SEC Modernizes and Simplifies Certain Disclosure Requirements in Regulation S-K

On March 20, 2019, the SEC adopted amendments to modernize and simplify certain disclosure requirements in Regulation S-K.  The final rules, which respond to the SEC’s mandate under the Fixing America’s Surface Transportation Act, are primarily based on the staff’s November 2016 Report on Modernization and Simplification of Regulation S-K and implement many of the proposed amendments from October 2017.  While the amendments do not make major changes to Regulation S-K, they improve the readability of disclosures, and they discourage repetition and disclosure of immaterial information.

Significant amendments include changes to:

  • Management Discussion and Analysis (MD&A) – A discussion of the earliest of three years presented in the financial statements may be omitted from MD&A if the discussion is included in any of the registrants’ prior filings.[1] If discussion of the earliest three years is not presented, the registrant should disclose the location in the prior filing where this discussion can be found.  Additionally, the instructions to MD&A were revised to omit reference to year-to-year comparisons and allow registrants to use any presentation that enhances a reader’s understanding of the registrant’s financial condition and results.  These changes provide registrants with additional flexibility to tailor their MD&A presentation for their particular facts and circumstances.      

  • Confidential treatment requests – Registrants may redact confidential information in material contracts and certain other exhibits without first submitting a confidential treatment request to the SEC staff. This approach is permissible as long as the redacted information is both not material and would likely cause competitive harm to the registrant if publicly disclosed.  

  • Cross-referencing – Information outside of the financial statements is prohibited from being cross-referenced within the financial statements unless otherwise permitted or required by the Commission’s rules, US  GAAP, or IFRS as issued by the IASB (whichever is applicable).  Registrants may cross-reference to information included in the financial statements within other sections of an SEC filing.    

  • Property Disclosures – Item 102 of Regulation S-K was revised to require a description of a property only if it is material to understanding the business of the registrant. The amendments do not apply to registrants in the real estate, mining, and oil and gas industries. 

  • Risk factors – The instructions for risk factor disclosures were streamlined to remove specific risk factor examples (e.g., a registrant’s lack of an operating history or a registrant’s lack of profitable operations in recent periods, among others).  Registrants are encouraged to focus on their own risk identification processes and provide risk disclosure that more precisely applies to their circumstances. 

  • XBRL and the use of hyperlinks – All information that appears on the cover page of certain SEC forms will need to be tagged using Inline XBRL.  Additionally, the final rule requires the use of hyperlinks for information that is incorporated by reference and available on the EDGAR system. 

The amendments to confidential treatment requests become effective on April 2, 2019.  Use of XBRL tags on the cover pages of certain filings will be phased in over a three years, depending on the nature of the filer.  All other amendments become effective on May 2, 2019.

[1] As highlighted in the Adopting Release, the amendments do not otherwise alleviate registrants of their responsibility to provide investors with and focus their MD&A on material information.