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SEC semiannual reporting proposal: Cutting quarters, not corners · PwC's accounting podcast

0:00
SPEAKER_00: Thought leadership from PWC's National Office.
0:09
SPEAKER_03: Hello, and welcome to PWC's Accounting Podcast.
0:13
SPEAKER_03: I'm Kyle Moffitt, PWC's professional practice group leader and host for today's episode.
0:18
SPEAKER_03: Today we're discussing the SEC's recent proposal that could represent a significant change to U.S.
0:23
SPEAKER_03: public company reporting.
0:24
SPEAKER_03: An optional move from quarterly to semi-annual reporting.
0:28
SPEAKER_03: In today's conversation, we'll focus on what's in the proposal, how we got here, and how this proposal fits within the SEC's broader rulemaking agenda.
0:36
SPEAKER_03: There's a lot to talk about.
0:38
SPEAKER_03: We'll also discuss some of the broader implications with a focus on providing a balanced and educational discussion of both the proposal itself and any of the questions that it raises, hopefully to inform our audience.
0:51
SPEAKER_03: Joining me today are Jim Maloney, who is the director of the SEC's Division of Corporation Finance, and John Van Osdahl, a partner in PWC's national office.
1:01
SPEAKER_03: Jim, really excited to have you here with us today.
1:03
SPEAKER_03: Given your background, obviously, you're you know you're the director today, you have a lengthy career in the securities lawyer, right, out on the West Coast.
1:12
SPEAKER_03: But you also worked at the SEC as a staffer.
1:14
SPEAKER_03: You wrote rules way back in the day, spent a lot of time, and we certainly can talk about some of that, but really valuable perspectives.
1:21
SPEAKER_03: And obviously, you have not just this rulemaking, but a couple of other proposals that just were released yesterday.
1:27
SPEAKER_03: Um, and of course, we'll have John help share both PWC's perspectives on the proposal itself and of course what we're hearing from companies, audit committees, as they think uh through some of the potential implications, the pros and cons.
1:39
SPEAKER_03: And so with that, Jim, John, thanks for joining me today.
1:43
SPEAKER_01: Thanks for having us.
1:44
SPEAKER_01: Kyle, John, great to be here.
1:45
SPEAKER_03: So so, Jim, want to start with your disclaimer.
1:47
SPEAKER_03: I know you have a disclaimer, you need to make sure that your views are your own, that sort of thing.
1:52
SPEAKER_03: I'm not sure they're not.
1:53
SPEAKER_03: There it is.
1:53
SPEAKER_03: We just heard it.
1:54
SPEAKER_01: There's the disclaimer.
1:55
SPEAKER_01: Whatever I say is in my capacity as Jim, uh, not as a division director, not as a staff member, and certainly it couldn't possibly be the SEC or commissioner's thoughts or or or actions.
2:05
SPEAKER_01: So yeah, happy to dive in.
2:07
SPEAKER_03: Thanks.
2:08
SPEAKER_03: So, look, I think you know, I was talking to you previously.
2:11
SPEAKER_03: We, you know, did a session.
2:12
SPEAKER_03: I did a session with somebody from the SEC yesterday down in Florida, and we talked about semi-annual reporting.
2:19
SPEAKER_03: But at literally a half hour before that that started, there were two proposals that were published.
2:25
SPEAKER_03: Um, of course, we had to take a quick look.
2:27
SPEAKER_03: We scrambled a bit and talked a little bit about it.
2:30
SPEAKER_03: Um, but but the first one, right, is is offering reform, right?
2:34
SPEAKER_03: Some significant changes there.
2:36
SPEAKER_03: Uh the second filer status, significant changes there, potentially scoping a uh a a large number of companies out of having to do the the ICFR uh auditor attestation.
2:47
SPEAKER_03: So, you know, 404B as as we talk about it, um, so it could significantly impact the number of companies that will have to do that.
2:54
SPEAKER_03: So any any response to that, I mean, I think I just think about it as a broader kind of group or set of you know rules.
3:03
SPEAKER_03: How how do you guys are thinking about it?
3:04
SPEAKER_01: I think of it as exciting times.
3:06
SPEAKER_01: Yeah.
3:07
SPEAKER_01: Uh we're looking at and we're revisiting all the rules: SK, SX, uh, how offerings are done, the timing to get to market, uh, the level of disclosure that you know is appropriate.
3:20
SPEAKER_01: I think you're looking at um, and you know, we've all lived through it, you know, Dodd-Frank's, Arbanes Oxley, Jobs Act.
3:27
SPEAKER_01: And it's just been layer upon layer upon layer of rules, on top of more rules, to the point where you've got this, this, I don't know if you want to call it a maze or a spiderweb of of regulations that if you are even thinking of going public, or for those companies who are public and are smaller, you need uh so many experts.
3:47
SPEAKER_01: And and it's just it's very costly and very time consuming.
3:50
SPEAKER_01: So I think we're just, as I like to say, everything's on the table.
3:54
SPEAKER_01: We're not giving away the store, and we're we're very actively pursuing comments, feedback, we're looking for data, we're looking for studies, surveys.
4:04
SPEAKER_01: Uh this is in a completely open and transparent um manner.
4:08
SPEAKER_01: And uh we're very excited to have gotten those two complimentary releases out yesterday.
4:12
SPEAKER_03: Yeah, one of the things that I had heard from from some folks on on the broader SEC team was just, hey, when you're responding to comments on semi-annual, you certainly have to think about these other two proposals as well and kind of put them all together, which I'm sure you guys did, which sounds like a uh a huge undertaking to do it.
4:30
SPEAKER_03: But I think when you when you take a step back and read kind of all three, you kind of see how they do interrelate to each other.
4:36
SPEAKER_01: They are interconnected, and I think, you know, I joined the staff, rejoined the staff last October.
4:42
SPEAKER_01: But these uh releases, these these concepts, these proposals were uh being um contemplated, worked on, drafted for the last year.
4:51
SPEAKER_01: So this is to the staff, this is like a year plus anniversary to get these out.
4:57
SPEAKER_01: So it may seem to surprise some, but they uh they've been worked on for quite some time now.
5:02
SPEAKER_03: Yeah.
5:03
SPEAKER_03: So, John, I want to turn to you, kind of get your you know, overview of what's in this actual proposal.
5:10
SPEAKER_03: And I think, Jim, you know, feel free to interject along the way if you disagree with anything he says about what's in there.
5:15
SPEAKER_03: Um, I think the the thing that that stands out for me, right, is we do have the ability to talk about kind of the other two proposals and how, right?
5:22
SPEAKER_03: So we can sprinkle in some of that commentary as we move along.
5:25
SPEAKER_03: But but John, I wanted to kind of start with you.
5:27
SPEAKER_03: You know, what's in there?
5:29
SPEAKER_03: What what what should you know, companies, preparers, and and audit committees, stakeholders, investors, what should people be thinking about?
5:34
SPEAKER_04: Yeah, sure.
5:35
SPEAKER_04: So, you know, if we think about the semi-annual proposal, Kyle, right?
5:38
SPEAKER_04: It was issued on May 5th.
5:39
SPEAKER_04: Uh so we're what, two two weeks-ish out, right?
5:42
SPEAKER_04: So it is still a little bit early days in terms of folks uh digesting it.
5:46
SPEAKER_04: I think one thing that's important to keep in mind, which is UT'd up, is this is an optional semi-annual reporting framework.
5:51
SPEAKER_04: I've heard some describe it as quarterly as the default, right?
5:55
SPEAKER_04: You can you can use those words, but if you you you don't have to opt into it, um, in other words.
6:00
SPEAKER_04: Um it is available to companies on a Form 10S, um, and it's made through an election in a checkbox.
6:08
SPEAKER_03: I was hoping this would be Form 9K, right?
6:10
SPEAKER_03: Go back to the old days, but Form 10S.
6:12
SPEAKER_03: We were innovating like 10H, 10 S, like similar to the regulation A, 1 SA or what you know, that's the 100.
6:18
SPEAKER_01: 10S semi-annual.
6:19
SPEAKER_01: S semi-annual.
6:20
SPEAKER_03: It makes sense.
6:21
SPEAKER_04: So you make an annual election um as a registrant if you want to opt into it.
6:25
SPEAKER_04: You can revisit that.
6:26
SPEAKER_04: You're not locked into it uh permanently, right?
6:28
SPEAKER_04: It can be revisited on a yearly basis.
6:30
SPEAKER_04: And generally speaking, uh the 10S has the same requirements or generally the same requirements as a 10Q.
6:37
SPEAKER_04: So you think about uh gap financial statements, you think about uh auditor review, XBRL tagging, mDNA, other disclosures, right?
6:44
SPEAKER_04: So it's shifting the regime from quarterly to semi-annual.
6:49
SPEAKER_04: Um there were also some, I call them conforming edits to uh age of financial statement rules, so staleness rules to conform to what was previously 129 or 134 days to uh the period that's filed or required to be filed if you if you elect the, take this election.
7:06
SPEAKER_04: Um and then I think one thing that's interesting and may get into some of the implications is um requirements on Form AK, so disclosures of material events, uh are unchanged.
7:16
SPEAKER_04: And I know that's something I suspect we're gonna talk more about on getting some press and some airtime with our clients in terms of uh quarterly earnings cadence and what people choose to do going forward.
7:25
SPEAKER_03: Yeah, yeah.
7:26
SPEAKER_03: So so Jim, you know what got us here, right?
7:31
SPEAKER_03: Like I I go back to the first Trump administration and you know the president tweeted at the SEC and said, I've asked the SEC to look into this.
7:39
SPEAKER_03: And at the time, I don't think the president really was openly pushing stuff to the SEC.
7:45
SPEAKER_03: And um, you know, at the time I was there, we we spent a lot of time on this concept release or you know, list of questions.
7:51
SPEAKER_03: Um, and then we get fast forward to 2021 and it it died on a vine under the the previous administration.
7:57
SPEAKER_03: So um is this something you know have you when you're in private practice, were you were you thinking this is definitely gonna happen?
8:04
SPEAKER_03: Like this was something obviously the president was interested in.
8:07
SPEAKER_03: I'm sure you know Chairman Atkins has also said this is a focus.
8:11
SPEAKER_03: Like what kind of led to this?
8:13
SPEAKER_03: Give us some context.
8:14
SPEAKER_01: Well, I think, you know, from my perspective, yes, it's been talked about a lot.
8:19
SPEAKER_01: This is the first time it's been formally proposed, right?
8:22
SPEAKER_01: You know, in prior administrations, in prior decades, people have talked about this.
8:26
SPEAKER_01: Europe has a different cadence on reporting.
8:29
SPEAKER_01: Uh here in the United States, until 1970s, it wasn't three Qs and a K.
8:34
SPEAKER_01: You know, it w it was a different cadence.
8:36
SPEAKER_01: It was is not as frequent.
8:38
SPEAKER_01: Um So where what happened in the meantime?
8:42
SPEAKER_01: We had people talking about short-termism, long-termism.
8:45
SPEAKER_01: We have people talking about how costly it is to be a public company.
8:48
SPEAKER_01: And I think uh the big probably motivating factor to revisit, I'll call it revisit.
8:54
SPEAKER_01: This is not new.
8:55
SPEAKER_01: Yeah, this is revisiting something that's been discussed and considered for years is you know, how many public companies do we have?
9:02
SPEAKER_01: You know, a few years back, over 8,000.
9:06
SPEAKER_01: We're down to over 4,000.
9:08
SPEAKER_01: We have a 40% reduction in the number of public companies.
9:11
SPEAKER_01: And some people will say, well, why is that bad?
9:13
SPEAKER_01: What why why is there a magic number?
9:15
SPEAKER_01: There is not a magic number.
9:17
SPEAKER_01: But what we are seeing is a buildup, an excessive buildup of companies in the private space.
9:22
SPEAKER_01: And so what you really need to foster is an ecosystem between public and private markets.
9:28
SPEAKER_01: So, you know, would would we as a regulator uh think that maybe more public companies is is is advisable?
9:35
SPEAKER_01: We think so.
9:36
SPEAKER_01: But this is the whole point of the comment process.
9:39
SPEAKER_01: And we're exploring every avenue possible to get some companies that are on the sidelines that maybe are thinking it's too expensive, it's too much work, we need too many consultants.
9:48
SPEAKER_01: And then once you're public, think of the cadence and the timing of making an offering.
9:52
SPEAKER_01: You know, the way we work today, you've got to come in, there's a registration statement, we review.
9:57
SPEAKER_01: It could be a 30 or 45-day delay between the time you come in.
10:02
SPEAKER_01: And that doesn't count the time that you have to prepare the documents.
10:05
SPEAKER_01: So I think where we're going is saying, is it absolutely necessary?
10:09
SPEAKER_01: And this is, again, as you pointed out, voluntary.
10:12
SPEAKER_01: Yeah.
10:12
SPEAKER_01: And some companies could say this is a good idea for their business.
10:16
SPEAKER_01: It's case by case.
10:17
SPEAKER_01: Uh, or maybe it's not, you know, maybe it's not for them.
10:20
SPEAKER_01: I think there are larger companies that are probably very comfortable with their cadre.
10:24
SPEAKER_01: And this may benefit or be attractive to the smaller companies, smaller issuers, maybe those in the life science space.
10:31
SPEAKER_01: Biotechs come to mind.
10:32
SPEAKER_01: Biotechs come immediately to mind.
10:34
SPEAKER_01: And and some say, well, why?
10:36
SPEAKER_01: Well, when they first start out, they're just trying to get their drug through drug trial.
10:40
SPEAKER_01: That's the information they care about.
10:42
SPEAKER_01: That's all they care about.
10:42
SPEAKER_03: Trevor Burrus, Jr.: Not the numbers, not the losses or the RD investment.
10:46
SPEAKER_01: Trevor Burrus, Jr.: It's it's it's what's their checking account say they got left in cash.
10:49
SPEAKER_01: So why do you need three Qs and a K?
10:52
SPEAKER_01: Could it be a different cadence?
10:53
SPEAKER_01: So this is fully exploratory.
10:55
SPEAKER_01: We're getting a lot of great feedback, and frankly, I'm quite excited.
10:58
unknown: Trevor Burrus, Jr.
10:58
SPEAKER_03: You know, it's it's interesting, and you talked about it, and I think it's it's important to highlight, right?
11:03
SPEAKER_03: Like it's it's not a matter of of you know you're looking at the size, the the amount of companies that that are in the public markets.
11:11
SPEAKER_03: It is really the transition, right?
11:14
SPEAKER_03: How do you transition or how how do you incentivize a company to transition?
11:18
SPEAKER_03: They can easily get access to capital in the private markets, but how do you get that liquidity event?
11:23
SPEAKER_03: Like how do you push, you know, move the needle?
11:26
SPEAKER_03: And and I have to admit, like, and we've we've you know we'll talk a little bit about this later, but we're hearing a lot from from our clients on the topic, interest in potentially availing themselves of this change.
11:39
SPEAKER_03: Um, but I want to get kind of reactions from both of you.
11:43
SPEAKER_03: Like you talked a little bit about some of the pros and cons.
11:46
SPEAKER_03: John, I'll start with you and and Jim interject along the way, but you're thinking about some of the pros and cons of this, like what should our listeners be thinking about, right?
11:54
SPEAKER_03: Like, like I've been in audit committee meetings, these are the questions that come up, these are the conversations that need to be had.
12:01
SPEAKER_03: And I think our viewers are people that are gonna get the question from the audit committee or get the question from the CFO, the CEO.
12:07
SPEAKER_04: Um, yeah, certainly.
12:09
SPEAKER_04: And I think one of the interesting things too, Jim, reflecting on what you said is, and you've you and the chairman and others have used these words, is it's a let the market decide approach, right?
12:16
SPEAKER_04: That there may be different things that differ fit different companies, and even peers within the same space may do different things based on investor needs and the like.
12:24
SPEAKER_04: So if you think about sort of pros and cons, and if this is an interesting discussion because we we all may not necessarily agree with the arguments on either side, it's more about the things we're hearing that are out there.
12:34
SPEAKER_04: And one, as Jim said, is short-termism versus long-termism.
12:38
SPEAKER_04: Um as a company, think about compliance costs, uh, preparing the document, resources you have, um, what the needs of those investor base are and how that relates to the information you're putting out, either in an earnings release or otherwise.
12:53
SPEAKER_04: Um, legal framework, legal liability, certainly not an attorney, but that's something that we'll talk about a little bit that that's getting some air time in terms of how a company navigates that.
13:01
SPEAKER_04: And that's real and an offering and in K's and Q's and other documents that are out there.
13:06
SPEAKER_04: Um, you know, I think some of the concerns that are out there are around transparency of information, timeliness.
13:13
SPEAKER_04: Um I have heard some say it's it's interesting we're in a world where information flows more freely, um, yet we're perhaps going to give people the option to scale back uh on what they provide.
13:24
SPEAKER_04: Now, I think there's a strong there's a counterargument to that, which is that there's different forms of information that are going out.
13:29
SPEAKER_04: Um it's not that's not the full picture, right?
13:32
SPEAKER_04: But some have that concern.
13:33
SPEAKER_04: Um then I think some are concerned about comparability of companies against peers that are out there.
13:38
unknown: Yeah.
13:39
SPEAKER_01: Yeah.
13:39
SPEAKER_01: I think there'll be a lot of audit committees, a lot of outside accountants thinking about this as they draft their comment letters and submit their information to us through the portal, through the comment portal.
13:51
SPEAKER_01: Uh I think that what they will be thinking about is is this right for us?
13:55
SPEAKER_01: Yeah.
13:56
SPEAKER_01: Does this make sense?
13:57
SPEAKER_01: And in terms of the supposed concern about a darth of information or a vacuum, some have said, I say no.
14:03
SPEAKER_01: Here's why.
14:04
SPEAKER_01: And this is just coming from 30, 40 years of practice.
14:07
SPEAKER_03: Trevor Burrus, Jr.: Just a little bit.
14:08
SPEAKER_01: Just a little bit.
14:09
SPEAKER_01: Companies like to buy back stock.
14:11
SPEAKER_01: Okay.
14:12
SPEAKER_01: Insiders like to trade.
14:14
SPEAKER_01: Companies love to go out and do their earnings release and their earnings call and tell people what they're doing.
14:19
SPEAKER_03: Trevor Burrus, that's when the market moves.
14:22
SPEAKER_01: Companies offer securities.
14:24
SPEAKER_01: Companies engage in mergers.
14:26
SPEAKER_01: There are many events that uh prompt the need for the disclosure.
14:31
SPEAKER_01: So what's not going away?
14:32
SPEAKER_01: 10 B5.
14:33
SPEAKER_01: The rule that says you have to have all the material information that a reasonable investor will want.
14:38
SPEAKER_01: It's still there.
14:39
SPEAKER_01: And then when you look, I know many companies do their queue, their 10 Q concurrently with or close to the earnings call.
14:47
SPEAKER_01: But there's a number of other companies that have it a day or two, up to a week.
14:51
SPEAKER_01: And from my perspective, having done it for so many years, you never see the stock move when the queue's filed.
14:57
SPEAKER_01: The stock moves when the earnings release goes out, where somebody puts something on a tweet or here or there and you hear it.
15:04
SPEAKER_01: And we still have Reg FD.
15:06
SPEAKER_03: So that's what I keep pointing to.
15:08
SPEAKER_03: Yeah.
15:08
SPEAKER_03: Right.
15:08
SPEAKER_03: It's it is material non public.
15:11
SPEAKER_03: You can't just sit on information or provide it, you know, to this person, but not that person, right?
15:16
SPEAKER_03: So I think I think your point is is is spot on.
15:20
SPEAKER_03: Um and you know what what we're what we're hearing, you know, is essentially consistent with that, right?
15:26
SPEAKER_03: Is you know, people care about our earnings release.
15:29
SPEAKER_03: Um, people aren't necessarily focusing on what's in the 10Q itself.
15:34
SPEAKER_03: Um, I guess kind of one thing that I I do want to touch on before before we move on, really is um when you think about some of the requirements, um, you know, what's required, you know, it's it's the content, things that are actually in there.
15:51
SPEAKER_03: Um do you I I know that that Commissioner Pearce had a comment about that um and had some reaction to, hey, are we doing enough?
16:01
SPEAKER_03: Like, should we take it a step further and revisit the stuff that's in there?
16:06
SPEAKER_03: Um, or do we just kind of you know take a step back and let things be?
16:10
SPEAKER_03: I guess kind of what's your reaction to to that comment?
16:14
SPEAKER_03: Uh it seems like it would be a huge undertaking to essentially go through the Form 10Q, update all these requirements.
16:21
SPEAKER_03: This would obviously seem to be a little bit of a it's like kind of low-hanging fruit.
16:25
unknown: Yeah.
16:25
SPEAKER_01: This is a great segue to the other projects we're working on, right?
16:28
SPEAKER_01: Reg SK.
16:29
SPEAKER_01: When I said earlier, everything's on the table, but we're not giving away the store.
16:33
SPEAKER_01: We're putting all of SK on the table and looking at it and thinking about, you know, what's been there for 50, 60, 70 years that doesn't make sense today.
16:41
SPEAKER_01: And do we really need it?
16:43
SPEAKER_01: Now, I think some of the rules today are very prescriptive.
16:46
SPEAKER_01: You have to disclose this cause, just cause.
16:49
SPEAKER_01: Because it was always there.
16:50
SPEAKER_01: And as a regulator and even as gatekeepers, we just do it cause.
16:56
SPEAKER_01: Well, now we're looking at it and asking people, what don't investors, what don't companies, what don't the markets need?
17:04
SPEAKER_01: And if that's not necessary, why are we continuing to dredge up things that we don't need?
17:09
SPEAKER_01: So we're going to be looking at, I would call it scaling back or right-sizing, you know, streamlining, rationalizing, applying some common sense to SK.
17:18
SPEAKER_02: Yeah.
17:18
SPEAKER_01: So that will dovetail into what's in an AK, what's in a 10 Q, right?
17:23
SPEAKER_01: You don't actually have to go back and look at the form because all the forms, integrated disclosure, cite to an item in SK or SX.
17:31
SPEAKER_02: Yeah.
17:31
SPEAKER_01: So that's what's the beautiful thing.
17:33
SPEAKER_01: These are just the few releases, proposals that have come out, but we have many more to come.
17:38
SPEAKER_03: Yeah, I mean, as I think about some of the challenges, right, when you're looking at SK, SX, I mean, one thing that pops into my mind is look, you you do have the ability, right?
17:49
SPEAKER_03: The Form 10 Q, of course, even the FASB standards do say, look, you can provide abbreviated information, you're providing what's material, you're looking at significant changes from year-end when you talk about the quarter.
18:01
SPEAKER_03: But I I think in practice it's evolved to this like people just disclose.
18:05
SPEAKER_03: It's a compliance exercise, you over-disclose.
18:08
SPEAKER_03: Um, so and every time I tell, though, a company, right, the people that are actually working on the filing, there they look at me and say, well, you can say that we should be looking at those, you know, accommodations, let's say, right?
18:22
SPEAKER_03: But the reality of it is if we don't disclose this, the SEC is going to comment.
18:27
SPEAKER_03: What's your reaction to that?
18:29
SPEAKER_03: Like, is it is this is this a broader, and I know this is not something we we had in here of talking about, but it just popped in my head.
18:35
SPEAKER_03: Is there a broader focus on kind of how you think about the review program itself, or is is it all interrelated, that SK project with this?
18:45
SPEAKER_01: Well, I'll start with the stuff folks don't see.
18:48
SPEAKER_01: Like that you're asking me what's going on back at the building, and what do I think?
18:52
SPEAKER_01: This is just Jim.
18:52
SPEAKER_01: Yeah.
18:53
SPEAKER_01: Right?
18:53
SPEAKER_01: Uh been there in the 90s, did the reviews.
18:55
SPEAKER_01: I got 400 lawyers and accountants just reviewing, doing checklists.
19:00
SPEAKER_01: Law firms, accounting firms have their checklist, checklists.
19:02
SPEAKER_01: Everybody's just going through the checklist.
19:04
SPEAKER_01: I know.
19:04
SPEAKER_01: Directors have the DNO questionnaires.
19:06
SPEAKER_01: They've blossomed to 40 pages long, and we just have these checklists that we're just going through.
19:12
SPEAKER_01: And I think from an internal perspective, if we do this right, which we will, and we we we get back to basics, we get back to financial materiality, what a reasonable investor considers important, and having the companies decide on a company-by-company basis.
19:28
SPEAKER_01: This is what's material to us, not just because it's in a checklist that has dust on it from 60 years ago, then we, the staff, the lawyers, the accountants, we can free ourselves up the other two releases that came out, which will allow for filings to flow more freely.
19:44
SPEAKER_01: We're not I mean, think about it.
19:45
SPEAKER_01: You got 400 people looking at a 10K that was filed maybe six or eight months ago to cover a year before that.
19:53
SPEAKER_01: We're sort of reviewing and regulating through the rearview mirror at something that's 18 months to 24 months old.
19:59
SPEAKER_01: So I would love when this is done, we're going to be updating, modernizing uh how the staff reviews filings.
20:06
SPEAKER_01: We're going to start having staff, hey, watching, because it's now all online, annual meetings, earnings calls, reading the paper on a daily basis versus looking at what's two years old.
20:17
SPEAKER_01: We need to catch up.
20:19
SPEAKER_01: Technology is moving faster than all of us can keep up.
20:22
SPEAKER_01: So this is long overdue.
20:24
SPEAKER_01: So that's what I'll be doing inside the building.
20:26
SPEAKER_01: And I would think for the companies and the gatekeepers, the accountants and the law firms, we just want them to be thinking about that as well.
20:32
SPEAKER_04: Yeah.
20:33
SPEAKER_04: Yeah, the modernization point is really interesting, right?
20:35
SPEAKER_04: I think you've used we we shouldn't be living in the world 50, 60, 70 years ago, right?
20:39
SPEAKER_04: And the securities laws and the information regulation, information flow, right?
20:43
SPEAKER_04: It's just different.
20:44
SPEAKER_04: Yeah.
20:44
SPEAKER_01: And we shouldn't assume that we're smarter than you.
20:46
SPEAKER_02: Yeah.
20:46
SPEAKER_01: When I say smarter than you, meaning just because we're in the building doing the regulating, you know, we're not out there in the trenches.
20:52
SPEAKER_01: And that's why I think the chairman brought back all these people with outside experience to say, okay, you've been out there for decades, you've seen how it's done.
21:00
SPEAKER_01: As soon as the earnings call is over and as soon as the cue is on Edgar, it's like you take one day to take a deep breath.
21:06
SPEAKER_01: All right, let's start all over again.
21:08
SPEAKER_01: And it's like planning for your next party.
21:10
SPEAKER_01: It's Groundhog Day.
21:11
SPEAKER_01: You know, Groundhog Day over and over and over again.
21:13
SPEAKER_01: Yes, because you know I'm into the movies and the blockbusters that are coming this summer.
21:17
SPEAKER_01: Yes.
21:18
SPEAKER_03: So one blockbuster, and I don't want to ignore this, and and you said you you were fine with it.
21:22
SPEAKER_03: I think it's really just important to highlight.
21:24
SPEAKER_03: Like there is, we still get questions on the climate rule.
21:28
SPEAKER_03: Um I know it's over, I think still under review, um, and has not been, you know, you guys not published it yet.
21:35
SPEAKER_03: But anything to add there, or just, hey, it's in process, we're focused on it to provide certainty?
21:41
SPEAKER_01: Look, it was a rulemaking, it was proposed, it was adopted, there was litigation, it's stuck in the Eighth Circuit, uh, and now the the ball is in our court and we have to do something.
21:50
SPEAKER_01: Yeah.
21:50
SPEAKER_01: You know, it it the the the case is in abeyance, and yeah it I I we are looking at it and we're trying to figure out you know what our next move is, but I think you'll probably say Something pretty soon.
22:01
SPEAKER_03: Yeah.
22:01
SPEAKER_03: So I want to switch over to talk a little bit about the implications to IPOs.
22:06
SPEAKER_03: And I I really think it's more like look, we're hearing a lot of noise right in the marketplace about offerings, about these, you know, huge companies in the tech space, some AI companies that, you know, potentially looking to go public.
22:21
SPEAKER_03: So a lot of activity, and I expect we'll continue to see it.
22:24
SPEAKER_03: I mean, there's some uncertainty with what's going on around the globe.
22:27
SPEAKER_03: But again, I think I think we're going to see some movement there.
22:32
SPEAKER_03: What are you envisioning like how this will help?
22:35
SPEAKER_03: What are you hearing?
22:36
SPEAKER_03: Have you talked to some folks that are thinking about going public without naming any any names?
22:41
SPEAKER_03: What the reaction is overall and anything that you want to share to that?
22:44
SPEAKER_03: Because I know you spent a lot of time working on IPOs in your prior job and now and now.
22:49
SPEAKER_03: So good job.
22:50
SPEAKER_04: Yeah, maybe I'll maybe I'll start and let Jim follow on.
22:52
SPEAKER_04: I think, you know, what's what's interesting is you think about the rule proposals together and the impact on IPOs, which gets you to the chairman's statement, your statement, and sort of the cumulative effect of those things.
23:04
SPEAKER_04: Um when you think about semi-annual reporting and you think about some of the potential accommodations under the rule proposal yesterday, like those are incredibly significant offerings.
23:14
SPEAKER_04: And I echo Jim's comments from my years of practice doing it.
23:17
SPEAKER_04: You know, not only is it incredibly difficult for uh preparers, for auditors, for banks, for others as part of an IPO process, you know, to actually get to the finish line uh and get the financial information out there.
23:30
SPEAKER_04: What's often even more difficult is what happens the first queue, the second queue after there.
23:34
SPEAKER_04: Uh and so this semi-annual other things, there's some accommodations it provides here, right?
23:39
SPEAKER_04: You you pop the champagne, as people say, on the S1 and you go to the NYSE or NASDAQ, and then uh next thing you know, you got to go right into a queue.
23:46
SPEAKER_04: And that is often really difficult.
23:48
SPEAKER_01: Yeah.
23:48
SPEAKER_01: The only thing I'd add to that is also the timing, the ability to get to market.
23:52
SPEAKER_01: So you were asking Kyle about like, you know, what are we hearing?
23:55
SPEAKER_01: What are we seeing?
23:56
SPEAKER_01: You all are probably seeing it before we are, because the companies that are thinking of going public are getting their financials audited.
24:02
SPEAKER_01: But yeah, do people come in?
24:03
SPEAKER_01: Do people tell us that they're thinking of going public?
24:05
SPEAKER_01: Yeah.
24:06
SPEAKER_01: And you know, the companies that we're hearing this from in the multi-billion, multi-trillion market cap valuation.
24:13
SPEAKER_01: Uh, you know, are we hearing from the smaller companies?
24:15
SPEAKER_01: Not yet.
24:16
SPEAKER_01: Yeah.
24:16
SPEAKER_01: Because we haven't done these rules yet.
24:18
SPEAKER_01: So the biggies are very interested.
24:20
SPEAKER_03: They're more proactive.
24:21
SPEAKER_01: Yeah, we don't have to sell the biggies.
24:23
SPEAKER_01: The biggies are there.
24:23
SPEAKER_01: Right.
24:24
SPEAKER_01: Uh but you know, some of the smaller and mid-size.
24:26
SPEAKER_01: And then that goes back to my ecosystem point.
24:28
SPEAKER_02: Yeah.
24:28
SPEAKER_01: You cannot have a concentration of 50 multitrillion companies.
24:33
SPEAKER_01: You need uh, you know, a complete spectrum.
24:36
SPEAKER_01: And why?
24:37
SPEAKER_01: To protect investors, diversification.
24:39
SPEAKER_01: You know, it shouldn't all have to, all roads shouldn't have to lead to Silicon Valley and a private venture capital fund to get a piece of a company that's up and coming.
24:49
SPEAKER_01: These companies are getting snapped up before they get to the public markets, and it's important for Main Street America to have that opportunity to see some of these companies.
24:56
SPEAKER_03: Yeah, and I think that that just really echoes kind of when you read the statements from each of the commissioners, there is that's always been kind of the the undercurrent, right?
25:05
SPEAKER_03: Of like, look, let's let's provide more investment opportunities.
25:07
SPEAKER_03: And that was something that certainly the Jay Clayton really was focused on as well.
25:11
SPEAKER_03: Um John, can you talk a little bit about I I know the the FASBI, there's not a lot for them to do, although the chairman has directed the FASB, like, hey, take a look at the requirements.
25:21
SPEAKER_03: You talk a little bit about what what we expect there and kind of the maybe of a couple of the the standards that would have to get updated.
25:27
SPEAKER_04: Yeah, absolutely.
25:27
SPEAKER_04: And I I do think this is really important.
25:30
SPEAKER_04: Um, you know, a few a couple of years ago, I think it was late in 25, the FASBE had a project on interim disclosures.
25:36
SPEAKER_04: And that started a little bit broader.
25:38
SPEAKER_04: It ended up with largely codifying what is out there, what's an annual requirement, what's a quarterly requirement.
25:44
SPEAKER_04: It references materiality, um, but it didn't go through in terms of uh surgically going through standards, thinking about what information should be required, you know, investor needs and the like.
25:54
SPEAKER_04: So I think there's a question there.
25:56
SPEAKER_04: That's what the chairman and others, I think, are teasing out uh through some of those statements, Commissioner Peirce, others.
26:01
SPEAKER_04: But I think for the FASB, there's two buckets of things.
26:03
SPEAKER_04: I think one bucket is there's cleanup, and that's technical stuff.
26:06
SPEAKER_04: And I I candidly don't think this is a big issue, right?
26:09
SPEAKER_04: I think we have some earnings per share guidance, for example, that references quarters.
26:13
SPEAKER_04: Uh, we have things, for example, in hedging that reference three-month periods.
26:17
SPEAKER_04: There's there's another exercise that needs to be done to comprehensively go through that.
26:22
SPEAKER_04: You know, I think the second part of it is there are issues in practice, and maybe there's three buckets, but two is there's issues in practice where things happen on a quarterly cadence, impairment testing, uh, some equity method pickup accounting.
26:34
SPEAKER_04: Um then I think the third bucket maybe is like, okay, is there a holistic look at disclosures broadly and you know what should happen in terms of the the FASB and what should they do?
26:45
SPEAKER_03: Yeah.
26:45
SPEAKER_03: I mean it's interesting because you talk about the impairment point, and I've I've heard I heard from from you know a board member last week at a conference that I've you know moderated, and um, you know, we asked the, you know, obviously asked the question, and our audience was very interested in okay, what do you what are you guys gonna have to do?
27:00
SPEAKER_03: Um, and impairment did come up, and they were talking about the kind of the invitation to comment, and hey, you know, we're we're looking at that.
27:06
SPEAKER_03: And so you may have different views on the board that do you really need to have kind of this, you know, or is it just a trigger, right?
27:13
SPEAKER_03: Rather than like a quarterly cadence, like, hey, there's a trigger, then you test.
27:16
SPEAKER_03: I mean, but they are gonna look at goodwill, I presume, again, which is always the top of the list.
27:21
SPEAKER_03: Like, do you amortize it, do you not?
27:23
SPEAKER_03: I mean, it just continues to be this, it's a conversation.
27:25
SPEAKER_03: We'll see, we'll see what happens with that.
27:27
SPEAKER_04: And there's a view that if it happens in a period you're not reporting on, you just simply let that flow.
27:31
SPEAKER_04: It's picked up in the next period.
27:33
SPEAKER_04: Like your test happens to be on 9 30 or 10.1 is a common date.
27:37
SPEAKER_04: You're just reporting it.
27:38
SPEAKER_04: You just report it in the next filing that you have.
27:40
SPEAKER_03: Yeah.
27:40
SPEAKER_03: So um, so I want to talk about what we're hearing.
27:44
SPEAKER_03: Um, and so you know, we talked a little bit about it, but just, you know, we've had a lot of conversation with clients.
27:51
SPEAKER_03: We've, you know, you you've been talking even to audit committees, I've been talking to audit committees.
27:55
SPEAKER_03: Um, there's there's a lot of interest.
27:57
SPEAKER_03: There's a lot of interest, more more so than I than I thought there would be.
28:00
SPEAKER_03: Um, and I think largely around kind of the different approaches that that one could take, right?
28:06
SPEAKER_03: You could stick with quarterly reporting and file a 10 Q.
28:10
SPEAKER_03: You could, you know, kind of say, hey, like, you know what, we're we're gonna go straight to 10S and we're not gonna do anything, and we're gonna do something in between.
28:17
SPEAKER_03: And something in between could be, you know, different kind of flavors.
28:21
SPEAKER_03: But I think it's that hybrid model, right?
28:23
SPEAKER_03: Which is talked about and discussed, but it's a kind kind of the in-between, right?
28:26
SPEAKER_03: Do you provide or or put your earnings release, you furnish it, you provide the core information, there's gonna be a demand for that.
28:33
SPEAKER_03: Investors are gonna dictate kind of what happens there.
28:36
SPEAKER_03: But um what are you hearing from our clients?
28:38
SPEAKER_03: And and certainly Jim, any you want to weigh in on any of this, you know, feel free.
28:41
SPEAKER_04: But yeah, I I've had a number of discussions to your point with with clients and audit committees and others.
28:46
SPEAKER_04: Um, you know, everybody wants to know what their peers are doing.
28:50
SPEAKER_04: There is a little bit of angst on who's gonna go first on things.
28:54
SPEAKER_04: Yeah, exactly.
28:55
SPEAKER_04: But but one thing that that I think is interesting, and I think our our audience would be surprised, is the number of companies, particularly large companies, that are considering a transition from the status quo is significant, yeah, based on what I've talked to.
29:09
SPEAKER_03: Yeah.
29:10
SPEAKER_04: And that that has surprised me.
29:12
SPEAKER_04: Uh I know as we've talked and others and you've had conversations, right, that has surprised you.
29:16
SPEAKER_04: Um, what I think is really good about the debate is our our clients and other companies, they're focused on what information do I need to get out into the market?
29:25
SPEAKER_04: Um, what information do investors rely upon?
29:28
SPEAKER_04: If I make a change, am I still meeting those needs to get the high quality information?
29:32
SPEAKER_04: Uh, but one thing that is that is really being looked at, and and Jim, I'm curious, your your point of view on this too, is um in a hybrid model, thinking about I'll call it the off-quarters, right?
29:42
SPEAKER_04: The when you're not filing, um, furnishing that information on an 8K, uh, either a full set of financials, some other condensed information, something like that.
29:49
SPEAKER_04: And a lot of our clients are telling us that you know they're evaluating that in terms of whether that's a different legal framework than uh the traditional filing model.
29:58
SPEAKER_04: Uh and there's some appetite for that, it seems.
30:00
SPEAKER_03: I mean, as a put your put your you know, former reg, you know, your former hat on as a you know advisor to to clients, right?
30:08
SPEAKER_03: Do you do you advise a company like, hey, why in the world would you file a 10Q and include these certifications, sign this document when you can put the same information out, even a complete set of interim financials.
30:19
SPEAKER_03: If you want to have the auditor do a a review, um you can do that if you want to access the capital markets quickly.
30:26
SPEAKER_03: Like, what what what would you advise?
30:28
SPEAKER_01: Well, first let me just say, you know, every company's different.
30:31
SPEAKER_03: Yeah.
30:32
SPEAKER_01: And we're operating in uh, I'll call it a rather antiquated system where it's one size fits all.
30:38
SPEAKER_01: Everybody, if you're domestic, everybody just does this is the cycle, and people get obsessed with 129 days, 135 days, and everybody's in there counting days.
30:47
SPEAKER_01: And I think in reality, we live in the real world today.
30:50
SPEAKER_01: Yeah.
30:50
SPEAKER_01: And I think that it has to be tailored.
30:53
SPEAKER_01: And companies are gonna have different drivers, different demands from investors, from the marketplace.
30:59
SPEAKER_01: And what I love about it, what you've heard me say before, is let the free markets be free.
31:04
SPEAKER_01: Let you decide.
31:05
SPEAKER_01: You as gatekeepers, the accountants, the law firms, the underwriters, the issuers, right, the investors who exert quite a bit of pressure today.
31:12
SPEAKER_01: There's a concentration of capital in some really large funds that did not exist 20, 30, 40, 50 years ago.
31:21
SPEAKER_01: So what I see this as is an opportunity.
31:24
SPEAKER_01: And it's one that should not be missed.
31:26
SPEAKER_01: This is an opportunity for everyone out there, you, not us.
31:29
SPEAKER_01: We're asking the questions.
31:30
SPEAKER_01: Yeah, you know, don't don't don't kill the messenger here.
31:33
SPEAKER_01: We're asking you what works for you.
31:36
SPEAKER_01: What do you think?
31:36
SPEAKER_01: How do you see this working?
31:37
SPEAKER_01: And as I said earlier, companies are buying back stock, companies, insiders want to trade, they want to do deals, they uh love earnings calls.
31:45
SPEAKER_01: They love some companies put out financials like revenues, top line, on a on a monthly basis.
31:52
SPEAKER_01: There are companies that do that.
31:53
SPEAKER_01: I know that scares people.
31:54
SPEAKER_01: What do you mean there are people?
31:55
SPEAKER_01: No, they're not.
31:58
SPEAKER_03: Correct.
31:58
SPEAKER_03: You have controls that are repeat.
31:59
SPEAKER_01: I mean, you know, you do comfort letters, okay, and you will figure out what processes will give you the requisite comfort.
32:07
SPEAKER_01: And I've done this where I've had companies when I was in private practice, we've got to buyback stock and it's you know gotta the tender offers got to close on December 15th.
32:15
SPEAKER_01: Oh.
32:16
SPEAKER_01: Two weeks before the end of the year.
32:18
SPEAKER_01: What do we do?
32:19
SPEAKER_01: Do the flash numbers, put them out there.
32:21
SPEAKER_01: Press release.
32:22
SPEAKER_01: What do you think your EPS is gonna be?
32:23
SPEAKER_01: Here's a range.
32:24
SPEAKER_01: And look, they're taking liability.
32:27
SPEAKER_01: If they're wrong, it's forcing management to think about it, but it's also forcing management to think about what's important.
32:33
SPEAKER_01: And when you have some SK line items that talk about something that's a$100,000 materiality threshold or$120,000, you know, on a related party transaction or something.
32:43
SPEAKER_01: Today, with today's market caps, I I don't think there are very many companies.
32:47
SPEAKER_01: I I venture to say 90% or more of the companies would say$100,000 is not our materiality threshold.
32:55
SPEAKER_01: So this puts the companies and the gatekeepers in the driver's seat to decide on a case-by-case basis what is material and practices will develop.
33:03
SPEAKER_02: Yeah.
33:04
SPEAKER_01: Best practices, gold standards.
33:06
SPEAKER_01: And I I'm I'm excited to see how this plays out.
33:08
SPEAKER_03: Yeah.
33:09
SPEAKER_03: You know, I think that makes sense.
33:10
SPEAKER_03: Um, you know, I think as I as I think about kind of all of the, you know, there's a lot of movement, right?
33:16
SPEAKER_03: A lot of things to think about, and certainly, you know, our the preparers, right?
33:21
SPEAKER_03: You know, there there's a lot for them to think about to to what you just said.
33:25
SPEAKER_03: I mean, what what are some of the things to think about?
33:27
SPEAKER_03: You mentioned comfort, and I definitely want to make sure we touch on comfort.
33:31
SPEAKER_03: Um John, I'm gonna turn to you.
33:33
SPEAKER_03: What what do you want to start with?
33:35
SPEAKER_03: What what what should preparers be thinking about?
33:38
SPEAKER_04: Yeah.
33:38
SPEAKER_04: So the discussions today, you know, are working their way through the management, I'll call it through the C-suite.
33:44
SPEAKER_04: So a lot of the discussions we've had today, controllers, CAOs, others, they're starting to get to the CFO, you know, up to other executive level, right?
33:52
SPEAKER_04: So that gets to the point of cross-functional coordination.
33:55
SPEAKER_04: Like companies should be thinking broadly about how this fits their organization and what their needs are, what the investor needs are.
34:01
SPEAKER_04: Uh, alignment with business strategy, right?
34:04
SPEAKER_04: I think the other thing is companies should think about business strategy.
34:09
SPEAKER_04: Like, are they thinking about accessing the capital markets?
34:12
SPEAKER_04: What information might they need to do that?
34:14
SPEAKER_04: If they were to take the option, does it impact that?
34:16
SPEAKER_04: Does it not?
34:17
SPEAKER_04: Not good or bad, right?
34:18
SPEAKER_04: Just thinking about what their needs are.
34:19
SPEAKER_04: So a large company that doesn't access the capital markets frequently may be more apt to think about this 8K type approach than one that is in the capital markets frequently.
34:28
SPEAKER_04: And we can talk about those considerations.
34:30
SPEAKER_04: Uh, there's internal controls.
34:32
SPEAKER_04: There's also a number of compliance things like debt covenants, legal requirements, and other things where there may be cleanup or other broader considerations.
34:38
SPEAKER_04: So there's a lot to think through.
34:40
SPEAKER_03: Yeah, I mean, so it's interesting because I actually have heard several clients say, yes, you know, we we're gonna have to go through our debt agreements and make sure that we have the conversation.
34:49
SPEAKER_03: And I think that really the question is, well, what do they say?
34:52
SPEAKER_03: Do they say in there they're required to be reviewed by the auditor, okay, 10 Q is sufficient to just provide that to us, right?
34:59
SPEAKER_03: Because we know that by rule, right, that it's been reviewed.
35:02
SPEAKER_03: Um so I think that those are some of the things to think about.
35:05
SPEAKER_03: I think, I don't know, as far as as comfort, right?
35:08
SPEAKER_03: And it's the question that has come up a lot about there's a period of time where you can provide as an auditor, you can provide negative assurance, right?
35:17
SPEAKER_03: Yeah.
35:18
SPEAKER_03: Um, over you know, changes, right, that that are in the financial.
35:21
SPEAKER_03: So I think I would say, and and we've been saying this, right?
35:24
SPEAKER_03: And I mean, I may be stealing your thunder here, but but like, look, today, when we have an IPO, if a company winds up having to put in the first quarter or even six months numbers in the document, we do a review.
35:36
SPEAKER_03: Jim just talked about a situation, right?
35:37
SPEAKER_03: You worked through it.
35:39
SPEAKER_03: Right.
35:39
SPEAKER_03: And and likewise when we look into a foreign private issuer, I think about some of my clients that that I supported when I first joined the firm.
35:46
SPEAKER_03: You know, yes, they're they're put going along with their 20 F's, they want to access the capital markets.
35:50
SPEAKER_03: You know, they then you know, they then engage us to do a review of the interim period based on the timing and what their needs are.
35:57
SPEAKER_03: So I think it's it's to your point, you need it, we will be there.
36:01
SPEAKER_03: But any reaction to that?
36:03
SPEAKER_04: Yeah, I think that's all fair.
36:04
SPEAKER_04: The the one thing maybe I would add, just to maybe underscore a little bit, is this you know is something we navigate today in the marketplace.
36:12
SPEAKER_04: And it is um it's preparers, it's underwriters, it's legal counsel, it's auditors, you know, and often it's specific to the dynamics, the risks, uh, the particular facts and circumstances associated with a transaction that drive the information.
36:26
SPEAKER_04: There's voluntary information that goes out, there's ways to do additional work on an expedited timeline.
36:32
SPEAKER_04: It's it's something that's worked through today, right?
36:34
SPEAKER_04: And it feels like we can work through it going forward.
36:36
SPEAKER_03: Yeah, I don't, I don't look at it as a uh something that's gonna get in the way of an obstacle, right?
36:41
SPEAKER_03: It's to us, it's it's kind of what you guys have been saying.
36:44
SPEAKER_03: And I think this is this is something I I think of like your well, several predecessors prior to you, when Bill Heman was director, I remember him saying to the broader, like, hey, like this is not something that I mean, they'll figure it out.
36:56
SPEAKER_03: Underwriters council will figure it out, like they'll figure it out.
36:59
SPEAKER_03: That's that's their job to figure it out.
37:00
SPEAKER_03: It's it's not necessarily yours.
37:02
SPEAKER_03: You know, whether the PCOB, and and that's the the question is right, updating that standard.
37:07
SPEAKER_03: Do you update it from 135 days to 225 days like to accommodate for just companies that are doing six months?
37:14
SPEAKER_03: Um that that's that's probably a separate question.
37:17
SPEAKER_03: But I I think to your point, it's not something that I think will will hold up the the I think the only challenge would be if they engage us too late, and we still have to go through the review.
37:27
SPEAKER_03: It is it is what it is.
37:29
SPEAKER_04: But yeah, and I think you know the it the 135 days is you know, there's different levels of assurance and procedures that are performed, right?
37:36
SPEAKER_04: There are things that can be done after 135 days.
37:38
SPEAKER_04: It's not negative assurance.
37:40
SPEAKER_04: But it's something, right?
37:41
SPEAKER_04: But it's procedures and findings.
37:42
SPEAKER_03: Trevor Burrus, Jr.: Looking at the trial, you know, agreeing something to the general ledger, like things like that.
37:45
SPEAKER_03: Trevor Burrus, Jr.
37:46
SPEAKER_04: It's it's all part of the deal, right?
37:47
SPEAKER_04: And the risks associated with the project.
37:48
SPEAKER_03: I mean, and and with and look, when you're in practice, you would always advise like you better make sure the auditors are Oh, yes, right?
37:55
SPEAKER_01: This this is uh you know, I think some people are worried it's gonna result in less work.
37:59
SPEAKER_01: I'm not worried about that.
38:01
SPEAKER_01: There will be lots of people thinking, it just forces you to put the thinking cap on.
38:04
SPEAKER_01: Yeah.
38:04
SPEAKER_01: You have to look at the companies involved, you have to think about what their investors need, you need to think about what the FASB and the PCOB rules say.
38:12
SPEAKER_01: And I think over the next year or so you will see a coalesce uh around, okay, if this were to be, here's how it would work.
38:21
SPEAKER_01: You know, the markets are not static.
38:24
SPEAKER_01: Companies are not static, and you can't just keep looking at the rules and saying, well, they've always been there.
38:30
SPEAKER_01: So we should just do it because it's always been there.
38:33
SPEAKER_01: This is an opportunity to think, is this the best way?
38:37
SPEAKER_01: And to actually let the free markets decide, dictate whether this is the right approach or not.
38:43
SPEAKER_01: And can there be more than one approach?
38:45
SPEAKER_01: I think so.
38:47
SPEAKER_03: I think there will be.
38:49
SPEAKER_03: If if if if adopted as proposed, there will be a lot of uh variations in what companies do.
38:55
SPEAKER_03: There's no doubt in my mind.
38:56
SPEAKER_03: Right.
38:57
SPEAKER_03: And then like to your point, right, earlier about it's uh it's not a one-size-fits-all, companies of different sizes and different needs, right?
39:03
SPEAKER_03: It's going to depend on what their needs are, their how they want to communicate with stakeholders and investors.
39:08
SPEAKER_04: And it will evolve over time, you know, that's my sense based on the conversations I'm having.
39:12
SPEAKER_04: You will even certain companies that may not elect into all call it the new regime or the semi-annual regime.
39:17
SPEAKER_04: They might see what happens in their space, their peers, others, their situations may change.
39:21
SPEAKER_04: Um, you know, I think you may see a gradual shift over time if people get more comfortable with it.
39:26
SPEAKER_04: Yeah.
39:26
SPEAKER_01: And I will say, you know, on the legal side, when I was in private practice, and we would get drafts of these cues, you know, the three cues in the K.
39:33
SPEAKER_01: You would see MDNA and it would be redlined, and it would be like three words that changed, or four words, you know, the numbers or whatever.
39:40
SPEAKER_01: And it would be like we're just going through this rote exercise.
39:43
SPEAKER_01: And I think it got to the point where I mean, even people, companies looking at it would just say, Yeah, those are the just throw it on the floor.
39:50
SPEAKER_01: Uh so I don't think that the markets are just waiting with bated breath for the queue.
39:55
SPEAKER_03: You don't think people are reading the MDNA, the results of operations discussion?
39:59
SPEAKER_03: I mean, I look, I th I think everything you hear from investors and analysts, right?
40:05
SPEAKER_03: They are looking, right?
40:06
SPEAKER_03: And I I participated in a roundtable and there were uh several analysts there.
40:10
SPEAKER_03: Everything that they are looking, I mean they are looking at what is in that earnings release, right?
40:16
SPEAKER_03: They're listening to the call.
40:18
SPEAKER_03: Like that's what matters to them.
40:20
SPEAKER_03: Do they like the data?
40:21
SPEAKER_03: Do they like data to be tagged?
40:22
SPEAKER_03: Do they want in that format?
40:24
SPEAKER_03: Yes, they love that, right?
40:25
SPEAKER_03: Because it makes it easier for them to do their jobs.
40:26
SPEAKER_03: Maybe the AI initiatives that are going on will open up the the door for people to do, you know, potentially more with the data and um not not even you know setting aside the the XPRL tagging.
40:38
SPEAKER_03: Um but I think I think it's gonna be very interesting to see.
40:42
SPEAKER_03: I I do think where we're headed, right, is going to be a broader impact.
40:48
SPEAKER_03: I mean, we're gonna see a lot of companies looking at this.
40:51
SPEAKER_03: A lot of companies are excited about it.
40:53
SPEAKER_03: I mean, I I guess my question for you, John, is I think about audit committees.
40:57
SPEAKER_03: Like in your conversation with audit committees, is there anything else?
41:00
SPEAKER_03: We we've covered a lot, anything else that that an audit committee should be, you know, chair should be thinking about.
41:05
SPEAKER_03: I mean, I my view is like you got to talk to your you know, management, you gotta, you know, you gotta talk to your you know, investor relations folks, all those parties figure out, like understand what your you know investors are are looking for, right?
41:17
SPEAKER_03: The institutional investors, I think, are gonna drive a lot of those conversations.
41:20
SPEAKER_04: But yeah, I I think it it underscores the importance of the audit committee.
41:24
SPEAKER_04: I know when you and I were on the SEC staff together, right?
41:27
SPEAKER_04: That was something we spent a lot of time on, is like the importance, the governance role of the audit committee and that engagement with management to your point.
41:34
SPEAKER_04: Um and I think taking that that seriously, right, engaging with understanding.
41:38
SPEAKER_04: Sure, there are some things, you know, cadence of meetings, controls, other things that sort of follow off the list we went through.
41:44
SPEAKER_04: But I think largely the bucket of things falls in the same just through a governance lens as opposed to a management lens.
41:48
SPEAKER_04: Yes, yeah.
41:50
SPEAKER_01: And, you know, big picture, I think what you might see, assuming we get to an adoption, you might just see these disclosures moving from the Q, the 10 Q2, an AK.
41:59
SPEAKER_01: And and and and you know, the markets will drive that and it will become more real-time.
42:04
SPEAKER_02: Yeah.
42:04
SPEAKER_01: You know, right now we sort of have like milestones.
42:07
SPEAKER_01: Oh, every three months we do this.
42:08
SPEAKER_01: But, you know, some people pay their taxes quarterly, some people pay them monthly, and I think the markets will drive it, and you will see more real-time disclosures that will match more real-time trading.
42:19
SPEAKER_01: Yeah.
42:20
SPEAKER_01: The demand for the information is not going away.
42:22
SPEAKER_03: It's not.
42:22
SPEAKER_01: And the companies have it.
42:23
SPEAKER_01: It's not.
42:23
SPEAKER_01: And if it provides a little extra work for people to think, put the thinking cap on, I think that's great.
42:28
SPEAKER_03: Well, and I think you, and you alluded to this earlier, right?
42:30
SPEAKER_03: Like more information, you're gonna provide it to one investor, you have an investor deck, you provide it, you still have to comply with Reg FD.
42:36
SPEAKER_03: That information is gonna be out there, right?
42:38
SPEAKER_03: So it's not that there's not gonna be, to your point, that lack of information or selective sharing because you got to comply with those requirements.
42:46
SPEAKER_04: As you think about the ecosystem, and you you referred to it, one of the things that has resonated with me is like challenge ourselves to think differently.
42:54
SPEAKER_04: That's what you all are doing with these proposals, you know, whether it's the accounting profession, preparers, others.
42:59
SPEAKER_04: And I've been encouraged by the discussions I've had today, right?
43:02
SPEAKER_04: The focus is on high-quality information, not taking information away, perhaps other means of doing things.
43:07
SPEAKER_04: But I think we have to challenge ourselves to think differently given how the world works now and how information's flowing.
43:12
SPEAKER_04: Like it's just the reality.
43:13
SPEAKER_03: I mean, so that that's your final thought.
43:15
SPEAKER_03: Yeah.
43:15
SPEAKER_03: That's your final thought.
43:17
SPEAKER_03: That was fantastic.
43:18
SPEAKER_01: My final thought: long overdue refresh.
43:21
SPEAKER_01: We just have to revisit.
43:23
SPEAKER_01: We just can't assume that everything that we've done and just layered paint on top of paint, I call it the handrail, you know, the banister.
43:29
SPEAKER_01: We got 24 coats of paint on it.
43:31
SPEAKER_01: We got to get back to the wood, we've got to stain it, we gotta make it look good, and we need to make it work well.
43:36
SPEAKER_01: It needs to be stable.
43:37
SPEAKER_03: Yeah, no, I think those are great points.
43:39
SPEAKER_03: I think the one thing I I forgot to mention is you you did do a podcast, a similar thing with with the chairman.
43:46
SPEAKER_03: Um, and I do want to reference it actually was prior to these proposals being put out.
43:51
SPEAKER_03: You know, obviously we're working on them, so you couldn't say a whole heck of a lot.
43:53
SPEAKER_03: But I think I I would encourage people to look at that, watch that, because you really provide a lot of insights of your background, um, you know, the history of a lot of these things, and kind of what the broader um approach is going to be to these rulemakings.
44:06
SPEAKER_03: And so um wanted to close out with that, and and certainly a lot more to come on this topic um and and many others, but I want to thank the two of you for joining me today.
44:15
SPEAKER_03: John, I really appreciate it.
44:17
SPEAKER_03: Jim, thank you for joining us.
44:18
SPEAKER_03: Thank you so much.
44:19
SPEAKER_01: Thank you.
44:28
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44:45
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