SEC proposes improved mutual fund disclosure

The US Securities and Exchange Commission (SEC) is proposing rule changes for sending or giving key information to investors in the form of a "summary prospectus" and providing the summary prospectus, statutory prospectus, shareholder reports and other information on an Internet website in a format that enhances investors' ability to effectively use the more detailed information in those documents. In addition, the information would be provided in paper to any investor who prefers to review more detailed information in that format. The proposal is intended to take advantage of technological developments and the expanded use of the Internet in order to provide investors with information that is easier to use and more readily accessible, while retaining the comprehensive quality of the information that is available to investors today. (View the SEC Press Release.)

Clarity and plain language in annual reports

Under Warren Buffett, Berkshire Hathaway has been a model of transparency and honesty. He famously noted that he writes his annual reports as if he were writing a letter to his Aunt Alice or his sister Doris, aiming for clarity, simplicity and an absence of jargon. (Review the latest annual report for Berkshire Hathaway.)

War on Complexity

The US Securities and Exchange Commission (SEC) has joined with the Financial Accounting Standards Board (FASB) in an all-out “War on Complexity in Accounting.” The SEC’s Advisory Committee on Improvements to Financial Reporting has the overall objective of making recommendations on reducing complexity in financial reporting. It held its second meeting on November 2, 2007. Its charter identifies four areas for attention:

• the current approach to standard-setting;
• the current approach to regulating compliance;
• factors that may drive unnecessary complexity; and
• lessons that can be learned from using international standards.

Earnings guidance for investor decision-making

Overall, earnings guidance is useful for investors in their decision-making. It may, however, damage shareholder wealth when the quality of the information is low. To improve information quality, good news guidance should include more details as to why and how management arrives at a particular estimate, while bad news guidance should be released in a timely manner. (Read the article on Relevant and timely, please in the November 2007 issue of CAmagazine online.)

Corporate reporting: a time for reflection

PricewaterhouseCoopers has recently published a survey on Corporate reporting: a time for reflection. It examines the narrative reporting practices of the world's largest companies, the Fortune Global 500. The objective is to provide answers to key questions. What does the narrative discussion actually communicate? Are companies meeting the information needs of their priority audience for these strategic communications - investors? For a summary article, refer to Judging the narrative in annual reports in the November 2007 CAmagazine online.