Academic journal article Journal of Accountancy

SEC Advisory Committee Issues Report on Capital Formation, Calls for More Intensive Disclosure

Academic journal article Journal of Accountancy

SEC Advisory Committee Issues Report on Capital Formation, Calls for More Intensive Disclosure

Article excerpt

The Securities and Exchange Commission Advisory Committee on the Capital Formation and Regulatory Processes, chaired by SEC Commissioner Steven M. H. Wallman, released its final report on modernizing the disclosure process for registered companies. The report reexamines the registration regulations under the Securities Act of 1933 and recommends changes that would strengthen investor safeguards and reduce regulatory burdens.

The advisory committee recommended changing the current shelf-registration method (which requires periodic registration of equity or debt issues) to a company-based registration system--a one-time registration of eligible companies that would encompass all securities they or their affiliates might sell or offer. Wallman told the Journal that both issuers and investors would benefit from the change because it would speed companies' access to the market while enhancing the disclosure requirements and making corporate reporting more reliable. However, Wallman said that streamlining the registration system without improving the disclosure process would be unacceptable. Consequently, the advisory report includes specific reforms tailored to enhance the accuracy and reliability of the periodic reports, such as the 10-Q and 10-K reports, that are provided to the markets.

Getting involved earlier in the process

The report recommends involving the independent auditor earlier in the process of creating the reports, such as form S-1, which are used to register initial public offerings. The report also encourages auditor involvement in all registrants' quarterly filings of form 10-Q before they are filed with the SEC. Currently, auditors are required to perform retrospective reviews if a registrant meets certain financial thresholds.

The report also includes recommendations to enhance the monitoring functions of underwriters, outside directors and auditors by giving them more time to perform their due diligence work. …

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