SEC issues final rules eliminating duplicative disclosure requirements

08.22.18

The Securities and Exchange Commission (SEC) has simplified or eliminated guidelines regarding outdated, duplicative or overlapping disclosure requirements.

The Disclosure Update and Simplification amendments, which will become effective 30 days after publication in the Federal Register, are part of an ongoing disclosure update initiative announced by the SEC’s Division of Corporation Finance in 2016 to review and improve disclosure requirements for investors, as mandated by the 2015 Fixing America’s Surface Transportation (FAST) Act. The amendments eliminate certain:

• Redundant, overlapping and duplicative requirements that relate to or require substantially similar disclosures as GAAP, International Financial Reporting Standards (IFRS) or other Commission disclosure requirements.

• Outdated requirements, which have become obsolete because of the passage of time or changes in the regulatory, business, or technological landscape.

• Superseded requirements, which are inconsistent with recent/updated legislation, SEC disclosure requirements, or GAAP requirements.

A large number of the changes made by the amendments relate to accounting rules in Regulation S-X, which should streamline disclosures for tax-heavy issuers such as REITs.

The amendments also make changes to Regulation S-K, Regulation M-A, Regulation AB, as well as many corresponding Securities Act, Exchange Act and Investment Company Act rules and forms.

Perhaps most significantly, the amendments will affect typical disclosures made in the body of Form 10-Ks, proxy statements and registration statements outside of the financial statements. For example, the following sections will be changed as follows:

Description of Business.

The amendments revise Item 101 of Regulation S-K to eliminate required disclosures in the business description regarding:

• Financial information about segments.
• Research and development spending.
• Financial information about geographic areas.
• Risks attendant to foreign operations and the dependence of one or more of the registrant’s segments upon foreign operations, but where material this should be covered in risk factors.

Internet Address. Disclosure of the issuer’s internet address is now mandatory if the issuer has one.

Public Reference Room. The amendments eliminate required disclosures for registration statements about SEC filings being available in the public reference room at the SEC’s headquarters.

Trading Markets and Dividends. The identification of trading markets for equity securities must now be accompanied by the trading symbols for such securities. Disclosure of high and low trading prices for each quarter in the last two full fiscal years and interim periods is no longer required. In addition, the dividend history for the previous two fiscal years and interim periods is also eliminated. Restrictions on the ability to pay dividends have now been consolidated into Regulation S-X, so if included in the financial statements such restrictions no longer need to be disclosed in the body of the Form 10-K or other applicable filings.

Ratio of Earnings to Fixed Charges. The required disclosure of the ratio of earnings to fixed charged and the related exhibit requirement has been deleted.

In sum, the amendments seem to support the SEC’s disclosure update initiative which maintains its “principles-based” approach to disclosure grounded in the concept of materiality. However, because so many existing SEC disclosure requirements are affected, it is advised to read the full text of the disclosure amendments.