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Full Disclosure System
The Full Disclosure System’s goals are to:
- foster investor confidence;
- provide investors with material information;
- improve the quality and timeliness of disclosure to investors;
- contribute to the maintenance of fair and orderly markets;
- reduce the costs of capital raising; and
- inhibit fraud in the public offering, trading, voting, and tendering of securities.
The Division of Corporation Finance achieves these goals by reviewing the financial and non- financial disclosure made by companies in their periodic reports and transactional filings. The Division also achieves its goal by making and interpreting rules that facilitate and enhance corporate disclosure.
What We Did
- Monitored the annual reports of all Fortune 500 companies to identify information that may be unclear or conflict with accepted accounting principles or SEC rules, and completed reviews of the year-end financial disclosure of 2,570 reporting issuers and approxi- mately 950 new issuers.
- Implemented the Commission’s order under section 21(a) of the Securities Exchange Act of 1934 (Exchange Act) requiring chief executive officers
(CEOs) and chief financial officers (CFOs) of the 947 largest U.S. companies to certify past disclosure.
- Adopted amendments requiring certification of annual and quarterly reports by CEOs and CFOs.
- Adopted amendments to accelerate the filing of quarterly and annual reports under the Exchange Act by certain domestic reporting companies.
- Adopted rule and form amendments that require foreign private issuers and foreign governments to file electronically their securities documents through our Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
- Adopted amendments to accelerate filing of Exchange Act section 16 beneficial ownership reports filed by officers, directors, and principal security holders.
- Proposed amendments to increase current disclosure by requiring a company to file a current report on Form 8-K to disclose the occurrence of 11 new events including material impairments, write-offs, and restructuring charges.
- Adopted amendments to improve the transparency of financial disclosure by requiring companies to disclose their critical accounting estimates and the initial adoption of accounting policies that have a material impact on their financial presentation.
Companies filed registration statements covering $2.0 trillion in proposed securities offerings during the year, approximately 13 percent less than the amount registered in 2001. With the continuing decline in corporate merger activity and initial filings by new companies, the Division again focused its resources on reviewing Exchange Act reports and away from transactional filings (Securities Act of 1933 registration statements and Exchange Act proxy statements). In fiscal 2001, we reviewed 1,595 transactional filings and 2,280 Exchange Act reports. During fiscal 2002, we reviewed 1,540 transaction filings, 3 percent less than last year, and 2,660 Exchange Act reports, nearly 17 percent more than last year.
Sarbanes-Oxley Act of 2002
The SEC began implementing the provisions of the Sarbanes- Oxley Act, which was adopted late in the fiscal year. The Act provides the SEC with additional significant review and rulemaking responsibilities, including the requirement to refine its review process in light of specified criteria and to review each reporting issuer at least once every three years. The Act also imposes new requirements on officers of domestic and foreign companies, expedites the filing of beneficial ownership reports, expands disclosure requirements of off-balance sheet transactions, and sets fixed time frames for a number of studies and rulemaking projects.
International Activities
Large numbers of foreign companies continued to access the United States public securities markets in 2002. During the year, approximately 70 foreign companies from 25 countries entered the U.S. public markets for the first time. At year-end, there were over 1,300 foreign companies from 59 countries filing reports with us. Public offerings filed by foreign companies in 2002 totaled over $147 billion.
Recent Rulemaking, Interpretive, and Related Matters
Rulemaking is undertaken to protect investors, facilitate capital formation, improve and simplify disclosure, establish uniform requirements, and eliminate unnecessary regulation. The objective in rulemaking is to define regulatory requirements on a cost-effective basis. The SEC provides general interpretive and accounting advice through interpretive releases, staff legal bulletins, staff accounting bulletins, no-action and interpretive letters, the current issues outline, and responses to telephone inquiries.
Certification of Disclosure in Companies’ Quarterly and Annual Reports
On August 28, 2002, the Commission adopted rules under the Exchange Act to require an issuer’s principal executive officer and principal financial officer to certify the contents of the issuer’s quarterly and annual reports.^117 The rules, which implemented section 302 of the Sarbanes-Oxley Act, superseded the certification proposal included in our June 14, 2002 release.^118
Acceleration of Periodic Report Filing
On September 5, 2002, the Commission adopted amendments originally proposed in April 2002 that would accelerate the filing of quarterly reports and annual reports under the Exchange Act by domestic reporting companies.^119 The amendments shorten the filing deadlines for the affected companies from 45 to 30 calendar days after period-end for quarterly reports and from 90 to 60 calendar days after year-end for annual reports.
Accelerated Filing of Beneficial Ownership Reports
On August 27, 2002, the Commission adopted rule and form amendments to implement the accelerated filing deadline applicable to change of beneficial ownership reports. Officers,
Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date
On June 17, 2002, SEC staff proposed amendments to require a company to file a current report on Form 8-K to disclose the occurrence of 11 new extraordinary corporate events, including material impairments, write-offs, and restructuring charges.^124 The amendments also would accelerate the filing deadline for Form 8-K to require filing within two business days after the occurrence of an event requiring disclosure.
Disclosure in Management’s Discussion and Analysis About the Application of Critical Accounting Policies
On May 10, 2002, the Commission proposed amendments to improve the transparency of financial disclosure by requiring companies to disclose their critical accounting estimates and the initial adoption of accounting policies that have a material impact on their financial presentations.^125
Commission Order
On June 27, 2002, the Commission issued an order under section 21(a) of the Exchange Act requiring the CEOs and CFOs of the 947 largest U.S. companies to certify their most recent annual reports and subsequent Exchange Act filings. SEC staff reviewed certifications and related filings to ensure compliance with the order. The staff also established a location on the Commission’s website where investors could monitor and review certifications. In August and September 2002, there were over 628,000 total “hits” on this location, nearly 12 times the number of the next most popular page on the Commission’s website.
Conferences
SEC/NASAA Conference Under Section 19(c) of the Securities Act
The SEC conducted the 19th Annual Federal/State Uniformity Conference in April 2002 in Washington, D.C. Approximately 60 Commission officials met with nearly 60 representatives of the North American Securities Administrators Association, Inc. to discuss methods of achieving greater uniformity in federal and state securities matters. After the conference, a final report summarizing the discussions was prepared and distributed to interested persons and participants.
SEC Government-Business Forum on Small Business Capital Formation
In September 2002, we conducted the 21st Annual Government- Business Forum on Small Business Capital Formation in Washington, D.C. This forum is the only government-sponsored national gathering related to the securities industry that is geared toward small business. It offers small businesses the opportunity to inform government officials how the laws, rules, and regulations affect their ability to raise capital.
