October 21, 2020, Meeting Highlights

The staff provided the following update of recent changes in the Division of Corporation Finance:

• Jessica Kane was named Director of the Division’s Disclosure Review Program.
• Tamara M. Brightwell was named Deputy Director of the Division’s Disclosure Review Program.
• Lindsay McCord was named Chief Accountant.
• Pat Gilmore will return to the Division’s Office of Chief Accountant as Deputy Chief Accountant, from the Disclosure Review Program where he recently served as Acting Director.

The staff expect to issue an updated FRM that reflects some recent rulemaking, including the updated definitions of a smaller reporting company (SRC) and large accelerated filer/accelerated filer, the disclosure update and simplification amendments, as well as a few other items However, the update will not reflect recent amendments to Regulation S-X, including Rules 3-05, 3-10, 3-16, 3-14 and Article 11.

The Committee asked the staff about transition related to the Final Rule on modernizing Items 101, 103, and 105 of Regulation S-K. Specifically, the Committee asked whether the final rule applies to all filings on or after the effective date or to filings that include a balance sheet date after the effective date. The staff stated that the rules will become effective on November 9, 2020 and as such, the form and content of any filing made on or after that date needs to reflect the provisions of the Final Rule. In other words, if a registrant files a Form 10-K or Form 10-Q on or after November 9, it is required to include all the disclosures mandated in the Final Rule applicable to the form. The Committee also asked whether a registration statement that is first filed before the effective date, but amended after the effective date, would need to comply with the final rule and whether any revised disclosure would be necessary if a new registration statement is filed that incorporates by reference Exchange Act reports filed prior to the effective date. The staff indicated that the new rules apply to first-time public filings of registration statements and as such, any amendments associated with previously filed registration statements first filed before November 9, 2020 (not draft registration statements) would be grandfathered under the old rules.

Committee members and staff discussed implementation questions regarding the final amendments to Rule 3-10 contained in SEC Release No. 33-10762, - “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities”. The staff are considering what responsive guidance may be necessary for these questions in the near future.

Committee members and staff shared observations regarding disclosures on the impact of COVID-19. It was observed that some registrants have elected to include a dedicated section in MD&A focusing on COVID while others have disclosed its impact throughout the filing. Regarding Q1 filings, companies appeared to consider the Division’s Disclosure Guidance Topic No. 9 amidst the uncertainties that existed at the time. Regarding Q2 filings, generally registrants provided good disclosures regarding operations, liquidity and capital resources, further considering the views expressed by the staff in Disclosure Guidance Topic No. 9A. As registrants are preparing future periodic reports, the staff suggested that registrants consider their ability to provide more robust disclosure regarding long-term views on the impact of COVID-19 (e.g., how do they plan on paying back debt taken out to manage recent short-term liquidity challenges?). Regarding disclosures of Non-GAAP financial measures, the staff did not observe many objectionable disclosures of Non-GAAP measures in Q1 or Q2 filings.

Committee members and staff continued a discussion on implementation questions regarding the final amendments to Rule 3-05, Amendments to Financial Disclosures about Acquired and Disposed Businesses. The SEC staff are considering what responsive guidance may be necessary related to these questions in the near future.

ASC Topic 842 provides a policy election to nonpublic business entities to use a risk-free discount rate to account for its leases, including determining lease classification and measuring the lease liability and right-of-use asset (ASC 842-20-30-3). The FASB provided this election as an accommodation for private companies to make the application of the leasing guidance easier.

The Committee noted that registrants are oftentimes required to assess the significance of a business that has been disposed of or is probable of being disposed of in order to determine whether pro forma financial information depicting the disposition of the business is required to be filed (e.g., under Item 9.01 of Form 8-K or in a registration statement). Rule 1-02(w)(1)(iii)(A) prescribes that the numerator for the income component of the income test of significance is “[t]he absolute value of the registrant’s and its other subsidiaries’ equity in the tested subsidiary’s consolidated income or loss from continuing operations before income taxes (after intercompany eliminations) attributable to the controlling interests…”