Should we be concerned over new Reg FD guidance?

by admin on August 1, 2008

in General

Over at ZDNet, I’ve written an analysis of what I see as the possible impact of new SEC guidance under Reg FD. In essence, the SEC is pointing the way towards company websites and blogs in particular being used as an alternative medium by which information is made available to the public. It’s a novel idea but not one I see as having an immediate impact except in one specific scenario. Good ol’ Sarbanes-Oxley compliance rules still apply so where the new guidance is used, I reckon both the legal and audit people will have kittens.

However, it does open up an interesting question for non-US companies. Since the SEC has taken this lead, what will the other bourses do? Will the FSA for example fall into line? If so then how might they seek to take a leadership position?

When I read US 10-Q’s and 10-K’s, I’m always astonished at the lack of information they contain. Despite being lengthy documents, I rarely find the sort of nuggets I’d expect to help me get a better understanding of what’s going on. Compare that with published UK accounts and there are any number of clues on performance. I don’t really have to go to Companies House and dig out the detail. If anything, I’d argue the glossy PDFs are a treasure trove of information. Now if the FSA would nudge UK companies into mashing up the sort of information that resides at Companies House with the glossy detail and present that in blog form, then I’d be seriously impressed.

Right now, the debate is restricted to the narrow ‘press release’ view. I suspect that once people see the potential, then it is feasible to imagine a situation where corporate websites become a heck of a lot more dynamic and interactive. If that happens, then it has a direct impact on professionals. They’re bound to be called upon to consider the website as an extension of the ‘stuff’ they review and audit. If I am correct, then it radically changes the shape and scope of what comes under the microscope.

In the ZDNet piece, I question whether the Big Four can realistically undertake this sort of work. If they’re smart, they’ll figure it out. (And yes, I have a few ideas in that direction.) But more likely, we’ll find that a new form of professional grouping will emerge that pays far more attention to the risk aspects and seeks to¬† be a lot more thorough about reviewing risk controls and the processes around those.

Whatever happens, it will be an intriguing set of developments. And as I say in the ZDNet piece, those selling governance, risk and compliance software will likely have a field day.

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Comments on this entry are closed.

Phil Baumann August 1, 2008 at 7:01 am

Dennis,

I would imagine GRC software would benefit from these complications of hyper regulatory controls.

This brings up a larger concern about reporting in general. How much of the accounting and reporting process is mired in the accumulated dross of bygone eras? Just skimming today's speech on REG FD, it struck me as almost laughable that we are today attempting to bring instantaneous publishing to amended legislation from 1934. Over time, did not regulatory and legislative measures result in ever widening gyres of theory to appease every conceivable stakeholder? Did economic reality get lost in the shuffle of fantastic accruals? I’m just wondering.

In the US, FASB pronouncements are predominantly the result of political compromise (call me out if I'm wrong). I'm not saying that they’re unethical or theoretically botched. But they aught to be unflinchingly about relevant measures of operating, investing and financing activities. I'm not sure how a blog post or Tweet about quarterly net income is going to offer much more value to investors than a ""glossy PDF". If regulatory authorities are going to embrace social media, it better be unadulturated love.

Perhaps these complications will only go away when investing gets its focus back on the long-term. It's useful that web interfaces can finally be used for publishing the up-to-date numbers; but if the numbers are geared toward short-term, speculative goals, then the process has complication built right into it and there's no way out of that, is there?

I’m out of the business and horribly ignorant, so here are some questions for you:

-Is accounting, auditing and reporting fundamentally facing the right direction for this century or is it stuck trying to satisfy the transient needs of the last one?

-Could social media get us back to the original goal of reporting and past the needs of the assembly-line mentality?

-Or: will social media be where the new snow jobs blow (sorry for the proximity of those two words).

-GRC software will likely grow in demand–but does that do the investor or other stakeholders any good? (How much is that industry a scam?)

-Will auditing reform come from within or without? Or what rough beast slouches…?

Phil

Dennis Howlett August 1, 2008 at 6:50 pm

Interesting questions Phil for which I'm not sure I have all the answers and those I do I'm not likely to share in public as they impact IP. Broadly I'd say these are BIG issues that the audit industry has to address but is in shape to do so.

I question I will answer: GRC isn't a scam, there are plenty of gaps to fill on the documentation side let alone process.

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