{"id":2046,"date":"2021-08-10T10:31:42","date_gmt":"2021-08-10T14:31:42","guid":{"rendered":"https:\/\/seci.wpenginepowered.com\/?p=2046"},"modified":"2021-08-10T10:31:42","modified_gmt":"2021-08-10T14:31:42","slug":"the-new-mda-rule-part-seven-sequential-quarterly-analysis-in-interim-mdas","status":"publish","type":"post","link":"https:\/\/seciblog.pli.edu\/index.php\/the-new-mda-rule-part-seven-sequential-quarterly-analysis-in-interim-mdas\/","title":{"rendered":"The New MD&A Rule: Part Seven \u2013 Sequential Quarterly Analysis In Interim MD&As"},"content":{"rendered":"

This is the seventh in a series of blog posts in which we are diving into the details of the SEC\u2019s Management\u2019s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information<\/a>Final Rule. This rule was published in the Federal Register<\/a> on January 11, 2021.\u00a0 It is effective for filings on or after February 10, 2021.<\/p>\n

The rule\u2019s transition provisions include a mandatory transition date but also allow voluntary early compliance.\u00a0 The mandatory<\/strong> transition date is each company\u2019s first fiscal year that ends after August 9, 2021, 210 days after the effective date.\u00a0 Companies may voluntarily<\/strong> apply the new rule, on an S-K item-by-item basis, in any filing made on or after the effective date of February 10, 2021.<\/p>\n

This means a company that files a Form 10-K on or after February 10, 2021, has the option to early implement this new MD&A (S-K Item 303) guidance.\u00a0 Even if a company does not implement the rule early, it is not too soon to start planning for any required changes.\u00a0 And, hopefully, this exploration can be a possible stepping-off point for a process to review and possibly improve MD&A as a communication document.<\/strong><\/p>\n

In this post,<\/a> we overviewed the MD&A changes.\u00a0 The second<\/a>, third<\/a>,\u00a0 fourth<\/a>, fifth,<\/a> and sixth<\/a> posts reviewed and discussed:<\/p>\n

The addition of an objective to S-K Item 303<\/a>,<\/p>\n

New critical accounting estimate disclosures<\/a>,<\/p>\n

Changes to results of operations and known trend discussions<\/a>,<\/p>\n

The elimination of a separate paragraph with disclosure requirements for off-balance sheet arrangements, and<\/a><\/p>\n

Replacing the Contractual Obligations Table with a Principles-Based Requirement<\/a>.<\/p>\n

This seventh post addresses another change many preparers welcome, the addition of a provision to the interim MD&A requirements that allows companies to use sequential quarterly analysis.\u00a0 With this option, companies can compare the most recent quarter to the immediately preceding quarter rather than to the same quarter in the previous fiscal year.\u00a0 This new option for sequential quarterly analysis may be a more meaningful presentation for companies that do not have significant seasonality in their operations.\u00a0 Under the old rules, if a company thought sequential quarter analysis better fit their business, it still had to present the quarter this year compared to the quarter last year along with sequential quarter analysis.<\/p>\n

The SEC made this comment in the Final Rule:<\/p>\n

\u201cWe continue to believe that the flexibility provided by these amendments will help registrants provide a more tailored and meaningful analysis that is relevant to their specific business cycles while also providing investors with material information to assess quarterly performance. Because not all businesses are seasonal, a comparison to the corresponding quarter of the preceding year may not be as meaningful as a comparison to the preceding quarter. Additionally, by requiring registrants not only to explain the reasons for a change in comparison from prior periods but also to provide both comparisons when there is such a change, we believe investors will benefit from greater insight into a registrant\u2019s decision making and have sufficient disclosure to understand any period-over-period change.\u201d<\/p>\n

The change was made by adding language to the old MD&A requirement, which was also moved to new paragraph S-K Item 303(c):<\/p>\n

(ii) Discuss any material changes in the registrant\u2019s results of operations with respect to either the most recent quarter for which a statement of comprehensive income is provided and the corresponding quarter for the preceding fiscal year or, in the alternative, the most recent quarter for which a statement of comprehensive income is provided and the immediately preceding sequential quarter<\/strong>. If the latter immediately preceding sequential quarter is discussed, then provide in summary form the financial information for that immediately preceding sequential quarter that is subject of the discussion or identify the registrant\u2019s prior filings on EDGAR that present such information. If there is a change in the form of presentation from period to period that forms the basis of comparison from previous periods provided pursuant to this paragraph, the registrant must discuss the reasons for changing the basis of comparison and provide both comparisons in the first filing in which the change is made.<\/p>\n

If a company uses sequential quarterly analysis, it most include summary financial information for the preceding quarter or identify the prior filing that contains the earlier quarter.\u00a0 And, if a change in approach is made, the company must discuss the reasons for the change and present both comparisons in the filing where the change is made.<\/p>\n

At the most recent meeting of the Center For Audit Quality SEC Regulations Committee<\/a>, the staff addressed a question for companies that want to change to the sequential quarter \u00a0approach when they adopt this new guidance.\u00a0 The minutes of the meeting include this guidance from the SEC Staff:<\/p>\n

\u201c\u2026the staff confirmed, that a registrant which elects to revise the quarterly periods being compared upon initial compliance with the New Rules would be required to present the MD&A comparison in both its historic presentation and the new revised presentation<\/strong>. For example and assuming the change in MD&A comparison occurs in the first quarter Form 10-Q, the registrant would disclose both the comparison of the first quarter of the current year with that of the prior year and the comparison of the first quarter of the current year with the fourth quarter of the prior year. It would also disclose the reason for the change.<\/strong>\u201d<\/p>\n

If you would like to see an example of a company using this presentation, check out this Form 10-Q for ChampionX<\/a> Corporation.\u00a0 If your company or a company you follow has used sequential quarterly analysis in their MD&A, would you please add a comment to this blog and identify the company?\u00a0 Examples are always helpful!<\/p>\n

As always, your thoughts and comments are welcome!<\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

This is the seventh in a series of blog posts in which we are diving into the details of the SEC\u2019s Management\u2019s Discussion and Analysis, Selected Financial Data, and Supplementary Financial InformationFinal Rule. This rule was published in the Federal Register on January 11, 2021.\u00a0 It is effective for filings on or after February 10, … Continue reading The New MD&A Rule: Part Seven \u2013 Sequential Quarterly Analysis In Interim MD&As<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpas_customize_per_network":false},"categories":[143,242],"tags":[],"coauthors":[154],"class_list":["post-2046","post","type-post","status-publish","format-standard","hentry","category-hot-topic","category-reporting"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/posts\/2046","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/comments?post=2046"}],"version-history":[{"count":0,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/posts\/2046\/revisions"}],"wp:attachment":[{"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/media?parent=2046"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/categories?post=2046"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/tags?post=2046"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/coauthors?post=2046"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}