Unanimous SEC Vote to Eliminate Window Dressing

In a unanimous vote, the SEC agreed to establish rules to eliminate “window dressing” used by firms before issuing their quarterly reports.

On the heels of the second anniversary of the collapse of Lehman Brothers which helped fuel the financial crisis in 2008, the SEC has increased its focus on the strategy whereby firms cut their debt from the balance sheet prior to the issuance of their quarterly report to make it appear healthier than it was.

A Wall Street Journal article indicated that a group of 18 large banks used this strategy at the end of the last six quarters to reduce their repo, or short term debt, by some 42%. Under the new rule, firms will have to disclose how much debt they have at the end of the quarter, as well as the average and maximum amount of debt during the quarter.

SEC Chairman, Mary Shapiro, called the information “critical to the assessing a company’s prospects for the future, and even the likelihood of its survival. This principle was borne out during the recent financial crisis.”
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