SEC Updates Disclosure Requirements

Charles Soranno, Managing Director Internal Audit and Financial Advisory

On August 17, the Securities and Exchange Commission (SEC) announced updated disclosure requirements intended to reduce compliance burdens, align with certain changes in Generally Accepted Accounting Principles (GAAP), and eliminate existing redundancies in the disclosure of information to investors.

The amendments are part of an initiative by the SEC’s Division of Corporation Finance to review disclosure requirements applicable to issuers to consider ways to improve the requirements for the benefit of investors and issuers. 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other things, requires the SEC to eliminate provisions of the SEC’s Regulation S-K that are duplicative, overlapping, outdated or unnecessary.

In general terms, the amendments eliminate:

  • Redundant and duplicative requirements, which require substantially similar disclosures as GAAP, International Financial Reporting Standards (IFRS) or other SEC disclosure requirements.
  • Overlapping requirements, which are related to, but not the same as GAAP, IFRS or other SEC disclosure requirements.
  • Outdated requirements, which have become obsolete as a result of the passage of time or changes in the regulatory, business or technological environment.
  • Superseded requirements, which are inconsistent with recent legislation, more recently updated SEC disclosure requirements or more recently updated GAAP.

More specifically, companies are no longer required to include certain information in the “Business” section of a prospectus (i.e., S-1 registration statement) or periodic report (i.e., 10-K, 10-Q), including:

  • Financial information about segments
  • The amount of company-sponsored research and development expenses
  • The geographic breakdown of revenues and assets

In addition, companies will no longer be required to include seasonality in the Management Discussion and Analysis section of interim (i.e., 10-Q), reports.

The SEC attributed a significant number of changes to the increasing availability of certain financial information and government records via the internet.

Modifications falling under this category include:

  • Elimination of references to the SEC’s “Public Reference Room,” a physical repository for SEC filings, located in New York, that has been rendered obsolete by the agency’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) system, which investors can access online.
  • Relief from the disclosure of certain market price information. For instance, companies will no longer need to disclose high and low trading prices for their common stock in the last two years in prospectuses and annual reports.
  • Mandatory disclosure of company websites. Previously, companies were just encouraged to provide their website addresses.

In addition to the changes already announced, the SEC said it is referring certain additional disclosure requirements that overlap with, but require information incremental to, GAAP to the Financial Accounting Standards Board (FASB) for consideration for potential incorporation into GAAP.

The amendments will be effective 30 days from publication in the Federal Register, which is anticipated to be September 16, 2018.

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