SEC Eliminates Outdated and Redundant Disclosure Requirements
The SEC recently adopted rule amendments to eliminate redundant and outdated disclosure requirements of Regulations S-X and S-K. The adopting release and the demonstration version of the amendments are available on the SEC’s website. The amendments become effective 30 days following their publication in the Federal Register.
The rulemaking is part of the SEC’s Disclosure Effectiveness Initiative, an ongoing broad-based staff review of the SEC’s disclosure rules to consider ways to improve the requirements for companies and investors. The amendments also aim to fulfill the Commission’s responsibility under the FAST Act to eliminate provisions of Regulation S-K that are duplicative, outdated, or unnecessary for all filers.
Nature of the Amendments
Certain disclosure requirements in Regulations S-K and S-X have become outdated, redundant, overlapping or superseded in light of developments in U.S. GAAP, IFRS, other SEC disclosure requirements, and changes in the information environment. The changes made are intended to simplify the overall compliance process, but not change the mix of information provided to investors.
While the changes are voluminous, many of them are not substantive. Some changes merely clean up the terminology used in the rules. For example, S-X 3-02 was modified to reference the statements of comprehensive income instead of the statements of income. Other changes remove requirements that are duplicative with other SEC or GAAP disclosure requirements. For example, S-K 101(b) was deleted as it required disclosure of segment financial information, restatement of prior periods when reportable segments change, and discussion of segment performance that may not be indicative of current or future operations. Such disclosures are similar to those required by ASC 280 and S-K 303(b). The requirement to provide a computation of earnings per share in S-K 601(b)(11) was also deleted because such disclosure is already required by ASC 260.
Other amendments remove requirements that are simply outdated. For example, the requirement in S-K 503(d) and related forms to provide a ratio of earnings to fixed charges when an offering of debt securities is registered was eliminated. The Commission believes this requirement is no longer relevant or useful. Additionally, the requirement in S-K 201 to disclose the high and low stock prices for each quarter over the last two fiscal years was eliminated because such information is widely available.
In connection with the release, the Commission also referred certain disclosure requirements which overlap with U.S. GAAP but provide incremental information to the FASB for potential incorporation into U.S. GAAP. Examples include:
- Incremental income tax disclosures required by S-X 4-08(h) – e.g., disclosing the amount of domestic and foreign pre-tax income and income tax expense, and
- Information about major customers required by S-K 101 – e.g., disclosing a customer’s name in certain instances and removing the bright-line threshold (10%) for disclosure.
The FASB has 18 months from the date the amendments are published in the Federal Register to complete its consideration of whether the referred items will be added to its agenda for potential standard setting.
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