Welcome to the start of the fall reporting season as we gear up for the third-quarter and begin preparations for year-end.  We have summarized all of our posts going into the details of the SEC’s March 2019 Disclosure Modernization Final Rule in a single document that you can find here.  

We hope it helps as you think about ways to implement these changes in your next Form 10-K.

Also, we will be exploring the implications of the principles-based concepts in the August 2019 Proposed Rule to modernize business, legal proceedings and risk factor disclosures in  upcoming weeks to help get a head start on those possible changes.

As always, your thoughts and comments are welcome!

As we overviewed in this post the SEC’s Disclosure Modernization and Simplification final rule changes a number of items in Forms 10-K, 10-Q and 8-K.  This post starts at the beginning, with changes to the cover page of each of these reports.

As a brief reminder, most of the changes in this final rule are effective 30 days after  publication in the Federal Register.  The Final Rule was published in the Federal Register on April 2, 2019, so the effective date for most of the rule is May 2, 2019.  Two of the changes have different effective dates, the changes to confidential treatment and certain other details surrounding exhibits,  which we will discuss in a later post, and the requirement to add iXBRL tags to cover pages, which is discussed in this post.

The three changes to Forms 10-K, 10-Q and 8-K cover pages are:

1. The cover pages of Forms 10-K, 10-Q and 8-K now include the filer’s ticker symbol, and the cover pages of all the forms will have consistent information about the national exchange or principal U.S. market for the company’s securities and title of each class of securities.

2. Cover pages for Forms 10-K, 10-Q and 8-K must now be tagged with inline XBRL.

3. On Form 10-K’s cover page the S-K 405 Section 16 delinquency reporting checkbox is removed, along with a related instruction in Item 10 of form 10-K.

(Note: Parts of this rule also apply to Forms 20-F and 40-F, which are included in the discussion below.)

1. Consistent Disclosure of Ticker Symbol, Exchange and Class of Securities on Cover Pages

This change seems fairly innocuous, and in fact it really is.  The addition of a company’s ticker symbol to the cover pages of Forms 10-K, 10-Q and 8-K (as well as Forms 20-F and 40-F) is not discussed in any detail in the final rule. As a matter of common sense in a world with so many on-line sources for stock price information this is essentially a nice convenience.  This change follows consistently with last August’s final rule that requires disclosure of a company’s ticker symbol in Form 10-K Item 5.

The other part of this disclosure does not change Form 10-K where information about the exchange or principal U.S. market for the company’s securities and the title of each class of securities is already included.  The new rule adds this information to the cover pages of Forms 10-Q and 8-K (as well as Forms 20-F and 40-F).  Adding this information provides for consistency, particularly when all of this information will be tagged with iXBRL tags.  This change should make gathering data electronically simpler and help assure consistency in how data is gathered.

To make both the above changes the final rule adds this box to Forms 10-K, 10-Q, 8-K, 20-F and 40-F:

As the final rule was published in the Federal Register on April 2, 2019 and this part is effective on May 2, 2019, this provision will technically be effective for Forms 10-Q and 10-K filed after May 2, 2019,  Given the short time frame between the effective date and the due dates for first quarter 10-Q’s it is possible the SEC may grant a bit of a grace period as they did with the 10-Q requirement in last summer’s Disclosure Update and Simplification rule.  (You can review C&DI Question 105.09 as a reminder.)  Best to stay tuned!

2. Inline XBRL Tagging on Cover Pages for Forms 10-K, 10-Q and 8-K.

The SEC’s Inline XBRL (iXBRL) rule adopted on June 28, 2018, requires companies to implement inline XBRL on the following schedule:

If you have not seen a live iXBRL filing, you could check out this example, where you can also try the SEC’s inline XBRL viewer.  You can also check out Dell Technologies and Adobe for more examples.  (As a side note, later in April we will do another post about this change with some hopefully helpful tips.)

Existing requirements in Reg S-T and the EDGAR Filer Manual include tagging of certain information on the cover pages of Form 10-K and 10-Q, known as document and entity identifier elements.  This existing tagging requirement includes form type, company name, filer size, and public float.  This is of course only part of the information on the cover pages of these forms.

The Disclosure Modernization and Simplification final rule expands this requirement to include more information and applies it to more forms. The new rule requires all of the information on the cover pages of Forms 10-K, 10-Q, 8-K, 20-F, and 40-F to be tagged in Inline XBRL.  This will be done following the guidance in the EDGAR Filing Manual.

Tagged information will now include the exchange on which the company’s securities are registered and the state (or jurisdiction) of incorporation.

The tagging will be done following the requirements in the EDGAR Filer Manual and is added via new Regulation S-T Rule 406 and a new exhibit, Item 601(b)(104) to Regulation S-K.  (The rule also adds new section 104 to the “Instructions as to Exhibits” of Form 20-F, and new paragraph B.17 to the “General Instructions” of Form 40-F to add this requirement to those forms also.)

New S-T Item 406 now provides this requirement:

232.406 Cover Page XBRL Data Tagging.

Electronic filers submitting Forms 10-K (§ 249.310 of this chapter), 10-Q (§ 249.308a of this chapter), 8-K (§ 249.308 of this chapter), 20-F (§ 249.220f of this chapter) or 40-F
(§ 249.240f of this chapter) who are required to submit Interactive Data Files (§ 232.11) in Inline XBRL format in accordance with this Regulation S-T must tag in Inline XBRL electronic format, in the manner provided by the EDGAR Filer Manual, all of the information provided by the electronic filer that is required on the cover page of these forms.

In the final rule as a rational for this change the SEC says:

By increasing the capacity for automation of the data gathering process, we believe these amendments will further enhance investors’ use of interactive data to identify, count, sort, compare, and analyze registrants and their disclosures.   For example, an investor will be able to more readily and accurately identify registrants that are listed on a specific exchange and that identified themselves as well known seasoned issuers in their last annual report. Similarly, the Inline XBRL tagging of the new ticker symbol disclosure requirement will make it easier to relate/link a specific security to the underlying registrant. In addition, the amendments will allow the Commission to make enhancements to the EDGAR system to enable investors to search for filings with these specific criteria.

And, these changes will also benefit the Commission staff:

The new filing requirements will also be of benefit to the Commission, as the Commission and its staff will be able to more readily sort and analyze filings to, among other things, improve data and analysis for rulemaking initiatives.

As a last note, this change will be effective for a company at the same time the Inline XBRL requirement becomes effective for that company, as outlined in the table at the beginning of this section.

3. Elimination of the Form 10-K S-K Item 405 Checkbox

This last cover page change applies only to Form 10-K.  In our workshops we have always cautioned participants to be very careful with the complexly worded S-K Item 405 checkbox related to disclosure of delinquent Section 16 filers.  While there was a separate instruction about this checkbox in the Item 10 instructions, it was not clear that the box should be checked if all reports were filed on time, and the box was frequently incorrect.

Given all the other reporting surrounding delinquent Section 16 filings and the disclosure of this information in proxy statements and Form 10-K, page 219 of the rule contains the change to Form 10-K for this checkbox:

Removing the second sentence of Instruction (G)(4) under “General Instructions”, the checkbox that relates to disclosure under Item 405, and the instruction to Item 10; and

The first part of this change referring to Instruction (G)(4) is a “clean-up” change related to incorporation by reference and will be discussed in a later post.  The second section – “the checkbox that relates to disclosure under Item 405, and the instruction to Item 10” – is the regulatory guidance that removes the troublesome checkbox.  This language is now gone from the cover page:

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [ ]

And, this instruction has also been removed from Item 10:

Instruction

Checking the box provided on the cover page of this Form to indicate that Item 405 disclosure of delinquent Form 3, 4, or 5 filers is not contained herein is intended to facilitate Form processing and review. Failure to provide such indication will not create liability for violation of the federal securities laws. The space should be checked only if there is no disclosure in this Form of reporting person delinquencies in response to Item 405 and the registrant, at the time of filing the Form 10-K, has reviewed the information necessary to ascertain, and has determined that, Item 405 disclosure is not expected to be contained in Part III of the Form 10-K or incorporated by reference.

While the final rule does not include a lot of discussion about this change, this is a welcome simplification!

As a final note, we will dive into details about changes to the required disclosures about delinquent Section 16 filers in a later post.

This starts the details of implementing the Disclosure Modification and Simplification final rule. Our next post will explore the changes to the guidance for risk factor disclosure.

As always, your thoughts and comments are welcome!

Here is a brief video overview of this post, hope you find it interesting!

As you have likely heard on March 20, 2019, the SEC adopted a final rule for “Disclosure Modernization and Simplification” as part of its responsibilities under the FAST Act.  This new rule makes a number of detailed changes to reports on Form 10-K, 10-Q and, to a lesser extent, Form 8-K.  The rule also makes several broad changes in areas such as incorporation by reference, obtaining confidential treatment and iXBRL tagging.

As we did with the August 2018 Disclosure Update and Simplification rule, we are going to do a series of posts to help manage these details and implement this new rule.

To begin, in this post, to help see the big picture of the changes, we have a list of what is “modernized and simplified” item-by-item in Forms 10-K and 10-Q.

Next will be a series of posts that delve into the changes for each item.

Last, after the final rule with any corrections or updates is published in the Federal Register, we will post a comprehensive “cookbook” to provide step-by-step guidance to implement the changes.

To help organize our thoughts for implementation of this new rule, here is the item-by-item “big picture” summary of all the periodic reporting changers in the Disclosure Modernization and Simplification rule:

1. Cover page changes

Both 10-Q and 10-K now include ticker symbol on the cover page.

Elimination of the S-K 405 Section 16 delinquency reporting check box.

Both 10-Q and 10-K cover pages must now be tagged for iXBRL (effective with the iXBRL rule).

2. Item 1A – Risk Factors

Risk factor guidance has been moved from S-K Item 503(c) to new Item 105. The wording has been changed to remove examples.

3. Item 2 – Properties

           S-K Item 102 has been changed to focus on material information about
properties.

4. Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Regulation S-K Item 303 has been changed to allow companies that present three years of financial statements to omit the earliest year in MD&A discussion.

5. Item 10. Directors, Executive Officers and Corporate Governance.

One minor change in S-K Item 401 to fix the instruction that permits omitting executive officer information from the proxy or other information statement if it is included in Part One of Form 10-K.

Another minor change to S-K Item 405 to change the title of the section for delinquent Section 16 filers to “Delinquent Section 16(a) Reports” and encourage omitting this title if there are no delinquencies to report.

6. Item 11. Executive Compensation.

No changes (although there is one minor change to S-K Item 407(d) that may affect proxy disclosures, including some EGC disclosures).

7. Item 15. Exhibits, Financial Statement Schedules.

Changes for incorporation by reference, redacting of information with potential competitive harm, potential exclusion of schedules for exhibits, omission of information that would violate personal privacy considerations and other changes such as moving disclosures such as a description of the registrant’s securities to an exhibit.

With the changes listed above, our detailed posts will also include discussion of other changes, such as:

The elimination of the 5-year time horizon for incorporation by reference from 34 Act reports that used to be in S-K Item 10(d).

Changes to Rule 12b-23 dealing with incorporation by reference to clarify that incorporation by reference into the financial statements is generally not allowed.

Several changes to S-K Item 501 and other prospectus related changes.

As a final note, most significant SEC rule changes end up with an acronym or nickname as we discuss them. Hence, last August’s Disclosure Update and Simplification rule became known as “Duster”.  So far, no consensus nickname for this new rule has emerged. If you have a suggestion put it in a response to this post!

As always, your thoughts, comments and nickname suggestions are welcome!