Defining Issues | August 2019

SEC proposes further changes to Regulation S-K

The SEC’s proposed amendments would impact the description of business, legal proceedings and risk factor disclosures. 

Applicability

SEC Release Nos. 33-10668; 34-86614; File No. S7-11-19

  • Public companies, including registered investment companies and registered investment advisers

Effective dates

  • Comments are due within 60 days of the proposed rule being posted to the Federal Register

Key impacts

The proposed amendments would revise the description of business and risk factors to emphasize a principles-based approach.  This approach primarily focuses on companies providing disclosure only to the extent it is material.  Additionally, the changes include increased use of referencing and hyperlinks, as well as captioning and ordering requirements.  

The proposed amendments to legal proceedings would continue to follow a more prescriptive approach, while modernizing the disclosures. This proposal continues the SEC’s broader review of its disclosure framework as prescribed by the JOBS Act.

Specifically, the proposed amendments to Item 101 would:

  • permit a registrant, after an initial filing, to provide an update of only material developments in the reporting period – with an active hyperlink to the registrant’s most recent filing that contains the full discussion;
  • eliminate a prescribed timeframe for this disclosure; 
  • provide a nonexclusive list of the types of information that a registrant may need to disclose when such information is material in Item 101(a); 
  • include as a listed disclosure topic, transactions and events that affect or may affect the company’s operations, including material changes to a registrant’s previously disclosed business strategy;
  • include certain disclosure topics drawn from a subset of the topics currently contained in Item 101(c);
  • include human capital resources as a disclosure topic, including any human capital measures or objectives that management focuses on when managing the business; and
  • include material government regulations, as well as environmental laws, as a disclosure topic.

The proposed amendments to Item 103 would:

  • permit a registrant to use hyperlinks or cross-references to disclosures about legal proceedings located elsewhere in the document; and
  • increase the threshold for required disclosure of environmental proceedings to which the government is a party to $300,000 (to adjust for inflation).

The proposed amendments to Item 105 would:

  • require summary risk factor disclosure if the risk factor section exceeds 15 pages;
  • change the disclosure standard from the ‘most significant’ to the ‘material’ factors required to be disclosed; and
  • require risk factors to be organized under relevant headings, with any risk factors that may generally apply to an investment in securities disclosed at the end of the risk factor section under a separate caption.

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