SEC Amends Primary Disclosure Rules for Public Companies

December 11, 2018

On August 17, 2018, the U.S. Securities and Exchange Commission (the “SEC”) adopted amendments to its rules and forms to eliminate, integrate, update or modify certain disclosure requirements (the “Amendments”). The Amendments became effective on November 5, 2018 and impact SEC filings on a going forward basis.

Overview of the Amendments

The Amendments eliminate, integrate, update or modify:

  • Redundant or duplicative disclosure requirements that provide substantially the same disclosure as U.S. Generally Accepted Accounting Principles (“GAAP”), International Financial Reporting Standards (“IFRS”) or other SEC requirements;
  • Overlapping requirements, which require reasonably similar disclosures as GAAP or other SEC requirements;
  • Outdated disclosure requirements, which have become obsolete because of the passage of time or changes in regulatory, business or technological environments; and
  • Superseded disclosure requirements that are inconsistent with newer accounting, auditing and disclosure requirements.

Disclosure Location Considerations

The SEC weighed certain disclosure location considerations that could result because of adopting the amendments, including the following:

  • Prominence Considerations – the relocation of some disclosures in a filing may change the prominence and/or context of both the relocated disclosures and the remaining disclosures.
  • Financial Statement Considerations – the relocation of some disclosures from outside to inside the financial statements would subject the information to annual audit and/or interim review, internal control over financial reporting, and XBRL tagging requirements, and would no longer qualify for safe harbor protection under the Private Securities Litigation Reform Act of 1995. Conversely, relocation of disclosures from inside to outside the financial statements would have the opposite effect.
  • Bright Line Disclosure Threshold Considerations – the removal of a bright line disclosure threshold could potentially reduce the amount of required disclosures and increase the judgment required to determine what disclosures are meaningful to investors.

Summary of the Amendments

The following summary highlights some of the noteworthy changes that will affect a company’s typical disclosures made in its SEC filings.

I. Key Disclosure Changes Affecting Most Issuers

The Amendments make changes to both the SEC’s Regulation S-K1 and Regulation S-X, which contain the core of the SEC’s disclosure rules, as noted in the below summary:

Segment financial information (Regulations S-K and S-X)
Item 3.03(e) of Regulation S-X and Item 101 of Regulation S-K will no longer require financial information about segments, as such information is already covered by GAAP and management’s discussion and analysis (“MD&A”) of financial condition and results of operations.

Research and development expenditure. (Regulation S-K)
Research and development expenditures (“R&D”), which are required by GAAP, will no longer need to be disclosed in the “Business” section of financial reports. Discussion of R&D in the MD&A will still be expected in the context of any material trends, if applicable. However, this was not eliminated for foreign private issuers under Item 5.C of the Form 20-F.

Geographic disclosures (Regulation S-K)
Financial information about geographic areas, such as revenues from external customers in the issuer’s country of domicile and foreign countries, will no longer be required in the “Business” section, since such information is covered by GAAP. When material and appropriate to an understanding of the business, however, elements of income from certain geographic areas should continue to be discussed in the MD&A. Similarly, material risks attendant to foreign operations and any dependence of one or more of the registrant’s segments upon such foreign operations should be included in the MD&A, but may be omitted from the “Business” section.

Trading information (Regulation S-K2)
Issuers with common equity traded in an established trading market will no longer need to disclose high and low trading prices for each quarter of the last two full fiscal years and interim periods, given that such information is easily accessible. Trading symbols for securities, however, must continue to accompany identification of principal trading markets for equity securities, along with the principal foreign public trading market for foreign issuers. If applicable, issuers with common equity that is not traded on an exchange are required to state that any over-the-counter quotations reflect inter-dealer prices and may not necessarily represent actual transactions.

Convertible Securities (S-K)
Elimination of Item 201(a)(2)(i) of Regulation S-K, which required disclosure on Form S-1 or Form 10 registration statements of the amount of common equity subject to outstanding options, warrants or convertible securities, when the class of common equity has no established U.S. public trading market. GAAP includes a broader requirement to disclose the terms of significant contracts to issue additional shares and other reasonably similar information.

Dividends (Regulation S-X)
Only the notes to the financial statements will now be required to include dividend history (for issuers subject to amended Rule 3-04 of Regulation S-X) and restrictions on ability to pay dividends (for issuers subject to amended Rule 4-08(e)(3) of Regulation S-X).

Pro Forma Financial Information (Regulation S-X)
Elimination of the requirements for pro forma financial information in interim filings for business combinations in Rule 8-03(b)(4) and Rule 10-01(b)(4), as GAAP and Item 9.01 of Form 8-K require reasonably similar disclosures.

Ratio of earnings to fixed charges (Regulation S-K3)
There will no longer be a requirement to present historical and pro forma ratios of earnings to fixed charges or a related exhibit when registering debt securities or preferred stock, since GAAP already covers disclosure of the components commonly used to calculate these ratios.

Seasonality (Regulation S-K)
Elimination of seasonality disclosure from the MD&A sections from interim reports, as GAAP requires disclosures that convey reasonably similar information. However, the SEC retained the seasonality disclosure requirements in annual reports in the “Business” section under Item 101(c)(1)(v) of Regulation S-K, because GAAP may not elicit information about seasonality in the fourth quarter.

Subsequent Events (Regulation S-X)
Elimination of the requirement in Regulation S-X to disclose, in interim financial statements, material events after the end of the most recent fiscal year considering similar disclosures that result from compliance with a combination of GAAP and Item 303(b) of Regulation S-K.

If an issuer has an Internet address, disclosure will be mandatory (no longer simply encouraged), and issuers are cautioned to be cognizant of the SEC’s guidance about liability for website disclosures, and to include appropriate disclosure in filings stating that information on company websites is not incorporated into such filings.

Public reference access
Registration statements will no longer need to state that SEC filings are available for access in the public reference room at the SEC’s headquarters or disclose its physical address and phone number. Given the availability of information over the internet and continued enhancements to the SEC’s Edgar system, the SEC believes that the need for physical document review in this context has become obsolete.

II. Changes in Form 10-Q Reporting and Other Regulation S-X Requirements

Regulation S-X will require reconciliations of changes in each line item caption in equity from beginning to ending balances for each period for which an income statement is required to be filed (i.e., for both the year-to-date and quarterly periods and the comparable prior periods).

The form of acceptable presentations, whether in a table in the notes or a separate statement of shareholders’ equity, may include either of the following:

  • A single presentation that reconciles all line item components and the total of shareholders’ equity from the prior year-end to the balances and subtotals at the end of the first quarter and for subsequent periods at the end of each succeeding quarter with comparative reconciliations for the prior year periods; or
  • Two presentations that reconcile those components and the total separately, for each of the year-to-date period and comparable prior year period, and the current quarterly period and comparable period.


1 Regulation S-K primarily affects disclosures by domestic issuers and foreign private issuers that elect to file on forms used by domestic issuers, and relates to a comprehensive scheme of disclosure, while Regulation S-X relates primarily to financial disclosures.

2 Similar changes were adopted for foreign private issuers (i.e., Form 20-F).

3 Similar changes were adopted for foreign private issuers (i.e., Form 20-F).