The Securities and Exchange Commission (SEC) released Final Rules on “Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information” on Nov. 19, 2020, with the effective date set as 30 days after their publication in the Federal Register. Those Final Rules were published on Jan. 11, 2021, and now state the effective date as Feb. 10, 2021.
The Final Rules amend guidance in Regulation S-K related to Items 301 – Selected Financial Data, 302 – Supplementary Financial Information and 303 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A). The more significant effects of the amendments are to:
- Completely eliminate the tabular presentation of selected financial data, sometimes referred to as “the five-year table.”
- Replace the required quarterly financial data (typically presented in an unaudited footnote) with a disclosure when there are one or more retrospective changes to the statements of comprehensive income (which start with net income) within the two most recent years.
- Convert or clarify many disclosure items within MD&A to a more principles-based framework, including:
- Substituting the required caption for and specific disclosure of off-balance-sheet arrangements with principles-based guidance.
- Replacing the required contractual obligations table with principles-based disclosure guidance.
- Codifying the SEC’s previous guidance for the disclosure of critical accounting estimates into a Reg S-K requirement.
Registrants may “early adopt” the amended rules for a Form 10-K or a registration statement filed on or after the Feb. 10, 2021, effective date but before the mandatory compliance date (see below). The November 2020 adopting release provided an early adoption example for a registrant after the effective date but before its mandatory compliance date, deciding to a) immediately cease providing disclosure under the previous Item 301 and b) voluntarily provide disclosure under amended Item 303. The example emphasized that the registrant would need to provide all disclosures under amended Item 303 (i.e., all or nothing) and also continue providing those disclosures going forward.
The amended rules must be applied for the first fiscal year ending on or after Aug. 9, 2021 (the “mandatory compliance date”). Therefore, calendar year registrants will first be required to apply the rules in the Form 10-K for the year ended Dec. 31, 2021. For registration statements, registrants will be required to apply the amended rules in a registration statement and prospectus that on its initial filing date is required to contain financial statements for a period on or after the mandatory compliance date.
For a more complete discussion of the amended rules, you can view our recent article Big Reg S-K Changes as SEC Continues to Modernize Disclosures. For other questions, reach out to us at firstname.lastname@example.org.