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September 24, 2019

Quarterly Reporting & ESG: The CFA Institute Weighs In

This SEC Institute blog flags a recent CFA Institute member survey addressing quarterly reporting & ESG disclosure. This excerpt says that quarterly reports are more important to investors than earnings releases, and that those reports & releases should be provided simultaneously:

The majority of survey respondents state that investors heavily rely on earnings releases because they are generally issued before quarterly financial reports. Respondents, however, indicate that quarterly reports remain more important to investors than earnings releases.

These quarterly reports provide a structured information set that follows accounting standards and regulatory guidelines and include incremental financial statement disclosures and management discussion and analysis. In addition, quarterly reports offer greater investor protections as they are certified by the officers of the company, subject companies to greater legal liability, and are reviewed by company auditors.

As for timing, the majority of respondents believe quarterly reports and earnings releases should be provided simultaneously because this would reduce the significant amount of time spent reconciling the contents of earnings releases with those of quarterly reports as well as ensure that investors can ask better questions during earnings calls by having access to the more detailed information contained in the quarterly report. Roundtable participants agree with these positions.

I understand why investors might like earnings releases & SEC reports to hit simultaneously, but I think many lawyers would say that idea is a non-starter. The problem is that earnings calls can go in all sorts of directions, and a lot of companies want to have the opportunity to take a last look at their draft filings make sure that all topics addressed in the call are appropriately addressed in what gets filed with the SEC. If they’re not, companies risk hearing about it in a Staff comment.

By the way, the survey also says that investors have no taste whatsoever for alternatives to 10-Q reporting or less frequent reports, and want companies to continue to provide quarterly earnings guidance.

When it comes to ESG reporting, the survey says that investors are for it, but because ESG means different things to different people, securities regulators need to provide uniform standards in order for that disclosure to be meaningful.

SEC Enforcement: Who Needs a CFO When You Have a POA?

Every now and again you stumble across an SEC enforcement proceeding that can only be described as “goofy.” I think the recently announced action against former Viking Energy CEO Tom Simeo easily qualifies for that description. According to the SEC’s press release announcing the litigation, the CEO “created the false impression to the public that Viking had an experienced financial professional involved in its operations and financial reporting as its CFO, when in reality, the Company had no CFO.”

At one point, the company apparently did appoint Guangfang “Cecile” Yang as its CFO, but the SEC alleges that there’s no evidence that she actually functioned as CFO “from at least November 2014 through Yang’s purported resignation in July 2016.” While the company didn’t actually have a CFO, according to the SEC’s complaint, the CEO did have something else:

One day after her appointment as Viking’s CFO, Yang also executed a power of attorney in favor of Simeo, authorizing Simeo to affix Yang’s signature to any and all documents – including filings with the SEC – that Yang was required to review and sign as Viking’s CFO and board member. The Company never disclosed in its filings that Yang had executed a power of attorney in favor of Simeo.

Simeo allegedly put that POA to good use, liberally affixing the purported CFO’s signature to various SEC filings & certifications. For some reason, the SEC appears to have found that troubling. . . .

Transcript: “Secrets of the Corporate Secretary Department”

We’ve posted the transcript for our recent webcast: “Secrets of the Corporate Secretary Department.”

John Jenkins