Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information

Proposed Release 33-10750.pdf

Form S-11 - Registration Statement

Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information

OMB: 3235-0067

⚠️ Notice: This form may be outdated. More recent filings and information on OMB 3235-0067 can be found here:

Document [pdf]

Download: pdf | pdf

SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 210, 229, 239, 240, and 249
[Release No. 33-10750; 34-88093; IC-33795; File No. S7-01-20]
RIN 3235-AM48
Management’s Discussion and Analysis, Selected Financial Data, and Supplementary
Financial Information
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
SUMMARY: We are proposing amendments to modernize, simplify, and enhance certain
financial disclosure requirements in Regulation S-K. Specifically, we are proposing to eliminate
Item 301 of Regulation S-K, Selected Financial Data and Item 302 of Regulation S-K,
Supplementary Financial Information because they are largely duplicative of other requirements
and to amend Item 303 of Regulation S-K, Management’s Discussion & Analysis of Financial
Condition and Results of Operations (“MD&A”) to modernize and enhance MD&A disclosures.
In combination, the proposed amendments are intended to eliminate duplicative disclosures and
modernize and enhance MD&A disclosures for the benefit of investors, while simplifying
compliance efforts for registrants.
DATES: Comments should be received by [insert date 60 days after publication in the
FEDERAL REGISTER].
ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments:
●

Use the Commission’s Internet comment forms
(https://www.sec.gov/rules/proposed.shtml); or

●

Send an email to [email protected]. Please include File Number S7-01-20 on the
subject line.

Paper Comments:
●

Send paper comments to Vanessa A. Countryman, Secretary, Securities and Exchange
Commission, 100 F Street NE Washington, DC 20549-1090.
All submissions should refer to File Number S7-01-20. This file number should be

included in the subject line if email is used. To help us process and review your comments more
efficiently, please use only one method. The Commission will post all comments on the
Commission’s website (https://www.sec.gov/rules/proposed.shtml). Comments also are
available for website viewing and printing in the Commission’s Public Reference Room, 100 F
Street NE, Room 1580, Washington, DC 20549, on official business days between the hours of
10 a.m. and 3 p.m. All comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal identifying information from
comment submissions. You should submit only information that you wish to make available
publicly.
We or the staff may add studies, memoranda, or other substantive items to the comment
file during this rulemaking. A notification of the inclusion in the comment file of any such
materials will be made available on our website. To ensure direct electronic receipt of such

notifications, sign up through the “Stay Connected” option at www.sec.gov to receive
notifications by email.
FOR FURTHER INFORMATION CONTACT: Angie Kim, Special Counsel, or Courtney
Lindsay, Special Counsel, Office of Rulemaking, at (202) 551-3430, or Ryan Milne, Associate
Chief Accountant, Office of the Chief Accountant, at (202) 551-3400 in the Division of
Corporation Finance, U.S. Securities and Exchange Commission, 100 F Street NE, Washington,
DC 20549.
SUPPLEMENTARY INFORMATION: The Commission is proposing to remove and reserve
17 CFR 229.301 (“Item 301”) and 17 CFR 229.302 (“Item 302”) of Regulation S-K under the
Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the
“Exchange Act”). The Commission is also proposing to amend 17 CFR 210.1-02(bb) of
Regulation S-X (“Rule 1-02(bb)”); 17 CFR 229.303 (“Item 303”) and 17 CFR 229.914 (“Item
914”) of Regulation S-K under the Securities Act and the Exchange Act; 17 CFR 229.1112
(“Item 1112”), 17 CFR 229.1114 (“Item 1114”) and 17 CFR 229.1115 (“Item 1115”) of
Regulation AB (a subpart of Regulation S-K) under the Securities Act and the Exchange Act; 17
CFR 239.11 (“Form S-1”), 17 CFR 239.20 (“Form S-20”), 17 CFR 239.25 (“Form S-4”), 17
CFR 239.31 (“Form F-1”) and 17 CFR 239.34 (“Form F-4”) under the Securities Act; 17 CFR
240.14a-101 (“Schedule 14A”) under the Exchange Act; and 17 CFR 249.220f (“Form 20-F”),
17 CFR 249.240f (“Form 40-F”), and 17 CFR 249.308 (“Form 8-K”) under the Exchange Act.

Table of Contents
I.
A.
B.
II.
A.
B.
C.

F.
III.
IV.
A.
B.
C.
D.

INTRODUCTION ..................................................................................................................6
Background ..............................................................................................................................6
Overview of the Proposed Amendments ................................................................................10
DESCRIPTION OF THE PROPOSED AMENDMENTS ...............................................14
Selected Financial Data (Item 301) ........................................................................................14
Supplementary Financial Information (Item 302) ..................................................................22
1. Supplementary Financial Information (Item 302(a)) ..................................................... 22
2. Information about oil and gas producing activities (Item 302(b)) ................................. 29
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Item 303) ...............................................................................................................................31
1. Restructuring and Streamlining (Item 303(a)) ............................................................... 36
2. Capital Resources (Item 303(a)(2)) ................................................................................ 44
3. Results of Operations – Known Trends or Uncertainties (Item 303(a)(3)(ii))............... 48
4. Results of Operations – Net Sales and Revenues (Item 303(a)(3)(iii)).......................... 49
5. Results of Operations – Inflation and Price Changes (Item 303(a)(3)(iv), and
Instructions 8 and 9 to Item 303(a))............................................................................... 50
6. Off-Balance Sheet Arrangements (Item 303(a)(4)) ....................................................... 53
7. Contractual Obligations Table (Item 303(a)(5)) ............................................................ 66
8. Critical Accounting Estimates ........................................................................................ 72
9. Interim Period Discussion (Item 303(b)) ....................................................................... 82
10. Safe Harbor for Forward-Looking Information (Item 303(c)) ....................................... 92
11. Smaller Reporting Companies (Item 303(d)) ................................................................. 95
Application to Foreign Private Issuers ...................................................................................96
1. Form 20-F....................................................................................................................... 96
2. Form 40-F..................................................................................................................... 104
3. Item 303 of Regulation S-K ......................................................................................... 106
Additional Conforming Amendments ..................................................................................107
1. Roll-up Transactions – Item 914 of Regulation S-K.................................................... 107
2. Regulation AB – Items 1112, 1114, and 1115 ............................................................. 108
3. Summary Prospectus in Forms S-1 and F-1 ................................................................. 110
4. Business Combinations – Form S-4, Form F-4 and Schedule 14A ............................. 111
5. Form S-20 ..................................................................................................................... 113
Compliance Date ..................................................................................................................113
GENERAL REQUEST FOR COMMENTS ....................................................................114
ECONOMIC ANALYSIS ..................................................................................................114
Introduction ..........................................................................................................................114
Baseline and Affected Parties...............................................................................................116
Potential Benefits and Costs of the Proposed Amendments ................................................118
1. Overall Potential Benefits and Costs............................................................................ 118
2. Benefits and Costs of Specific Proposed Amendments ............................................... 122
Anticipated Effects on Efficiency, Competition, and Capital Formation ............................145
4

E. Alternatives ..........................................................................................................................146
V. PAPERWORK REDUCTION ACT .................................................................................152
A. Summary of the Collections of Information.........................................................................152
B. Summary of the Proposed Amendments’ Effects on the Collections of Information ..........154
C. Incremental and Aggregate Burden and Cost Estimates for the Proposed Amendments ....159
VI. SMALL BUSINESS REGULATORY ENFORCEMENT FAIRNESS ACT ...............163
VII. REGULATORY FLEXIBILITY ACT CERTIFICATION ...........................................164
VIII.
STATUTORY AUTHORITY AND TEXT OF PROPOSED RULE AND FORM
AMENDMENTS .................................................................................................................166

INTRODUCTION
A. Background
We are proposing certain amendments to Regulation S-K, and related rules and forms.

Specifically, we are proposing (1) to eliminate Item 301, Selected Financial Data and Item 302,
Supplementary Financial Information; and (2) to modernize, simplify, and enhance the
disclosure requirements in Item 303, MD&A. 1 We are also proposing certain parallel
amendments applicable to financial disclosures provided by foreign private issuers (“FPIs”). 2
Based on a recommendation in the Report on Review of Disclosure Requirements in
Regulation S-K (“S-K Study”), 3 Commission staff initiated a comprehensive evaluation of the

Concurrent with this release we are issuing guidance on key performance indicators and metrics in MD&A. See
Commission Guidance on Management’s Discussion and Analysis of Financial Condition and Results of
Operations, Release No. 33-10751 (Jan. 30, 2020) (the “Companion Guidance”).

See Section II.D below. An FPI is any foreign issuer other than a foreign government, except for an issuer that
(1) has more than 50% of its outstanding voting securities held of record by U.S. residents; and (2) any of the
following: (i) a majority of its officers or directors are citizens or residents of the United States; (ii) more than
50% of its assets are located in the United States; or (iii) its business is principally administered in the United
States. See 17 CFR 230.405. See also 17 CFR 240.3b-4(c).
While the disclosure requirements for Item 9 of Form 1-A for Regulation A issuers are similar to the MD&A
requirements under Item 303, we are not proposing to amend Form 1-A at this time. See Amendments for
Small and Additional Issues Exemptions Under the Securities Act (Regulation A), Release No. 33-9741 (Mar.
25, 2015) [80 FR 21805 (Apr. 20, 2015)], at 21830. With that said, in the preparation of Part II of Form 1-A,
Regulation A issuers have the option of disclosing either the information required by (i) the Offering Circular
format (including Item 9 referenced above) or (ii) Part I of Forms S-1 or S-11 (except for the financial
statements, selected financial data, and supplementary information called for by those forms). Thus, even
though the proposed changes would not amend Item 9 of Form 1-A, they would still impact Regulation A
issuers that choose to disclose the information required by Part I of Forms S-1 or S-11. See Section (a)(1)(ii) of
Part II of Form 1-A.

See Report on Review of Disclosure Requirements in Regulation S-K (Dec. 2013), available at
https://www.sec.gov/news/studies/2013/reg-sk-disclosure-requirements-review.pdf. The report was mandated
by Section 108 of the Jumpstart Our Business Startups Act (“JOBS Act”). Pub. L. No. 112-106, Sec. 108, 126
Stat. 306 (2012). Section 108 required the Commission to conduct a review of Regulation S-K to
comprehensively analyze the current registration requirements and to determine how such requirements can be
updated to modernize and simplify the registration process and to reduce the costs and other burdens associated

Commission’s disclosure requirements, which included an assessment of the information our
rules require registrants to disclose, how and where this information is presented, and how we
can better leverage technology as part of these efforts (collectively, the “Disclosure Effectiveness
Initiative”). 4 The objective of the Disclosure Effectiveness Initiative is to improve our disclosure
regime for the benefit of both investors and registrants. In connection with the S-K Study and
the launch of the Disclosure Effectiveness Initiative, Commission staff received public input on
how to improve registrant disclosures. 5 Additionally, in a concept release issued in 2016, 6 the
Commission solicited comment on the business and financial disclosure requirements in
Regulation S-K. Specifically, the Commission solicited comment on whether these requirements
provide the material information that investors need to make informed investment and voting
decisions, and whether any of our rules have become outdated or unnecessary, or could
otherwise be improved. These proposals also are informed by the objectives of the Fixing

with these requirements for emerging growth companies. Section 108 also required the Commission to provide
a report on this review to Congress.
4

See SEC Spotlight on Disclosure Effectiveness, available at https://www.sec.gov/spotlight/disclosureeffectiveness.shtml.

In connection with the S-K Study, the Commission received public comments on regulatory initiatives to be
undertaken in response to the JOBS Act. See Comments on SEC Regulatory Initiatives Under the JOBS Act:
Title I – Review of Regulation S-K, available at http://www.sec.gov/comments/jobs-title-i/reviewregsk/reviewreg-sk.shtml.
Similarly, to facilitate public input on the Disclosure Effectiveness Initiative, members of the public were
invited to submit comments. See Request for Public Comment, available at
http://www.sec.gov/spotlight/disclosure-effectiveness.shtml. Public comments received to date on the
Disclosure Effectiveness Initiative are available on our website. See Comments on Disclosure Effectiveness,
available at https://www.sec.gov/comments/disclosure-effectiveness/disclosureeffectiveness.shtml.

See Business and Financial Disclosure Required by Regulation S-K, Release No. 33-10064 (Apr. 13, 2016) [81
FR 23915 (Apr. 22, 2016)] (“Concept Release”). Comment letters related to the Concept Release are available
at https://www.sec.gov/comments/s7-06-16/s70616.htm. Unless otherwise indicated, comments cited in this
release are to the public comments on the Concept Release.

America’s Surface Transportation Act (the “FAST Act”), which, among other things, required
the Commission to study ways that Regulation S-K could be modernized and simplified. 7 The
JOBS Act and the FAST Act, and the work on the Disclosure Effectiveness Initiative and the SK Study, have focused on modernizing and improving disclosure to reduce costs and burdens
while continuing to provide investors with all material information. These proposals continue
that work with a particular focus on performance and financial disclosure.
In developing the proposed amendments, we considered input from comment letters the
Commission received on the initiatives described above. We also took into account the staff’s
experience with Regulation S-K arising from the Division of Corporation Finance’s disclosure
review program and changes in the regulatory and business landscape since the adoption of
Regulation S-K over 40 years ago. Regulation S-K was adopted in 1977 to foster uniform and
integrated disclosure for registration statements under both the Securities Act and the Exchange

Pub. L. No. 114-94, Sec. 72003, 129 Stat. 1311 (2015) (requiring, among other things, that the SEC conduct a
study, issue a report, and issue a proposed rule on the modernization and simplification of Regulation S-K).
Among other things, the FAST Act directed the Commission to study Regulation S-K to: determine how to best
modernize and simplify such requirements in a manner that reduces costs and burdens on registrants while
continuing to provide all material information; emphasize a company-by-company approach that allows
relevant and material information to be disseminated without boilerplate language or static requirements while
preserving completeness and comparability of information across registrants; and evaluate methods of
information delivery and presentation and explore methods for discouraging repetition and the disclosure of
immaterial information. In 2016, the staff published the Report on Modernization and Simplification of
Regulation S-K (the “FAST Act Report”). See Report on Modernization and Simplification of Regulation S-K
(Nov. 23, 2016), available at https://www.sec.gov/reportspubs/sec-fast-act-report-2016.pdf. Comment letters
received in response to the FAST Act Report are available at https://www.sec.gov/comments/fast/fast.htm.
In connection with the FAST Act Report, the Commission proposed and then adopted certain amendments to
Regulation S-K. See FAST Act Modernization and Simplification of Regulation S-K, Release No. 33-10425
(Oct. 11, 2017) [82 FR 50988 (Nov. 2, 2017)] (“FAST Act Proposing Release”) and FAST Act Modernization
and Simplification of Regulation S-K, Release No. 33-10618 (Mar. 20, 2019) [84 FR 12674 (Apr. 20, 2019)]
(“FAST Act Adopting Release”).

Act, and other Exchange Act filings, including periodic and current reports. 8 In 1982, the
Commission expanded and reorganized Regulation S-K to be the central repository for its nonfinancial statement disclosure requirements. 9 The Commission’s goals in adopting integrated
disclosure were to revise or eliminate overlapping or unnecessary disclosure requirements
wherever possible, thereby reducing burdens on registrants and enhancing readability without
affecting the provision of material information to investors. 10 The amendments we are proposing
in this release would continue to advance these goals.
Additionally, we reviewed Items 301, 302, and 303 in light of advancements in
technology (in particular the availability of past financial statements and other disclosure made
in filings on the Commission’s Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”)
system) and changes in requirements under U.S. Generally Accepted Accounting Principles
(“U.S. GAAP”). We also considered the benefits and appropriateness of a principles-based

The Commission adopted the initial version of Regulation S-K following issuance of the report by the Advisory
Committee on Corporate Disclosure led by former Commissioner A. A. Sommer, Jr., which recommended
adoption of a single integrated disclosure system. See H. Comm. on Interstate and Foreign Commerce, Report
of the Advisory Committee on Corporate Disclosure to the Securities and Exchange Commission, 95th Cong.,
1st Sess., at 95-29 (Comm. Print 1977), available at http://3197d6d14b5f19f2f4405e13d29c4c016cf96cbbfd197c579b45.r81.cf1.rackcdn.com/collection/papers/1970/1977_1103_AdvisoryDisclo
sure.pdf. This version of Regulation S-K included only two disclosure requirements—a description of business
and a description of properties.

See Adoption of Integrated Disclosure System, Release No. 33-6383 (Mar. 3, 1982) [47 FR 11380 (Mar. 16,
1982)] (“1982 Integrated Disclosure Adopting Release”).

See id.

approach in reviewing these Items and our proposals are intended to promote the principlesbased nature of MD&A. 11
B. Overview of the Proposed Amendments
We are proposing changes to Items 301, 302, and 303 of Regulation S-K that would
reduce duplicative disclosure and focus on material information. Specifically, we propose to
eliminate:
•

Item 301 – Selected Financial Data;

•

Item 302 – Supplementary Financial Information; and

•

Item 303(a)(5) – MD&A, Tabular disclosure of contractual obligations.

We are also proposing changes to modernize, simplify, and enhance disclosure requirements in
Item 303 in order to improve these disclosures for investors and simplify compliance efforts for
registrants. Specifically, these proposed revisions would:
•

Add a new Item 303(a), Objective, to state the principal objectives of MD&A;

•

Amend Item 303(a), Full fiscal years (proposed Item 303(b)) and Item 303(b),
Interim periods (proposed Item 303(c)) to modernize, clarify, and streamline the
items;

See Concept Release on Management's Discussion and Analysis of Financial Condition and Operations,
Release No. 33-6711 (Apr. 23, 1987) [52 FR 13715 (Apr. 24, 1987)] (stating that when the Commission
adopted MD&A as a separate disclosure requirement, the rules remained intentionally general in nature: “The
Commission believed that a flexible approach would elicit more meaningful disclosure and avoid boilerplate
discussions which a more specific approach could foster. Further, the Commission reasoned that, because each
registrant is unique, no one checklist could be fashioned to cover all registrants comprehensively.”).

•

Replace Item 303(a)(4), Off-balance sheet arrangements, with an instruction
regarding the need to discuss such obligations in the broader context of MD&A;

•

Add a new Item 303(b)(4), Critical accounting estimates, to clarify and codify
Commission guidance on critical accounting estimates; 12

•

Eliminate current Item 303(c), Safe harbor, in light of the proposed replacement of
Item 303(a)(4) and elimination of Item 303(a)(5); and

•

Eliminate Item 303(d), Smaller reporting companies 13 in light of the proposed
elimination of Items 303(a)(3)(iv) and 303(a)(5).

We are also proposing certain parallel amendments to Forms 20-F and 40-F, including
Item 3.A of Form 20-F (Selected Financial Information), Item 5 of Form 20-F (Operating and
Financial Review and Prospects), General Instruction B.(11) of Form 40-F (Off-Balance Sheet
Arrangements), and General Instruction B.(12) of Form 40-F (Tabular Disclosure of Contractual
Arrangements). 14 The following table summarizes some of the changes we are proposing, as
described more fully in Section II (Proposed Amendments): 15

See Commission Guidance Regarding Management’s Discussion and Analysis of Financial Condition and
Results of Operation, Release No. 33-8350 (Dec. 19, 2003) [68 FR 75056 (Dec. 29, 2003)] (the “2003 MD&A
Interpretive Release”).

Item 10 of Regulation S-K defines a smaller reporting company (“SRC”) as a registrant that is not an
investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not an SRC that:
had a public float of less than $250 million; or had annual revenues of less than $100 million, and either no
public float or a public float of less than $700 million. Business development companies (“BDCs”) do not fall
within the SRC definition and are a type of closed-end investment company that is not registered under the
Investment Company Act.

We discuss our proposals that would affect FPIs in Section II.D below.

The information in this table is not comprehensive and is intended only to highlight some of the more
significant aspects of the current rules and proposed amendments. It does not reflect all of the proposed

Current Item
or Issue

Summary Description
of Proposal

Item 301, Selected
financial data

Registrants would no longer be required to
provide 5 years of selected financial data.

Item 302(a),
Supplementary
financial
information

Registrants would no longer be required to
provide 2 years of selected quarterly
financial data.

Item 303(a), MD&A

Item 303(a)(2),
Capital resources

Item 303(a)(3)(ii),
Results of operations

Item 303(a)(3)(iii),
Results of operations
Item 303(a)(3)(iv),
Results of operations
Instructions 8 and 9
(Inflation and price
changes)

Item 303(a)(4), Offbalance sheet
arrangements

Clarify the objective of MD&A and
streamline the fourteen instructions.
Registrants would disclose material cash
requirements, including commitments for
capital expenditures, as of the latest fiscal
period, the anticipated source of funds
needed to satisfy such cash requirements,
and the general purpose of such
requirements.
Registrants would disclose known events
that are reasonably likely to cause a
material change in the relationship between
costs and revenues, such as known or
reasonably likely future increases in costs
of labor or materials or price increases or
inventory adjustments.
Clarify that a discussion of the reasons
underlying material changes in net sales or
revenues is required.
The item and instructions would be
eliminated. Registrants would still be
required to discuss these matters if they are
part of a known trend or uncertainty that
has had, or the registrant reasonably
expects to have, a material favorable or
unfavorable impact on net sales, or
revenue, or income from continuing
operations.
The item would be replaced by a new
instruction added to Item 303. Under the
new instruction, registrants would be
required to discuss commitments or
obligations, including contingent
obligations, arising from arrangements with
unconsolidated entities or persons that
have, or are reasonably likely to have, a

Principal Objective(s)
Modernize disclosure requirement in
light of technological developments and
simplify disclosure requirements.
Reduce repetition and focus disclosure
on material information. Modernize
disclosure requirement in light of
technological developments

Corresponding
FPI Change(s)?

Discussed
Below In
Section

Yes

II.A &
II.D.1

N/A

II.B.1

Simplify and enhance the purpose of
MD&A.

Yes

II.C.1 &
II.D.1

Modernize and enhance disclosure
requirements to account for capital
expenditures that are not necessarily
capital investments.

Yes

II.C.2 &
II.D.1

Clarify item requirement by using a
disclosure threshold of “reasonably
likely,” which is consistent with the
Commission’s interpretative guidance
on forward-looking statements.

Yes

II.C.3 &
II.D.1

Clarify MD&A disclosure requirements
by codifying existing Commission
guidance.

Yes

II.C.4 &
II.D.1

Encourage registrants to focus on
material information that is tailored to a
registrant’s businesses, facts, and
circumstances.

Yes

II.C.5

Prompt registrants to consider and
integrate disclosure of off-balance sheet
arrangements within the context of their
MD&A.

Yes

II.C.6,
II.D.1, &
II.D.2

amendments or all of the rules and forms that are affected. All changes are discussed in their entirety below.
As such, this table should be read together with the referenced sections and the complete text of this release.

Current Item
or Issue

Summary Description
of Proposal

Principal Objective(s)

Corresponding
FPI Change(s)?

material current or future effect on such
registrant’s financial condition, changes in
financial condition, revenues or expenses,
results of operations, liquidity, cash
requirements, or capital resources even
when the arrangement results in no
obligation being reported in the registrant’s
consolidated balance sheets.
Item 303(a)(5),
Contractual
obligations

Instruction 4
(Material changes
in line items)

Item 303(b), Interim
periods

Critical Accounting
Estimates

Registrants would no longer be required to
provide a contractual obligations table.
Incorporate a portion of the instruction into
proposed Item 303(b). Clarify that where
there are material changes in a line item,
including where material changes within a
line item offset one another, disclosure of
the underlying reasons for these material
changes in quantitative and qualitative
terms is required.
Registrants would be permitted to compare
their most recently completed quarter to
either the corresponding quarter of the prior
year or to the immediately preceding
quarter. Registrants subject to Rule 303(b) of Regulation S-X would be afforded
the same flexibility.
Explicitly require disclosure of critical
accounting estimates.

Discussed
Below In
Section

Promote the principles-based nature of
MD&A and simplify disclosures by
reducing redundancy.

Yes

II.C.7,
II.D.1, &
II.D.2

Enhance analysis in MD&A. Clarify
MD&A disclosure requirements by
codifying existing Commission
guidance on the importance of analysis
in MD&A.

Yes

II.C.1 &
II.D.1

Allow for flexibility in comparison of
interim periods to enhance the
disclosure provided to investors.

N/A

II.C.9

Facilitate compliance and improve
resulting disclosure. Eliminate
disclosure that duplicates the financial
statement discussion of significant
policies. Promote meaningful analysis
of measurement uncertainties.

Yes

II.C.8 &
II.D.1

We discuss the proposed amendments below in the order that each Item appears in
Regulation S-K. We welcome feedback and encourage interested parties to submit comments on
any or all aspects of the proposals. When commenting, it would be most helpful if you include
the reasoning behind your position or recommendation.

II.

DESCRIPTION OF THE PROPOSED AMENDMENTS
A. Selected Financial Data (Item 301)
Item 301 16 requires registrants to furnish selected financial data in comparative tabular

form for each of the registrant’s last five fiscal years and any additional fiscal years necessary to
keep the information from being misleading. Instruction 1 to Item 301 states that the purpose of
the item is to supply in a convenient and readable format selected financial data that highlights
certain significant trends in the registrant's financial condition and results of operations.
Instruction 2 to Item 301 lists specific items that must be included, subject to appropriate
variation to conform to the nature of the registrant’s business, and provides that registrants may
include additional items they believe would enhance an understanding of, and highlight, other
trends in their financial condition or results of operations. 17
SRCs are not required to provide Item 301 information. 18 Emerging growth companies
(“EGCs”) 19 that are providing the information called for by Item 301 in a Securities Act
registration statement, need not present selected financial data for any period prior to the earliest

See also Section II.D below for a discussion of related amendments to Form 20-F.

Instruction 2 to Item 301 of Regulation S-K states that, subject to appropriate variation to conform to the nature
of the registrant’s business, the following items shall be included in the table of financial data: net sales or
operating revenues; income (loss) from continuing operations; income (loss) from continuing operations per
common share; total assets; long-term obligations and redeemable preferred stock (including long-term debt,
capital leases, and redeemable preferred stock); and cash dividends declared per common share.

Item 301(c) of Regulation S-K [17 CFR 229.301(c)].

An EGC is defined as a company that has total annual gross revenues of less than $1.07 billion during its most
recently completed fiscal year and, as of December 8, 2011, had not sold common equity securities under a
registration statement. A company continues to be an EGC for the first five fiscal years after it completes an
IPO, unless one of the following occurs: its total annual gross revenues are $1.07 billion or more; it has issued
more than $1 billion in non-convertible debt in the past three years; or it becomes a “large accelerated filer,” as
defined in Exchange Act Rule 12b-2. See Securities Act Rule 405 and Exchange Act Rule 12b-2.

audited financial statements presented in connection with the EGC’s initial public offering
(“IPO”) of its common equity securities. 20 In addition, an EGC that is providing the information
called for by Item 301 in a registration statement, periodic report, or other report filed under the
Exchange Act need not present selected financial data for any period prior to the earliest audited
financial statements presented in connection with its first registration statement that became
effective under the Exchange Act or Securities Act. 21
In the Concept Release, the Commission solicited comment on whether to retain, modify,
or eliminate Item 301. 22 The Commission also solicited comment on the cost of this disclosure
and whether information on the earliest two of the last five fiscal years is available without
unreasonable cost or expense. Additionally, the Commission solicited comment on the utility of
this disclosure.
Many commenters recommended eliminating Item 301 completely or questioned its
usefulness. 23 One of these commenters stated that “absent a requirement to provide narrative
discussions of trends, the current requirement under [Item 301] seems less useful in an electronic

Item 301(d)(1) of Regulation S-K.

Item 301(d)(2) of Regulation S-K.

See Concept Release, at 23940.

See, e.g., letters from New York State Society of Certified Public Accountants (July 19, 2016) (“NYSSCPA”),
Aflac, Inc. (July 19, 2016) (“AFLAC”), Ernst & Young LLP (July 21, 2016) (“E&Y”), PNC Financial Services
Group (July 21, 2016) (“PNC”), Edison Electric Institute and American Gas Association (July 21, 2016) (“EEI
and AGA”), XBRL US, Inc. (July 21, 2016), Chevron Corporation (July 22, 2016) (“Chevron”), Fenwick West
LLP (Aug. 1, 2016) (“Fenwick”), Grant Thornton LLP (July 21, 2016) (“Grant Thornton”), Northrop Grumman
Corporation (Sept. 27, 2016) (“Northrop Grumman”), General Motors Company (Sept. 30, 2016) (“General
Motors”), and Financial Executives International (Oct. 3, 2016) (“FEI”).

era where historical financial information is easily accessible.” 24 Another commenter stated that
it did not believe that presenting five years of information is useful to an investor and similarly
noted that the information is accessible through EDGAR. 25 An additional commenter questioned
whether selected financial data was necessary in light of data-tagged financial statements. 26 A
number of commenters recommended revising the item to reduce burdens, if retained. 27
One of these commenters noted the potentially significant costs in public offerings for
comfort letters associated with this disclosure. 28 This commenter stated that where prior years
have been audited by a different accounting firm, companies typically incur significant
additional costs, both in terms of direct costs and internal resources, to obtain comfort letters.
Additionally, this commenter stated that if Item 301 information is required for periods where no
audited financial statements are otherwise required, the costs can be much more substantial.

See letter from Grant Thornton.

See letter from NYSSCPA.

See letter from E&Y. This commenter also suggested that the Commission “encourage registrants to include
tables of selected financial data in the summary section of their annual reports if the information would
highlight the key content and developments disclosed in the full report.”

See, e.g., letters from NYSSCPA, AFLAC, E&Y, Fenwick, General Motors, and FEI. These commenters
suggested: limiting the disclosure requirement to two or three years (letters from NYSSCPA and AFLAC );
making disclosure of the earlier years voluntary and allowing all registrants to adopt a “build up” approach to
Item 301 similar to the option available to EGCs (letters from E&Y and Fenwick); making the selected financial
data table voluntary and permitting registrants to present only a retroactive accounting change for the periods
presented in the financial statements if the periods prior to those presented in the financial statements cannot be
recast without unreasonable effort or cost (letter from General Motors); and allowing hyperlinks to access fiveyear data if placed within a separate ‘company profile’ section of EDGAR (letter from FEI).

See letter from Fenwick.

Another commenter encouraged the Commission to ask investors whether the utility of
the information provided in response to Item 301 justify the costs of presenting it. 29 This
commenter stated that, while this required disclosure is limited to a small number of line items,
certain of these items effectively require preparation of a full income statement and balance sheet
to derive information for the earlier two years.
Many commenters recommended revising Item 301 to allow registrants to omit the
earliest two years. 30 Some of these commenters noted that providing disclosure of the earliest
two years often creates challenges for registrants, including non-EGC issuers conducting IPOs. 31
A few of these commenters recommended a practicability exception allowing registrants to omit
the earliest two years when the information cannot be provided without unreasonable cost or
expense. 32 Others recommended that the earliest two years should be required only when
necessary to make the current financial data not misleading, 33 or to illustrate material trends. 34

See letter from PricewaterhouseCoopers LLP (July 21, 2016) (“PWC”) (stating that providing the earliest two
years can be time consuming and costly, such as in circumstances where the information has not been
previously provided (e.g., in an initial registration statement)).

See, e.g., letters from Deloitte & Touche LLP (July 15, 2016) (“Deloitte”), BDO USA, LLP (July 20, 2016)
(“BDO”), U.S. Chamber of Commerce (Jul. 20, 2016) (“Chamber”), FedEx Corporation (“FedEx”) (Jul. 21,
2016), Corporate Governance Coalition for Investor Value (July 20, 2016) (“CGCIV”), Center for Audit
Quality (July 21, 2016) (“CAQ”), Securities Industry and Financial Markets Association (July 21, 2016)
(“SIFMA”), National Association of Real Estate Investment Trusts (July 21, 2016) (“NAREIT”), Allstate
Insurance Company (July 21, 2016) (“Allstate”), Davis Polk & Wardwell LLP (July 22, 2016) (“Davis Polk”),
Stephen Percoco (July 24, 2016) (“S. Percoco”), and Shearman & Sterling LLP (Aug. 31, 2016) (“Shearman”).

See, e.g., letters from Deloitte and CAQ.

See, e.g., letters from BDO, Davis Polk, and S. Percoco.

See, e.g., letters from Chamber, FedEx, and CGCIV.

See, e.g., letters from NAREIT and SIFMA.

A few commenters supported retaining Item 301. 35 Some of these commenters stated
that having the information in one place keeps investors from having to review multiple sources
to obtain this information, 36 with one of these commenters noting that investors sometimes rely
on printed copies. 37 Two of the commenters also stated that requiring this disclosure for five
years is an appropriate timeframe, 38 with one stating that five years is more likely to capture the
effects that business cycles may have on a registrant. 39 Another stated that Item 301 information
should be easy for companies to disclose because the information is already in company
records. 40
We propose to eliminate Item 301. When the precursor to Item 301 was adopted in 1970,
prior annual reports were not quickly and easily accessible. 41 Today, the information required by
Item 301 can be readily accessed and compiled through prior filings on EDGAR. 42 In addition,
this information is tagged using eXtensible Business Reporting Language (“XBRL”) data format.

See, e.g., letters from R.G. Associates, Inc. (July 6, 2016) (“RGA”), California Public Employees’ Retirement
System (July 21, 2016) (“CalPERS”), California State Teachers’ Retirement System (July 21, 2016), and CFA
Institute (Oct. 6, 2016).

See letters from RGA and CFA Institute.

See letter from RGA.

See letters from CalPERS and CFA Institute.

See letter from CFA Institute.

See letter from CalPERs.

Before adopting the precursor to Item 301, the Commission implemented a microfiche system in 1968 that
supplemented its hard copy reproduction service and was intended to “facilitate wider, more economical and
more rapid distribution” of Exchange Act reports. See Disclosure to Investors – A Reappraisal of Federal
Administrative Policies under the ’33 and ’34 Acts, Policy Study, Mar. 27, 1969, available at
http://www.sechistorical.org/museum/galleries/tbi/gogo_d.php, at 313.

In addition, filings are generally available on registrants’ websites and other third-party websites.

As noted above, there are currently certain exceptions to Item 301 for EGC and SRC
registrants. 43 Our proposals would not affect these exceptions or result in any further loss of
information from these registrants. 44
In adding the requirement for selected financial data to Regulation S-K, the Commission
stated that Item 301 was “relevant primarily where it can be related to trends in the registrant's
continuing operations.” 45 However, Item 303 specifically calls for disclosure of material trend
information. 46 In addition, since Item 301 has been incorporated into Regulation S-K, the
Commission has issued guidance emphasizing trend disclosure in MD&A. 47 In light of the
requirement for discussion and analysis of trends in Item 303, we believe requiring five years of
selected financial data is not necessary to achieve the original purpose of providing trend
disclosure. Registrants may, however, continue to include a tabular presentation of relevant
financial or other information discussed in MD&A, to the extent they believe that such a

We recognize an exception to this accessibility would be SRCs and EGCs that are either filing an initial
registration statement or those that have not been public for at least two fiscal years following their initial
registration statement.

Based on Ives Group’s Audit Analytics data, during the period from April 5, 2012 through December 31, 2018,
EGC issuers accounted for approximately 1,267 out of 1,440, or approximately 88%, of priced exchange-listed
IPOs (excluding deals identified as mergers, spin-offs, or fund offerings). SRCs are often also EGCs so these
statistics of IPOs conducted by EGCs likely encompass the majority of IPOs conducted by SRCs. In addition,
for reasons discussed in this release, registrants would still be required to discuss and analyze material trends,
which was one of the intended purposes of Item 301. Accordingly, in the majority of instances, we believe that
our proposal would not result in a loss of disclosure.

Amendments to Annual Report Form, Related Forms, Rules, Regulations, and Guides; Integration of Securities
Acts Disclosure Systems, Release No. 33-6231 (Sept. 2, 1980) [45 FR 63630 (Sept. 25, 1980)] (“1980 Form 10K Adopting Release”).

See, e.g., Item 303(a)(3).

See, e.g., Management’s Discussion and Analysis of Financial Condition and Results of Operations; Certain
Investment Company Disclosures, Release No. 33-6835 (May 18, 1989) [54 FR 22427 (May 24, 1989)] (the
“1989 MD&A Interpretative Release”) and 2003 MD&A Interpretive Release.

presentation would be useful to an understanding of the disclosure. We believe that eliminating
Item 301 would continue to allow registrants the flexibility to present a meaningful MD&A
discussing material trend information, while easing compliance burdens on registrants.
We acknowledge that some commenters suggested we revise Item 301 to require only
presentation of the same number of years as included in the financial statements, or otherwise
provide accommodations to limit the number of years presented. However, we believe that such
an approach would result in disclosure that would be largely duplicative of information in the
financial statements, and therefore may have limited utility. We also acknowledge that some
commenters recommended that we retain Item 301 without any revisions or enhance the item
requirement. We believe, however, that the incremental utility of having a full five years of
selected financial information is not justified by the cost to prepare such disclosures, particularly
since Item 303 already requires disclosure of material trends and such other information
necessary to an understanding of the registrant’s financial conditions, changes in financial
condition, and results of operations. 48
Request for Comment
1. Should we eliminate Item 301, as proposed? Would eliminating Item 301 result in the
loss of material information that is otherwise not available to investors, such as through
prior filings on EDGAR? If so, what information would be lost, and are there
alternatives we should consider that would capture this information?

See Item 303(a).

2. Is the option for investors to compile selected financial information from current or prior
filings an adequate substitute for the separate presentation of that information in Item
301? Do current XBRL-tagging requirements facilitate compilation and comparison of
selected financial information?
3. Are the requirements of Item 303 sufficient to provide investors with necessary
disclosure regarding trends in a registrant’s results of operations and financial condition?
4. Alternatively, if Item 301 should be retained, should registrants be allowed to provide
less than five years of selected financial data? If so, what is the appropriate number of
years that should be provided, and in what circumstances?
5. What are the costs to registrants of providing five years of selected financial data?
Would those costs significantly decrease if the Commission limited selected financial
data to only those years presented in the filing’s historical financial statements?
6. How do market participants use the selected financial data disclosures? Do market
participants rely on any particular fiscal year or years more than others (e.g., the most
recent two or three years)? Would there be a cost to obtain selected financial data
disclosures elsewhere and, if so, what would that cost be?
7. Would registrants continue to provide selected financial data even if they are no longer
required to do so? If so, for how many years?

8. If we were to retain Item 301, should we modify the line items required to be included in
the presentation pursuant to Instruction 2? 49 For example, should we allow registrants
more discretion regarding which line items to present?
9. The Commission recently proposed to extend to BDCs the requirement for registered
closed-end investment companies to disclose “financial highlights.” 50 The disclosure
required by Item 301 and the financial highlights requirement is similar in many respects.
If we were to adopt the financial highlights requirement and retain Item 301, should we
specifically exclude BDCs from the Item 301 requirement?
B. Supplementary Financial Information (Item 302)
1. Supplementary Financial Information (Item 302(a))
Item 302(a)(1) requires disclosure of selected quarterly financial data of specified
operating results 51 and Item 302(a)(2) requires disclosure of variances in these results from
amounts previously reported on a Form 10-Q. 52 Item 302(a) does not apply to SRCs or FPIs
and, because it only applies to companies that already have a class of securities registered under
Section 12 of the Exchange Act at the time of filing, it does not apply to first time registrants
49

See Instruction 2 to Item 301, supra note 17.

See Securities Offering Reform for Closed-End Investment Companies, Release No. 33-10619 (Mar. 20, 2019)
[84 FR 14448 (Apr. 10, 2019)], at 14472.

Item 302(a)(1) of Regulation S-K [17 CFR 229.302(a)(1)]. Item 302(a)(1) specifies disclosure of: net sales;
gross profit (net sales less costs and expenses associated directly with or allocated to products sold or services
rendered); income (loss) from continuing operations; per share data based upon income (loss) from continuing
operations; net income (loss); and net income (loss) attributable to the registrant.

Item 302(a)(2) of Regulation S-K [17 CFR 229.302(a)(2)]. When the data supplied pursuant to Item 302(a)
varies from amounts previously reported on the Form 10-Q filed for any quarter, such as when a combination
between entities under common control occurs or where an error is corrected, the registrant must reconcile the
amounts given with those previously reported and describe the reason for the difference.

conducting an IPO and registrants who are only required to file reports pursuant to Section 15(d)
of the Exchange Act. 53 When Item 302(a) applies, it requires certain information for each full
quarter within the two most recent fiscal years and any subsequent period for which financial
statements are included or required by Article 3 of Regulation S-X. 54 Item 302(a)(3) requires a
description of the effect of any discontinued operations and unusual or infrequently occurring
items recognized in each quarter, as well as the aggregate effect and the nature of year-end or
other adjustments that are material to the results of that quarter. 55 If a registrant’s financial
statements have been reported on by an accountant, Item 302(a)(4) requires that accountant to
follow appropriate professional standards and procedures regarding the data required by Item
302(a). 56
In the Concept Release, the Commission solicited input on whether to retain, eliminate,
or modify Item 302(a). The Commission also solicited input on the importance of information
required by Item 302(a) that is not duplicative of previously provided information, such as a
separate presentation of certain fourth quarter information and the effect of a retrospective

Item 302(a)(5) and (c) of Regulation S-K [17 CFR 229.302(a)(5) and (c)].

Item 302(a)(1) and (a)(3) [17 CFR 229.302(a)(1) and (a)(3)].

Item 302(a)(3) of Regulation S-K [17 CFR 229.302(a)(3)]. The requirement applies to items recognized in each
full quarter within the two most recent fiscal years and any subsequent interim period for which financial
statements are included or are required to be included.

Item 302(a)(4) of Regulation S-K [17 CFR 229.302(a)(4)].

change in the earliest of the two years. 57 The Commission also sought input on the costs and
benefits of this disclosure item.
A few commenters recommended retaining and expanding Item 302(a). 58 One of these
commenters stated that it “sense[d] that investors find it useful to see fourth quarter results
presented discretely, rather than having to infer them based on the annual results and the interim
results through the third quarter.” 59 The commenter also stated that, where the data changes
from what was previously reported, having the revised data in an annual report allows investors
to understand the effects of the changes sooner. Another of these commenters noted the
importance of fourth quarter data, stating that, in the absence of a Form 8-K filing containing
such information, analysts must derive the information from the annual report and the three
previously filed quarterly reports and that “any numbers derived from this method are at best
approximate.” 60 This commenter stated that, “if a requirement to file a full fourth-quarter report
is too onerous…[Item 302(a)] could be enhanced to include more data from the income
statement beyond revenues, net income, and earnings per share.” Yet another commenter

Because Item 302(a)(2) requires disclosure of variances in results from amounts previously reported for the two
most recent fiscal years, the effect of a retrospective change in any quarter for which a Form 10-Q is filed in the
more recent of the two fiscal years will be disclosed in the selected quarterly data. However, absent Item
302(a)(2), this variance would not be specifically required to be disclosed until the following year in the
corresponding fiscal quarter in which the retrospective change occurred. Additionally, disclosure in the Form
10-Q for this corresponding fiscal quarter would not include the effects of this change in the earliest of the two
years presented in the Form 10-K, as this Form 10-Q would be limited to the current and prior-year interim
periods.

See letters from BDO, Bloomberg LP (July 21, 2016) (“Bloomberg”), and CFA Institute.

See letter from BDO.

See letter from Bloomberg.

recommended that Item 302(a) be revised to ensure the information is presented in a consistent
manner across registrants. 61
Multiple commenters recommended streamlining Item 302(a). 62 Several of these
commenters recommended revising Item 302(a)(5) to accommodate newly reporting registrants
in an annual report or a follow-on offering where the registrant would be required to provide
Item 302(a) data for interim periods prior to those presented in the IPO registration statement. 63
Another commenter recommended only requiring Item 302(a) disclosure when there is a material
retrospective change in the financial statements that has not been previously filed. 64 The
commenter also stated that some companies voluntarily provide fourth quarter data in earnings
releases.
Most commenters recommended eliminating Item 302(a) altogether, 65 with many of these
commenters stating that this item is duplicative of disclosures provided in prior filings. 66 Two of
these commenters stated that “the disclosure required under Item 302(a) is yet another example

See letter from CFA Institute.

See, e.g., letters from Fenwick, Deloitte, CAQ, E&Y, Grant Thornton, and PWC.

See, e.g., letters from Deloitte, CAQ, E&Y, Grant Thornton, and PWC. Suggested accommodations included:
requiring registrants to begin presenting selected quarterly data in their second annual report (see letters from
E&Y, PWC, and CAQ); and allowing new registrants to present supplementary financial data in registration
statements and annual reports that “build” from the quarterly information that has been separately filed in
Exchange Act reports subsequent to an IPO (see letters from Deloitte, CAQ, E&Y, Grant Thornton, and PWC).

See letter from Fenwick. In this commenter’s view, outside of such situations, quarterly financial information
in a registrant’s annual report is redundant with information available on EDGAR. See also letter from Crowe.

See, e.g., letters from AFLAC, Chamber, FedEx, CGCIV, UnitedHealth Group, Inc. (July 21, 2016) (“United
Health”), SIFMA, PNC, EEI and AGA, NAREIT, Davis Polk, S. Percoco, National Investor Relations Institute
(“NIRI”), Northrop Grumman, FEI, and General Motors.

See, e.g., letters from AFLAC, Chamber, FedEx, CGCIV, UnitedHealth Group, SIFMA, PNC, EEI and AGA,
NAREIT, NIRI, Northrop Grumman, FEI, and General Motors.

of duplicative information that unnecessarily complicates and lengthens disclosure documents,
while increasing burdens for registrants and offering little value to investors.” 67 Another
commenter stated that, though the original intent of the item was “to help investors understand
the pattern of corporate activities throughout a fiscal year,” not all businesses are seasonal and
the information provided by Item 302(a) is already available in Form 10-Qs. 68 This commenter
supported a flexible approach for Item 302(a) disclosure that would allow registrants to
determine when and if this disclosure would be relevant and enhance an investor’s understanding
of the business throughout the year. This commenter also stated that fourth quarter data can be
easily derived from prior filings without needing to separately reference the fourth quarter
information.
We propose to eliminate Item 302(a). Like many commenters, we believe that this
prescriptive requirement largely results in duplicative disclosures. The precursor to Item 302
was adopted at a time when quarterly data was “reported on an extremely abbreviated basis.” 69
The item was intended to help investors understand the pattern of corporate activities throughout
a fiscal period by disclosing trends over quarterly periods to reflect seasonal patterns. 70 Today,
most of the financial data required by Item 302(a) can be found in prior quarterly reports, which
are readily available on EDGAR. While Item 302(a) requires separate disclosure of certain
67

See letters from Chamber and CGCIV.

See letter from FEI.

See Interim Financial Data: Proposals to Increase Disclosure, Release No. 34-11142 (Dec. 19, 1974) [40 FR
1079 (Jan. 6, 1975)], at 1080.

See Interim Financial Reporting: Increased Disclosures, Release No. 33-5611 (Sept. 10, 1975) [40 FR 46107
(Oct. 6, 1975)], at 46108.

fourth quarter information, which is not otherwise required to be disclosed, we believe this data
generally can be calculated from a registrant’s Form 10-K and third quarter Form 10-Q. We
believe that eliminating this prescriptive requirement will encourage registrants to take a more
principles-based approach to presenting information called for by Item 302(a) in their filings and
specifically, in MD&A.
Eliminating Item 302(a) may result in the loss of a separate presentation of certain fourth
quarter information and, where applicable, the effect of a retrospective change in the earliest of
the two years. 71 Where fourth quarter results are material or there is a material retrospective
change, existing requirements would still elicit this disclosure. Specifically, Item 303 requires
registrants to discuss unusual events that materially affected reported income and other matters
that are necessary to understand their results of operations. 72 The item also requires registrants
to discuss known trends and uncertainties that have had or that registrants reasonably expect to
have an impact on net sales, revenues, or operating income. 73 Also, U.S. GAAP requires
disclosure of disposals of components of an entity and unusual or infrequently occurring items
recognized for the fourth quarter if interim data and disclosures are not separately reported for

See supra note 51.

Item 303(a)(3)(i) requires registrants to describe any unusual or infrequent events or transactions or any
significant economic changes that materially affected the amount of reported income from continuing
operations and indicate the extent to which income was so affected. In addition, the item requires registrants to
describe any other significant components of revenues or expenses that, in the registrant's judgment, should be
described in order to understand the registrant's results of operations.

Item 303(a)(3)(ii) requires registrants to describe any known trends or uncertainties that have had or that
the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues
or income from continuing operations. If the registrant knows of events that will cause a material change in the
relationship between costs and revenues (such as known future increases in costs of labor or materials or price
increases or inventory adjustments), the change in the relationship must be disclosed.

the fourth quarter. 74 Additionally, Item 101(c)(1)(v) of Regulation S-K requires disclosure of the
extent to which a business is seasonal. 75
Request for Comment
10. Should we eliminate Item 302(a), as proposed? Would eliminating Item 302(a) result in
the loss of material information that is otherwise not available to investors, such as
through prior filings on EDGAR? If so, what material information would be lost, and are
there alternatives we should consider that would capture this information?
11. Do market participants find Item 302(a) disclosures to be helpful? If so, how do market
participants use the disclosures? Does the utility of the disclosures vary by industry or
business? If so, for which industries or businesses are Item 302(a) disclosures helpful?
12. Is the option for investors to compile supplemental financial information through
searches of prior filings an adequate substitute for Item 302(a)? Do current XBRLtagging requirements reliably facilitate compilation and comparison of supplemental
financial information? Would there be a cost to investors of compiling and/or calculating
information presented in Item 302(a) from other sources and, if so, what would that cost
be?
13. What are the burdens on registrants to provide the information required by Item 302(a)?
74

ASC 270-10-50-2 requires the disclosure of certain information if interim data and disclosures are not
separately reported for the fourth quarter. This information includes “disposals of components of an entity and
unusual, or infrequently occurring items recognized in the fourth quarter, as well as the aggregate effect of year
end adjustments that are material to the results of that quarter.”

Item 101(c)(1)(v) [17 CFR 229.101(c)(1)(v)]. The Commission recently proposed changes to Item 101 and
proposed retaining Item 101(c)(1)(v). See Modernization of Regulation S-K Items 101, 103, and 105, Release
No. 33-10668 (Aug. 8, 2019) [84 FR 44358 (Aug. 23, 2019)].

14. Is a separate presentation of certain fourth quarter data material to investors? If so, is
such information material for all companies or industries? Are investors able to readily
calculate this fourth quarter data from a registrant’s Form 10-K and related third quarter
Form 10-Q? What are the challenges to making such calculations?
15. Would registrants continue to provide fourth quarter data in the absence of a requirement
to do so (e.g., through voluntary earnings releases)? If we eliminate Item 302(a), should
we require registrants to disclose certain fourth quarter data elsewhere in an annual
report, such as in MD&A? What would be the cost of this approach? Should we require
registrants to disclose any variances to its previously issued quarterly information that
would inhibit the calculation of fourth quarter data by market participants? What would
be the costs of this approach?
16. Should we retain Item 302(a) but allow a newly reporting registrant to exclude Item
302(a) data for interim periods prior to those presented in its IPO registration
statement? 76
2. Information about oil and gas producing activities (Item 302(b))
Item 302(b) 77 requires registrants engaged in oil and gas producing activities, other than
SRCs, to disclose information about those activities for each period presented. The disclosure
called for by Item 302(b) is also required by U.S. GAAP. 78 However, unlike the U.S. GAAP

See supra note 63 and corresponding text.

See Item 302(b) of Regulation S-K [17 CFR 229.302(b)].

See ASC 932-235-50.

requirement, Item 302(b) incrementally requires that the disclosure be provided for each period
presented.
In 2018, the Commission referred certain of its disclosure requirements to the FASB for
potential incorporation into U.S. GAAP because these items largely overlapped with, but
required information incremental to, U.S. GAAP. 79 Item 302(b) was among the items referred to
the FASB. 80
On May 6, 2019, the FASB issued proposed Accounting Standards Update, Disclosure
Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and
Simplification, 81 which would amend U.S. GAAP to require the incremental disclosure called for
by Item 302(b), disclosure of oil and gas producing activities for each period presented. If FASB
adopts amendments consistent with those it proposed, upon effectiveness of the amendments to
U.S. GAAP, the requirements of Item 302(b) will be duplicative of U.S. GAAP. Therefore, we
propose to eliminate Item 302(b), subject to the FASB finalizing its related amendments to U.S.
GAAP. 82

See Disclosure Update and Simplification, Release No. 33-10532 (Aug. 17, 2018) [83 FR 50234 (Oct. 4,
2018)].

See id.

FASB, File Reference No. 2019-600, available at
https://www.fasb.org/jsp/FASB/Document_C/DocumentPage&cid=1176172611572.

Item 302(c) of Regulation S-K states that SRCs do not have to provide the information required by the Item.
Since we are proposing to eliminate Items 302(a) and (b), we are likewise proposing to eliminate Item 302(c)
since it will no longer be applicable.

Request for Comment
17. As proposed, should we eliminate Item 302(b) if the FASB amends U.S. GAAP to
require substantially similar disclosure?
C. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Item 303)
Item 303 of Regulation S-K requires disclosure of information relevant to assessing a
registrant’s financial condition, changes in financial condition, and results of operations. The
disclosure requirements for full fiscal years in Item 303(a) specify five components: liquidity,
capital resources, results of operations, off-balance sheet arrangements, and contractual
obligations. 83 Item 303(b) covers interim period disclosures and requires registrants to discuss
material changes in the items listed in Item 303(a) (including the instructions), other than the
impact of inflation and changing prices on operations and tabular disclosure of contractual
obligations. 84 Item 303(c) acknowledges the application of a statutory safe harbor for forwardlooking information provided in off-balance sheet arrangements and contractual obligations
disclosures. Item 303(d) provides certain accommodations for SRCs.
The Concept Release solicited comment on the overall objectives of the current MD&A
requirements, as well as specific subsections of Item 303, including how to improve the content
and focus of MD&A. Many commenters responded to the Commission’s request for input with a
variety of suggestions, which we discuss below. The Commission recently addressed some of

Item 303(a)(1)-(5) of Regulation S-K [17 CFR 229.303(a)(1)-(5)].

See Item 303(b) and Instruction 7 to Item 303(b) of Regulation S-K [17 CFR 229.303(b)].

the Item 303(a) disclosure requirements referenced in the Concept Release and by commenters
when it adopted amendments to modernize and simplify certain disclosure requirements in
Regulation S-K. 85
We propose further amendments to Item 303 of Regulation S-K that are intended to
modernize, simplify, and enhance the MD&A disclosures for investors while reducing
compliance burdens for registrants. 86 Specifically, we are proposing to:
•

Establish a new paragraph 303(a) that incorporates much of the substance of
Instructions 1, 2, and 3 to current Item 303(a) to emphasize the objective of MD&A
for both full fiscal years and interim periods;

•

Recaption current Item 303(a) as Item 303(b), and make the following additional
changes:
o Streamline current Item 303(a) by eliminating unnecessary cross-references to
industry guides in Instructions 13 and 14; 87
o Amend current Item 303(a)(2) to modernize and enhance the current requirement,
which is limited to capital expenditures, to specifically require a discussion of
material cash requirements;

See FAST Act Adopting Release. Specifically, the Commission amended Item 303 to: revise Instruction 1 to
Item 303(a) to allow registrants that provide financial statements covering three years in a filing to omit
discussion of the earliest of the three years if such discussion was already included in the registrant’s prior
filings on EDGAR; eliminate the reference to year-over-year comparisons in Instruction 1 to Item 303(a); and
eliminate the reference to five-year selected financial data in Instruction 1 to Item 303(a).

We discuss below in Section II.D our proposals to make certain parallel amendments to Item 5 of Form 20-F
(Operating and Financial Review and Prospects), General Instruction B.(11) of Form 40-F (Off-Balance Sheet
Arrangements), and General Instruction B.(12) of Form 40-F (Tabular Disclosure of Contractual Obligations).

See 17 CFR 229.802.

o Amend current Item 303(a)(3)(ii) to clarify that a registrant should disclose
reasonably likely changes in the relationship between costs and revenues;
o Amend current Item 303(a)(3)(iii) and Instruction 4 to Item 303(a) to enhance
analysis in MD&A by clarifying that a registrant should include in its MD&A a
discussion of the reasons underlying material changes from period-to-period in
one or more line items;
o Eliminate current Item 303(a)(3)(iv), which requires registrants to discuss the
impact of inflation and changing prices where material, along with the related
Instructions 8 and 9 to Item 303(a);
o Replace current Item 303(a)(4), the requirement that registrants provide offbalance sheet arrangement disclosures in a separately captioned section, with an
instruction emphasizing the importance of discussing these obligations in the
broader context of MD&A disclosure when such obligations have or are
reasonably likely to have a material current or future effect on a registrant’s
financial condition, changes in financial condition, revenues or expenses, results
of operations, liquidity, cash requirements or capital resources; and
o Eliminate current Item 303(a)(5), the requirement that registrants provide a
tabular disclosure of contractual obligations;
•

Recaption Item 303(b) as Item 303(c) and:
o Amend current Item 303(b) to allow for more flexibility in interim periods
compared; and

o Simplify current Item 303(b) by eliminating certain instructions and providing
cross-references to similar instructions in Item 303(a); and
•

Eliminate current Items 303(c) and (d) as conforming changes.
The following table outlines the current and proposed structure of Item 303: 88
Current Structure

Item 303(a), Full fiscal years
Item 303(a) (combined liquidity and capital
resources discussions)

Proposed Structure
Item 303(a), Objective
Instruction 2 to Item 303(b)

Discussed In
Section(s)
II.C.1
II.C.1

Item 303(a)(1), Liquidity

Item 303(b)(1), Liquidity

II.C.2

Item 303(a)(2), Capital resources
(i) Capital expenditures
(ii) Known material trends

Item 303(b)(2), Capital resources
(i) Capital expenditures
(ii) Known material trends

II.C.2

Item 303(a)(3), Results of operations
(i) Unusual or infrequent events
(ii) Known trends or uncertainties
(iii) Material increases
(iv) Inflation and changing prices

Item 303(b)(3), Results of operations
(i)
Unusual or infrequent events
(ii) Known trends or uncertainties
(iii) Material changes

Item 303(a)(4), Off-balance sheet
arrangements
Instructions 1, 2, 3, 4, and 5 to Item
303(a)(4)

Replace with Instruction 8 to Item 303(b)
Replace with Instruction 8 to Item 303(b)

II.C.3, II.C.4, & II.C.5

II.C.6
II.C.6

Item 303(a)(5), Contractual obligations

Eliminate

II.C.7

2003 MD&A Interpretative Release, Critical
accounting estimates

Item 303(b)(4), Critical accounting estimates

II.C.8

Instruction 1 to Item 303(a)
Instruction 2 to Item 303(a)
Instruction 3 to Item 303(a)
Instruction 4 to Item 303(a)

Instruction 1 to Item 303(b)(with amendments)
Eliminate (with content incorporated into
Objective)
Eliminate (with content incorporated into
Objective)
Instruction 3 to Item 303(b)(with amendments
and some content incorporated into Item 303(b))

II.C.1
II.C.1
II.C.1
II.C.4

The information in this table is not comprehensive and is intended only to highlight the general structure of the
current rules and proposed amendments. It does not reflect all of the substance of the proposed amendments or
all of the rules and forms that may be affected. All changes are discussed in their entirety throughout this
release. As such, this table should be read together with the referenced sections and the complete text of this
release.

Current Structure

Proposed Structure

Discussed In
Section(s)

Instruction 5 to Item 303(a)

Instruction 4 to Item 303(b)

II.C.1

Instruction 6 to Item 303(a)

Instruction 5 to Item 303(b)

II.C.1

Instruction 7 to Item 303(a)

Instruction 6 to Item 303(b)

II.C.1

Instruction 8 to Item 303(a)

Eliminate

II.C.5

Instruction 9 to Item 303(a)

Eliminate

II.C.5

Instruction 10 to Item 303(a)

Instruction 7 to Item 303(b)

II.C.1

Instruction 11 to Item 303(a)

Instruction 9 to Item 303(b)(with amendments)

II.D.3

Instruction 12 to Item 303(a)

Instruction 10 to Item 303(b)

II.C.1

Instruction 13 to Item 303(a)

Eliminate

II.C.1

Instruction 14 to Item 303(a)

Eliminate

II.C.1

Item 303(b), Interim periods
(1) Material changes in financial condition
(2) Material changes in results of operations,
Rule 3-03(b) of Regulation S-X matters

Instruction 1 to Item 303(b)

Item 303(c), Interim periods
(1) Material changes in financial condition
(2) Material changes in results of operations
(i) Material changes in results of operations (yearto-date)
(ii) Material changes in results of operations
(quarter comparisons)
Instruction 1 to Item 303(c) (with amendments to
reference Instructions 3, 6, 8, and 11 to proposed
Item 303(b))

Instruction 2 to Item 303(b)

Eliminate

Instruction 3 to Item 303(b)

Eliminate

Instruction 4 to Item 303(b)

Instruction 2 to Item 303(c)

Instruction 5 to Item 303(b)

Eliminate

Instruction 6 to Item 303(b)

Eliminate

Instruction 7 to Item 303(b)

Eliminate

Instruction 8 to Item 303(b)

Instruction 11 to Item 303(b)

II.C.9

II.C.9
II.C.9
II.C.9
II.C.9
II.C.9
II.C.9
II.C.9
II.C.9

Item 303(c), Safe harbor

Eliminate

II.C.10

Item 303(d), Smaller reporting companies

Eliminate

II.C.11

1. Restructuring and Streamlining (Item 303(a))
The first paragraph of current Item 303(a) instructs registrants to discuss their financial
condition, changes in financial condition, and results of operations for full fiscal years. 89 The
paragraph then sets forth the items that must be included in this discussion, including liquidity,
capital resources, results of operations, off-balance sheet arrangements, contractual obligations,
and any other information a registrant believes would be necessary to understand its financial
condition, changes in financial condition, and results of operations. The paragraph also instructs
that discussions of capital resources and liquidity may be combined when the topics are
interrelated. Finally, the paragraph states that a registrant must provide a discussion of business
segments and/or of subdivisions when, in the registrant’s judgment, such a discussion would be
appropriate for understanding its business. This discussion must focus on each relevant,
reportable segment and/or other subdivision of the business and on the registrant as a whole. In
addition to the text, there are fourteen instructions to Item 303(a).
We are proposing multiple changes that are intended to streamline and clarify the
purposes of Item 303. 90 First, we propose adding a new Item 303(a) to succinctly state the
purposes of MD&A by incorporating a portion of the substance of Instruction 1, and much of the
substance of Instructions 2 and 3 into the item. Specifically, we propose to incorporate each of

Item 303(a) of Regulation S-K [17 CFR 229.303(a)].

These proposed changes, along with the other proposed amendments and eliminations discussed elsewhere in
this release, would result in some changes in the subsection labeling and headings.

the following portions of current Instructions 1, 2, and 3 to describe the objectives of MD&A,
which is for companies to provide disclosure regarding:
•

Material information relevant to an assessment of the financial condition and results of
operations of the registrant, including an evaluation of the amounts and certainty of cash
flows from operations and from outside sources.

•

The material financial and statistical data that the registrant believes will enhance a
reader’s understanding of the registrant’s financial condition, changes in financial
condition, and results of operations. 91

•

Material events and uncertainties known to management that would cause reported
financial information not to be necessarily indicative of future operating results or of
future financial condition. This would include descriptions and amounts of matters that:
(i) would have a material impact on future operations and have not had an impact in the
past, and (ii) have had a material impact on reported operations and are not expected to
have an impact on future operations.
We are also proposing to codify Commission guidance that states that a registrant should

provide a narrative explanation of its financial statements that enables investors to see a
registrant “through the eyes of management” 92 into the description of MD&A objectives. We
believe that emphasizing the purpose of MD&A at the outset of the Item will provide clarity and

The remainder of the instruction also specifies periods that the discussion must cover, which our proposed
amendments would retain.

See 2003 MD&A Interpretative Release, at 75056. See also 1989 Interpretative Release, at 22428.

focus to registrants as they consider what information to discuss and analyze. Our intent is to
facilitate a thoughtful discussion and analysis, and encourage management to disclose factors
specific to the registrant’s business, which management is in the best position to know, and
underscore materiality as the overarching principle of MD&A. 93 Our proposal is intended to
serve as a reminder to registrants as they prepare their MD&A that the general purpose of the
disclosure is to provide both a historical and prospective analysis of the registrant’s financial
condition and results of operations, with particular emphasis on the registrant’s prospects for the
future. 94 This principles-based approach is also well-suited to elicit disclosure about complex
and often rapidly evolving areas, without the need to continuously amend the text of the rule to
impose bright-line or prescriptive requirements. 95

See, e.g., FAST Act Adopting Release, at 12679 (emphasizing that “[m]ateriality remains, as always, the
primary consideration” of MD&A) and the 2003 MD&A Interpretative Guidance, at 75060 (noting that “it is
increasingly important for companies to focus their MD&A on material information. In preparing MD&A,
companies should evaluate issues presented in previous periods and consider reducing or omitting discussion of
those that may no longer be material or helpful, or revise discussions where a revision would make the
continuing relevance of an issue more apparent.”).

See 1989 MD&A Interpretive Release (“In preparing MD&A disclosure, registrants should be guided by the
general purpose of the MD&A requirements: to give investors an opportunity to look at the registrant through
the eyes of management by providing a historical and prospective analysis of the registrant’s financial condition
and results of operations, with particular emphasis on the registrant's prospects for the future.”).

See, e.g., Commission Guidance Regarding Disclosure Related to Climate Change, Release No. 33-9106 (Feb.
2, 2010) [75 FR 6290 (Feb. 8, 2010)] and Commission Statement and Guidance on Public Company
Cybersecurity Disclosures (Feb. 21, 2018) [83 FR 8166 (Feb. 26, 2018)]. Commission staff has also provided
its views on the application of our principles-based disclosure requirements to emerging issues. See, e.g., Staff
Statement on LIBOR Transition (July 12, 2019), available at https://www.sec.gov/news/public-statement/libortransition.

In light of our proposal to add new Item 303(a), we propose to re-caption current Item
303(a) as Item 303(b), which will continue to apply to all MD&A disclosures. 96 As proposed,
the introductory paragraph would retain the current language that outlines what is to be covered
in the discussion of a registrant’s financial condition, changes in financial condition, and results
of operations. 97 Additionally, we propose to add product lines as an example of other
subdivisions of a registrant’s business that should be discussed where, in the registrant’s
judgment, such a discussion would be necessary to an understanding of the registrant’s
business. 98 We believe that this added example would provide registrants with additional clarity
on the types of subdivisions that may require separate disclosure, though it is not intended to
complete the list.
We also propose to move to proposed Item 303(b) the portion of current Instruction 4 to
Item 303(a) that requires a description of the causes of material changes from year-to-year in line
items of the financial statements to the extent necessary to an understanding of the registrant’s

For interim periods, current Item 303(b) of Regulation S-K requires a “discussion of material changes in those
items specifically listed in [Item 303(a)], except that the impact of inflation and changing prices on operations
for interim periods need not be addressed.” See 1989 MD&A Interpretive Release at n. 38 and 39 and
corresponding text (“The second sentence of Item 303(b) states that MD&A relating to interim period financial
statements ‘shall include a discussion of material changes in those items specifically listed in paragraph (a) of
this Item, except that the impact of inflation and changing prices on operations for interim periods need not be
addressed.’ As this sentence indicates, material changes to each and every specific disclosure requirement
contained in paragraph (a), with the noted exception, should be discussed.”); 2003 MD&A Interpretive Release
(“Disclosure in MD&A in quarterly reports is complementary to that made in the most recent annual report and
in any intervening quarterly reports.”).

See Item 303(a).

The current relevant Item 303(a) language states that where, in the registrant's judgment, a discussion of
segment information and/or of other subdivisions (e.g., geographic areas) of the registrant's business would be
appropriate to an understanding of such business, the discussion shall focus on each relevant segment and/or
other subdivision of the business and on the registrant as a whole.

business as a whole. 99 In response to general requests for comment on Item 303 in the Concept
Release, a few commenters provided recommendations on how to revise Item 303(a) to facilitate
a more meaningful analysis. 100 One commenter suggested amending Item 303 to require a
description of material factors that contributed to any material change in results, and that
quantitative and qualitative factors could be listed as examples of the types of factors that could
be discussed in MD&A. 101
Similarly, another commenter recommended revising Item 303(a)(3) to require a
description of the major factors that caused changes in line items (e.g., economic trends, industry
conditions and sales and costs related to key products and services). 102 Yet another commenter
stated that Item 303(a) and Instruction 4 should be revised to “clearly instruct” registrants that
discussions about material changes should address quantitative and qualitative factors underlying
the changes. 103 One commenter also noted that it would be preferable for the requirements to
indicate that registrants cannot present line item changes without providing “meaningful
explanations.” 104 Finally, another commenter recommended revising Instruction 4 to Item

Instruction 4 to Item 303(a) of Regulation S-K [17 CFR 229.303(a)].

100

See, e.g., letters from Fenwick, Maryland State Bar Association (July 21, 2016) (“Maryland Bar Securities
Committee”), S. Percoco, and NYSSCPA.

101

See letter from Fenwick.

102

See letter from S. Percoco.

103

See letter from Maryland Bar Securities Committee.

104

See letter from NYSSCPA. This commenter also expressed its belief that a significant number of registrants
were providing narratives that did not allow an investor to view performance “through the eyes of
management.” According to this commenter, such discussions “generally [become] an exercise where
management provides a quantitative analysis, which most investors can recompute – if they chose to – from the
financial statements.”

303(a) to allow registrants to omit financial statement line item changes to the extent such an
omission would not materially impair an investor’s understanding of a registrant’s results of
operations. 105 This revision, the commenter stated, would allow registrants and investors to
focus on line items that had the most impact on its results of operations.
We propose to amend the language of Instruction 4 to Item 303(a), 106 which would be
moved to proposed Item 303(b), to clarify that MD&A requires a narrative discussion of the
“underlying reasons” for material changes from period-to-period in one or more line items in
quantitative and qualitative terms, rather than only the “cause” for material changes. We are also
proposing to amend the language to clarify that registrants should discuss material changes
within a line item even when such material changes offset each other. 107 We believe our
proposals would enhance analysis in MD&A, and accordingly, would be responsive to concerns
raised by commenters. We also believe the proposals would clarify MD&A’s requirements by
codifying some of the Commission’s prior guidance on the importance of analysis in MD&A.
The Commission has previously emphasized the importance of providing an analysis in MD&A
and stated that a thorough analysis often will involve discussing both the intermediate effects of
known material trends, events, demands, commitments, and uncertainties and the reasons

105

See letter from Davis Polk.

106

Proposed to be renumbered as Instruction 3 to Item 303(b).

107

See, e.g., 1989 MD&A Interpretive Release (providing an example of material changes in revenue and in so
doing, describing the effects of offsetting developments: “Revenue from sales of single-family homes for 1987
increased 6 percent from 1986. The increase resulted from a 14 percent increase in the average sales price per
home, partially offset by a 6 percent decrease in the number of homes delivered. Revenues from sales of singlefamily homes for 1986 increased 2 percent from 1985. The average sales price per home in 1986 increased 6
percent, which was offset by a 4 percent decrease in the number of homes delivered.”).

underlying those intermediate effects. 108 Commission guidance has also stated that MD&A
should include both qualitative and quantitative analysis. 109 We believe the proposed
amendments would encourage registrants to provide a more nuanced discussion of the
underlying reasons that may be contributing to material changes in line items.
We also are proposing several amendments to further streamline the text of Item 303:
•

We propose to move the text in current Item 303(a) stating that registrants may
combine their discussions of liquidity and capital resources when the topics are
interrelated to an instruction to the item. 110 We believe this language is an instruction
given that it is not a substantive requirement or accommodation, but rather a
clarification of how registrants may structure their disclosures.

•

Instruction 8 to current Item 303(b) indicates that the term “statement of
comprehensive income” is defined by Rule 1-02 of Regulation S-X. 111 We are
proposing to move this language to proposed Instruction 11 to proposed Item 303(b)
to clarify that the instruction applies to both full fiscal year and interim period
MD&A disclosure.

108

See, e.g., 2003 MD&A Interpretive Release.

109

See, e.g., 2003 MD&A Interpretive Release and 1989 MD&A Interpretive Release.

110

Proposed Instruction 2 to Item 303(b).

111

[17 CFR 210.1-02(cc)]. Rule 1-02 defines a “statement of comprehensive income” as follows: “[t]he term
statement(s) of comprehensive income means a financial statement that includes all changes in equity during a
period except those resulting from investments by owners and distributions to owners. . . . A statement of
operations or variations thereof may be used in place of a statement of comprehensive income if there was no
other comprehensive income during the period.” Thus, references to a statement of comprehensive income
would include a statement of operations prepared by certain issuers, such as BDCs.

•

We also propose to eliminate current Instructions 13 and 14 to Item 303(a) as
simplifying amendments. These instructions call the attention of bank holding
companies and property-casualty insurance companies to Guide 3 112 and Guide 6, 113
respectively. Registrants should still consider the Guides in preparing their
disclosures generally, but we do not believe the cross-reference is necessary to an
understanding of the requirements of Item 303.

Request for Comment
18. Should we adopt proposed Item 303(a)? Would proposed Item 303(a) clarify the purpose
of MD&A disclosures for registrants and others? Would the proposed amendments aid
registrants in determining what to disclose in their MD&A?
19. Should we incorporate the language from current Instruction 4 to Item 303(a) into
proposed Item 303(b), as proposed? Should we amend this language to require disclosure
of the underlying reasons for material changes in quantitative and qualitative terms,
including material changes within a line item, as proposed?
20. Are there any instructions that we are proposing to delete or move that we should retain
or leave as is? Are there any other current instructions that we should revise or clarify?

112

[17 CFR 229.801(c) and 17 CFR 229.802(c)]. We recently proposed rules relating to Guide 3. See Update of
Statistical Disclosures for Bank and Savings and Loan Registrants, Release No. 33-10688 (Sept. 17, 2019) [84
FR 52936 (Oct., 3, 2019)]. The proposed rules would update the disclosures that investors receive, codify
certain Guide 3 disclosures and eliminate other Guide 3 disclosures that overlap with Commission rules, U.S.
GAAP, or International Financial Reporting Standards (“IFRS”). In addition, the Commission proposed to
relocate the codified disclosures to a new subpart of Regulation S-K and to rescind Guide 3.

113

[17 CFR 229.801(f)].

21. Should we eliminate Instructions 13 and 14 to Item 303(a) that reference Guides 3 and 6,
as proposed? Should we instead include additional instructions to reference the other
industry guides?
2. Capital Resources (Item 303(a)(2))
Item 303(a)(2) requires a registrant to discuss its material commitments for capital
expenditures as of the end of the latest fiscal period, and to indicate the general purpose of such
commitments and the anticipated sources of funds needed to fulfill such commitments. 114 A
registrant also must discuss any known material trends, favorable or unfavorable, in its capital
resources, and indicate any expected material changes in the mix and relative cost of such
resources. 115 The discussion must consider changes between equity, debt, and any off-balance
sheet financing arrangements. 116
When adopting disclosure requirements for capital resources, the Commission recognized
that the term “capital resources” lacked precision, but stated that “additional specificity would
decrease the flexibility needed by management for a meaningful discussion.” 117 To that end,
Item 303 does not define “capital resources.” 118 The current capital resources disclosure

114

Item 303(a)(2)(i) of Regulation S-K [17 CFR 229.303(a)(2)(i)].

115

Item 303(a)(2)(ii) [17 CFR 229.303(a)(2)(ii)].

116

Id.

117

1980 Form 10-K Adopting Release, at 63636.

118

Instruction 5 to Item 303(a) of Regulation S-K [17 CFR 229.303(a)]. See also 1980 Form 10-K Adopting
Release, supra note 45, at 63636.

requirements in Item 303(a)(2) have remained largely the same since 1980. 119 Item 303(a)(2)
specifies that registrants must disclose material commitments for capital expenditures, which
generally relate to physical assets, such as buildings and equipment. Some registrants include
disclosure beyond capital expenditures, which the Commission’s guidance has encouraged. 120
The Concept Release solicited comment on how the Commission could revise Item
303(a) to elicit a more meaningful analysis of a registrant’s capital resources while maintaining
flexibility. 121 The Concept Release also requested comment on how registrants interpret the term
“capital resources” and whether defining the term would be helpful to registrants. 122
Some commenters observed differences in how registrants apply the term “capital
resources.” 123 One of these commenters stated that the Commission should adopt a definition of
capital resources that is broader than currently implied by Item 303(a)(2)(i). 124 This commenter
stated that registrants interpret “capital resources” as material commitments for capital
expenditures and the source of funds related to such commitments. Another commenter stated
that some registrants interpret “capital resources” to require “disclosure of a registrant’s sources

119

See 1980 Form 10-K Adopting Release.

120

See 2003 MD&A Interpretive Release, at 75062.

121

See Concept Release, at 23947.

122

See id.

123

See letters from NYSSCPA and BDO.

124

See letter from NYSSCPA.

of capital, while others interpret it to require disclosure of the sources of capital assets used in a
registrant’s business.” 125
Some commenters supported the Commission’s current approach to the term “capital
resources.” 126 One commenter urged the Commission not to depart from the existing policy of
recognizing the term “capital resources” as a general term in a manner that might decrease the
flexibility needed by management for a meaningful discussion. 127 Another commenter
recommended that the Commission not further define the term “capital resources” beyond its
current general use. 128
We continue to believe that disclosure of capital resources is critical to an assessment of a
registrant’s prospects for the future and likelihood of its survival. 129 Therefore, we propose to
amend current Item 303(a)(2) 130 to specify, consistent with the Commission’s 2003 MD&A
Interpretive Release, that a registrant should broadly disclose material cash commitments,
including but not limited to capital expenditures. Specifically, our proposed amendment would
require a registrant to describe its material cash requirements, including commitments for capital

125

See letter from BDO.

126

See letters from Davis Polk and FEI.

127

See letter from Davis Polk.

128

See letter from FEI (“As noted above, we believe it would be helpful to consolidate the guidance on MD&A
into a single source. In doing so, we recommend that the SEC not expand prescriptive requirements with respect
to liquidity and capital resources, including not further defining the terms “liquidity” and “capital resources”
beyond their current general terms.”).

129

See 2003 MD&A Interpretive Release at note 41 and corresponding text. Much of the Commission’s prior
guidance has focused on enhancing disclosure of liquidity and capital resources. See, e.g., 1989 MD&A
Interpretive Release and 2003 MD&A Interpretive Release.

130

Proposed to be renumbered as Item 303(b)(2).

expenditures, as of the latest fiscal period, the anticipated source of funds needed to satisfy such
cash requirements, and the general purpose of such requirements. 131
This proposal is intended to require registrants to identify and disclose known material
cash requirements. Depending on the registrant, this could include items such as: funds
necessary to maintain current operations, complete projects underway, and achieve stated
objectives or plans; or commitments for capital or other expenditures. 132 This proposal is also
intended to modernize Item 303(a)(2) by specifically requiring disclosure of material cash
requirements in addition to capital expenditures. While capital expenditures remain important in
many industries, we recognize that certain expenditures and cash commitments that are not
necessarily capital investments in property, plant, and equipment may be increasingly important
to companies, especially those for which human capital or intellectual property are key
resources. Our proposals are intended to encompass these and other material cash requirements.
These proposals, alongside the current requirement for registrants to discuss their ability
to generate cash, 133 are intended to enhance disclosure and provide investors with a clear picture
of a registrant’s ability to meet its material cash requirements. We acknowledge the commenters
who suggested that we define “capital resources.” We have decided, however, not to propose a
definition of the term to allow for continued flexibility and business-specific discussions of the

131

See 2003 MD&A Interpretive Release, at 75063.

132

See id.

133

See Item 303(a)(1) and Instruction 5 of Item 303(a). See also 2003 MD&A Interpretive Release, at 7506275064.

topic. 134 Lastly, and as discussed in Section II.C.7, our proposal to enhance discussion of capital
resources is also intended to complement our proposed deletion of the contractual obligations
table.
Request for Comment
22. Should we amend Item 303(a)(2), as proposed? Would the proposed amendments
continue to allow management flexibility to provide a meaningful discussion of capital
resources?
23. Are there other aspects of Item 303(a)(2) we should revise? If so, which aspects?
3. Results of Operations – Known Trends or Uncertainties (Item
303(a)(3)(ii))
Item 303(a)(3)(ii) requires a registrant to describe any known trends or uncertainties that
have had or that the registrant reasonably expects will have a material impact (favorable or
unfavorable) on net sales or revenues or income from continuing operations. 135 In addition, if
the registrant knows of events that will cause a material change in the relationship between costs
and revenues, the change in the relationship must be disclosed. 136
We propose to amend Item 303(a)(3)(ii) 137 to provide that when a registrant knows of
events that are reasonably likely to cause (as opposed to will cause) a material change in the
relationship between costs and revenues, such as known or reasonably likely future increases in
134

See 1980 Form 10-K Adopting Release.

135

Item 303(a)(3)(ii) of Regulation S-K [17 CFR 229.303(a)(3)(ii)].

136

Examples given include known future increases in costs of labor or materials or price increases or inventory
adjustments. See id.

137

To be renumbered as Item 303(b)(3)(ii).

costs of labor or materials or price increases or inventory adjustments, the reasonably likely
change must be disclosed. This proposed amendment would conform the language in this
paragraph to other Item 303 disclosure requirements for known trends, 138 and align Item
303(a)(3)(ii) with the Commission’s guidance on forward-looking disclosure. 139
Request for Comment
24. Should we amend Item 303(a)(3)(ii) to provide that registrants must disclose events
reasonably likely to cause a material change in the relationship between costs and
revenue, as proposed? Are there other areas in Item 303 where we should provide a
similar requirement?
4. Results of Operations – Net Sales and Revenues (Item 303(a)(3)(iii))
Item 303(a)(3)(iii) specifies that, to the extent financial statements disclose material
increases in net sales or revenues, a registrant must provide a narrative discussion of the extent to
which such increases are attributable to increases in prices, or to increases in the volume or

138

See, e.g., Item 303(a)(1), which requires registrants to “[i]dentify any known trends or any known demands,
commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant's
liquidity increasing or decreasing in any material way.” Item 303(a)(1) to Regulation S-K [17 CFR
229.303(a)(1)].

139

See 1989 MD&A Interpretive Release, at 22430, where the Commission articulated a two-step test for assessing
when forward-looking disclosure is required in MD&A:
“Where a trend, demand, commitment, event or uncertainty is known, management must make two
assessments:
(1) Is the known trend, demand, commitment, event or uncertainty likely to come to fruition? If management
determines that it is not reasonably likely to occur, no disclosure is required.
(2) If management cannot make that determination, it must evaluate objectively the consequences of the known
trend, demand, commitment, event or uncertainty, on the assumption that it will come to fruition. Disclosure is
then required unless management determines that a material effect on the registrant’s financial condition or
results of operations is not reasonably likely to occur.”

amount of goods or services being sold, or to the introduction of new products or services. 140
The Commission previously clarified that a results of operations discussion should describe not
only increases but also decreases in net sales or revenues. 141 Accordingly, we propose to amend
Item 303(a)(3)(iii) to codify this guidance and clarify the requirement by tying the required
disclosure to “material changes” in net sales or revenues, rather than solely to “material
increases” in these line items.
Request for Comment
25. Should we revise Item 303(a)(3)(iii), as proposed?
26. Are there reasons other than changes in prices, or changes in volume or amount of goods
or services being sold, or the introduction of new products or services that can contribute
to changes in revenue or net sales, or other line items? If so, what are they? Would
enumerating other reasons aid registrants in determining what information may be
necessary to understand material changes in line items, or would this result in a de facto
prescriptive or minimum disclosure standard?
5. Results of Operations – Inflation and Price Changes (Item
303(a)(3)(iv), and Instructions 8 and 9 to Item 303(a))
Item 303(a)(3)(iv) 142 generally requires registrants, for the three most recent fiscal years,
or for those fiscal years in which the registrant has been engaged in business, whichever period is

140

Item 303(a)(3)(iii) of Regulation S-K [17 CFR 229.303(a)(3)(iii)].

141

See 1989 MD&A Interpretative Release, at n. 36 (“Although Item 303(a)(3)(iii) speaks only to material
increases, not decreases, in net sales or revenues, the Commission interprets Item 303(a)(3)(i) and Instruction 4
as seeking similar disclosure for material decreases in net sales or revenues.”).

142

Item 303(a)(3)(iv) of Regulation S-K [17 CFR 229.303(a)(3)(iv)].

shortest, to discuss the impact of inflation and price changes on their net sales, revenue, and
income from continuing operations. Instruction 8 to Item 303(a) clarifies that a registrant must
provide a discussion of the effects of inflation and other changes in prices only to the extent it is
material. The instruction further states that the discussion may be made in whatever manner
appears appropriate under the circumstances and that no specific numerical financial data is
required, except as required by Rule 3-20(c) of Regulation S-X, 143 which applies to FPIs.
Instruction 9 to Item 303(a) states that registrants that elect to disclose supplementary
information on the effects of changing prices may combine such disclosures with the Item 303(a)
discussion and analysis or provide it separately (with an appropriate cross-reference). 144
The precursors to Item 303(a)(3)(iv) and Instructions 8 and 9 were adopted in 1980, 145
during a period of rapid domestic inflation. 146 At that time, the Commission was concerned with
the adequacy of disclosures about the effect of inflation and changing prices on registrants. 147

143

Rules 3-20(c) and 3-20(d) of Regulation S-X provide the situations when a registrant must discuss
hyperinflation. Rule 3-20(d) generally describes a hyperinflationary environment as one that has cumulative
inflation of approximately 100 percent or more over the most recent three-year period.

144

Instruction 9 to Item 303(a).

145

1980 Form 10-K Adopting Release.

146

See One Hundred Years of Price Change: The Consumer Price Index and the American Inflation Experience
(Apr. 2014) available at https://www.bls.gov/opub/mlr/2014/article/one-hundred-years-of-price-change-theconsumer-price-index-and-the-american-inflation-experience.htm (stating “the period from 1968 to 1983 stands
out as the definitive era of sustained inflation in the 20th-century United States” and that during this time
period, the largest 12-month increase in inflation of 14.8 percent occurred between March 1979 to March 1980).

147

See 1980 Form 10-K Adopting Release (“[T]he Commission believes that Management’s Discussion and
Analysis should contain information which changes the potentially confusing situation involving inflation
impact disclosure into a meaningful discussion of the effects of changing prices on the registrant's business.”).

Several years later, the Commission amended the instructions to, among other things, clarify that
disclosure of inflation is only required if material. 148
Although Instruction 8 to Item 303(a) specifies that a discussion of inflation and other
changes in prices is required only when such matters are considered material, we believe that the
reference to inflation and changing prices may give undue attention to the topic, even when such
information is not necessary to an understanding of a registrant’s financial condition or results of
operations. In order to encourage registrants to focus their MD&A on material information that
is tailored to their respective facts and circumstances, we propose to eliminate Item 303(a)(3)(iv)
and current Instruction 8 and Instruction 9 to Item 303(a).
We do not believe that these proposed changes would result in a loss of material
information. Despite these proposed deletions, registrants would still be expected to discuss the
impact of inflation or changing prices if they are part of a known trend or uncertainty that has
had, or the registrant reasonably expects to have, a material favorable or unfavorable impact on
net sales, or revenue, or income from continuing operations. 149 The Commission has also
specifically encouraged registrants to consider disclosure of economic or industry-wide factors
where relevant. 150

148

At that time, the Commission amended Instructions 8 and 9 to conform the requirement to the then-recently
adopted SFAS No. 89 (Financial Reporting and Changing Prices) and stated “Item 303(a) does not require
registrants to discuss the impact of inflation when such impact does not materially affect the financial
statements.” See Disclosure of the Effects of Inflation and Changes in Prices, Release No. 33-6681 (Dec. 18,
1986), [51 FR 47026 (Dec. 30, 1986)), adopted in Release No. 33-6728 (Aug. 7, 1987), [52 FR 30917 (Aug. 18,
1987)].

149

See Item 303(a)(3)(ii) [CFR 229.303(a)(3)(ii)] and proposed Item 303(b)(3)(ii).

150

See 2003 MD&A Interpretive Release, at 75059.

In addition, the proposed amendments to current Item 303(a)(3)(iii) 151 would require
registrants to provide the reasons underlying material changes from period-to-period in one or
more line items in the statement of comprehensive income. 152 Similarly, our proposed
amendment to Instruction 4 to Item 303(a) would require that, where the financial statements
reveal material changes in one or more line items, registrants would be required to disclose the
underlying reasons for material changes in quantitative and qualitative terms. If there are
material changes from inflation or changing prices, registrants would be required to discuss those
reasons under both current Item 303 and amended Item 303, as proposed.
Request for Comment
27. Should we eliminate the references to inflation disclosure by eliminating Item
303(a)(3)(iv) and Instructions 8 and 9 to Item 303(a), as proposed? Would there be a loss
of material information if we eliminate these provisions?
6. Off-Balance Sheet Arrangements (Item 303(a)(4))
Item 303(a)(4) 153 requires, in a separately-captioned section, a discussion of a registrant’s
off-balance sheet arrangements that have or are reasonably likely to have a current or future
effect on a registrant’s financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures, or capital resources that is material to

151

Proposed to be renumbered as Item 303(b)(3)(iii).

152

See supra Section II.C.4.

153

Item 5.E. of Form 20-F and General Instruction B.(11) of Form 40-F contain requirements for issuers that use
those forms that are virtually identical to the requirements of Item 303(a)(4).

investors. 154 Generally, Item 303(a)(4)(ii) defines off-balance sheet arrangements as certain
guarantees, retained or contingent interests in assets transferred to an unconsolidated entity,
obligations under certain derivative instruments, 155 and variable interests in any unconsolidated
entity. To the extent necessary to an understanding of such arrangements and effect, registrants
must disclose the following items and such other information that the registrant believes is
necessary for such an understanding:
•

The nature and business purpose of such off-balance sheet arrangements; 156

•

The importance to the registrant of such off-balance sheet arrangements in respect of
its liquidity, capital resources, market risk support, credit risk support, or other
benefits; 157

•

The amounts of revenues, expenses, and cash flows arising from such arrangements;
the nature and amounts of any interests retained, securities issued, and other
indebtedness incurred in connection with such arrangements; and the nature and
amounts of any other obligations or liabilities (including contingent obligations or
liabilities) of the registrant arising from such arrangements that are or are reasonably

154

Item 303(a)(4) of Regulation S-K [17 CFR 229.303(a)(4)].

155

For registrants whose financial statements are prepared in accordance with U.S. GAAP, the definition includes a
contract that would be accounted for as a derivative instrument, except that it is both indexed to the registrant’s
own stock and classified in the registrant’s statement of stockholders’ equity. See ASC 815-10-15-74. For
other registrants, the definition includes derivative instruments that are both indexed to the registrant’s own
stock and classified in stockholders’ equity, or not reflected, in the registrant’s statement of financial position.
See Item 5.E.2.(c) of Form 20-F.

156

Item 303(a)(4)(i)(A) of Regulation S-K [17 CFR 229.303(a)(4)(i)(A)].

157

Item 303(a)(4)(i)(B) of Regulation S-K [17 CFR 229.303(a)(4)(i)(B)].

likely to become material and the triggering events or circumstances that could cause
them to arise; 158 and
•

Any known event, demand, commitment, trend, or uncertainty that will result in or is
reasonably likely to result in the termination, or material reduction in availability, of a
registrant’s off-balance sheet arrangements that provide material benefits, and the
course of action that the registrant has taken or proposes to take in response to any
such circumstances. 159

In 2002, the Commission issued a statement that the quality of disclosure of off-balance
sheet arrangements in MD&A should be improved. 160 The Commission also noted that offbalance sheet arrangements often are integral to both liquidity and capital resources and that
registrants should “consider all of these items together, as well as individually,” when drafting
MD&A disclosure. 161 The Commission further noted that off-balance sheet arrangements and
transactions with unconsolidated, limited purpose entities should be discussed pursuant to Item
303(a) when they are “reasonably likely to affect materially liquidity or the availability of or
requirements for capital resources.” 162

158

Item 303(a)(4)(i)(C) of Regulation S-K [17 CFR 229.303(a)(4)(i)(C)].

159

Item 303(a)(4)(i)(D) of Regulation S-K [17 CFR 229.303(a)(4)(i)(D)].

160

See Commission Statement about Management's Discussion and Analysis of Financial Condition and Results of
Operations, Release No. 33-8056 (Jan. 22, 2002) [67 FR 3746 (Jan. 25, 2002)] (“2002 Commission
Statement”).

161

See id. at 3748.

162

See id.

The 2002 Commission Statement was consistent with Commission rules and guidance at
the time. For example, Item 303(a)(2)(ii) specifically requires registrants to disclose off-balance
sheet financing arrangements in their discussion of capital resources. 163 Similarly, the 1989
MD&A Interpretive Release indicated that a registrant’s discussion of long-term liquidity and
long-term capital resources must address demands or commitments, including any off-balance
sheet items. 164
Several months after the 2002 Commission Statement, the Sarbanes-Oxley Act 165 was
enacted and added Section 13(j) to the Exchange Act, which required the Commission to adopt
rules providing that each annual and quarterly financial report required to be filed with the
Commission disclose all material off-balance sheet arrangements. 166 To implement Section
13(j), in 2003 the Commission adopted specific disclosure requirements for off-balance sheet

163

Item 303(a)(2)(ii) of Regulation S-K [17 CFR 229.303(a)(2)(ii)]. The item specifies that the discussion shall
consider changes between equity, debt, and any off-balance sheet financing arrangements.

164

See 1998 MD&A Interpretive Release at 22431 (“The discussion of long-term liquidity and long-term capital
resources must address material capital expenditures, significant balloon payments or other payments due on
long-term obligations, and other demands or commitments, including any off-balance sheet items, to be
incurred beyond the next 12 months, as well as the proposed sources of funding required to satisfy such
obligations.”).

165

Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat 745 (Jul. 2002) (“Sarbanes-Oxley Act”).

166

Section 401(a) of the Sarbanes-Oxley Act added Section 13(j) to the Exchange Act [15 U.S.C. 78m(j)], which
directed the Commission to adopt rules requiring each annual and quarterly financial report filed with the
Commission to disclose “all material off-balance sheet transactions, arrangements, obligations (including
contingent obligations), and other relationships of the issuer with unconsolidated entities or other persons, that
may have a material current or future effect on financial condition, changes in financial condition, results of
operations, liquidity, capital expenditures, capital resources, or significant components of revenues or
expenses.”

arrangements in current Item 303(a)(4). 167 When adopting Item 303(a)(4), the Commission
reiterated that, while at that time only one item in Item 303 specifically identified off-balance
sheet arrangements, 168 other requirements “clearly require[d] disclosure of off-balance sheet
arrangements if necessary to an understanding of a registrant’s financial condition, changes in
financial condition or results of operations.” 169 The 2003 amendments supplemented and
clarified the disclosures that registrants must make about off-balance sheet arrangements and
required registrants to provide those disclosures in a separately designated section of MD&A. 170
In the release proposing Item 303(a)(4), the Commission recognized that parts of the
proposed off-balance sheet disclosure requirements might overlap with disclosure presented in
the footnotes to the financial statements. 171 The Commission stated, however, that the proposed
rules were designed to provide more comprehensive information and analysis in MD&A than the
disclosure that U.S. GAAP required in footnotes to financial statements. 172

167

See Disclosure in Management’s Discussion and Analysis about Off-Balance Sheet Arrangements and
Aggregate Contractual Obligations, Release No. 33-8182 (Jan. 28, 2003), [68 FR 5981(Feb. 5, 2003)] (“OffBalance Sheet Arrangements and Contractual Obligations Adopting Release”), at 5983.

168

Item 303(a)(2)(ii) of Regulation S-K [17 CFR 229.303(a)(2)(ii)].

169

See Off-Balance Sheet Arrangements and Contractual Obligations Adopting Release, at 5983.

170

See id.

171

See Disclosure in Management’s Discussion and Analysis About Off-Balance Sheet Arrangements, Contractual
Obligations and Contingent Liabilities and Commitments, Release No. 33-8144 (Nov. 4, 2002) 67 FR 68054
(Nov. 8, 2002), at n.72.

172

See id.

Since the adoption of Item 303(a)(4), the FASB has issued additional requirements that
have caused U.S. GAAP to further overlap with the item. 173 For example, U.S. GAAP now
requires disclosure in the notes to the financial statements of the nature and amount of a
guarantee, 174 retained or contingent interests in assets transferred to unconsolidated entities, 175
pertinent information of derivative instruments that are classified as stockholders’ equity under
U.S. GAAP, 176 and obligations under variable interests in unconsolidated entities. 177 In the
Commission staff’s experience, this overlap often leads to registrants providing cross-references
to the relevant notes to their financial statements or providing disclosure that is duplicative of
information in the notes in response to Item 303(a)(4). Nevertheless, while many of the
requirements in Item 303(a)(4) overlap with U.S. GAAP, some of the requirements related to the
location, presentation, and nature of the disclosure are not the same. Additionally, Item
303(a)(4) disclosure is not audited. Below we discuss these differences in greater detail.
Location of Disclosure. Item 303(a)(4)(i) specifies that off-balance sheet arrangements
should be discussed in a separately-captioned section. The instructions to Item 303(a)(4) permit

173

In June 2009, the FASB Issued SFAS No. 166, Accounting for Transfers of Financial Assets an amendment of
FASB Statement No. 140, which requires enhanced disclosures about transfers of financial assets and a
transferor’s continuing involvement with transfers of financial assets accounted for as sales. Also in June 2009,
the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which requires enhanced
disclosures about an enterprise’s involvement in a variable interest entity, including unconsolidated entities.
SFAS No. 166 and 167 have been codified as ASC Topics 860 (Transfers and Servicing) and 810
(Consolidation), respectively. See also Section II.D.1.b and note 315 below for a discussion of IFRS
requirements that overlap with Item 5.E of Form 20-F.

174

See ASC 460-10-50.

175

See ASC 860-10-50-3, ASC 860-20-50.

176

See ASC 815-40-50-5, ASC 505-10-50.

177

See ASC 810-10-50-4.

that discussion to cross-reference information in the footnotes to the financial statements, rather
than repeat it, provided that the MD&A disclosure integrates the substance of the footnotes in a
manner designed to inform readers of the significance of the information that is crossreferenced. 178 By contrast, U.S. GAAP does not prescribe the location of these disclosures,
which may be dispersed throughout the notes to the financial statements. However, the
submission of this information in interactive data format, which is required in periodic reports on
Forms 10-K, 10-Q, 20-F, 40-F and reports on Forms 8-K and 6-K that contain revised or updated
financial statements, allows investors to isolate disclosures about off-balance sheet arrangements
even when it is dispersed throughout the notes to the financial statements.
Presentation of Disclosure. Item 303(a)(4) requires disclosure for the most recent period and
a discussion of changes from the previous year where necessary to an understanding of the
disclosure. 179 U.S. GAAP does not require discussion of changes from the previous year.
Nature of Disclosures. While Item 303(a)(4) and U.S. GAAP both require disclosure of the
nature and amounts associated with off-balance sheet arrangements, Item 303(a)(4)(i)(A)
requires additional disclosure about the business purpose of the off-balance sheet arrangement
and the importance of the off-balance sheet arrangement to the registrant’s liquidity and capital
resources. Item 303(a)(4) also requires disclosure of any known event, demand, commitment, trend,
or uncertainty that will result in or is reasonably likely to result in the termination or material
reduction in the availability of material off-balance sheet arrangements to the registrant and the

178

Instruction 5 to Item 303(a)(4) of Regulation S-K [17 CFR 229.303(a)(4)].

179

Instruction 4 to Item 303(a)(4) of Regulation S-K [17 CFR 229.303(a)(4)].

course of action the registrant has taken or proposes to take to address such circumstances. U.S.
GAAP does not require this disclosure.

In the Concept Release, the Commission solicited comment on the importance of
disclosure elicited by Item 303(a)(4) and whether and how we should amend the requirements.
Some commenters supported retaining the requirements. 180 One of these commenters stated that
without this disclosure requirement, “a registrant could create significant off-balance sheet
liabilities that have the potential to impair its financial condition without investors knowing of
it.” 181 Another commenter stated that off-balance sheet arrangements disclosure requirements
should be retained and expanded, and stated that it was comfortable with duplications between
the financial statements and MD&A disclosures. 182 This commenter indicated that an executive
overview analyzing the risks associated with off-balance sheet arrangements would be beneficial.
Several commenters encouraged the Commission to eliminate or amend Item 303(a)(4),
stating that the requirements substantially overlap with U.S. GAAP. 183 Some commenters
suggested that the Commission apply the principles-based disclosure framework in MD&A to
off-balance sheet arrangements. 184 Other commenters recommended that the Commission make

180

See, e.g., letters from CFA, CalPERS, and S. Percoco.

181

See letter from CFA.

182

See letter from CalPERS.

183

See. e.g., letters from Chamber, CGCIV, Davis Polk, E&Y, KPMG LLP (July 21, 2016) (“KPMG”), Arthur J.
Radin, Janover LLC (“A. Radin”), and SIFMA.

184

See, e.g., letters from CGCIV, Chamber, and PWC.

clear that no disclosure is required related to off-balance sheet arrangements that are not
material. 185
In light of the updates made to U.S. GAAP that result in substantial overlap between U.S.
GAAP and Item 303(a)(4) of Regulation S-K, and consistent with our other proposed
amendments intended to promote the principles-based nature of MD&A, we believe that the
current more prescriptive off-balance sheet arrangement definition and related disclosure
requirement in Item 303(a)(4) should be replaced with a principles-based instruction.
Specifically, we propose to replace current Item 303(a)(4) with a new Instruction to Item 303(b)
that would require registrants to discuss commitments or obligations, including contingent
obligations, arising from arrangements with unconsolidated entities or persons that have, or are
reasonably likely to have, a material current or future effect on a registrant’s financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, cash
requirements, or capital resources. 186 This proposed instruction would build on the current
requirement in Item 303(a)(2) that specifically requires consideration of off-balance sheet
financing arrangements as part of the capital resources discussion. 187
The proposed amendment should result in greater integration of material off-balance
sheet arrangements disclosure within the context of broader MD&A disclosures as those
arrangements enumerated in Item 303(a)(4) may be discussed more cohesively with other off-

185

See letters from Davis Polk and Fenwick.

186

See proposed Instruction 8 to Item 303(b).

187

See Item 303(a)(2)(ii) of Regulation S-K [17 CFR 302(a)(2)(ii)].

balance sheet arrangements that are not enumerated in Item 303(a)(4). We believe this could
result in more effective discussion of the impact of these arrangements. Commission staff and
commenters have observed that the current requirements often result in boilerplate disclosure or
a duplication of disclosures in the financial statements. Further, Item 303(a)(4)’s requirement for
disclosure in a separately captioned section often results in a disjointed presentation of offbalance sheet arrangements that may lack the necessary context of how these obligations should
be considered in light of a registrant’s overall financial condition. We believe that the proposed
amendment would result in disclosure that would be more useful to understanding the impact of
off-balance sheet arrangements, and may help avoid boilerplate or disjointed disclosure.
We acknowledge that, as discussed above, certain Item 303(a)(4) requirements related to
the location, presentation, and nature of the disclosure do not overlap with U.S. GAAP.
However, we believe that proposed Instruction 8 would mitigate any potential loss of
information by requiring a discussion of material matters of liquidity, capital resources, and
financial condition as they relate to off-balance sheet arrangements. Below, we seek comment
on what material information, if any, may be lost if we adopt the proposed amendments.
Unlike Item 303(a)(4), the proposed instruction would not define “off-balance sheet
arrangements.” Rather, it states that discussion of commitments or obligations, including
contingent obligations, of the registrant arising from arrangements with unconsolidated entities
or persons that have or are reasonably likely to have a material current or future effect on a
registrant’s financial condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, cash requirements, or capital resources shall be provided even when the
arrangement results in no obligations being reported in the registrant’s consolidated balance
62

sheets. The instruction provides examples of such arrangements that are substantially the same
as those included in the current definition of off-balance sheet arrangements in Item 303(a)(4),
including: guarantees; retained or contingent interests in assets transferred; contractual
arrangements that support the credit, liquidity, or market risk for assets transferred; obligations
that arise or could arise from variable interests held in an unconsolidated entity; or obligations
related to derivative instruments that are both indexed to and classified in a registrant’s own
equity under U. S. GAAP and are therefore not presented as liabilities on a registrant’s balance
sheet.
While the examples in the proposed instruction are substantially the same as those in the
current off-balance sheet arrangements definition in Item 303(a)(4), the examples do not include
references to specific paragraphs in U.S. GAAP. Despite the elimination of these crossreferences, the amendments are not intended to broaden the types of arrangements for which
MD&A disclosure would be required. In this regard, under existing MD&A requirements,
registrants are required to discuss in MD&A any known demands, commitments, events or
uncertainties that will result in or that are reasonably likely to result in the registrant’s liquidity
decreasing in any material way, even if the known demand did not meet the definition of an offbalance sheet arrangement in Item 303(a)(4). Under the proposed amendments, those same
arrangements would continue to be required to be discussed in MD&A. For the same reason, the
proposed amendments also would not narrow the scope of what would be required to be
disclosed in MD&A. The primary difference from what is currently required, and would be
required under the proposed amendments, is that the discussion would no longer occur in a

separately-captioned section; but rather, it would be made in the context of a more holistic,
principles-based analysis.
We considered whether our proposal is consistent with Section 13(j) of the Exchange
Act, as added by Section 401(a) of the Sarbanes-Oxley Act, which required the Commission to
adopt rules providing that each annual and quarterly financial report required to be filed with the
Commission shall disclose all material off-balance sheet arrangements. We believe that Section
13(j) remains satisfied because, under proposed Instruction 8 to Item 303(b), disclosure of all
material off-balance sheet arrangements would continue to be required in annual and quarterly
reports. As discussed above, although a discussion of off-balance sheet arrangements would no
longer be required to be provided in a separately captioned section, registrants would still be
required to discuss such arrangements in the broader context of their MD&A disclosures.
We also propose to amend Items 2.03 and 2.04 of Form 8-K to include the definition of
“off-balance sheet arrangements” that is currently in Item 303(a)(4). Currently, Form 8-K
defines off-balance sheet arrangements by cross reference to Item 303(a)(4)(ii). 188 This proposed

188

See Item 2.03(d) and Item 2.04(d) of Form 8-K. In 2004, as part of a broader effort to expand the events that
registrants must report on a current basis, the Commission adopted additional requirements for disclosing offbalance sheet arrangements on Form 8-K. These provisions require registrants to file a Form 8-K upon the
creation of a direct financial obligation or an obligation under an off-balance sheet arrangement (Item 2.03) and
to file a Form 8-K if a triggering event occurs that causes the increase or acceleration of such an obligation and
the consequences of the event are material to the registrant (Item 2.04). While the Form 8-K requirements rely
on the definition of “off-balance sheet arrangement” in Item 303(a)(4)(ii), the purpose of the disclosure is
different. Unlike Item 303(a)(4), Form 8-K does not require registrants to provide an analysis of off-balance
sheet arrangements or their importance to the registrant.

amendment would not result in any changes in reporting obligations under Item 2.03 and Item
2.04 of Form 8-K. 189
Request for Comment
28. Should we amend the off-balance sheet arrangements disclosure requirement by replacing
Item 303(a)(4) with Instruction 8 to Item 303(b), as proposed? Is the proposed
instruction a sufficient replacement for the current requirement for a separately-captioned
presentation of off-balance sheet arrangements?
29. Are there alternative approaches we should consider to address the potential for
boilerplate or duplicative disclosure?
30. Would the proposed amendments result in the loss of material information to investors
that would not be disclosed elsewhere? If so, what information would be lost? Are the
proposed amendments sufficiently tailored to avoid discussion of immaterial off-balance
sheet arrangements?
31. Would the proposed amendments result in more meaningful MD&A disclosures about
off-balance sheet arrangements? Are the proposed amendments likely to reduce
boilerplate or duplicative disclosure?
32. Should we amend Items 2.03 and 2.04 of Form 8-K to incorporate the definition of “offbalance sheet arrangements” that is currently in Item 303(a)(4), as proposed? Would the

189

We believe it is appropriate to retain the current, prescriptive definition of “off-balance sheet arrangements” in
Form 8-K in light of its four business day filing requirement. See Instruction B.1 and Instructions to Item 2.03
of Form 8-K. Our intent is that a prescriptive definition will provide registrants with greater certainty when
filing a Form 8-K.

proposed amendments create any confusion as to when a reporting obligation under Item
2.03 or Item 2.04 of Form 8-K would be triggered?
7. Contractual Obligations Table (Item 303(a)(5))
Under Item 303(a)(5), 190 registrants other than SRCs must disclose in tabular format their
known contractual obligations. The item requires a registrant to arrange its table to disclose
contracts by type of obligations, 191 the overall payments due, and by four prescribed periods. 192
A registrant may disaggregate the categories of obligations, but it must disclose all obligations
falling within the prescribed five categories and for the prescribed time periods. A registrant
may provide footnotes to the table to the extent such information is necessary to understand the
disclosures in the contractual obligations table. There is no materiality threshold for this item,
meaning registrants must disclose all contractual obligations falling within the prescribed four
categories.
When the Commission implemented this disclosure requirement, its purpose was to
ensure that aggregated information about contractual obligations was presented in one place. 193
This was intended to aid investors in determining the effect such obligations would have in the

190

Item 303(a)(5) of Regulation S-K [17 CFR 229.303(a)(5)].

191

The types of obligations include long-term debt obligations, capital lease obligations, operating lease
obligations, purchase obligations, and other long-term liabilities reflected on the registrant’s balance sheet under
GAAP.

192

The payment obligations must be disclosed for the following timeframes: less than one year; one to three years;
three to five years; and more than five years.

193

See Off-Balance Sheet Arrangements and Contractual Obligations Adopting Release at 5990.

context of off-balance sheet arrangements. 194 Commission guidance that followed the
implementation of this requirement encouraged registrants to include narratives to the table to
provide more context and analysis for the numbers presented. 195
In the Concept Release, the Commission solicited comment on the meaningfulness of
disclosure elicited by Item 303(a)(5). Several commenters recommended retaining and
enhancing this item requirement, 196 with two of these commenters supporting an additional
requirement to include pension obligations. 197 Another commenter recommended enhancing this
disclosure by requiring XBRL tagging and disclosure of single, discrete years (as opposed to
grouped years). 198 Some of these commenters recommended requiring, or at least encouraging,
registrants to provide a narrative to the contractual obligations table. 199
Many commenters, however, recommended that we simplify or eliminate Item
303(a)(5). 200 Some commenters encouraged the Commission to consider whether the contractual
obligations table is necessary given the overlap with the disclosure requirements of U.S.

194

See id.

195

See Commission Guidance on Presentation of Liquidity and Capital Resources Disclosures in Management’s
Discussion and Analysis, Release No. 33-9144 (Sept. 17, 2010) [75 FR 59894 (Sept. 28, 2010)] (“2010 MD&A
Interpretive Release”), at 59896.

196

See, e.g., letters from RGA, Bloomberg, Better Markets, Inc. (Jul. 21, 2016) (“Better Markets”), S. Percoco, and
CFA Institute.

197

See letters from Bloomberg and S. Percoco.

198

See letter from RGA.

199

See, e.g., letters from Better Markets, S. Percoco, and CFA Institute.

200

See, e.g., letters from E&Y, SIFMA, BDO, EEI and AGA, Davis Polk, General Motors, FEI, A. Radin, Deloitte,
Chamber, FedEx, CGCIV, CAQ, KPMG, PWC, Chevron, Fenwick, and Grant Thornton.

GAAP. 201 One commenter also noted that “to the degree that elimination of duplicative topics is
unavoidable, registrants should be able to cross-reference within a filing.” 202 Another
commenter broadly supported the idea of making MD&A contractual obligations disclosure
more principles-based “to highlight material issues regarding [a registrant’s] liquidity” and
allowing the relevant factual information to be provided in the financial statements. 203 One
commenter questioned whether the contractual obligations table, as currently structured, provides
a complete picture of a registrant’s obligations and liquidity concerns. 204
Several commenters recommended the Commission eliminate Item 303(a)(5), stating that
the disclosure requirement is largely redundant with what is required in the financial
statements. 205 One of these commenters indicated that the Commission should eliminate
disclosure requirements that are redundant with U.S. GAAP or IFRS, as applicable. 206 This
commenter stated that “[i]dentical, or even similar disclosures, to GAAP appear unnecessary
considering that accounting standards undergo a high level of scrutiny in the standards-setting

201

See letters from General Motors, PWC, Grant Thornton, CAQ, and Deloitte.

202

See letter from General Motors.

203

See letter from SIFMA.

204

As an example, the commenter noted that a registrant can have a large or small amount of contractual
obligations, but the disclosure of such amount does not necessarily provide investors with information about the
registrant’s ability to generate liquidity, its contractual obligations at any other point in time, or a complete
picture of its expected uses of cash. See letter from E&Y.

205

See, e.g., letters from A. Radin, Deloitte, Chamber, FedEx, CGCIV, CAQ, KPMG, PWC, Chevron, Fenwick,
E&Y, and Grant Thornton.

206

See letter from KPMG.

process and are subjected to ongoing FASB monitoring for needed revisions.” 207 Another
commenter stated that the information provided in response to Item 303(a)(5) is largely the same
as that provided in a registrant’s financial statements and questioned its utility. 208 The
commenter went on to state that the information in the Item 303(a)(5) contractual obligations
table did not provide insight as to whether a registrant could pay the obligations as they became
due.
In the FAST Act Report, Commission staff recommended eliminating the contractual
obligations table while enhancing the liquidity discussion requirements. 209 Under this
recommendation, registrants would no longer be required to present contractual obligations in a
table, but registrants would have to provide a hyperlink to the relevant information in the
financial statements. One commenter on the FAST Act Report stated that eliminating the
contractual obligations table would be a “step backwards.” 210 The commenter wrote that “[t]he
table as it exists is a user-friendly, central location for the complete display of all a firm's future
cash obligations.”

207

The commenter then also included a chart that, among other things, noted the items that overlap between Item
303(a)(5) and U.S. GAAP requirements.

208

See letter from Grant Thornton.

209

See Report on Modernization and Simplification of Regulation S-K (Nov. 23, 2016), available at
https://www.sec.gov/reportspubs/sec-fast-act-report-2016.pdf.

210

See letter to the FAST Act Report from Jack T. Ciesielski, R.G. Associates, Inc. (Dec. 12, 20016), available at
https://www.sec.gov/comments/fast/fast.htm.

Although the Commission did not propose to eliminate Item 303(a)(5) in the FAST Act
Proposing Release, 211 we now propose to eliminate Item 303(a)(5), consistent with our objective
to promote the principles-based nature of MD&A and streamline disclosures by reducing
redundancy. 212 We do not believe that eliminating the requirement would result in a loss of
material information to investors given the overlap with information required in the financial
statements and our proposed expansion of the capital resources requirement, discussed above in
Section II.C.2.
As many commenters pointed out, 213 much of the information presented in response to
this requirement overlaps with U.S. GAAP and is therefore included in the notes to the financial
statements. 214 As commenters also observed, the current table does not provide insight into the
registrant’s ability to pay its obligations as they become due 215 and may not provide a complete
picture of the registrant’s expected uses of cash. 216 Our proposals to enhance the liquidity and
capital resources discussion are intended to address some of these commenter concerns. We
recognize that some of the information in the contractual obligations table is not specifically

211

See FAST Act Proposing Release.

212

Item 2.03 of Form 8-K defines “direct financial obligation” by cross references to Item 303(a)(5)(ii) Definitions. Accordingly, we are proposing to replace these cross references in Form 8-K with the definitions
from Item 303(a)(5)(ii).

213

See, supra note 201.

214

For example, the following ASC requirements overlap with Item 303(a)(5): ASC 470-10-50 (debt); ASC 84010-50 (leases); ASC 842 (leases); ASC 440-10-50 (purchase commitments); and ASC 410, 420, 450, and 710
(other long-term obligations).

215

See, e.g., letters from Grant Thornton, General Motors, CAQ, and E&Y.

216

See, e.g., letters from CAQ and E&Y.

called for under U.S. GAAP. 217 However, under our capital resources proposals, described
above in Section II.C.2, registrants would be required to discuss material cash requirements,
which would include material contractual obligations.
Request for Comment
33. Should we eliminate the contractual obligations disclosure requirement, as proposed?
34. Would investors be deprived of material information under the proposal?
35. Is the disclosure of information related to contractual obligations in the notes to the
financial statements an adequate substitute for its separate tabular presentation in Item
303(a)(5)? Would there be any costs or challenges to investors of compiling information
required in Item 303(a)(5) from other sources and, if so, what would the costs or
challenges be? Do current XBRL-tagging requirements facilitate compilation and
comparison of such information?
36. How do market participants use the “payments due by period” information in the
contractual obligations table and is the disclosure material to an investor’s investment
decision? If we eliminate Item 303(a)(5), should we require registrants to disclose
information regarding the time periods in which material contractual obligations will
become due?

217

See Off-Balance Sheet Arrangements and Contractual Obligations Adopting Release, at 5986 (“The preparation
of financial statements in accordance with GAAP already requires registrants to assess payments under all of
the above categories of contractual obligations, except for purchase obligations.”).

37. If we eliminate the required table of contractual obligations, as proposed, what
information about contractual obligations are registrants likely to provide in their
MD&A?
38. Should we retain the contractual obligations disclosure requirement in a modified form
(e.g., with a materiality threshold, but not require a tabular presentation, etc.)? If so, what
modifications should we make to the requirement?
39. If we retain the current contractual obligations disclosure requirement, should we revise it
to enhance the information provided to investors (e.g., should we expressly require a
narrative to the contractual obligations table)?
8. Critical Accounting Estimates
While not specified in Item 303, the Commission in prior guidance has stated that, while
preparing MD&A, registrants should consider whether accounting estimates and judgments
could materially affect reported financial information.
Specifically, in 2001, the Commission reminded registrants that, under the existing
MD&A disclosure requirements, a registrant should address material implications of
uncertainties associated with the methods, assumptions, and estimates underlying the registrant’s
critical accounting measurements. 218 The Commission also encouraged companies to explain the
effects of the critical accounting policies applied and the judgments made in their application. 219

218

See Cautionary Advice Regarding Disclosure, Release No. 33-8040 (Dec. 12, 2001) [66 FR 65013 (Dec. 17,
2001)] (“Cautionary Advice Release”).

219

See id.

In 2002, the Commission proposed rules to require disclosure of critical accounting estimates,
but it never adopted this proposal. 220
In the 2003 MD&A Interpretive Release, the Commission addressed critical accounting
estimates. 221 The Commission stated that when preparing MD&A disclosure, companies should
consider whether they have made accounting estimates or assumptions where the nature of the
estimates or assumptions is material due to the levels of subjectivity and judgment necessary to
account for highly uncertain matters or the susceptibility of such matters to change; and the
impact of the estimates and assumptions on financial condition or operating performance is
material. 222 This guidance further stated that if critical accounting estimates or assumptions are
identified, a registrant should analyze, to the extent material, factors such as how it arrived at the
estimate, how accurate the estimate/assumption has been in the past, how much the
estimate/assumption has changed in the past, and whether the estimate/assumption is reasonably
likely to change in the future. This guidance also stated that a registrant should analyze its
specific sensitivity to change based on other outcomes that are reasonably likely to occur. Any
disclosure should supplement, not duplicate, the description of accounting policies that are
already disclosed in the notes to the financial statements, and provide greater insight into the

220

See Disclosure in Management’s Discussion and Analysis about the Application of Critical Accounting
Policies, Release No. 33–8098 (May 10, 2002) [67 FR 35620 (May 20, 2002)] (‘‘2002 Critical Accounting
Policies Proposal’’). See also, Concept Release, at 239452, for a summary of the 2002 Critical Accounting
Policies Proposal.

221

See 2003 MD&A Interpretive Release.

222

See id.

quality and variability of information regarding financial condition and operating
performance. 223
U.S. GAAP does not require a similar disclosure of estimates and assumptions in the
notes to financial statements except in a limited number of circumstances. 224 Instead, U.S.
GAAP requires disclosure of the accounting principles followed and the methods of applying
those principles that materially affect the determination of financial position, cash flows, or
results of operations. 225 Unlike U.S. GAAP, any discussion in MD&A should present a
registrant’s analysis of the uncertainties involved in applying the principles. 226 IFRS requires
disclosures regarding sources of estimation uncertainty and judgments made in the process of
applying accounting policies that have the most significant effect on the amounts recognized in
the financial statements. 227
In the Concept Release, the Commission noted that, despite its guidance, many
registrants repeat the discussion of significant accounting policies from the notes to the financial
statements in MD&A and provide limited additional discussion of the critical accounting
estimates. 228 The Commission solicited comment on how to improve the discussion of critical
accounting estimates in MD&A.

223

See id.

224

For example, ASC 820-10-50-1C requires similar disclosure related to fair value measurements.

225

See ASC 235-10-50-3.

226

See 2003 MD&A Interpretive Release, at 75064.

227

International Accounting Standard (“IAS”) 1, paragraphs 122 to 133.

228

See Concept Release, at 23953.

The Commission received a range of comments on critical accounting estimates. Many
commenters acknowledged that registrants typically provide disclosure that is duplicative of their
accounting policies or does not otherwise provide meaningful analysis of the estimates and
assumptions involved. 229 Several commenters recommended revising Item 303 to include a
critical accounting estimate requirement, 230 with some of these commenters suggesting this may
improve the resulting disclosure. 231 While some of the commenters that recommended revising
Item 303 supported a prescriptive rule for critical accounting estimates, 232 others suggested
revising the item to provide a principles-based framework for critical accounting estimates. 233
One commenter stated that a critical accounting estimate requirement in Item 303 should
specifically state that the disclosure is meant to supplement, and not duplicate, the description of
accounting policies in the footnotes to the financial statements. 234 This same commenter also
recommended that Item 303 require a discussion about the judgments and assumptions that
management must make in order to prepare its financial statements and that have the most
significant impact on such financial statements.

229

See, e.g., letters from A. Radin, NYSSCPA, Deloitte, PWC, Investment Program Association (Jul. 21, 2016),
Davis Polk, Fenwick, CalPERS, NAREIT and American Bar Association (Dec. 15, 2017) (“ABA”).

230

See, e.g., letters from Deloitte, NYSSCPA, BDO, CAQ, Grant Thornton, PWC, CalPERS, S. Percoco, and
ABA.

231

See, e.g., letters from Deloitte, BDO, and Grant Thornton.

232

See, e.g., letters from NYSSCPA and CalPERS.

233

See letters from Deloitte, Grant Thornton, BDO, PWC, and CAQ.

234

See letter from ABA.

Some commenters suggested that, if Item 303 is revised to address critical accounting
estimates specifically, the Commission should not codify the Commission’s guidance on
disclosure of critical accounting estimates and related disclosure requirements as set forth in the
2003 MD&A Interpretive Release. 235 One commenter suggested that disclosure of critical
accounting estimates should be required when: (i) it is at least reasonably possible that the
estimate of the effect on the financial statements of a condition, situation, or set of circumstances
that existed at the date of the financial statements will change in the near term due to one or more
future confirming events; and (ii) the effect of the change would be material to the financial
statements. 236 Two commenters stated that the disclosures should describe the process employed
in creating the estimate. 237
Other commenters suggested that the Commission coordinate with the FASB to enhance
U.S. GAAP so that it requires these disclosures. 238 Yet others suggested that the Commission
eliminate guidance related to critical accounting estimates because they believe the disclosures
are not useful and the dynamic nature of uncertainties makes it overly challenging to quantify the
reasonably likely range of outcomes with a solid basis for investor reliance. 239 A few
commenters stated that current Commission guidance is sufficient but recommended that the

235

See, e.g., letters from A. Radin, CalPERS, NAREIT, and S. Percoco.

236

See letter from KPMG (citing KPMG, LLP letter (Dec. 9, 2002) to the 2002 Critical Accounting Policies
Proposal).

237

See letters from CAQ and CalPERS.

238

See, e.g., letters from E&Y, Northrop Grumman, and KPMG.

239

See letters from A. Radin, Davis Polk, and Fenwick.

Commission provide additional illustrative guidance. 240 Two of these commenters opposed
revising Item 303 to require disclosure of critical accounting estimates and opposed adopting a
“strict definition” of critical accounting estimates; these commenters stated that any clarification
in this area should be done through a revised interpretive release. 241
We propose to amend Item 303(a) 242 to explicitly require disclosure of critical accounting
estimates. 243 We are persuaded by commenters who stated that a requirement in Item 303 would
facilitate compliance and may improve the resulting disclosure. 244 As stated by many
commenters, registrants often repeat the information in the financial statement footnotes about
significant accounting policies. By proposing to codify this requirement, our intent is to
eliminate disclosure that duplicates the financial statement discussion of significant accounting
policies and, instead, promote enhanced analysis of measurement uncertainties.
Our proposed amendments are also intended to clarify for registrants the required
disclosures related to critical accounting estimates. To this end, our proposals define a critical
accounting estimate as an estimate made in accordance with generally accepted accounting
principles that involves a significant level of estimation uncertainty and has had or is reasonably
likely to have a material impact on the registrant’s financial condition or results of operations.
By focusing the definition on estimation uncertainties, we intend to avoid any unnecessary

240

See, e.g., letters from Chevron, CGCIV, and Chamber.

241

See letter from Chamber and CGCIV.

242

Proposed to be renumbered as Item 303(b).

243

See proposed Item 303(b)(6).

244

See, e.g., letters from Deloitte, BDO and Grant Thornton.

repetition of significant accounting policy footnotes. For each critical accounting estimate, the
proposed amendments would require registrants to disclose, to the extent material, why the
estimate is subject to uncertainty, how much each estimate has changed during the reporting
period, the sensitivity of the reported amounts to the material methods, assumptions, and
estimates underlying the estimate’s calculation. 245
We believe the proposed amendments would clarify for registrants the disclosures
required to address any critical accounting estimates, help avoid boilerplate or duplicative
disclosures, and provide investors with material information regarding critical accounting
estimates. We also believe that the disclosure elicited by the proposed amendments would
facilitate further understanding of an analysis of amounts reported in the financial statements by
providing greater insight on the uncertainties involved in creating and applying an accounting
policy and how significant accounting policies of registrants faced with similar facts and
circumstances may differ.
We recognize that some of the disclosure that would be required under our proposals may
be provided already under U.S. GAAP 246 or IFRS. 247 To discourage duplicative disclosures, we
are proposing, as suggested by one commenter, to also include an instruction specifying that the

245

These disclosure requirements are similar to those found in IFRS. See IAS 1, paragraph 129.

246

For example, with respect to recurring fair value measurements categorized with Level 3 of the fair value, ASC
820-10-50-2 requires a narrative description of the sensitivity of the fair value measurement to changes in
unobservable inputs if a change in those inputs to a different amount might result in a significantly higher or
lower fair value measurement. We are not proposing to eliminate any requirement that this information be
provided.

247

See IAS 1, paragraphs 125 to 133.

disclosure of critical accounting estimates shall supplement, but not duplicate, the description of
accounting policies or other disclosures in the notes to the financial statements. 248
We considered the potential for overlap with auditor communications of critical audit
matters. 249 A critical audit matter is defined as “any matter arising from the audit of the financial
statements that was communicated or required to be communicated to the audit committee and
that: (1) relates to accounts or disclosures that are material to the financial statements; and (2)
involved especially challenging, subjective, or complex auditor judgment.” 250 Beginning with
audits of fiscal years ending on or after June 30, 2019, 251 audit reports are required, among other
things, to include a description of “the principal considerations that led the auditor to determine
that the matter is a critical audit matter.” 252 The communications auditors are expected to
provide on critical audit matters in an audit report have a different objective than disclosures
related to critical accounting estimates. In this regard, critical audit matters provide insight into
matters that are especially challenging, subjective, and complex to audit from the perspective of
248

See letter from ABA.

249

See PCAOB Standard AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor
Expresses an Unqualified Opinion (“AS 3101”). See also letter from Grant Thornton (stating that “[w]hile the
two concepts have different meanings, there may be some confusion amongst stakeholders as to the relationship
between the two.”).

250

See AS 3101.

251

The requirements related to critical audit matters in AS 3101 apply to reports of independent registered public
accounting firms that are included in certain registrant filings. These requirements are effective for audits of
fiscal years ending on or after June 30, 2019 for large accelerated filers; and for fiscal years ending on or after
December 15, 2020, for all other companies to which the requirements apply. See Public Company Accounting
Oversight Board; Order Granting Approval of Proposed Rules on the Auditor’s Report on an Audit of Financial
Statements When the Auditor Expresses an Unqualified Opinion, and Departures from Unqualified Opinions
and Other Reporting Circumstances, and Related Amendments to Auditing Standards, Release No. 33-81916
(Oct. 23, 2017) [82 FR 49886 (Oct. 27, 2017)].

252

See paragraph 14 of AS 3101.

the auditor. On the other hand, critical accounting estimates disclosure should provide
management’s insights into estimation uncertainties that have had or are reasonably likely to
have a material impact on reported financial statements. A critical accounting estimate may not
be a critical audit matter because it may not involve especially challenging, subjective, or
complex auditor judgment, but it would still require analysis in MD&A. Likewise, a critical
audit matter that would require reporting in the audit report may not necessarily be a critical
accounting estimate, as proposed, because it may not involve estimation uncertainty that can
materially affect reported amounts. 253 For these reasons, we do not believe that proposed Item
303(a)(4) would necessarily result in duplicative disclosure.
Request for Comment
40. Should we amend Item 303 to require disclosure of critical accounting estimates, as
proposed?
41. Is the proposed definition of critical accounting estimates sufficiently clear? Are there
alternative definitions that we should consider?
42. Should any registrants, such as SRCs, EGCs, or IPO issuers, be exempted from this
proposed requirement? If so, which registrants, and should there be a time limitation on
such an accommodation?

253

See e.g., “Implementation of Critical Audit Matters: A Deeper Dive on the Determination of CAMS” (Mar. 18,
2019), at 6 available at https://pcaobus.org/Standards/Documents/Implementation-of-Critical-Audit-MattersDeeper-Dive.pdf.
Additionally, our proposal to require critical accounting estimates would apply to EGCs. In contrast, disclosure
of critical audit matters is not required for audits of EGCs. See paragraph 5 of AS 3101.

43. Would the proposed amendments result in disclosures that are duplicative of U.S. GAAP
or IFRS, as applicable? If so, how? Are there alternatives we should consider to
encourage registrants to provide disclosures that will supplement, rather than duplicate,
disclosures that appear in the financial statements?
44. Would the proposed amendments provide clarity to registrants on disclosures regarding
critical accounting estimates? Would the proposed amendments provide investors with
material information regarding critical accounting estimates?
45. Some commenters suggested we issue a revised interpretive release addressing critical
accounting estimates 254 and others suggested we provide illustrative examples to
facilitate this disclosure. 255 Instead of amending Item 303, should we issue revised
guidance addressing critical accounting estimates? Should we provide illustrative
examples?
46. The Commission has previously encouraged registrants to include, in their MD&A,
explanations of the judgments and uncertainties affecting application of their accounting
policies. 256 For example, critical accounting judgments may include whether financial
assets are held-to-maturity investments, whether an instrument is classified as debt or
equity, or judgments made about the appropriate scope for a transaction. Should the
Commission be more prescriptive in this area and, for example, adopt a requirement for

254

See, e.g., letters from Chamber and CGCIV.

255

See, e.g., letters from PWC, KPMG, and Chevron.

256

See Cautionary Advice Release, at 65013.

registrants to disclose critical accounting judgments? Would such a requirement elicit
material information that would not otherwise be provided, including as a result of the
proposed critical accounting estimates requirement? As an alternative to a new
requirement, should we refer the matter to the FASB for potential incorporation into U.S.
GAAP?
9. Interim Period Discussion (Item 303(b))
Item 303(b) requires registrants to provide MD&A disclosure for interim periods that
enables market participants to assess material changes in financial condition and results of
operations between certain specified periods. 257 Item 303(b)(1) requires registrants to discuss
any material change in financial condition from the end of the preceding fiscal year to the date of
the most recent interim balance sheet. 258 Item 303(b)(2) requires registrants to discuss any
material changes in their results of operations for the most recent fiscal year-to-date period
presented in their income statement, along with a similar discussion of the corresponding yearto-date period of the preceding fiscal year. If a registrant is required or elects to provide an
income statement for the most recent fiscal quarter, the discussion must also cover material
changes with respect to that fiscal quarter and the corresponding fiscal quarter in the preceding

257

Item 303(b) of Regulation S-K [17 CFR 229.303(b)].

258

If the interim financial statements include an interim balance sheet as of the corresponding interim date of the
preceding year, the registrant must also discuss any material changes in financial condition from that date to the
date of the most recent interim balance sheet provided. At their discretion, registrants may combine discussions
of changes from both the end and the corresponding interim date of the preceding fiscal year when such
discussions are required. See Item 303(b)(1).

fiscal year. 259 Item 303(b)(2) also states that registrants subject to Rule 3-03(b) of Regulation SX 260 providing statements of comprehensive income for the twelve-month period ended as of the
date of the most recent interim balance sheet must discuss material changes of that twelve-month
period as compared to the preceding fiscal year rather than the preceding period.
The Commission adopted the precursor to current Item 303(b) as part of its effort to
integrate and simplify its disclosure system. 261 The Commission stated at the time that the
amendments it was adopting formed “an integral part of the Commission’s program to integrate
the disclosure requirements of the Exchange Act with those of the Securities Act, and to
encourage and facilitate the integration of corporate reporting on formal Commission filings with
informal corporate communications with shareholders.” 262 The Commission also noted that the
amendments were complements to the annual report amendments adopted around the same
time. 263

259

In addition, if the registrant elects to provide a statement of comprehensive income for the twelve-month period
ended as of the date of the most recent interim balance sheet provided, the registrant must also
discuss material changes with respect to that twelve-month period and the twelve-month period ended as of the
corresponding interim balance sheet date of the preceding fiscal year. See Item 303(b)(2).

260

These registrants include those primarily engaged in: the generation, transmission, or distribution of electricity;
the manufacture, mixing transmission, or distribution of gas; the supplying or distribution of water; or the
furnishing of telephone or telegraph services; or in holding securities of companies engaged in such business.

261

See New Interim Financial Information Provisions and Revisions of Form 10-Q for Quarterly Reporting,
Release No. 33-6288 (Feb. 9, 1981), 46 FR 12480 (Feb. 17, 1981) (adopting current Item 303(b) of Regulation
S-K as then Item 11(b) of Regulation S-K)(“Item 303(b) Adopting Release”). See also 1982 Integrated
Disclosure Adopting Release (reorganizing Regulation S-K to, among other things, move the substance of Item
11(b) of Regulation S-K to Item 303(b) of Regulation S-K).

262

See Item 303(b) Adopting Release, at 12481.

263

Id.

The Commission recently solicited comment on the current quarterly reporting process
and how the Commission can reduce the administrative burdens on reporting companies
associated with this process while enhancing the investor protections associated with periodic
reporting under the Exchange Act. 264 The Commission also sought input on the benefits, costs,
and burdens of the current quarterly reporting system, and possible approaches to simplifying the
process through which investors access, process, and evaluate information. 265
Multiple commenters responding to the Request for Comment recommended that the
Commission consider allowing more flexibility in interim period MD&A, or otherwise
streamline or eliminate certain discussion requirements. 266 One commenter recommended that
the Commission evaluate whether registrants should only be required to discuss year-to-date
results of operations in their MD&A (and not be required to provide a separate discussion of the
results of operations of individual quarters). 267 Other commenters, however, recommended that
the Commission assess whether registrants should be required to discuss year-to-date results and
condition (i.e., evaluate whether registrants should be permitted to exclude year-to-date

264

Request for Comment on Earnings Releases and Quarterly Reports, Release No. 33-10588 (Dec. 18, 2018) [83
FR 65601 (Dec. 21, 2018)] (the “Request for Comment”). Comment letters in response to the Request for
Comment are available at https://www.sec.gov/comments/s7-26-18/s72618.htm. References to comment letters
in this Section II.C.9 are to those letters received in response to the Request for Comment.

265

The request for comment also addressed other items relating to (1) the use of earnings releases to satisfy the
core disclosure requirements of Form 10-Q, (2) the frequency of interim reporting, and (3) earnings guidance.

266

See, e.g., letters in response to the Request for Comment from Bank of America (Mar. 21, 2019)(“BoA”), BDO
USA, LLP (Mar. 21, 2019)(“BDO 2”), Center for Audit Quality (Mar. 20, 2019)(“CAQ 2”), Financial
Executives International (“FEI 2”), Cleary Gottlieb Steen & Hamilton LLP (Mar. 27, 2019) (“Cleary Gottlieb”),
and Institute of Management Accountants (Mar. 21, 2019).

267

See letter from Ernst & Young (Mar. 21, 2019)(“Ernst”).

discussions). 268 One of these commenters recommended that the Commission permit flexibility
in how registrants present their MD&A by allowing registrants to choose the presentation that is
most consistent with how they manage their respective businesses (e.g., quarter over quarter vs.
year over year). 269 Another commenter recommended the Commission consider allowing
management to exercise judgment in omitting certain year-to-date and/or quarterly information
from interim period MD&A if the omitted information is consistent with prior trends or repeats
information provided elsewhere in a quarterly report. 270
Other commenters noted that Form 10-Q’s prescribed disclosures ensure uniformity
among registrants. 271 One of these commenters stated that the structured format of quarterly
reports allows certain market participants to analyze results and to produce tools that “aid
investors to make more informed investment decisions.” 272 Another commenter stated that there
should be some element of uniformity in required disclosures so that there is consistency among
registrants. 273

268

See letters from BoA, BDO 2, CAQ 2, CCR, Cleary Gottlieb, FEI 2, and IMA.

269

See letter from BDO.

270

See letter from CAQ 2.

271

See, e.g., letters from AFL-CIO (Mar. 21, 2019), BDO 2, Better Markets (Mar. 21, 2019), CAQ 2, CIT Group
Inc. (Mar. 21, 2019)(“CIT”), Edison Electric Institute and American Gas Association (Mar. 21, 2019),
Gallagher Co. (Mar. 14, 2019), Investment Company Institute (Mar. 21, 2019), KPMG LLP (Mar. 21, 2019),
Marcum LLP (Mar. 21, 2019), Mazars USA LLP (Mar. 21, 2019), New York City Bar Association (Apr. 10,
2019), RSM US LLP (Mar. 20, 2019)(“RSM”), T. Rowe Price (Mar. 20, 2019), Think Computer Foundation
(Mar. 20, 2019), and XBRL US (Mar. 21, 2019).

272

See letter from Better Markets.

273

See letter from CIT.

Several commenters encouraged the Commission to conduct further outreach with
investors and companies. 274 On July 18, 2019, the Commission held a roundtable discussion on
whether the quarterly reporting system should be modified to address the impact of shorttermism on our capital markets. 275 During the roundtable discussion, multiple panelists
discussed the need for streamlined MD&A disclosures, including interim period MD&A. 276 One
panelist suggested that the Commission allow registrants to make MD&A comparisons to the
preceding interim period or to discuss only year-to-date changes. 277 Another panelist noted that
“companies will want to talk about discrete quarters” because “that’s how they do their earnings
releases.” 278
We propose to amend Item 303(b) (to be renumbered as proposed Item 303(c)) to allow
for flexibility in comparisons of interim periods and to simplify the item. 279 Specifically, we
propose to permit registrants 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. Under the proposal, if a registrant elects to discuss changes from the immediately
preceding sequential quarter, the registrant must provide summary financial information that is
274

See, e.g, letters from CAQ 2, FEI 2, Ernst, Grant Thornton, RSM, and Tapestry Networks.

275

Roundtable on Short-term/Long-term Management of Public Companies, our Periodic Reporting System and
Regulatory Requirements (July 18, 2019), archived at https://www.sec.gov/video/webcast-archiveplayer.shtml?document_id=roundtable-short-long-term-071819.

276

See id. at 2:40:56, Statement of Steven Jacobs. See also id. at 3:22:20, Statement of Nicolas Grabar.

277

See supra note 275 at 2:48:36, Statement of Nicolas Grabar.

278

See supra note 275 at 2:40:56, Statement of Steven Jacobs.

279

The proposed changes to Item 303(a) would flow through to Item 303(b) because Item 303(b) currently
provides that the interim discussion and analysis must include a discussion of the material changes in items
specified in Item 303(a) (with the exception of inflation and changing prices, which we propose to eliminate).

the subject of the discussion for that quarter or identify the prior EDGAR filing that presents
such information so that a reader may have ready access to the prior quarter financial
information being discussed. In addition, under the proposed amendment, if a registrant changes
the comparison from the prior interim period comparison, the registrant would be required to
explain the reason for the change and present both comparisons in the filing where the change is
announced. For example, if a registrant in its third quarter Form 10-Q decides to compare its
results to the preceding quarter after the registrant had compared such quarter to the
corresponding quarter of the previous year in its earlier report, the registrant would be required to
present both comparisons in that third quarter Form 10-Q and explain the reasons for the change
in comparison.
We believe that these changes would allow registrants additional flexibility to provide an
analysis that they believe is most relevant to an understanding of the frequency and amplitude of
past business cycles while also ensuring that investors have appropriate information to assess the
comparisons being presented. We recognize that not all businesses are seasonal and a
comparison to the corresponding quarter of the preceding year may not be as meaningful as a
comparison to the preceding quarter. We also believe that this proposal would respond to
commenters’ concern about the need for flexibility in MD&A. 280 These changes are intended to
provide market participants with the most relevant information about a registrant while reducing
comparisons that may obscure the most material trends. We believe that requiring registrants to

280

See supra note 266.

provide both comparisons and explain the reasons for a change in comparison from prior periods
would ensure that investors and other market participants have sufficient information to
understand and adjust to any period over period change.
We are also proposing amendments to simplify Item 303(b) (to be renumbered as
proposed Item 303(c)) that would:
•

Eliminate the text that states that registrants need not provide a discussion of the impact
of inflation and changing prices, consistent with the proposed amendments described
above; 281 and

•

Amend Item 303(b)(2) (proposed Item 303(c)(2)) material changes in results of
operations—to break the requirements into two subsections:
o Proposed Item 303(c)(2)(i) would continue to require registrants to discuss any
material changes in their results of operations between the most recent year-todate interim period(s) and the corresponding period(s) of the preceding fiscal year
for which statements of comprehensive income are provided; and
o Proposed Item 303(c)(ii) would, as discussed above, require registrants to
compare their most recently completed quarter to either of the corresponding
quarter of the prior year (as is currently required) or to the immediately preceding
quarter. 282

281

See discussion, supra at Section II.C.5.

282

As described above, if a registrant changes the comparison from the prior interim period comparison, the
registrant would be required to explain the reason for the change.

We are also proposing to eliminate language requiring registrants subject to Rule 3-03(b)
of Regulation S-X 283 that elect to provide a statement of comprehensive income for the twelvemonth period ended as of the date of the most recent interim balance sheet to discuss material
changes in that twelve-month period with respect to the preceding fiscal year, rather than the
corresponding preceding period. We propose giving these registrants the same flexibility as
other registrants to make the most meaningful comparisons in their interim period MD&A. In
addition to simplifying Item 303, this change is meant to modernize the current Item 303
requirement. We have not observed any registrants in recent history that provided the statements
of comprehensive income in registration statements permitted by Rule 3-03(b) of Regulation SX. Accordingly, we do not believe the elimination of the provisions in Item 303(b) would cause
any impact. We also believe that the additional flexibility we are proposing for all registrants
would allow registrants subject to Rule 3-03(b) of Regulation S-X 284 to make the most
meaningful comparisons in their MD&A.
Finally, we are proposing to delete Instructions 2, 3, 5, 6, 7, and 8 to current paragraph
(b). 285 We are proposing to eliminate Instruction 2 because we no longer believe it necessary
that an instruction make explicit the presumption that readers have read or have access to the
MD&A for the preceding fiscal year. We also propose to eliminate Instructions 3 and 6 because

283

See supra note 260.

284

See d.

285

Instruction 5 to Item 303(b) is currently reserved.

they duplicate current Instructions 4 286 and 7 to Item 303(a), respectively. 287 Instead, we propose
a new Instruction 1 to proposed Item 303(c) that would cross-reference the applicable
instructions in proposed Item 303(b). We propose to eliminate Instruction 7 to Item 303(b) in
light of our proposal to eliminate Item 303(a)(5), the subsection that requires disclosure of
contractual obligations. We also propose to eliminate Instruction 5, which is currently reserved.
Finally, we propose to move Instruction 8 to current Item 303(b) to Instruction 10 of proposed
Item 303(b). The following table outlines the current and proposed structure of Item 303(b)
(proposed Item 303(c)): 288
Current Structure
Item 303(b), Interim periods
(1) Material changes in financial condition
(2) Material changes in results of operations,
Rule 3-03(b) of Regulation S-X matters
Instruction 1 to Item 303(b)

Proposed Structure
Item 303(c), Interim periods
(1) Material changes in financial condition
(2) Material changes in results of operations
(i) Material changes in results of operations (year-todate)
(ii) Material changes in results of operations (quarter
comparisons)
Instruction 1 to Item 303(c) (with amendments to reference
Instructions 2, 5, 9, and 10 to proposed Item 303(b))

Instruction 2 to Item 303(b)

Eliminate

Instruction 3 to Item 303(b)

Eliminate

Instruction 4 to Item 303(b)

Instruction 2 to Item 303(c)

286

As discussed in Section II.C.4, we are proposing to revise current Instruction 4 to Item 303(a) to clarify that
registrants must discuss the “underlying reasons” for material changes in “quantitative and qualitative terms.”
We are also proposing to clarify that registrants must discuss material changes within a line item.

287

We also propose to move the text of Instruction 8 to a new Instruction 11 to Item 303(a) (proposed Item
303(b)), and reference it in proposed Instruction 1 to Item 303(c).

288

The information in this table is not comprehensive and is intended only to highlight the general structure of the
current rules and proposed amendments. It does not reflect all of the substance of the proposed amendments or
all of the rules and forms that are proposed to be affected. All changes are discussed in their entirety throughout
this release. As such, this table should be read together with this Section II.C.9.

Instruction 5 to Item 303(b)

Eliminate

Instruction 6 to Item 303(b)

Eliminate

Instruction 7 to Item 303(b)

Eliminate

Instruction 8 to Item 303(b)

Instruction 10 to proposed Item 303(b)

Request for Comment
47. Should we amend the interim period disclosure requirements in Item 303(b), as
proposed? Alternatively, in order to permit registrants flexibility to choose their
presentation in the manner that is most consistent with how their business is managed,
should we allow registrants to include a discussion of material changes in the results of
operations with respect to either the most recent fiscal year-to-date period or the most
recent fiscal quarter? Are there other approaches we should consider?
48. What would the benefits and/or drawbacks be of allowing registrants more flexibility
regarding the interim period comparisons they discuss in MD&A?
49. Would the ability to compare interim period information across registrants be
significantly affected by allowing flexibility for interim period comparisons, as
proposed?
50. How do market participants use Item 303(b) disclosures? What are the benefits and
drawbacks of the current period-to-period comparisons requirements?
51. How would our proposed amendments affect registrants subject to Rule 3-03(b) of
Regulation S-X? We are not proposing to eliminate Rule 3-03(b). If adopted, would the
Commission’s disclosure rules and guidance be sufficiently clear about disclosure these
91

registrants must provide? What would the consequences of these proposed changes be
for market participants?
10. Safe Harbor for Forward-Looking Information (Item 303(c))
Item 303(c) 289 states that the safe harbors provided in Section 27A of the Securities Act
and 21E of the Exchange Act (together, “statutory safe harbors”) apply to all forward-looking
information provided in response to Item 303(a)(4) (off-balance sheet arrangements) and Item
303(a)(5) (contractual obligations), provided such disclosure is made by certain enumerated
persons. 290 Item 303(c) confirms application of the statutory safe harbors to Item 303(a)(4) and
Item 303(a)(5), and states that all of the required disclosures under these two items are deemed to
be “forward-looking statements” as that term is defined in the statutory safe harbors, except for
historical facts. 291 With respect to Item 303(a)(4), Item 303(c) further states that the “meaningful
cautionary statements” element of the statutory safe harbors is satisfied if a registrant satisfies all
of Item 303(a)(4) requirements. 292
The Commission added Item 303(c) in 2003 when it adopted Items 303(a)(4) and (5). 293
Item 303(c) was intended to remove possible ambiguity about the application of the statutory

289

Item 303(c) of Regulation S-K [17 CFR 229.303(c)].

290

Such persons are the issuer; a person acting on behalf of the issuer; an outside reviewer retained by
the issuer making a statement on behalf of the issuer; or an underwriter, with respect to information provided by
the issuer or information derived from information provided by the issuer.

291

Item 303(c)(2)(i) of Regulation S-K [17 CFR 229.303(c)(2)(i)].

292

Item 303(c)(2)(ii) of Regulation S-K [17 CFR 229.303(c)(2)(ii)].

293

See Off-Balance Sheet Arrangements and Contractual Obligations Adopting Release at 5992 (“To encourage
the type of information and analysis necessary for investors to understand the impact of off-balance sheet
arrangements and to reduce the burden of estimating the payments due under contractual obligations, the
amendments include a safe harbor for forward-looking information.”).

safe harbors to these items. 294 Since we propose to eliminate both Items 303(a)(4) and (5), we
are also proposing to eliminate Item 303(c), which specifically and exclusively refers to those
disclosure requirements.
Nevertheless, forward-looking information included in off-balance sheet arrangement
disclosures provided in response to proposed Instruction 8 to Item 303(b), along with disclosures
regarding contractual obligations, would continue to be covered by existing safe harbors. The
proposed amendments are intended to be conforming changes and would not alter the availability
of the regulatory safe harbors in Securities Act Rule 175 295 and Exchange Act Rule 3b-6, 296
which expressly apply to forward-looking information in MD&A disclosure. 297 These rules
establish a safe harbor for “forward-looking statements” and define such statements to include
statements of “future economic performance contained in management’s discussion and
analysis.” 298 These rules were adopted with the express purpose of encouraging forward-looking
information and in response to commenters’ recommendations stating that the absence of a safe
harbor could discourage forward-looking information. 299

294

See id.

295

[17 CFR 230.175].

296

[17 CFR 240.3b-6].

297

Instruction 7 to Item 303(a) of Regulation S-K [17 CFR 229.303(a)], Securities Act Rule 175 [17 CFR
230.175], and Exchange Act Rule 3b-6 [17 CFR 240.3b-6].

298

See Rule 175(c)(3) and Rule 3b-6(c)(3) [17 CFR 230.175(c)(3) and 17 CFR 240.3b-6(b)(3)].

299

See Safe Harbor Rule for Projections, Release No. 33-6084 (June 25, 1979) [44 FR 38810 (July 2, 1979)].

Our proposed amendments are also not intended to alter the application of the statutory
safe harbor provisions of the Private Securities Litigation Reform Act. 300 While these provisions
apply more broadly, they also protect eligible forward-looking statements 301 in MD&A against
private legal actions that are based on allegations of a material misstatement or omission. We
continue to believe that the safe harbors for eligible forward-looking statements and the safe
harbor provisions of the Private Securities Litigation Reform Act have encouraged greater
disclosure of forward-looking information that has benefited investors and our markets.
Request for Comment
52. Should we eliminate Item 303(c), as proposed?
53. If we eliminate Item 303(c), is it necessary or helpful to provide a specific instruction
referring to the statutory safe harbors for forward-looking statements that may apply to
the proposed off-balance sheet arrangement disclosures? Should we instead retain Item
303(c) and acknowledge that the statutory safe harbors would apply to all of Item 303?

300

See Sections 27A of the Securities Act and 21E of the Exchange Act.

301

The statutory safe harbors by their terms do not apply to forward-looking statements included in financial
statements prepared in accordance with generally accepted accounting principles. Notably, the statutory safe
harbors also would not apply to MD&A disclosure if the MD&A forward-looking statements were made in
connection with: an initial public offering; a tender offer; an offering by a partnership, limited liability
company, or a direct participation investment program, or the forward-looking statement is made by an issuer of
penny stock or is made by an issuer in connection with an offering of securities by a blank check company, or is
made in connection with a roll-up transaction or a going private transaction. See Section 27A(b) of the
Securities Act and Section 21E(b) of the Exchange Act. Also, the statutory safe harbors do not, absent a rule,
regulation, or Commission order, apply to forward-looking statements by issuers covered by Section
27A(b)(1)(A) of the Securities Act and Section 21E(b)(1)(A) of the Exchange Act. Because the statutory safe
harbors only apply to forward-looking statements made by or on behalf of an issuer that is subject to the
reporting requirements of Section 13(a) or 15(d) of the Exchange Act, they would not apply to forward-looking
statements made in connection with an offering under Regulation A unless the issuer is a reporting company
and no other exclusions from the safe harbor apply.

11. Smaller Reporting Companies (Item 303(d))
Item 303(d) 302 states that an SRC may provide Item 303(a)(3)(iv) information for the
most recent two fiscal years if it provides financial information on net sales and revenues and
income from continuing operations for only two years. Item 303(d) also states that an SRC is not
required to provide the contractual obligations chart specified in Item 303(a)(5). In light of our
proposals to eliminate Item 303(a)(3)(iv) and (a)(5), we are also proposing to eliminate Item
303(d), which specifically and exclusively references these two disclosure requirements. SRCs
may continue to rely on Instruction 1 to Item 303(a), 303 which states that an SRC’s discussion
shall cover the two-year period required in Article 8 of Regulation S-X.
Request for Comment
54. Should we eliminate Item 303(d), as proposed?
55. Are there any proposed amendments to Item 303 where we should consider providing
further accommodations to SRCs?
General Requests for Comment for Item 303
56. Are there any other changes we should consider to Item 303 to streamline, update, or
modernize MD&A disclosure requirements?

302

Item 303(d) of Regulation S-K [17 CFR 229.303(d)].

303

Proposed renumbered Item 303(b).

57. Should we require MD&A to be structured in Inline eXtensible Business Reporting
Language (“Inline XBRL”) format? 304 If so, should MD&A be structured using block
tags, detail tags, or some combination of the two? How would investors and other market
participants benefit from such a requirement, and what would be the costs and burdens to
registrants? Would the costs and burdens be disproportionately high for any group of
issuers?
58. Should we amend Item 9 of Form 1-A to reflect any of the proposals in this release?
D. Application to Foreign Private Issuers
We are proposing corresponding amendments that would apply to FPIs providing
disclosure required by Form 20-F or Form 40-F. 305 We are also proposing amendments to
current Instruction 11 to Item 303, which specifically applies to FPIs that choose to file on
domestic forms. Similar to our discussions above and for the reasons discussed in greater detail
below, our proposals to these forms are intended to modernize, clarify, and streamline these
disclosure requirements.
1. Form 20-F
a. Selected Financial Data (Item 3.A of Form 20-F)
Similar to Item 301, Item 3.A of Form 20-F requires FPIs to provide selected historical
financial data for the most recent five financial years (or such shorter period that the company
304

Registrants subject to the financial disclosure requirements of Regulation S-K are either currently required or
will be required to file their financial statements and filing cover page disclosures in the Inline XBRL format.
See [17 CFR 229.601(b)(101)]. See also Inline XBRL Filing of Tagged Data, Securities Act Release No. 10514
(June 28, 2018) [83 FR 40846 (Aug. 16, 2018), at 40851] (“Inline XBRL Adopting Release”).

305

These proposals would also apply to those forms calling for information in Forms 20-F, such as Form F-1.

has been in operation). Also similar to Item 301, Item 3.A specifies the information that must be
included in the selected financial data and provides that EGCs are not required to present
selected financial data for any period prior to the earliest audited financial statements presented
in connection with the registrant’s initial public offering of its common equity securities. In a
registration statement, periodic report, or other report filed under the Exchange Act, an EGC
need not present selected financial data for any period prior to the earliest audited financial
statements presented in connection with the EGC’s first registration statement that became
effective under the Exchange Act or the Securities Act. 306 However, unlike Item 301, Item 3.A
also permits a FPI to omit either or both of the earliest two years of data if it represents that it
cannot provide the information, or cannot provide the information on a restated basis, without
unreasonable effort or expense.
Given the similarities between Item 3.A and Item 301, we propose to delete Item 3.A and
the related instructions. As with Item 301, trend disclosure elicited by Item 3.A typically would
be discussed in disclosure provided in response to Item 5 of Form 20-F, which requires MD&A
disclosure similar to Item 303. FPIs may, however, continue to include a tabular presentation of
the line items discussed in the MD&A, to the extent they believe that such a presentation would
be useful to an understanding of the disclosure. 307
Request for Comment

306

See Instruction 3 to Item 3.A.

307

See 2003 MD&A Interpretive Release (“Companies should consider whether a tabular presentation of relevant
financial or other information may help a reader's understanding of MD&A.”). See also footnote 1 of 2003
MD&A Interpretive Release which states that the guidance in that release is intended to apply to FPIs.

59. Should we eliminate Item 3.A of Form 20-F, as proposed? Would the proposed
elimination of Item 3.A result in the loss of material information that is otherwise not
available to investors? If so, what information would be lost, and are there alternatives
we should consider that would elicit this information?
60. The Commission revised Form 20-F in 1999 to conform in large part to the international
disclosure standards endorsed by the International Organization of Securities
Commissions (“IOSCO”) for the non-financial statement portions of a disclosure
document, which have served as the basis for the disclosure requirements in several
foreign jurisdictions. 308 One of the objectives of the IOSCO standards was to facilitate
the cross-border flow of securities and capital by promoting the use of a single disclosure
document that would be accepted in multiple jurisdictions. If we revise Item 3.A of Form
20-F as proposed, would such revision reduce the ability of FPIs to use a single document
in multiple jurisdictions?
61. Would the proposed amendments conflict with home-country requirements in some
jurisdictions if the FPI were engaging in a cross-border offering or listing? If so, please
explain.
62. Unlike Item 301, Item 3.A provides an accommodation to FPIs for either or both of the
earliest two years of data. Given this accommodation, should we retain this item? Does
Item 3.A require disclosure that is duplicative of the financial statements?

308

See International Disclosure Standards, Release No. 33-7745 (Sept. 28, 1999) [64 FR 53900 (Oct. 5, 1999)].

63. Are there any unique considerations with respect to FPIs in this context?
64. Are the requirements of Item 5 of Form 20-F sufficient to provide investors with
necessary disclosure of trends in a registrant’s results of operations and financial
condition? If we eliminate Item 3.A as proposed, should we amend Item 5 of Form 20-F
to explicitly require a tabular presentation of line items discussed in the disclosure?
65. What are the costs to FPIs of providing required selected financial data?
66. How do market participants use the selected financial data disclosures provided by FPIs?
Do market participants rely on any time segment of data more than others (e.g., the most
recent two or three years)?
b. Operating and Financial Review and Prospects (Item 5 of Form 20-F)
The disclosure requirements for Item 5 of Form 20-F (Operating and Financial Review
and Prospects) are substantively comparable to the MD&A requirements under Item 303 of
Regulation S-K. 309 To maintain a consistent approach to MD&A for domestic registrants and
FPIs, our proposed amendments to Form 20-F generally conform to our proposed amendments to
Item 303.
Some of our proposals would amend Item 5 of Form 20-F to incorporate portions of both
current and proposed Item 303. Specifically, we are proposing to incorporate portions of current
Instructions 1 and 3 to Item 303(a) that specify the purpose of MD&A, into the forepart of Item 5

309

When the Commission revised the wording of Item 5 of Form 20-F in 1999, the adopting release noted that the
requirements correspond with Item 303 of Regulation S-K. See International Disclosure Standards, Release
No. 33-7745 (Sept. 28, 1999) [64 FR 53900 (Oct. 5, 1999)], at 53904 (“International Disclosure Standards
Release”).

of Form 20-F to highlight the item’s objective. Our proposals would revise Item 5 to state that
the discussion must:
•

Include other statistical data that will enhance a reader’s understanding of the company’s
financial condition, changes in financial condition, and results of operations; and

•

Focus specifically on material events and uncertainties known to management that would
cause reported financial information not to be necessarily indicative of future operating
results or future financial condition.

We are also proposing to codify into the forepart of Item 5 Commission guidance that states that
a registrant should provide a narrative explanation of its financial statements that enables
investors to see a registrant “through the eyes of management.” 310 Consistent with our rationale
for proposing analogous changes to Item 303, 311 we believe that emphasizing the purpose of
MD&A at the outset of the Item will provide clarity and focus to registrants as they consider
what information to discuss and analyze. We are also proposing to revise the forefront of Item 5
to state that, in addition to providing information relating to all separate segments, FPIs must
also provide information relating to other subdivisions, such as geographic areas or product lines.
This proposed revision is intended to conform Form 20-F to both current Item 303, by
referencing other subdivisions and including geographic areas as an example, and proposed Item
303, by adding product lines as an example. 312

310

See 2003 MD&A Interpretative Release, at 75056. See also 1989 Interpretative Release, at 22428.

311

See Section II.C.1 above.

312

See footnote 98 above and corresponding sentence.

100

For the reasons discussed above, we are proposing to:
•

Revise Item 5 to specify that the discussion must include a quantitative and qualitative
description of the reasons underlying material changes, including where material changes
within a line item offset one another; 313

•

Revise the liquidity and capital resources requirement in Item 5.B to specify that a
registrant must broadly disclose material cash commitments, including but not limited to
capital expenditures; 314

•

Replace Item 5.E, which covers off-balance sheet arrangements, with a principles-based
instruction; 315

•

Eliminate Item 5.F., which covers tabular disclosure of contractual obligations; 316 and

313

See Section II.C.4 above.

314

See Sections II.C.2 and II.C.7 above.

315

See proposed Instruction 7 to Item 5 of Form 20-F. For FPIs filing on Forms 20-F and 40-F that apply IFRS,
the overlap between the requirements of those Forms and IFRS are similar to the overlap between Item
303(a)(4) and U.S. GAAP, as described in Section II.C.6 above.
IFRS now requires the following disclosures that substantially overlap with the requirements of Item 5.E. of
Form 20-F: the nature and amount of a guarantee (see Paragraph 35M of IFRS 7, Financial Instruments:
Disclosures (“IFRS 7”)); retained or contingent interests in assets transferred to unconsolidated entities (see
Paragraphs 42B and 42E of IFRS 7); the significance of financial instruments for the entity’s financial position
and performance; and the nature and extent of risks arising from financial instruments to which the entity is
exposed and how the entity manages those risks (see Paragraphs 1 of IFRS 7); and obligations under interests in
unconsolidated entities (see Paragraphs 1 and 24 to 31 of IFRS 12, Disclosure of Interests in Other Entities).
We believe our proposed amendments to Item 5.E of Form 20-F are consistent with the statutory mandate in
Section 13(j) of the Exchange Act for the same reasons discussed above in Section II.C.6.

316

See Sections II.C.6 and II.C.7 above. Similar to our discussion above, current IFRS requirements overlap with
the contractual obligations table. For example, IFRS 7.39(a), requires disclosure of a maturity analysis for longterm debt obligations; IFRS 16.58 requires disclosure of a maturity analysis of lease obligations; and IAS 37.85
requires disclosure of the expected timing of outflows of economic benefits related to each class of provision.
IFRS does not have a specific requirement to disclose the timing of purchase obligations.

101

•

Eliminate Item 5.G, which acknowledges application of the statutory safe harbor and
specifically and exclusively applies to Item 5.E and Item 5.F. 317

Consistent with our proposal to amend Item 303 above, we are also proposing to revise Item 5 to
explicitly require disclosure of critical accounting estimates. 318
We are also proposing a change to the requirement in Form 20- F that requires disclosure
of inflation for FPIs. 319 Item 5.A.2 requires disclosure of the impact of inflation, if material, and
hyperinflation, if the currency in which the financial statements are presented is of a country that
has experienced hyperinflation. 320 Instruction 1 to Item 5.A states that disclosure of
hyperinflation must be provided if hyperinflation has occurred in any of the periods for which an
FPI is required to provide audited financial statements or unaudited interim financial statements.
We believe that for FPIs in a hyperinflationary economy, hyperinflation is a salient issue such
that it merits specific mention. As it relates to hyperinflation, we are therefore not proposing to
amend Item 5.A.2 or the related instruction. However, and consistent with our change to Item

We are also proposing to delete the Instructions to Item 5.E and 5.F.
317

See Section II.C.10 above. Similar to this discussion above, we remind FPIs of the existing regulatory and
statutory safe harbors. Additionally, Form 20-F reminds companies that forward-looking information is
expressly covered by statutory safe harbor provisions. See Instruction 3 to Item 5 of Form 20-F.

318

See Section II.C.8 above. As discussed in this section, the 2003 MD&A Interpretive Release addressed critical
accounting estimates. The guidance in the 2003 MD&A Interpretive Release applies to MD&A drafted
pursuant to Item 5 of Form 20-F. See footnote 1 of the 2003 MD&A Interpretive Release.

319

See Section II.C.5 above.

320

Rules 3-20(c) and 3-20(d) of Regulation S-X provide the situations when a registrant must discuss
hyperinflation in a company’s financial statements. Rule 3-20(d) generally describes a hyperinflationary
environment as one that has cumulative inflation of approximately 100 percent or more over the most recent
three-year period.

102

303, 321 we are proposing to amend the portion of Item 5.A.2 calling for disclosure of the impact
of inflation, if material. Some of our proposals to amend Form 20-F are unique to this form but
are consistent with MD&A’s focus on materiality. Specifically, we are proposing to:
•

Amend Item 5.D of Form 20-F, which requires FPIs to identify “the most significant
recent trends,” to instead, require disclosure of “material trends,” consistent with Item
303 and MD&A’s focus on materiality; 322 and

•

Amend Instruction 1 to Item 5, which currently references only the 1989 MD&A
Interpretive Release, to add the 2002 Commission Statement, 2003 MD&A Interpretive
Release, 2010 MD&A Interpretive Release 323 and the Companion Guidance, to direct
FPIs to the Commission’s guidance.

These and all of our proposals to Item 5 of Form 20-F are consistent with our policy of having
the existing MD&A requirements for FPIs mirror the substantive MD&A requirements in Item
303. 324
Request for Comment
67. Should we amend Item 5 of Form 20-F as proposed?

321

See Section II.C.5 above.

322

See, e.g., 2003 MD&A Interpretive Release, at 75060.

323

See 2010 MD&A Interpretive Release.

324

See International Disclosure Standards Release. See also Off-Balance Sheet Arrangements and Contractual
Obligations Adopting Release.

103

68. Would the proposed deletions in Item 5 result in the loss of material information that is
otherwise not available to investors? If so, what information would be lost, and are there
alternatives we should consider that would elicit this information?
69. Would the proposed additions to Item 5 create burdens for companies?
70. If we revise Item 5 of Form 20-F as proposed, would such revision reduce the ability of
FPIs to use a single document in multiple jurisdictions?
71. Would the proposed amendments conflict with home-country requirements in some
jurisdictions? If so, please explain.
72. Are there any unique considerations with respect to FPIs in the context of MD&A and
Item 5 disclosures?
2. Form 40-F
Form 40-F generally permits eligible Canadian FPIs to use Canadian disclosure
documents to satisfy the Commission’s registration and disclosure requirements. As a result, the
MD&A contained in Form 40-F is largely prepared in accordance with Canadian disclosure
standards. General Instructions B.(11) and B.(12), however, were added when the Commission
adopted the off-balance sheet arrangements and contractual obligations disclosure
requirements. 325 For the reasons discussed above, we are proposing to eliminate the contractual
obligations disclosure requirement in B.(12) of Form 40-F. 326 In addition, we are also proposing
to make parallel changes (as discussed above) to the off-balance sheet disclosure requirement in

325

See Off-Balance Sheet Arrangements and Contractual Obligations Adopting Release.

326

See Section II.C.7 and footnote 316 above.

104

Form 40-F by replacing General Instruction B.(11) with a principles-based instruction. 327 As
noted above, unlike Item 303 and Form 20-F, the MD&A required under Form 40-F is defined as
required by Canadian law. 328 Accordingly, our proposal to amend Item 40-F would only require
disclosure of off-balance sheet arrangements to the extent it is not already provided under the
MD&A required by Canadian law. Lastly, and consistent with our proposals above, we are
proposing to eliminate General Instruction B.(13), which acknowledges application of the
statutory safe harbor and specifically and exclusively applies to General Instructions B.(11) and
B.(12). 329
Request for Comment
73. Should we amend Form 40-F, as proposed?
74. Would replacing General Instruction B.(11) of Form 40-F with a more principles-based
instruction result in the loss of material information that is otherwise not available to
investors? If so, what information would be lost, and are there alternatives we should
consider that would elicit this information?
75. Would the proposed deletion of General Instruction B.(12) of Form 40-F result in the loss
of material information that is otherwise not available to investors? If so, what

327

See Section II.C.6 and footnote 153 above. We believe our proposed amendments to General Instruction B.(11)
of Form 40-F is consistent with the statutory mandate in Section 13(j) of the Exchange Act for the same reasons
discussed above in Section II.C.6.

328

See General Instruction B.(3) of Form 40-F.

329

See Section II.C.10 and footnote 317.

105

information would be lost, and are there alternatives we should consider that would elicit
this information?
76. If we eliminate General Instruction B.(13) of Form 40-F, is it necessary or helpful to
provide a specific instruction referring to the statutory safe harbors for forward-looking
statements that may apply to the proposed off-balance sheet arrangement disclosures?
Should we instead retain General Instruction B.(13) of Form 40-F and acknowledge that
the statutory safe harbors would apply?
77. Are there any unique considerations with respect to eligible Canadian FPIs in this
context?
3. Item 303 of Regulation S-K
FPIs may voluntarily choose to file on forms that would require disclosure under Item
303. Current Instruction 11 to Item 303 requires “foreign private registrants” to discuss briefly
any pertinent governmental economic, fiscal, monetary, or political policies or factors that have
materially affected or could materially affect, directly or indirectly, their operations or
investments by United States nationals. 330
For consistency with the requirements of Form 20-F, 331 we are proposing to amend this
FPI instruction to incorporate the requirement for FPIs to discuss hyperinflation in a

330

See Instruction 11 to Item 303(a) of Regulation S-K.

331

See Section II.D.1.b above.

106

hyperinflationary economy. 332 Proposed Instruction 9 would also replace “foreign private
registrants” with the defined term “foreign private issuer.” 333
Request for Comment
78. Should we retain and amend the FPI instruction to Item 303, as proposed?
E. Additional Conforming Amendments
We propose additional conforming amendments that are consistent with the proposed
amendments described above. 334
1.

Roll-up Transactions – Item 914 of Regulation S-K

We propose to delete references to Items 301 and 302 in Item 914(a) of Regulation S-K.
This item applies to roll-up transactions, which generally involve the combination or
reorganization of one or more partnerships, directly or indirectly, where some or all of the
investors in any such partnerships will receive new securities, or securities in another entity. 335
Item 914(a) provides that, for each partnership to be included in a roll-up transaction, certain

332

See proposed Instruction 9.

333

See Rule 405 and Rule 3b-4(c).

334

If the proposed amendments are adopted, the Commission will also amend certain rules and forms to update
references to the items we are proposing to amend. Specifically, if adopted as proposed, conforming
amendments will be made to: remove references to Item 301 or Item 3.A of Form 20-F (Item 10 of Regulation
S-K [17 CFR 229.10]; Forms S-1 [17 CFR 239.11], N-2 [17 CFR 274.11a-1], S-11 [17 CFR 239.18], S-4 [17
CFR 239.25], F-1 [17 CFR 239.31], F-4 [17 CFR 239.34], 1-A [17 CFR 239.90], 10 [17 CFR 249.208c], and
10-K [17 CFR 249.310]; Schedule 14A [17 CFR 240.14a-101]; and Exchange Act Rule 14a-3 [17 CFR
240.14a-3]); remove references to Item 302 (Items 10 [17 CFR 229.10; Forms S-1 [17 CFR 239.11], N-2 [17
CFR 274.11a-1], S-11 [17 CFR 239.18], S-4 [17 CFR 239.25], 1-A [17 CFR 239.90], 10 [17 CFR 249.208c],
and 10-K [17 CFR 249.310]; Schedule 14A [17 CFR 240.14a-101]; Securities Act Rule 175 [17 CFR 230.175];
Exchange Act Rules 3b-6 [17 CFR 240.3b-6] and 14a-3 [17 CFR 240.14a-3]; and Trust Indenture Act of 1939
Rule 0-11 [17 CFR 260.0-11].); and update references to subparagraphs of Item 303 (Securities Act Rule 419
[17 CFR 230.419]).

335

See Rule 901 of Regulation S-K [17 CFR 229.901].

107

financial information, including disclosure under Item 301 and Item 302, must be provided.
In the context of Item 914(a), disclosure provided under Items 301 and 302 would not be
duplicative of the financial statements and would otherwise be unavailable. However, Item
914(a) specifies disclosure of other financial information 336 and states that additional or other
information should be provided if material to an understanding of each partnership proposed to
be included in a roll-up transaction. In light of these other requirements, we believe deleting
references to Items 301 and 302 in Item 914(a) would not result in a loss of material information.
Request for Comment
79. If we eliminate Items 301 and 302 should we also delete these references in Item 914(a)
and not specify additional disclosure requirements, as proposed? Are there any unique
considerations for roll-up transactions that would necessitate some or all of the
information required by Items 301 and 302?
2.

Regulation AB – Items 1112, 1114, and 1115

Item 1112 of Regulation AB requires disclosure of financial information required by Item
301 or Item 3.A of Form 20-F about significant obligors of pool assets if the pool assets relating
to the significant obligor represent 10% or more, but less than 20%, of the asset pool in an assetbacked securities (“ABS”) transaction. Similarly, Items 1114 and 1115 of Regulation AB

336

In addition to disclosure under Items 301 and 302, Item 914(a) calls for the following financial disclosures:
Ratio of earnings to fixed charges, cash and cash equivalents, total assets at book value, total assets at the value
assigned for purposes of the roll-up transaction (if applicable), total liabilities, general and limited partners’
equity, net increase (decrease) in cash and cash equivalents, net cash provided by operating activities,
distributions; and per unit data for net income (loss), book value, value assigned for purposes of the roll-up
transaction (if applicable), and distributions (separately identifying distributions that represent a return of
capital).

108

require disclosure of financial information required by Item 301 or Item 3.A of Form 20-F about
credit enhancement providers and derivatives counterparties, respectively, whose support
represents a similar level of concentration in an ABS transaction. With our proposal to eliminate
Item 301 and Item 3.A of Form 20-F for corporate issuers, financial information about these
third parties to an ABS transaction, including any trend information comparable to information
required by Item 303 or Item 5 of Form 20-F, may not otherwise be available. Therefore, we
propose to replace in Regulation AB those requirements to disclose selected financial data under
Item 301 or Item 3.A of Form 20-F with requirements to disclose summarized financial
information, as defined by Rule 1-02(bb) of Regulation S-X, 337 for each of the last three fiscal
years (or the life of the relevant entity or group of entities, if less). We believe the information
required under Rule 1-02(bb) is similar to the information currently required, and is consistent
with other types of financial statement disclosures that are required to be disclosed when certain
significance thresholds have been met. 338 As proposed, these requirements span the same
periods as the historical data that the ABS registrant is required to provide for the pool assets
under Item 1111 of Regulation AB. 339 While this proposal would generally result in fewer

337

[17 CFR 210.1-02(bb)]. We are also proposing amendments to Rule 1-02(bb) of Regulation S-X, which calls
for disclosure of summary financial information. To eliminate any implication that a registrant would need to
prepare disclosure that is not consistent with the disclosure in the entity’s financial statements, the proposed
amendments would clarify that the disclosure of summary financial information may vary, as appropriate, to
conform to the nature of the entity’s business.

338

For example, Rule 4-08(g) of Regulation S-X [17 CFR 210.4-08(g)] requires disclosure of summarized
financial information for equity method investees when significance thresholds are met.

339

While ABS registrants are generally not required to provide financial statements, under Item 1111 of Regulation
AB, ABS registrants must provide historical data on the pool assets as appropriate (e.g., the lesser of three years
or the time such assets have existed) to allow material evaluation of the pool data. See 17 CFR 229.1111.

109

periods being presented under these items, we do not believe requiring disclosure beyond three
years is necessary. Such disclosure would cover periods beyond those presented for the
underlying pool assets to which the third-party financial information would relate.
Request for Comment
80. If we eliminate Item 301 and Item 3.A of Form 20-F, should we replace these references
in Items 1112, 1114, and 1115 of Regulation AB with a reference to Rule 1-02(bb) of
Regulation S-X, as proposed? Would the potential fewer earlier periods being presented
under these items result in the loss of material information? Are there alternatives that
we should consider? Should we explicitly require a tabular presentation of the
summarized financial information for ABS?
3.

Summary Prospectus in Forms S-1 and F-1

We are proposing to replace references to Item 301 and Item 3.A of Form 20-F in Form
S-1 and Form F-1, respectively, with Rule 1-02(bb) of Regulation S-X, where these forms
provide for use of a summary prospectus under Rule 431. 340 A summary prospectus is intended
to provide prospective investors with a condensed statement of the more important information
in the registration statement. 341 Consistent with this purpose, the Instructions as to Summary
Prospectuses in Forms S-1 and F-1 call for disclosure of selected financial data under Item 301
or Item 3.A of Form 20-F, respectively. These instructions also state that, with the exception of

340

See 17 CFR 230.431. See also Instruction 1(f) under Instructions as to Summary Prospectuses in Form S-1 and
Instruction 1(c)(v) under Instructions as to Summary Prospectuses in Form F-1.

341

See Adoption of Summary Prospectus Rule and Amendments to Form S-1 and S-9, Release No. 33-3722 (Nov.
26, 1956) [21 FR 9642 (Dec. 6, 1956)].

110

these items, the summary prospectus shall not contain any other financial information. 342 To
preserve disclosure of financial information in summary prospectuses, we propose to replace the
requirement for selected financial data in Forms S-1 and F-1 with summarized financial
information under Item 1-02(bb) of Regulation S-X. We believe the information required under
Rule 1-02(bb) is similar to the information currently required and is consistent with other types
of financial statement disclosures that should be included when certain significance thresholds
have been met.
Request for Comment
81. If we eliminate Item 301 and Item 3.A of Form 20-F, as proposed, should we replace
these references in the Instructions as to Summary Prospectuses of Forms S-1 and F-1
with Item 1-02(bb) of Regulation S-X, as proposed?
4.

Business Combinations – Form S-4, Form F-4 and Schedule 14A

We are proposing to eliminate references to Items 301 and 302 in Form S-4, Form F-4,
and Schedule 14A. Where these forms are used in conjunction with a business combination, pro
forma financial statements for the most recent fiscal year and interim period under Article 11 of
Regulation S-X are required. 343 Additionally, Item 3(e) and (f) in both Forms S-4 and F-4
require Item 301 or Item 3.A of Form 20-F information, respectively, on a pro forma basis. Item
14(b)(9) and (10) of Schedule 14A generally call for similar pro forma information in the context
of a business combination. A related instruction stipulates that, for a business combination

342

See Instruction 2 under Instructions as to Summary Prospectuses for Form S-1 and Form F-1.

343

See Item 5 under Part 1 of Forms F-4 and S-4.

111

accounted for as a purchase, financial information is required for the same periods required by
Article 11 of Regulation S-X. Because these pro forma requirements are effectively duplicative
of the pro forma financial statements required elsewhere by the form, we propose to delete
them. 344
Similarly, we are proposing to eliminate references to Item 301 and Item 3.A of Form 20F in Item 17(b)(3) of both Form S-4 and Form F-4. We are also proposing to delete the reference
to Item 302 in Item 17(b)(4) of Form S-4. Because Item 17(b) of Forms S-4 and F-4 applies to
non-reporting target companies in a business combination, this disclosure may not be available
elsewhere. We believe, however, consistent with the discussion above, 345 that the requirement
for discussion and analysis of trends in Item 303 would also be sufficient to address material
information related to a target company in a business combination context.
Request for Comment
82. If we eliminate Item 301 and Item 3.A of Form 20-F as proposed, should we also
eliminate references to these items in Form S-4 and F-4 and Schedule 14A, as proposed?
Are there any unique considerations in the context of a business combination?
83. In Forms S-4 and F-4, pro forma information of selected financial data is required as part
of the prospectus summary. Are there any unique considerations in the context of a
business combination such that Item 301 and Item 3.A of Form 20-F pro forma
information should be required as part of the prospectus summary?

344

We are also proposing to delete the related instruction to these items.

345

See Section II.A above.

112

84. Should we eliminate the requirement to provide Item 301, Item 3.A of Form 20-F, and
Item 302 disclosure in Forms S-4 and F-4 for non-reporting target companies, as
proposed?
5.

Form S-20

We are proposing a conforming change to Form S-20 to remove references to Item 302 of
Regulation S-K. 346 Form S-20 is used to register standardized options under the Securities Act
and requires limited information about the clearing agency registrant and the options being
registered. Since the adoption of Rule 238 in 2002, which exempts from Securities Act Section 5
the registration of offerings of standardized options that are issued by a registered clearing
agency and traded on a national securities exchange, Form S-20 is rarely used. 347
Request for Comment
85. If we eliminate Item 302, should we also eliminate reference to this item in Form S-20?
Are there any unique considerations in the context of Form S-20?
F. Compliance Date
We propose to provide a transition period after the publication of a final rule in the
Federal Register to provide registrants with adequate time to adjust their disclosures in light of

346

17 CFR 239.20. Current references in Form S-20 to Item 302 are references to the item’s predecessor, Item 12.

347

See Exemption for Standardized Options From Provisions of the Securities Act of 1933 and From the
Registration Requirements of the Securities Exchange Act of 1934, Release No. 33-8171 (Dec. 23, 2002) [68 FR
188 (Jan. 2, 2003)] (“New Securities Act Rule 238 does not make Form S-20 obsolete. We are retaining Form
S-20 for use by an issuer of standardized options that is not a clearing agency registered under Section 17A of
the Exchange Act, such as a foreign clearing agency, or for use by issuers of standardized options that do not
trade on a registered national securities exchange or on a registered national securities association.”). Since the
effective date of Rule 238 in 2003, we estimate that approximately one entity has used Form S-20.

113

the proposed amendments. Though companies would be able to begin voluntarily complying
with the proposed amendments upon effectiveness, we propose a compliance date of 180 days
after effectiveness of any final rule, if adopted. The Commission believes that this transition
period would allow sufficient time to prepare for and come into compliance with the amended
reporting requirements, but we request comment on whether this time period is appropriate.
Request for Comment
86. Is the proposed transition period necessary and appropriate? If not, what time period
would be necessary for registrants to comply with the proposed amendments?
87. Would certain proposed amendments (e.g., critical accounting estimates) require more
time to prepare for than other requirements?
III.

GENERAL REQUEST FOR COMMENTS
We request and encourage any interested person to submit comments on any aspect of

our proposals, other matters that might have an impact on the proposed amendments, and any
suggestions for additional changes. With respect to any comments, we note that they are of
greatest assistance to our rulemaking initiative if accompanied by supporting data and analysis of
the issues addressed in those comments and by alternatives to our proposals where appropriate.
IV.

ECONOMIC ANALYSIS
A.

Introduction

As discussed above, we are proposing amendments to modernize, simplify, and enhance
certain financial disclosure requirements in Regulation S-K. Specifically, we are proposing (1)
to eliminate Item 301 of Regulation S-K, Selected Financial Data, and Item 302 of Regulation SK, Supplementary Financial Information; and (2) to amend Item 303 of Regulation S-K,
114

Management’s Discussion & Analysis of Financial Condition and Results of Operations. The
proposed amendments are intended to eliminate duplicative disclosures and enhance MD&A
disclosures for the benefit of investors, while simplifying compliance efforts for registrants.
Overall, investors and registrants may benefit from the proposed amendments if they
would help avoid duplicative disclosure and if emphasizing the current principles-based
approach to MD&A results in more tailored disclosures that allow investors to better understand
the registrant’s business through the eyes of management. We acknowledge the risk that
emphasizing the current principles-based approach may result in certain loss of information to
investors. However, we believe that any loss of information would be limited because the
proposed eliminations are mostly duplicative. Additionally, under the proposed principles-based
approach, registrants would still be required to provide disclosure about these topics if they are
material to an investment decision, further mitigating the potential loss of information.
We are mindful of the costs and benefits of the proposed amendments. The discussion
below addresses the potential economic effects of the proposed amendments, including the likely
benefits and costs, as well as the likely effects on efficiency, competition, and capital
formation. 348 At the outset, we note that, where possible, we have attempted to quantify the

348

Section 2(b) of the Securities Act [15 U.S.C. 77b(b)] and Section 3(f) of the Exchange Act [17 U.S.C. 78c(f)]
require the Commission, when engaging in rulemaking where it is required to consider or determine whether an
action is necessary or appropriate in the public interest, to consider, in addition to the protection of investors,
whether the action will promote efficiency, competition, and capital formation. Further, Section 23(a)(2) of the
Exchange Act [17 U.S.C. 78w(a)(2)] requires the Commission, when making rules under the Exchange Act, to
consider the impact that the rules would have on competition, and prohibits the Commission from adopting any
rule that would impose a burden on competition not necessary or appropriate in furtherance of the Exchange
Act.

115

benefits, costs, and effects on efficiency, competition, and capital formation expected to result
from the proposed amendments. In many cases, however, we are unable to quantify the potential
economic effects because we lack information necessary to provide a reasonable estimate. For
example, we are unable to quantify, with precision, the costs to investors of accessing alternative
information sources (e.g., footnotes to financial statements or earnings announcements) under
each disclosure item. We are also unable to quantify the potential information processing cost
savings that may arise from the elimination of disclosures that are duplicative or not material to
an investment decision. Where we are unable to quantify the economic effects of the proposed
amendments, we provide a qualitative assessment of the potential effects and encourage
commenters to provide data and information that would help quantify the benefits, costs, and the
potential impacts of the proposed amendments on efficiency, competition, and capital formation.
B.

Baseline and Affected Parties

The current disclosure requirements under Items 301, 302, and 303 of Regulation S-K,
and the related requirements under Items 3.A and 5 of Form 20-F, and General Instructions
B.(11), (12), and (13) of Form 40-F, together with the current disclosure practices registrants
have adopted to comply with these requirements, form the baseline from which we estimate the
likely economic effects of the proposed amendments. 349 The disclosure requirements apply to
various filings, including registration statements, periodic reports, and certain proxy statements
filed with the Commission. Thus, the parties that are likely to be affected by the proposed

349

See supra Section I.

116

amendments include investors and other market participants that use the information in these
filings (such as financial analysts, investment advisors, and portfolio managers), as well as
registrants subject to the relevant disclosure requirements discussed above.
The proposed amendments may affect both domestic registrants and FPIs. 350 We
estimate that during calendar year 2018 there were approximately 6,919 registrants that filed on
domestic forms 351 and 806 FPIs that filed on F-forms, other than registered investment
companies. Among the registrants that filed on domestic forms, approximately 29 percent were
large accelerated filers, 19 percent were accelerated filers, and 52 percent were non-accelerated
filers. In addition, we estimate that approximately 33 percent of these domestic issuers were
SRCs 352 and 21.3 percent were EGCs. The proposed amendments would also affect ABS
issuers. ABS issuers are required to file on Forms SF-1 and SF-3 and, as a result, may be subject

350

The number of domestic registrants and FPIs affected by the proposed amendments is estimated as the number
of unique companies, identified by Central Index Key (CIK), that filed a Form 10-K, Form 10-Q, Form 20-F,
and Form 40-F or an amendment thereto with the Commission during calendar year 2018. The estimates for the
percentages of SRCs, are based on information from Form 10-K, Form 20-F, and Form 40-F. For purposes of
this economic analysis, these estimates do not include issuers that filed only initial Securities Act registration
statements during calendar year 2018, and no Exchange Act reports, in order to avoid including entities, such as
certain co-registrants of debt securities, which may not have independent reporting obligations and therefore
would not be affected by the proposed amendments. Nevertheless, the proposed amendments would affect any
registrant that files a Securities Act or Exchange Act registration statement or is subject to Exchange Act
reporting obligations. We believe that most registrants that have filed a Securities Act or Exchange Act
registration statement, other than the co-registrants described above, would be captured by this estimate through
their annual or quarterly filings. The estimates for the percentages of SRCs, EGCs, accelerated filers, large
accelerated filers, and non-accelerated filers are based on data obtained by Commission staff using a computer
program that analyzes SEC filings, with supplemental data from Ives Group Audit Analytics.

351

This number includes fewer than 25 FPIs that filed on domestic forms in 2018 and approximately 100 BDCs.

352

This estimate is based on the definition of SRCs prior to the September 2018 effective date of recent
amendments to this definition. See Amendments to the Smaller Reporting Company Definition, Release No.
33-10513 (June 28, 2018) [83 FR 31992 (July 10, 2018)]. As these amendments increased the number of
registrants who are eligible to be SRCs, it is likely that the percentage of registrants that are SRCs is now higher
than 33 percent.

117

to the proposed changes to Regulation AB requirements in this release. We estimate that during
calendar year 2018, there were 36 unique depositors filing at least one Form SF-1 or Form SF-3.
C.

Potential Benefits and Costs of the Proposed Amendments

In this section, we discuss the anticipated economic benefits and costs of the proposed
amendments. We first analyze the overall economic effects of the proposed amendments. We
then discuss the potential benefits and costs of specific proposed amendments.
1. Overall Potential Benefits and Costs
We anticipate the proposed amendments 353 would benefit registrants in several ways.
First, by eliminating certain duplicative disclosure requirements, the proposed amendments could
reduce registrants’ disclosure burden and associated compliance costs. Second, by modernizing
and simplifying Item 303 disclosure requirements, the proposal may benefit registrants by
reducing disclosure burdens and associated compliance costs. In addition, to the extent the
proposed amendments result in more tailored and informative disclosure, they could potentially
reduce information asymmetry between registrants and investors, improve firms’ liquidity, and
decrease the cost of capital. Finally, certain of the proposed amendments emphasize a more
principles-based approach to MD&A, which we believe would benefit registrants by
underscoring the flexibility available in presenting financial results that are more indicative of

353

See supra Sections II.A. through II.E.

118

their business. 354 A more principles-based approach, however, could lead to registrants incurring
increased costs associated with assessing materiality.
We believe investors could also benefit from the proposed amendments. First, proposed
amendments that clarify and codify existing guidance, such as the proposed amendments related
to critical accounting estimates and capital resources, could enhance MD&A disclosure. More
robust and informative disclosure on these topics could facilitate investors’ decision making and
enhance investor protection. Second, if the proposed amendments result in more enhanced and
principles-based disclosure, they could allow investors to more efficiently process the disclosure
and make better-informed investment decisions. In particular, investors may benefit from more
tailored disclosures that allow them to better understand the registrant’s business through the
eyes of management. Investors also could benefit from the reduction of duplicative disclosure,
because reducing such duplication may improve the readability and conciseness of the

354

A number of academic studies have explored the use of prescriptive thresholds and materiality criteria. Many
of these papers highlight a preference for principles-based materiality criteria. See, e.g., Eugene A. Imhoff Jr.
and Jacob K. Thomas, Economic consequences of accounting standards: The lease disclosure rule change, 10.4
J. Acct. & Econ. 277-310 (1988) (providing evidence that management modifies existing lease agreements to
avoid crossing rules-based criteria for lease capitalization); Cheri L. Reither, What are the best and the worst
accounting standards?, 12.3 Acct. Horizons 283 (1998) (documenting that due to the widespread abuse of
bright-lines in rules for lease capitalization, SFAS No. 13 was voted the least favorite FASB standard by a
group of accounting academics, regulators, and practitioners); Christopher P. Agoglia, Timothy S. Doupnik, and
George T. Tsakumis. Principles-based versus rules-based accounting standards: The influence of standard
precision and audit committee strength on financial reporting decisions, 86.3 The Acct. Rev. 747-767 (2011)
(conducting experiments in which experienced financial statement preparers are placed in a lease classification
decision context and finding that preparers applying principles-based accounting are less likely to make
aggressive reporting decisions than preparers applying a more precise rules-based standard and supporting the
notion that a move toward principles-based accounting could result in better financial reporting); Usha
Rodrigues and Mike Stegemoller, An inconsistency in SEC disclosure requirements? The case of the
“insignificant” private target, 13.2-3 J. Corp. Fin. 251-269 (2007) (providing evidence, in the context of
mergers and acquisitions, where rule-based [disclosure] thresholds deviate from investor preferences). Papers
that highlight a preference for rules-based materiality criteria are cited below.

119

information provided, help investors focus on material information, and facilitate more efficient
information processing. 355
However, investors could incur certain costs under the proposed amendments. For
example, investors who are used to the current disclosure format might experience costs when
adjusting to the new format. However, this cost should decrease over time. Investors could also
incur monetary costs such as database subscriptions, or opportunity costs such as time spent, if
they need to obtain or reconstruct information through alternative sources. However, we do not
expect such costs to be significant since registrants would still need to disclose material
information. There could be certain additional costs associated with the proposed amendments
to the extent that they result in the elimination of disclosure material to an investment decision if
registrants misjudge what information is material, or if disclosure becomes less comparable
across firms. 356 The risk of misjudgment may be mitigated by factors including accounting,

355

See A. Lawrence, Individual Investors and Financial Disclosure, 56 J. Acct. & Econ., 130−147 (2013). Using
data on trades and portfolio positions of 78,000 households, this article shows that individuals invest more in
firms with clear and concise financial disclosures. This relation is reduced for high frequency trading,
financially literate investors, and speculative individual investors. The article also shows that individuals’
returns increase with clearer and more concise disclosures, implying such disclosures reduce individuals’
relative information disadvantage. A one standard deviation increase in disclosure readability and conciseness
corresponds to return increases of 91 and 58 basis points, respectively. The article acknowledges that, given the
changes in financial disclosure standards and the possible advances in individual investor sophistication, the
extent to which these findings, which are based on historical data from the 1990s, would differ from those today
is unknown. Recent advances in information processing technology, such as machine learning for textual
analysis, may also affect the generalizability of these findings.

356

See Mark W. Nelson, Behavioral evidence on the effects of principles-and rules-based standards, 17.1
Accounting Horizons 91-104 (2003); and Katherine Schipper, Principles-based accounting standards, 17.1
Accounting Horizons 61-72 (2003) (noting potential advantages of rules-based accounting standards, including:
increased comparability among firms, increased verifiability for auditors, and reduced litigation for firms). See
also Randall Rentfro and Karen Hooks, The effect of professional judgment on financial reporting
comparability, 1 Journal of Accounting and Finance Research 87-98 (2004) (finding that comparability in
financial reporting may be reduced under principles-based standards, which rely more heavily on the exercise of

120

financial reporting, and disclosure controls or procedures, 357 as well as the antifraud provisions
of the securities laws. In terms of the potential loss of comparability, the cost related to it should
be minimal since investors can pull data from the financial statements via XBRL.
Some of the costs of the proposed amendments could be mitigated by external
disciplining mechanisms, such as the Commission staff’s filing review program. In general,
registrants would remain subject to the antifraud provisions of the securities laws. 358 There also
may be incentives for registrants to voluntarily disclose additional information if the benefits of
reduced information asymmetry exceed the disclosure costs.
The proposed amendments likely would affect registrants and investors differently. For
example, any compliance cost reduction might be more beneficial to smaller registrants that are
financially constrained. Similarly, although eliminating information that is not material should
benefit all investors, retail investors could benefit more as they are less likely to have the time
and resources to devote to reviewing and evaluating disclosure. On the other hand, retail
investors could also incur additional costs as a result of the proposed amendments because they
may need to obtain information from alternative sources, which could involve monetary costs,

professional judgment, but comparability may improve as financial statement preparers become more
experienced and hold higher organizational rank); Andrew A. Acito, Jeffrey J. Burks, and W. Bruce Johnson,
The Materiality of Accounting Errors: Evidence from SEC Comment Letters, 36.2 Contemp. Acct. Res. 839,
862 (2019) (studying managers’ responses to SEC inquiries about the materiality of accounting errors and
finding that managers are inconsistent in their application of certain qualitative considerations and may omit
certain qualitative considerations from their analysis that weigh in favor of an error’s materiality).
357

See, e.g., Exchange Act Rules 13b-2b [17 CFR 240.13b-2b], 13a-15e [17 CFR 240.13a-15e], and 13a-15f [17
CFR 240.13a-15f].

358

See, e.g., Exchange Act Rule 10b-5(b) [17 CFR 240.10b-5(b)].

121

such as database subscriptions, or opportunity costs, such as time spent searching for alternative
sources. These costs may be higher for retail investors than for institutional investors.
2. Benefits and Costs of Specific Proposed Amendments
We expect the proposed amendments would result in costs and benefits to registrants and
investors, and we discuss those costs and benefits item by item in this section. The proposed
changes to each item would impact the compliance burden for registrants in filing forms that
require disclosures that are responsive to such items. Overall, we expect the net effect of the
proposed amendments on a registrant’s compliance burden to be limited. As explained in this
section, we expect certain aspects of the proposed amendments to increase compliance burdens,
and others to decrease the burdens. The quantitative estimates of changes in those burdens for
purposes of the Paperwork Reduction Act of 1995 (“PRA”) 359 are further discussed in Section V
below. For purposes of the PRA, we estimate that the effect of the proposed amendments would
vary for different forms. However, taken together, the amendments are likely to result in a net
decrease in burden hours for all forms, ranging from 0.1 to 6.5 burden hours per form. 360
a. Selected Financial Data (Item 301)
Item 301 requires certain registrants 361 to furnish selected financial data in comparative
tabular form for each of the registrant’s last five fiscal years and any additional fiscal years

359

Paperwork Reduction Act of 1995, Pub. L. No. 104-13, 109 Stat 163 (1995) (codified at 44 U.S.C. § 3501 et
seq.).

360

See infra Section V.B.

361

As discussed above in Section II.A, SRCs are not required to provide Item 301 information and EGCs that are
providing the information called for by Item 301 in a Securities Act registration statement need not present
selected financial data for any period prior to the earliest audited financial statements presented in connection

122

necessary to keep the information from being misleading. 362 The purpose of this disclosure is to
supply in a convenient and readable format selected financial data that highlights certain
significant trends in the registrant’s financial conditions and results of operations. For certain
registrants, information disclosed under Item 301 has also been disclosed in historical financial
data and related XBRL data submissions that can be accessed through prior filings on EDGAR.
The current disclosure requirement under Item 301 could result in duplicative disclosure,
and it can be costly for registrants to provide such disclosures under certain circumstances. For
example, as discussed above, providing disclosure of the earliest two years often creates
challenges for registrants when such information has not been previously provided. 363
Therefore, eliminating this requirement may facilitate capital raising activity and increase
efficiency for non-EGC issuers contemplating an IPO. Overall, we expect the proposed
elimination of Item 301 would benefit registrants by eliminating duplicative disclosures and
reducing compliance costs. We also note that the benefit associated with eliminating the costs of
providing Item 301 disclosure may be offset by the costs associated with making materiality
determinations under a principles-based disclosure framework. In general, we do not expect the
proposed elimination of Item 301 would affect the cost of capital given that the eliminated

with the EGC’s IPO of its common equity securities. In addition, an EGC that is providing the information
called for by Item 301 in a registration statement, periodic report, or other report filed under the Exchange Act
need not present selected financial data for any period prior to the earliest audited financial statements presented
in connection with its first registration statement that became effective under the Exchange Act or Securities
Act. See Item 301(c) of Regulation S-K; Item 301(d)(1) of Regulation S-K.
362

See supra Section II.A.

363

See supra Section II.A.

123

disclosures are largely duplicative. To the extent that there is information loss under certain
circumstances, such as in the case of non-EGC IPOs, these registrants could potentially
experience an increase in the cost of capital as a result of reduced disclosure. However, in these
circumstances registrants would likely voluntarily provide the disclosures to the extent the
increase in cost of capital would be significant.
To the extent the proposed amendments result in the elimination of disclosure that is not
material, investors may benefit. In particular, if the readability and conciseness of the
information provided improves, 364 investors may be able to process information more effectively
by focusing on the material information. Also, a principles-based approach may permit or
encourage registrants to present more tailored information, which also may benefit investors by
allowing them to better understand the registrant’s business.
Investors may incur costs to the extent the proposed amendments result in a loss of
information. While we do not anticipate significant information loss from the elimination of
Item 301, we recognize that selected financial information for the two earliest years would no
longer be disclosed in non-EGC IPOs. However, the purpose of the item is to highlight certain
significant trends in the registrant’s financial condition and results of operations and we expect
that any material trend information that would have been disclosed pursuant to Item 301 would
be disclosed under Item 303. We also recognize investors may incur certain other costs. In
particular, investors would incur search costs if they have to spend more time to retrieve the

364

See supra note 355.

124

information from prior filings. Additionally, to the extent investors are used to the current
format and rely on the compiled comparable data, they may incur costs to adjust to new
disclosure formats.
Elimination of Item 301 would affect the financial information disclosure by ABS
issuers. As discussed above, the currently available financial information set forth in Item 301 or
Item 3.A of Form 20-F about significant obligors of pool assets, credit enhancement providers,
and derivatives counterparties as required by Item 1112, Items 1114, and 1115 of Regulation AB
may not otherwise be available. To mitigate this potential information loss, we propose to
replace in Regulation AB those requirements to disclose selected financial data under Item 301
or Item 3.A of Form 20-F with requirements to disclose summarized financial information, as
defined by Rule 1-02(bb) of Regulation S-X, for each of the last three fiscal years (or the life of
the relevant entity or group of entities, if less).
Since the proposed changes related to ABS issuers are intended to conform to the other
changes related to selected financial data and MD&A, our analysis of the costs and benefits for
registrants and their investors under the proposed amendments to Item 301 and Item 3.A of Form
20-F can be carried over to ABS issuers. While this proposal would generally result in fewer
periods being presented, we do not expect it to have a significant effect on ABS issuers and their
investors, because the disclosure of the earlier years would cover periods beyond those presented
for the underlying pool assets to which the third-party financial information would relate.
b. Supplementary Financial Information (Item 302)
Under Item 302(a), certain registrants are required to disclose quarterly financial data of
specified operating results and variances in these results from amounts previously reported on a
125

Form 10-Q. 365 Registrants must provide quarterly information for each full quarter within the
two most recent fiscal years and any subsequent period for which financial statements are
included or required by Article 3 of Regulation S-X. Item 302(a) also requires disclosure related
to effects of any discontinued operations and unusual or infrequently occurring items.
Since the financial data required under this item (including disclosure related to the effect
of any discontinued operations and unusual or infrequently occurring items), other than fourthquarter data, typically can be found in prior quarterly filings through EDGAR, the prescriptive
disclosure requirements under existing Item 302(a) result in duplicative disclosures. By
eliminating the duplicative disclosure and associated compliance costs, the proposed
amendments would benefit registrants. We do not expect the proposed elimination of Item
302(a) to affect registrants negatively. While a decrease in disclosure could potentially increase
the company’s cost of capital in general, registrants can always choose to disclose the quarterly
financial information through other channels, such as an earnings release.
Investors could benefit to the extent that the proposed amendments result in less
duplicative disclosure and less disclosure of immaterial information. The proposed amendments
may result in improved readability and conciseness of the information provided, help investors
focus on material information, and facilitate more efficient information processing by investors.
The proposed amendments would also allow registrants to present financial information that is

365

As discussed in Section II.B.1, SRCs, FPIs, issuers conducting an IPO, and registrants that have a class of
securities registered under Section 15(d) of the Exchange Act are not subject to Item 302(a).

126

more reflective of their own industry and firm operating cycles, which could allow investors to
better understand their business.
We anticipate information loss from the proposed elimination of fourth quarter financial
information currently required under Item 302(a), which is otherwise not explicitly required to be
disclosed. Though fourth quarter financial data could be calculated from annual report and
cumulative third quarter data, it may be costly for investors to calculate or obtain. While such
costs might be minimal for institutional investors, which have both resources and sophistication
to obtain the needed financial information, for retail investors, the search costs might be
substantially larger, which could involve monetary costs such as database subscriptions, or
opportunity costs such as time spent searching for alternative sources and cross-referencing.
Additionally, investors could make mistakes in deriving the fourth quarter financial information.
Finally, in the case of a restatement, investors, including more sophisticated institutional
investors, might not be able to accurately back out the fourth quarter information. To the extent
that there is lack of accurate fourth quarter information which cannot be obtained through
alternative means, investors’ decision making could be affected.
However, the potential information loss from the elimination of Item 302(a) might be
mitigated under MD&A’s principles-based framework. We believe that fourth quarter data may
not be material to all registrants or in every fiscal year. For example, for investors in companies
with long operating cycles, fourth quarter data might not be as incrementally important as annual
data. However, to the extent that there are material trends or events in the fourth quarter or
throughout the fiscal year, registrants would be required to address those matters in their MD&A.

127

Item 302(b) requires issuers engaged in oil and gas producing activities, other than SRCs,
to disclose information about those activities that is required by U.S. GAAP for each period
presented. The FASB has recently proposed to amend U.S. GAAP to require the incremental
disclosure called for by Item 302(b). Thus, because the disclosure required by Item 302(b)
would be included in the notes to the registrant’s financial statements, the proposed elimination
of Item 302(b) would remove duplicative disclosure on this topic, benefiting both registrants and
investors. Registrants could benefit from the reduced compliance burden. Investors should not
face information loss from this aspect of the proposed amendments, as this requirement
completely overlaps with the proposed amendments to U.S. GAAP. However, investors may
incur costs to adjust to the new disclosure format. Such costs are likely to be one-time costs or to
decrease over time.
c. Item 303(a) Restructuring and Streamlining
The proposal includes multiple changes that are intended to clarify and streamline the
requirements of Item 303. For example, we are proposing a new Item 303(a) to provide a
succinct and clear description of the purpose of MD&A. As discussed above, emphasizing the
purpose of MD&A at the outset of the item is intended to provide clarity and focus to registrants
as they consider what information to discuss and analyze, which could encourage management to
disclose those factors that are most specific and relevant to a registrant’s business. Other
changes include restructuring and streamlining language in Item 303 and the related instructions.
We anticipate that the proposed amendments would provide registrants with more clarity
on disclosure requirements. When there is confusion related to disclosure requirements,
registrants may either over-disclose and incur additional compliance costs, or under-disclose and
128

face increased litigation risk. To the extent that the proposed amendments reduce registrants’
confusion, registrants could potentially benefit from reduced compliance costs and litigation risk.
More informative disclosure could potentially benefit both registrants and investors by reducing
information asymmetry in the market. Reduced information asymmetry could help investors
make more informed investment decisions, which may benefit registrants in their capital raising.
For registrants, reduced information asymmetry could also potentially improve firm liquidity and
reduce cost of capital.
d. Capital Resources (Item 303(a)(2))
Item 303(a)(2), which requires a registrant to discuss its material commitments for capital
expenditures as of the end of the latest fiscal period, does not define the term “capital resources.”
The lack of specificity was intended to provide management flexibility for a meaningful
discussion when this disclosure requirement was adopted in 1980. Nonetheless, the Commission
has previously provided guidance to clarify the nature of this requirement. 366 Further, while the
required disclosure of material commitments of capital expenditures generally relates to physical
assets, such as buildings and equipment, this requirement may not fully reflect market
developments. While capital expenditures remain important in many industries, certain
expenditures that are not necessarily capital investments may be increasingly important to
companies. For example, expenditures for human resources or intellectual property may be
essential for companies in certain industries. The proposed amendments to Item 303(a)(2) are

366

See 2003 MD&A Interpretive Release.

129

intended to encompass these types of expenditures. The proposed amendments would also
require, consistent with the Commission’s 2003 MD&A Interpretive Release, that registrants
broadly disclose material cash commitments, including but not limited to capital expenditures.
We believe the proposed amendments would modernize the requirement and make the disclosure
more reflective of current and future industry outlays.
We believe that the proposed amendments could benefit registrants by providing
additional clarity on the term “capital resources” and reducing confusion, thereby eliciting
appropriate disclosure from registrants and potentially decreasing litigation risk. Capital
expenditures vary across industries. While firms in traditional industries rely more on physical
assets, firms in other industries such as the technology sector may invest more heavily in
intellectual property and human capital. Specifying only capital expenditures in the rule could
lead to confusion about what information should be provided. As a result, registrants may overdisclose and incur additional compliance costs, or under-disclose and face increased litigation
risk. Further, we expect that registrants would benefit from decreased compliance costs to the
extent that the proposed amendments reduce the need to consult existing Commission guidance
to process and understand the disclosure requirements.
The proposed amendments should also benefit investors through improved disclosure.
As discussed above, lack of clarity might lead to under- or over-disclosure by registrants. For
example, disclosure focusing only on capital expenditures rather than on material cash
commitments more generally might lead to under-disclosure for less capital intensive industries.
As a result, investors might not receive adequate or consistent information to make informed

130

investment decisions. By providing clarity on the requirement, the proposed amendments may
facilitate more informative disclosure.
The proposed amendments might increase the disclosure burden for some registrants
because they may prompt disclosure of material investments in non-physical assets that
registrants might not otherwise be disclosing. However, we do not anticipate a significant
increase in compliance costs. As discussed above, some registrants already include disclosure
beyond capital expenditures, which the Commission’s MD&A guidance has encouraged. 367
Also, better disclosure should eventually benefit registrants, because it could reduce information
asymmetry between management and investors, reduce the cost of capital, and thereby improve
firms’ liquidity and their access to capital markets. 368

367

See supra Section II.C.2 and footnote 129.

368

See Douglas W. Diamond and Robert E. Verrecchia, Disclosure, Liquidity, and the Cost of Capital, 46 J. Fin.
1325 (1991) (finding that revealing public information to reduce information asymmetry can reduce a firm’s
cost of capital through increased liquidity). See also Christian Leuz and Robert E. Verrecchia, The Economic
Consequences of Increased Disclosure, 38 J. Acct. Res. 91 (2000) (providing empirical evidence that increased
disclosure leads to lower information asymmetry component of the cost of capital in a sample of German
firms); Christian Leuz and Peter D. Wysocki, The Economics of Disclosure and Financial Reporting
Regulation: Evidence and Suggestions for Future Research, 54 J. Acct. Res. 525 (2016) (providing a
comprehensive survey of the literature on the economic effect of disclosure). Studies that provide both
theoretical and empirical evidence on the link between information asymmetry and cost of capital include
Thomas E. Copeland and Dan Galai, Information Effects on the Bid‐Ask Spread, 38 J. Fin. 1457 (1983)
(proposing a theory of information effects on the bid-ask spread); David Easley and Maureen O'Hara, Price,
Trade Size, and Information in Securities Markets, 19 J. Fin. Econ. 69 (1987) (using a model to provide
explanation for the price effect of block trades); David Easley and Maureen O'Hara, Information and the Cost of
Capital, 59 J. Fin. 1553 (2004) (showing that differences in the composition of information between public and
private information affect the cost of capital, with investors demanding a higher return to hold stocks with
greater private information); Yakov Amihud and Haim Mendelson, Asset Pricing and the Bid-Ask Spread, 17 J.
Fin. 223 (1986) (predicting that market-observed expected return is an increasing and concave function of the
spread, and providing empirical results that are consistent with the predictions of the model).

131

e. Results of Operations – Known Trends or Uncertainties (Item 303(a)(3)(ii))
Item 303(a)(3)(ii) requires a registrant to describe any known trends or uncertainties that
have had or that the registrant expects will have a material impact (favorable or unfavorable) on
net sales or revenues or income from continuing operations. The proposed amendments clarify
that when a registrant knows of events that are reasonably likely to cause a material change in
the relationship between costs and revenues, such as known or reasonably likely future increases
in costs of labor or materials or price increases or inventory adjustments, the reasonably likely
change must be disclosed. This proposed amendment would conform the language in this
paragraph to other Item 303 disclosure requirements for known trends and align Item
303(a)(3)(ii) with the Commission’s guidance on forward-looking disclosure. 369
As discussed above, the language in the existing Item 303(a)(3)(ii) differs from other
Item 303 disclosure requirements for forward-looking information. 370 This differing language
may have led to confusion and inconsistent practice regarding what events should be disclosed.
While the Commission has sought to alleviate some of these concerns by clarifying the standard
for forward-looking information in its MD&A guidance, 371 the proposed amendment could
further benefit registrants by reducing any residual confusion, eliciting more consistent
disclosure, and potentially decreasing compliance costs and litigation risk. In addition, more

369

See supra note 139.

370

See supra Section II.C.3. See also supra note 138 and 139.

371

See 1989 MD&A Interpretive Release.

132

consistent disclosure may allow investors to make more meaningful comparisons across firms
and make more informed investment decisions.
Some registrants may experience an increased cost of compliance under the proposed
amendments to the extent that these registrants have been disclosing events that will cause a
material change in the relationship between costs and revenues as opposed to events that are
reasonably likely to cause the change. Also, some registrants might need to spend resources to
evaluate the future likelihood that such events might occur. However, such registrants might be
few in light of existing Commission guidance, and the increase in compliance costs could be
offset by the potential decrease in cost of capital as a result of enhanced disclosure and reduced
information asymmetry. 372
f. Results of Operations – Net Sales, Revenues, and Line Item Changes (Item
303(a)(3)(iii) and Instruction 4)
Item 303(a)(3)(iii) currently requires management to discuss certain factors, such as
changes in prices or volume, that led to certain material increases in net sales or revenues. The
proposed amendments broaden the current requirement focusing on “material increases in net
sales or revenue” in the “financial statements” to instead require disclosure of “material changes
from period to period in one more line items” in the “statement of comprehensive income.”
Additionally, the proposed amendments would amend Item 303(a)(3)(iii) to require disclosure
specifying the reasons underlying these material changes. Instead of specifying disclosure of
“material increases” in net sales or revenue, our proposed revisions would tie the required

372

See supra note 368.

133

disclosure to “material changes” in net sales or revenues. The proposed amendments to
Instruction 4 would similarly clarify that MD&A requires a narrative discussion of the
underlying reasons for material changes in quantitative and qualitative terms.
The proposed amendments are intended to codify Commission guidance on results of
operations disclosure. The Commission has previously stated that MD&A disclosure should
include both qualitative and quantitative analysis and clarified that a results of operations
discussion should describe increases or decreases in any line item, including net sales or
revenues. 373 The need for registrants to consult both existing Item 303(a)(3)(iii) and the
Commission’s guidance to understand the requirement could lead to confusion and inconsistent
disclosure practice in registrants. The additional clarity provided by the proposed amendments
could benefit registrants by reducing any confusion, eliciting more consistent disclosure, and
potentially decreasing compliance costs and litigation risk.
The proposed amendments could increase disclosure burdens for registrants, thus
potentially increasing compliance costs. However, since many registrants may already be
following relevant Commission guidance, the marginal increase in compliance costs is not
expected to be significant. Additionally, to the extent that registrants do incur additional
compliance costs, such costs could be offset by the potential decrease in cost of capital as a result
of increased disclosure and reduced information asymmetry. 374

373
374

See, e.g., 2003 MD&A Interpretative Release and 1989 MD&A Interpretative Release.
See supra note 368.

134

The proposed amendments would require registrants to provide a nuanced discussion of
the underlying reasons that may be contributing to material changes in line items, and therefore
should enhance the disclosure. More consistent and informative disclosure would allow
investors to make more meaningful comparisons across firms and make more informed
investment decisions. However, any potential benefits to investors may be limited to the extent
registrants already are following the relevant Commission guidance.
g. Results of Operations – Inflation and Price Changes (Item 303(a)(3)(iv),
Instruction 8, and Instruction 9)
We propose to eliminate Item 303(a)(3)(iv) and related Instructions 8 and 9, which
generally require that registrants specifically discuss the impact of inflation and price changes on
their net sales, revenue, and income from operations for the three most recent fiscal years, to the
extent material. The purpose of the proposed elimination is to streamline Item 303 by
eliminating the specific reference to these topics, which may not be material to most registrants.
This proposed change is consistent with the principles-based disclosure framework of Item 303.
We do not believe that these proposed changes would result in a loss of material
information for market participants. Registrants would still be required to discuss in their
MD&A the impact of inflation and changing prices, if material.
The proposed elimination of this item could benefit registrants by streamlining Item 303
and reducing compliance costs. Similar to what we have discussed above, 375 to the extent that
the elimination encourages registrants that currently disclose inflation and changing prices even

375

See supra Section III.B.2.i.

135

if not material to modify such disclosure, 376 investors could potentially benefit from a focus on
material information, which would allow them to process information more effectively. Also,
emphasizing a principles-based approach may encourage registrants to present more tailored
information, which also may benefit investors.
h. Off-Balance Sheet Arrangements (Item 303(a)(4))
Current Item 303(a)(4) requires, in a separately-captioned section, disclosure of a
registrant’s off-balance sheet arrangements that have or are reasonably likely to have a current or
future effect on a registrant’s financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures, or capital resources that is
material to investors. We propose to replace Item 303(a)(4) with a new principles-based
instruction that would require registrants to discuss commitments or obligations, including
contingent obligations, arising from arrangements with unconsolidated entities or persons that
have, or are reasonably likely to have, a material current or future effect on a registrant’s
financial condition, changes in financial condition, revenues or expenses, results of operations,
liquidity, cash requirements, or capital resources.
We do not believe the proposed amendments would lead to significant information loss,
as we expect the proposed principles-based instruction would continue to elicit material
information about off-balance sheet arrangements. As discussed above, we believe that the
proposed amendments would encourage registrants to consider and integrate disclosure of off-

376

See supra note 354.

136

balance sheet arrangements in the context of their broader MD&A disclosures and may avoid
boilerplate disclosure that either duplicates information in the financial statements, or crossreferences the financial statements without additional disclosure to put such information into
appropriate context.
The proposed amendments could benefit registrants by avoiding duplicative disclosure
and reducing compliance costs. As discussed above, to the extent the proposed amendments
improve the readability and conciseness of the information provided, they may help investors
process information more effectively. Also, emphasizing a principles-based approach may
encourage registrants to provide disclosure that is tailored and informative, which could be more
beneficial to investors.
Investors might need to spend time searching for the information and adjusting to the new
format and location of the disclosure as the proposal would no longer require the relevant
disclosure in a separately captioned section. Such costs are likely to be one-time or decrease
over time.
i. Tabular Disclosure of Contractual Obligations (Item 303(a)(5))
Under existing Item 303(a)(5), registrants other than SRCs must disclose in tabular
format their known contractual obligations. There is no materiality threshold for this item. A
registrant must arrange its chart to disclose the aggregate amount of contractual obligations by
type and with subtotals by four prescribed periods. The Commission adopted this requirement so

137

that aggregated information about contractual obligations was presented in one place. 377
However, as discussed above, most of the information presented in response to this requirement
is already included in the notes to the financial statements. In order to promote the principlesbased nature of MD&A and streamline disclosures by reducing overlapping requirements, we
propose to eliminate Item 303(a)(5).
We believe the proposal could lead to reduced compliance costs by avoiding duplicative
disclosure, therefore benefiting registrants. On the other hand, we also recognize that there
might be increased costs associated with assessing the materiality of contractual obligations
under the proposed principles-based approach. However we do not expect such costs to be
significant given that the materiality standard is already used by registrants when preparing
MD&A disclosures. As discussed above, to the extent the elimination of redundant or
immaterial disclosure improves the readability and conciseness of the information provided, the
proposed amendment could potentially benefit investors, because it may help them process
information more effectively by focusing on material information. Also, since a principles-based
approach allows registrants to present more tailored information, it could lead to more
informative disclosure, which would benefit investors.
We recognize that there could be a loss of certain information due to the proposed
elimination of the item. As discussed in Section II.C.7, some of the information in the
contractual obligations table such as purchase obligations is not specifically called for under U.S.

377

See Off-Balance Sheet Arrangements and Contractual Obligations Adopting Release, at 5990.

138

GAAP. Additionally, information related to the “payments due by period” currently required by
the item may be difficult to ascertain from a registrant’s financial statements. However, since
the proposed amendments to capital resources disclosure would encompass material contractual
obligations, we believe any loss of information would not be significant.
We expect investors could experience certain additional costs. A centralized location and
tabular format make it convenient for investors to extract and analyze information. Under the
proposed amendments, the absence of a centralized location and tabular format may cause
investors to incur search costs to derive the data from the financial statements, or monetary costs
to obtain the information through alternative channels, such as database subscriptions. Investors
may also incur opportunity costs, such as time spent searching for alternative sources, and these
costs may fall more heavily on retail investors than on other types of investors, such as
institutional investors.
j. Critical Accounting Estimates
Item 303(a) does not currently include a subsection requiring registrants to disclose
critical accounting estimates. U.S. GAAP also does not require similar disclosure of estimates
and assumptions in the notes to financial statements, except in limited circumstances. However,
IFRS requires disclosures regarding sources of estimation uncertainty and judgments made in the
process of applying accounting policies that have the most significant effect on the amounts
recognized in the financial statements. 378 Although the Commission has issued guidance on

378

See supra note 227.

139

disclosure of critical accounting estimates, many registrants repeat the discussion of significant
accounting policies from the notes to the financial statements in their MD&A and provide
limited additional discussion of critical accounting estimates. We propose amending Item 303 to
explicitly require such disclosure due to the importance of critical accounting estimates in
providing meaningful insight into the uncertainties related to these estimates and reported
financials and how accounting policies of registrants faced with similar facts and circumstances
may differ.
As discussed above, commenters have suggested that there is confusion as to how and
whether to disclose critical accounting estimates, resulting in inconsistent disclosure practice
among registrants. As noted above, many registrants simply repeat the discussion of significant
accounting policies from the notes to the financial statements in their MD&A, which is
duplicative and may not be particularly informative to investors. Providing a clear disclosure
framework could benefit registrants by reducing confusion and duplicative disclosure, thereby
decreasing compliance costs.
Investors would also likely benefit from the proposed amendments. The proposed
amendments could elicit more informative disclosure from registrants related to their estimates
and assumptions, which would help investors better understand any potential risk or uncertainty
related to these estimates and make more informed investment decisions. The proposed
amendments could also promote more consistent disclosure practices among registrants by
providing more clarity, allowing investors to make more meaningful comparisons across
registrants and better informed investment decisions.

140

We recognize that the proposed disclosure requirement could introduce additional costs
to market participants. While we do not anticipate that investors would incur any direct costs
(other than information processing costs) associated with this proposal, compliance costs might
increase for registrants because of the proposed more prescriptive disclosure compared to the
existing more principles-based approach. However, the potential increase in compliance costs
might decline over time as registrants become more accustomed to the new filing requirements.
We also note that, consistent with Commission guidance, some registrants may already provide
disclosures related to critical accounting estimates that do not duplicate the financial statement
disclosures, thus the increase in compliance costs might be minimal to those registrants. In
addition, the increase in compliance costs could be offset by a potential decrease in registrants’
cost of capital, because such disclosure could reduce information asymmetry between investors
and firms. 379 Taken together, we expect any potential increase in registrants’ disclosure-related
costs to be small.
k. Interim Period Discussion (Item 303(b))
Item 303(b) requires registrants to provide MD&A disclosure for interim periods that
enables market participants to assess material changes in financial condition and results of
operations between certain specified periods. The proposal would amend current Item 303(b) to
allow for flexibility in comparisons of interim periods and to streamline the item. Specifically,
under the proposed Item 303(c), registrants would be allowed to compare their most recently

379

See supra note 368.

141

completed quarter to either the corresponding quarter of the prior year (as is currently required)
or to the immediately preceding quarter. The proposed amendments would also streamline the
instructions to current Item 303(b), consistent with the proposed amendments to current Item
303(a) and the related instructions.
This more flexible approach is intended to allow registrants to provide analysis that is
better tailored to their business cycles. This may result in more informative disclosure that could
reduce information asymmetry and firms’ cost of capital, benefiting registrants. 380 In addition,
streamlining the item could avoid duplicative disclosure and reduce associated compliance costs.
Investors also may benefit from the proposed amendments. As noted above, the
proposed amendments would provide registrants flexibility to choose the interim period
presented, which could allow them to provide a more tailored analysis. This, in turn, could allow
investors to make better informed investment decisions. On the other hand, more flexibility in
disclosure could also decrease comparability across firms, potentially increasing the cost of
investors’ decision-making. However, we do not expect the flexibility in reporting to
significantly reduce comparability, since registrants in the same industry may be likely to have
similar business cycles and choose similar interim periods. Therefore, the concern about a
reduction of comparability across firms in the same industry could be mitigated. Streamlining
this item is potentially beneficial to investors, as the resultant reduction of duplicative disclosure

380

Id.

142

might increase the effectiveness of information processing by investors, thus helping them make
more informed decisions.
l. Safe Harbor for Forward-Looking Information (Item 303(c))
Item 303(c) 381 states that the safe harbors provided in Section 27A of the Securities Act
and 21E of the Exchange Act apply to all forward-looking information provided in response to
Item 303(a)(4) (off-balance sheet arrangements) and Item 303(a)(5) (contractual obligations),
provided such disclosure is made by certain enumerated persons. 382 We propose to eliminate
this item to conform to the proposed elimination of Items 303(a)(4) and 303(a)(5). We do not
believe this proposed change would have any economic effect by itself. Disclosure would
continue to be protected by the existing safe harbors, and therefore, we do not expect changes in
market behavior. To the extent that the elimination of the section may result in any confusion as
to the application of the safe harbors, there could be a cost to registrants. However, we believe
such cost should be de minimis.
m. Smaller Reporting Companies (Item 303(d))
Item 303(d) 383 states that an SRC may provide Item 303(a)(3)(iv) information for the
most recent two fiscal years if it provides financial information on net sales and revenues and
income from continuing operations for only two years. Item 303(d) also states that an SRC is not

381

Item 303(c) of Regulation S-K.

382

Such persons are: an issuer; a person acting on behalf of the issuer; an outside reviewer retained by
the issuer making a statement on behalf of the issuer; or an underwriter, with respect to information provided by
the issuer or information derived from information provided by the issuer.

383

Item 303(d) of Regulation S-K.

143

required to provide the contractual obligations chart specified in Item 303(a)(5). To conform to
the proposals to eliminate Item 303(a)(3)(iv) and (a)(5), we propose to eliminate Item 303(d).
SRCs may continue to rely on Instruction 1 to Item 303(a), 384 which states that an SRC’s
discussion shall cover the two-year period required in Article 8 of Regulation S-X. As we
propose to eliminate this item as a conforming change, we do not believe this proposed change
would have any economic effect by itself.
n. Foreign Private Issuers
The proposed changes related to Item 3.A and Item 5 of Form 20-F and General
Instructions B.(11), (12), and (13) of Form 40-F for FPIs are intended to conform to the other
changes related to selected financial data and MD&A. Therefore, our analysis of the costs and
benefits for domestic issuers and their investors under the proposed amendments to Item 301 can
be carried over to FPIs and their investors under the amended items. The proposed changes
could benefit FPIs through a reduction in compliance costs, although the benefits are likely to be
smaller given that current Item 3.A permits a FPI to omit either or both of the earliest two years
of data under certain conditions and registrants that file on Form 40-F use Canadian disclosure
documents to satisfy the Commission’s registration and disclosure requirements. Since FPIs
would have more flexibility to provide information that is better tailored to their industry or
country, investors could benefit from more informative disclosure. However, investors might
incur additional search costs when looking for information through alternative channels.

384

Proposed renumbered Item 303(b).

144

To maintain a consistent approach to MD&A for domestic registrants and FPIs, we are
proposing changes to Forms 20-F and 40-F that generally conform to our proposed amendments
to Item 303. Therefore, our discussion of the costs and benefits for domestic issuers and their
investors under the proposed amendments to Item 303 generally can be carried over to FPIs
under the amended item. The proposal adds to Item 303 the current Form 20-F instruction that
requires FPIs that are not subject to the multijurisdictional disclosure system to discuss
hyperinflation in a hyperinflationary economy. This disclosure can be important to investors
when analyzing FPIs, as hyperinflation in some FPIs’ home countries might be an important risk
factor for the firm’s results of operations or financial health.
D.

Anticipated Effects on Efficiency, Competition, and Capital Formation

We believe the proposed amendments could have positive effects on efficiency,
competition, and capital formation. As discussed above, we expect the proposed amendments
could reduce duplicative disclosure and elicit disclosure that is more focused on material
information and tailored to a registrant’s business, making the disclosure more informative. We
believe more informative disclosure could reduce information asymmetry between firms and
investors, thereby improving firm liquidity and price efficiency. 385 We also believe the proposed
amendments could promote competition in the capital markets and facilitate capital formation.
This is because more informative disclosure could allow investors to make more meaningful

385

See supra note 368. See also David Hirshleifer and Siew Hong Teoh, Limited attention, information disclosure,
and financial reporting, 36 J. Acct. & Econ. 337−386 (2003) (developing a theoretical model where investors
have limited attention and processing power and showing that, with partially attentive investors, the means of
presenting information may have an impact on stock price reactions, misvaluation, long-run abnormal returns,
and corporate decisions).

145

comparisons across firms and make more informed investment decisions, and as a result, more
value-enhancing projects may receive more capital allocation.
However, as discussed above, since registrants no longer need to present certain
information (e.g., five-year comparable data), investors could incur costs when searching for
alternative channels to obtain or reconstruct the information. Since each investor would have to
consider the need for alternative sources of information, it could result in inefficiency in the
information distribution process. Additionally, if registrants misjudge what information is
material, there could be an increase in information asymmetries between registrants and
investors, negatively affecting efficiency, competition, and capital formation. However, we
expect this risk to be offset by mitigating factors, including accounting controls and the antifraud
provisions of the securities laws.
The proposed amendments, in particular by simplifying and codifying certain positions
expressed in various Commission guidance, might reduce the compliance costs of private
companies considering going public and this cost reduction may be more significant for SRCs.
For companies considering an IPO, the benefit of easing the burdens associated with preparing
these disclosures for the first time could decrease the costs of going public and thus leave more
capital for future investment. This could lead to more efficient capital formation.
E.

Alternatives

As an alternative to the proposed elimination of Item 301, which requires registrants to
furnish selected financial data in comparative tabular form for each of the registrant’s last five
fiscal years, we considered amending the item to require only the same number of years of data
as presented in the registrant’s financial statements in that same filing. Similarly, another
146

alternative we considered is expanding the current EGC accommodation to all initial registrants.
The EGC accommodation generally provides that an EGC need not present selected financial
data for any period prior to the earliest audited period presented in its initial filing. 386 This
accommodation allows EGCs to build up to the full five years of selected financial data.
The benefit of these alternatives would be potential cost savings from a reduction in
compliance burdens by not having to reproduce the earliest years of selected financial data.
These alternatives might be sufficient for investors to make a quick comparison with the most
recent financial data without cross-referencing to other sources. However, given the nature of
electronic access to financial data through EDGAR, we think the potential benefits of these
alternatives would be more limited than the proposed elimination of Item 301. We decided not
to propose the alternative of requiring the same number of years of data as presented in the
registrant’s financial statements in that same filing because such disclosure would be largely
duplicative and therefore, have limited utility. Regarding the alternative that we expand the
current EGC accommodation to all initial registrants, while this approach could provide cost
savings to non-EGC initial registrants at the beginning, in the long run, these registrants would
still face the same duplicative disclosure problem that other registrants do currently. As a result,
we decided not to propose this alternative.
As another alternative, we considered amending Item 301 to require the earliest years
only in circumstances where the company can represent that the information cannot be provided

386

See Item 301(d) of Regulation S-K [17 CFR 229.301].

147

without unreasonable effort and expense, as is currently allowed under Item 3.A of Form 20-F.
For example, as a commenter noted, there are several situations where such disclosure can be
costly. 387 Under this approach, registrants would experience reduced compliance costs under the
exempted circumstances, albeit a smaller reduction compared to the proposed approach, because
they would still need to disclose selected financial data for the earliest years when it is deemed
not time consuming and costly. On the other hand, while investors would still incur search costs
if they prefer to analyze five years’ financial data, such costs would be smaller compared to the
proposed approach. We decided not to propose this alternative because the lack of a consistent
or objective standard to determine when additional financial disclosure is required could be time
consuming or burdensome for registrants.
As an alternative to the proposed elimination of Item 302, which requires disclosure of
quarterly financial data of selected operating results and variances in these results from amounts
previously reported on a Form 10-Q, we considered requiring a registrant to separately disclose
fourth quarter data elsewhere in its annual report, such as in MD&A. This approach could
prevent or mitigate the potential loss of the fourth quarter financial data under the proposed
approach. We decided not to propose this alternative because the fourth quarter information may
not be material or significant to investors in all circumstances. Therefore, separate presentation
of the fourth quarter information might not justify its cost.

387

See supra note28 and 29 and corresponding text.

148

We are proposing to amend current Item 303(a)(2) to specify that a registrant should
broadly disclose material cash commitments, including but not limited to capital expenditures.
We considered proposing a definition for the term “capital resources.” While defining the term
could provide more clarity for registrants, it would also result in a disclosure requirement more
prescriptive in nature, inconsistent with our current objective to promote the principles-based
nature of MD&A. We therefore decided not to propose this alternative.
As an alternative to the proposed elimination of Item 303(a)(5), which requires
registrants to disclose in tabular format contractual obligations by type of obligation, overall
payments due and prescribed periods, we considered maintaining the contractual obligations
disclosure requirement in a modified form. For example, we considered allowing this disclosure
in a non-tabular format. While this approach could prevent any potential information loss, the
non-tabular presentation of information may not be as clear as the tabular format. Also, this
approach may not generate meaningful savings for registrants through reduced compliance costs.
Another alternative we considered was to reduce the prescribed time periods that need to be
disclosed. For example, we could require disclosures of only short-term or long-term obligations
rather than requiring disclosure to be grouped in the four time periods currently specified in Item
303(a)(5). While this approach could be more beneficial to investors by reducing their search
costs compared to the proposed approach, it would result in redundant disclosure and higher
compliance costs to registrants.
As an alternative to proposed Item 303(b)(4), we considered issuing additional guidance
on critical accounting estimates that enhances the guidance issued in the 2003 MD&A Release.
While this alternative could save compliance costs for registrants because it would not create a
149

new requirement, the savings might not necessarily be significant, given the existing
Commission guidance on this topic. Further, we believe that by codifying existing guidance,
proposed Item 303(b)(4) would provide investors with more enhanced disclosure and protection
by ensuring that companies consistently provide such disclosure. Therefore, we decided not to
propose this alternative.
Proposed Item 303(b) would allow flexibility for registrants 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. As an alternative, we considered an approach
under which registrants would be required to compare the most recent quarter to both the
corresponding quarter of the prior year and the immediately preceding quarter. While this
alternative approach would provide investors with more disclosure, it might not be clear to
investors which time period is more representative of the registrant’s business, and registrants
would incur more compliance costs. Also, this alternative is less consistent with the principlesbased nature of MD&A. Therefore, we decided not to propose this alternative.
The proposed amendments do not require registrants to structure financial disclosures in a
machine-readable format. An alternative suggested by some commenters 388 was to require
registrants to structure MD&A in the Inline XBRL format. Requiring registrants to structure

388

See, e.g., letters from CalPERS, California State Teachers’ Retirement System (July 21, 2016), CFA Institute,
Deloitte, RGA, Data Coalition (July 21, 2016) (“Data Coalition”), Merrill Corporation (July 19, 2016)
(“Merrill”), and XBRL US (July 21, 2016) (“XBRL US”). In addition, the Commission received several
comments supporting an Inline XBRL structuring requirement for MD&A disclosure in connection with the
Inline XBRL proposing release. See, e.g., letters from CFA Institute (July 1, 2017) and XBRL US (July 1, 2017
and Feb. 1, 2018).

150

MD&A disclosures could create benefits for investors (either through direct use of the data or
through reliance on the data as extracted and analyzed by intermediaries) as well as other market
participants by enabling more efficient retrieval, aggregation, and analysis of disclosed
information and facilitating comparisons across issuers and time periods. 389 However, as other
commenters observed, filers would incur increased costs under this alternative, with a block text
and detail tagging requirement imposing greater costs than a block text tagging-only
requirement. 390 This increased cost effect may be mitigated by the fact that registrants are or
will be required to structure financial statement and cover page disclosures in the Inline XBRL
format, 391 and would therefore incur only the incremental cost associated with tagging the
additional disclosures. Also, concerns as to filer cost might be partially alleviated by the overall
decline in the costs of XBRL tagging over time, including for SRCs. 392 However, our proposed

389

See Inline XBRL Adopting Release, at 40851, footnote 71 and accompanying text, and 40862. See also, e.g.,
Mohini Singh, “Data and Technology: How Information is Consumed in the New Age,” CFA Institute (July 3,
2018) (describing examples of analytical, benchmarking, and regulatory XBRL usage); Chunhui Liu, Tawei
Wang, and Lee J. Yao (2014), “XBRL’s Impact on Analyst Forecast Behavior: An Empirical Study,” Journal of
Accounting and Public Policy, 33(1) (finding that XBRL adoption has significantly increased information
quantity and quality, as measured by analyst following and forecast accuracy).

390

See, e.g., letters from Institute of Management Accountants (July 29, 2016); FEI I and II; Maryland Bar
Securities Committee, Northrop Grumman, and CCMC.

391

See Inline XBRL Adopting Release; FAST Act Adopting Release.

392

Preliminary statistics from a pricing survey being conducted by the AICPA and XBRL US indicate that the cost
of XBRL formatting has declined 41% since 2014 and that the average cost of XBRL preparation for SRCs in
2017 averaged $5,850 per year. See AICPA, “Research shows XBRL filing costs are lower than expected,”
available at
https://www.aicpa.org/InterestAreas/FRC/AccountingFinancialReporting/XBRL/DownloadableDocuments/XB
RL%20Costs%20for%20Small%20Companies.pdf. See also Mohini Singh, “The Cost of Structured Data:
Myth vs. Reality,” CFA Institute (August 2017), available at https://www.cfainstitute.org//media/documents/survey/the-cost-of-structured-data-myth-vs-reality-august-2017.ashx.

151

amendments emphasize MD&A’s principles-based framework, which encourages registrants to
provide meaningful disclosure that is tailored to their specific facts and circumstances. This may
make MD&A less comparable across issuers, thereby reducing the benefits of this alternative.
As a result, we did not propose this alternative, but solicit comment on the specific benefits and
costs of such a tagging requirement.
Request for Comment
We request comment on all aspects of our economic analysis, including the potential
costs and benefits of the proposed amendments and alternatives thereto, and whether the
proposed amendments, if adopted, would promote efficiency, competition, and capital formation
or have an impact on investor protection. In addition, we also seek comment on alternative
approaches to the proposed amendments and the associated costs and benefits of these
approaches. Commenters are requested to provide empirical data, estimation methodologies, and
other factual support for their views, in particular, on costs and benefits estimates.
Specifically, we seek comment with respect to the following questions: Are there any
costs and benefits to any entity that are not identified or misidentified in the above analysis? Are
there any effects on efficiency, competition, and capital formation that are not identified or
misidentified in the above analysis? Should we consider any of the alternative approaches
outlined above instead of the proposed amendments? Which approach and why? Are there any
other alternative approaches to improving MD&A disclosure that we should consider? If so,
what are they and what would be the associated costs or benefits of these alternative approaches?
V.

PAPERWORK REDUCTION ACT
A.

Summary of the Collections of Information
152

Certain provisions of our rules, schedules, and forms that would be affected by the
proposed amendments contain “collection of information” requirements within the meaning of
the PRA. 393 The Commission is submitting the proposed amendments to the Office of
Management and Budget (“OMB”) for review in accordance with the PRA. 394 The hours and
costs associated with preparing, filing, and sending the schedules and forms constitute reporting
and cost burdens imposed by each collection of information. An agency may not conduct or
sponsor, and a person is not required to comply with, a collection of information unless it
displays a currently valid OMB control number. Compliance with the information collections is
mandatory. Responses to the information collections are not kept confidential and there is no
mandatory retention period for the information disclosed. The titles for the collections of
information are:
“Form 1-A” (OMB Control No. 3235-0286);
“Form 10” (OMB Control No. 3235-0064);
“Form 10-Q” (OMB Control No. 3235-0070);
“Form 10-K” (OMB Control No. 3235-0063);
“Schedule 14A” (OMB Control No. 3235-0059);
“Form 20-F” (OMB Control No. 3235-0288);
“Form 40-F” (OMB Control No. 3235-0381);
“Form F-1” (OMB Control No. 3235-0258);

393

44 U.S.C. § 3501 et seq.

394

44 U.S.C. § 3507(d); 5 C.F.R. § 1320.11.

153

“Form F-4” (OMB Control No. 3235-0325);
“Form N-2” (OMB Control No. 3235-0026);
“Form S-1” (OMB Control No. 3235-0065);
“Form S-4” (OMB Control No. 3235-0324);
“Form S-11” (OMB Control No. 3235-0067);
We adopted all of the existing regulations, schedules, and forms pursuant to the
Securities Act, the Exchange Act, and/or the Investment Company Act. The regulations,
schedules, and forms set forth the disclosure requirements for registration statements, periodic
reports, and proxy and information statements filed by registrants to help investors make
informed investment and voting decisions.
A description of the proposed amendments, including the need for the information and its
proposed use, as well as a description of the likely respondents, can be found in Section II above,
and a discussion of the economic effects of the proposed amendments can be found in Section IV
above.
B.

Summary of the Proposed Amendments’ Effects on the Collections of
Information

The following Table 1 summarizes the estimated effects of the proposed amendments on
the paperwork burdens associated with the affected forms listed in Section V.A.

154

PRA Table 1. Estimated Paperwork Burden Effects of the Proposed Amendments
Proposed Amendments and Effects

Affected Forms

Estimated Net Effect*

Item 301: Selected Financial Data
• Elimination of Item 301 requirement to furnish selected
financial data for each of the registrant’s last five fiscal years
because Item 303 already calls for disclosure of material
trend information, which would decrease the paperwork
burden by reducing repetitive information about a
registrant’s historical performance.
• Replacing the reference to Item 301 with a reference to
Rule 1-02(bb) of Regulation S-X in Items 1112, 1114, and
1115 of Regulation AB would generally result in similar
disclosure being presented under these Items, and therefore
not affect the burden estimate.

• Forms 10, 10-K, S-1, S-4,
and S-11

• 2 hour net decrease in
compliance burden per form

• Schedule 14A**

• 0.2 hour net decrease in
compliance burden per
schedule

• Form N-2±

• 0.3 hour net decrease in
compliance burden per form

• Forms SF-1 and SF-3

• No change in compliance
burden per form

• Forms 10, 10-K, S-1, S-4,
and S-11

• 3 hour net decrease in
compliance burden per form

• Schedule 14A**

• 0.3 hour net decrease in
compliance burden per
schedule

• Form N-2±

• 0.5 hour net decrease in
compliance burden per form

• Forms 10, 10-K, S-1, S-4,
and S-11

• 0.1 hour net decrease in
compliance burden per form

• Schedule 14A**

• 0.1 hour net decrease in
compliance burden per
schedule

• Forms 10, 10-K, 10-Q, S-1,
S-4, and S-11

• 2.6 hour net increase in
compliance burden per form

• Form 1-A^

• 0.3 hour net increase in
compliance burden per form

• Schedule 14A**

• 0.3 hour net increase in
compliance burden per
schedule

• Form N-2±

• 0.4 hour net increase in

Item 302(a): Supplementary Financial Information
• Elimination of Item 302(a) requirement to disclose selected
quarterly financial data of selected operating results because
Item 302(a) information is largely available in Forms 10-Q,
which would decrease the paperwork burden by reducing
repetitive information about a registrant’s quarterly
performance.

Item 302(b): Information About Oil and Gas Producing
Activities
• Elimination of Item 302(b) disclosures required for
registrants engaged in oil and gas producing activities would
decrease the paperwork burden by reducing repetitive
disclosure that, subject to the adoption of the FASB’s
Accounting Standards Update, will be duplicative of U.S.
GAAP.
Item 303(a): Full Fiscal Years
Restructuring and Streamlining:
• Establishing a new paragraph to emphasize the purpose of
the MD&A section at the outset to clarify and focus
registrants is expected to have a minimal impact on the
paperwork burden, as the change would codify existing
guidance. Estimated burden increase: 0.1 hour per form and
per schedule.
• Amendments to streamline the text of new Item 303 would
have no effect on the paperwork burden because these
amendments are clarifications of existing requirements.

155

Capital Resources:
• Expanding Item 303(a)(2) to also require a discussion of
material cash requirements, in addition to commitments for
capital expenditures, would increase the paperwork burden.
Estimated burden increase: 1 hour per form and 0.1 hour
increase per schedule.

compliance burden per form

Results of Operations – Known Trends or Uncertainties:
• Amending Item 303(a)(3)(ii) to clarify that a registrant
should disclose reasonably likely changes in the relationship
between costs and revenues would increase the paperwork
burden, although this effect is expected to be minimal
because the amendment is consistent with existing guidance.
Estimated burden increase: 1.0 hour per form and 0.1 hour
increase per schedule.
Results of Operations – Net Sales, Revenues, and Line Item
Changes:
• Amending Item 303(a), Item 303(a)(3)(iii) and Instruction
4 to Item 303(a) to clarify that a registrant should include in
its MD&A a discussion of the reasons underlying material
changes from period-to-period in one or more line items
could marginally increase the paperwork burden by requiring
a more nuanced discussion consistent with the overall
objective of MD&A. Estimated burden increase: 1.0 hour
per form and 0.1 hour increase per schedule.
Results of Operations – Inflation and Price Changes:
• Eliminating the specific reference to inflation within Item
303(a)(3)(iv) for issuers should marginally reduce the
paperwork burden, although such decrease is expected to be
minimal. Estimated burden decrease: 0.5 hours per form
and 0.1 hour decrease per schedule.
Off-Balance Sheet Arrangements:
• Replacing Item 303(a)(4) with an instruction emphasizing
a more principles-based approach with respect to off-balance
sheet arrangement disclosures, would reduce duplicative
disclosures and decrease the paperwork burden. Estimated
burden decrease: 1.0 hour per form and 0.1 hour decrease
per schedule.
• Amending Items 2.03 and 2.04 of Form 8-K to retain the
definition of “off-balance sheet arrangements” that is
currently in Item 303(a)(4) would not result in any changes
in reporting obligations under Item 2.03 and Item 2.04 of
Form 8-K, and would therefore result in no change in
paperwork burden for this form.
Contractual Obligations Table:
• Eliminating Item 303(a)(5), the requirement that registrants
provide a tabular disclosure of contractual obligations, would

156

reduce duplicative disclosures and decrease the paperwork
burden. Estimated burden decrease: 1.0 hour per form and
0.1 hour decrease per schedule.
Critical Accounting Estimates:
• Amending Item 303 to explicitly require disclosure of
critical accounting estimates would provide more clarity on
the uncertainties involved in creating an accounting policy
and how significant accounting policies of registrants may
differ. This would increase the paperwork burden. Estimated
burden increase: 2.0 hours per form and 0.2 hour increase
per schedule.
Item 303(b): Interim Periods
• Amending Item 303(b) to allow for more flexibility in
interim periods compared and eliminating certain
instructions and providing cross-references to similar
instructions in Item 303(a) would decrease the paperwork
burden.

• Forms 10, 10-K, 10-Q, S-1,
S-4, and S-11

• 4.0 hour net decrease in
compliance burden per form

• Form 1-A^

• 0.4 hour net decrease in
compliance burden per form

• Schedule 14A**

• 0.4 hour net decrease in
compliance burden per
schedule

• Form N-2±

• 0.7 hour net decrease in
compliance burden per form

• Eliminating Item 3.A and generally conforming Item 5 of
Form 20-F to the proposed amendments to Item 303 would
reduce the paperwork burden.

• Form 20-F

• 2.0 hour net decrease in
compliance burden per form

• Eliminating the contractual obligations disclosure
requirement and replacing the off-balance sheet disclosure
requirements in Forms 20-F and 40-F with a principles-based
instruction would reduce the paperwork burden.

• Form 40-F

• 2.0 hour net decrease in
compliance burden per form

• Forms F-1 and F-4

• 3.5 hour net decrease per
form

Item 303(c): Safe Harbor for Forward-Looking
Information
• Eliminating Item 303(c) as a conforming change would
have no effect on the paperwork burden.
Item 303(d): Accommodations for SRCs
• Eliminating Item 303(d) as a conforming change would
have no effect on the paperwork burden.
Effect on FPIs

• Amending current Instruction 11 to Item 303 to conform to

157

the hyperinflation disclosure requirements of Form 20-F
would not affect the paperwork burden.
Total

• Form 1-A

• 0.1 hour net decrease per
form

• Form 10-Q

• 1.4 hour net decrease per
form

• Forms 10, 10-K, S-1, S-4,
and S-11

• 6.5 hour net decrease per
form

• Schedule 14A

• 0.7 hour net decrease per
form

• Forms F-1 and F-4

• 3.5 hour net decrease per
form

• Form 20-F

• 2.0 hour net decrease per
form

• Form 40-F

• 2.0 hour net decrease per
form

• Form N-2

• 1.1 hour net decrease per
form

*Estimated effect expressed as increase or decrease of burden hours on average and derived from Commission staff
review of samples of relevant sections of the affected forms.
**The lower estimated average incremental burden for Schedule 14A reflects the Commission staff estimates that no
more than 10% of the Schedule 14As filed annually include Item 301–303 disclosures.
±
Form N-2 states that disclosure under Items 301–303 of Regulation S-K is only required if “the Registrant is
regulated as a business development company under the 1940 Act.” The estimated average incremental burden for
Form N-2 reflects the fact that approximately 17% of registrants are BDCs. The estimated burden has been reduced
to adjust for this percentage.

The reduced estimated average incremental burden for the proposed elimination of Item 302(b) reflects the fact
that approximately 3.5% of registrants engage in oil and gas producing activities. For purposes of this PRA
analysis, BDCs have been deemed not to be engaged in oil and gas producing activities.

≠

^
In the preparation of Part II of Form 1-A, Regulation A issuers have the option of disclosing either the information
required by (i) the Offering Circular format or (ii) Part I of Forms S-1 or S-11 (except for the financial statements,
selected financial data, and supplementary information called for by those forms). The burden associated with Form
1-A is affected only to the extent that an issuer chooses to use Part I of these forms. The Commission staff estimates
that 10.6% of Form 1-A filings reflect this election.

158

Incremental and Aggregate Burden and Cost Estimates for the Proposed
Amendments

Below we estimate the incremental and aggregate reductions in paperwork burden as a
result of the proposed amendments. These estimates represent the average burden for all
registrants, both large and small. In deriving our estimates, we recognize that the burdens will
likely vary among individual registrants based on a number of factors, including the nature of
their business. We do not believe that the proposed amendments would change the frequency of
responses to the existing collections of information; rather, we estimate that the proposed
amendments would change only the burden per response.
The burden reduction estimates were calculated by multiplying the estimated number of
responses by the estimated average amount of time it would take a registrant to prepare and
review disclosure required under the proposed amendments. For purposes of the PRA, the
burden is to be allocated between internal burden hours and outside professional costs. Table 2
below sets forth the percentage estimates we typically use for the burden allocation for each
form. We also estimate that the average cost of retaining outside professionals is $400 per
hour. 395
PRA Table 2. Standard Estimated Burden Allocation for Specified Forms and Schedules.
Form / Schedule Type

395

Internal

Outside Professionals

We recognize that the costs of retaining outside professionals may vary depending on the nature of the
professional services, but for purposes of this PRA analysis, we estimate that such costs would be an average of
$400 per hour. This estimate is based on consultations with several registrants, law firms, and other persons
who regularly assist registrants in preparing and filing reports with the Commission.

159

Forms 1-A, 10-K, 10-Q, 8-K,
Schedule 14A

75%

25%

Forms S-1, S-4, S-11, F-1, F-4, SF1, SF-3, and 10

25%

75%

Forms 20-F and 40-F

25%

75%

Form N-2

25%

75%

Table 3 below illustrates the incremental change to the total annual compliance burden of
affected forms, in hours and in costs, as a result of the proposed amendments.
PRA Table 3. Calculation of the Incremental Change in Burden Estimates of Current
Responses Resulting from the Proposed Amendments
Form

S-1
S-4
S-11
F-1
F-4
N-2
1-A
10
10-K
10-Q

Number of
Estimated
Affected
Responses
(A) 396

901
551
64
63
39
166
179
216
8,137
22,907

Burden
Hour
Reduction
per
Current
Affected
Response
(B)

6.5
6.5
6.5
4.5
4.5
1.1
0.1
6.5
6.5
1.4

Reduction in
Burden
Hours for
Current
Affected
Responses
(C)

Reduction in
Company
Hours for
Current
Affected
Responses
(D)

Reduction in
Professional
Hours for
Current
Affected
Responses
(E)

Reduction in
Professional
Costs for
Current
Affected
Responses
(F)

= (A) x (B) 397

= (C) x 0.25
or 0.75

= (C) – (D)

= (E) x $400

5,857
3,582
416
284
176
183
18
1,404
52,891
32,070

1,464
896
104
71
44
46
14
351
39,668
24,053

4,393
2,687
312
213
132
137
5
1,053
13,223
8,018

$1,757,200
$1,074,800
$124,800
$85,200
$52,800
$54,800
$2,000
$421,200
$5,289,200
$3,207,200

396

The number of estimated affected responses is based on the number of responses in the Commission’s current
OMB PRA filing inventory. The OMB PRA filing inventory represents a three-year average. We do not expect
that the proposed amendments would materially change the number of responses in the current OMB PRA
filing inventory.

397

The estimated reductions in Columns (C), (D), and (E) are rounded to the nearest whole number.

160

20-F
40-F
Sch. 14A
Total

725
132
5,586
39,666

2.0
2.0
0.7

1,450
264
3,910

363
66
2,933
70,073

1,088
198
978

$435,200
$79,200
$391,200
$12,974,800

The following Table 4 summarizes the requested paperwork burden, including the
estimated total reporting burdens and costs, under the proposed amendments.
PRA Table 4. Requested Paperwork Burden under the Proposed Amendments

Current Burden

Program Change

Requested Change in Burden

Form

Curre
nt
Annua
l
Respo
nses
(A)

Current
Burden
Hours
(B)

Current
Cost Burden
(C)

Numbe
r of
Affecte
d
Respon
ses
(D)

Reduction
in
Company
Hours
(E) 398

Reduction in
Professional
Costs
(F) 399

Annual
Responses
(G) = (A)

Burden
Hours
(H) = (B)
- (E)

Cost Burden
(I) = (C) - (F)

S-1
S-4
S-11
F-1
F-4
N-2
1-A
10
10-K

901
551
64
63
39
166
179
216
8,137

148,556
563,216
12,290
26,815
14,076
73,250
98,396
12,072
14,220,652

901
551
64
63
39
166
179
216
8,137

1,464
896
104
71
44
46
14
351
39,058

$1,757,200
$1,074,800
$124,800
$85,200
$52,800
$54,800
$2,000
$421,200
$5,207,600

901
551
64
63
39
166
179
216
8,137

147,092
562,320
12,186
26,744
14,032
73,204
98,382
11,721
14,181,594

$180,291,500
$677,216,404
$14,892,168
$32,360,100
$17,053,200
$4,613,596
$13,109,912
$13,935,688
$1,891,684,269

10-Q
20-F

22,907
725

3,253,411
479,304

$182,048,700
$678,291,204
$15,016,968
$32,445,300
$17,106,000
$4,668,396
$13,111,912
$14,356,888
$1,896,891,8
69
$432,290,354
$576,875,025

22,907
725

24,053
363

$3,207,200
$435,200

22,907
725

3,229,358
478,941

$429,083,154
$576,439,825

40-F

132

14,237

$17,084,560

132

$79,200

132

14,171

$17,005,360

Sch.
14A
Total

5,586

3,253,411

$432,290,354

5,586

2,933

$391,200

5,586

3,250,478

$431,899,154

39,666

22,169,686

39,666

70,073

$12,974,800

39,666

22,099,613

$4,299,502,730

$4,312,477,5

398

From Column (D) in PRA Table 3.

399

From Column (F) in PRA Table 3.

161

Request for Comment
Pursuant to 44 U.S.C. § 3506(c)(2)(B), we request comment in order to:
•

Evaluate whether the proposed collections of information are necessary for the proper
performance of the functions of the Commission, including whether the information will
have practical utility;

•

Evaluate the accuracy and assumptions and estimates of the burden of the proposed
collection of information;

•

Determine whether there are ways to enhance the quality, utility, and clarity of the
information to be collected;

•

Evaluate whether there are ways to minimize the burden of the collection of information
on those who respond, including through the use of automated collection techniques or
other forms of information technology; and

•

Evaluate whether the proposed amendments would have any effects on any other
collection of information not previously identified in this section.

Any member of the public may direct to us any comments concerning the accuracy of these
burden estimates and any suggestions for reducing these burdens. Persons submitting comments
on the collection of information requirements should direct their comments to the Office of
Management and Budget, Attention: Desk Officer for the U.S. Securities and Exchange
Commission, Office of Information and Regulatory Affairs, Washington, DC 20503, and send a
copy to, Vanessa A. Countryman, Secretary, U.S. Securities and Exchange Commission, 100 F
162

Street NE, Washington, DC 20549-1090, with reference to File No. S7-01-20. Requests for
materials submitted to OMB by the Commission with regard to the collection of information
should be in writing, refer to File No. S7-01-20 and be submitted to the U.S. Securities and
Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington DC 20549-2736.
OMB is required to make a decision concerning the collection of information between 30 and 60
days after publication of this proposed rule. Consequently, a comment to OMB is best assured of
having its full effect if the OMB receives it within 30 days of publication.
VI.

SMALL BUSINESS REGULATORY ENFORCEMENT FAIRNESS ACT
For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996

(SBREFA), 400 the Commission must advise OMB as to whether the proposed amendments
constitute a “major” rule. Under SBREFA, a rule is considered “major” where, if adopted, it
results or is likely to result in:
•

An annual effect on the U.S. economy of $100 million or more;

•

A major increase in costs or prices for consumers or individual industries; or

•

Significant adverse effects on competition, investment, or innovation.

We request comment on whether our proposal would be a “major rule” for purposes of the Small
Business Regulatory Enforcement Fairness Act. In particular, we request comment on the
potential effect on the U.S. economy on an annual basis; any potential increase in costs or prices
for consumers or individual industries; and any potential effect on competition, investment, or

400

5 U.S.C. 801 et seq.

163

innovation.
Commenters are requested to provide empirical data and other factual support for their views to
the extent possible.
VII.

REGULATORY FLEXIBILITY ACT CERTIFICATION
When an agency issues a rulemaking proposal, the Regulatory Flexibility Act (“RFA”) 401

requires the agency to prepare and make available for public comment an Initial Regulatory
Flexibility Analysis (“IRFA”) that will describe the impact of the proposed rule on small
entities. 402 Section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an
IRFA, if the proposed rulemaking is not expected to have a significant economic impact on a
substantial number of small entities. 403
The proposed amendments would have an impact on a substantial number of small
entities. 404 However, the Commission expects that the impact on entities affected by the
proposed rule would not be significant. 405 The primary effects of the proposed amendments
would be to (1) modernize, simplify, and enhance the disclosure requirements for MD&A in
Item 303, such as by codifying prior Commission interpretive guidance and eliminating

401

5 U.S.C. 601 et seq.

402

5 U.S.C. 603(a).

403

5 U.S.C. 605(b).

404

We estimate that there are 1,171 issuers that file with the Commission, other than
investment companies, that may be considered small entities and are potentially subject to the proposed
amendments. This estimate is based on staff analysis of issuers, excluding co-registrants, with EDGAR filings
of Form 10-K, 20-F, and 40-F, or amendments, filed during the calendar year of January 1, 2018, to December
31, 2018. Analysis is based on data from XBRL filings, Compustat, and Ives Group Audit Analytics.

405

See Section IV.B above.

164

duplicative disclosures; (2) simplify duplicative disclosure requirements by eliminating Item
301, Selected Financial Data, and Item 302, Supplementary Financial Information; and (3)
generally make conforming changes that would apply to FPIs filing on Forms 20-F or 40-F. As a
result, we expect that the impact of the proposed amendments would be a reduction in the
paperwork burden of affected entities, including small entities, and that the overall impact of the
paperwork burden reduction would be modest. 406 Accordingly, the Commission hereby certifies,
pursuant to 5 U.S.C. 605(b), that the proposed amendments to Items 301, 302, and 303 of
Regulation S-K and Forms 20-F and 40-F and the related conforming changes, if adopted, would
not have a significant economic impact on a substantial number of small entities for purposes of
the RFA.
Request for Comment
We request comment on this certification. In particular, we solicit comment on the
following: Do commenters agree with the certification? If not, please describe the nature of any
impact of the proposed amendments on small entities and provide empirical data to illustrate the
extent of the impact. Such comments will be considered in the preparation of the final rules (and
in a Final Regulatory Flexibility Analysis if one is needed) and will be placed in the same public
file as comments on the proposed rules themselves.

406

We estimate that the proposed amendments are likely to result in a net decrease of between 0.1 and 6.5 burden
hours per form for purposes of the PRA. See Section V.B above.

165

VIII. STATUTORY AUTHORITY AND TEXT OF PROPOSED RULE AND FORM
AMENDMENTS
The amendments contained in this release are being proposed under the authority set
forth in Sections 7, 10, 19(a), and 28 of the Securities Act of 1933, as amended, Sections 3(b),
12, 13, 14, 23(a), and 36 of the Securities Exchange Act of 1934, as amended, and Sections 8,
24, 30, and 38 of the Investment Company Act of 1940, as amended.
List of Subjects
17 CFR Part 210
Accountants, Accounting, Banks, Banking, Employee benefit plans, Holding companies,
Insurance companies, Investment companies, Oil and gas exploration, Reporting and
recordkeeping requirements, Securities, Utilities.
17 CFR Parts 229, 239, 240, and 249
Administrative practice and procedure, Reporting and recordkeeping requirements,
Securities.
TEXT OF THE PROPOSED RULE AND FORM AMENDMENTS
In accordance with the foregoing, we are proposing to amend Title 17, Chapter II of the
Code of Federal Regulations as follows:
PART 210 – FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL
STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934,
INVESTMENT COMPANY ACT OF 1940, INVESTMENT ADVISERS ACT OF 1940,
AND ENERGY POLICY AND CONSERVATION ACT OF 1975
1. The authority citation for part 210 continues to read as follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 77aa(25), 77aa(26),
77nn(25), 77nn(26), 78c, 78j-1, 78l, 78m, 78n, 78o(d), 78q, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a166

20, 80a-29, 80a-30, 80a-31, 80a-37(a), 80b-3, 80b-11, 7202 and 7262, and sec. 102(c), Pub. L.
112-106, 126 Stat. 310 (2012), unless otherwise noted.
2. Amend § 210.1-02 by revising paragraph (bb)(1) introductory text and (bb)(2) to read
as follows:
§ 210.1-02 Definitions of terms used in Regulation S-X (17 CFR part 210).
*****
(bb) *** (1) Except as provided in paragraph (bb)(2) of this section, summarized
financial information referred to in this regulation shall mean the presentation of summarized
information as to the assets, liabilities and results of operations of the entity for which the
information is required. Summarized financial information shall include the following
disclosures, which may be subject to appropriate variation to conform to the nature of the entity’s
business:
*****
(2) Summarized financial information for unconsolidated subsidiaries and 50 percent or
less owned persons referred to in and required by §210.10-01(b) for interim periods shall include
the information required by paragraph (bb)(1)(ii) of this section.
*****
PART 229—STANDARD INSTRUCTIONS FOR FILING FORMS UNDER
SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY
POLICY AND CONSERVATION ACT OF 1975—REGULATION S-K
3. The authority citation for part 229 continues to read as follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 77z-3, 77aa(25),
77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m,
167

78n, 78n-1, 78o, 78u-5, 78w, 78ll, 78 mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a37, 80a-38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C. 1350; sec. 953(b), Pub. L. 111-203,
124 Stat. 1904 (2010); and sec. 102(c), Pub. L. 112-106, 126 Stat. 310 (2012).
§ 229.301 [Removed and Reserved]
4. Remove and reserve § 229.301.
§ 229.302 [Removed and Reserved]
5. Remove and reserve § 229.302.
6. Amend § 229.303 to read as follows:
§ 229.303 (Item 303) Management’s discussion and analysis of financial condition and
results of operations.
(a) Objective. The objective of the discussion and analysis is to provide material
information relevant to an assessment of the financial condition and results of operations of the
registrant including an evaluation of the amounts and certainty of cash flows from operations and
from outside sources. This discussion and analysis must provide a narrative explanation of the
registrant’s financial statements that allows investors to view the registrant from management’s
perspective. The discussion and analysis must focus specifically on material events and
uncertainties known to management that would cause reported financial information not to be
necessarily indicative of future operating results or of future financial condition. This includes
descriptions and amounts of matters that are reasonably expected to have a material impact on
future operations and have not had a material impact on past operations, and matters that have
had a material impact on reported operations and are not reasonably expected to have a material
impact upon future operations. The discussion and analysis must be of the financial statements
168

and other statistical data that the registrant believes will enhance a reader's understanding of the
registrant’s financial condition, changes in financial condition and results of operations.
(b) Full fiscal years. The discussion of financial condition, changes in financial
condition and results of operations must provide information as specified in paragraphs (b)(1)
through (4) of this section and such other information that the registrant believes to be necessary
to an understanding of its financial condition, changes in financial condition and results of
operations. Where the financial statements reflect material changes from period-to-period in one
or more line items, including where material changes within a line item offset one another,
describe the underlying reasons for these material changes in quantitative and qualitative terms.
The reasons for material changes must be described to the extent necessary to an understanding
of the registrant's businesses as a whole. Where in the registrant's judgment a discussion of
segment information and/or of other subdivisions (e.g., geographic areas, product lines) of the
registrant's business would be necessary to an understanding of such business, the discussion
must focus on each relevant segment and/or other subdivision of the business and on the
registrant as a whole.
(1) Liquidity. Identify any known trends or any known demands, commitments, events or
uncertainties that will result in or that are reasonably likely to result in the registrant's liquidity
increasing or decreasing in any material way. If a material deficiency is identified, indicate the
course of action that the registrant has taken or proposes to take to remedy the deficiency. Also
identify and separately describe internal and external sources of liquidity, and briefly discuss any
material unused sources of liquid assets.
(2) Capital resources.
169

(i) Describe the registrant’s material cash requirements, including commitments for
capital expenditures, as of the end of the latest fiscal period, the anticipated source of funds
needed to satisfy such cash requirements and the general purpose of such requirements.
(ii) Describe any known material trends, favorable or unfavorable, in the registrant's
capital resources. Indicate any expected material changes in the mix and relative cost of such
resources. The discussion must consider changes between equity, debt and any off-balance sheet
financing arrangements.
(3) Results of operations.
(i) Describe any unusual or infrequent events or transactions or any significant economic
changes that materially affected the amount of reported income from continuing operations and,
in each case, indicate the extent to which income was so affected. In addition, describe any other
significant components of revenues or expenses that, in the registrant's judgment, would be
material to an understanding of the registrant's results of operations.
(ii) Describe any known trends or uncertainties that have had or that the registrant
reasonably expects will have a material favorable or unfavorable impact on net sales or revenues
or income from continuing operations. If the registrant knows of events that are reasonably
likely to cause a material change in the relationship between costs and revenues (such as known
or reasonably likely future increases in costs of labor or materials or price increases or inventory
adjustments), the reasonably likely change in the relationship must be disclosed.
(iii) If the statement of comprehensive income presents material changes from period to
period in net sales or revenue, if applicable, describe the extent to which such changes are

170

attributable to changes in prices or to changes in the volume or amount of goods or services
being sold or to the introduction of new products or services.
(4) Critical accounting estimates. Critical accounting estimates are those estimates made
in accordance with generally accepted accounting principles that involve a significant level of
estimation uncertainty and have had or are reasonably likely to have a material impact on
financial condition or results of operations. Discuss, to the extent material, why each critical
accounting estimate is subject to uncertainty, how much each estimate has changed during the
reporting period, and the sensitivity of the reported amount to the methods, assumptions and
estimates underlying its calculation. The discussion should provide quantitative as well as
qualitative information when quantitative information is reasonably available and will provide
material information to investors.
Instructions to paragraph 303(b):
1. Generally, the discussion must cover the periods covered by the financial statements
included in the filing and the registrant may use any presentation that in the registrant's judgment
enhances a reader's understanding. A smaller reporting company's discussion must cover the
two-year period required in Article 8 of Regulation S-X and may use any presentation that in the
registrant's judgment enhances a reader's understanding. For registrants providing financial
statements covering three years in a filing, discussion about the earliest of the three years may be
omitted if such discussion was already included in the registrant's prior filings on EDGAR that
required disclosure in compliance with Item 303 of Regulation S-K, provided that registrants
electing not to include a discussion of the earliest year must include a statement that identifies
the location in the prior filing where the omitted discussion may be found. An emerging growth
171

company, as defined in Rule 405 of the Securities Act (§ 230.405 of this chapter) or Rule 12b-2
of the Exchange Act (§ 240.12b-2 of this chapter), may provide the discussion required in
paragraph (b) of this section for its two most recent fiscal years if, pursuant to Section 7(a) of the
Securities Act of 1933 (15 U.S.C. 77g(a)), it provides audited financial statements for two years
in a Securities Act registration statement for the initial public offering of the emerging growth
company's common equity securities.
2. Discussions of liquidity and capital resources may be combined whenever the two
topics are interrelated.
3. If the reasons underlying a material change in one line item in the financial statements
also relate to other line items, no repetition of such reasons in the discussion is required and a
line-by-line analysis of the financial statements as a whole is not required or generally
appropriate. Registrants need not recite the amounts of changes from period to period which are
readily computable from the financial statements. The discussion must not merely repeat
numerical data contained in the financial statements.
4. The term “liquidity” as used in this Item refers to the ability of an enterprise to
generate adequate amounts of cash to meet the enterprise’s needs. Except where it is otherwise
clear from the discussion, the registrant must indicate those balance sheet conditions or income
or cash flow items which the registrant believes may be indicators of its liquidity condition.
Liquidity generally must be discussed on both a long-term and short-term basis. The issue of
liquidity must be discussed in the context of the registrant's own business or businesses. For
example, a discussion of working capital may be appropriate for certain manufacturing,
industrial, or related operations but might be inappropriate for a bank or public utility.
172

5. Where financial statements presented or incorporated by reference in the registration
statement are required by § 210.4-08(e)(3) of Regulation S-X [17 CFR Part 210] to include
disclosure of restrictions on the ability of both consolidated and unconsolidated subsidiaries to
transfer funds to the registrant in the form of cash dividends, loans or advances, the discussion of
liquidity must include a discussion of the nature and extent of such restrictions and the impact
such restrictions have had or are expected to have on the ability of the parent company to meet
its cash obligations.
6. Any forward-looking information supplied is expressly covered by the safe harbor rule
for projections. See Rule 175 under the Securities Act [17 CFR 230.175 ], Rule 3b-6 under the
Exchange Act [17 CFR 240.3b-6], and Securities Act Release No. 6084 (June 25, 1979) (44 FR
33810).
7. All references to the registrant in the discussion and in this Item mean the registrant
and its subsidiaries consolidated.
8. Discussion of commitments or obligations, including contingent obligations, arising
from arrangements with unconsolidated entities or persons that have or are reasonably likely
to have a material current or future effect on a registrant’s financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, cash requirements or
capital resources must be provided even when the arrangement results in no obligations being
reported in the registrant’s consolidated balance sheets. Such off-balance sheet arrangements
may include: guarantees; retained or contingent interests in assets transferred; contractual
arrangements that support the credit, liquidity or market risk for transferred assets; obligations
that arise or could arise from variable interests held in an unconsolidated entity; or obligations
173

related to derivative instruments that are both indexed to and classified in a registrant’s own
equity under U. S. GAAP.
9. If the registrant is a foreign private issuer, briefly discuss any pertinent governmental
economic, fiscal, monetary, or political policies or factors that have materially affected or could
materially affect, directly or indirectly, their operations or investments by United States
nationals. The discussion must also consider the impact of hyperinflation if hyperinflation has
occurred in any of the periods for which audited financial statements or unaudited interim
financial statements are filed. See Rule 3-20(c) of Regulation S-X for a discussion of cumulative
inflation rates that may trigger this requirement.
10. If the registrant is a foreign private issuer, the discussion must focus on the primary
financial statements presented in the registration statement or report. The foreign private issuer
must refer to the reconciliation to United States generally accepted accounting principles and
discuss any aspects of the difference between foreign and United States generally accepted
accounting principles, not discussed in the reconciliation, that the registrant believes is necessary
for an understanding of the financial statements as a whole, if applicable.
11. The term statement of comprehensive income means a statement of comprehensive
income as defined in §210.1-02 of Regulation S-X.
Instruction to paragraph 303(b)(4): The disclosure of critical accounting estimates
should supplement, but not duplicate, the description of accounting policies or other disclosures
in the notes to the financial statements.
(c) Interim periods. If interim period financial statements are included or are required to
be included by Article 3 of Regulation S-X [17 CFR 210.3], a management's discussion and
174

analysis of the financial condition and results of operations must be provided so as to enable the
reader to assess material changes in financial condition and results of operations between the
periods specified in paragraphs (c)(1) and (2) of this section. The discussion and analysis must
include a discussion of material changes in those items specifically listed in paragraph (b) of this
section.
(1) Material changes in financial condition. Discuss any material changes in financial
condition from the end of the preceding fiscal year to the date of the most recent interim balance
sheet provided. If the interim financial statements include an interim balance sheet as of the
corresponding interim date of the preceding fiscal year, any material changes in financial
condition from that date to the date of the most recent interim balance sheet provided also must
be discussed. If discussions of changes from both the end and the corresponding interim date of
the preceding fiscal year are required, the discussions may be combined at the discretion of the
registrant.
(2) Material changes in results of operations.
(i) Discuss any material changes in the registrant’s results of operations with respect to
the most recent fiscal year-to-date period for which a statement of comprehensive income is
provided and the corresponding year-to-date period of the preceding fiscal year.
(ii) Discuss any material changes in the registrant’s results of operations with respect to
either the most recent quarter for which a statement of comprehensive income is provided and
the corresponding quarter for the preceding fiscal year or, in the alternative, the most recent
quarter for which a statement of comprehensive income is provided and the immediately
preceding sequential quarter. If the latter immediately preceding sequential quarter is discussed,
175

then provide in summary form the financial information for that immediately preceding
sequential quarter that is subject of the discussion or identify the registrant’s prior filings on
EDGAR that present such information. If there is a change in the form of presentation from
period to period that forms the basis of comparison from previous periods provided pursuant to
this paragraph, the registrant must discuss the reasons for changing the basis of comparison and
provide both comparisons in the first filing in which the change is made.
Instructions to paragraph 303(c):
1. If interim financial statements are presented together with financial statements for full
fiscal years, the discussion of the interim financial information must be prepared pursuant to this
paragraph (c) and the discussion of the full fiscal year’s information must be prepared pursuant
to paragraph (b) of this Item. Such discussions may be combined. Instructions 3, 6, 8 and 11 to
paragraph (b) of this section apply to this paragraph (c).
2. The registrant’s discussion of material changes in results of operations must identify
any significant elements of the registrant's income or loss from continuing operations which do
not arise from or are not necessarily representative of the registrant’s ongoing business.
7. Amend § 229.914 by revising paragraph (a) to read as follows:
§ 229.914 (Item 914) Pro forma financial statements: selected financial data
(a) For each partnership proposed to be included in a roll-up transaction provide: Ratio of
earnings to fixed charges, cash and cash equivalents, total assets at book value, total assets at the
value assigned for purposes of the roll-up transaction (if applicable), total liabilities, general and
limited partners’ equity, net increase (decrease) in cash and cash equivalents, net cash provided
by operating activities, distributions; and per unit data for net income (loss), book value, value
176

assigned for purposes of the roll-up transaction (if applicable), and distributions (separately
identifying distributions that represent a return of capital). This information must be provided
for the previous two fiscal years. Additional or other information must be provided if material to
an understanding of each partnership proposed to be included in a roll-up transaction.
*****
8. Amend § 229.1112 by revising paragraph (b)(1) and Instruction 3.a. to paragraph (b)
to read as follows:
§229.1112 (Item 1112) Significant obligors of pool assets.
*****
(b) Financial information. (1) If the pool assets relating to a significant obligor represent
10% or more, but less than 20%, of the asset pool, provide summarized financial information, as
defined by Rule 1-02(bb) of Regulation S-X (§ 210.1-02(bb) of this chapter), for the significant
obligor for each of the last three fiscal years (or the life of the significant obligor and its
predecessors, if less), provided, however, that for a significant obligor under § 229.1101(k)(2) of
this chapter (Item 1101(k)(2) of Regulation AB), only net operating income for the most recent
fiscal year and interim period is required.
*****
Instructions to Item 1112(b):
*****
3. * * *
a. If the summarized financial information required by paragraph (b)(1) of this section is
presented on a basis of accounting other than U.S. GAAP or IFRS as issued by the IASB, then
177

present a reconciliation to U.S. GAAP and Regulation S-X, pursuant to Item 17 of Form 20-F. If
a reconciliation is unavailable or not obtainable without unreasonable cost or expense, at a
minimum provide a narrative description of all material variations in accounting principles,
practices and methods used in preparing the non-U.S. GAAP financial statements used as a basis
for the summarized financial information from those accepted in the U.S.
*****
9. Amend § 229.1114 by revising paragraph (b)(2) and Instruction 4.a. to paragraph (b) to
read as follows:
§229.1114 (Item 1114) Credit enhancement and other support, except for certain
derivatives instruments.
*****
(b) * * *
(2) Financial information. (i) If any entity or group of affiliated entities providing
enhancement or other support described in paragraph (a) of this section is liable or contingently
liable to provide payments representing 10% or more, but less than 20%, of the cash flow
supporting any offered class of the asset-backed securities, provide summarized financial
information, as defined by Rule 1-02(bb) of Regulation S-X (§ 210.1-02(bb) of this chapter), for
each such entity or group of affiliated entities for each of the last three fiscal years (or the life of
the entity or group of affiliated entities and any predecessors, if less).
*****
Instruction 4 to Item 1114(b). * * *

178

a. If the summarized financial information required by paragraph (b)(1) of this section is
presented on a basis of accounting other than U.S. GAAP or IFRS as issued by the IASB, then
present a reconciliation to U.S. GAAP and Regulation S-X, pursuant to Item 17 of Form 20-F. If
a reconciliation is unavailable or not obtainable without unreasonable cost or expense, at a
minimum provide a narrative description of all material variations in accounting principles,
practices and methods used in preparing the non-U.S. GAAP financial statements used as a basis
for the summarized financial information from those accepted in the U.S.
*****
10. Amend § 229.1115 by revising paragraph (b)(1) to read as follows:
§229.1115 (Item 1115) Certain derivatives instruments.
*****
(b) Financial information. (1) If the aggregate significance percentage related to any
entity or group of affiliated entities providing derivative instruments contemplated by this section
is 10% or more, but less than 20%, provide summarized financial information, as defined by
Rule 1-02(bb) of Regulation S-X (§ 210.1-02(bb) of this chapter), for such entity or group of
affiliated entities for each of the last three fiscal years (or the life of the entity or group of
affiliated entities and any predecessors, if less).
*****
PART 239—FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
11. The authority citation for part 239 continues to read in part as follows:
Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 77sss, 78c, 78l, 78m, 78n,
78o(d), 78o-7 note, 78u-5, 78w(a), 78ll, 78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13,
179

80a-24, 80a-26, 80a-29, 80a-30, and 80a-37; and sec. 107, Pub. L. 112-106, 126 Stat. 312, unless
otherwise noted.
*****
12. Amend Form S-1 (referenced in § 239.11) by:
a. Revising paragraphs (f) and (g) of Instruction 1 under “Instructions as to Summary
Prospectus”; and
b. Adding paragraph (h) of Instruction 1 under “Instructions as to Summary Prospectus”
to read as follows:
Note: The text of Form S-1 does not, and this amendment will not, appear in the Code of
Federal Regulations.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
*****
INSTRUCTIONS AS TO SUMMARY PROSPECTUSES
1. * * *
(f) As to Item 11, a brief statement of the general character of the business done and intended to
be done and a brief statement of the nature and present status of any material pending legal
proceedings;
(g) A tabular presentation of notes payable, long term debt, deferred credits, minority interests, if
material, and the equity section of the latest balance sheet filed, as may be appropriate; and
180

(h) Subject to appropriate variation to conform to the nature of the registrant’s business, provide
summarized financial information defined by Rule 1-02(bb)(1)(i) and (ii) of Regulation S-X (§
210.1-02(bb) of this chapter) in comparative columnar form for the periods for which financial
statements are required by Regulation S-X (17 CFR Part 210).
*****
13. Amend Form S-20 (referenced in § 239.20) by revising Item 7 and paragraph (1) to
Item 8 to read as follows:
Note: The text of Form S-20 does not, and this amendment will not, appear in the Code of
Federal Regulations.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-20
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
*****
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
*****
Item 7. Financial Statements.
Include financial statements meeting the requirements of Regulation S-X [17 CFR 210].
Item 8. Undertakings.
Furnish the following undertakings:
1. The undersigned registrant hereby undertakes to file a post-effective amendment, not later
than 120 days after the end of each fiscal year subsequent to that covered by the financial
181

statements presented herein, containing financial statements meeting the requirements of
Regulation S-X [17 CFR 210].
*****
14. Amend Form S-4 (referenced in § 239.25) by:
a. Removing and reserving Item 3(d), (e), and (f) and the related subparagraphs in their
entirety and removing the Instruction to Item 3(e) and (f) under Part I, Section A
(“Information About the Transaction”); and
b. Removing and reserving Item 17(b)(3) and (4) under Part I, Section C (“Information
with Respect to Companies Other Than S-3 Companies”).
15. Amend Form F-1 (referenced in § 239.31) by:
a. Revising the paragraph 1(c)(v) under “Instructions as to Summary Prospectuses”; and
b. Adding paragraph 1(c)(vi) to read as follows:
Note: The text of Form F-1 does not, and this amendment will not, appear in the Code of
Federal Regulations.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

*****
INSTRUCTIONS AS TO SUMMARY PROSPECTUSES
1. * * *
(c) * * *
182

(v) As to Item 4, a brief statement of the general character of the business done and intended to
be done and a brief statement of the nature and present status of any material pending legal
proceedings;
(vi) Subject to appropriate variation to conform to the nature of the registrant’s business, provide
summarized financial information defined by Rule 1-02(bb)(1)(i) and (ii) of Regulation S-X (§
210.1-02(bb) of this chapter) in comparative columnar form for the periods for which financial
statements are required by Item 8.A. of Form 20-F. If interim period financial statements are
included, the summarized financial information should be updated for that interim period, which
may be unaudited, provided that fact is stated. If summarized financial data for interim periods is
provided, comparative data from the same period in the prior financial year shall also be
provided, except that the requirement for comparative balance sheet data is satisfied by
presenting the year end balance sheet information.
*****
16. Amend Form F-4 (referenced in § 239.34) by:
a. Removing and reserving Item 3(d), (e), and (f) and the related subparagraphs in their
entirety and removing the Instruction to Item 3(e) and (f) under Part I, Section A
(“Information About the Transaction”); and
b. Removing and reserving Item 17(b)(3) under Part I, Section C (“Information with
Respect to Foreign Companies Other Than F-3 Companies”).

183

PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE
ACT OF 1934
17. The authority citation for part 240 continues to read in part as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss,
77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1,
78o, 78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm, 80a-20, 80a-23,
80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C.
5221(e)(3); 18 U.S.C. 1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-106,
sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
*****
18. Amend § 240.14a-101 by removing and reserving (b)(8), (9), and (10) and the related
subparagraphs and instruction in their entirety under Item 14 (“Mergers, consolidations,
acquisitions and similar matters”):
§240.14a-101 Schedule 14A. Information required in proxy statement.
*****
Item 14. Mergers, consolidations, acquisitions and similar matters. * * * * * * *
(b) Transaction information.* * *
*****
(8) [Removed and reserved.]
(9) [Removed and reserved.]
(10) [Removed and reserved.]
(11) Financial information.***
184

*****
PART 249—FORMS, SECURITIES EXCHANGE ACT OF 1934
19. The authority citation for part 249 continues to read, in part, as follows:
Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 5461 et seq.; 18 U.S.C.
1350; Sec. 953(b), Pub. L. 111-203, 124 Stat. 1904; Sec. 102(a)(3), Pub. L. 112-106, 126 Stat.
309 (2012); Sec. 107, Pub. L. 112-106, 126 Stat. 313 (2012), and Sec. 72001, Pub. L. 114-94,
129 Stat. 1312 (2015), unless otherwise noted.
*****
20. Amend Form 20-F (referenced in § 249.220f) by:
a. Removing and reserving General Instruction G(c);
b. Removing and reserving Item 3.A;
c. Removing Instructions to Item 3.A;
d. Amending Item 5; and
e. Revising Instruction 3 of Instructions to Item 8.A.2 to remove the final sentence, to
read as follows:
Note: The text of Form 20-F does not, and this amendment will not, appear in the Code of
Federal Regulations.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F
*****
185

Item 5.

Operating and Financial Review and Prospects
The purpose of this standard is to provide management’s explanation of factors that have

materially affected the company’s financial condition and results of operations for the historical
periods covered by the financial statements, and management’s assessment of factors and trends
which are anticipated to have a material effect on the company’s financial condition and results
of operations in future periods. This discussion and analysis must provide a narrative
explanation of the registrant’s financial statements that allows investors to view the registrant
from management’s perspective.
Discuss the company’s financial condition, changes in financial condition and results of
operations for each year and interim period for which financial statements are required. The
discussion must include a quantitative and qualitative description of the reasons underlying
material changes, including where material changes within a line item offset one another, to the
extent necessary for an understanding of the company’s business as a whole. Information
provided also must relate to all separate segments and/or other subdivisions (e.g., geographic
areas, product lines) of the company. The discussion must include other statistical data that the
company believes will enhance a reader’s understanding of the company’s financial condition,
changes in financial condition, and results of operations. The discussion and analysis must also
focus specifically on material events and uncertainties known to management that would cause
reported financial information not to be necessarily indicative of future operating results or of
future financial condition. Provide the information specified below as well as such other
information that is necessary for an investor's understanding of the company's financial
condition, changes in financial condition and results of operations.
186

A. Operating results. Provide information regarding significant factors, including
unusual or infrequent events or new developments, materially affecting the company’s income
from operations, indicating the extent to which income was so affected. Describe any other
significant component of revenue or expenses necessary to understand the company’s results of
operations.
1. If the statement of comprehensive income presents material changes from period to
period in net sales or revenue, if applicable, describe the extent to which such changes are
attributable to changes in prices or to changes in the volume or amount of products or services
being sold or to the introduction of new products or services.
2. If the currency in which financial statements are presented is of a country that has
experienced hyperinflation, the existence of such inflation, a five year history of the annual rate
of inflation and a discussion of the impact of hyperinflation on the company's business must be
disclosed.
3. Provide information regarding the impact of foreign currency fluctuations on the
company, if material, and the extent to which foreign currency net investments are hedged by
currency borrowings and other hedging instruments.
4. Provide information regarding any governmental economic, fiscal, monetary or
political policies or factors that have materially affected, or could materially affect, directly or
indirectly, the company’s operations or investments by host country shareholders.
B. Liquidity and capital resources. The following information must be provided:
1. Information regarding the company’s liquidity (both short and long term), including:

187

(a) a description of the internal and external sources of liquidity and a brief discussion of
any material unused sources of liquidity. Include a statement by the company that, in its opinion,
the working capital is sufficient for the company’s present requirements, or, if not, how it
proposes to provide the additional working capital needed.
(b) an evaluation of the sources and amounts of the company’s cash flows, including the
nature and extent of any legal or economic restrictions on the ability of subsidiaries to transfer
funds to the company in the form of cash dividends, loans or advances and the impact such
restrictions have had or are expected to have on the ability of the company to meet its cash
obligations.
2. Information regarding the type of financial instruments used, the maturity profile of
debt, currency and interest rate structure. The discussion also must include funding and treasury
policies and objectives in terms of the manner in which treasury activities are controlled, the
currencies in which cash and cash equivalents are held, the extent to which borrowings are at
fixed rates, and the use of financial instruments for hedging purposes.
3. Information regarding the company’s material cash requirements, including
commitments for capital expenditures, as of the end of the latest financial year and any
subsequent interim period and an indication of the general purpose of such requirements and the
anticipated sources of funds needed to satisfy such requirements.
C. Research and development, patents and licenses, etc. Provide a description of the
company's research and development policies for the last three years.
D. Trend information. The company must identify material recent trends in production,
sales and inventory, the state of the order book and costs and selling prices since the latest
188

financial year. The company also must discuss, for at least the current financial year, any known
trends, uncertainties, demands, commitments or events that are reasonably likely to have a
material effect on the company's net sales or revenues, income from continuing operations,
profitability, liquidity or capital resources, or that would cause reported financial information not
necessarily to be indicative of future operating results or financial condition.
E. Critical Accounting Estimates
A registrant that does not apply in its primary financial statements IFRS as issued by the
IASB must discuss information about its critical accounting estimates. This disclosure should
supplement, not duplicate, the description of accounting policies in the notes to the financial
statements.
Critical accounting estimates. Critical accounting estimates are those estimates made in
accordance with generally accepted accounting principles that involve a significant level of
estimation uncertainty and have had or are reasonably likely to have a material impact on
financial condition or results of operations. Discuss, to the extent material, why each critical
accounting estimate is subject to uncertainty, how much each estimate has changed during the
reporting period, and the sensitivity of the reported amounts to the material methods,
assumptions and estimates underlying its calculation. The discussion should provide quantitative
as well as qualitative information when quantitative information is reasonably available and will
provide material information to investors.
Instructions to Item 5:
1. Refer to the Commission's interpretive releases (No. 33-6835) dated May 18, 1989,
(No. 33-8056) dated January 22, 2002, (No. 33-8350) dated Dec. 19, 2003, (No. 33-9144) dated
189

September 17, 2010, and (No. 33-10751) dated January 30, 2020 for guidance in preparing this
discussion and analysis by management of the company’s financial condition and results of
operations.
2. The discussion must focus on the primary financial statements presented in the
document. You should refer to the reconciliation to U.S. GAAP, if any, and discuss any aspects
of the differences between foreign and U.S. GAAP, not otherwise discussed in the reconciliation,
that you believe are necessary for an understanding of the financial statements as a whole.
3. We encourage you to supply forward-looking information, but that type of information
is not required. Forward-looking information is covered expressly by the safe harbor provisions
of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking
information is different than presently known data which will have an impact on future operating
results, such as known future increases in costs of labor or materials. You are required to
disclose this latter type of data if it is material.
4. To the extent the primary financial statements reflect the use of exceptions permitted
or required by IFRS 1, the issuer must:
a. Provide detailed information as to the exceptions used, including:
i. An indication of the items or class of items to which the exception was applied; and
ii. A description of what accounting principle was used and how it was applied;
b. Include, where material, qualitative disclosure of the impact on financial condition,
changes in financial condition and results of operations that the treatment specified by IFRS
would have had absent the election to rely on the exception.

190

5. An issuer filing financial statements that comply with IFRS as issued by the IASB
must, in providing information in response to paragraphs of this Item 5 that refer to
pronouncements of the FASB, provide disclosure that satisfies the objective of the Item 5
disclosure requirements. In responding to this Item 5, an issuer need not repeat information
contained in financial statements that comply with IFRS as issued by the IASB.
6. Generally, the discussion must cover the periods covered by the financial statements
and the registrant may use any format that in the registrant’s judgment enhances a reader’s
understanding. For registrants providing financial statements covering three years in a filing, a
discussion of the earliest of the three years may be omitted if such discussion was already
included in any other of the registrant’s prior filings on EDGAR that required disclosure in
compliance with Item 5 of Form 20–F, provided that registrants electing not to include a
discussion of the earliest year must include a statement that identifies the location in the prior
filing where the omitted discussion may be found.
7. Discussion of commitments or obligations, including contingent obligations, arising
from arrangements with unconsolidated entities or persons that have or are reasonably likely
to have a material current or future effect on a registrant’s financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, cash requirements or
capital resources must be provided even when the arrangement results in no obligations being
reported in the registrant’s consolidated balance sheets. Such off-balance sheet arrangements
may include: guarantees; retained or contingent interests in assets transferred; contractual
arrangements that support the credit, liquidity or market risk for transferred assets; obligations
that arise or could arise from variable interests held in an unconsolidated entity; or obligations
191

related to derivative instruments that are both indexed to and classified in a registrant’s own
equity, or not reflected in the statement of financial position.
Instruction to Item 5.A:
1. You must provide the information required by Item 5.A.2 with respect to
hyperinflation if hyperinflation has occurred in any of the periods for which you are required to
provide audited financial statements or unaudited interim financial statements in the document.
See Rule 3-20(c) of Regulation S-X for a discussion of cumulative inflation rates that trigger this
requirement.
*****
Item 8. Financial Information
*****
Instructions to Item 8.A.2:
*****
In initial registration statements, if the financial statements presented pursuant to Item
8.A.2 are prepared in accordance with U.S. generally accepted accounting principles, the earliest
of the three years may be omitted if that information has not previously been included in a filing
made under the Securities Act of 1933 or the Securities Exchange Act of 1934.
*****
21. Amend Form 40-F (referenced in § 249.240f) by:
a. Revising General Instruction B.(11) to read as follows;
b. Removing and reserving General Instructions B.(12) and (13); and
192

c. Removing the Instructions following General Instruction B.(13).
Note: The text of Form 40-F does not, and this amendment will not, appear in the Code of
Federal Regulations.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 40-F
*****
B. Information To Be Filed on this Form
*****

(11) Off-balance sheet arrangements. To the extent not discussed in management’s
discussion and analysis that is provided pursuant to General Instruction B.(3) of this
form, discuss the commitments or obligations, including continent obligations, arising
from arrangements with unconsolidated entities or persons that have or are reasonably
likely to have a material current or future effect on a registrant’s financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, cash
requirements or capital resources must be provided even when the arrangement results in
no obligations being reported in the registrant’s consolidated balance sheets. Such offbalance sheet arrangements may include: guarantees; retained or contingent interests in
assets transferred; contractual arrangements that support the credit, liquidity or market
risk for transferred assets; obligations that arise or could arise from variable interests held
in an unconsolidated entity; or obligations related to derivative instruments that are both
193

indexed to and classified in a registrant’s own equity, or not reflected in the statement of
financial position.
*****
22. Amend Form 8-K (referenced in § 249.308) by revising Item 2.03(c)(1) through(3)
and 2.03(d) to read as follows:
Note: The text of Form 8-K does not, and this amendment will not, appear in the Code of
Federal Regulations.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K
*****
INFORMATION TO BE INCLUDED IN THE REPORT
*****
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement of a Registrant.
*****
(c) For purposes of this Item 2.03, direct financial obligation means any of the following:
(1) a long-term debt obligation means a payment obligation under long-term borrowings
referenced in FASB ASC paragraph 470-10-50-1 (Debt Topic), as may be modified or
supplemented);
(2) a capital lease obligation means a payment obligation under a lease classified as a
capital lease pursuant to FASB ASC Topic 840, Leases, as may be modified or supplemented;

194

(3) an operating lease obligation means a payment obligation under a lease classified as
an operating lease and disclosed pursuant to FASB ASC Topic 840, as may be modified or
supplemented; or
(4) a short-term debt obligation that arises other than in the ordinary course of business.
(d) For purposes of this Item 2.03, off-balance sheet arrangement means any transaction,
agreement or other contractual arrangement to which an entity unconsolidated with the registrant
is a party, under which the registrant has:
(1) Any obligation under a guarantee contract that has any of the characteristics identified
in FASB ASC paragraph 460-10-15-4 (Guarantees Topic), as may be modified or supplemented,
and that is not excluded from the initial recognition and measurement provisions of FASB ASC
paragraphs 460-10-15-7, 460-10-25-1, and 460-10-30-1.
(2) A retained or contingent interest in assets transferred to an unconsolidated entity or
similar arrangement that serves as credit, liquidity or market risk support to such entity for such
assets;
(3) Any obligation, including a contingent obligation, under a contract that would be
accounted for as a derivative instrument, except that it is both indexed to the registrant's own
stock and classified in stockholders' equity in the registrant's statement of financial position, and
therefore excluded from the scope of FASB ASC Topic 815, Derivatives and Hedging, pursuant
to FASB ASC subparagraph 815-10-15-74(a), as may be modified or supplemented; or
(4) Any obligation, including a contingent obligation, arising out of a variable interest (as
defined in the FASB ASC Master Glossary), as may be modified or supplemented in an
unconsolidated entity that is held by, and material to, the registrant, where such entity provides
195

financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or
research and development services with, the registrant.
*****
By the Commission.
Dated: January 30, 2020.

Eduardo A. Aleman,
Deputy Secretary.

196

File Type	application/pdf
File Title	Proposed Rule: Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information
Subject	17 CFR Parts 210, 229, 239, 240, and 249, [Release No. 33-10750, 34-88093, IC-33795, File No. S7-01-20], RIN 3235-AM48, Date: 20
Author	U.S. Securities and Exchange Commission
File Modified	2020-01-30
File Created	2020-01-30