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SEC Proposes Amendments and Issues Guidance on Financial Disclosure Requirements

The SEC proposed rule amendments designed to "modernize, simplify, and enhance" certain Regulation S-K financial disclosure requirements. Further, the SEC issued guidance on the key performance indicators and metrics under Regulation S-K Item 303, Management's Discussion and Analysis ("MD&A") of Financial Condition and Results of Operations.

The proposal and guidance, which follow the publication of a staff report, are part of a broader initiative to assess and improve the agency's disclosure requirements.

The proposed rule amendments would, among other things:

  • eliminate duplicative requirements contained in: Item 301 ("Selected Financial Data"), Item 302 ("Supplementary Financial Information") and Item 303(a)(5) ("Tabular disclosure of contractual obligations");

  • modernize MD&A disclosures by amending Item 303;

  • explicitly state the principal objectives of MD&A under new Item 303(a);

  • introduce a principles-based instruction - replacing Item 303(a)(4) ("Off-balance sheet arrangements") - which would encourage registrants to assess off-balance sheet arrangements in the broader context of MD&A;

  • clarify and codify existing SEC guidance under a new disclosure requirement to Item 303; and

  • modify the interim MD&A requirement in Item 303(b) to allow companies to compare their most recent quarter to either (i) the corresponding quarter of the prior year or (ii) the immediately preceding quarter.

The MD&A guidance, among other things:

  • outlines considerations for determining whether additional disclosures are necessary when disclosing metrics; and

  • reminds companies to maintain and adhere to disclosure controls and procedures as per SEA Rules 13a-15 and 15d-15 when disclosing metrics.

Comments on the proposal must be submitted within 60 days of publication in the Federal Register. The MD&A guidance will be effective upon publication in the Federal Register.

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