Bringing order to non-GAAP financial measures: SEC sues to enforce “equal-or-greater-prominence” requirement

2019 ◽  
Vol 20 (4) ◽  
pp. 51-57
Author(s):  
Richard J. Parrino
Keyword(s):  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Content Type ◽  
Financial Measures ◽  
Generally Accepted Accounting Principles ◽  
Enforcement Action ◽  
Accounting Principles ◽  
Depth Analysis ◽  
The Us ◽  
Earnings Releases

Purpose This article examines the first action by the US Securities and Exchange Commission to enforce the “equal-or-greater-prominence” requirement of its rules governing the presentation by SEC-reporting companies, in their SEC filings and earnings releases, of financial measures not prepared in accordance with generally accepted accounting principles (GAAP). Design/methodology/approach This article provides an in-depth analysis of the equal-or-greater-prominence rule and the SEC’s enforcement posture in the context of the SEC’s concern that some companies present non-GAAP financial measures in a manner that inappropriately gives the non-GAAP measures greater authority than the comparable GAAP financial measures. Findings Although the appropriate use of non-GAAP financial measures can enhance investor understanding of a company’s business and operating results, investors could be misled about the company’s GAAP results by disclosures that unduly highlight non-GAAP measures. The SEC’s enforcement action signals a focus on the manner in which companies present non-GAAP financial measures as well as on how they calculate the measures. Originality/value This article provides expert guidance on a major SEC disclosure requirement from an experienced securities lawyer.

New compliance guidance by SEC staff signals increased scrutiny of non-GAAP financial measures

2016 ◽  
Vol 17 (4) ◽  
pp. 23-33 ◽  
Author(s):  
Richard J. Parrino
Keyword(s):  
Design Methodology ◽  
Operating Performance ◽  
Securities And Exchange Commission ◽  
Appropriate Use ◽  
Content Type ◽  
Financial Measures ◽  
Generally Accepted Accounting Principles ◽  
Accounting Principles ◽  
Depth Analysis ◽  
Disclosure Requirement

Purpose This article examines compliance and disclosure interpretations issued by the staff of the Securities and Exchange Commission in May 2016 that provide guidance to SEC-reporting companies on how they can use financial measures not prepared in accordance with generally accepted accounting principles in a manner that complies with SEC rules governing the presentation of non-GAAP measures in SEC filings and other public communications. Design/methodology/approach This article provides an in-depth analysis of the new interpretive guidance in the context of the increasing use of non-GAAP financial measures by SEC-reporting companies and the SEC’s concern that some companies have been using non-GAAP measures inappropriately to present a materially different picture of their operating performance than investors can discern from financial measures prepared in accordance with GAAP. Findings Although the appropriate use of non-GAAP financial measures can enhance investor understanding of a company’s business and operating results, a relatively permissive SEC attitude towards the use of non-GAAP measures in recent years has emboldened some companies to increase their reliance on non-GAAP measures in a manner the SEC views as inconsistent with its rules. The SEC staff’s new guidance signals a renewed focus by the SEC on compliance with its requirements concerning the nature of permissible non-GAAP measures and the ways in which companies should present those measures. Originality/value This article provides expert guidance on a major new SEC disclosure requirement from experienced securities lawyers.

SEC’s disclosure effectiveness initiative reshapes MD&A disclosure requirements

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Richard J. Parrino
Keyword(s):  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Financial Information ◽  
Content Type ◽  
Market Participants ◽  
Financial Condition ◽  
Disclosure Requirements ◽  
Depth Analysis ◽  
The Us ◽  
Financial Disclosures

Purpose This article examines rule amendments issued by the US Securities and Exchange Commission in November 2020, as part of the SEC’s ongoing “disclosure effectiveness initiative”, that revise in significant respects the requirements for financial disclosures presented in SEC filings as Management’s Discussion and Analysis of Financial Condition and Results of Operations. Design/methodology/approach This article provides an in-depth analysis of the rule amendments in the context of contrasting perspectives expressed by the SEC, individual SEC Commissioners who dissented from adoption of the amendments, and market participants regarding the merits of the SEC’s movement away from prescriptive disclosure requirements towards a more principles-based approach to disclosure. Findings Although the SEC’s rules have long reflected a mix of principles-based and prescriptive disclosure elements, the principles-based emphasis in this latest stage of the SEC’s disclosure modernization project accords the managements of filing companies greater latitude to determine whether financial information is material to investors and how such information should be presented. Originality/value This article provides expert guidance on a major new SEC disclosure development from an experienced securities lawyer.

Sanofi settles FCPA charges with SEC for $25.2 million

2019 ◽  
Vol 20 (1) ◽  
pp. 27-30
Author(s):  
Jennifer Kennedy Park ◽  
Abena Mainoo
Keyword(s):  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Internal Controls ◽  
Healthcare Industry ◽  
Foreign Corrupt Practices Act ◽  
Content Type ◽  
Enforcement Action ◽  
Compliance Programs ◽  
The Us ◽  
Practical Implications

Purpose To explain a recent enforcement action by the US Securities and Exchange Commission (SEC) highlighting risk factors for Foreign Corrupt Practices Act (FCPA) violations. Design/methodology/approach Summarizes the basis of the SEC’s enforcement action against Sanofi for violating the FCPA’s books and records and internal controls provisions, reviews the terms of the SEC’s resolution with Sanofi, explains Sanofi’s remedial efforts and cooperation with the SEC’s investigation, and discusses factors contributing to corruption risks in the healthcare industry. Findings The SEC’s enforcement action against Sanofi, and other recent enforcement actions, underscore the importance of comprehensive anti-corruption compliance programs and strong internal controls across large multinationals and their subsidiaries. Practical implications Companies operating in high-risk industries and markets should regularly assess and address corruption risks. Originality/value Practical guidance from experienced enforcement lawyers.

The SEC brings its first enforcement action under the identity theft red flags rule

2019 ◽  
Vol 20 (1) ◽  
pp. 31-35
Author(s):  
Vincente L. Martinez ◽  
Julia B. Jacobson ◽  
Nancy C. Iheanacho
Keyword(s):  
Design Methodology ◽  
Identity Theft ◽  
Securities And Exchange Commission ◽  
Red Flags ◽  
Content Type ◽  
Enforcement Action ◽  
Policies And Procedures ◽  
The Us ◽  
Practical Guidance ◽  
Investment Advisers

Purpose To explain the significance of the first enforcement action under the Identity Theft Red Flags Rule by the US Securities and Exchange Commission (SEC), which was announced on September 26, 2018. Design/methodology/approach Explains how the SEC’s order not only cites violations of the Safeguards Rule under Regulation S-P (a staple of SEC cybersecurity enforcement actions against broker-dealers and investment advisers) but also is the SEC’s first enforcement action for a violation of the Identity Theft Red Flags Rule under Regulation S-ID, which requires certain SEC registrants to create and implement policies to detect, prevent and mitigate identity theft. Findings Cybersecurity policies and procedures must match business risks and change as business risks change. Originality/value Practical guidance from experienced cybersecurity and privacy lawyers.

Cybersecurity enforcement actions: is the SEC bringing strict liability cases?

2016 ◽  
Vol 17 (1) ◽  
pp. 112-116
Author(s):  
Brian Rubin ◽  
Amy Xu
Keyword(s):  
Design Methodology ◽  
Strict Liability ◽  
Securities And Exchange Commission ◽  
Cyber Attack ◽  
Content Type ◽  
Enforcement Action ◽  
The Us ◽  
Investment Advisers ◽  
Practical Implications

Purpose To analyze how the US Securities and Exchange Commission (SEC) has sanctioned broker-dealers (BDs) and registered investment advisers (RIAs) when cybersecurity breaches have occurred and to discuss whether the SEC is imposing a strict liability approach. Design/methodology/approach Describes the cyber-attack of a small RIA, the remedial steps the RIA took after the attack, the SEC’s enforcement action, why this particular case is noteworthy, and the case’s implications for RIAs and BDs. Findings RIAs and perhaps BDs may face strict liability from the SEC if they are victims of cybersecurity attacks. Practical implications Firms may want to address the likelihood of an SEC enforcement action if a breach occurs by reviewing recent enforcement actions, SEC reports and statements, and FINRA reports and statements. Originality/value Discusses the possible future of SEC enforcement actions regarding cybersecurity breaches.

SEC credits self-reporting and cooperation in not imposing penalty on ICO sponsor

2019 ◽  
Vol 20 (2) ◽  
pp. 13-15
Author(s):  
Daniel Hawke
Keyword(s):  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Self Report ◽  
Content Type ◽  
Enforcement Action ◽  
Expert Analysis ◽  
Securities Laws ◽  
Insight Into ◽  
Civil Penalty ◽  
Do So

Purpose To explain a February 20, 2019 US Securities and Exchange Commission (SEC) settled enforcement action against Gladius Network LLC for failing to register an initial coin offering (ICO) under the federal securities laws, in which Gladius was able to avoid a civil penalty by self-reporting the violation and cooperating with the SEC enforcement staff. Design/methodology/approach Explains Gladius’ self-reporting, cooperation and remedial steps; why the SEC imposed no civil penalty on Gladius; and two similar cases the SEC instituted in July 2018 against companies that conducted unregistered ICOs, did not self-report, and were penalized. Provides analysis and conclusions. Findings The Gladius case offers important insight into how the SEC and its staff think about cooperation credit in resolving SEC enforcement actions and sends a clear message that self-reporting to the SEC can result in meaningful cooperation credit. In three recent cases, the Commission has made clear that once it put the industry on notice that ICOs could be securities that must be registered under the federal securities laws, a party risks enforcement action by failing to do so. Originality/value Expert analysis and guidance from an experienced securities lawyer who counsels clients on all manner of SEC enforcement, examination and regulatory policy matters.

Parties push to enforce statutory time limits on SEC enforcement actions

2015 ◽  
Vol 16 (3) ◽  
pp. 30-32
Author(s):  
Benjamin Neaderland ◽  
Jared Cohen
Keyword(s):  
Design Methodology ◽  
District Of Columbia ◽  
Securities And Exchange Commission ◽  
Courts Of Appeals ◽  
Content Type ◽  
Time Limits ◽  
Court Of Appeals ◽  
Securities Law ◽  
The Us ◽  
Practical Implications

Purpose – To alert companies and individuals subject to regulation and investigation by the US Securities and Exchange Commission (SEC) of potential arguments to enforce time limits on enforcement actions that have heretofore commonly been ignored. Design/methodology/approach – Analyzes two cases - one recently decided and one pending - in US Courts of Appeals, explains significance of issues at stake. Findings – The Courts of Appeals for District of Columbia Circuit has recently reviewed, and the Court of Appeals for the 11th Circuit will soon decide whether statutory timing provisions effectively remove SEC power to bring enforcement actions past their deadlines, at least in some circumstances. Practical implications – Depending on the outcomes of the cases, companies and individuals may gain a new procedural defense or two against SEC enforcement actions. They may also expect the SEC to respond by more actively seeking tolling agreements, and/or being more cautious in issuing Wells notices. Originality/value – Guidance based on pending decisions interpreting US securities law, may bring regulatory adjustments to agency practice and procedure.

SEC adopts rule to implement Dodd-Frank CEO pay ratio disclosure requirement

2016 ◽  
Vol 17 (1) ◽  
pp. 122-130
Author(s):  
Richard J. Parrino
Keyword(s):  
Design Methodology ◽  
Chief Executive ◽  
Securities And Exchange Commission ◽  
Total Compensation ◽  
Content Type ◽  
Meaningful Information ◽  
Depth Analysis ◽  
Ceo Pay ◽  
Annual Total ◽  
Disclosure Requirement

Purpose This article examines the rule issued by the Securities and Exchange Commission in August 2015 that requires most SEC-reporting companies to disclose annually the ratio of the annual total compensation of their chief executive officer to the median of the annual total compensation of their employees other than the CEO. Design/methodology/approach This article provides an in-depth analysis of the operation of the controversial pay ratio disclosure rule against the backdrop of concerns expressed by many commenters on the rule proposal, as well as by the two Commissioners who dissented from adoption of the rule, that the disclosure will not provide meaningful information to investors and will be excessively costly and burdensome for companies to produce. Findings The SEC fashioned the final pay ratio disclosure rule with a vaguely defined statutory purpose to guide it and a heavy volume of comments on its rule proposal that urged widely disparate approaches to implementation. In overhauling the proposed rule, the SEC sought to satisfy its mandate under the Dodd-Frank Act while providing companies with flexibility in implementing the new rule that it believes will reduce compliance costs and burdens. Originality/value This article provides expert guidance on a major new SEC disclosure requirement from experienced securities lawyers.

A review of the SEC Participating Affiliate No-Action Letters’ relief from Investment Advisers Act of 1940 registration for foreign investment advisers

2017 ◽  
Vol 18 (4) ◽  
pp. 22-28 ◽  
Author(s):  
Wendy E. Cohen ◽  
David Y. Dickstein ◽  
Christian B. Hennion ◽  
Richard D. Marshall ◽  
Allison C. Yacker ◽  
...  
Keyword(s):  
Foreign Investment ◽  
Financial Services ◽  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Content Type ◽  
The Us ◽  
Information Update ◽  
Practical Guidance ◽  
Investment Advisers

Purpose To explain the US Securities and Exchange Commission (the “SEC”) staff’s (the “Staff”) participating affiliate exemption from investment adviser registration for foreign advisers set forth in a line of Staff no-action letters issued between 1992 and 2005 (the “Participating Affiliate Letters”) and to discuss recent guidance issued by the Staff in an information update published in March 2017 (the “Information Update”) with respect to complying with requirements of the Participating Affiliate Letters. Design/methodology/approach Reviews the development of the Staff’s approach regarding the non-registration of foreign advisers that rely on the Participating Affiliate Letters from prior to the issuance of those letters through the Information Update and sets forth recommendations for registered investment advisers and their participating affiliates. Findings While there are arguments that the Information Update goes beyond restating established standards and does not clearly explain whether submission of all listed documentation is required, the Information Update will likely standardize the information submitted to the SEC. Originality/value Practical guidance for advisers relying on the Participating Affiliate Letters from experienced securities and financial services lawyers.

scholarly journals Non-GAAP earnings: international overview and suggestions for future research

2017 ◽  
Vol 25 (3) ◽  
pp. 318-335 ◽  
Author(s):  
Ana Marques
Keyword(s):  
Corporate Governance ◽  
Design Methodology ◽  
Point Of View ◽  
Future Research ◽  
Accounting Standard ◽  
Content Type ◽  
Generally Accepted Accounting Principles ◽  
Accounting Principles ◽  
Corporate Governance Mechanisms ◽  
Academic Researchers

Purpose The purpose of this paper is to synthesize insights from existing research on the disclosure of non-generally accepted accounting principles (GAAP) earnings, from an international point of view, and to suggest several avenues for future research in this area. Design/methodology/approach In conjunction with the analysis of existing research, the paper examines how different regulators and accounting standard setters have approached the topic of non-GAAP earnings disclosure. Findings The paper shows how non-GAAP earnings have been found to be more informative than GAAP earnings in several scenarios (countries where non-GAAP disclosures are compulsory, countries where these disclosures are voluntary but regulated and countries where they are not regulated). However, in certain circumstances, these disclosures may also mislead investors. Corporate governance mechanisms can curb managers’ opportunistic use of these measures. Originality/value The paper provides the growing number of academic researchers in this emerging area with a foundation and agenda upon which they can build their research.

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