The Securities and Exchange Commission (SEC) unanimously (3-0) approved a proposal for public comment to modernize and simplify certain disclosure requirements in Regulation S-K and related rules and forms. Regulation S-K governs non-financial reporting requirements for SEC filings, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and proxy statements. The amendments are based on the recommendations in the SEC staff’s Report on Modernization and Simplification of Regulation S-K, issued in November 2016 as required by the Fixing America’s Surface Transportation Act. The proposal includes a number of amendments to Regulation S-K to modernize and streamline disclosure requirements, including the following:
Management’s Discussion and Analysis (MD&A)
Companies would be permitted to forgo discussion within MD&A of the oldest period included in a filing if it was included and discussed in a previously report and is no longer material. Companies that include 3 years of financial statements within a filing would not need to discuss, within MD&A, the oldest period if it is not material to the understanding of the company’s financial condition and a discussion of this period was included in the company’s Form 10-K for the previous year. The SEC believes this will reduce the regulatory burden on companies and improve the readability of filings for investors who would no longer sift through redundant financial information previously disclosed.
The amendments would provide efficiencies for companies seeking confidential treatment for exhibits within a filing. A company would be permitted to omit information in exhibits that is not material and would be competitively harmful without having to first seek confidential treatment from the SEC staff. Companies would also be permitted to omit personally identifiable information without first requesting confidential treatment. Companies would have to mark their filings to indicate omitted items and may be asked for supplemental information on the omitted information in exhibits if specifically requested by the SEC staff.
Description of Property
The amendments would make clear that disclosure of physical properties is only required if these facilities are material to the issuer. Certain industries in which all facilities are deemed material, including oil and gas companies, would continue to report under the current Regulation S-K requirements.
Item 601 of Regulation S-K requires registrants to file every contract not made in the ordinary course of business if the contract is material to the registrant and is to be performed at or after the filing of the registration statement or report or was entered into not more than two years before such filing. The proposal would limit the two-year look back requirement to newly reporting registrants, not all registrants.
Companies would include hyperlinks for references in current filings to previous filed documents on the SEC’s EDGAR filing system.
Legal Entity Identifiers
Item 601 of Regulation S-K requires a registrant to list all of its subsidiaries, the state or other jurisdiction of incorporation or organization of each, and the names under which such subsidiaries do business. A Legal Entity Identifier (LEI) is a 20-character, alpha-numeric code that connects to key reference information that allows for unique identification of entities engaged in financial transactions. The proposal would require registrants to include the LEI of the registrant and each subsidiary included on the list, to the extent that each entity has an LEI.
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