On March 20, 2019, the SEC adopted changes to its rules and forms designed to modernize and simplify certain disclosure requirements in Regulation S-K. These changes are a part of the SEC’s initiative to improve disclosure effectiveness and are designed to lower costs and burdens on registrants without reducing the availability of material information to investors. The changes will affect most issuers, including US registrants, foreign private issuers, and investment companies.
Key Provisions
These highlighted areas are among some of those that will be affected by the new rules.
Management’s Discussion and Analysis (MD&A)
Registrants that present three years of financial statements in a filing will now be able to omit discussion of the earliest year in MD&A if discussion of that year has been included in a prior filing.
Registrants that elect to omit discussion of the earliest year must disclose the location of such discussion in the prior filing. Additionally, the changes provide more flexibility in presentation of information within the MD&A by eliminating the requirement to present a year-to-year comparison in the MD&A, with no specified format required.
Confidential Information in Material Contracts
Registrants will now be able to omit certain confidential information from material contracts filed as exhibits without having to request confidential treatment from the SEC. Consistent with current rules, information may only be redacted if the information isn’t material and would likely cause competitive harm if disclosed. The new rules eliminate the requirement to file a confidential treatment request, but they don’t change disclosure requirements related to information that’s redacted.
Schedules and Attachments to Exhibits
Registrants will be permitted to omit certain schedules and attachments to exhibits as long as they don’t contain material information and the information isn’t otherwise disclosed. Instead, registrants will need to file a listing of any omitted schedules and attachments and furnish those items upon request.
Property and Risk Factor Disclosures
The new rules clarify that physical property disclosures required by Item 102 are only required if physical properties are material to the registrant. The changes also allow the disclosure to be made on a collective basis, if appropriate. However, the new rules don’t change the industry-specific disclosure requirements for companies in the oil and gas, mining, and real estate industries because information about physical properties in those industries is generally viewed as significant.
The new rules also eliminate the example risk factors from Item 503(c), which requires disclosure of the most significant risk factors to a company’s business. The removal of the examples is intended to encourage more meaningful disclosure tailored to the company’s specific circumstances and highlight the fact that the risk factor disclosure requirements are principles-based.
Incorporation by Reference and Cross-Referencing into the Financial Statements
Under the new rules, registrants will be prohibited from having the financial statements cross-reference to disclosures in other parts of a filing that are outside of the financial statements, or from incorporating information by reference from other filings into the financial statements, except where specifically permitted by SEC rules, US generally accepted accounting principles (GAAP), or international financial reporting standards (IFRS).
Extensible Business Reporting Language (XBRL) Tagging and Hyperlinks
Registrants will now be required to tag all information on the cover pages of Forms 10-K, 10-Q, 8-K, 20-F, and 40-F using inline XBRL. Cover pages will also need to include the trading symbol for each class of registered securities and title of each class of securities and their exchange they’re registered on, if applicable.
Additionally, registrants will be required to include hyperlinks to any documents incorporated by reference instead of including those items as an exhibit.
Transition and Effective Date
Most of the amendments are effective beginning May 2, 2019, 30 days after their publication in the Federal Register, except for amendments related to the redaction of confidential information, which were effective immediately on publication in the Federal Register on April 2, 2019.
Additionally, amendments related to XBRL tagging of cover pages are subject to a three-year phase-in for the following:
- Large accelerated filers using US GAAP effective for fiscal periods ending on or after June 15, 2019
- Accelerated filers using US GAAP effective for fiscal periods ending on or after June 15, 2020
- All other filers effective for fiscal periods ending on or after June 15, 2021
Amendments related to hyperlinking and HTML for certain investment company filings (Form N-CSR) are effective for filings made on or after April 1, 2020.
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