The SEC adopted rule amendments designed to "modernize, simplify, and enhance" certain Regulation S-K financial disclosure requirements.
As previously covered, among other things, the final rule:
- eliminates duplicative requirements contained in Item 301 ("Selected Financial Data") and Item 303(a)(5) ("Tabular disclosure of contractual obligations");
- amends Item 302 ("Supplementary Financial Information") to replace the requirement for quarterly tabular disclosure with a requirement to disclose material retrospective changes;
- modernizes Management's Discussion and Analysis ("MD&A") of Financial Condition and Results of Operations disclosures by amending Item 303 ("Management's discussion and analysis of financial condition and results of operations");
- explicitly states the principal objectives of MD&A under new Item 303(a) ("Full fiscal years");
- introduces a principles-based instruction - replacing Item 303(a)(4) ("Off-balance sheet arrangements") - which would encourage registrants to assess off-balance sheet arrangements in the broader context of MD&A;
- clarifies and codifies existing SEC guidance under a new disclosure requirement to Item 303; and
- modifies the interim MD&A requirement in Item 303(b) ("Interim periods") to allow companies to compare their most recent quarter to either (i) the corresponding quarter of the prior year or (ii) the immediately preceding quarter.
The final rule goes into effect 30 days after its publication in the Federal Register.
Commissioner Statements
In a joint statement, Commissioners Allison Herren Lee and Caroline Crenshaw dissented from the SEC's decision to remove information requirements as to the presentation of tabular information, which the dissenting Commissioners asserted is relevant to market performance assessments. Additionally, Commissioners Lee and Crenshaw stated that the rule failed to address factors that impact the long-term sustainability of an issuer; e.g., climate risk and human capital management.
Commentary
The Democratic Commissioners have regularly dissented from SEC rule makings that would reduce disclosure burdens on SEC-registered issuers. In fact, as here, they have regularly argued for increased disclosures, particularly as to environmental, social and corporate governance factors. That may be a sign of things to come. See, e.g., SEC Commissioner Supports Expansion of the Use of Structured Data.
Primary Sources
- SEC Press Release: SEC Adopts Amendments to Modernize and Enhance Management's Discussion and Analysis and other Financial Disclosures
- SEC Final Rule: Management's Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information
- SEC Joint Statement, Allison Herren Lee, Caroline A. Crenshaw: Amendments to Regulation S-K: Management's Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information
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