Disclosure Requirements – SEC Adopts Amendments

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or modify certain disclosure requirements that the Commission has deemed to have become duplicative, overlapping, or outdated in light of other SEC disclosure requirements, U.S. Generally Accepted Accounting Principles (“U.S. GAAP”), or changes in the information environment.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.

Applicability

The amendments affect a variety of entities. These include domestic and foreign issuers, large accelerated filers, accelerated filers, non-accelerated filers, emerging growth companies and smaller reporting companies. The amendments also affect Regulation A issuers, Regulation Crowdfunding issuers, funds regulated under the Investment Company Act, registered broker-dealers, investment advisers and nationally recognized statistical rating organizations.

Redundant and Duplicative Disclosure 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 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 Disclosure 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.

  • Exchange Rate Data – The amendments remove the requirement that foreign private issuers provide exchange rate data when their financial statements are prepared in a currency other than the US dollar due to exchange rate information being readily available for free on a number of websites.
  • Sale/Bid Prices – The detailed disclosure requirement of sale or bid prices for most issuers whose common equity is traded in an established public trading market has been eliminated and replaced with the disclosure of the trading symbol.
  • SEC Public Reference Room – The amendments delete the requirements in Regulation S-K and certain registration forms to identify the Public Reference Room and disclose its physical address and phone number.
  • Websites – The amendments require all issuers to disclose the SEC’s Internet address, include a statement that electronic SEC filings are available there and to disclose their own Internet addresses, if one exists.

Superseded Disclosure Requirements

As accounting, auditing, and 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 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.

Non-Existent and Typographical Errors

In addition to the above updates, the SEC did a general update of any incorrect references, outdated references and typographical errors that were still part of the various SEC disclosure requirements. These updates did not have any material impact on the meaning and substance of such affected disclosure requirements.

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”.

Looking for more information on disclosures? Check out our other blogs on the topic.

 

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