SEC Proposes Amendments to Update and Simplify Disclosure Requirements as Part of Overall Disclosure Effectiveness Review | Practical Law

SEC Proposes Amendments to Update and Simplify Disclosure Requirements as Part of Overall Disclosure Effectiveness Review | Practical Law

The SEC proposed rule amendments to eliminate redundant, overlapping, outdated, or superseded provisions, as a result of changes to SEC disclosure requirements, US generally accepted accounting principles (US GAAP), international financial reporting standards (IFRS), and technology.

SEC Proposes Amendments to Update and Simplify Disclosure Requirements as Part of Overall Disclosure Effectiveness Review

by Practical Law Corporate & Securities
Published on 14 Jul 2016 • USA (National/Federal)
The SEC proposed rule amendments to eliminate redundant, overlapping, outdated, or superseded provisions, as a result of changes to SEC disclosure requirements, US generally accepted accounting principles (US GAAP), international financial reporting standards (IFRS), and technology.
On July 13, 2016, the SEC proposed rule amendments to eliminate redundant, overlapping, outdated, or superseded provisions, as a result of changes to SEC disclosure requirements, US generally accepted accounting principles (US GAAP), international financial reporting standards (IFRS), and technology. In the proposal, the SEC is also soliciting comments on certain disclosure requirements that overlap with US GAAP to determine whether to retain, modify, eliminate or refer them to the Financial Accounting Standards Board (FASB) for potential inclusion in US GAAP.
The July 2016 proposal is part of the disclosure effectiveness review, which is a broad-based staff review of the requirements, and the presentation and delivery of disclosures that companies make to investors (see Legal Update, SEC Issues Concept Release on Modernizing Disclosure Requirements in Regulation S-K). The proposal is also part of the SEC's work to implement the FAST Act, which, among other things, requires the Commission to eliminate provisions of Regulation S-K that are duplicative, overlapping, outdated, or unnecessary (see Legal Update, President Obama Signs the FAST Act, Codifying a New Resale Exemption and Creating Additional Accommodations for EGCs).
The proposing release covers:
  • Duplicative requirements, which require substantially the same disclosures as US GAAP, IFRS, or other SEC disclosure requirements (see Redundant or Duplicative Requirements). The SEC is proposing to delete these requirements because the requirements appear elsewhere.
  • Overlapping requirements, which are related to, but not the same as US GAAP, IFRS, or other SEC disclosure requirements (see Overlapping Requirements). For these requirements, the SEC is considering whether to:
    • delete SEC disclosure requirements that either require disclosures that convey information reasonably similar to, or that are encompassed by the disclosures that result from compliance with, the overlapping US GAAP, IFRS or SEC disclosure requirements, or require disclosure incremental to the overlapping US GAAP, IFRS or SEC disclosure requirements and that may no longer be useful to investors;
    • integrate SEC disclosure requirements that overlap with, but require information incremental to, other SEC disclosure requirements; or
    • solicit comment on certain SEC disclosure requirements that overlap with, but require information incremental to, US GAAP to determine whether to retain, modify, eliminate, or refer them to the FASB for potential incorporation into US GAAP.
  • Outdated requirements, which have become obsolete as a result of the passage of time or changes in the regulatory, business, or technological environment (see Outdated Requirements). The SEC is proposing to amend these outdated requirements. The SEC will consider whether to propose requiring additional disclosure of information to reduce any loss of information or increased burdens for investors.
  • Superseded requirements, which are inconsistent with recent legislation, more recently updated SEC disclosure requirements, or more recently updated US GAAP (see Superseded Requirements). The SEC is proposing to amend these superseded disclosure requirements to reflect, as applicable, the more recently updated requirements.
The proposed amendments or changes for which comments are solicited impact a wide variety of SEC rules, regulations and forms, including provisions of:
  • Regulation S-X.
  • Regulation S-K.
  • Forms of Securities Act registration statements for domestic issuers and foreign private issuers.
  • Forms of Exchange Act periodic reports and filings.
The SEC is accepting comments until October 3, 2016.
Update: On September 26, 2016, the SEC extended the comment period until November 2, 2016.

Redundant or Duplicative Requirements

In the proposal, the SEC proposes to eliminate many disclosure requirements contained in Regulation S-X, including provisions relating to:
  • Foreign currency.
  • Consolidation of financial statements.
  • Income tax disclosures.
  • Warrants, rights and convertible instruments.
  • Related parties.
  • Contingencies.
  • Earnings per share.
  • Special requirements for insurance companies and bank holding companies.
  • Changes in accounting principles.
  • Interim financial statements.

Overlapping Requirements

Proposed Deletions

The SEC is proposing to delete certain requirements because they are already covered elsewhere (such as under US GAAP) or may no longer be useful to investors. If adopted, some of these deletions would result in the relocation of disclosures within an SEC filing that would impact their prominence and inclusion outside or inside the financial statements. Other deletions, if adopted, would eliminate bright line thresholds included in SEC requirements (where the other requirements do not include such thresholds).
The proposed deletions include provisions regarding:
  • Certain REIT disclosures.
  • Repurchase and reverse repurchase agreements.
  • Accounting policies for derivative instruments.
  • Interim financial statements.
  • Segments and segment financial information
  • Financial information by geographic area and risks and dependence relating to foreign operations.
  • Seasonality.
  • Research and development activities.
  • Frequency and amount of dividends.
  • Information on equity compensation plans approved by securityholders and those not approved by securityholders.
  • Ratio of earnings to fixed changes.

Proposed Integrations

The SEC's proposal would integrate certain overlapping disclosure requirements in SEC rules and regulations, including those relating to:
  • Foreign currency restrictions.
  • Restrictions on dividends.
  • Geographic areas.

Potential Modifications, Deletions or FASB Referrals

The SEC is soliciting comments on certain SEC disclosure requirements that overlap with US GAAP but require additional information to determine whether these requirements should be retained, modified, deleted or referred to the FASB for inclusion in US GAAP directly.
These requirements include provisions relating to:
  • Debt obligations.
  • Interim financial statements.
  • Revenue from products and services.
  • Major customers.
  • Legal proceedings.
  • Oil and gas producing activities.

Outdated Requirements

The SEC is proposing to amend certain SEC disclosure requirements that have become obsolete due to the passage of time or changes in the regulatory, business or technological environment. The SEC is proposing to eliminate certain requirements and add, where necessary, additional disclosure requirements so that investors do not lose information but issuers do not bear additional costs.
These outdated requirements include provisions relating to:
  • Obtaining additional information at the SEC's public reference room and the SEC's website.
  • Market price disclosure for domestic issuers and foreign private issuers.
  • Exchange rate data and age of financial statements for foreign private issuers.

Superseded Requirements

The SEC is proposing to amend outdated SEC disclosure requirements to reflect recent legislation or recently updated SEC requirements or US GAAP.
These requirements include provisions relating to:
  • Auditing standards.
  • Consolidation of financial statements.
  • Special requirements for insurance companies and bank holding companies.
  • Statements of cash flows and comprehensive income.
  • Selected financial data for foreign private issuers that report under IFRS.