Securities Law News

Deloitte, PwC Ask SEC to Refine Debt Offering Disclosure Plan

Dec. 5, 2018, 10:30 AM

The SEC will have to tweak its proposal aimed at simplifying debt offering reporting rules if it wants to assuage concerns from major accounting firms.

Deloitte & Touche LLP and PwC, also known as PricewaterhouseCoopers, have told the Securities and Exchange Commission the plan may cause some confusion, despite having several benefits for companies and investors. The agency received the feedback during a comment period that ended Dec. 3.

The SEC voted unanimously in July to propose the amendments to Regulation S-X, which governs financial statements. The proposal would let issuers and guarantors of debt securities scale back some of their disclosures and discontinue certain reporting altogether.

The current requirements are “challenging, time-consuming, and costly” for many preparers, but the SEC’s plan to fix them could use some refining, according to Deloitte.

“We support the SEC’s objective of improving its disclosure requirements to enhance the information provided to investors and promote efficiency, competition, and capital formation,” the firm said in its letter.

Location, Location

Deloitte and PwC were particularly worried about a part of the proposal that would let companies disclose information related to debt securities in places other than financial statements first.

Ernst & Young LLP and KPMG LLP also expressed concerns about the location of disclosures in letters to the agency.

The planned change could leave investors unsure about how the disclosures are audited, according to Deloitte and PricewaterhouseCoopers.

“By changing the location of the information, it becomes subject to different levels of auditor assurance, which could also create confusion and provide initial and secondary investors with different levels of assurance,” PwC said in its letter.

Deloitte, PwC, KPMG, and Ernst & Young also suggested the SEC issue transition guidance when it finalizes the regulation. The instructions should include information about when companies would need to follow new requirements for their filings, the firms said.

“We believe that such guidance, which could be included in the adopting release or in a separate document released contemporaneously with the adopting release, may alleviate questions and confusion that often occur when new rules or regulations are published,” Deloitte said in its letter.

The accounting firms’ letters were among more than two dozen the SEC received on the proposal. Most of the commenters were generally supportive of the plan. The list included Dell Technologies Inc., FedEx Corp., and T-Mobile US Inc.

Fixed Income Manager Criticism

But the Credit Roundtable, which represents large institutional fixed income managers, used its letter to criticize a part of the plan that would give companies an avenue to end disclosures that currently apply for the life of a debt security.

“Information is essential to properly assess and price risk,” the group said. “Eliminating reporting requirements results in reduced liquidity and ineligibility which drives down the price or increases the required return.”

An agency representative didn’t immediately respond to a request for comment.

Commission Chairman Jay Clayton said when the proposal was issued that it’s “intended to make the disclosures easier for investors to understand and to encourage these offerings to be conducted on a SEC-registered basis.”

The SEC has yet to announce when it may vote on whether to adopt the proposal.

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com

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