The SEC recently issued a final rule, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, which eliminates Regulation S-K Item 301, Selected financial data, because it is largely duplicative of other existing requirements. The final rule also streamlined the requirements of Item 302(a), Supplementary financial information, by replacing the current requirement for quarterly tabular disclosure with a principles-based requirement for material retrospective changes. In addition, the final rule includes amendments to Item 303, Management's discussion and analysis of financial condition and results of operations, (MD&A) which, 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.
- Amend Item 303(b)(1), Liquidity and capital resources, to specifically require disclosure of material cash requirements from known contractual and other obligations as part of an enhanced liquidity and capital resources discussion.
- Add a new disclosure requirement to Item 303(b)(3), 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 final rule is effective 30 days after publication in the Federal Register. Registrants are required to apply the amended rules for their first fiscal year ending on or after 210 days after publication in the Federal Register (the “mandatory compliance date”). Registrants are required to apply the amended rules in a registration statement and prospectus that on its initial filing date is required to contain financial statements for a period on or after the mandatory compliance date. Although registrants will not be required to apply the amended rules until their mandatory compliance date, they may provide disclosure consistent with the final amendments any time after the effective date, so long as they provide disclosure responsive to an amended item in its entirety.