PRA - Regulation__S-X_Supporting_Statement 6.16

SUPPORTING STATEMENT
FOR THE PAPERWORK REDUCTION ACT SUBMISSION FOR AN EXTENSION
OF A CURRENT INFORMATION COLLECTION
“REGULATION S-X”

A.

Justification

1.

Necessity of Information Collection

Issuers of securities are required under the securities laws to include financial statements
in certain registration statements, periodic reports and other documents filed with the Securities
and Exchange Commission (“Commission” or “SEC”). The SEC has the statutory authority to
prescribe the form in which the required information will be set forth in the financial statements,
the items to be shown in the balance sheet, earnings and cash flow statements, the methods to be
followed in the preparation of accounts, the determination of income, and the valuation of assets
and liabilities. The SEC adopted Regulation S-X in 1940 to implement certain segments of this
authority, and it has been updated and amended over the years. The regulation provides
guidance as to the form and content of required financial statements and specifies the footnotes
and schedules that should be included in or filed with the financial statements. It also addresses
the qualifications of accountants, including their independence from audit clients, and the content
of their audit reports on financial statements.
Regulation S-X, however, does not require the filing of financial statements. Rather,
those forms and rules under the federal securities laws that do require financial statements refer
to Regulation S-X for guidance in the preparation of such statements.

2.

Purposes of, and Consequences of Not Requiring, the Information Collection

The principal function of SEC forms and rules under the securities laws’ disclosure
provisions is to make information available to the securities markets. The SEC uses very little of
the collected information itself (except on an occasional basis in the enforcement of the securities
laws). In this respect, these information collections differ significantly from most other federal
information collections that are primarily for the use and benefit of the collecting agency.
The information required to be filed with the Commission permits verification of
compliance with securities law requirements and assures the public availability and
dissemination of such information. Private contractors reproduce much of the filed information
and provide it to private parties, and many other persons obtain information directly from the
Commission’s public files. This information is needed by security holders, investors, brokers,
dealers, investment banking firms, professional securities analysts and others in evaluating
securities and making investment and voting decisions with respect to them.

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Regulation S-X lays the foundation for financial statement presentation in SEC forms and
rules. It assures the comparability and uniformity of financial information necessary for
investment and corporate governance analysis. This regulation, therefore, is the core of the
SEC’s financial reporting system.
3.

Role of Improved Information Technology and Obstacles to Reducing Burden

Retrieval of Regulation S-X is completed by using the GPO Access e-CFR website.
4.

Efforts to Identify Duplication

The Commission has undertaken an effort to identify duplicative private sector
accounting standards. Regulation S-X incorporates or modifies the information prepared under
generally accepted accounting principles (“GAAP”) for use in filings with the Commission.
The SEC oversees and works closely with private sector organizations, such as the
Financial Accounting Standards Board (“FASB”), to establish accounting standards. The FASB
maintains the Accounting Standards Codification (“Codification”), which the Commission has
recognized as GAAP. The FASB engages in a lengthy, deliberative process before issuing any
updates to the Codification. The Commission often cannot wait until the completion of this
process to take a position on a new accounting practice, and the SEC may adopt a rule in
Regulation S-X to address a practice before the FASB is able to consider it. After the
Codification is amended, the Commission evaluates the amendment and determines whether the
S-X rule remains necessary. If the Codification amendment and the related rule in Regulation SX are duplicative, the SEC may rescind its rule in order to avoid confusion.
Not all of the rules in Regulation S-X, however, are in anticipation of pending action by the
FASB. As noted above, these rules also supplement or clarify GAAP, including the
Codification, for Commission registrants. These rules generally elicit financial information that,
although not incorporated into GAAP, is, in the opinion of the Commission, material to decisions
made by investors and shareholders.
Regulation S-X does not duplicate other federal collections of information. The
information required by Regulation S-X is not available from other sources. Maintaining
Regulation S-X as a uniform source of standards across multiple Commission filings helps
protect against duplication within the Commission.
5.

Effect on Small Entities

The Commission has taken several steps to lessen the impact of accounting and financial
statement requirements on small entities. The Commission has adopted Regulations A and D,
and certain scaled disclosure requirements in Regulation S-K and S-X, which reduce the
reporting requirements for certain small issuers in terms of both the number of years for which
there must be audited financial statements and the Commission’s accounting rules that apply to
small offerings.

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6.

Consequences of Less Frequent Collection

If the information were collected less frequently than currently required, investors and
security holders would be unable to evaluate the performance and financial position of
registrants on a timely basis and their ability to make investment and voting decisions would be
hindered accordingly.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

Issuers may be required to file financial statements that comply with Regulation S-X
more often than quarterly, such as upon the offer and sale of securities or upon the acquisition of
a business. However, under the Commission’s integrated disclosure system, the financial
statements of previously filed annual and quarterly reports typically are incorporated by
reference into the filings related to the sale of securities.
The remainder of factors under this item are not applicable.
8.

Consultations Outside the Agency

Prior to submission for OMB review, Regulation S-X was proposed for public comment.
[No comments were received on this request during the 60-day comment period prior to OMB’s
review.]
Over the years, each time the Commission has amended the specific rules within
Regulation S-X, it has sought the advice of public commenters. These comments consistently
have been helpful in addressing the practical impact of the rule proposals, the costs versus the
benefits of such proposals, and additional recordkeeping that would be required by registrants if
such proposals were adopted.
In addition, the Commission staff also meets periodically with the staffs of the FASB,
various committees of the American Institute of Certified Public Accountants (“AICPA”), and
the Public Company Accounting Oversight Board to discuss matters of mutual interest, including
the Commission’s accounting requirements. The Commission staff also periodically meets with
representatives of the public, including investors, registrants, auditors, and members of the
business community, to discuss, among other things, the Commission’s accounting and
disclosure requirements. Topics discussed may include the availability of financial data, how
frequently that data should be collected and reported, the clarity of the rules in Regulation S-X,
and the recordkeeping, disclosure, reporting formats, and data elements to be reported and
disclosed.
9.

Payment or Gift to Respondents

Not applicable.
10.

Assurance of Confidentiality

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Not applicable.
11.

Sensitive Questions

Not applicable.
12.

Estimate of Respondent Reporting Burden

Regulation S-X is the repository for rules regarding the form and content of the financial
statements filed with the Commission. It, however, does not direct registrants to file such
financial statements or to collect financial data. Regulation S-X merely indicates what should be
in the financial statements and how such statements should be presented when they are required
to be filed by other rules and forms under the federal securities laws. Because Regulation S-X
does not require any information to be filed with the SEC, only one burden hour is assigned to
cover incidental reading of the regulation.
13.

Estimate of Total Annualized Cost Burden

To avoid double-counting, costs associated with the preparation of financial statements
are assigned to the forms and rules that require those financial statements be filed with the
Commission, and not to Regulation S-X. In the context of this submission, therefore, there are
no costs to respondents assigned to Regulation S-X.
14.

Estimate of Cost to the Federal Government

Annualized cost to the federal government should be negligible, consisting mostly of
electronic storage for maintaining filings made through the EDGAR system. Again, however,
the requirement to make these filings is not contained in Regulation S-X itself.
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Explanation of Changes in Burden

Not applicable.

16.

Information Collections Planned for Statistical Purposes

Not applicable.
17.

Explanation as to Why the Expiration Date Will Not be Displayed

Not applicable.

B.

Collection of Information Employing Statistical Methods
Not applicable.