Corporate Governance

SEC Takes on Short-Term Borrowing Disclosures

By Fei-Lu Qian

On September 17, 2010, the SEC voted unanimously to propose measures that would require companies to disclose additional information to investors about their short term borrowing arrangements.  The proposed rules are aimed to allow investors to better understand whether amounts of short-term borrowings reported at the end of reporting periods are consistent with amounts outstanding throughout the reporting periods.  The proposed rules will also help investors to better understand a company?s actual funding needs, financing activities and liquidity risks.

Currently, many public companies engage in short-term borrowing such as commercial paper, repurchase agreements, letters of credit, promissory notes and factoring.  As they typically mature in about a year or less, a company?s use of these financing methods can fluctuate significantly during a reporting period.  Consequently, when a company reports the outstanding amount of its short-term borrowings at the end of a reporting period, that amount is not always reflective of the company?s funding needs or activities during the period.

?Under these proposed rules, investors would have better information about a company?s financing activities during the course of a reporting period - not just a period-end snapshot,? said SEC Chairman Schapiro.  ?Investors would be better able to evaluate the company?s ongoing liquidity and leverage risks.?

Full post as published by PomTalk on September 22, 2010 (boomark / email).