Financial Statement Reporting Requirements for Emerging Growth Companies

Floor Speech

Mr. Speaker, I rise in support of H.R. 2608, sponsored by the gentleman from North Carolina.

I want to put this bill in context. The first two bills we considered in this session dealt with private offerings, where there is very limited investor protection and where there are requirements as to who is allowed to invest.

We are now focusing on public companies where there is a lot of investor protection and where anyone can invest and anyone who buys can then freely sell it to anyone else.

Just as by way of illustration, we are talking about, in this bill, whether there will be 2 or 3 years of audited financial statements for certain public companies. That differs from the private offerings that we considered in the first two bills. Private offerings are not required to have any audited financial statements.

A special accommodation has been made to emerging growth companies, known as EGCs, who are obligated to provide 2 years of audited financial statements when they first provide an initial public offering.

Other companies, on the other hand, are required to provide 3 years of audited financial statements when they go public. In some situations, however, an EGC must provide 3 years of audited financials, including cases where they acquire another company.

This bill would recognize that whatever standards we have when the company first goes public, those standards being for 2 years of audited financials, I think are logically applied in certain other circumstances. One of those is where the company goes to the public a second time for a follow-on offering, and the other is when the company uses its stock to acquire a company.

We have a rule that, for the most important gatekeeping requirement, says 2 years of audited financials. This bill would provide that same standard for emerging growth companies in these two other types of situations. This will harmonize the EGC framework, making sure that these smaller reporting companies have a scaled-down obligation but still do provide 2 years of audited financials.

This bill passed our committee by a 41-to-0 vote. In passing H.R. 2608, Congress is making sure that smaller companies have scaled-down disclosure obligations in all instances rather than just the initial public offering. We apply the same standard to acquisitions and follow- on offerings. This is a commonsense reform. It reduces the burden on small companies and still provides investors with 2 years of audited financial statements.

Mr. Speaker, I urge my colleagues to support this bill, and I yield back the balance of my time.

BREAK IN TRANSCRIPT

Source