November 2010: Short-Term Borrowings Disclosure

8/7/2019 November 2010: Short-Term Borrowings Disclosure

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SHORT-TERM BORROWINGS DISCLOSURE

By Connie Kwong, CPA, Senior Manager - Assurance & Advisory Practice TUESDAY, NOVEMBER 2, 201

Public Company Financial Executive Briefng

The Security and Exchange Commission issued a proposedrule, Short-Term Borrowings Disclosure, on September 17,2010 to enhance disclosure that registrants provide toinvestors regarding the use and impact o their short-termnancing arrangements.

Who Would Be Affected by the Proposed Rule?

The amendments in this proposed rule would aect allentities.

The SEC believes that leverage and liquidity continue tobe signicant areas o ocus or investors, and MD&Adisclosure relating to liquidity and capital resources iscritical to an assessment o a company’s prospects or theuture and even the likelihood o its survival.

The proposal would require a registrant to provide, ina separately captioned subsection o Management’sDiscussion and Analysis o Financial Condition andResults o Operations, a comprehensive explanation o its short-term borrowings, including both quantitative andqualitative inormation. The proposed amendments wouldbe applicable to annual and quarterly reports, proxy, orinormation statements that include nancial statements,registration statements under the Securities Exchange Acto 1934, and registration statements under the SecuritiesAct o 1933.

Under the proposed rule, “short-term borrowings” wouldbe dened by reerence to the various categories o arrangements that comprise the short-term obligationsrefected in a registrant’s nancial statements, and allregistrants would be required to present inormation oreach category o short term borrowings. Specically, asproposed, “short-term borrowings” would mean amountspayable or short-term obligations that are:• ederal unds purchased and securities sold under

agreements to repurchase,• commercial paper,• borrowings rom banks,• borrowings rom actors or other nancial institutions,

and

• any other short-term borrowings refected on theregistrant’s balance sheet.

Exiting Requirements for Disclosure of Short-

Term Borrowings

Exiting MD&A requirements call or discussion and analysiso a registrant’s liquidity and capital resources. However,other than liquidity and capital resources, companies thatdo not provide Industry Guide 3 disclosure, StatisticalDisclosure by Bank Holding Companies (“Guide 3”), arenot subject to any line item requirements or the reportingo specic data regarding short-term borrowing amounts orinormation about intra-period borrowing levels.

Proposed New Short-Term Borrowings Disclosurein MD&A

The proposed amendments would codiy in RegulationS-K, the Guide 3 provisions or disclosure o short-termborrowings applicable to bank holding companies andwould apply to all companies that provide MD&A disclosure,not only to bank holding companies and other nancialinstitutions. The SEC proposed to include a narrativeexplanation together with tabular data or the short-termborrowings.

As proposed, registrants would be required to provide

disclosure in MD&A o:• the amount in each specied category o short-term

borrowings at the end o the reporting period and theweighted average interest rate on those borrowings,

• the average amount in each specied category o short-term borrowings or the reporting period and theweighted average interest rate on those borrowings,

• or registrants meeting the proposed denition o “nancial company,” the maximum daily amount o eachspecied category o short-term borrowings during thereporting period, and

• or all other registrants, the maximum month-end amount o each specied category short-term

borrowings during the reporting period.

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Jim Pitrat:

[email protected] LeaderAssurance & Advisory

Harmeet Singh:

[email protected] Combinations Subject Matter Expert

Los Angeles, Silicon Valley

Gale Moore:

[email protected] Combinations Subject Matte

Orange County, San Diego

FOR FURTHER INFORMATION, PLEASE CONTACT ONE OF THE FOLLOWING:

The SEC also proposed to require a narrative discussion o short-term borrowing arrangements which is not currently inGuide 3. The topics proposed to be included would be:• a general description o the short-term borrowings

arrangement included in each category and thebusiness purpose o those arrangements,

• the importance to the registrant o its short-termborrowings arrangements to its liquidity, capital

resources, market-risk support, credit-risk support, orother benets,

• the reason or the maximum amount or the reportingperiod, including any non-recurring transactions orevents, use o proceeds, or other inormation thatprovides context or the maximum amount, and

• the reasons or any material dierences betweenaverage short-term borrowings or the reporting periodand the period-end short term borrowings.

Besides enhancing the disclosure requirements andrequiring interim period disclosure to be at the same level odetail as is or the annual presentation, the proposed rulealso adds short-term borrowings disclosure requirements toItem 5 o Form 20-F and conorming the denition o “directnancial obligations” in Form 8-K.

Comments DueThe proposed rule is opened or comments until November29, 2010.

Connie Kwong:

[email protected] ManagerAssurance & Advisory

Documents

November 2010: Short-Term Borrowings Disclosure