SEC Update: 10-K, 10-Q, and Other Reporting and Filing Requirements

Public company reporting requirements seem to be changing more rapidly every year. Keeping up with these important changes is crucial and is becoming increasingly difficult for the corporate financial reporting manager and the independent auditor. This course will give you an update on the latest pronouncements, regulations, and guidance issued by the SEC to help you stay current.

• Identify recent SEC rules, guidance, and other developments that affect your filings or engagements for this reporting cycle

Prerequisite: Moderate experience in SEC accounting and reporting

Chapter 1 - SEC Final and Proposed Rules and Other Initiatives Issued in 2007

Learning Objectives

Become familiar with SEC final rules and associated guidance issued in 2007 regarding:

• Extension of regulatory relief to smaller reporting companies
  • Reporting and disclosure issues
  • Availability of shelf offerings
  • Revisions to Rule 144 and 145
  • Exemption of compensatory employee stock options from registration
  • Revisions to Form D
• Foreign private issuer deregistration and IFRS reporting
  • Deregistration of foreign private issuer securities
  • Acceptance of IFRS as issued by the IASB financial statements in filings of foreign private issuers without reconciliation to U.S. GAAP
• Management's reporting on internal control over financial reporting (ICFR)
  • Commission guidance - Amendments to ICFR rules
  • Definition of significant deficiency
• Proxy rules
  • Permitted availability of E-proxy materials
  • Mandated availability of E-proxy materials
  • Facilitation of Electronic Shareholder Forums
  • Codification of the SEC staff's position limiting shareholder proxy access to director elections

Become familiar with SEC proposed rules and concept releases issued in 2007 regarding:

• Revisions to Form S-11 to permit historical incorporation by reference
• Revisions to limited offering exemptions in Regulation D
• Allowing U.S. issuers to prepare financial statements in accordance with IFRS
• Possible revisions to disclosures regarding oil and gas reserves

2007 SEC Rulemaking and Other Activity

Overview

Smaller Reporting Companies

During 2007, the SEC acted on the 2006 recommendations of its Advisory Committee on Smaller Public Companies by proposing and then finalizing rules to extend reporting relief to a newly defined category of registrants called "smaller reporting companies," those with less than $75 million of public float. These rules eliminated the former category of filers defined as "small business issuers" and the related small business forms, and moved the financial and non-financial reporting requirements for smaller reporting companies from Regulation S-B into Regulation S-X and Regulation S-K, respectively. Other rule changes facilitate capital raising for this group of companies by making delayed primary shelf offerings available to smaller companies and shortening the holding periods for restricted securities. Further, the SEC exempted most compensatory employee stock options from Exchange Act registration requirements. The Commission also proposed changes to Regulation D (which applies to exempt offerings) that would allow limited advertising in private offerings of securities to a newly defined category of investors and update the definition of "accredited investors" to account for inflation. Final rulemaking on this proposal is expected in 2008.

IFRS

In the spring, the SEC began to reassess its roadmap for reaching the goal of allowing foreign private issuers to file IFRS financial statements without reconciling them to U.S. GAAP, which had been targeted for 2009. Based on the progress made in converging IFRS and U.S. GAAP and implementing IFRS and widespread support for eliminating the reconciliation, in November the Commission eliminated the reconciliation requirement for foreign private issuers that file financial statements that comply with IFRS as issued by the IASB. The SEC also issued a concept release to gather input on the possible use of IFRS by domestic registrants and held two roundtables on this topic in December.

Internal Control over Financial Reporting

The SEC and PCAOB collaborated in an effort to make management and auditor reporting on ICFR more efficient. The SEC issued interpretive guidance for management on evaluating and assessing ICFR and the PCAOB issued a replacement standard on auditing ICFR, AS No. 5, An Audit of Internal Control Over Financial Reporting That is Integrated With An Audit of Financial Statements.

Prior to the availability of the SEC's interpretive guidance, management generally looked to the framework established for auditors set forth in PCAOB's now superseded Auditing Standard No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements, for guidance. The SEC's interpretive guidance provides management with an approach for conducting an effective and efficient, top-down, risk-based evaluation of ICFR that meets the requirements of the SEC's rules and generally parallels the concepts in the new, principles-based standard for auditors issued by the PCAOB.

In tandem rulemaking, the SEC amended its rules to confirm that an evaluation of ICFR performed by management in accordance with the interpretive guidance referred to above is one way to satisfy the requirement for management to evaluate ICFR. The auditor attestation rule was simultaneously amended to mirror the reporting requirements of AS 5 by eliminating the opinion on management's assessment that was in addition to the opinion on internal control itself. The SEC also defined and codified the terms material weakness and significant deficiency.

In order to allow more time to study the costs of auditing ICFR under AS 5, in January 2008 the Commission proposed delaying for another year (until 2009 for calendar year end companies) the requirement that nonaccelerated filers provide an auditor's report on their ICFR.

E Proxies and Electronic Shareholder Forums

The SEC continued its efforts to bring proxies into the Internet age by adopting rules to begin requiring issuers and other soliciting persons to post proxy materials on the Internet. Shareholders, however, still have the option of requesting paper copies. The SEC further supported the use of the Internet for shareholder communication activities by approving rules that support electronic shareholder forums by generally exempting participants from the proxy rules.

Recent Personnel Changes

In September 2007, Commissioner Roel Campos left the SEC for the private sector. As of December 31, 2007, the commissioners are

• Christopher Cox, Chairman - Appointed in August 2005
• Kathleen L. Casey - Commissioner since 2006
• Annette L. Nazareth - Commissioner since 2005 (left the SEC in January 2008)
• Paul S. Atkins - Commissioner since 2002

Scott Taub, the Deputy Chief Accountant in the Office of the Chief Accountant, left the Commission staff in January 2007. Jim Kroeker was named to the position in February 2007. In March 2007 Carol Stacey, Chief Accountant in the Division of Corporation Finance, left the Commission. Wayne Carnall was named to the position in November 2007. In August, 2007 Marty Dunn, Deputy Director in the Division of Corporation Finance, left the Commission. The position was filled by Brian Beheny in November 2007.

Small Business Regulatory Relief Rules

Final Rule: Smaller Reporting Company Regulatory Relief (Release 33-8876)

On December 19, 2007 the SEC published new rules to modernize the reporting and disclosure requirements for smaller companies. The new rules address key recommendations made by the SEC's Advisory Committee on Smaller Public Companies in its final report.

The final rules:

• Replace the current "small business issuer" category with a new expanded category of "smaller reporting companies" having less than $75 million in public equity float or, if a company does not have a calculable public equity float, having revenues of less than $50 million in the last fiscal year;
• Expand eligibility for the scaled disclosure and reporting requirements for smaller companies by allowing the newly defined category of smaller reporting companies to use the scaled disclosure requirements (i.e., the category now includes former small business issuers and other non-accelerated filers);
• Move the 12 non-financial scaled disclosure item requirements from Regulation S-B into Regulation S-K (the scaled disclosure requirements will only be available to smaller reporting companies);
• Move the small business financial statement requirements in Item 310 of Regulation S-B into new Article 8 of Regulation S-X, and amend these requirements to require two years of balance sheet data instead of one year;
• Permit smaller reporting companies to elect to comply with scaled financial disclosure and non-financial disclosure on an item-by-item or "a la carte" basis;
• Eliminate the current "SB" forms, but allow a phase-out period for current small business issuers transitioning to smaller reporting company status; and
• Permit all foreign companies to qualify as "smaller reporting companies" if they choose to file on domestic company forms and provide financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles.

The final rules are effective February 4, 2008, however various transition provisions apply, which are discussed further in the following text.

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