This article was first published in the June 2014 international edition of Accounting and Business magazine.
The debate in the US over what corporate America and its investors really want in the form of disclosure rumbles on.
In an effort to eliminate redundant disclosure, the Securities and Exchange Commission (SEC) is embarking on a programme that will examine, among other things, the efficacy of business and financial disclosure requirements that flow into period reports such as the 10-K, 10-Q and 8-K.
The SEC’s official aim is to simplify, shorten and remove redundancies in mandatory filing. While the SEC has been addressing these issues for many years (see its 2013 Report on Review of Disclosure Requirements at tinyurl.com/SEC-RRDR), one has to wonder whether another agenda is driving this bus.
With its new initiative, is the SEC looking for ways to keep integrated reporting and sustainability reporting on foreign shores, or is it making a move to get on the integrated and sustainability reporting bandwagon?
In a recent commentary, accounting practitioner Bill Schneider suggests that relegating the conflict minerals disclosure now required in the US to an external document (outside the 10-K annual report) may well indicate a ‘push back’ on integrated reporting and could be the SEC’s way of dismissing international trends towards it altogether.
We also have an insider’s opinion on how the SEC should rate emerging guidelines/frameworks for disclosure in the US. In March, SEC commissioner Daniel M Gallagher indicated his opposition to interference in what should or shouldn’t be in the annual report. While he favoured disclosure reforms to ensure investors get the information they need to make informed decisions, he also cautioned against overwhelming them with ‘extraneous information like conflict minerals reporting’. (This follows a recent court ruling in the US that pulled back on conflict minerals disclosure requirements for US listed companies – a whole other discussion.) ‘We must also take exception to efforts by third parties that attempt to prescribe what should be in corporate filings,’ he added, pointing to the Sustainability Accounting Standards Board (SASB).
Now, the SASB is an independent, US-based standard-setting organisation that develops industry-specific standards for use in disclosing material sustainability issues in mandatory filings to the SEC. What Gallagher had to say about this major US proponent of integrated reporting was: ‘While companies are free to make whatever disclosures they choose on their own time, so to speak, it is important to remember that groups like SASB have no role in the establishment of mandated disclosure requirements.’
The SASB would beg to differ. In defining its conceptual framework, it says: ‘SASB’s work of promoting disclosure of material sustainability issues in annual and other SEC filings of publicly listed companies in the US is a practical implementation of the concept of integrated reporting in the context of US capital markets. Form 10-K and other mandatory SEC filings for publicly listed companies are meant to present a fair and comprehensive account of companies’ performance... as complemented by SASB disclosure guidance and accounting standards, and non-financial information.’
Whether the SASB’s sustainable accounting standards or the integrated reporting championed by the International Integrated Reporting Council (IIRC) becomes common practice in the US, or will be endorsed and adopted in a more formal way by the SEC, remains to be seen.
Despite Gallagher’s views, it seems these third parties are gaining regulatory muscle. In April, former SEC chair Mary Schapiro joined former SEC chairman Elisse Walter on the SASB board. In the next two years the SASB is expected to release sustainable accounting standards for more than 80 industries. The IIRC and SASB have also joined forces in pushing their sustainable accounting and integrated reporting agendas.
Ramona Dzinkowski is an economist and business journalist