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SEC Amendments to Streamline and Simplify Disclosure Requirements

With year-end financial reporting coming up for most public companies, we want to ensure that you are aware of recent amendments to the U.S. Securities and Exchange Commission (“SEC”) disclosure rules, which impact annual reports on Form 10-K and, to a lesser extent, quarterly reports on Form 10-Q.

Effective November 5, 2018, the SEC adopted amendments to Regulation S-K, Regulation S-X, and other forms and regulations to eliminate duplicative, overlapping, and outdated reporting requirements. The amendments are intended to reduce the time and cost of public reporting. However, because the amendments principally serve to eliminate existing redundancies in the disclosure requirements, the ultimate effect of the amendments on what is disclosed is minor, as many of the eliminated disclosures are still required elsewhere in the applicable regulations. For example, though the amendments eliminate Item 101(d) of Regulation S-K requiring discussion of geographic areas, this disclosure is now required under Item 303 instead. In fact, in its final rule, the SEC explicitly stated that the amendments are not intended to “significantly alter[] the total mix of information provided to investors.”

Instead, the greater effect of the amendments is on where the disclosures are made within a particular report, which can have significant ramifications that reporting companies must consider. For example, the effect of some amendments is to relocate disclosures into the financial statements, in which case (1) the disclosure is now subject to audit and interim review, (2) XBRL tagging requirements now apply to the disclosure, and (3) the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995 (PSLRA) no longer applies (as the PSLRA safe harbor does not apply to financial statements). As a result, reporting companies should carefully consider whether to relocate any forward-looking statements into the financial statements, as a result of amendment-based relocation of disclosures. Issuers maintain the option to include forward-looking information outside the financial statements.

Though most of the amendments did not substantively alter the reporting requirements of registrants, at least one reporting requirement was expanded by the amendments. Specifically, registrants are now required to disclose (1) changes in stockholders’ equity and (2) the amount of dividends per share for each class of shares (as opposed to common stock only, as previously required) in Form 10-Q in addition to Form 10-K. Before the amendments, this disclosure was required only in Form 10-K.

With these considerations in mind, reporting companies should update reporting procedures and checklists to maintain compliance with the SEC’s amended disclosure requirements. In addition to the discussion of more significant changes below, a chart further summarizing notable changes from the amendments is attached for reference as Annex A.

Outdated or Superseded Requirements

The more significant amendments to eliminate certain obsolescent disclosure requirements include:

  • Public Reference Room – Issuers are no longer required to disclose information regarding the SEC’s Public Reference Room, although issuers must provide the SEC’s website where electronic filings can be located. (Item 101)
  • Disclosure of Internet Addresses – An issuer is required to disclose its internet address(es) (Item 101)
  • Market Prices – With respect to its listed securities, an issuer is no longer required to disclose the high and low sales prices and sales price as of the latest practicable date. However, an issuer still must provide the trading symbol for each class of common equity and the principal market where traded. (Item 201)
  • Updated Reference to Statements of Comprehensive Income – Throughout Regulation S-K, references to “income statement” were replaced with “statement of comprehensive income” to be consistent with updates to Financial Accounting Standards Board (“FASB”) standards. The statement of comprehensive income may be presented as either (1) a single statement of comprehensive income or (2) two separate but consecutive statements, composed of the income statement and a separate statement, which begins with net income and separately presents the components of other comprehensive income, a total of other comprehensive income, and a total of comprehensive income. (FASB ASU No. 2011-05)

Overlapping Requirements

The more significant amendments to eliminate certain disclosure requirements that are related to, but not identical to, U.S. GAAP or other SEC disclosure requirements include:

  • Segments – Issuers are no longer required to provide segment financial information in their business description, since this information is already required to be presented in the notes to the financial statements pursuant to U.S. GAAP and in the MD&A. (Item 101)
  • Geographic Areas – Issuers are no longer required to provide financial information by geographical area in their business description, since this information is already required in the notes to financial statements. (Item 101)
  • Dividends – Issuers are no longer required to disclose the frequency and amount of cash dividends declared, as this information is required to be presented in the notes to the financial statements by Regulation S-X (as amended). (Item 201)
  • Seasonality – Issuers are no longer required to disclose information on seasonality under Instruction 5 to Item 303(b), because it is sufficiently covered by U.S. GAAP and the remainder of Item 303. (Item 303)

Redundant or Duplicative Requirements

In order to simplify compliance efforts, the amendments eliminate certain disclosure requirements set forth in Regulation S-X that are redundant or duplicative of other disclosure requirements that provide substantially the same information to investors. These revisions to Regulation S-X relate to related party transactions; earnings per share; financial statement consolidation; debt obligations; income tax disclosures; warrants, rights and convertible instruments; contingencies; and certain other provisions. Issuers should discuss these changes with their external auditors.

In addition to the above changes, the SEC referred several amendments to the FASB for further comment, before deciding whether to retain, modify, or eliminate the following requirements from applicable SEC regulations, or for incorporation into U.S. GAAP.  These referrals include the SEC’s decision to retain:

  • Disclosures related to repurchase and reverse repurchase agreements under Regulation S-X;
  • Disclosures related to securities authorized under equity compensation plans under Item 201(d) of Regulation S-K;
  • Discussion of major customers under Item 101(c)(1)(vii) of Regulation S-K;
  • Disclosure of the amount of revenue from products and services under Item 101(c)(1)(i) of Regulation S-K; and
  • Disclosure of legal proceedings under Item 103 of Regulation S-K. Note, however, the SEC has referred this item to the FASB for potential integration into the U.S. GAAP-mandated loss contingencies disclosure.

Annex A

Disclosure

Amendment

Effect

10-K

10-Q

REGULATION S-K

Financial Information by Segment

Item 101(b)

Eliminated

Still required under GAAP.

X

 

Amount Spent on R&D

Item 101(c)(1)(xi)

Eliminated

Still required under GAAP and MD&A, if material.

X

 

Financial Information by Geographic Area

Item 101(d)(1)-(4)

Eliminated

Still required under GAAP and/or Risk Factors.

 

 Further, the SEC added “geographic areas” disclosures to MD&A (Item 303), when appropriate for understanding the business.

X

 

Identification of SEC Public Reference Room

Item 101(e)(2)

Updated

Requirement to identify physical location and phone number of reference room is eliminated, since investors rarely visit physical reference room anymore.

 

New requirement to disclose company’s website added.

X

 

Market Price

Item 201(a)(1)

Eliminated

Companies are now required only to provide ticker symbol, since market price data is widely available on the internet and through other sources.

X

 

Dividend History and Restrictions

Item 201(c)(1)

Eliminated

Still required under Rules 3-04 and 4-08(e)(3) of Regulation S-X, as amended.

X

 

Disclosure of “income (loss) before extraordinary items and cumulative effect of a change in accounting” in supplemental quarterly financial information

Item 302(a)(1)

Revised

Item 302(a)(1) now requires disclosure of “income (loss) from continuing operations” and “per share data based upon income (loss) from continuing operations” and “per share data based upon net income (loss),” to be consistent with GAAP.

X

 

Discussion of Seasonality in the MD&A

Item 303(b)

Eliminated

Still required under GAAP and in the in description of business, if material (Item 101(c)(1)(v)).

X

X

Computation of Earnings per Share (Exhibit) (Item 601(b)(11))

Eliminated

Still required under GAAP and Regulation S-X.

X

X

Ratio of Earnings to Fixed Charges

(Exhibit) 601(b)(12)

Eliminated

Eliminated in connection with the elimination of Item 5.03(d) of Regulation S-K.

X

 

Published Report Regarding Matters Submitted to Vote of Security Holders (Exhibit) (Item 601(b)(22))

Eliminated

Still required by Item 5.07 of Form 8-K.

X

X

 

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About this Author

Alexandra Clark Layfield Corporate Attorney Jones Walker Law Firm
Partner

Alexandra Layfield joined Jones Walker's Corporate & Securities Practice Group in 2008. Ms. Layfield's practice is exclusively transactional, concentrating principally on the areas of securities law, mergers and acquisitions, general corporate law and corporate governance matters.

Ms. Layfield's principal area of focus is counseling corporations on corporate governance matters and the related disclosure requirements of the securities laws and trading markets, including reviewing annual, quarterly, and current reports, proxy statements, and...

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Hogan Paschal Corporate Lawyer Jones Walker Law Firm
Associate

Hogan Paschal is an associate in the Corporate Practice Group.


Hogan’s practice focuses on mergers and acquisitions, securities offerings, and general corporate matters. She has helped to advise clients across a variety of industries, including finance, hospitality, energy, and technology. 

She has represented public companies, private companies, and private equity firms in connection with complex business transactions ranging in size from $10 million to $1.25 billion.

Before joining Jones Walker, Hogan worked with the US Attorney’s Office in the Eastern District of New York. There, she handled civil matters at the trial and appellate levels, including section 1983 claims and Bivens liability. Hogan also has experience with government investigations in California and international business development, focused primarily in Southeast Asia and China.

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