Institute Supports SEC Corporate Disclosure Proposals, December 2002

Washington, DC, December 13, 2002 - The Institute supports two recent SEC rulemaking initiatives that address public companies' disclosure in information delivered to shareholders. The first proposal would require disclosure of an issuer's off-balance sheet transactions, arrangements, obligations, and other relationships in the Management's Discussion and Analysis (MD&A) section of quarterly and annual reports. The second proposal would require critical accounting policies disclosure in corporate issuers' quarterly and annual reports.

In a recent comment letter, the Institute-which has strongly supported legislative and regulatory efforts to improve corporate governance-states its belief that the two recent proposals will enhance investors' abilities to understand how issuers finance their operations, comprehend the risks that are not always apparent in financial statements, and compare an issuer's financial information with other reporting periods and with other companies.

Off-Balance Sheet Proposal
The Institute supports the SEC's off-balance sheet proposal, but noted that the proposed "more than remote" standard for disclosing off-balance sheet arrangements may result in extensive disclosure that could overwhelm readers. The Institute thus reiterated its earlier recommendation that the SEC require issuers to include an MD&A summary section in their quarterly and annual filings, which would require management to identify the principal factors driving financial results, the principal trends on which it focuses, and the principal risks to the business.

Use of Non-GAAP Financial Measures
The Institute also supports the SEC's pro forma proposal, which would:

require issuers that publicly disclose pro forma financial information to include comparable financial information calculated and presented in accordance with GAAP, and provide a reconciliation of the differences between the GAAP and non-GAAP financial information;
require issuers that use pro forma financial information in filings with the SEC to include comparable GAAP information, a quantitative reconciliation of the difference between the GAAP and non-GAAP financial information, a statement discussing the purposes for which the pro forma financial information is being presented, and the reasons why management deems such presentation useful to investors; and
require issuers to file a Form 8-K within two business days of any public announcement or release disclosing material non-public information regarding a registrant's results of operations or financial condition for a completed annual or quarterly fiscal period.

The SEC's proposal is consistent with recommendations made by the Institute in a May comment letter in which it urged the SEC to require reporting companies that release earnings announcements to file such information with the SEC on Form 8-K, and if such announcements include pro forma or non-standardized earnings information, the SEC should require the Form 8-K to contain a reconciliation to GAAP-basis earnings. The Institute notes that by imposing a reconciliation requirement, the SEC's proposal would improve the quality and transparency of issuer disclosures.