Wednesday, September 12, 2018
Client Alert: Simplified and Updated Disclosure Requirements for SEC Filings
The Securities and Exchange Commission (the “SEC”) announced on August 17, 2018 that it has adopted amendments in order to simplify and update certain disclosure requirements applicable to a wide variety of SEC filings, including registration statements and periodic reports. The amendments eliminate or revise disclosure requirements that had become “redundant, duplicative, overlapping, outdated, or superseded,” in light of other disclosure requirements, U.S. Generally Accepted Accounting Principles (“GAAP”), or changes in the information environment. The SEC stated that the amendments are intended to facilitate the disclosures that companies provide to investors and simplify compliance “without significantly altering the total mix of information provided to investors.”
Many of the amendments relate to the accounting rules in Regulation S-X and attempt to eliminate redundancies with GAAP, International Financial Reporting Standards (IFRS), and other SEC requirements, as well as revise or eliminate disclosure requirements that have been superseded by recent legislation. However, there are a number of changes to the disclosures that appear in the body of annual reports, proxy statements and registration statements, which are dictated by Regulation S-K. The most noteworthy of these changes are as follows:
Item 101 of Regulation S-K (Description of business): Companies are no longer required to disclose in the Business section financial information about segments, research and development spending, financial information about geographic areas, or risks attendant to foreign operations, as most of these topics are already required to be addressed by other parts of Regulation S-K. Companies must now provide their Internet address, as it was previously only required by large accelerated and accelerated filers, and there is no longer a requirement to state that certain information is available in the SEC’s Public Reference Room.
Item 201 of Regulation S-K (Market price and dividends): Companies are no longer required to disclose the high and low trading prices of their stock for each quarter for the last two fiscal years and interim periods, but the company’s trading symbol must be included instead. Companies also can eliminate the disclosure of the frequency and amount of cash dividends and restrictions on ability to pay dividends, as this information is required to be disclosed elsewhere by Regulation S-X. Item 201(d) of Regulation S-K requires a table of equity plan information, which was required to be included in the company’s proxy statement if there was a proposal related to an equity plan; however, now this table can just be included in the Form 10-K.
Item 303 of Regulation S-K (Management’s discussion and analysis): The amendments replaced existing references to “income statement” with “statement of comprehensive income” to bring the terms in line with those used by the Financial Accounting Standards Board (FASB). Additionally, companies are no longer required to disclose seasonality information in the MD&A section, as it is required by GAAP to be disclosed in the notes to the financial statements.
Item 503 of Regulation S-K (Prospectus summary and risk factors): Companies are no longer required to disclose the ratio of earnings to fixed charges.
The SEC’s decision to simplify and update its disclosure requirements is part of a broader initiative by the SEC to review the various requirements applicable to companies’ disclosures and to consider ways to improve such disclosures and processes. Additionally, the amendments fit into the SEC’s efforts to implement the Fixing America’s Surface Transportation (FAST) Act. The amendments will become effective 30 days from publication in the Federal Register.
Given the large number to changes to Regulations S-K and S-X, public companies should ensure that they conduct comprehensive form compliance checks on their SEC filings once the rules become effective. Please contact a member of Maynard Cooper's Public Company Advisory Practice Group with any questions regarding your SEC disclosures.