“What do investors want to know in the 21
st century?” and “How should companies deliver that information in the digital age?” are among the most pertinent questions that regulators and accounting standard-setters continue to grapple with in their effort to rethink existing disclosure rules. Over the course of the past nine months, rule-makers have advanced several new proposals (see Appendix I), that are aimed at improving the effectiveness of required disclosures, including some SEC rules that have existed — without meaningful revision — for the past 80 years. The regulatory efforts to balance and optimize evolving investor needs with company and operational concerns continue to progress. Nevertheless, the focus and commitment behind these efforts, which an SEC commissioner recently referred to as “the most significant undertaking the
Commission has faced in decades,” have also emboldened companies to consider disclosure effectiveness actions on their own.
Against this backdrop, a growing number of companies are making great strides toward improving their disclosures and crafting more effective and understandable financial and investor communication, including embracing new digital technologies that help them present information in a more streamlined, effective and contemporary way. In this Financial Executives Research Foundation (FERF)/EY report, we highlight some of the current trends in companies’ disclosure effectiveness efforts. We found that companies are using various innovative ways to improve and streamline their reports; there is no “one-size-fits-all” approach.
In our previous report,
Disclosure effectiveness: companies embrace the call to action,1 we summarized the results of a survey we conducted among key finance executives who participate in their company’s disclosure effectiveness initiatives. We observed that disclosure effectiveness efforts have gained increasing prominence, with nearly three-quarters (74%) of the companies surveyed stating they are taking voluntary action to improve their financial reports to make them more relevant and understandable.
Our analysis of recent SEC filings shows that many S&P 500 companies across various industries have taken notable measures to improve the main items within their 10-Ks. Most of the changes have focused on the MD&A (Item 7 in the 10-K) and Business (Item 1 in the 10-K) sections, and to a lesser degree on the risk factors (Item 1A in the 10-K) section. In addition, a few companies also focused on improvements to their financial statements and supplementary data (notes) (Item 8), but the associated changes have been less significant over the time period (i.e., fiscal years 2012–15).
While our findings corroborate our previous survey results, they also provide further insight into the varying degrees to which some companies have undertaken disclosure effectiveness initiatives. This report provides examples for some of the areas in which meaningful changes have occurred.