May 26, 2020

SEC Continues Efforts to Modernize Disclosure Documents

On August 8, 2019, the U.S. Securities and Exchange Commission (SEC) published proposed amendments to modernize fundamental disclosures that public companies are required to make in their reports and registration statements, including a description of the company’s business and the risk factors potentially affecting an investment in the company. The proposed amendments are part of the SEC’s ongoing Disclosure Effectiveness Initiative aimed at improving disclosures for investors and simplifying compliance for public companies. Particularly, the proposed amendments are intended to improve the quality of information available to investors while easing the burden on the companies.

The proposed amendments will have a 60-day comment period once formally published. The complete text of the proposed amendments can be found here.

Below are a few of the noteworthy proposals to amend relevant provisions of Regulation S-K:

Description of Business

  • Making the disclosure largely principles-based and providing more flexibility to companies; items in a list of non-exclusive disclosure topics would only need to be discussed if they are material to investors;
  • Requiring disclosure of changes in business strategy, if a company chooses to disclose its strategy;
  • Eliminating the required five-year timeframe for discussing the development of the business, such that disclosure would be of information material to an understanding of the development without regard to any specific time;
  • Including as a disclosure topic human capital resources, including any human capital measures or objectives important to management in managing the business; and
  • Expanding the regulatory compliance disclosure by including all material government regulations, rather than solely environmental regulations.

Risk Factors

  • While not new, the release reemphasizes the SEC’s focus on risks unique to the business of each company, rather than generic or boilerplate risks that could apply to any company;
  • Requiring summary risk factor disclosure if the risk factor section exceeds 15 pages; and
  • Formalizing common practice by requiring companies to organize their risk factors under relevant headings.

Effective Amendments Affecting Upcoming Form 10-Ks

I. FAST Act Amendments

 The following amendments were effective earlier this year:

  • Management Discussion and Analysis (MD&A): Companies are no longer required to discuss in their MD&A the earliest of the three years for which financial statements are provided in the report if a discussion of that year has already been included in a past filing and the location of the discussion within the past filing is identified in the current filing. This change does not affect smaller reporting companies or emerging growth companies, which currently are required only to provide information across a two-year period.
  • Exhibits: Companies must now file as an exhibit descriptions of each class of their securities registered under Section 12 of the Exchange Act.
  • Companies are entitled to omit entire schedules and similar attachments to required exhibits, provided: (1) they do not contain material information; (2) they were not otherwise disclosed in the exhibit or the disclosure document; and (3) the filed exhibit contains a list briefly identifying the contents of any omitted schedules and attachments.
  • The two-year look back for material contracts has been eliminated for most companies; material contracts not made in the ordinary course of business only need to be filed if such contract must be performed in whole or in part at or after the date of filing.

II. Public Company Accounting Oversight Board (PCAOB) – Critical Audit Matters

 The new auditing standard that changes the standard auditor's report to include a discussion of critical audit matters (CAMs) takes effect for large accelerated filers for audits of fiscal years ending on or after June 30, 2019. This requirement applies to all other companies for their audits of fiscal years ending on or after December 15, 2020.

The new standard will require unqualified audit opinions to include a discussion of any CAMs identified by the auditor, meaning:

  • Any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee;
  • That relates to accounts or disclosures that are material to the financial statements; and
  • Involved especially challenging, subjective, or complex auditor judgment.

It is expected that most audits will reveal at least one CAM.

© Polsinelli PC, Polsinelli LLP in California


About this Author


Dave Babiarz is a corporate and securities attorney who helps clients navigate the mosaic of federal, state, and other regulatory laws that affect their efforts to raise financing, grow their business and operate as public companies. Clients value his ability to guide them through the complex securities environment in a decisive yet transparent manner.  

For newer organizations, he counsels on various fund-raising options that are available to foster relationships and grow their business. As the company matures, Dave has extensive experience acting as transactional counsel to public...

Matthew C. Cooper, Polsinelli Law Firm, Washington DC, Securities and Corporate Law Attorney

As an associate in the Securities and Corporate Finance practice, Matt Cooper understands the opportunities and challenges companies face as they navigate their businesses through today’s economy. Whether a client is ramping up its operations or is listed on the New York Stock Exchange, Matt recognizes that today’s corporate clients demand high-quality, sophisticated legal representation.

Matt is committed to understanding clients’ larger strategic business objectives, as well as delivering timely, pragmatic advice that is tailored to their particular circumstances.