SEC Simplifies and Modernizes Certain Regulation S-K Requirements (March 25, 2019)

Management’s discussion and analysis (MD&A) — Registrants that present three years of audited financial statements are currently required to address their changes in financial condition and results of operations for each year, typically by providing year-to-year comparisons between each period. The final rule permits these registrants to omit discussion of the earliest year if such discussion was already included in any of the registrants’ prior EDGAR filings that required such information. Registrants electing to omit discussion of the earliest year must disclose, in the current filing, the location of such discussion in the prior filing. In addition, the instructions to the MD&A rules were updated to remove reference to a year-to-year comparison, clarifying that a registrant may use judgment in determining what type of presentation would most clearly communicate results and trends to investors. For example, in certain circumstances, a narrative discussion about specific periods on a stand-alone basis may be more meaningful than period-to-period comparisons.

The proposed rule permitted discussion of the earliest year to be omitted only if that discussion was not material to an understanding of the registrant. While the final rule does not retain a specific reference to materiality, the SEC’s comments in the adopting release remind registrants of their general obligation to “provide investors with all material information, customized in light of the company’s particular circumstances.”

Redaction of confidential information — Registrants are currently able to request approval from the SEC to redact information in exhibits that is not material and would cause competitive harm to the company. The amendments streamline this process by allowing registrants to omit such information, as well as personally identifiable information, without having to first request confidential treatment from the SEC. Registrants would instead mark the exhibits from which information has been omitted and include a statement prominently on the first page of each exhibit to indicate that the redacted information has been omitted.

Description of property — Regulation S-K currently requires disclosure of information related to the “location and general character of the principal plants, mines, and other materially important physical properties of the registrant.” The SEC has observed that this requirement may have prompted some registrants (e.g., those in the service or technology industries) to disclose information about physical property even though it is not material to their company’s operations. The final rule clarifies that the disclosures are required only if the physical properties are material, and it specifies that the information “may be provided on a collective basis, if appropriate.” However, the final rule does not modify the industry-specific disclosure requirements for registrants in the oil and gas, mining, and real estate industries since the disclosure of information about their physical properties is generally considered significant.

Risk factors — Regulation S-K requires disclosure of the most significant risk factors related to a registrant’s offering or business and currently provides examples of specific factors that a company may consider for such disclosure. Although the current requirement is intended to be principles-based, the examples of risk factors led certain registrants to disclose information that was generic or not specific to their circumstances. The final rule eliminates the examples from the disclosure requirements and encourages registrants to revisit their risk assessment and disclose their most significant risk factors.

Schedules and attachments to exhibits — The current requirement to include all schedules and attachments to exhibits has been viewed by some registrants as burdensome and unnecessary. The amendments permit schedules and attachments to exhibits to be omitted unless they contain information that is material and not otherwise disclosed. A registrant must identify any omitted schedules and attachments in the exhibit list.

Hyperlinks and cross-references — The final rule includes requirements related to the use of hyperlinks to documents that are incorporated by reference from other SEC filings. It also generally permits but does not require cross-references to other parts of a filing. However, within the financial statements, cross-referring to or incorporating information from outside the financial statements is prohibited unless doing so is specifically permitted by SEC rules, U.S. GAAP, or IFRS® Standards as adopted by the International Accounting Standards Board. This prohibition is intended to prevent confusion about whether such information is or has been subject to audit or review by the registrant’s external auditor.

Cover page — The final rule indicates that registrants must include the trading symbol for each class of registered securities on the cover page of certain SEC forms. Currently, some, but not all, of the information included on the cover page of various SEC filings must be XBRL4 tagged. Inline XBRL tagging will be required for additional information, such as the jurisdiction of incorporation and exchange on which the securities are registered, on the cover page of certain forms filed under the Securities Exchange Act of 1934 (the “Exchange Act”), including Forms 8-K, 10-K, 10-Q, 20-F, and 40-F. The SEC has historically required registrants to indicate on the cover page of Form 10-K whether the filing includes disclosure of delinquent beneficial ownership reporting. The final rule removes this requirement.

Other amendments — Additional changes made by the final rule include:

• For existing registrants that do not meet the definition of a “newly reporting registrant,”5 the removal of the requirement to file material contracts that were entered into within two years of the applicable registration statement or report.
• The addition of the requirement to file a new exhibit that would include a description of a registrant’s securities.
• The addition of parallel amendments to certain rules and forms applicable to investment companies related to hyperlinking and HTML.6