The Securities and Exchange Commission has proposed amendments to securities regulations that, if passed, would change the requirements for disclosing financial information. It says the changes would modernize, simplify, and enhance some financial disclosure requirements in Regulation S-K. The proposed changes would also require some new disclosures.
In a statement, the SEC said the proposed amendments would “eliminate duplicative disclosures and modernize and enhance Management’s Discussion and Analysis disclosures for the benefit of investors, while simplifying compliance efforts for companies.” The Commission also announced that it is providing guidance on disclosing key performance indicators and metrics in the MD&A section.
“The proposal and the guidance we are releasing today, which reflect the staff’s wealth of experience, would improve the quality and accessibility of registrants’ presentation of financial results and performance metrics,” said SEC Chairman Jay Clayton. “The improved disclosures would allow investors to make better capital allocation decisions, while reducing compliance burdens and costs without in any way adversely affecting investor protection.”
Highlights of the Proposal
The proposed amendments would eliminate Item 301 (selected financial data) and Item 302 (supplementary financial data), and amend Item 303 (management’s discussion and analysis). The proposed amendments are intended to modernize, simplify, and enhance the financial disclosure requirements by reducing duplicative disclosure and focusing on material information in order to improve these disclosures for investors and simplify compliance efforts for registrants.
Among other things, the proposed amendments to Item 303 would:
- Add a new Item 303(a), Objective, to state the principal objectives of MD&A;
- Replace Item 303(a)(4), Off-balance sheet arrangements, with a principles-based instruction to prompt registrants to discuss off-balance sheet arrangements in the broader context of MD&A;
- Eliminate Item 303(a)(5), Tabular disclosure of contractual obligations given the overlap with information required in the financial statements and to promote the principles-based nature of MD&A;
- Add a new disclosure requirement to Item 303, Critical accounting estimates, to clarify and codify existing Commission guidance in this area; and
- Revise the interim MD&A requirement in Item 303(b) to provide flexibility by allowing companies to compare their most recently completed quarter to either the corresponding quarter of the prior year (as is currently required) or to the immediately preceding quarter.
The SEC has now opened a comment period for 60 days after which it will vote on the proposal. 