EMMA: Stale Disclosure Is Not Continuous Disclosure

Go Tigers!

A recent MSRB study points out the failure of continuous disclosure rules to actually achieve their goal – better informed investors. We deserve much better.

Filings of audited financial reports and (non-audited) annual financial information by municipal bond issuers must meet a requirement of continuous disclosure. While the SEC requires quarterly and annual continuous disclosure by public companies, municipal debt issuers only file data annually. The number of municipal filers is far larger than the number of public companies; the study covers almost 50,000 documents per year, filed over three and a half years.

The point of the study, though, is that the timeliness of filing these documents is highly variable, and in some cases pathetically slow. What is worse, the trend is lengthening disclosure times, not shortening times.

I jumped on to the EMMA Continuing Disclosure site to look for myself. Today, Hamilton County (IN) filed their audited financial statements (CAFR) from 2010. On the other hand, the Lafayette School Board (NJ) filed their CAFR for June 30, 2013, a little more than a month after the date of the independent auditor’s report.

With filing the CAFR trending about 200 days after the closing date, Lafayette School District look like standout performers. Hamilton County, not so much.

The report is relatively short and easy to read, and I recommend clicking through and reading it. It could be better. The break-out of normal course (less than one year) filings should have been contrasted with more than one year filings, not the total population. It also would have been very informative to have scaled the numbers by total outstanding debt of the issuer. I want to know how much money is at risk for not having any disclosure for  five years.

That is the takeaway – stale disclosure is not meeting the requirement of continuous disclosure. Municipalities need to become more transparent in their finances. Right now, the PDF of the CAFR is like an annual report. The markets need data. The right thing to do is move the financial statements and notes into XBRL. We need the GASB and other organizations to step up and create a useful CAFR taxonomy. They can ask the FASB how to do it right, after all, the FASB is down the hall.


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