This is a revised version of an earlier post, and demonstrates the risks in trying to get out with information as early as possible!  Drafting this post late yesterday and early this morning the SEC had not yet released updated versions of the cover pages for the forms and I created a version for this post.  And, shortly after I posted our suggested version the SEC updated the forms.  So, you can find the official revised cover pages for Forms 10-K, 10-Q and 8-K here.

As always, your thoughts and comments are welcome!

Risk factor disclosure frequently presents a conundrum in public reporting.  The SEC’s risk factor disclosure requirements focus on what makes an investment in a company’s securities “risky or speculative”.  Buy many companies present so many risk factors that questions arise about their relevance to investors.  This is one among a number of reasons the SEC included this disclosure in their March 20, 2019 Disclosure Modernization and Simplification rule.

As you likely have heard, most of the changes in this rule, including risk factor changes, are effective for filings after May 2, 2019.

To begin reviewing the changes in risk factor disclosures, Item 1A in Form 10-K previously read:

Item 1A. Risk Factors.

Set forth, under the caption “Risk Factors,” where appropriate, the risk factors described in Item 503(c) of Regulation S-K (§229.503(c) of this chapter) applicable to the registrant. Provide any discussion of risk factors in plain English in accordance with Rule 421(d) of the Securities Act of 1933 (§230.421(d) of this chapter). Smaller reporting companies are not required to provide the information required by this item.

Item 1A has been changed to now read:

Item 1A. Risk Factors.

Set forth, under the caption “Risk Factors,” where appropriate, the risk factors described in Item 105 of Regulation S-K (§ 229.105 of this chapter) applicable to the registrant.

The specific disclosure requirements surrounding risk factors have been moved to S-K Item 105 and out of Item 503. Since most of the disclosures in Part 500 of S-K deal with prospectus disclosures and risk factors are, since 2005, a regular ‘34 Act report disclosure requirement, this change makes sense.

In addition, as you will see below, the removal of the plain English language that was in the Item 1A instructions is not really a change as the requirement is now incorporated in new S-K Item 105.

The old text of Item 503(c), which has been removed, read:

 (c) Risk factors. Where appropriate, provide under the caption “Risk Factors” a discussion of the most significant factors that make the offering speculative or risky. This discussion must be concise and organized logically. Do not present risks that could apply to any issuer or any offering. Explain how the risk affects the issuer or the securities being offered. Set forth each risk factor under a subcaption that adequately describes the risk. The risk factor discussion must immediately follow the summary section. If you do not include a summary section, the risk factor section must immediately follow the cover page of the prospectus or the pricing information section that immediately follows the cover page. Pricing information means price and price-related information that you may omit from the prospectus in an effective registration statement based on §230.430A(a) of this chapter. The risk factors may include, among other things, the following:

(1) Your lack of an operating history;

(2) Your lack of profitable operations in recent periods;

(3) Your financial position;

(4) Your business or proposed business; or

(5) The lack of a market for your common equity securities or securities convertible into or exercisable for common equity securities.

The new requirement in S-K Item 105 now reads:

229.105 (Item 105) Risk factors.

Where appropriate, provide under the caption “Risk Factors” a discussion of the most significant factors that make an investment in the registrant or offeringspeculative or risky. This discussion must be concise and organized logically. Do not present risks that could apply generically to any registrant or any offering. Explain how the risk affects the registrant or the securities being offered. Set forth each risk factor under a subcaption that adequately describes the risk. If the risk factor discussion is included in a registration statement, it must immediately follow the summary section. If you do not include a summary section, the risk factor section must immediately follow the cover page of the prospectus or the pricing information section that immediately follows the cover page. Pricing information means price and price-related information that you may omit from the prospectus in an effective registration statement based on Rule 430A (§ 230.430A(a) of this chapter). The registrant must furnish this information in plain English. See § 230.421(d) of Regulation C of this chapter.

New S-K Item 105 has some subtle wording changes which are highlighted above.  The addition of the phrase “an investment in the registrant” makes the application of this disclosure clearer for ‘34 Act periodic reports.  And, the addition of the phrase “apply generically” helps clarify that the requirement should not be interpreted too broadly.

Also, the removal of the examples makes it clear that this is intended to be a registrant specific, principles-based requirement.  In the Final Rule Release the SEC included these comments:

The Commission also proposed amendments that would eliminate the specific risk factor examples that are currently enumerated in Item 503(c). Although Item 503(c) is principles based, and the Commission has eschewed “boiler plate” risk factors that are not tailored to the unique circumstances of each registrant, the …. examples of factors that may make an offering speculative or risky have remained unchanged since the Commission first published guidance on risk factor disclosure in 1964.

As discussed in the Proposing Release, the Commission’s principles-based approach to risk factor disclosure is not consonant with the item’s list of examples of material risks. These examples may not apply to all registrants and may not correspond to the material risks of any particular registrant. In addition, the inclusion of these examples could suggest that a registrant must address each one in its risk factor disclosures, regardless of the significance to its business. Finally, the Commission was concerned that the inclusion of any examples in Item 503(c), whether to illustrate the specific kinds of risks that should be disclosed or generic risks that should be avoided, could anchor or skew the registrant’s risk analysis in the direction of the examples.

 It will be interesting to watch and see how or if companies take advantage of this new requirement.

As always, your thoughts and comments are welcome!

After our recent posts about the disclosure issues surrounding emerging and changing issues including Brexit and Libor, we are returning to our series delving into the details of implementing the SEC’s March 20, 2019 Disclosure Modernization and Simplification rule, and specifically the changes in properties disclosures.

As you likely have heard, most of the changes in this rule, including property disclosures, are effective for filings after May 2, 2019.

To being reviewing the changes in property disclosures Item 2 in Form 10-K requires the disclosures in Regulation S-K Item 102.

The old text Item 102 is:

229.102   (Item 102) Description of property.

State briefly the location and general character of the principal plants, mines and other materially important physical properties of the registrant and its subsidiaries. In addition, identify the segment(s), as reported in the financial statements, that use the properties described. If any such property is not held in fee or is held subject to any major encumbrance, so state and describe briefly how held.

Instructions to Item 102: 1. What is required is such information as reasonably will inform investors as to the suitability, adequacy, productive capacity and extent of utilization of the facilities by the registrant. Detailed descriptions of the physical characteristics of individual properties or legal descriptions by metes and bounds are not required and shall not be given.

2.  In determining whether properties should be described, the registrant should take into account both quantitative and qualitative factors. See Instruction 1 to Item 101 of Regulation S-K (§229.101).

The new text effective May 2, 2019 is:

229.102 (Item 102) Description of property.

To the extent material, disclose the location and general character of the registrant’s principal physical properties. In addition, identify the segment(s), as reported in the financial statements, that use the properties described. If any such property is not held in fee or is held subject to an encumbrance that is material to the registrant, so state and describe briefly how held.

Instruction 1 to Item 102: This item requires information that will reasonably inform investors as to the suitability, adequacy, productive capacity, and extent of utilization of the principal physical properties of the registrant and its subsidiaries, to the extent the described properties are material. A registrant should engage in a comprehensive consideration of the materiality of its properties. If appropriate, descriptions may be provided on a collective basis;detailed descriptions of the physical characteristics of individual properties or legal descriptions by metes and bounds are not required and shall not be given.

Instruction 2 to Item 102: In determining materiality under this Item, the registrant should take into account both quantitative and qualitative factors. See Instruction 1 to Item 101 of Regulation S-K (§ 229.101).

The changes to this item focus on one of the more complex judgments we make in SEC reporting,materiality.  (This was one of the key judgments that CorpFin Director Hinman discussed in the speech explored in our last two posts.)

The old item started:

“State briefly the location and general character of the principal plants, mines and other materially important physical properties…”

 This has been changed to:

 “To the extent material, disclose the location and general character of the registrant’s principal physical properties.”

The change in wording from“materially important physical properties” to  “To the extent material, disclose…” tells us that we don’t need to include information that, in the words of CorpFin Director Hinman, does not provide investors:

“material information they need about companies and their securities offerings to make informed investment and voting decisions”

 While the information about segments and suitability, adequacy, productive capacity and extent of utilization reads very similarly from the old to the new requirement, the words “to the extent the described properties are material” makes clear we can make materiality calls and not be concerned with the other potential considerations in the old language.  We can hopefully no longer by rote disclose information about our properties that will not matter to investors.

Additionally, the new instruction “A registrant should engage in a comprehensive consideration of the materiality of its properties” more or less makes this a requirement.

In the final rule release, the SEC made this observation:

Despite existing language in Item 102 that limits the required information to properties that are “materially important” to the registrant and its subsidiaries, the disclosure elicited in response to this item may not have been consistently material.For many companies, the only physical properties held may be their headquarters, office space, or ancillary facilities, a description of which is likely to be unimportant to an investor’s evaluation of an investment in the company.

As an example, if a service company uses only simple office space and is in an area where an adequate supply of suitable space is available and the company has no excess space problems, it could be appropriate to make no disclosures about properties.  This would reduce the clutter of immaterial information in Form 10-K.

The last part of instruction 1 makes a suggestion to avoid immaterial details:

“If appropriate, descriptions may be provided on a collective basis”

Materiality Considerations

The last instruction, which is the same on both the old and new versions of S-K Item 102, makes it clear that the definition of materiality is not just the magnitude of an item.

Instruction 2 to Item 102: In determining materiality under this Item, the registrant should take into account both quantitative and qualitative factors. See Instruction 1 to Item 101 of Regulation S-K (§ 229.101).

Instruction 1 to Item 101 does not actually refer to SAB 99.  It does include an example that perhaps is similar to considerations in SAB 99

Instructions to Item 101: 1. In determining what information about the segments is material to an understanding of the registrant’s business taken as a whole and therefore required to be disclosed, pursuant to paragraph (c) of this Item, the registrant should take into account both quantitative and qualitative factorssuch as the significance of the matter to the registrant (e.g., whether a matter with a relatively minor impact on the registrant’s business is represented by management to be important to its future profitability), the pervasiveness of the matter (e.g., whether it affects or may affect numerous items in the segment information), and the impact of the matter (e.g., whether it distorts the trends reflected in the segment information). Situations may arise when information should be disclosed about a segment, although the information in quantitative terms may not appear significant to the registrant’s business taken as a whole.

While this change does present some new materiality judgments for properties, it does hopefully modernize and simplify these disclosures.  And, to provide a starting point, here are two examples from 3M Corporation and General Motors, which are wonderfully brief even though prepared under the old disclosure requirements:

3M Corporation – Item 2. Properties.

In the U.S., 3M’s general offices, corporate research laboratories, and certain division laboratories are located in St. Paul, Minnesota. The Company operates 80 manufacturing facilities in 29 states. Internationally, the Company operates 125 manufacturing and converting facilities in 37 countries.

3M owns the majority of its physical properties. 3M’s physical facilities are highly suitable for the purposes for which they were designed. Because 3M is a global enterprise characterized by substantial intersegment cooperation, properties are often used by multiple business segments.

General Motors – Item 2. Properties

At December 31, 2018 we had over 100 locations in the U.S. (excluding our automotive financing operations and dealerships) which are primarily for manufacturing, assembly, distribution, warehousing, engineering and testing. We, our subsidiaries or associated companies in which we own an equity interest own most of these properties and/or lease a portion of these properties. Leased properties are primarily composed of warehouses and administration, engineering and sales offices.

We have manufacturing, assembly, distribution, office or warehousing operations in 33 countries, including equity interests in associated companies which perform manufacturing, assembly or distribution operations. The major facilities outside the U.S., which are principally vehicle manufacturing and assembly operations, are located in Argentina, Brazil, Canada, China, Colombia, Ecuador, Mexico, South Korea and Thailand.

In November 2018 we announced our plans to realign our manufacturing capacity in response to market-related volume declines in passenger cars.

GM Financial owns or leases facilities for administration and regional credit centers. GM Financial has 39 facilities, of which 26 are located in the U.S. The major facilities outside the U.S. are located in Brazil, Canada, China and Mexico.

One final note – the specific requirements in industries such as mining and oil and gas are not changed by this new rule.

As always, your thoughts and comments are welcome!

In this post we began a discussion about moving forward with our reporting after last year-end and identifying and planning for areas where we may need to adjust our on-going quarterly reporting for changes going on in the world around us and to also begin identifying areas where we may want to update, refine or improve our reporting.

We began this discussion with a review of a speech delivered at PLI’s 18^thAnnual Securities Regulation in Europe program on March 15, 2019, by CorpFin Division Director William Hinman.

In his speech Mr. Hinman discussed the principles-based foundations of the SEC’s disclosure system and how this requires us to use judgmentand think beyond just what the SEC’s rulesmay say or what we see other companies disclosing.

In his remarks Mr. Hinman said:

“The flexibility of our principles-based disclosure requirements should result in disclosure that keeps pace with emerging issues, like Brexit or sustainability matters, without the need to for the Commission to continuously add to or update the underlying disclosure rules as new issues arise.”

He also said:

  “our disclosure requirements are intended to provide investors with the material information they need about companies and their securities offerings to make informed investment and voting decisions”

With these reminders of our responsibility:

1. To monitor the world around us and identify issues that that may require changes in disclosure, and

2. To make judgments about materiality,

we can think about how they apply to Brexit and sustainability matters. While the SEC’s rules and regulations provide a starting point, we need to consider the whole context of a situation and include all information material to investors

 Both of these are areas we may want to place on our disclosure committee or disclosure process agendas.

Brexit Disclosures

Few issues in the economic world today create more uncertainty than Brexit.  Brexit will affect many companies and likely will have different effects company by company.  There is really no one-size-fits-all approach and likely no “industry” based disclosure that will meet the disclosure requirements for individual companies or individual industries.  In his remarks Mr. Hinman emphasized this with these words:

“Rather, investors are better served by understanding the lens through which each company’s management looks at its exposure. How does management assess and analyze Brexit-related risks and the potential impacts on the company and its operations? What is management doing to mitigate and manage these risks? What is the nature of the board’s role in overseeing the management of these risks? Depending on the facts and circumstances of each company, the answers to these questions should provide material information to investors seeking to understand the risks attendant to Brexit for that company. “

Sustainability Disclosures

Sustainability disclosures are an area where company management and investors are still exploring what they believe is material and what investors want to know about.  (And yes, there is a really interesting materiality discussion in that last sentence!). More and more companies are making significant sustainability disclosures.  For examples, you could review Etsy’s Form 10-Kand go back to our series of blog postson this topic. To help companies think about appropriate disclosures in this area Mr. Hinman said something very interesting about how he believed SEC rulemaking, if it had occurred, would have affected the “evolution” of these disclosures:

“The marketplace evolution of sustainability disclosures is ongoing – companies certainly provide more sustainability information than they did ten years ago – and allowing this evolution to continue should provide market participants with a continued opportunity to sort out the types of information they find useful. Had we leapt into action and issued prescriptive sustainability disclosure requirements when people first began calling for them, I believe we would have stymied that evolution and stifled efforts to develop useful disclosure frameworks. Substituting regulatory prescriptions for market-driven solutions, especially while those solutions are evolving, in my view, is something we need to manage with utmost care. In the meantime, we are watching carefully as market-led approaches develop in this area, and we actively compare the information companies voluntarily provide – typically outside of their SEC filings – with the disclosure we see filed with us.”

Clearly these comments put the onus on companies and investors in the disclosure marketplace to continue using judgment to determine the future direction of these disclosures.

A Concluding Thought – Board Oversight

Given the evolving and potentially material nature of these two disclosure areas it is not surprising that Mr. Hinman also discussed board oversight:

“To the extent a matter presents a material risk to a company’s business, the company’s disclosure should discuss the nature of the board’s role in overseeing the management of that risk. The Commission last noted this in the context of cybersecurity, when it stated that disclosure about a company’s risk management program and how the board engages with the company on cybersecurity risk management allows investors to better assess how the board is discharging its risk oversight function.”

This is also a great opportunity to begin updating and changing disclosures incrementally as we file each quarterly Form 10-Q with a view towards better disclosure in our next Form 10-K.  This kind of a gradual path of change from this year’s 10-K to each 10-Q to next year’s 10-K is generally far easier to manage organizationally than a big change all at once.  (This is particularly true with MD&A, and more about that later.)

As a last thought, these two areas are not the only ones that could require this kind of disclosure consideration.  Others could be the impact of Libor going away, the impact of tariffs, the risks surrounding evolving technology such as 5G cellular systems and a raft of things that we need to think about company by company and industry by industry.  And, as we approach our first quarter reporting, this is a great chance to review or reporting for areas where we need to use our judgment about evolving disclosures.

As always, your thoughts and comments are welcome!

For all of us with a December 31 fiscal year we are finally past the year-end finish line.  It is always nice to look up after year-end and feel good that we made it through another busy season.  Right after that celebration, however, the next thing we see is the challenge of first quarter-end!

This is an opportune moment to take stock of our just filed Form 10-K and think about ways we may want to update, refine or improve our reporting.  It is also a good idea to identify areas where we may need to adjust our on-going quarterly reporting for changes going on in the world around us.

At PLI’s 18^thAnnual Securities Regulation in Europe program on March 15, 2019, CorpFin Division Director William Hinman provided us with discussion of two areasthat we can use as stepping off points for this process, Brexit and sustainability disclosures.

Beyond reminders about these two important areas, Mr. Hinman also included important discussion about how the SEC’s disclosure system works:

1. The SEC’s disclosure system is fundamentally principles-based, and

2. Two of the most important principles-based sections of the disclosure requirements are risk factors and MD&A.

While Mr. Hinman’s speech is fairly brief, it provides substantial food for thought.  We will explore this speech in two posts:

1. A review of the principles behind the SEC’s disclosure system (this post), and

2. A discussion of how these principles guide our disclosures in the two areas he addressed, Brexit and sustainability matters (next week).

These are two areas we may want to place on our disclosure committee or disclosure process agendas.

The SEC’s Principles-Based Disclosure System

One of the things that make Mr. Hinman’s speechwell worth reading is his discussion of the challenges in applying the principles-based disclosure guidance of the securities law to complex, uncertain and evolving risks.

One trap we sometimes fall into is the belief that if we disclose everything the SEC’s rules address, if we check all the boxes in Regulations S-K and S-X, the SAB’s and the SLB’s, and all the other sources from the SEC, we will be ok.  In our Workshops we emphasize that this is not the case! And losing this “check-the-box” mentality is crucial to get disclosure right in complex, uncertain and evolving areas.

In his remarks Mr. Hinman said:

“The flexibility of our principles-based disclosure requirements should result in disclosure that keeps pace with emerging issues, like Brexit or sustainability matters, without the need to for the Commission to continuously add to or update the underlying disclosure rules as new issues arise.”

While it may seem a bit contradictory, the SEC actually has a rule saying that we need to think beyond the rules!

240.12b-20   Additional information.

In addition to the information expressly required to be included in a statement or report, there shall be added such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made not misleading.

To emphasize this part of the SEC’s disclosure regimen Mr. Hinman articulates the foundation of the disclosure system:

“our disclosure requirements are intended to provide investors with the material information they need about companies and their securities offerings to make informed investment and voting decisions”

In other words, while the SEC’s rules and regulations provide a starting point, we need to consider the whole context of a situation and include all information material to investors. He also provides this reminder about two of the most principles-based parts of periodic reports:

“Management’s Discussion and Analysis (MD&A) and Risk Factors are examples of such disclosure requirements and are well-suited to elicit disclosure about complex and evolving areas”

This is borne out in the very first sentence of Regulation S-K Item 303, the core guidance for MD&A:

229.303   (Item 303) Management’s discussion and analysis of financial condition and results of operations.

(a) Full fiscal years. Discuss registrant’s financial condition, changes in financial condition and results of operations.

It is hard to imagine a broader, more principles-based requirement than this simple sentence!

In our next post we will delve more into how this principles-based framework provides direction for the two specific areas Mr. Hinman addressed, Brexit and sustainability disclosures.

As always, your thoughts and comments are welcome!

One of the points we make in our workshops is that companies should exercise care to be consistent across all communication vehicles including SEC filings, earnings releases, webpage information and investor presentations.  Someone in every organization should be charged with reviewing all communications to assure they are all singing the same song.

The SEC looks at all the channels a company uses to communicate when they review filings.   Inconsistencies in the disclosure across these channels are “low-hanging fruit” in the comment process.

The FASB’s new revenue recognition standard, Accounting Standards Codification Topic 606 creates a new reason to be even more careful about this consistency.  The focal point for this concern is the requirement to disclose disaggregated revenues (606-10-50-05):

An entity shall disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

Theimplementation guidance related to this disclosure requirementincludes this language, one of the few places US GAAP refers to information outside the financial statements:

When selecting the type of category (or categories) to use to disaggregate revenue, an entity should consider how information about the entity’s revenue has been presented for other purposes, including all of the following:

1. Disclosures presented outside the financial statements (for example, in earnings releases, annual reports, or investor presentations)
2. Information regularly reviewed by the chief operating decision maker for evaluating the financial performance of operating segments
3. Other information that is similar to the types of information identified in (a) and (b) and that is used by the entity or users of the entity’s financial statements to evaluate the entity’s financial performance or make resource allocation decisions.

This is the genesis of the following comment exchange on revenue recognition disclosures:

1. Original Comment:

We note your disaggregated revenue disclosures of revenue by product and by geographic region in Note 16. Tell us your consideration for disclosing further disaggregation of revenue for other fresh produce similar to the table disclosed on page 4 of your 10-K for the Fiscal Year Ended December 29, 2017 and in your earnings releases furnished on Form 8-K.

2. Company response to initial comment:

We call to the Staff’s attention that, in Note 16 to the consolidated financial statements contained in our Form 10-Q for the quarter ended June 29, 2018 (the “Q2 2018 Form 10-Q”), we continued to show disaggregated revenue from contracts on the basis of our aggregated reportable segments consistent with Accounting Standards Codification (“ASC”) 280, Segment Reporting, as we did in our Form 10-K for the fiscal year ended December 29, 2017 and our Form 10-Q for the fiscal quarter ended March 30, 2018. We also call to the Staff’s attention that Note 3 to our consolidated financial statements included in the Q2 2018 Form 10-Q contains a cross reference to Note 16, with that cross reference expressly referring to the additional description of our reportable business segments and disaggregated revenue disclosures in Note 16. Under the circumstances, we believe that the approach taken in the Q2 2018 Form 10-Q meets the disclosure requirements ASC 606, Revenues from Customers. The objective of ASC 606 is to show how the nature, amount, timing of revenue and cash flows affected by economic factors and mirror our contracts with customers. It is important to note that our contracts with customers do not differ significantly across the various fresh fruit products, shown on page 4 of our Form 10-K and, as such, we believe that the disclosure included in the Q2 2018 Form 10-Q based on aggregated reportable segments as included in Note 16 is sufficient to meet the requirements of the standard.

3. SEC follow-up comment:

We note from your response to our prior comment 1 that you believe
your disclosure based on aggregated reportable segments as included in Note 16 is sufficient to meet the requirements of ASC 606 in terms of disaggregated revenue disclosures because your contracts with your customers do not differ across fruit products. However, the guidance in ASC 606-10-55-90 indicates that when selecting the type of category to use to disaggregate revenue, you should also consider how information about your revenue has been presented for other purposes including among other factors, disclosures presented outside your financial statements such as in earnings releases, annual reports or investor presentations. In this regard, we note that you have provided revenue amounts on a further disaggregated basis than your reportable segments in earnings releases and in the front section of your Form 10K.The guidance also gives examples of categories that might be appropriate which includes type of contract, but does not limit the categories based on customer contracts. Please provide us further analysis for why you believe product types such as pineapples, fresh-cut product, avocados, melons, and non-tropical produce have similar economic factors in the nature, amount, timing and uncertainty of revenue and cash flows and therefore do not need to be disaggregated under the guidance in ASC 606. Alternatively, please further disaggregate your revenue in the notes to the financial statements under ASC 606-10-50-5. Refer also to the guidance in ASC 606-10-55-89 through 91.

As you can read in the company’s second response letter, they did agree to provide incremental disclosures.

As always, your thoughts and comments are welcome!

As a quick reminder for first quarter-end, the SEC’s Disclosure Update and Simplification Rule last fall added a requirement to the Form 10-Q to include a statement of changes in stockholders’ equity.  This requirement was added via this addition to Article 10-01(a)  of Regulation S-X:

(7) Provide the information required by §210.3-04 for the current and comparative year-to-date periods, with subtotals for each interim period.

Article 3.04 referred to in the paragraph above is the requirement to provide a statement of changes in stockholders’ equity:

• 210.3-04   Changes in stockholders’ equity and noncontrolling interests.

An analysis of the changes in each caption of stockholders’ equity and noncontrolling interests presented in the balance sheets shall be given in a note or separate statement. This analysis shall be presented in the form of a reconciliation of the beginning balance to the ending balance for each period for which a statement of comprehensive income is required to be filed with all significant reconciling items described by appropriate captions with contributions from and distributions to owners shown separately. Also, state separately the adjustments to the balance at the beginning of the earliest period presented for items which were retroactively applied to periods prior to that period. With respect to any dividends, state the amount per share and in the aggregate for each class of shares. Provide a separate schedule in the notes to the financial statements that shows the effects of any changes in the registrant’s ownership interest in a subsidiary on the equity attributable to the registrant.

Given the timing of the effectiveness of the Disclosure Update and Simplification Rule, the staff stated in a C&DIthat they would not require companies to provide this disclosure for the third quarter last year, but it would be required after that.  For calendar year-end companies, first quarter 2019 is when it is required.

Question 105.09

Question: On August 17, 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification. The amendments will become effective on November 5, 2018. Among the amendments is the requirement to present the changes in shareholders’ equity in the interim financial statements (either in a separate statement or footnote) in quarterly reports on Form 10-Q. Refer to Rules 8-03(a)(5) and 10-01(a)(7) of Regulation S-X. When are filers expected to comply with this new requirement?

Answer: The amendments are effective for all filings made on or after November 5, 2018. In light of the timing of effectiveness of the amendments and proximity of effectiveness to the filing date for most filers’ quarterly reports, the staff would not object if the filer’s first presentation of the changes in shareholders’ equity is included in its Form 10-Q for the quarter that begins after the effective date of the amendments. For example, a December 31 fiscal year-end filer could omit this disclosure from its September 30, 2018 Form 10-Q. Likewise, a June 30 fiscal year-end filer could omit this disclosure from its September 30, 2018 and December 31, 2018 Forms 10-Q; however, the staff would object if it did not provide the disclosures in its March 31, 2019 Form 10-Q. (Sept. 25, 2018 and updated October 4, 2018)

With that reminder, if you would like to review an example of the statement, check out this presentation from P&G’s Form 10-Q.  It provides separate presentations for the quarter and year-to-date information.

As always, your thoughts and comments are welcome!