KMK Law Corporate & Securities Blog

Current Item
or Issue

Summary Description
of Amended Rules

Principal Objective(s)

Item 301, Selected financial data

Registrants will no longer be required to provide 5 years of selected financial data.

Modernize disclosure requirement in light of technological developments and simplify disclosure requirements.

Item 302(a), Supplementary financial information

Registrants will no longer be required to provide 2 years of tabular selected quarterly financial data. The item will be replaced with a principles-based requirement for material retrospective changes.

Reduce repetition and focus disclosure on material information. Modernize disclosure requirement in light of technological  developments.

Item 303(a), MD&A

Clarify the objective of MD&A and streamline the fourteen instructions.

Simplify and enhance the purpose of MD&A.

Item 303(a)(2),
Capital resources

Registrants will need to provide material cash requirements, including commitments for capital expenditures, as of the latest fiscal period, the anticipated source of funds needed to satisfy such cash requirements, and the general purpose of such requirements.

Modernize and enhance disclosure requirements to account for capital expenditures that are not necessarily capital investments.

Item 303(a)(3)(ii),
Results of operations

Registrants will need to disclose known events that are reasonably likely to cause a material change in the relationship between costs and revenues, such as known or reasonably likely future increases in costs of labor or materials or price increases or inventory adjustments.

Clarify item requirement by using a disclosure threshold of “reasonably likely,” which is consistent with the Commission’s interpretative guidance on forward-looking statements.

Item 303(a)(3)(iii),
Results of operations

Clarify that a discussion of material changes in net sales or revenue is required (rather than only material increases).

Clarify MD&A disclosure requirements by codifying existing Commission guidance.

Item 303(a)(3)(iv),
Results of operations

Instructions 8 and 9 (Inflation and price changes)

The item and instructions will be eliminated.  Registrants will still be required to discuss these matters if they are part of a known trend or uncertainty that has had, or the registrant reasonably expects to have, a material favorable or unfavorable impact on net sales, or revenue, or income from continuing operations.

Encourage registrants to focus on material information that is tailored to a registrant’s businesses, facts, and circumstances.

Item 303(a)(4), Off- balance sheet arrangements

The item will be replaced by a new instruction to Item 303. Under the new instruction, registrants will be required to discuss commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have, or are reasonably likely to have, a material current or future effect on such registrant’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements, or capital resources even when the arrangement results in no obligation being reported in the registrant’s consolidated balance sheets.

Prompt registrants to consider and integrate disclosure of off-balance sheet arrangements within the context of their MD&A.

Item 303(a)(5),
Contractual Obligations

Registrants will no longer be required to provide a contractual obligations table. A discussion of material contractual obligations will remain required through an enhanced principles-based liquidity and capital resources requirement focused on material short- and long-term cash requirements from known contractual and other obligations.

Promote the principles-based nature of MD&A and simplify disclosures.

Instruction 4 to Item 303(a) (Material changes in line items)

Incorporate a portion of the instruction into amended Item 303(b). Clarify in amended Item 303(b) that where there are material changes in a line item, including where material changes within a line item offset one another, disclosure of the underlying reasons for these material changes in quantitative and qualitative terms is required.

Enhance analysis in MD&A. Clarify MD&A disclosure requirements by codifying existing Commission guidance on the importance of analysis in MD&A.

Item 303(b), Interim periods

Registrants will be permitted to compare their most recently completed quarter to either the corresponding quarter of the prior year or to the immediately preceding quarter.  Registrants subject to Rule 3- 03(b) of Regulation S-X will be afforded the same flexibility.

Allow for flexibility in comparison of interim periods to help registrants provide a more tailored and meaningful analysis relevant to their business cycles.

Critical Accounting Estimates

Registrants will be explicitly required to disclose critical accounting estimates.

Facilitate compliance and improve resulting disclosure. Eliminate disclosure that duplicates the financial statement discussion of significant policies.  Promote meaningful analysis of measurement uncertainties.