SEC Updates Disclosure Requirements


SEC Updates Disclosure Requirements

Alert |
Robert J. Minkus

The Securities and Exchange Commission (SEC) has adopted amendments to certain disclosure requirements to eliminate:

  • Redundant and duplicative requirements, which require substantially similar disclosures as U.S. Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standards (IFRS), or other SEC disclosure requirements
  • Overlapping requirements, which are related to, but not the same as, GAAP, IFRS, or other SEC disclosure requirements
  • Outdated requirements, which have become obsolete as a result of the passage of time or changes in the regulatory, business, or technological environment
  • Superseded requirements, which are inconsistent with recent legislation, more recently updated SEC disclosure requirements, or more recently updated GAAP standards

Additionally, the SEC is referring certain SEC disclosure requirements that overlap with, but require more information than, GAAP to the Financial Accounting Standards Board (FASB) for consideration for potential incorporation into GAAP. The SEC intends the updates to facilitate disclosure to investors and simplify reporting compliance without reducing the overall information available to investors.

The amendments revise disclosure rules for entities subject to Regulation S-K, Regulation S-X, Regulation A, and the Investment Company Act, and for certain registered broker-dealers, investment advisers, and nationally recognized statistical rating organizations.

The amendments are part of the SEC Division of Corporation Finance’s review of disclosure requirements and the SEC’s efforts to implement the Fixing America’s Surface Transportation Act, which, among other things, requires the SEC to eliminate provisions of Regulation S-K that are duplicative, overlapping, outdated, or unnecessary.

Below are some changes that will impact typical disclosures made in Forms 10-K, proxy statements, and registration statements:

Description of Business. Item 101 of Regulation S-K has been revised to eliminate required disclosures in the business description regarding the following:

  • Financial information about segments, although segment financial information is still required in the financial section
  • Research and development spending
  • Financial information about geographic area, such as revenue from external customers in the issuer’s country of domicile and foreign countries, although where this information is material, it still must be covered in the MD&A

Internet Websites. Issuers must disclose their web address if they have one. Previously, disclosure was “encouraged.”

Foreign Private Issuers. Foreign private issuers no longer need to provide exchange rate data when their financial statements are prepared in a currency other than the U.S. dollar.

Public Reference Room. Issuers are no longer required to identify the SEC’s Public Reference Room and disclose its physical address and phone number.

Trading Markets and Dividends. Issuers with a class of equity securities traded on an established market no longer need to disclose high and low sales prices (or bid quotations) for each quarter in the last two full fiscal years and interim periods. Instead, such issuers must identify the principal trading market and trading symbol for each class of equity securities. Issuers with no class of common equity traded on an established market would continue to disclose quarterly price information. Restrictions on ability to pay dividends has now been consolidated into Regulation S-X, such that if the information is included in the financial statements, then such restrictions no longer need to be disclosed in the body of the Form 10-K or the other applicable filing.

Ratio of Earnings to Fixed Charges. Disclosure of the ratio of earnings to fixed charges and the related exhibit are no longer required.

The amendments will go into effect 30 days from publication in the Federal Register. The SEC has requested that the FASB consider the SEC’s recommended changes to GAAP within 18 months.