SEC Disclosure and Corporate Governance: Financial Reporting Challenges for 2011

by Noam Noked for The Harvard Law School Forum, March 15th, 2011.

Companies now focusing on preparation of the upcoming annual report have the benefit of wide-ranging disclosure guidance issued in 2010 and early 2011 by the SEC and its Staff. While many of the issues have been highlighted repeatedly since the financial crisis began to erupt in 2007, the significance of the latest round of guidance has been underscored by a far more aggressive SEC enforcement posture in the financial reporting area.

The overarching theme of this guidance – whether formally outlined in binding SEC pronouncements or non-binding Staff interpretations, or informally expressed by Staff members in speeches – is the importance of providing “early-warning” disclosures of material risks and uncertainties that, if realized, could have a material adverse effect on a particular company’s liquidity, capital resources or operating results. The SEC and its Staff increasingly are taking a holistic view of risk-related disclosures, with the focal point for regulatory scrutiny being the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Risk Factor sections of periodic reports filed under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Staff in the Division of Corporation Finance routinely look outside the four corners of SEC filings and submissions in connection with SEC filing reviews, examining the content of various non-filed corporate communications – including company press releases and statements made by officials during company or third-party sponsored investor conferences conducted via telephone and/or the Internet – as well as analyst reports, news articles and blogs covering the company. The Staff’s stated objective here is to assess the consistency of filed and non-filed communications being made by public companies, along with market perceptions of those communications, with a view toward determining whether all required material information has been disclosed in SEC-mandated documents. (continue reading… )

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