This FERF/EY analysis: "Disclosure effectiveness in action: companies make great strides" of recent S&P 500 SEC filing disclosures demonstrates continued efforts on the part of companies to voluntarily improve their Form 10-K disclosure effectiveness pending potential SEC rulemaking in this area. As detailed in the report and illustrated by examples from filed 10-Ks, changes have been focused in the MD&A, Business, and Risk Factors areas, as well as certain financial statement footnotes. Key findings include:
- MD&A
- Use of layering, with the most significant information from management’s perspective discussed first (including in an executive summary), and additional supporting detail provided elsewhere
- Increased use of bullet points or tables to replace lengthy text and emphasize key information
- Increased use of cross-referencing
- Use of charts and graphs to depict changes in key measures such as revenues and margins
- Elimination of boilerplate language and accounting terminology in favor of plain-English disclosures
- Revised organization of the MD&A based on topical information
- Removal of information that may have resulted from renewed materiality considerations
- Business
- Eliminating redundancies between the Business and MD&A sections, e.g., increased cross-referencing between the segment and geographic disclosure requirements from the MD&A to the footnotes
- Revising the Business section to better align the discussion of business strategies and portfolio composition to the manner in which they are described on a company’s website and in presentations made to analysts and shareholders
- Risk Factors
- Improved organization of risk factors, either categorizing by theme or presenting risks topically
- Elimination of generic risk factors and/or those that are no longer relevant
- Use of charts to present risk and its description and to identify how the risk is managed
- Footnotes: These footnotes were identified as most improved: (i) significant accounting policies; (ii) contingencies; (iii) derivatives and hedging - including fair value measurements; (iv) pensions and other post retirement benefits; (v) segments; and (vi) share-based compensation, in these ways:
- Revised organization of the notes
- Cross-referencing to reduce redundancies
- Eliminating immaterial disclosures as well as disclosures that are not required
Also noteworthy are continued enhancements to corporate IR web pages that provide improved accessibility, presentation and navigability of financial information.
See also FEI's release; these related reports from FERF/EY: "Disclosure effectiveness: companies embrace the call to action" and IRRCi/EY: "The Corporate Risk Factor Disclosure Landscape"; and additional resources on our Disclosure Reform topical page.