SEC Adopts Amendments to Modernize and Enhance MD&A and other Financial Disclosures

On Nov. 19, 2020, the SEC adopted amendments to specific financial disclosure requirements in Regulation S-K, proposed on Jan. 30, 2020. The commission has considered suggestions from the comment letters as well as the SEC Division of Corporation Finance.

Overview:

• • Eliminating Item 301 (Selected Financial Data): Registrants are not required to provide 5 years of selected financial data.
  • Amending Item 302(a) (Supplementary Financial Information): The current requirement of 2 years of quarterly tabular disclosure is replaced with a principles-based requirement for material retrospective changes:
  • Amending Item 303 (Management’s Discussion & Analysis):
    • New Item 303(a) (Objective, to state the principal objectives of MD&A) is added: This clarifies the MD&A objectives and the fourteen instructions.
    • Amendments in Item 303(a)(2) (Capital resources): Registrants must provide material cash requirements, capital expenditures, anticipated source of funds, and the general purpose for the latest fiscal period
    • Item 303(a)(3)(ii) (Results of operations): Registrants should disclose situations likely to cause material change, such as future increases in the cost of labor or materials.
    • Item 303(a)(3)(iii) (Results of operations): Registrants must include a review of material changes in net sales or revenue rather than just quoting the change
    • Item 303(a)(3)(iv) (Results of operations): This item and instructions will be eliminated; however, registrants will still be required to discuss these matters under specific circumstances
    • Item 303(a)(4) (Off-balance sheet arrangements): This is replaced with an instruction for the registrants to discuss commitments or obligations.
    • Eliminating Item 303(a)(5) (Tabular disclosure of contractual obligations): This includes an exception where a discussion of material contractual obligations is required
    • Instruction 4 to Item 303(a) (Material changes in line items): Incorporate a portion of the material changes in a line item into amended Item 303(b), including underlying quantitative and qualitative disclosure.
    • Amendments in Item 303(b) (Interim periods) and amended Item 303(c): Registrants (including those subject to Rule 3- 03(b) of Regulation S-X) are allowed to compare the recent quarter to either the corresponding quarter of the prior year or the preceding quarter.
    • New Item 303(b)(3) (Critical accounting estimates) is added
    • Amendments in Item 303(a)(1), (2) and amended Item 303(b)(1) will facilitate improvisations in liquidity and capital resources
    • Amendments in Item 303(a)(3) and amended Item 303(b)(2) clarifies disclosure requirements for results of operations
  • Parallel amendments to financial disclosure requirements in Forms 20-F and 40-F including:
    • Item 3.A of Form 20-F (Selected Financial Data),
    • Item 5 of Form 20-F (Operating and Financial Review and Prospects),
    • General Instruction B.(11) of Form 40-F (Off-Balance Sheet Arrangements), and
    • General Instruction B.(12) of Form 40-F (Tabular Disclosure of Contractual Obligations)

  The amendments will be effective 30 days after publishing in the Federal Register with mandatory compliance beginning from the first fiscal year ending on or after 210 days of publication. Click here for details.

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