June 5, 2014
I and a colleague recently reviewed Annual and/or Form 10-K reports received through the mails from domestic public companies ("reports"). In some instances, we found it difficult to locate information in these reports that we deemed important to investors. For example, we found that some of the reports either: (1) failed to provide a Table of Contents ("TC") with descriptive titles to guide the reader (2) provided a TC that was incomplete because it failed to make reference to the required "Legal Proceedings" discussion (Part I, item 3 of Form 10-K) or (3) included the discussion of Legal Proceedings under titles such as "Commitments and Contingencies" and "Commitments and Liabilities," which tended to confuse the reader because these titles are not necessarily synonymous with the term "Legal Proceedings" (i.e., titles such as "Litigation" or "Legal Liabilities" would be more helpful).
Also, some of the reports: (1) discussed litigation matters in one section of the report and then additional litigation in another section of the report without providing any cross references between them (2) cross referenced to a note in the accompanying audited financial statements ("AFS") for the Legal Proceedings discussion without also providing the note's related page number or (3) failed to include a separate TC (or Index) for the notes in the AFS which made it more difficult to locate important information in the notes perhaps Part II, item 7 of Form 10-K ("Management's Discussion and Analysis of Financial Condition and Results of Operations") could be modified to prescribe a separate TC (or Index) for the notes in the AFS.
It seems that these reports have become more voluminous of late: one recent report exceeded 300 pages in length. In our view, this apparent trend toward longer reports underscores the need for: (1) TCs (or Indices)in the reports and in the AFS, using descriptive titles to indicate where all important or required disclosures may be found and (2) clear and precise cross references to important disclosures in the reports and in the AFS.
Thank you for the opportunity to comment on these matters.