Financial Statement Preparation Editing and Proofreading Services

Plain English is a drafting rule with a defined scope. Rule 421(d)(1) applies it to the organization, language, and design of three parts of a prospectus: the front and back cover pages, the summary, and the risk factors section.¹ The financial statements answer to a different instruction, one that asks for the form, order, and "generally accepted terminology" best indicating their significance and character.² Both instructions govern the same filing, and the boundary between them does not run where the headings suggest.

Four standards for the whole document, six principles for three parts of it

Rule 421 works at two levels. Paragraph 230.421(b) sets four standards for the prospectus as a whole, and they are drafting standards rather than accounting ones.¹ Information goes in clear, concise sections, paragraphs, and sentences, with short explanatory sentences and bullet lists wherever possible.¹ Headings and subheadings are descriptive. The rule discourages frequent reliance on glossaries or defined terms as the primary means of explaining information, and it asks drafters to avoid legal and highly technical business terminology.¹

Paragraphs (d)(1) and (d)(2) then narrow to three parts of the same document. Plain English principles govern the organization, language, and design of "the front and back cover pages, the summary, and the risk factors section."¹ For those parts the rule lists six writing principles, and it asks that the language at a minimum substantially comply with each.¹ They are short sentences, definite and concrete everyday words, active voice, tabular presentation or bullet lists for complex material, no legal jargon or highly technical business terms, and no multiple negatives.¹

The boundary follows the content rather than the caption

A drafter reading paragraph (d) alone might conclude that plain English attaches to three named headings. Item 503 of Regulation S-K closes that reading. Summary information carries the requirement wherever it appears, and the item says so in terms.³ The drafter who supplies summary business or financial information, "even if you do not caption it as a summary," must still provide that information in plain English.³ Renaming a section therefore does not move it out of the rule.

The same item asks for restraint. A summary "should be brief" and "should not contain, and is not required to contain, all of the detailed information in the prospectus."³ Its instruction adds that a summary should not merely repeat the text of the prospectus.³

Order is free, and obscuring is not

Rule 421 opens by releasing the drafter from one constraint and imposing another. The information required in a prospectus need not follow the order of the items or other requirements in the form.¹ It may not be set forth so as to obscure any required information, or anything needed to keep that information from being incomplete or misleading.¹

Paragraph (c) permits two economies. Except as to financial statements and information required in tabular form, information may be expressed in condensed or summarized form.¹ In lieu of repeating information in the notes to financial statements, references may be made to other parts of the prospectus.¹

Length is a trigger, not a style question

Item 105 governs risk factors, and it separates one requirement from two recommendations. The discussion "must be organized logically with relevant headings," and that is the item's only must.⁴ Each risk factor "should be set forth under a subcaption that adequately describes the risk."⁴ Generic risk factors are discouraged, but "to the extent generic risk factors are presented," they go at the end under the caption "General Risk Factors."⁴

One measurement decides whether a second piece of writing is required. Where the discussion runs longer than 15 pages, the forepart carries "a series of concise, bulleted or numbered statements that is no more than two pages" summarizing the principal factors.⁴ The item closes by sending the drafter back to the plain English rule, stating that the registrant must furnish this information in plain English.⁴

The statements themselves answer to a different sentence

Regulation S-X governs the financial statements, and its drafting test is not the plain English test. Under 17 CFR 210.4-01(a), financial statements "should be filed in such form and order, and should use such generally accepted terminology, as will best indicate their significance and character."² Generally accepted terminology is the standard there, where the plain English rule asks for definite, concrete, everyday words in the sections it names.

Two further sections in the same article govern what appears at all. Section 210.4-02 provides that an amount which is not material need not be separately set forth, and that the combination of insignificant amounts is permitted.⁵ Section 210.4-03(a) states that no caption should be shown in any financial statement "as to which the items and conditions are not present."⁶ The reasons for omitting any required financial statement are to be indicated.⁶

Preparers, auditors, and the drafting rules

Materiality, recognition, measurement, and which accounting principles apply are determined by the preparer and the auditors. An editor has no standing in any of that. Anything sent to us is kept private.

The drafting rules quoted above are the ones we work to. Paragraph 230.421(b)(3) is departed from where a glossary or defined terms become the primary means of explaining information, and whether a definition is accurate does not enter into that. Item 105 asks for a subcaption that adequately describes the risk beneath it, and a category name answers a different question. Section 210.4-03(a) is departed from when a caption stands over items and conditions that are not present, and Item 503 when a summary merely repeats the text it summarizes.