The US Securities and Exchange Commission (SEC) plans to overhaul and simplify certain corporate financial disclosure requirements
The US regulator’s changes to disclosure requirements for Regulation S-K are intended to reduce duplication of disclosures and increase the focus on material information in order to improve these disclosures for investors and simplify compliance efforts for registrants.
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). They also add a new item, to state the principal objectives of management's discussion and analysis.
The change will see Item 303(a)(4), Off-balance sheet arrangements, replaced with a principles-based instruction to prompt registrants to discuss off-balance sheet arrangements in the broader context of management's discussion and analysis.
Item 303(a)(5), Tabular disclosure of contractual obligations is removed, given the overlap with information required in the financial statements and to promote the principles-based nature of management's discussion and analysis.
In addition, the SEC is adding a new disclosure requirement to Item 303, Critical accounting estimates, to clarify and codify existing n guidance in this area; and is revising the interim management's discussion and analysis 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 proposal also includes certain conforming amendments, including to Forms 20-F and 40-F, as appropriate.
The guidance provides that, where companies disclose metrics, they should consider whether additional disclosures are necessary and gives examples of such disclosures. The guidance also reminds companies of the requirements to maintain disclosure controls and procedures and that companies should consider these requirements when disclosing metrics.
The proposal will remain open for 60 days’ public consultation following publication in the Federal Register. The guidance will be effective upon publication in the Federal Register.
Jay Clayton, SEC chairman, said: ‘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.
‘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.’