Last week, there was a promising development for Regulation A+ – the House passed the “Improving Access to Capital Act,” which would allow reporting companies to use Reg A+. But wait, there’s more! Under this bill, Exchange Act periodic reports would also satisfy the reporting requirements for Tier 2 offerings. Remember, Tier 2 offerings can raise up to $50 million in a 12-month period.
Smaller public companies that are not listed on Nasdaq or the NYSE, and are therefore subject to state securities regulation in respect of their capital raising activities, may find Regulation A+ especially attractive, because an offering under Tier 2 of Regulation A+ is preempted from state securities regulation other than the potential requirement to make a notice filing, consent to service of process, and pay a filing fee.
We don’t know how the Senate will vote, but the House passed the bill with an overwhelming vote of 403-3 – so stay tuned. This development is in addition to Corp Fin’s recent actions to expand confidential IPO reviews and allow companies to omit certain interim financial information from registration statements…
Meanwhile, Jay Knight & William Lay of Bass Berry have put together this nice set of FAQs on Reg A+ offerings…
Do Audit Tensions Cause “Material Weaknesses”?
A few weeks ago, John blogged about the correlation between late-season auditor dismissals & “bad apples” – companies with restatements, material weaknesses & delistings. This “Audit Analytics” white paper goes further, to suggest that auditor tensions might contribute to the negative events (also see this Compliance Week article).
According to the research, the events associated with higher likelihood of a material weakness in the same year include:
– Changing auditors – and reporting disputes with the former auditor – increases the probability of a material weakness by 12.74%
– Reporting a reissuance restatement or filing two or more financial restatements in the calendar year increases the probability by 19.61%
– Receiving a significant vote against auditor ratification increases the probability by 24.02%
It appears something is seriously amiss here. The study seems to conclude that if the auditors and management get along, the auditors are not near as likely as to report a problem to investors. But if the find themselves at odds, a scorned auditor is willing to tell all. What might be more likely is that companies are firing auditors when there’s a disagreement over a material weakness finding – and the dismissal is reported before filing the annual report.
Survey Results: Compliance Training Still Not a Priority…
As reflected by this 54-page report from Navex Global, despite the flurry of recent scandals, companies aren’t investing in more training – and in some cases, are investing less! Here’s some of the survey’s notables:
– 25% still don’t have a dedicated budget for compliance training (same as last year)
– 93% aren’t even attempting to show a return on investment from training (which helps explain why so little investment is being made)
– Directors are getting trained less than last year – down to 44% compared to 58% last year. Only 17% of new directors are getting training – and only 25% of directors get cybersecurity training.
– Retaliation concerns are lower than expected at 20%
The silver lining is that 31% are actually taking data from their policy/incident management systems – and combining it with training data to create more savvy & efficient programs.
– Liz Dunshee