Securities Regulation Daily SEC votes to simplify and update disclosure requirements
Monday, August 20, 2018

SEC votes to simplify and update disclosure requirements

By Amanda Maine, J.D.

The SEC has adopted amendments to certain disclosure requirements that the Commission deemed "redundant, duplicative, overlapping, outdated, or superseded" in light of other disclosure requirements, as well as changes in GAAP and other changes in the information environment. Most of the proposed amendments were adopted substantially as proposed in the July 2016 proposing release. The amendments are part of an initiative launched by the Division of Corporation Finance to review disclosure requirements and to improve them for the benefit of investors and issuers. The amendments are also the result of the Commission’s efforts to implement the FAST Act’s mandate to eliminate outdated and unnecessary provisions of Regulation S-K. (Disclosure Update and Simplification, Release No. 33-10532, August 17, 2018).

Comments. According to the final release, many commentators were generally supportive of the Commission’s objectives, while some suggested that the SEC also address additional redundancies. The Commission noted, however, that some commenters objected to the overall objective of the release because, in their opinion, investors want more disclosure, not less, including more environmental, social, and governance disclosures. Others were concerned that the Commission did not allow for sufficient time for the staff to consider comments received on its Regulation S-K disclosure release or that the 60-day comment period did not provide an adequate amount of time to fully consider the proposal. In addition, the release advised that several comments expressed concern about the interaction between current FASB projects and the proposed amendments. However, the Commission advised that FASB’s decision not to amend GAAP to include a definition of materiality substantially addressed these concerns. The Commission believes that there will not be changes to how an issuer applies the concept of materiality to its financial statements, and therefore eliminated certain proposed disclosure requirements on the basis that GAAP requires the same or similar disclosures.

Redundant or duplicative requirements. The Commission adopted as proposed several requirements that were substantially redundant or duplicative of GAAP disclosures, which the release outlines in a comprehensive table. However, it chose to retain certain provisions related to currency requirements for financial statements of foreign private issuers and to refer the issue to FASB for clarification.

Overlapping requirements. The proposing release also identified several disclosure requirements that the Commission believed to be overlapping with GAAP. The final release noted that several commenters urged the Commission to retain certain Regulation S-X disclosure requirements related to repurchase agreements; in light of these concerns, these requirements will be retained and referred to FASB for potential incorporation into GAAP. The Commission is also retaining the equity compensation plans disclosure requirements. The Commission is referring to FASB on the incorporation into GAAP of certain incremental disclosure requirements, including disclosures relating to discounts on shares, income tax disclosures, major customers, and legal proceedings.

Outdated requirements. The proposing release identified a number of disclosure requirements that have become obsolete due to the passage of time or changes in the regulatory, business, or technological environments. Noting that the daily market prices of most publicly traded common equity securities are readily available for free on the Internet, the detailed disclosure requirement of sale or bid prices for most issuers whose common equity is traded in an established public trading market has been eliminated and replaced with the disclosure of the trading symbol. The Commission is also eliminating certain disclosure requirements relating to the SEC’s Public Reference Room, which is rarely used due to the information available on the SEC’s website. In addition, noting that exchange rate information is readily available for free on a number of websites, the Commission is eliminating the requirement that foreign private issuers provide exchange rate data when their financial statements are prepared in a currency other than the U.S. dollar.

Superseded requirements. The Commission had proposed amendments to update its disclosure requirements to reflect more recently updated GAAP, including those related to gains or losses on the sale of properties by REITs, consolidated and combined financial statements, development stage companies, and insurance companies, as well as eliminating references to extraordinary items. The final release adopted most of the changes as proposed. The Commission is also replacing certain references to Generally Accepted Auditing Standards (GAAS) with "standards of the Public Company Accounting Oversight Board" or "applicable professional standards."

The amendments will be effective 30 days from publication in the Federal Register.

The release is No. 33-10532.

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