SEC Amends Disclosure Requirements

In August 2018, the U.S. Securities and Exchange Commission (“SEC” or the “Commission”) adopted amendments to eliminate, integrate, update, or modify certain disclosure requirements that the Commission has deemed to have become duplicative, overlapping, or outdated in light of other SEC disclosure requirements, U.S. Generally Accepted Accounting Principles (“U.S. GAAP”), or changes in the information environment. The amendments are intended to aid the disclosure of information to investors and to simplify compliance without significantly altering the total mix of information provided to investors.

The amendments are also part of the SEC’s efforts to implement the Fixing America’s Surface Transportation (FAST) Act, which, among other things, requires the SEC to improve certain provisions of Regulation S-K.  While many of the changes are highly technical in nature, issuers, preparers, and investors will likely view these amendments as positive, incremental changes to the SEC’s disclosure requirements.

Applicability

These amendments apply primarily to public reporting companies (including foreign private issuers). Some of the amendments also apply to other entities the SEC regulates, including Regulation A issuers, Regulation Crowdfunding issuers, investment advisers, investment companies, broker-dealers, and nationally recognized statistical rating organizations.

Redundant and Duplicative Requirements

The SEC identified several disclosure requirements that require extremely similar disclosures as U.S. GAAP, International Financial Reporting Standards (“IFRS”), or other Commission disclosure requirements. The SEC proposed to eliminate these redundant or duplicative Commission disclosure requirements to simplify issuer compliance efforts in light of the obligation to provide substantially the same information to investors under other requirements.

Overlapping Requirements

The Commission identified disclosure requirements which are related to, but not the same as U.S. GAAP, IFRS, or other SEC disclosure requirements. In response to these “overlapping requirements”, the SEC proposed:

  • Removing disclosure requirements that either: (1) require disclosures that convey reasonably similar information to, or are encompassed by, the disclosures that result from compliance with the overlapping U.S. GAAP, IFRS, or SEC disclosure requirements; or (2) require disclosures incremental to the overlapping U.S. GAAP, IFRS, or SEC disclosure requirements and may no longer be useful to investors.
  • Integrating SEC disclosure requirements that overlap with, but require information incremental to, other SEC disclosure requirements.

Outdated Requirements

Certain requirements have become outdated due to the passage of time or changes in the regulatory, business, or technological environments. For example, some of the SEC’s disclosure requirements are no longer relevant, and some information required to be disclosed is no longer readily available or can be derived from alternative sources.

Superseded Requirements

As accounting, auditing, and disclosure requirements have changed over time, inconsistencies have arisen between the newer requirements and existing SEC disclosure requirements. The SEC proposed amendments to update SEC disclosure requirements to reflect more recently updated U.S. GAAP requirements or more recently updated SEC disclosure requirements.

Why Is This Important?

Some of the current SEC disclosure requirements have been eliminated, modified, or moved to a different location in the applicable SEC forms. Registrants will need to understand the impact these amendments have on their specific financial reporting obligations.

In addition, smaller reporting companies are eligible for relief from some SEC disclosure requirements. If the disclosure requirements referred to the FASB are made part of U.S. GAAP, they will become applicable to smaller reporting companies in the same manner as any other public company. These requirements would similarly become applicable to private companies, unless specifically exempted by the FASB.

More Information

The amendments are effective as of November 5, 30-days after publication in the Federal Register. In addition, the SEC has requested that the FASB determine within 18 months after the publication in the Federal Register whether the referred disclosure items should be added to its agenda of projects for potential standard setting. The Commission has indicated that it will also discuss applicable matters with the International Accounting Standards Board.

For more information on these amendments, please see SEC Release No. 33-10532, “Disclosure Update and Simplification”.

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