Proposed amendments to certain financial disclosure requirements
FINANCIAL REPORTING INSIGHTS |
The SEC recently issued a proposed rule, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information. If finalized, the proposed amendments would eliminate Regulation S-K Item 301, Selected financial data, and Item 302, Supplementary financial information, because they are largely duplicative of other existing requirements. The proposed rule also includes amendments to Item 303, Management's discussion and analysis of financial condition and results of operations, (MD&A) which, if finalized, would, among other changes:
- Add a new Item 303(a), Objective, to state the principal objectives of MD&A.
- Replace Item 303(a)(4), Off-balance sheet arrangements, with a principles-based instruction to prompt registrants to discuss off-balance sheet arrangements in the broader context of MD&A.
- Eliminate Item 303(a)(5), Tabular disclosure of contractual obligations, given the overlap with information required in the financial statements.
- Add a new disclosure requirement to Item 303, Critical accounting estimates, to explicitly require disclosure of critical accounting estimates, clarifying and codifying related existing SEC guidance in its 2003 MD&A Interpretative Release, Critical accounting estimates.
- Revise the interim MD&A requirement in Item 303(b) to provide flexibility by allowing companies to compare their most recently completed quarter to either the corresponding quarter of the prior year (as is currently required) or to the immediately preceding quarter.
The proposed rule is available for comment for 60 days following its publication in the Federal Register.
The SEC also recently provided guidance on key performance indicators and metrics in MD&A. The guidance provides that, where companies disclose metrics, they should consider whether additional disclosures are necessary and gives examples of such disclosures. The guidance also reminds companies of the requirements in Exchange Act Rules 13a-15 and 15d-15 to maintain disclosure controls and procedures and that companies should consider these requirements when disclosing metrics.