Vitesse backdating settlement
 Finally, as management members prepare the MD&A for the upcoming annual report, they should pay careful attention to the SEC’s “back-to-basics” approach.
No matter how novel or complex a specific financing arrangement might be, or whether its disclosure is expressly mandated by rule, the longstanding “principlesbased” analysis of materiality embodied in Exchange Act Rule 12b-20 should govern: “[I]n addition to the information expressly required to be included …
Where necessary to enhance investor understanding of the timing and amount of the specified contractual obligations, companies should add footnotes or additional narrative to explain the tabular data.
The SEC suggested, for example, that a company might consider separating amounts in the table into “on” and “off” the balance sheet, particularly where such a distinction helps to tie the information to disclosure in the MD&A and financial statements.
To meet PSLRA standards, risk factor language must be “meaningful” and must “accompany” any forward-looking statements contained in the MD&A and/or other narrative sections of periodic reports.
Note that the financial statements are not protected by the PSLRA safe harbors.
Companies now focusing on preparation of the upcoming annual report have the benefit of wide-ranging disclosure guidance issued in 2010 and early 2011 by the SEC and its Staff.
While many of the issues have been highlighted repeatedly since the financial crisis began to erupt in 2007, the significance of the latest round of guidance has been underscored by a far more aggressive SEC enforcement posture in the financial reporting area.
Senior Staff members of both the SEC and FASB recently warned that they will be reviewing “FAS 5” compliance in upcoming annual reports with even greater rigor than before, after a year or more of intense SEC Staff focus on this issue in speeches and during the review and comment process.Regardless of the appropriate accounting treatment or the existence of an obligation to disclose these transactions as material off-balance sheet arrangements or contractual obligations in the MD&A, further discussion and analysis of these transactions may be necessary in the MD&A if management concludes that they are “reasonably likely to result in the use of a material amount of cash or other liquid assets.” Companies also should review the MD&A Liquidity Release for helpful tips on what the SEC and its Staff expect to see in the MD&A concerning disclosure of cash management and risk management policies relevant to an evaluation of their financial condition.This disclosure may be necessary, the SEC believes, to provide context for the material exposures identified in the MD&A. We begin with the two most notable SEC interpretive pronouncements in 2010 regarding the need for “early warning” disclosures of material risks in periodic reports.In practical terms, they call for management to engage in an ongoing process of identifying, and reassessing the significance of, a multitude of business, financial and regulatory risks and uncertainties facing the company. The February 2010 Climate Change Release The first of these SEC interpretive releases, published in February 2010, is somewhat deceptively entitled (the “Climate Change Release”).