Disclosure Modernization Continues – MD&A and Other Financial Disclosures

On November 19, 2020, the SEC adopted a Final Rule modernizing MD&A requirements, eliminating the five-year selected financial information disclosure, and updating the S-K Item 302 quarterly information disclosure.

The related press release includes this summary of the changes for MD&A:

  • Add a new Item 303(a), Objective, to state the principal objectives of MD&A;
  • Amend current Item 303(a)(1) and (2) (amended Item 303(b)(1)) to modernize, enhance and clarify disclosure requirements for liquidity and capital resources;
  • Amend current Item 303(a)(3) (amended Item 303(b)(2)) to clarify, modernize and streamline disclosure requirements for results of operations;
  • Add a new Item 303(b)(3), Critical accounting estimates, to clarify and codify Commission guidance on critical accounting estimates;
  • Replace current Item 303(a)(4), Off-balance sheet arrangements, with an instruction to discuss such obligations in the broader context of MD&A;
  • Eliminate current Item 303(a)(5), Tabular disclosure of contractual obligations, in light of the amended disclosure requirements for liquidity and capital resources and certain overlap with information required in the financial statements; and
  • Amend current Item 303(b), Interim periods (amended Item 303(c)) to modernize, clarify and streamline the item and allow for flexibility in the comparison of interim periods to help registrants provide a more tailored and meaningful analysis relevant to their business cycles.

The new rules have a multi-layered transition path.  They will be effective 30 days after publication in the Federal Register.  Companies will not be required to implement the new rules immediately after the effective date.  Instead, each company will have a “mandatory compliance date” of its fiscal year that ends on or after the date that is 210 days after the effective date.  However, companies have the option to comply with the new rules any time after the effective date.

A registration statement must comply with the new rules if it contains financial statements for a period on or after the “mandatory compliance date” for a company.

We will be posting details about all the changes in coming weeks.

As always, your thoughts and comments are welcome!

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