For CFOs wondering whether they’ll need to revamp their reporting systems, the recent close of the Securities and Exchange Commission’s public comment period on its semiannual reporting proposal raises many questions about what comes next and when.
The sheer volume of the responses submitted has surprised some SEC watchers. More than 36,000 letter writers have shared their views on the matter, with 99% of the feedback opposed to the change, according to a tracker overseen by Tzachi Zach, a professor of accounting at The Ohio State University, who is analyzing the data.
The SEC declined Monday to comment on its timeline for the proposal. The agency is required by the Administrative Procedure Act to consider and respond to significant comments made during the period for public comment, according to Daniel Brinks, a partner specializing in forensic accounting at StoneTurn who previously worked as a senior enforcement accountant at the SEC.
What the volume of responses does create is an “enormous administrative record” that will influence how quickly the SEC will move forward with this proposal, he said. A federal agency would not want to push through an unpopular proposal without ensuring its administrative procedures are “rock solid,” he added.
"A thousand identical comments don't necessarily carry more legal weight than one detailed economic analysis,” Brinks said in an email. "Volume gets the SEC's attention, but substance is what the law requires the SEC to answer."
Editor’s note: The following Q&A with Brinks, which was conducted early last week, has been edited for clarity and brevity.
CFO Dive: What’s the timeline for the SEC to move on this?
Daniel Brinks: I don’t think I have insight on that. Everybody’s been looking at these for the last two months as they’ve come in and it’s pretty obvious how they’re one sided and so if they decide ‘Hey we’ve looked at these and we’re not going to move forward,’ that would be a super easy thing to do, just kind of vote it down, we’re not going to adopt this. But if they decide to move forward that process takes a decent amount of time.
CFO Dive: What formal steps will come next?
Daniel Brinks: Usually the proposal isn’t voted and approved as proposed. They have to go through and consider all the comments they received. They’ll go through and make revisions based on the comments. They’ll do that behind closed doors. They’ll eventually make the deicision public when there’s an adopting release and they go through and explain why they made certain changes.
CFO Dive: Did you see any ongoing requests for changes [in the comment letters] that you think might be likely if the proposal does go forward?
Daniel Brinks: The [Investment Company Institute] and the Securities Industry and Financial Markets Association, two pretty large industry groups, will probably get more weight than others. Their comments were like, ‘we appreciate the efforts of the commission to try to decrease the regulatory burden.’ But rather than move from 10-Q to the 10-S they had a preference for rolling back the complexity of the 10-Q in general... were in favor of keeping the 10-Q but making it simpler. Regardless of what happens, we’ll see shortened financial statements in the next two years, or whatever, before Atkins leaves. We’ll see more efforts to make simpler and shorter financial statements. I just don’t know if this is going to be the avenue to adopt to go forward with it.
CFO Dive: What do CFOs need to know or do about this?
Daniel Brinks: For the time being, we’re still in a kind of wait-and-see position. I don’t think there’s anything CFOs need to do right now to address the standard but I would make sure to keep an eye on it to see if the SEC makes revisions.
