H.R. 5970, Modernizing Disclosures for Investors Act
Floor Situation
On Tuesday, July 10, 2018, the House will consider H.R. 5970, the Modernizing Disclosures for Investors Act, under suspension of the rules. This bill was introduced on May 24, 2018 by Rep. Ann Wagner (R-MO) and was referred to the House Committee on Financial Services, which ordered the bill reported, as amended, by a vote of 56-0, on June 21, 2018.
Summary
H.R. 5970 requires the Securities and Exchange Commission (SEC) not later than 180 days after enactment to provide a report to Congress with a cost-benefit analysis of emerging growth companies’ (EGCs) use of SEC Form 10-Q and recommendations for decreasing costs, increasing transparency, and increasing efficiency of quarterly financial reporting by emerging growth companies.
Background
The federal securities laws require that most SEC registrants disclose certain information on an ongoing basis, including a quarterly report on Form 10-Q. Form 10-Q includes condensed financial information and other data prepared by a company and reviewed—though generally unaudited—by its independent auditor. The purpose is to provide a continuing view of the company’s financial position during the year. The report must be filed for each of the first three fiscal quarters of the company’s fiscal year.
The SEC’s current corporate disclosure system imposes a number of outdated, duplicative, burdensome, and unnecessary requirements on U.S. companies, diverting corporate resources toward regulatory compliance and away from innovation, growth, and job creation. Moreover, this outdated disclosure regime leads to unnecessarily long, complicated, and often immaterial public company disclosures, resulting in widespread investor confusion and potentially suboptimal investment decisions. While the SEC has often recognized the need to study and streamline the corporate disclosure regime, it has recently been Congress that has spurred action in this regard, through provisions in both the JOBS Act and the FAST Act requiring the SEC to study current regulations and eliminate outdated, duplicative, and unnecessary disclosure obligations.
Form 10-Q’s can create extreme administrative costs. In addition to filing Forms 10-K annually and 10-Q quarterly, companies must file “current” reports on Form 8-K often within 4 business days after occurrence of specified events. By the time a quarterly report is filed, many material events already have been reported by a company, and according to widespread economic views regarding efficiency of markets, priced into the cost of an equity. Further, as annual (10-K) and 10-Q reports have grown in size and complexity over the years, it has the potential to make it more difficult for investors to determine relevant information to guide their investment decisions.
Cost
A Congressional Budget Office (CBO) estimate is not currently available.
Staff Contact
For questions or further information please contact Jake Vreeburg with the House Republican Policy Committee by email or at 2-1374.