August 28, 2018Client Alert

SEC Finalizes Rules to Streamline Certain Disclosure

On August 17, 2018, the SEC finalized amendments to certain disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other SEC disclosure requirements, U.S. GAAP, International Financial Reporting Standards (IFRS), or changes in the information environment. The amendments are a result of the SEC staff’s ongoing evaluation of disclosure requirements and are also part of the SEC’s efforts to implement the Fixing America’s Surface Transportation (FAST) Act of 2015.

The amendments are based on proposed amendments issued by the SEC in July 2016, and are generally incremental changes to clean up outdated, obsolete, or stale references and disclosure. The 314 page adopting release contains many “hyper-technical” changes that the SEC stated in its Proposing Release, may be difficult for many to access and understand. The effect of many of these amendments is to move disclosure to the financial statements, where, to the extent they are not already disclosed therein, will require additional auditing and not benefit from the forward-looking statements safe harbor. This alert will focus on notable changes to Regulation S-K, where the SEC eliminated the requirements to disclose the following:

Item 101 – Description of Business

  • The amount of spend on research and development activities. This information is required to be disclosed, as appropriate, in the financial statements, and Item 303 K requires disclosure of any material trends related to research and development.
  • Segment financial information and financial information by geographic area. This information is required to be disclosed in Item 303 and pursuant to GAAP and companies have been allowed to cross reference those disclosures in lieu of providing a description in the Business section.

Item 201 – Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

  • The frequency and amount of cash dividends declared for the two most recent fiscal years and any subsequent interim period. This information is required to be disclosed pursuant to Regulation S-X, which, as amended, will require the amount of dividends in interim periods.
  • The high and low market price for issuers with equity traded on an established public trading market. The SEC noted that this information is readily available from numerous sources.
  • The amount of common equity subject to outstanding options, warrants or convertible securities on Form S-1 or Form 10, when the class of common equity has no established US public trading market. GAAP requires disclosure of significant contracts related to the issuance of additional shares.

Item 303 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

  • The impact of seasonality on operating results. Similar information is required to be disclosed in Item 303 and GAAP to the extent that seasonality has or may have an impact on operating results or the financial statements.

Item 503 – Prospectus Summary, Risk Factors, and Ratio of Earnings to Fixed Charges

  • Historical and pro forma ratio of earnings to fixed charges in connection with issuance of debt securities. The SEC observed that a variety of tools are available to investors that accomplish a similar objective as this disclosure.

Item 601 – Exhibits

  • A statement showing the computation of earnings per share in annual filings. The SEC states that this information is duplicative of information required under GAAP, Regulation S-X, and IFRS.

The SEC also referred certain proposed amendments, such as disclosure of major customers under Item 101 and the equity compensation table under Item 201, to FASB for potential integration into GAAP.

The amendments become effective 30 days after publication in the Federal Register, and the staff will review the impact of the amendments within five years thereafter.

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