The SEC has adopted amendments to the business description, legal proceedings and risk factor disclosures required by reporting companies in annual and quarterly reports and registration statements. The amendments are intended to modernize disclosure requirements, including by eliminating certain duplicative requirements and improving the usability of filings for investors. The SEC expects the amendments to elicit disclosures that are tailored to each registrant’s particular circumstances.
The amendments became effective on November 9, 2020 and apply to any Form 10Qs, Form 10Ks or registration statements filed on or after that date. Item 103 (legal proceedings) disclosures need to be updated for Form 10Qs filed on or after November 9, 2020. Item 101 (description of business) and Item 105 (risk factors) are required only in a registrant’s next Form 10K. But firms that voluntarily include their full risk-factor disclosure in their Form 10Qs should consider updating their disclosure to comply with the amended rule.
General development of business
The amendments to Item 101(a) of Regulation SK reflect the SEC’s shift toward a principles-based approach, where disclosure objectives are set and registrants have more flexibility in determining what disclosure is important for their particular business, and away from the prescriptive approach requiring all registrants to disclose the same types of information.
- Qualification of required disclosure: Under the pre-amendment version of Item 101(a), a registrant was required to make disclosures regarding the general development of the registrant’s business, including bankruptcy and receivership proceedings, merger or consolidation of the registrant or its major subsidiaries, and the acquisition or disposition of a material volume of assets. The new rules require disclosure on these topics only to the extent that it would be material to understanding the general development of the registrant’s business.
- Broadening discussion topics: ‘Material changes to a registrant’s previously disclosed business strategy’ is added to the list of disclosure topics. The list is now non-exclusive, however, and the registrant is required to disclose information not otherwise contemplated by the list of disclosure topics if such information would be material to understanding the general development of the registrant’s business.
- Elimination of the five-year timeframe: Discussion of the general development of the registrant’s business is now made without respect to a specific timeframe. Instead, the registrant must provide information material to an understanding of the development of the business, regardless of the specific timeframe.
- Require only updated disclosure: The new rules allow registrants, in filings made after a registrant’s initial filing, to include only disclosure of all material developments that have occurred, if any, since the most recent full discussion of the general development of its business disclosed in a previously filed registration statement or report. If a registrant chooses this approach, it must incorporate by reference the most recent full discussion of the development of its business.
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