second tier of financial statement users. "This makes the annual report more readable for investors not interested in in-depth financial statement footnotes," she said. "We still have to do a full statement for the audited financial statements, we have to do all the proofreading Proofreading traditionally means reading a proof copy of a text in order to detect and correct any errors. Modern proofreading often requires reading copy at earlier stages as well. for the SEC form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. filing and we incorporate financial statements by reference today in most of our public SEC filings." James P. McComb, CPA, assistant controller of CSX corporation CSX Corporation NYSE: CSX was formed in 1980 by the merger of Chessie System and Seaboard Coast Line Industries and eventually merged the various railroads owned by those predecessors into a single line that became known as CSX Transportation. in Richmond, Virginia, said the abbreviated statements would not benefit his company because it already prepares a fully integrated annual report and form 10-K in one document. "We have addressed all the SEC requirements in the footnotes or the management's discussion and analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial ," McComb said. "It is a 36-page document with which we are very comfortable." What's in the new statement? The cover of an abbreviated financial statement would have to include a prominent statement identifying it as abbreviated. It would have balance sheets, statements of income and cash flows and statements of changes in stockholders' equity Stockholders' Equity The portion of the balance sheet that includes capital received from investors in exchange for stock (paid-in capital), donated capital, and retained earnings. This is equal to total assets minus liabilities, preferred stock and intangible assets. that conform to generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting and regulation S-X S-X Sex . Disclosure required in the notes to the abbreviated financial statements would include * The registrant's significant accounting policies. * Certain matters materially affecting the comparability of amounts reported in the financial statements. * Circumstances identified in explanatory language added to the independent accountant's report, contingencies, loan defaults and subsequent events. * Related party transactions. Safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provision The proposed rule includes a safe harbor provision that says the abbreviated financial statements aren't materially misleading or don't omit a material fact simply because of what they exclude under the provision. The safe harbor would cover cases in which, for example, an investor claimed the abbreviated document failed to include information in the full financial statement. Executive and director compensation disclosure The SEC also proposed reducing the executive compensation information provided in the annual proxy and information statement by allowing some of the more detailed disclosures to be provided in the annual report on form 10-K or 10-K SB filed with the SEC. Under the proposed rules, companies could remove the following information: * Option exercises and fiscal yearend option holdings. * Long-term incentive plan awards tables. * Defined benefit or actuarial plan disclosures. * Employment contracts and termination of employment "Fired" and "Firing" redirect here. For other uses, see Fired (disambiguation) and Firing (disambiguation). “Gross misconduct” redirects here. For the ice hockey term, see Penalty (ice hockey). and change-in-control arrangements. * Reports on repricing Repricing To change the price of an asset. In derivatives, it sometimes refers to the exchange of options of with different strike prices. repricing of options. The proposal calls for presentation of several common elements of director compensation in tabular format, including retainer and meeting fees and stock and option awards. Help for small businesses Another proposal for comment is designed to reduce reporting burdens on small businesses by doubling the asset threshold that subjects companies to registration and periodic reporting under the Securities Exchange Act of 1934 to $10 million. The SEC proposal said "the commission has long recognized that the cost of compliance with Securities Exchange Act reporting requirements is relatively greater for small companies than for larger ones." Under the new requirements, an issuer would not be required to register under section 12(g) until it had 500 or more record holders of a class of equity securities and total assets of $10 million or more. Copies of the SEC proposals can be obtained by calling the commission at (800) 732-0330. For further information on the SEC proposal on abbreviated financial statements, contact Elizabeth M. Murphy or William B. Haseltine at (202) 942-2910. |
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