[Federal Register Volume 86, Number 6 (Monday, January 11, 2021)]
[Rules and Regulations]
[Pages 2080-2134]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26090]



[[Page 2079]]

Vol. 86

Monday,

No. 6

January 11, 2021

Part III





Securities and Exchange Commission





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17 CFR Parts 210, 229, et al.





Management's Discussion and Analysis, Selected Financial Data, and 
Supplementary Financial Information; Final Rule

  Federal Register / Vol. 86 , No. 6 / Monday, January 11, 2021 / Rules 
and Regulations  

[[Page 2080]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 229, 230, 239, 240, and 249

[Release No. 33-10890; 34-90459; IC-34100; File No. S7-01-20]
RIN 3235-AM48


Management's Discussion and Analysis, Selected Financial Data, 
and Supplementary Financial Information

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: We are adopting amendments to modernize, simplify, and enhance 
certain financial disclosure requirements in Regulation S-K. 
Specifically, we are eliminating the requirement for Selected Financial 
Data, streamlining the requirement to disclose Supplementary Financial 
Information, and amending Management's Discussion & Analysis of 
Financial Condition and Results of Operations (``MD&A''). These 
amendments are intended to eliminate duplicative disclosures and 
modernize and enhance MD&A disclosures for the benefit of investors, 
while simplifying compliance efforts for registrants.

DATES: 
    Effective date: The final rules are effective February 10, 2021.
    Compliance date: See Section II.F for further information on 
transitioning to the final rules.

FOR FURTHER INFORMATION CONTACT: Angie Kim, Special Counsel, Office of 
Rulemaking, at (202) 551-3430, or Ryan Milne, Associate Chief 
Accountant, Office of the Chief Accountant, at (202) 551-3400 in the 
Division of Corporation Finance, U.S. Securities and Exchange 
Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are adopting amendments to:

------------------------------------------------------------------------
             Commission reference                CFR citation (17 CFR)
------------------------------------------------------------------------
Regulation S-X...............................  Sec.  Sec.   210.1-01
                                                through 210.13-02.
    Item 1-02(bb)............................  Sec.   210.1-02(bb).
Regulation S-K...............................  Sec.  Sec.   229.10
                                                through 229.1406.
    Item 10..................................  Sec.   229.10.
    Item 301.................................  Sec.   229.301.
    Item 302.................................  Sec.   229.302.
    Item 303.................................  Sec.   229.303.
    Item 914.................................  Sec.   229.914.
Regulation AB................................  Sec.  Sec.   229.1100
                                                through 229.1125.
    Item 1112................................  Sec.   229.1112.
    Item 1114................................  Sec.   229.1114.
    Item 1115................................  Sec.   229.1115.
Securities Act of 1933 \1\ (``Securities
 Act'')
    Rule 419.................................  Sec.   230.419.
    Form S-1.................................  Sec.   239.11.
    Form S-20................................  Sec.   239.20.
    Form S-4.................................  Sec.   239.25.
    Form F-1.................................  Sec.   239.31.
    Form F-4.................................  Sec.   239.34.
Securities Exchange Act of 1934 \2\
 (``Exchange Act'')
    Rule 14a-3...............................  Sec.   240.14a-3.
    Schedule 14A.............................  Sec.   240.14a-101.
    Form 20-F................................  Sec.   249.218.
    Form 40-F................................  Sec.   249.220f.
    Form 8-K.................................  Sec.   249.308.
    Form 10-K................................  Sec.   249.310.
Securities Act and Investment Company Act of
 1940 \3\ (``Investment Company Act'')
    Form N-2.................................  Sec.  Sec.   239.14 and
                                                274.11a-1.
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\1\ 15 U.S.C. 77a et seq.
\2\ 15 U.S.C. 78a et seq.
\3\ 15 U.S.C. 80a-1 et seq.

Table of Contents

I. Introduction
    A. Background
    B. Overview of the Final Amendments
II. Description of the Final Amendments
    A. Selected Financial Data (Item 301)
    1. Proposed Amendments
    2. Comments
    3. Final Amendments
    B. Supplementary Financial Information (Item 302)
    1. Proposed Amendments
    2. Comments
    3. Final Amendments
    C. Management's Discussion and Analysis of Financial Condition 
and Results of Operations (Item 303)
    1. Restructuring and Streamlining
    2. Capital Resources--Material Cash Requirements (New Item 
303(b)(1) and Amended Item 303(b)(1)(ii))
    3. Results of Operations--Known Trends or Uncertainties (Amended 
Item 303(b)(2)(ii))
    4. Results of Operations--Net Sales and Revenues (Amended Item 
303(b)(2)(iii)) 600
    5. Results of Operations--Inflation and Price Changes (Current 
Item 303(a)(3)(iv), and Current Instructions 8 and 9 to Item 303(a))
    6. Off-Balance Sheet Arrangements (New Instruction 8 to Item 
303(b))
    7. Contractual Obligations Table (Current Item 303(a)(5)) and 
Amended Item 303(b)(1)--Liquidity and Capital Resources)
    8. Critical Accounting Estimates (New Item 303(b)(3))
    9. Interim Period Discussion (Amended Item 303(c))
    10. Safe Harbor for Forward-Looking Information (Current Item 
303(c))
    11. Smaller Reporting Companies (Current Item 303(d))
    D. Application to Foreign Private Issuers
    1. Form 20-F
    2. Form 40-F
    3. Item 303 of Regulation S-K (Hyperinflation Requirement in 
Item 303 for FPIs)
    E. Additional Conforming Amendments
    1. Roll-up Transactions--Item 914 of Regulation S-K
    2. Regulation AB--Items 1112, 1114, and 1115

[[Page 2081]]

    3. Summary Prospectus in Forms S-1 and F-1
    4. Business Combinations--Form S-4, Form F-4, and Schedule 14A
    5. Form S-20
    F. Compliance Date
III. Other Matters
IV. Economic Analysis
    A. Introduction
    B. Baseline and Affected Parties
    C. Potential Benefits and Costs of the Amendments
    1. Overall Potential Benefits and Costs
    2. Benefits and Costs of Specific Amendments
    D. Anticipated Effects on Efficiency, Competition, and Capital 
Formation
    E. Alternatives
V. Paperwork Reduction Act
    A. Summary of the Collections of Information
    B. Summary of Comment Letters and Revisions to PRA Estimates
    C. Effects of the Amendments on the Collections of Information
    D. Incremental and Aggregate Burden and Cost Estimates for the 
Final Amendments
VII. Final Regulatory Flexibility Act Certification
VIII. Statutory Authority

I. Introduction

A. Background

    On January 30, 2020, the Commission proposed amendments to 
Regulation S-K,\4\ and related rules and forms to: (1) Eliminate Item 
301, Selected Financial Data and Item 302, Supplementary Financial 
Information; and (2) modernize, simplify, and enhance the disclosure 
requirements in Item 303, MD&A.\5\ The Commission also proposed certain 
parallel amendments to financial disclosure requirements applicable to 
foreign private issuers (``FPIs'').\6\ The proposed amendments were 
part of an ongoing, comprehensive evaluation of our disclosure 
requirements \7\ and focused on modernizing and improving disclosure by 
reducing costs and burdens while continuing to provide investors with 
all material information.
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    \4\ 17 CFR 229.10 through 229.1406.
    \5\ See Management's Discussion and Analysis, Selected Financial 
Data, and Supplementary Financial Information, Release No. 33-10750 
(Jan. 30, 2020) [85 FR 12068 (Feb. 28, 2020)] (the ``Proposing 
Release'').
    \6\ An FPI is any foreign issuer other than a foreign 
government, except for an issuer that (1) has more than 50% of its 
outstanding voting securities held of record by U.S. residents; and 
(2) any of the following: (i) A majority of its executive officers 
or directors are citizens or residents of the United States; (ii) 
more than 50% of its assets are located in the United States; or 
(iii) its business is principally administered in the United States. 
See 17 CFR 230.405. See also 17 CFR 240.3b-4(c).
    \7\ See Proposing Release at Section I.A.
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    Many commenters supported the objectives of the proposed amendments 
or were generally in favor of the proposals.\8\ We also received 
suggestions to modify or further consider aspects of the proposed 
amendments that commenters believed could be clarified or improved.\9\ 
After reviewing and considering the public comments, we are adopting 
the majority of the amendments as proposed. As discussed further below, 
in certain cases, we are adopting the proposed rules with modifications 
that are intended to address comments received.
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    \8\ Comment letters for the Proposing Release are available at 
https://www.sec.gov/comments/s7-01-20/s70120.htm. Unless otherwise 
indicated, comment letters cited in this release are to the 
Proposing Release. In addition, the SEC's Investor Advisory 
Committee adopted recommendations (``IAC Recommendation'') with 
respect to the proposal and other disclosure matters, asking the 
Commission and staff to: Reconsider whether to permit all companies 
to omit fourth quarter information from annual reports; closely 
monitor accounting developments relating to reverse factoring; 
continue to monitor the use of non-GAAP measures by reporting 
companies; and reconsider whether to permit omission of the tabular 
contractual obligations information in annual reports. See U.S. 
Securities & Exchange Commission Investor Advisory Committee, 
Recommendation of the SEC Investor Advisory Committee Relating to 
Accounting and Financial Disclosure (May 21, 2020), available at 
https://www.sec.gov/spotlight/investor-advisory-committee-2012/accounting-and-financial-disclosure.pdf. See also letter from the 
Investor-as-Owner Subcommittee of the SEC Investor Advisory 
Committee dated April 27, 2020.
    \9\ In addition, some commenters provided input addressing 
whether there is a need for additional disclosure requirements 
relating to environmental, social, or governance issues (``ESG'') 
and sustainability matters. See letters from RSM US LLP dated April 
20, 2020 (``RSM''); Edison Electric Institute and American Gas 
Association dated April 28, 2020 (``EEI & AGA''); U.S. Chamber of 
Commerce's Center for Capital Markets Competitiveness dated May 4, 
2020 (``Chamber''); Principles for Responsible Investment dated 
April 28, 2020; Institute for Policy Integrity, New York University 
School of Law dated April 28, 2020; E. Warren, United States Senator 
dated April 28, 2020; Center for Audit Quality dated April 28, 2020 
(``CAQ''); Ernst & Young, LLP dated April 28, 2020 (``E&Y''); The 
Forum for Sustainable and Responsible Investment dated June 17, 
2020. These commenters reflected a range of views. For example, some 
commenters broadly supported the establishment of comprehensive ESG 
disclosure requirements, while others recommended prescriptive line-
item requirements specifically addressing climate risk disclosures. 
Other commenters asserted that the existing disclosure principles in 
Regulation S-K are sufficient to elicit disclosure of material 
information and objected to new rules that would require all 
registrants to include topic-specific disclosure on ESG and 
sustainability matters irrespective of the applicability to 
registrants' particular operations and finances. In keeping with the 
Commission's principles-based approach to MD&A, we are not adding 
any new requirements to Item 303 with respect to ESG or 
sustainability matters, and continue to emphasize the Commission's 
existing guidance on these topics. See Commission Guidance Regarding 
Disclosure Related to Climate Change, Release No. 33-9106 (Feb. 8, 
2010) [75 FR 6290 (Feb. 8, 2010)].
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B. Overview of the Final Amendments

    We are adopting changes to Items 301, 302, and 303 of Regulation S-
K that would reduce duplicative disclosure and focus on material 
information. Our amendments:
     Eliminate Item 301 (Selected Financial Data); and
     Modernize, simplify, and streamline Item 302(a) 
(Supplementary Financial Information) and Item 303 (MD&A). 
Specifically, these amendments will:
    [cir] Revise Item 302(a) to replace the current requirement for 
quarterly tabular disclosure with a principles-based requirement for 
material retrospective changes;
    [cir] Add a new Item 303(a), Objective, to state the principal 
objectives of MD&A
    [cir] Amend Item 303(a), Full fiscal years (amended Item 303(b)) 
and Item 303(b), Interim periods (amended Item 303(c)) to modernize, 
clarify, and streamline the items;
    [cir] Replace Item 303(a)(4), Off-balance sheet arrangements, with 
an instruction to discuss such obligations in the broader context of 
MD&A
    [cir] Eliminate Item 303(a)(5), Tabular disclosure of contractual 
obligations, and 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; and
    [cir] Add a new Item 303(b)(3), Critical accounting estimates, to 
clarify and codify Commission guidance on critical accounting 
estimates.\10\
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    \10\ See Commission Guidance Regarding Management's Discussion 
and Analysis of Financial Condition and Results of Operation, 
Release No. 33-8350 (Dec. 19, 2003) [68 FR 75056 (Dec. 29, 2003)] 
(the ``2003 MD&A Interpretive Release'').
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    We are also adopting certain parallel amendments to Forms 20-F and 
40-F, including Item 3.A of Form 20-F (Selected Financial Data), Item 5 
of Form 20-F (Operating and Financial Review and Prospects), General 
Instruction B.(11) of Form 40-F (Off-Balance Sheet Arrangements), and 
General Instruction B.(12) of Form 40-F (Tabular Disclosure of 
Contractual Obligations).\11\ The following table summarizes some of 
the changes we are adopting, as described more fully in Section II 
(Final Amendments): \12\
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    \11\ We discuss the amendments that affect FPIs in Section II.D 
infra. We are adopting corresponding changes for FPIs to all items, 
except for Items 302(a) and 303(b).
    \12\ The information in this table is not comprehensive and is 
intended only to highlight some of the more significant aspects of 
the final amendments. It does not reflect all of the amendments or 
all of the rules and forms that are affected. All changes are 
discussed in their entirety below. As such, this table should be 
read together with the referenced sections and the complete text of 
this release.

[[Page 2082]]



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                                       Summary description  of                             Discussed  below in
        Current item  or issue              amended rules        Principal objective(s)          section
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Item 301, Selected financial data....  Registrants will no      Modernize disclosure     II.A.
                                        longer be required to    requirement in light
                                        provide 5 years of       of technological
                                        selected financial       developments and
                                        data.                    simplify disclosure
                                                                 requirements.
Item 302(a), Supplementary financial   Registrants will no      Reduce repetition and    II.B.
 information.                           longer be required to    focus disclosure on
                                        provide 2 years of       material information.
                                        tabular selected         Modernize disclosure
                                        quarterly financial      requirement in light
                                        data. The item will be   of technological
                                        replaced with a          developments.
                                        principles-based
                                        requirement for
                                        material retrospective
                                        changes.
Item 303(a), MD&A....................  Clarify the objective    Simplify and enhance     II.C.1.a.
                                        of MD&A and streamline   the purpose of MD&A.
                                        the fourteen
                                        instructions.
Item 303(a)(2), Capital resources....  Registrants will need    Modernize and enhance    II.C.2 and II.C.7.
                                        to provide material      disclosure
                                        cash requirements,       requirements to
                                        including commitments    account for capital
                                        for capital              expenditures that are
                                        expenditures, as of      not necessarily
                                        the latest fiscal        capital investments.
                                        period, the
                                        anticipated source of
                                        funds needed to
                                        satisfy such cash
                                        requirements, and the
                                        general purpose of
                                        such requirements.
Item 303(a)(3)(ii), Results of         Registrants will need    Clarify item             II.C.3.
 operations.                            to disclose known        requirement by using a
                                        events that are          disclosure threshold
                                        reasonably likely to     of ``reasonably
                                        cause a material         likely,'' which is
                                        change in the            consistent with the
                                        relationship between     Commission's
                                        costs and revenues,      interpretative
                                        such as known or         guidance on forward-
                                        reasonably likely        looking statements.
                                        future increases in
                                        costs of labor or
                                        materials or price
                                        increases or inventory
                                        adjustments.
Item 303(a)(3)(iii), Results of        Clarify that a           Clarify MD&A disclosure  II.C.4.
 operations.                            discussion of material   requirements by
                                        changes in net sales     codifying existing
                                        or revenue is required   Commission guidance.
                                        (rather than only
                                        material increases).
Item 303(a)(3)(iv), Results of         The item and             Encourage registrants    II.C.5.
 operations.                            instructions will be     to focus on material
Instructions 8 and 9.................   eliminated.              information that is
(Inflation and price changes)........   Registrants will still   tailored to a
                                        be required to discuss   registrant's
                                        these matters if they    businesses, facts, and
                                        are part of a known      circumstances.
                                        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.
Item 303(a)(4), Off-balance sheet      The item will be         Prompt registrants to    II.C.6.
 arrangements.                          replaced by a new        consider and integrate
                                        instruction to Item      disclosure of off-
                                        303. Under the new       balance sheet
                                        instruction,             arrangements within
                                        registrants will be      the context of their
                                        required to discuss      MD&A.
                                        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.
Item 303(a)(5), Contractual            Registrants will no      Promote the principles-  II.C.7 and II.C.2.
 obligations.                           longer be required to    based nature of MD&A
                                        provide a contractual    and simplify
                                        obligations table. A     disclosures.
                                        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.

[[Page 2083]]

 
Instruction 4 to Item 303(a).........  Incorporate a portion    Enhance analysis in      II.C.1.b.
(Material changes in line items).....   of the instruction       MD&A. Clarify MD&A
                                        into amended Item        disclosure
                                        303(b). Clarify in       requirements by
                                        amended Item 303(b)      codifying existing
                                        that where there are     Commission guidance on
                                        material changes in a    the importance of
                                        line item, including     analysis in MD&A.
                                        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.
Item 303(b), Interim periods.........  Registrants will be      Allow for flexibility    II.C.9.
                                        permitted to compare     in comparison of
                                        their most recently      interim periods to
                                        completed quarter to     help registrants
                                        either the               provide a more
                                        corresponding quarter    tailored and
                                        of the prior year or     meaningful analysis
                                        to the immediately       relevant to their
                                        preceding quarter.       business cycles.
                                        Registrants subject to
                                        Rule 3-03(b) of
                                        Regulation S-X will be
                                        afforded the same
                                        flexibility.
Critical Accounting Estimates........  Registrants will be      Facilitate compliance    II.C.8.
                                        explicitly required to   and improve resulting
                                        disclose critical        disclosure. Eliminate
                                        accounting estimates.    disclosure that
                                                                 duplicates the
                                                                 financial statement
                                                                 discussion of
                                                                 significant policies.
                                                                 Promote meaningful
                                                                 analysis of
                                                                 measurement
                                                                 uncertainties.
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    We discuss the final amendments below in the order that each Item 
appears in Regulation S-K.

II. Description of the Final Amendments

A. Selected Financial Data (Item 301)

1. Proposed Amendments
    Current Item 301 \13\ requires registrants to furnish selected 
financial data in comparative tabular form for each of the registrant's 
last five fiscal years and any additional fiscal years necessary to 
keep the information from being misleading. Instruction 1 to Item 301 
states that the purpose of the item is to supply in a convenient and 
readable format selected financial data that highlights certain 
significant trends in the registrant's financial condition and results 
of operations. Instruction 2 to Item 301 lists specific items that must 
be included, subject to appropriate variation to conform to the nature 
of the registrant's business, and provides that registrants may include 
additional items they believe would enhance an understanding of, and 
highlight, other trends in their financial condition and results of 
operations.\14\
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    \13\ See also infra Section II.D for a discussion of related 
amendments to Form 20-F.
    \14\ Instruction 2 to Item 301 of Regulation S-K states that, 
subject to appropriate variation to conform to the nature of the 
registrant's business, the following items shall be included in the 
table of financial data: Net sales or operating revenues; income 
(loss) from continuing operations; income (loss) from continuing 
operations per common share; total assets; long-term obligations and 
redeemable preferred stock (including long-term debt, capital 
leases, and redeemable preferred stock); and cash dividends declared 
per common share.
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    Smaller reporting companies \15\ are not required to provide Item 
301 information.\16\ Emerging growth companies (``EGCs'') \17\ that are 
providing the information called for by Item 301 in a Securities Act 
registration statement need not present selected financial data for any 
period prior to the earliest audited financial statements presented in 
connection with the EGC's initial public offering (``IPO'') of its 
common equity securities.\18\ In addition, an EGC that is providing the 
information called for by Item 301 in a registration statement, 
periodic report, or other report filed under the Exchange Act need not 
present selected financial data for any period prior to the earliest 
audited financial statements presented in connection with its first 
registration statement that became effective under the Exchange Act or 
Securities Act.\19\
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    \15\ Item 10(f)(1) of Regulation S-K defines a smaller reporting 
company (``SRC'') as a registrant that is not an investment company, 
an asset-backed issuer, or a majority-owned subsidiary of a parent 
that is not an SRC that: Had a public float of less than $250 
million; or had annual revenues of less than $100 million, and had 
either no public float or a public float of less than $700 million. 
Business development companies (``BDCs'') do not fall within the SRC 
definition and are a type of closed-end investment company that is 
not registered under the Investment Company Act.
    \16\ Item 301(c) of Regulation S-K [17 CFR 229.301(c)].
    \17\ An EGC is defined as a company that has total annual gross 
revenues of less than $1.07 billion during its most recently 
completed fiscal year and, as of December 8, 2011, had not sold 
common equity securities under a registration statement. A company 
continues to be an EGC for the first five fiscal years after it 
completes an IPO, unless one of the following occurs: Its total 
annual gross revenues are $1.07 billion or more; it has issued more 
than $1 billion in non-convertible debt in the past three years; or 
it becomes a ``large accelerated filer,'' as defined in Exchange Act 
Rule 12b-2. See Securities Act Rule 405 and Exchange Act Rule 12b-2.
    \18\ Item 301(d)(1) of Regulation S-K [17 CFR 229.301(d)(1)].
    \19\ Item 301(d)(2) of Regulation S-K [17 CFR 229.301(d)(2)].
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    The Commission proposed to eliminate Item 301 in part because of 
advances in technology since the item's adoption in 1970 that allow for 
easy access to the information required by this item on the 
Commission's Electronic Data Gathering, Analysis, and Retrieval system 
(``EDGAR'').\20\ The Commission also noted that Item 301 was originally 
intended to elicit disclosure of material trends and that requiring 
five years of selected financial data is not necessary to achieve this 
because of the requirement for discussion and analysis of trends in 
Item 303.\21\
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    \20\ See Proposing Release at Section II.A.
    \21\ See Proposing Release at Section II.A.
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2. Comments
    Commenters broadly supported the proposals.\22\ A few commenters 
stated that Item 301 creates additional complexity or costs when 
evaluating whether to recast earlier years or when

[[Page 2084]]

recasting earlier years, such as when there is a new accounting 
standard or change in business.\23\ For example, one commenter stated 
that the costs of providing the earlier two years can be significant 
and elaborated that these costs include: Internal costs to prepare any 
restatement and disclosures; implementation of internal controls; and 
external costs such as legal and audit fees.\24\ Another commenter 
stated that it recently disposed of a portion of its business and 
revising the full five years under Item 301 was difficult and time 
consuming, and it believed that the disclosure was not useful to 
investors.\25\
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    \22\ See, e.g., letters from PriceWaterhouseCoopers LLP dated 
April 23, 2020 (``PWC''); Pfizer, Inc. dated April 24, 2020 
(``Pfizer''); Eli Lilly and Company dated April 24, 2020 (``Eli 
Lilly''); EEI and AGA; KPMG LLP dated April 28, 2020 (``KPMG''); 
CAQ; FedEx dated April 28, 2020 (``FedEx''); Nasdaq, Inc. dated 
April 28, 2020 (``Nasdaq''); Nareit dated April 28, 2020 
(``Nareit''); Financial Executives International dated April 28, 
2020 (``FEI''); SIFMA dated April 28, 2020 (``SIFMA''); Institute of 
Management Accountants dated April 28, 2020 (``IMA''); E&Y 
UnitedHealth Group dated April 28, 2020 (``UnitedHealth''); 
Medtronic dated April 29, 2020 (``Medtronic''); Chamber; ABA 
Business Law Section dated June 5, 2020 (``ABA''); Society for 
Corporate Governance dated June 22, 2020 (``Society'').
    \23\ See, e.g., letters from Eli Lilly; EEI & AGA; FEI.
    \24\ See letter from FEI.
    \25\ See letter from Eli Lilly.
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    Some commenters opposed the proposal and recommended retaining this 
item.\26\ These commenters suggested that eliminating the item would 
increase the time and costs for investors to obtain the same disclosure 
through other means.\27\ Some of these commenters also stated that 
eliminating Item 301 would result in the loss of disclosure, noting 
specifically the loss of the earlier two years where a corporation 
discontinues its operations, changes its accounting standards, or 
otherwise materially restates prior period results.\28\ A few 
commenters also expressed the view that the proposal would negatively 
impact trend disclosure, especially for the full five years, because, 
in their observation, registrants do not typically provide this 
disclosure despite requirements in Item 303 and Commission guidance 
calling for it.\29\ These commenters stated that they ``have not noted 
[trend] disclosure being provided by registrants in MD&A to any 
significant extent, and have certainly not seen evidence of this type 
of disclosure encompassing a full five-year trend analysis.'' \30\
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    \26\ See, e.g., letters from NASAA dated April 28, 2020 
(``NASAA''); California Public Employees' Retirement Systems dated 
April 28, 2020 (``CalPERS''); CFA Institute and Council of 
Institutional Investors dated April 28, 2020 (``CFA & CII''); Dan 
Jamieson dated May 1, 2020 (``D. Jamieson'').
    \27\ See id.
    \28\ See letters from NASAA (observing loss of information where 
there is a change in accounting standard or restatement, noting that 
in both scenarios the lost disclosure would be particularly 
significant); CFA & CII (observing loss of information where there 
are discontinued operations or restatements); D. Jamieson.
    \29\ See letters from CFA & CII; D. Jamieson.
    \30\ See id.
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    A few commenters, while not objecting to the proposed elimination 
of the item, recommended continued consideration of investor input as 
to the overall utility of Item 301.\31\ One of these commenters stated 
that many registrants disclose trends for the periods covered by the 
financial statements, and if Item 303 is intended to elicit five-year 
trend disclosure, Item 303 should be clarified to make this objective 
clear.\32\
---------------------------------------------------------------------------

    \31\ See letters from Grant Thornton dated April 28, 2020 
(``Grant Thornton'') (encouraging ``the SEC to continue outreach to 
investors on the overall utility of selected financial data and 
supplementary financial information prior to finalizing rulemaking 
in this area''); BDO USA, LLP dated April 28, 2020 (``BDO'') 
(stating its belief that ``investors are best positioned to provide 
feedback about whether the Selected Financial Data . . . should be 
eliminated or retained'').
    \32\ See letter from BDO.
---------------------------------------------------------------------------

3. Final Amendments
    We are adopting the amendments to eliminate Item 301 as proposed. 
We agree with commenters that the earlier two years required by Item 
301 can create additional costs and complexity. We acknowledge the 
input of some commenters that the earlier two years required by Item 
301 can help illustrate material trends. However, this disclosure is 
typically available in prior filings on EDGAR.\33\ We also continue to 
believe that the disclosures required by Item 303 should continue to 
elicit material trend disclosure. Item 303 currently requires 
disclosure of trend data,\34\ and will continue to require this 
information under the amendments,\35\ and we reiterate Commission 
guidance that has emphasized the importance of this disclosure in 
MD&A.\36\ In light of these requirements, we do not anticipate that 
eliminating Item 301 will discourage trend disclosure or otherwise 
reduce disclosure of material trends. We acknowledge commenters that 
stated that our amendments may increase the time and costs to investors 
to obtain historical disclosures elsewhere. However, we expect that 
these search costs are likely to decrease over time as investors adjust 
to new disclosure formats.\37\
---------------------------------------------------------------------------

    \33\ In addition, filings are generally available on 
registrants' websites and other third-party websites. We note that 
the elimination of Item 301 includes the exchange rate disclosure 
requirements for FPI's in Instruction 5 of Item 301. This is 
consistent with the Commission's prior removal of exchange rate data 
disclosure requirements in former Item 3.A.3 of Form 20-F, in which 
the Commission similarly cited the ready availability of exchange 
rate disclosure information on a number of websites as a basis for 
eliminating that requirement. See Disclosure Update and 
Simplification, Release No. 33-10532 (Aug. 17, 2018) [83 FR 38768 
(Aug. 7, 2018)]. Id. at 107.
    \34\ See, e.g., Item 303(a)(1) and (a)(2)(ii).
    \35\ See, e.g., amended Item 303(a), Item 303(b)(1)(i), Item 
303(b)(1)(ii)(B), and Item 303(b)(2)(ii).
    \36\ See, e.g., 2003 MD&A Interpretive Release.
    \37\ See infra Section IV.C.2.a.
---------------------------------------------------------------------------

    Notwithstanding the amendments to eliminate Item 301, we encourage 
registrants to consider whether trend information for periods earlier 
than those presented in the financial statements may be necessary as 
part of MD&A's objective to ``provide material information relevant to 
an assessment of the financial condition and results of operations.'' 
\38\ We also encourage registrants to consider whether a tabular 
presentation of relevant financial or other information, as part of an 
introductory section or overview, including to demonstrate material 
trends, may help a reader's understanding of MD&A.\39\
---------------------------------------------------------------------------

    \38\ See amended Item 303(b).
    \39\ See 2003 MD&A Interpretive Release at Section III.A.
---------------------------------------------------------------------------

    This Commission guidance also states that registrants could benefit 
from adding an introductory section or overview. \40\ Notwithstanding 
the amendments to eliminate Item 301, registrants should continue to 
consider whether such tabular disclosure as part of an introductory 
section or overview, including to demonstrate material trends, would be 
appropriate.
---------------------------------------------------------------------------

    \40\ See id.
---------------------------------------------------------------------------

B. Supplementary Financial Information (Item 302)

1. Proposed Amendments
    Current Item 302(a)(1) requires disclosure of selected quarterly 
financial data of specified operating results,\41\ and current Item 
302(a)(2) requires disclosure of variances in these results from 
amounts previously reported on a Form 10-Q.\42\ Item 302(a) does not 
apply to SRCs or FPIs and, because it only applies to companies that 
already have a class of securities registered under Section 12 of the 
Exchange Act at the time of filing, it does not apply to first-time 
registrants conducting an IPO and registrants that are only required to 
file reports pursuant to Section 15(d) of the Exchange Act.\43\ When 
Item 302(a) applies, it requires certain information

[[Page 2085]]

for each full quarter within the two most recent fiscal years and any 
subsequent period for which financial statements are included or 
required by Article 3 of Regulation S-X.\44\ Item 302(a)(3) requires a 
description of the effect of any discontinued operations and unusual or 
infrequently occurring items recognized in each quarter, as well as the 
aggregate effect and the nature of year-end or other adjustments that 
are material to the results of that quarter.\45\ If a registrant's 
financial statements have been reported on by an accountant, Item 
302(a)(4) requires that accountant to follow appropriate professional 
standards and procedures regarding the data required by Item 
302(a).\46\
---------------------------------------------------------------------------

    \41\ Item 302(a)(1) of Regulation S-K [17 CFR 229.302(a)(1)]. 
Item 302(a)(1) specifies disclosure of: Net sales; gross profit (net 
sales less costs and expenses associated directly with or allocated 
to products sold or services rendered); income (loss) from 
continuing operations; per share data based upon income (loss) from 
continuing operations; net income (loss); and net income (loss) 
attributable to the registrant.
    \42\ Item 302(a)(2) of Regulation S-K [17 CFR 229.302(a)(2)]. 
When the data supplied pursuant to Item 302(a) varies from amounts 
previously reported on the Form 10-Q filed for any quarter, such as 
when a combination between entities under common control occurs or 
where an error is corrected, the registrant must reconcile the 
amounts given with those previously reported and describe the reason 
for the difference.
    \43\ Item 302(a)(5) and (c) of Regulation S-K [17 CFR 
229.302(a)(5) and (c)].
    \44\ Item 302(a)(1) and (a)(3) [17 CFR 229.302(a)(1) and 
(a)(3)].
    \45\ Item 302(a)(3) of Regulation S-K [17 CFR 229.302(a)(3)]. 
The requirement applies to items recognized in each full quarter 
within the two most recent fiscal years and any subsequent interim 
period for which financial statements are included or are required 
to be included.
    \46\ Item 302(a)(4) of Regulation S-K [17 CFR 229.302(a)(4)].
---------------------------------------------------------------------------

    The Commission proposed to eliminate Item 302(a), intending to 
address the largely duplicative disclosures that result from this 
prescriptive requirement. However, the Commission recognized that, 
while most of the financial data required by Item 302(a) can be found 
in prior quarterly reports on EDGAR, the item requires separate 
disclosure of certain fourth quarter information, which is not 
otherwise required to be disclosed. The Commission also recognized that 
the proposal may result in the loss of the effect of a retrospective 
change in the earliest of the two years.\47\ In the Proposing Release, 
the Commission stated that, where fourth quarter results are material 
or there is a material retrospective change, existing requirements, 
such as those in Item 303 would still elicit this disclosure.\48\
---------------------------------------------------------------------------

    \47\ Because Item 302(a)(2) requires disclosure of variances in 
results from amounts previously reported for the two most recent 
fiscal years, the effect of a retrospective change in any quarter 
for which a Form 10-Q is filed in the more recent of the two fiscal 
years will be disclosed in the selected quarterly data. However, 
absent Item 302(a)(2), this variance would not be specifically 
required to be disclosed until the following year in the 
corresponding fiscal quarter in which the retrospective change 
occurred. Additionally, disclosure in the Form 10-Q for this 
corresponding fiscal quarter would not include the effects of this 
change in the earliest of the two years presented in the Form 10-K, 
as this Form 10-Q would be limited to the current and prior-year 
interim periods.
    \48\ See Proposing Release at Section II.B.1.
---------------------------------------------------------------------------

    The Commission also proposed to eliminate Item 302(b) 
(Supplementary Financial Information--Information about Oil and Gas 
Producing Activities) due to overlap with a U.S. Generally Accepted 
Accounting Principles (``U.S. GAAP'') requirement.\49\
---------------------------------------------------------------------------

    \49\ See ASC 932-235-50. See also Proposing Release at Section 
II.B.2.
---------------------------------------------------------------------------

2. Comments
    The proposal generated a wide range of responses. Many commenters 
supported the proposal.\50\ A number of these commenters suggested that 
fourth quarter information is easily derived, such as by subtracting 
the third quarter from year-to-date amounts \51\ or is otherwise 
frequently disclosed in registrants' earnings releases.\52\ Other 
commenters expressed the view that registrants would voluntarily 
present Item 302(a) disclosure absent a requirement.\53\ One of these 
commenters, while supportive of the proposal, expressed concern about 
the loss of certain fourth quarter information and the effects of 
material retrospective changes.\54\ This commenter recommended revising 
the instructions to Item 303 to require (i) a discussion of the fourth 
quarter in MD&A but only when this quarter differs materially from 
previously reported quarterly information and (ii) disclosure of 
material retrospective changes.
---------------------------------------------------------------------------

    \50\ See, e.g., letters from PWC; Pfizer; Eli Lilly; EEI & AGA; 
KPMG; CAQ; FedEx; Nasdaq; Nareit; FEI; SIFMA; IMA; UnitedHealth; 
Medtronic; Chamber; ABA; Society.
    \51\ See, e.g., letters from Eli Lilly; FEI; SIFMA; IMA; 
UnitedHealth; Medtronic; Society.
    \52\ See letter from UnitedHealth.
    \53\ See letters from KPMG; CAQ.
    \54\ See letter from ABA.
---------------------------------------------------------------------------

    A number of commenters, however, opposed the proposal to eliminate 
Item 302(a).\55\ All of these commenters suggested that a separate 
presentation of fourth quarter data is useful to investors,\56\ with 
one of these commenters stating that for ``a significant number of 
companies, fourth quarter results cannot be derived from annual 
results.'' \57\ A few of these commenters also questioned the cost 
savings, if any, to registrants if Item 302(a) were eliminated, stating 
that registrants already have the procedures in place to disclose this 
information.\58\
---------------------------------------------------------------------------

    \55\ See, e.g., letters from E&Y NASAA; CalPERS; CFA & CII; D. 
Jamieson. See also IAC Recommendation.
    \56\ See id.
    \57\ See IAC Recommendation.
    \58\ See, e.g., letters from NASAA; CalPERS. See also IAC 
Recommendation.
---------------------------------------------------------------------------

    Several commenters opposing the proposal stated that eliminating 
Item 302(a) would result in either delays in the disclosure of 
retrospective revisions until the following Form 10-Q or a loss of 
disclosure on the effect of a retrospective change on the earliest of 
the two years for such revisions.\59\ Some of these commenters 
questioned whether the loss of the fourth quarter data may be mitigated 
by disclosure elicited under Item 303 \60\ and/or Accounting Standards 
Codification 270 (Interim Reporting).\61\ One of these commenters 
expressed the view that registrants would voluntarily report fourth 
quarter data, but noted that eliminating Item 302(a) would result in 
investors losing the benefit of having an auditor review of the fourth 
quarter.\62\ One of these commenters recommended that, if Item 302(a) 
were retained, the line items required for presentation be conformed to 
key subtotals in the registrant's interim statement of comprehensive 
income in order to eliminate the potential for inconsistencies between 
the item requirements and the registrant's financial statements.\63\
---------------------------------------------------------------------------

    \59\ See, e.g., letters from E&Y CFA & CII; D. Jamieson. See 
supra footnote 47.
    \60\ See letters from E&Y NASAA.
    \61\ See letter from E&Y.
    \62\ See id.
    \63\ See letter from E&Y.
---------------------------------------------------------------------------

    A few commenters, while not objecting to the proposed elimination 
of Item 302(a), recommended continued consideration of investor input 
on the utility of Item 302(a) before finalizing any rulemaking.\64\ All 
of these commenters suggested revisions to provide for disclosure of 
material retrospective changes, either by revising Item 302(a),\65\ or 
through revisions to Item 303.\66\ Some commenters also recommended 
revising Item 302(a) to allow newly reporting registrants to exclude 
this data for interim periods prior to those presented in its IPO 
registration statement.\67\
---------------------------------------------------------------------------

    \64\ See, e.g., letters from RSM; Grant Thornton; BDO.
    \65\ See letter from RSM.
    \66\ See letters from Grant Thornton (questioning whether 
current Item 303 would elicit this disclosure); BDO (stating that, 
if Item 303 is expected to elicit disclosure of material 
retrospective changes, this should be clarified in the item).
    \67\ See letters from Grant Thornton; E&Y.
---------------------------------------------------------------------------

    Several commenters recommended coordinating with the Public Company 
Accounting Oversight Board (PCAOB) to clarify the requirement in 
Accounting Standard (AS) 4105.06, which requires auditors to review 
fourth quarter data where an annual report includes Item 302(a) 
disclosure.\68\
---------------------------------------------------------------------------

    \68\ See, e.g., letters from PWC; KPMG; CAQ; RSM; Grant 
Thornton; BDO; Deloitte & Touche, LLP dated April 28, 2020 
(``Deloitte''). The text of AS 4105.06 is available at https://pcaobus.org/Standards/Auditing/Pages/AS4105.aspx.
---------------------------------------------------------------------------

    With respect to the proposal to eliminate Item 302(b), one 
commenter specified that it supported the

[[Page 2086]]

proposal,\69\ and no commenters specifically opposed the proposal.
---------------------------------------------------------------------------

    \69\ See letter from Chamber.
---------------------------------------------------------------------------

3. Final Amendments
    We are adopting amendments to Item 302(a), with modifications from 
what was proposed in response to comments received. Specifically, we 
are retaining the item and streamlining its requirements to require 
disclosure only when there are one or more retrospective changes that 
pertain to the statements of comprehensive income for any of the 
quarters within the two most recent fiscal years and any subsequent 
interim period for which financial statements are included or required 
to be included by Article 3 of Regulation S-X and that, individually or 
in the aggregate, are material.\70\ Our amendments will require 
registrants to provide an explanation of the reasons for such material 
changes and to disclose, for each affected quarterly period and the 
fourth quarter in the affected year, summarized financial information 
related to the statements of comprehensive income (as specified in Rule 
1-02(bb)(ii) of Regulation S-X) and earnings per share reflecting such 
changes. The affected quarters may include, depending on the facts and 
circumstances, a single quarter in which the material retrospective 
change applies, or it may flow through to subsequent quarters during 
the relevant look-back period (i.e., the quarters within the two most 
recent fiscal years and any subsequent interim period for which 
financial statements are included or required to be included by Article 
3 of Regulation S-X).\71\ Consistent with a commenter's suggestion,\72\ 
we are amending Item 302(a) to refer to amended Rule 1-02(bb)(ii). This 
will link amended Item 302(a) to the summarized financial information 
related to the statements of comprehensive income specified in amended 
Rule 1-02(bb)(1)(ii) of Regulation S-X,\73\ thereby providing 
registrants flexibility in the line items presented. We are also 
adopting amendments to Rule 1-02(bb), as proposed, to clarify that the 
disclosure of summary financial information may vary, as appropriate, 
to conform to the nature of the entity's business.\74\ Lastly, our 
amendments retain all Item 302(a) references in our rules and 
forms.\75\
---------------------------------------------------------------------------

    \70\ Some examples of a retrospective change that may trigger 
Item 302(a) disclosure include: Correction of an error; disposition 
of a business that is accounted for as discontinued operations; a 
reorganization of entities under common control; or a change in an 
accounting principle. These examples are not intended to be an 
exhaustive list, and may not always be material such that disclosure 
would be required under amended Item 302(a). Further, not all 
changes in accounting principles would result in a retrospective 
change. For example, certain calendar year-end EGCs that elected to 
take advantage of the extended transition period for new or revised 
financial accounting standards in their initial public offerings, 
will adopt in accordance with U.S. GAAP ASC 842, Leases for the full 
fiscal year in their 2022 Form 10-K filed in 2023 and will not adopt 
ASC 842 in interim periods until the Forms 10-Q filed in 2023. We do 
not view the adoption of ASC 842 in the 2022 Form 10-K, in this 
scenario, to constitute a retrospective change that should trigger 
disclosure under Item 302(a) in the registrant's 2022 Form 10-K. By 
contrast, a registrant that loses EGC status as of December 31, 
2022, would have a retrospective change that would require 
evaluation of materiality under Item 302(a) because the registrant 
would be required to adopt ASC 842 in the 2022 Form 10-K for both 
the full fiscal year and interim periods within that fiscal year.
    \71\ In the previous example of a registrant that loses EGC 
status, the affected quarters would include all four since the 
material retrospective change was as of January 1st.
    \72\ See letter from E&Y.
    \73\ Rule 1-02(bb)(1)(ii) generally refers to the same line 
items required by current Item 302(a).
    \74\ See Proposing Release at footnote 337.
    \75\ See discussion in Section II.E. infra.
---------------------------------------------------------------------------

    The final amendments do not revise the population of registrants 
that are not required to provide disclosure pursuant to Item 
302(a),\76\ including, but not limited to, first time registrants 
conducting an IPO or registrants that are only required to file reports 
pursuant to Section 15(d).
---------------------------------------------------------------------------

    \76\ See amended Rule 302(a)(2).
---------------------------------------------------------------------------

    We continue to believe that requiring quarterly financial data when 
there have not been one or more retrospective changes that are 
material, either individually or in the aggregate, would duplicate 
disclosures provided elsewhere, such as in Forms 10-Q or, in the case 
of fourth quarter results, can be derived from annual results disclosed 
in the Form 10-K. Our amendments eliminate these duplicative 
disclosures. We do, however, agree with commenters that timely 
disclosure of the effects of material retrospective changes may be 
important to investors, and lack of such disclosure could impact the 
ability to derive fourth quarter information when there have been such 
changes. As discussed in the Proposing Release, Item 303 should elicit 
some disclosure where there has been a material retrospective change. 
However, we believe that the amended Item 302(a) disclosures will 
further aid investors' understanding of the reasons for the material 
retrospective change and the related quantitative effect on the 
quarterly periods affected. Accordingly, our amendments are intended to 
address this discrete area.
    We also believe amended Item 302(a) will better highlight material 
retrospective changes, as disclosure will only be required where there 
are such changes, which may be important to investors. For this reason, 
we believe amended Item 302(a) may be important in the context of both 
Exchange Act and Securities Act forms and accordingly, are retaining 
requirements to provide disclosure pursuant to this item in these 
forms.\77\ Further, by limiting the disclosure only to affected 
quarters, we believe the final amendments will balance the costs to 
registrants of preparing such disclosures, while providing investors 
with material information regarding the impact of material changes.
---------------------------------------------------------------------------

    \77\ See discussion in Section II.E. infra.
---------------------------------------------------------------------------

    We acknowledge commenters who stated that, absent Item 302(a), 
fourth quarter results may not always be available or readily derived 
from annual results. We continue to believe that, in most instances, 
fourth quarter information can be readily derived from annual results, 
and as such, amended Item 302(a) does not generally require fourth 
quarter disclosure on a standalone basis.\78\ Our amendments are 
intended to address the most common reason why fourth quarter data 
would not be easily calculable.
---------------------------------------------------------------------------

    \78\ We acknowledge the view expressed in the IAC Recommendation 
regarding the ability to derive fourth quarter results based on the 
assessment described in their letter of selected net income data 
from the years 2010 through 2019. See IAC Recommendation. The 
information provided in the IAC Recommendation was not sufficient 
for us to replicate the referenced study, and the data and 
methodology were not otherwise in a publicly available source. 
Nevertheless, it appears that the data provided in the IAC 
Recommendation is not inconsistent with the staff's observations and 
conclusions regarding the ability to calculate fourth quarter data 
in most instances. Based on the information provided in the IAC 
Recommendation, assuming that the fewest number of companies studied 
(3,000) and the largest incidents of difference reported (300) 
occurred in the same year, it follows that there would have been no 
difference between reported and derived fourth quarter results for 
90% of companies in such year. The data presented further suggests 
that, in the year where the greatest number of differences were 
observed between reported and derived fourth quarter results, 100 
companies had less than a 1% difference and only 30 companies had a 
greater than 10% difference. We believe these findings are 
consistent with our view that in the substantial majority of cases, 
fourth quarter data is readily derivable. Based on our own 
observations and calculations, in most if not all instances, any 
differences that would cause fourth quarter data to not be derivable 
from year-end and third-quarter year-to-date results would be due to 
a retrospective change or changes. Under the final amendments, when 
there is a material retrospective change or changes, fourth quarter 
financial data would be required.
---------------------------------------------------------------------------

    Additionally, and as some commenters stated, we expect that some 
registrants will voluntarily provide fourth quarter disclosure or 
disclosure of selected quarterly financial

[[Page 2087]]

information. In such instances, that information would be subject to 
the PCAOB AS 2710 requirements for auditors to read and consider such 
information for material inconsistencies with the audited financial 
statements. These procedures are lesser in scope as compared to the 
review procedures required by AS 4105.06 that are to be performed on 
fourth quarter data when presented in an annual report pursuant to Item 
302(a).\79\
---------------------------------------------------------------------------

    \79\ The text of AS 4105.06 is available at https://pcaobus.org/Standards/Auditing/Pages/AS4105.aspx. The final amendments update 
the outdated reference in current Item 302(a)(4) from the Statements 
of Auditing Standards issued by the Auditing Standards Board of the 
American Institute of Certified Public Accountants to the current 
reference of the Auditing Standards issued by the Public Company 
Accounting Oversight Board.
---------------------------------------------------------------------------

    In a change from current Item 302(a), amended Item 302(a) will 
apply beginning with the first filing on Form 10-K after the 
registrant's initial registration of securities under sections 12(b) or 
12(g) of the Exchange Act.\80\ We are making this change because we 
agree with commenters that it would be unnecessarily burdensome for 
registrants to provide disclosure for interim periods prior to those 
presented in an IPO registration statement.\81\ Although some 
commenters suggested that disclosure should not be required for any 
quarterly periods not previously presented on a standalone basis, such 
as in a Form 10-Q,\82\ we believe that such an approach would unduly 
delay disclosure of the impact of material retrospective changes. For 
this reason, and because the commenters' suggestions related primarily 
to current Item 302(a), which requires disclosure in every annual 
report, while amended Item 302(a) will require disclosure in more 
limited circumstances, we believe that it is appropriate to require 
newly reporting registrants to provide Item 302(a) disclosure, if 
applicable, beginning in their first Form 10-K. Nonetheless, when a new 
registrant has a material retrospective change to its year-to-date 
interim period information in its most recent registration statement, 
but has not yet disclosed that interim period information in quarterly 
increments, we would not object if Item 302(a) disclosures are 
presented for the affected year-to-date interim period and the fourth 
quarter in the affected year.\83\
---------------------------------------------------------------------------

    \80\ See amended Item 302(a)(2). See also footnote 70 supra.
    \81\ See, e.g., letters from Grant Thornton and E&Y.
    \82\ See, e.g., letters from Grant Thornton; E&Y (recommending 
that ``new registrants be exempted from providing the disclosure 
until their second annual report, and in registration statements 
thereafter, to avoid requiring selected quarterly data to be 
presented for interim periods not previously presented in any 
periodic quarterly reports.'').
    \83\ For example, after conducting an IPO, a registrant files 
its first Form 10-K in which Item 302(a) information would be 
required. The Item 302(a)-triggering material retrospective change 
occurred during a quarter that has only been presented as a part of 
the year-to-date interim period statement of comprehensive income 
filed in the IPO registration statement. In this circumstance, we 
would not object if the quantitative Item 302(a) disclosure in the 
Form 10-K comprised information for the same interim period 
previously presented in the registration statement (rather than for 
each affected quarter during that time), along with the fourth 
quarter, in the affected year.
---------------------------------------------------------------------------

    Finally, we proposed to eliminate Item 302(b), disclosure of oil 
and gas producing activities, on the condition that the FASB finalize 
amendments to U.S. GAAP that would require incremental disclosure 
called for by Item 302(b). The FASB has not yet finalized the 
amendments, so we are retaining Item 302(b) and may reconsider the 
proposal in the future.

C. Management's Discussion and Analysis of Financial Condition and 
Results of Operations (Item 303)

    Item 303 of Regulation S-K requires disclosure of information 
relevant to assessing a registrant's financial condition, changes in 
financial condition, and results of operations. The disclosure 
requirements for full fiscal years in Item 303(a) include five 
components: Liquidity, capital resources, results of operations, off-
balance sheet arrangements, and contractual obligations.\84\ Item 
303(b) covers interim period disclosures and requires registrants to 
discuss material changes in the items listed in Item 303(a), other than 
the impact of inflation and changing prices on operations.\85\ Item 
303(c) acknowledges the application of a statutory safe harbor for 
forward-looking information provided in off-balance sheet arrangements 
and contractual obligations disclosures. Item 303(d) provides certain 
accommodations for SRCs.
---------------------------------------------------------------------------

    \84\ Item 303(a)(1)-(5) of Regulation S-K [17 CFR 229.303(a)(1)-
(5)].
    \85\ See Item 303(b) and Instruction 7 to Item 303(b) of 
Regulation S-K [17 CFR 229.303(b)].
---------------------------------------------------------------------------

    The Commission proposed amendments to Item 303 of Regulation S-K 
that were intended to modernize, simplify, and enhance the MD&A 
disclosures for investors while reducing compliance burdens for 
registrants.\86\ After consideration of the comments received, and as 
discussed in more detail below, amended Item 303 will provide the 
following:
---------------------------------------------------------------------------

    \86\ We discuss infra in Section II.D our amendments that will 
make certain parallel changes to Item 5 of Form 20-F (Operating and 
Financial Review and Prospects), General Instruction B.(11) of Form 
40-F (Off-Balance Sheet Arrangements), and General Instruction 
B.(12) of Form 40-F (Tabular Disclosure of Contractual Obligations).
---------------------------------------------------------------------------

     New Item 303(a) states the objectives of MD&A that will 
apply throughout amended Item 303. It also incorporates much of the 
substance of Instructions 1, 2, and 3 to current Item 303(a).
     Amended Item 303(b) provides the requirements for full 
fiscal year disclosure and comprises three main requirements:
    [cir] Item 303(b)(1) provides the overarching requirements for 
liquidity and capital resources disclosures, and reflects an enhanced 
principles-based requirement focused on material short- and long-term 
cash requirements, including those from known contractual and other 
obligations. Items 303(b)(1)(i) and (ii) provide the specific 
disclosure requirements for liquidity and capital resources, 
respectively.
    [cir] Item 303(b)(2) provides the requirements for results of 
operations disclosures, and includes minor amendments such as 
eliminating the current requirement to discuss the impact of inflation 
and changing prices where material; and
    [cir] Item 303(b)(3), requires disclosure of critical accounting 
estimates, and largely clarifies and codifies Commission guidance in 
this area.
     The instructions to amended Item 303(b) have been 
streamlined, such as by eliminating unnecessary cross-references to 
industry guides, and replace the requirement for off-balance sheet 
arrangement disclosures (current Item 303(a)(4)) with an instruction to 
discuss these obligations in the broader context of MD&A disclosure.
     Amended Item 303(c) provides for interim disclosure 
requirements, and will allow for more flexibility in the interim 
periods compared. The item's instructions have also been streamlined by 
eliminating certain instructions and providing cross-references to 
similar instructions to Item 303(b); and
     Current Item 303(a)(5) will be eliminated, and current 
Items 303(c) and (d) will be eliminated as conforming changes.
    The following table outlines the new structure of Item 303 as a 
result of these amendments: \87\
---------------------------------------------------------------------------

    \87\ The information in this table is not comprehensive and is 
intended only to highlight the general structure of the current 
rules and final amendments. It does not reflect all of the 
amendments or all of the rules and forms that are affected. All 
changes are discussed in their entirety throughout this release. As 
such, this table should be read together with the referenced 
sections and the complete text of this release.

[[Page 2088]]



----------------------------------------------------------------------------------------------------------------
           Current structure                   Amended structure                 Discussed in section(s)
----------------------------------------------------------------------------------------------------------------
N/A...................................  Item 303(a), Objective........  II.C.1.
Item 303(a), Full fiscal years........  Item 303(b), Full fiscal years  II.C.1.
Item 303(a)(1), Liquidity.............  Item 303(b)(1), Liquidity and   II.C.2 and II.C.7.
Item 303(a)(2), Capital resources.....   Capital Resources.
                                        (i) Liquidity.................
                                        (ii) Capital Resources........
Item 303(a)(3), Results of operations.  Item 303(b)(2), Results of      II.C.3, II.C.4, & II.C.5.
                                         operations.
    (i) Unusual or infrequent events.   (i) Unusual or infrequent
                                         events.
    (ii) Known trends or                (ii) Known trends or
     uncertainties.                      uncertainties.
    (iii) Material increases.           (iii) Material changes.
    (iv) Inflation and changing
     prices.
Item 303(a)(4), Off-balance sheet       Replace with Instruction 8 to   II.C.6.
 arrangements.                           Item 303(b).
    Instructions 1, 2, 3, 4, and 5 to
     Item 303(a)(4).
Item 303(a)(5), Tabular disclosure of   Eliminate (with some content    II.C.2 and II.C.7.
 contractual obligations.                incorporated into Item
                                         303(b)(1) (Liquidity and
                                         Capital Resources) and
                                         Instruction 4 to Item 303(b)).
2003 MD&A Interpretative Release,       Item 303(b)(3), Critical        II.C.8.
 Critical accounting estimates.          accounting estimates.
    Instruction 1 to Item 303(a)......     Instruction 1 to Item        II.C.1.
                                            303(b) (with amendments).
    Instruction 2 to Item 303(a)......     Eliminate (with content      II.C.1.
                                            incorporated into
                                            Objective).
    Instruction 3 to Item 303(a)......     Eliminate (with content      II.C.1.
                                            incorporated into
                                            Objective).
    Instruction 4 to Item 303(a)......     Instruction 2 to Item        II.C.1 and II.C.4.
                                            303(b) (with amendments
                                            and some content
                                            incorporated into Item
                                            303(b)).
    N/A...............................     Instruction 3 to Item        II.C.7.
                                            303(b).
    Instruction 5 to Item 303(a)......     Instruction 4 to Item        II.C.2 and II.C.7.
                                            303(b) (with amendments
                                            and content incorporated
                                            into Item 303(b)(1)
                                            (Liquidity and Capital
                                            Resources)).
    Instruction 6 to Item 303(a)......     Instruction 5 to Item        II.C.1.
                                            303(b) (with minor
                                            amendments).
    Instruction 7 to Item 303(a)......     Instruction 6 to Item        II.C.10.
                                            303(b).
    Instruction 8 to Item 303(a)......     Eliminate..................  II.C.5.
    Instruction 9 to Item 303(a)......     Eliminate..................  II.C.5.
    Instruction 10 to Item 303(a).....     Instruction 7 to Item        II.C.1.
                                            303(b).
    Instruction 11 to Item 303(a).....     Instruction 9 to Item        II.D.3.
                                            303(b) (with amendments).
    Instruction 12 to Item 303(a).....     Instruction 10 to Item       II.C.1.
                                            303(b) (with non-
                                            substantive amendments).
    Instruction 13 to Item 303(a).....     Eliminate..................  II.C.1.
    Instruction 14 to Item 303(a).....     Eliminate..................  II.C.1.
Item 303(b), Interim periods..........  Item 303(c), Interim periods..  II.C.9.
(1) Material changes in financial       (1) Material changes in
 condition..                             financial condition..
(2) Material changes in results of      (2) Material changes in
 operations, Rule 3-03(b) of             results of operations..
 Regulation S-X matters..               (i) Material changes in
                                         results of operations (year-
                                         to-date)..
                                        (ii) Material changes in
                                         results of operations
                                         (quarter comparisons)..
    Instruction 1 to Item 303(b)......     Instruction 1 to Item        II.C.9.
                                            303(c) (with amendments to
                                            reference Instructions 2,
                                            3, 4, 6, 8, and 11 to
                                            proposed Item 303(b)).
    Instruction 2 to Item 303(b)......     Eliminate..................  II.C.9.
    Instruction 3 to Item 303(b)......     Eliminate..................  II.C.9.
    Instruction 4 to Item 303(b)......     Instruction 2 to Item        II.C.9.
                                            303(c).
    Instruction 5 to Item 303(b)......     Eliminate..................  II.C.9.
    Instruction 6 to Item 303(b)......     Eliminate..................  II.C.9.
    Instruction 7 to Item 303(b)......     Eliminate..................  II.C.9.
    Instruction 8 to Item 303(b)......     Instruction 11 to Item       II.C.9.
                                            303(b).
Item 303(c), Safe harbor..............  Eliminate.....................  II.C.10.
Item 303(d), Smaller reporting          Eliminate.....................  II.C.11.
 companies.
----------------------------------------------------------------------------------------------------------------

1. Restructuring and Streamlining
a. Objective of MD&A (New Item 303(a))
i. Proposed Amendments
    The first paragraph of current Item 303(a) instructs registrants to 
discuss their financial condition, changes in financial condition, and 
results of operations for full fiscal years.\88\ The paragraph then 
sets forth the items that must be included in this discussion, 
including liquidity, capital resources, results of operations, off-
balance sheet arrangements, contractual obligations, and any other 
information a registrant believes would be necessary to understand its 
financial condition, changes in financial condition, and results of 
operations.
---------------------------------------------------------------------------

    \88\ Item 303(a) of Regulation S-K [17 CFR 229.303(a)].
---------------------------------------------------------------------------

    The Commission proposed adding a new Item 303(a) to succinctly 
state the objectives of MD&A by incorporating a portion of the 
substance of current Instruction 1, and much of the substance of 
current Instructions 2 and 3 into the item.\89\ As part of new Item 
303(a), the Commission also proposed codifying guidance that states 
that a registrant should provide a narrative explanation of its 
financial statements

[[Page 2089]]

that enables investors to see a registrant ``through the eyes of 
management.'' \90\ By emphasizing the purpose of MD&A at the outset of 
Item 303, the proposal was intended to provide clarity and focus to 
registrants as they consider what information to discuss and analyze. 
The proposal was also intended to facilitate a thoughtful discussion 
and analysis, and encourage management to disclose factors specific to 
the registrant's business, which management is in the best position to 
know, and underscore materiality as the overarching principle of 
MD&A.\91\
---------------------------------------------------------------------------

    \89\ See Proposing Release at Section II.C.1. As a result of 
this proposed amendment, the remainder of Item 303 was proposed to 
be renumbered. Herein we distinguish the rule numbering prior to 
these amendments from the amended rule numbering by reference to 
``current'' and ``amended.''
    \90\ See 2003 MD&A Interpretative Release, at 75056. See also 
1989 Interpretative Release, at 22428.
    \91\ See Proposing Release at Section II.C.1.
---------------------------------------------------------------------------

ii. Comments
    Most commenters supported the proposal to add new Item 303(a) to 
state the purposes of MD&A at the forefront.\92\ One of these 
commenters nonetheless expressed concern with incorporating, as part of 
new Item 303(a), guidance that MD&A is ``from management's 
perspective,'' stating that this is such a broad statement that 
compliance could be difficult and it could be interpreted to mandate 
disclosure of otherwise confidential information (e.g., competitive 
advantages, target markets).\93\ A few commenters questioned the 
proposal.\94\ Some of these commenters, while not opposed to the 
proposal, did not believe it would improve MD&A.\95\ Instead, these 
commenters suggested more explicit and prescriptive requirements, such 
as providing examples of the types of items to be discussed.
---------------------------------------------------------------------------

    \92\ See, e.g., letters from Grant Thornton; Nasdaq; FEI; IMA; 
RSM; Society.
    \93\ See letter from RSM.
    \94\ See, e.g., letters from ABA; CFA & CII; D. Jamieson.
    \95\ See letters from CFA & CII; D. Jamieson.
---------------------------------------------------------------------------

    One commenter objected to replacing the word ``should'' with 
``must'' both in proposed Item 303(a) and throughout the item, stating 
these terms are not interchangeable.\96\ This commenter stated that 
only ``should'' allows the requisite flexibility appropriate for MD&A 
whereas ``must'' results in a ``checklist item'' that creates exposure 
to absolute liability and second guessing. Another commenter suggested 
revising proposed Item 303(a) and the remainder of the item to account 
for the statement of cash flows, stating that existing MD&A rules 
largely pre-date the requirement in U.S. GAAP to provide statements of 
cash flows.\97\
---------------------------------------------------------------------------

    \96\ See letter from ABA.
    \97\ See letter from E&Y (stating that the statement of cash 
flows has not been integrated in MD&A like the balance sheet and 
income statement and recommended replacing ``changes in financial 
condition'' with ``cash flows'' throughout Item 303 and adding 
``cash flows'' to proposed Item 303(a)).
---------------------------------------------------------------------------

iii. Final Amendments
    We are adopting the amendments largely as proposed. Amended Item 
303(a) calls for the following disclosure, which is expected to better 
allow investors to view the registrant from management's perspective:
     Material information relevant to an assessment of the 
financial condition and results of operations of the registrant, 
including an evaluation of the amounts and certainty of cash flows from 
operations and from outside sources.
     Material events and uncertainties known to management that 
are reasonably likely to cause reported financial information not to be 
indicative of future operating results or of future financial 
condition. This includes descriptions and amounts of matters that have 
had a material impact on reported operations as well as matters that 
are reasonably likely based on management's assessment to have a 
material impact on future operations.
     The material financial and statistical data that the 
registrant believes will enhance a reader's understanding of the 
registrant's financial condition, cash flows and other changes in 
financial condition, and results of operations.
    Registrants should regularly revisit these objectives in Item 
303(a) as they prepare their MD&A and consider ways to enhance the 
quality of the analysis provided. These objectives provide the 
overarching requirements of MD&A and apply throughout amended Item 303. 
As such, they emphasize a registrant's future prospects and highlight 
the importance of materiality and trend disclosures to a thoughtful 
MD&A.\98\ These amendments are intended to remind registrants that MD&A 
should provide an analysis that encompasses short term results as well 
as future prospects.\99\ Consistent with this amendment and current 
guidance, and in a slight modification from our proposals, amended Item 
303(a) specifies that the disclosure must include matters that are 
reasonably likely, based on ``management's assessment'' to have a 
material impact on future operations.\100\
---------------------------------------------------------------------------

    \98\ As proposed, our amendments replace the word ``shall'' with 
``must'' throughout Item 303 to clarify the rule and avoid any 
ambiguity associated with the use of ``shall.'' Our amendments to 
Item 303 do not replace ``should'' in the current requirements with 
``must.'' However, in some instances our amendments update Form 20-F 
by replacing ``should'' with ``must'' to conform the requirements to 
Item 303, consistent with our other amendments to Form 20-F. We do 
not believe the use of ``must'' in these instances modifies the 
overall flexibility of MD&A's principles-based approach.
    \99\ See, e.g., 2003 MD&A Interpretive Release and 1989 MD&A 
Interpretive Release.
    \100\ This language codifies Commission guidance on forward-
looking information where the Commission stated, that as part of the 
two-step test, ``management must make two assessments.'' See 1989 
MD&A Interpretive Release, at 22330. See also footnote 145 below.
---------------------------------------------------------------------------

    Consistent with this approach, our amendments also incorporate 
current guidance that MD&A is intended to provide disclosures from 
``management's perspective.'' In response to the input of one 
commenter, we have slightly reframed the reference to ``management's 
perspective'' to make clear that disclosure that meets the requirements 
of the item generally is expected to better allow an investor to view 
the registrant from management's perspective.
    In response to one commenter's suggestion, we are slightly revising 
our proposals to explicitly incorporate cash flows as part of MD&A's 
objective.\101\ Amended Item 303(a) specifies that MD&A must include 
financial and other statistical data that will enhance a reader's 
understanding of the registrant's financial condition, ``cash flows,'' 
and other changes in financial condition and results of operations. In 
light of this amendment and existing references to cash flows, we do 
not believe it is necessary to replace every reference to ``changes in 
financial condition'' with ``cash flows,'' as suggested by this 
commenter. Given the historical and continued importance of materiality 
in MD&A, we are not, as suggested by some commenters, adopting 
modifications to be more explicit or prescriptive. Rather, we continue 
to believe that MD&A's materiality-focused and principles-based 
approach facilitates disclosure of complex and often rapidly evolving 
areas, without the need to continuously amend the text of the rule to 
update or impose additional prescriptive requirements.\102\ These 
amendments are intended to further emphasize these goals.
---------------------------------------------------------------------------

    \101\ See supra footnote 97. Amended Item 303(a)'s reference to 
``the amounts and certainty of cash flows from operations and from 
outside sources,'' which is in current Instruction 2 to Item 303(a), 
predates the cash flow statement. See Amendments to Annual Report 
Form, Related Forms, Rules, Regulations and Guides; Integration of 
Securities Act Disclosure Systems, Release No. 33-6231, (Sept. 2, 
1980) [45 FR 63630 (Sept. 25, 1980)].
    \102\ See Proposing Release at footnote 95 and corresponding 
text.

---------------------------------------------------------------------------

[[Page 2090]]

b. Reasons Underlying Material Changes (Amended Item 303(b))
i. Proposed Amendments
    In light of the proposal to add new Item 303(a), the Commission 
proposed re-captioning current Item 303(a) as Item 303(b), which would 
continue to apply to all MD&A disclosures.\103\ The Commission also 
proposed moving to the amended Item 303(b) the portion of current 
Instruction 4 that provides that where the consolidated financial 
statements reveal material changes from year to year in one or more 
line items, the causes for the changes shall be described.\104\ The 
Commission also proposed to amend that portion of current Instruction 4 
to clarify that MD&A requires a narrative discussion of the ``reasons 
underlying'' material changes rather than only the ``causes'' for 
material changes.\105\ This proposal was intended to encourage 
registrants to provide a more meaningful discussion of the underlying 
reasons that may be contributing to material changes in line items. The 
Commission also proposed amending the item to clarify that registrants 
should discuss material changes within a line item even when such 
material changes offset each other, consistent with prior Commission 
guidance.\106\
---------------------------------------------------------------------------

    \103\ Current Item 303(b) of Regulation S-K, which relates to 
interim periods requires a ``discussion of material changes in those 
items specifically listed in [Item 303(a)], except that the impact 
of inflation and changing prices on operations for interim periods 
need not be addressed.'' See 1989 MD&A Interpretive Release at n. 38 
and 39 and corresponding text (``The second sentence of Item 303(b) 
states that MD&A relating to interim period financial statements 
`shall include a discussion of material changes in those items 
specifically listed in paragraph (a) of this Item, except that the 
impact of inflation and changing prices on operations for interim 
periods need not be addressed.' As this sentence indicates, material 
changes to each and every specific disclosure requirement contained 
in paragraph (a), with the noted exception, should be discussed.''); 
2003 MD&A Interpretive Release (``Disclosure in MD&A in quarterly 
reports is complementary to that made in the most recent annual 
report and in any intervening quarterly reports.'').
    \104\ Instruction 4 to Item 303(a) of Regulation S-K [17 CFR 
229.303(a)].
    \105\ See Proposing Release at Section II.C.1.
    \106\ See, e.g., 1989 MD&A Interpretive Release (providing an 
example of a description of the effects of offsetting developments 
in material changes in revenue: ``Revenue from sales of single-
family homes for 1987 increased 6 percent from 1986. The increase 
resulted from a 14 percent increase in the average sales price per 
home, partially offset by a 6 percent decrease in the number of 
homes delivered. Revenues from sales of single-family homes for 1986 
increased 2 percent from 1985. The average sales price per home in 
1986 increased 6 percent, which was offset by a 4 percent decrease 
in the number of homes delivered.'').
---------------------------------------------------------------------------

ii. Comments
    Some commenters supported this proposal, stating that it 
effectively codifies prior guidance.\107\ Some commenters recommended 
revising the proposal to limit the requirement to provide quantitative 
disclosure where it is ``reasonably available'' and material, stating 
that registrants often struggle with isolating reasons for material 
changes as they can be highly interrelated.\108\ Other commenters 
suggested expanding the proposal to provide examples of the type of 
``causes'' of changes to be discussed, stating this would facilitate a 
meaningful discussion.\109\
---------------------------------------------------------------------------

    \107\ See letters from IMA; Society.
    \108\ See letters from RSM; E&Y (also observing that this 
quantitative disclosure can be challenging when such factors are not 
already quantified for internal purposes and that the resulting 
disclosure often yields discussion of individual drivers of change 
that are not material).
    \109\ See letters from CFA & CII (providing the following as 
examples: Economic trends and industry conditions that impact sales 
and costs related to key products and services including whether 
sales or revenues are attributable to changes in prices or to 
changes in volume of goods or services that are sold; information on 
fixed and variable costs in the cost structure; information on 
primitive value drivers of most businesses such as materials, labor 
costs, and the maintenance capex needed to survive as a business; 
currency effects on every line item; large acquisitions as a 
separate segment or required discussion so that investors can 
discern whether the synergies are actually emerging as expected; and 
the productivity of new investments (capex, R&D) as opposed to older 
investments); D. Jamieson.
---------------------------------------------------------------------------

iii. Final Amendments
    We are adopting the amendments largely as proposed, with a slight 
modification. The Commission has focused on improving the analysis in 
MD&A for many years. Yet, despite specific instructions in Item 303(a) 
that ``the discussion shall not merely repeat numerical data contained 
in the consolidated financial statements,'' \110\ the Commission has 
previously observed that many registrants simply recite the amounts of 
changes from year to year that are readily computable from their 
financial statements.\111\ Similarly, the staff continues to seek 
greater analysis in MD&A,\112\ and others, including commenters, have 
also observed that the quality of analysis in MD&A could be 
improved.\113\
---------------------------------------------------------------------------

    \110\ See Instruction 4 to current Item 303(a) of Regulation S-
K.
    \111\ See Business and Financial Disclosure Required by 
Regulation S-K, Release No. 33-10064 (Apr. 13, 2016) [81 FR 23915 
(Apr. 22, 2016)] (``S-K Concept Release'') at Section IV.B.3.b.i.
    \112\ See S-K Concept Release at Section IV.B.4.b. See also SEC 
Comment Letter Trends available at https://www.pwc.com/us/en/cfodirect/publications/sec-comment-letter-trends.html.
    \113\ See, e.g., letter from CFA & CII. See also letter from 
Better Markets to the S-K Concept Release dated July 21, 2016. 
Comment letters related to the S-K Concept Release are available at 
https://www.sec.gov/comments/s7-06-16/s70616.htm. We refer to these 
letters throughout as ``S-K Concept Release Letters.''
---------------------------------------------------------------------------

    In light of these observations and our efforts seeking greater 
analysis, we continue to believe these amendments are necessary. 
Accordingly, we are adopting the amendments largely as proposed to 
enhance the analysis in MD&A. By moving a portion of current 
Instruction 4 to Item 303(a) to the main text of amended Item 303(b) 
and clarifying that the provision requires underlying reasons for 
material changes in quantitative and qualitative terms, our amendments 
underscore the importance of the analysis provided in MD&A. In a change 
from what was proposed, we are eliminating language in current 
Instruction 4 that the reasons for material changes must be described 
to the extent necessary to an understanding of the registrant's 
business as a whole. We believe this language is duplicative of the 
language in amended Item 303(a) and the amendments discussed in this 
section.
    Consistent with MD&A's principles-based approach, we are not 
adopting the suggestion of some commenters to provide examples of the 
types of changes to be discussed.\114\ Also consistent with MD&A's 
principles-based approach, and as proposed, the amendments require 
discussion of underlying reasons only for ``material'' changes. We 
believe these amendments will encourage registrants to provide a more 
meaningful discussion of the underlying reasons that may be 
contributing to material changes in line items, and avoid simply 
reciting amounts of changes. We acknowledge, as suggested by some 
commenters, that isolating reasons for specific material changes, and 
quantifying such isolated reasons, can sometimes be challenging because 
they can be highly interrelated. In such circumstances, we encourage 
registrants to acknowledge this fact, and to explain such interrelated 
circumstances to the extent possible.\115\
---------------------------------------------------------------------------

    \114\ See letters from CFA & CII; D. Jamieson.
    \115\ See Securities Act Rule 409 [17 CFR 230.409] and Exchange 
Act Rule 12b-21 [17 CFR 240.12b-21], which generally states that 
information required need be given only insofar as it is known or 
reasonably available to the registrant.
---------------------------------------------------------------------------

c. ``Segment Information . . . Other Subdivisions (e.g., Geographic 
Areas Product Lines)'' (Amended Item 303(b))
i. Proposed Amendments
    Item 303(a) currently requires that, where in the registrant's 
judgment a discussion of segment information and/or other subdivisions 
(e.g., geographic areas) of the registrant's business would be 
appropriate to an understanding of such business, the discussion shall 
focus on each relevant ``reportable''

[[Page 2091]]

segment and/or other subdivision. The Commission proposed removing the 
reference to a ``reportable'' segment and, instead, proposed requiring 
a discussion of ``each relevant segment and/or other subdivision.'' The 
Commission also proposed adding ``product lines'' as another example of 
a subdivision of a registrant's business that should be discussed where 
necessary to an understanding of the registrant's business. Finally, 
the Commission proposed certain other amendments to streamline the text 
of Item 303.
ii. Comments
    Commenters were generally opposed to removing the term 
``reportable'' before segment.\116\ Many of these commenters suggested 
that registrants typically focus their MD&A on reportable segments, 
consistent with the financial statements.\117\ Some of these commenters 
questioned whether removal of the term ``reportable'' was intended to 
effect a substantive change and sought clarification.\118\ Another of 
these commenters stated that the proposal could create uncertainty 
among registrants about what must be disclosed and could lead to 
greater detail than is reasonably useful to investors.\119\ Only one 
commenter provided input on the addition of ``product lines'' as an 
example of a subdivision, stating that the proposal could be 
interpreted as a requirement rather than an example.\120\
---------------------------------------------------------------------------

    \116\ See, e.g., letters from RSM; KPMG; FEI; Medtronic; E&Y 
Deloitte.
    \117\ See, e.g., letters from RSM; KPMG; IMA; Deloitte; E&Y.
    \118\ See letters from Deloitte; E&Y.
    \119\ See letter from IMA.
    \120\ See letter from KPMG.
---------------------------------------------------------------------------

iii. Final Amendments
    We are adopting the amendments largely as proposed, with some 
modifications in response to comments received. Specifically, we are 
retaining the term ``reportable'' segment in amended Item 303(b). As a 
result, and similar to current Item 303, the amendments require that 
the discussion focus on each ``reportable segment'' and/or or other 
subdivision of the business and on the registrant as a whole. While the 
proposal to remove the term ``reportable'' was not intended to suggest 
a further disaggregation of MD&A beyond the reportable segment level, 
we acknowledge commenter feedback about the potential confusion that 
could be created by removal of the term.
    We are adopting the proposed amendment to include ``product lines'' 
as an example of a subdivision of a registrant's business that should 
be discussed where, in the registrant's judgment, it is necessary to an 
understanding of the registrant's business. This additional example is 
not intended to require product line disclosure where, in the 
registrant's judgment, it is not necessary to an understanding of the 
registrant's business. Rather, it is intended to remind registrants of 
the type of disclosure that may be required.
    Lastly, we are adopting as proposed several amendments that will 
further streamline the text of Item 303:
     Instruction 8 to current Item 303(b) indicates that the 
term ``statement of comprehensive income'' is defined by Rule 1-02 of 
Regulation S-X.\121\ We are moving this language to the full fiscal 
year requirement in amended Item 303(b) as Instruction 11 to clarify 
that the instruction applies to both full fiscal year and interim 
period MD&A disclosure.\122\
---------------------------------------------------------------------------

    \121\ 17 CFR 210.1-02(cc). Rule 1-02 defines a ``statement of 
comprehensive income'' as follows: ``[t]he term statement(s) of 
comprehensive income means a financial statement that includes all 
changes in equity during a period except those resulting from 
investments by owners and distributions to owners. . . . A statement 
of operations or variations thereof may be used in place of a 
statement of comprehensive income if there was no other 
comprehensive income during the period.'' Thus, references to a 
statement of comprehensive income would include a statement of 
operations prepared by certain issuers, such as BDCs.
    \122\ See Section II.C.9.
---------------------------------------------------------------------------

     We are also eliminating current Instructions 13 and 14 to 
Item 303(a) to simplify the item. These instructions call the attention 
of bank holding companies and property-casualty insurance companies to 
Guide 3 \123\ and Guide 6,\124\ respectively. Registrants that apply 
industry guides should still consider them in preparing their 
disclosures generally, but we do not believe the cross-reference is 
necessary to an understanding of the requirements of Item 303.
---------------------------------------------------------------------------

    \123\ 17 CFR 229.801(c) and 17 CFR 229.802(c). We recently 
adopted rules relating to Guide 3. See Update of Statistical 
Disclosures for Bank and Savings and Loan Registrants, Release No. 
33-10835 (Sept. 11, 2020) [85 FR 66108 (Oct. 16, 2020)]. The new 
rules update the disclosures that investors receive, codify certain 
Guide 3 disclosures and eliminate other Guide 3 disclosures that 
overlap with Commission rules, U.S. GAAP, or International Financial 
Reporting Standards (``IFRS''). In addition, the Commission 
relocated the codified disclosures to a new subpart of Regulation S-
K and rescinded Guide 3.
    \124\ 17 CFR 229.801(f).
---------------------------------------------------------------------------

Capital Resources--Material Cash Requirements (New Item 303(b)(1) and 
Amended Item 303(b)(1)(ii))
a. Proposed Amendments
    Current Item 303(a)(2) requires a registrant to discuss its 
material commitments for capital expenditures as of the end of the 
latest fiscal period, and to indicate the general purpose of and the 
anticipated sources of funds needed to fulfill such commitments.\125\ A 
registrant also must discuss, among other things, any known material 
trends, favorable or unfavorable, in its capital resources, and 
indicate any expected material changes in the mix and relative cost of 
such resources.\126\
---------------------------------------------------------------------------

    \125\ Item 303(a)(2)(i) of Regulation S-K [17 CFR 
229.303(a)(2)(i)].
    \126\ Item 303(a)(2)(ii) [17 CFR 229.303(a)(2)(ii)].
---------------------------------------------------------------------------

    The Commission proposed amending current Item 303(a)(2) to specify, 
consistent with the Commission's 2003 MD&A Interpretive Release, that a 
registrant should broadly disclose material cash commitments, including 
but not limited to capital expenditures. Specifically, the Commission 
proposed requiring a registrant to describe its material cash 
``requirements,'' including commitments for capital expenditures, as of 
the end of the latest fiscal period, the anticipated source of funds 
needed to satisfy such cash requirements, and the general purpose of 
such requirements.\127\
---------------------------------------------------------------------------

    \127\ See 2003 MD&A Interpretive Release, at 75063.
---------------------------------------------------------------------------

    The proposal was intended to require registrants to disclose known 
material cash requirements and to modernize Item 303(a)(2) by 
specifically requiring this disclosure in addition to capital 
expenditures. The Commission recognized that, while capital 
expenditures remain important in many industries, certain expenditures 
and cash commitments that are not necessarily capital investments in 
property, plant, and equipment may be increasingly important to 
companies, especially those for which human capital or intellectual 
property are key resources. The proposals were intended to encompass 
these and other material cash requirements. The proposal was also 
intended to enhance the discussion of capital resources and complement 
the proposed deletion of the contractual obligations table.\128\
---------------------------------------------------------------------------

    \128\ See also Section II.C.7 infra.
---------------------------------------------------------------------------

b. Comments
    While commenters generally supported the proposal to amend Item 
303(a)(2) to broaden the disclosure

[[Page 2092]]

beyond capital expenditures,\129\ a few commenters stated that use of 
material cash ``requirements'' was too broad and provided 
recommendations on how to limit the requirement to facilitate 
compliance.\130\ These commenters stated that registrants would 
struggle to identify which commitments to disclose \131\ and that the 
proposals could result in extensive new record keeping and 
controls.\132\ These commenters recommended limiting the proposal by 
requiring ``material cash commitments'' instead of ``material cash 
requirements,'' \133\ focusing on material cash commitments outside of 
normal operations,\134\ or providing guidance on the expected content 
of these disclosures, including examples.\135\ One of these commenters 
recommended modernizing the liquidity and capital resources 
requirements, such as by merging and streamlining the two 
sections.\136\
---------------------------------------------------------------------------

    \129\ See, e.g., letters from EEI & AGA; FEI; IMA; Chamber; 
Society; CFA & CII; D. Jamieson.
    \130\ See, e.g., letters from FEI; IMA; E&Y.
    \131\ See letters from E&Y FEI (stating that the term 
``requirements'' is too broad, registrants have numerous cash 
requirements including the payment of operating expenses (e.g., 
salaries and wages, raw materials, utilities, taxes) and the change 
from ``commitments'' to ``requirements'' would lead to inconsistent 
application).
    \132\ See letter from IMA.
    \133\ See letter from FEI.
    \134\ See letter from IMA.
    \135\ See letter from E&Y.
    \136\ See id.
---------------------------------------------------------------------------

    Another commenter stated that the proposal may broaden the current 
capital resources requirement.\137\ This commenter recommended limiting 
the proposal to require only a discussion of cash to fund current 
operations (i.e., working capital cash requirements), but only if 
working capital is insufficient for the next 12 months. Other 
commenters supported the proposal and recommended enhancing it by 
retaining the contractual obligations table.\138\
---------------------------------------------------------------------------

    \137\ See letter from SIFMA (also recommending restating, in any 
final release, guidance from the 2003 MD&A Interpretive Release that 
a discussion of working capital cash requirements is required where 
there are material trends or uncertainties relating to the 
sufficiency of cash funding sources through working capital).
    \138\ See letters from CFA & CII; D. Jamieson.
---------------------------------------------------------------------------

c. Final Amendments
    We are adopting amendments to the capital resources requirement as 
proposed. We acknowledge commenter suggestion to use the term material 
cash ``commitments.'' However, we are retaining the term material cash 
``requirements'' as we believe this term is more consistent with the 
intended purpose of MD&A and with prior Commission guidance.\139\ The 
Commission has consistently emphasized the need for attention to 
disclosure of cash requirements.\140\
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    \139\ See 2003 MD&A Interpretive Release at 75062, which states 
that a ``company is required to include in MD&A, to the extent 
material, . . . the existence and timing of commitments for capital 
expenditures and other known and reasonably likely cash 
requirements.''
    \140\ See 2003 MD&A Interpretive Release.
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    We acknowledge commenters' concerns that registrants have numerous 
cash requirements and that the amendments could therefore result in 
extensive new record keeping and controls. As noted above, we do not 
expect that registrants would have to deviate substantially from 
current practices with respect to an assessment of material cash 
requirements as the amendments reflect current Commission guidance and 
resulting disclosure practices.\141\ Further, our amendments are 
limited to and address only those cash requirements that are material 
and accordingly, do not reflect a new threshold for these disclosures 
and should not require extensive or new procedures or controls. We are 
not, as suggested by one commenter limiting the amendments to require 
only disclosure of material cash requirements outside of normal 
operations, as registrants can and do have cash requirements related to 
their normal operations that are material. Additionally, and consistent 
with the suggestion of one commenter, our amendments create Item 
303(b)(1) to provide the overarching requirements for liquidity and 
capital resources disclosures in order to clarify the liquidity and 
capital resources requirements, as discussed in more detail below in 
Section II.C.7.
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    \141\ Commission staff has observed that registrants have 
provided discussion of material cash requirements pursuant to the 
requirements of MD&A and consistent with the 2003 MD&A Interpretive 
Release.
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3. Results of Operations--Known Trends or Uncertainties (Amended Item 
303(b)(2)(ii))
a. Proposed Amendments
    Item 303(a)(3)(ii) currently requires a registrant to describe any 
known trends or uncertainties that have had or that the registrant 
reasonably expects will have a material impact (favorable or 
unfavorable) on net sales or revenues or income from continuing 
operations.\142\ In addition, if the registrant knows of events that 
will cause a material change in the relationship between costs and 
revenues, the change in the relationship must be disclosed.\143\
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    \142\ Item 303(a)(3)(ii) of Regulation S-K [17 CFR 
229.303(a)(3)(ii)].
    \143\ Examples given include known future increases in costs of 
labor or materials or price increases or inventory adjustments. See 
id.
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    The Commission proposed amending Item 303(a)(3)(ii) to provide that 
when a registrant knows of events that are reasonably likely to cause 
(as opposed to will 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, the reasonably likely change must be disclosed. 
This proposed amendment was intended to conform the language in this 
paragraph to other Item 303 disclosure requirements for known 
trends,\144\ and align Item 303(a)(3)(ii) with the Commission's 
guidance on forward-looking disclosure, which specifies that, where a 
trend, demand, commitment, event, or uncertainty is known, management 
must make an assessment consistent with the two-step test the 
Commission articulated for disclosure of forward-looking 
information.\145\
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    \144\ See, e.g., Item 303(a)(1), which requires registrants to 
``[i]dentify any known trends or any known demands, commitments, 
events or uncertainties that will result in or that are reasonably 
likely to result in the registrant's liquidity increasing or 
decreasing in any material way.'' Item 303(a)(1) of Regulation S-K 
[17 CFR 229.303(a)(1)].
    \145\ See 1989 MD&A Interpretive Release, at 22430, where the 
Commission articulated a two-step test for assessing when forward-
looking disclosure is required in MD&A Where a trend, demand, 
commitment, event or uncertainty is known, management must make two 
assessments: (1) Is the known trend, demand, commitment, event or 
uncertainty likely to come to fruition? If management determines 
that it is not reasonably likely to occur, no disclosure is 
required. (2) If management cannot make that determination, it must 
evaluate objectively the consequences of the known trend, demand, 
commitment, event or uncertainty, on the assumption that it will 
come to fruition. Disclosure is then required unless management 
determines that a material effect on the registrant's financial 
condition or results of operations is not reasonably likely to 
occur.
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b. Comments
    Commenters were mixed in their support for or opposition to the 
proposal. Several commenters either generally opposed the two-step test 
\146\ or specified opposition to the ``reasonably likely'' standard for 
MD&A.\147\ Some of these commenters stated the two-step test or the 
term ``reasonably likely'' is unclear,\148\ with some stating that the 
current two-step test is not well understood and thus not well 
applied.\149\ One of these commenters recommended replacing

[[Page 2093]]

the two-step test with the probability/magnitude test in Basic v. 
Levinson, stating this test is simple, understandable, and already 
applied regularly in other contexts.\150\ This commenter also 
recommended, if the two-step test is retained, replacing the negative 
presumption in the test with an affirmative determination. This 
commenter stated that the negative presumption elicits disclosure that 
may not be material.\151\ Another of these commenters requested 
clarification on whether use of the term ``reasonably likely'' is 
intended to expand the scope of required disclosure.\152\ This 
commenter also requested additional Commission guidance on the 
timeframe for which management should consider its outlook.
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    \146\ See, e.g., letters from Nareit; FEI; ABA.
    \147\ See, e.g., letters from SIFMA; ABA; CalPERS.
    \148\ See, e.g., letters from ABA; FEI; SIFMA.
    \149\ See letters from ABA; FEI.
    \150\ See letter from ABA citing Basic Inc. v. Levinson, 485 
U.S. 224 (1988) (``Basic'').
    \151\ This commenter recommended making the two-step test a 
preliminary note to Item 303 and rewording it as follows: Where a 
trend, demand, commitment, event or uncertainty is known, management 
should make two assessments: (1) Does management reasonably expect 
that the known trend, demand, commitment, event or uncertainty will 
occur?, and (2) If so, the registrant should assess materiality as 
if the known trend, demand, commitment, event or uncertainty will 
occur, and provide disclosure if the impact on financial condition, 
results of operations or liquidity would be material.
    \152\ See letter from Nareit.
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    Several commenters, however, supported the proposal,\153\ with some 
of these commenters stating that it reflects current practice.\154\ One 
of these commenters further stated that because the second step in the 
two-step test requires a registrant to prove a negative while the 
proposal does not specifically incorporate this negative, the final 
release should state the two-step test is being superseded by the 
proposed language.\155\ This commenter further recommended replacing 
throughout Item 303 the term ``reasonably likely'' with ``reasonably 
expects,'' stating the latter is a clearer standard in practice.
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    \153\ See, e.g., letters Pfizer; EEI & AGA; SIFMA; Chamber; 
Society.
    \154\ See letters from IMA; EEI & AGA.
    \155\ See letter from Society.
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c. Final Amendments
    We are adopting Item 303(b)(2)(ii) with these amendments 
substantially as proposed, but with slight modifications to clarify 
that the ``reasonably likely'' threshold applies throughout Item 303. 
Furthermore, our amendments to Item 303(a) state that, as part of 
MD&A's objectives, whether a matter is ``reasonably likely'' to have a 
material impact on future operations is based on ``management's 
assessment.'' We believe that using a consistent threshold for forward-
looking disclosure throughout MD&A will help avoid both potential 
confusion and inconsistent application that could result from disparate 
thresholds. Additionally, our amendments reflect a standard that is 
consistent with longstanding Commission guidance, and we agree with 
those commenters that stated this term reflects current practice.
    We acknowledge that some commenters stated that the term 
``reasonably likely'' may be unclear or not well understood. After 
careful consideration of these comments, we continue to believe that 
the ``reasonably likely'' threshold is the appropriate standard for 
prospective matters and forward-looking information that is required 
under Item 303. In response to commenters who suggested that the two-
step test is unclear, not well understood, or difficult to apply, we 
are clarifying and explaining further how registrants should analyze 
and disclose information regarding known trends, demands, commitments, 
or uncertainties. In doing so, we reiterate the Commission's 
longstanding emphasis that analysis in this area should be based on 
objective reasonableness.\156\
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    \156\ See 1989 MD&A Interpretive Release at Section III.B 
(stating ``Each final determination resulting from the assessments 
made by management must be objectively reasonable, viewed as of the 
time the determination is made.'').
---------------------------------------------------------------------------

    As the Commission has previously stated with respect to the 
evaluation of whether a known trend or uncertainty is reasonably 
likely, ``the development of MD&A disclosure should begin with 
management's identification and evaluation of what information. . .is 
important to providing investors and others an accurate understanding 
of the company's current and prospective financial position and 
operating results.'' \157\ When considering whether disclosure of a 
known event or uncertainty is required,\158\ the analysis is based on 
materiality and what would be considered important by a reasonable 
investor in making a voting or investment decision.\159\ The 
``reasonably likely'' threshold does not require disclosure of any 
event that is known but for which fruition may be remote, nor does it 
set a bright-line percentage threshold by which disclosure is 
triggered. Rather, this threshold requires a thoughtful analysis that 
applies an objective assessment of the likelihood that an event will 
occur balanced with a materiality analysis regarding the need for 
disclosure regarding such event.\160\
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    \157\ See 2002 Commission Statement at 3747.
    \158\ See 1989 MD&A Interpretive Release at 22429 (``Required 
disclosure is based on currently known trends, events, and 
uncertainties that are reasonably expected to have material effects. 
. . . In contrast, optional forward-looking disclosure involves 
anticipating a future trend or event or anticipating a less 
predictable impact of a known event, trend or uncertainty.'').
    \159\ See Basic Inc. v. Levinson, 485 U.S. 224 (1988) at 231, 
quoting TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976) 
(``TSC Industries'') at 449 (``to fulfill the materiality 
requirement, `there must be a substantial likelihood that the 
disclosure of the omitted fact would have been viewed by the 
reasonable investor as having significantly altered the `total mix' 
of information made available.' ''). See also Exchange Act Rule 12b-
2 [17 CFR 240.12b-2] (``The term ``material,'' when used to qualify 
a requirement for the furnishing of information as to any subject, 
limits the information required to those matters to which there is a 
substantial likelihood that a reasonable investor would attach 
importance in determining whether to buy or sell the securities 
registered.''); Securities Act Rule 405 [17 CFR 230.405] (``The term 
material, when used to qualify a requirement for the furnishing of 
information as to any subject, limits the information required to 
those matters to which there is a substantial likelihood that a 
reasonable investor would attach importance in determining whether 
to purchase the security registered.''); Adoption of Integrated 
Disclosure System, Release No. 33-6383 (Mar. 3, 1982) [47 FR 11380 
(Mar. 16, 1982)] (noting that the definitions in Rule 12b-2 and Rule 
405 were ``based on the definition as set forth by the Supreme Court 
in TSC Industries''); S-K Concept Release at Section III.B.1 
(quoting the Commission Guidance Regarding Disclosure Related to 
Climate Change, Release No. 33-9106 (Feb. 8, 2010) [75 FR 6290 (Feb. 
8, 2010)] at 6292-6293 in stating that ``materiality standards for 
disclosure under the federal securities laws . . . provide that 
information is material if there is a substantial likelihood that a 
reasonable investor would consider it important in deciding how to 
vote or make an investment decision, or, put another way, if the 
information would alter the total mix of available information.'').
    \160\ We are not adopting the suggested ``reasonably expects'' 
threshold suggested by some commenters. Consistent with our 
discussion herein, we believe the analysis should focus on an 
objective determination of the likelihood of an event occurring, 
rather than on whether management's expectation of such event 
occurring would be objectively reasonable.
---------------------------------------------------------------------------

    Taking these concepts into account, when applying the ``reasonably 
likely'' threshold, registrants should consider whether a known trend, 
demand, commitment, event, or uncertainty is likely to come to 
fruition. If such known trend, demand, commitment, event or uncertainty 
would reasonably be likely to have a material effect on the 
registrant's future results or financial condition, disclosure is 
required. Known trends, demands, commitments, events, or uncertainties 
that are not remote or where management cannot make an assessment as to 
the likelihood that they will come to fruition, and that would be 
reasonably likely to have a material effect on the registrant's future 
results or financial condition, were they to come to fruition, should 
be disclosed if a reasonable investor would consider omission of the 
information as significantly altering the mix of information made 
available in the

[[Page 2094]]

registrant's disclosures.\161\ This analysis should be made objectively 
and with a view to providing investors with a clearer understanding of 
the potential material consequences of such known forward-looking 
events or uncertainties. Because the analysis does not call for 
disclosure of immaterial or remote future events, it should not result 
in voluminous disclosures or unnecessarily speculative 
information.\162\
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    \161\ Id.
    \162\ See, e.g., Off-Balance Sheet Arrangements and Contractual 
Obligations Adopting Release at 5985 (stating ``We believe that the 
`reasonably likely' threshold best promotes the utility of the 
disclosure requirements by reducing the possibility that investors 
will be overwhelmed by voluminous disclosure of insignificant and 
possibly unnecessarily speculative information.''). See also Matrixx 
Initiatives, Inc. v. Siracusano, 131 U.S. 1309 (2011) (``Matrixx 
Initiatives'') at 1318, quoting TSC Industries at 449. In Matrixx 
Initiatives, the Court applied the materiality standard, as set 
forth in TSC Industries and Basic. In articulating these standards, 
the Supreme Court recognized that setting too low of a materiality 
standard for purposes of liability could cause management to ``bury 
shareholders in an avalanche of trivial information.'' Id. at 1318, 
quoting TSC Industries at 448-449.
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    As noted above, some commenters also indicated that application of 
the two-step test as the Commission articulated it in 1989 may result 
in disclosure that is not material or present challenges to 
registrants, such as by requiring a registrant to prove a negative. 
This was not the intended result of that test, and we believe that the 
clarifications we have provided above regarding the appropriate 
application of the analysis should alleviate these concerns. The 
``reasonably likely'' threshold, which requires that management 
evaluate the consequences of the known trend, demand, commitment, 
event, or uncertainty, is grounded in whether disclosure of the event 
or uncertainty would be material to investors. We remind registrants 
that this approach is not intended to, nor does it require, registrants 
to affirm the non-existence or non-occurrence of a material future 
event.\163\ Instead, it requires management to make a thoughtful and 
objective evaluation, based on materiality, including where the 
fruition of future events is unknown.\164\
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    \163\ We are not, as suggested by a commenter, reformulating the 
language to require an affirmative determination. Such reformulated 
language would substantively alter the called for disclosures as it 
would not account for circumstances where management cannot 
determine whether a known trend, demand, commitment, event or 
uncertainty is likely to come to fruition.
    \164\ Accordingly, we are not, as suggested by one commenter, 
providing specific guidance on a timeframe for which management 
should consider its outlook for forward-looking information as such 
timeframe will depend on the nature of and the facts and 
circumstances surrounding the forward-looking disclosure.
---------------------------------------------------------------------------

    We are not, as recommended by one commenter, adopting the 
probability/magnitude test of Basic. In Basic, the Supreme Court framed 
the issue of materiality of forward-looking disclosure as depending on 
a balancing of both ``the indicated probability that the event will 
occur and the anticipated magnitude of the event in light of the 
totality of the company activity.'' \165\ We agree with commenters that 
the probability/magnitude test could result in disclosure of issues 
that are large in potential magnitude but low in probability.\166\ The 
probability/magnitude test in Basic was developed in the context of a 
potential merger, where the probability of the event, the potential 
timing, and the expected effects may be readily estimated. Some 
commenters have noted that the probability/magnitude test can be 
difficult to apply where there is uncertainty as to the probability, 
timing, and magnitude of the financial impact of future events.\167\ As 
articulated above, we believe that the ``reasonably likely'' threshold 
provides registrants with a tailored and meaningful framework from 
which to objectively analyze whether forward-looking information is 
required and provides specific guidance on how registrants should 
evaluate known events or uncertainties where the likelihood of fruition 
cannot be ascertained.
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    \165\ See Basic (quoting SEC v. Texas Gulf Sulphur Co., 401 F.2d 
833, 849 (2d Cir. 1968)).
    \166\ See S-K Concept Release Letter from Stephen Percoco dated 
July 24, 2016.
    \167\ See, e.g., S-K Concept Release Letters from the 
Sustainability Accounting Standards Board dated July 1, 2016; See 
also letters from Edward D. White dated July 20, 2016; Thomas F. 
Steyer dated July 20, 2016; Michael R. Bloomberg dated July 26, 
2016; Brita Voss dated July 6, 2016 (supporting the recommendations 
of the Sustainability Accounting Standards Board).
---------------------------------------------------------------------------

4. Results of Operations--Net Sales and Revenues (Amended Item 
303(b)(2)(iii))
a. Proposed Amendments
    Item 303(a)(3)(iii) currently specifies that, to the extent the 
``financial statements'' disclose ``material increases'' in net sales 
or revenues, a registrant must provide a narrative discussion of the 
extent to which such ``increases'' are attributable to increases in 
prices, or to increases in the volume or amount of goods or services 
being sold, or to the introduction of new products or services.\168\ 
The Commission previously clarified that a results of operations 
discussion should describe not only increases but also decreases in net 
sales or revenues.\169\ Accordingly, the Commission proposed amending 
Item 303(a)(3)(iii) to apply to disclosures in the ``statement of 
comprehensive income,'' codify prior guidance, and clarify the 
requirement by tying the required disclosure to ``material changes'' in 
net sales or revenues, rather than solely to ``material increases'' in 
these line items.
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    \168\ Item 303(a)(3)(iii) of Regulation S-K [17 CFR 
229.303(a)(3)(iii)].
    \169\ See 1989 MD&A Interpretative Release, at n. 36 (``Although 
Item 303(a)(3)(iii) speaks only to material increases, not 
decreases, in net sales or revenues, the Commission interprets Item 
303(a)(3)(i) and Instruction 4 as seeking similar disclosure for 
material decreases in net sales or revenues.'').
---------------------------------------------------------------------------

b. Comments
    Several commenters specifically supported this proposal,\170\ with 
one of these commenters stating that registrants already provide this 
disclosure.\171\ No commenters specifically opposed this proposal.
---------------------------------------------------------------------------

    \170\ See, e.g., letters from FEI; IMA; Chamber; Society; CFA & 
CII; D. Jamieson.
    \171\ See letter from FEI.
---------------------------------------------------------------------------

c. Final Amendments
    We are adopting Item 303(b)(2)(iii) with these amendments as 
proposed. We believe clarifying in the rule text that disclosure is 
required of ``material changes'' in net sales or revenues will 
facilitate compliance. This clarification is consistent with MD&A's 
focus on the importance of an analysis that should consist of material 
substantive information and present a balanced view of the underlying 
dynamics of the business.\172\ We also believe this amendment will 
complement our change to Item 303(b) which will require that, where the 
financial statements reveal material changes from period-to-period in 
one or more line items, registrants must describe the underlying 
reasons for these material changes in quantitative and qualitative 
terms.
---------------------------------------------------------------------------

    \172\ See 2003 MD&A Interpretive Release at Section III.B.4.
---------------------------------------------------------------------------

5. Results of Operations--Inflation and Price Changes (Current Item 
303(a)(3)(iv), and Current Instructions 8 and 9 to Item 303(a))
a. Proposed Amendments
    Item 303(a)(3)(iv) \173\ generally requires registrants, either for 
the three most recent fiscal years or for those fiscal years in which 
the registrant has been engaged in business, whichever period is 
shorter, to discuss the impact of inflation and price changes on their 
net sales, revenue, and income from continuing operations. Instruction 
8 to

[[Page 2095]]

Item 303(a) clarifies that a registrant is only required to provide 
this disclosure to the extent material. The instruction further states 
that the discussion may be made in whatever manner appears appropriate 
under the circumstances and that no specific numerical financial data 
is required, except as required by Rule 3-20(c) of Regulation S-X,\174\ 
which applies to FPIs. Instruction 9 to Item 303(a) states that 
registrants that elect to disclose supplementary information on the 
effects of changing prices may combine such disclosures with the Item 
303(a) discussion and analysis or provide it separately (with an 
appropriate cross-reference).\175\
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    \173\ Item 303(a)(3)(iv) of Regulation S-K [17 CFR 
229.303(a)(3)(iv)].
    \174\ Rules 3-20(c) and 3-20(d) of Regulation S-X provide the 
situations when a registrant must discuss hyperinflation. Rule 3-
20(d) generally describes a hyperinflationary environment as one 
that has cumulative inflation of approximately 100 percent or more 
over the most recent three-year period.
    \175\ Instruction 9 to Item 303(a).
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    The Commission proposed eliminating Item 303(a)(3)(iv) and 
Instructions 8 and 9 to encourage registrants to focus their MD&A on 
material information that is tailored to their respective facts and 
circumstances. In the Proposing Release, the Commission stated that a 
specific reference to inflation and changing prices may give undue 
attention to the topic.\176\ Registrants are already expected to 
discuss the impact of inflation or price changes if they are part of a 
known trend or uncertainty that has had, or is reasonably likely to 
have, a material favorable or unfavorable impact on net sales, revenue, 
or income from continuing operations.\177\
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    \176\ See Proposing Release at Section II.C.5.
    \177\ See Item 303(a)(3)(ii) [CFR 229.303(a)(3)(ii)] and amended 
Item 303(b)(2)(ii).
---------------------------------------------------------------------------

b. Comments
    Commenters generally supported eliminating Item 303(a)(3)(iv) and 
Instructions 8 and 9 to Item 303(a), as proposed.\178\ Some commenters 
stated that registrants should focus their MD&A on registrant-specific 
material information and that eliminating this item and the related 
instructions would aid in that endeavor.\179\ Other commenters stated 
that where inflation is material, registrants would still be required 
to disclose this under current rules.\180\ One commenter noted that in 
order to satisfy this item, many registrants provide ``boilerplate 
disclosures'' and stated that as a result, few, if any, disclosures in 
response to this item have been of value to investors.\181\ No 
commenters specifically opposed this proposal.
---------------------------------------------------------------------------

    \178\ See, e.g., letters from EEI & AGA; FedEx; Nasdaq; FEI; 
IMA; Chamber; Society.
    \179\ See, e.g., letters from EEI & AGA; Nasdaq.
    \180\ See, e.g., letters from FEI; IMA.
    \181\ See letter from IMA.
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c, Final Amendments
    We are eliminating Item 303(a)(3)(iv) and Instructions 8 and 9 to 
Item 303(a) as proposed. Consistent with the discussion above and in 
the Proposing Release, under amended Item 303, registrants will be 
required to discuss the impact of inflation or changing prices if they 
are part of a known trend or uncertainty that had, or is reasonably 
likely to have a material impact on net sales, revenue, or income from 
continuing operations. Further, amended Item 303 requires that, where 
the financial statements reveal material changes from period-to-period 
in one or more line items, registrants must describe the underlying 
reasons for these material changes in quantitative and qualitative 
terms, which may also implicate a discussion of inflation and changing 
prices.\182\
---------------------------------------------------------------------------

    \182\ See amended Item 303(b).
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6. Off-Balance Sheet Arrangements (New Instruction 8 to Item 303(b))
a. Proposed Amendments
    In 2002, the Sarbanes-Oxley Act \183\ was enacted and added Section 
13(j) to the Exchange Act, which required the Commission to adopt rules 
providing that each annual and quarterly financial report required to 
be filed with the Commission disclose all material off-balance sheet 
arrangements.\184\ To implement Section 13(j), in 2003, the Commission 
adopted specific disclosure requirements for off-balance sheet 
arrangements in current Item 303(a)(4).\185\ When adopting Item 
303(a)(4), the Commission reiterated that, while at that time only one 
item in Item 303 specifically identified off-balance sheet 
arrangements,\186\ other requirements ``clearly require[d] disclosure 
of off-balance sheet arrangements if necessary to an understanding of a 
registrant's financial condition, changes in financial condition or 
results of operations.'' \187\ The 2003 amendments supplemented and 
clarified the disclosures that registrants must make about off-balance 
sheet arrangements and required registrants to provide those 
disclosures in a separately designated section of MD&A.\188\
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    \183\ Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 116 Stat 745 
(Jul. 2002) (``Sarbanes-Oxley Act'').
    \184\ Section 401(a) of the Sarbanes-Oxley Act added Section 
13(j) to the Exchange Act [15 U.S.C. 78m(j)], which directed the 
Commission to adopt rules requiring each annual and quarterly 
financial report filed with the Commission to disclose ``all 
material off-balance sheet transactions, arrangements, obligations 
(including contingent obligations), and other relationships of the 
issuer with unconsolidated entities or other persons, that may have 
a material current or future effect on financial condition, changes 
in financial condition, results of operations, liquidity, capital 
expenditures, capital resources, or significant components of 
revenues or expenses.''
    \185\ See Off-Balance Sheet Arrangements and Contractual 
Obligations Adopting Release, at 5983.
    \186\ Item 303(a)(2)(ii) of Regulation S-K [17 CFR 
229.303(a)(2)(ii)].
    \187\ See Off-Balance Sheet Arrangements and Contractual 
Obligations Adopting Release, at 5983.
    \188\ See id.
---------------------------------------------------------------------------

    In the release proposing Item 303(a)(4), the Commission recognized 
that parts of the proposed off-balance sheet arrangements disclosure 
requirements might overlap with disclosure presented in the footnotes 
to the financial statements.\189\ The Commission stated, however, that 
the proposed rules were designed to provide more comprehensive 
information and analysis in MD&A than the disclosure that U.S. GAAP 
required in footnotes to financial statements.\190\
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    \189\ See Disclosure in Management's Discussion and Analysis 
About Off-Balance Sheet Arrangements, Contractual Obligations and 
Contingent Liabilities and Commitments, Release No. 33-8144 (Nov. 4, 
2002) 67 FR 68054 (Nov. 8, 2002), at n.72.
    \190\ See id.
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    Since the adoption of Item 303(a)(4), as described further in the 
Proposing Release,\191\ the FASB has issued additional requirements 
that have caused U.S. GAAP to further overlap with the item.\192\ In 
the Commission staff's experience, this overlap often leads to 
registrants providing cross-references to the relevant notes to their 
financial statements or providing disclosure that is duplicative of 
information in the notes in response to Item 303(a)(4).
---------------------------------------------------------------------------

    \191\ See Proposing Release at Section II.C.6.
    \192\ In June 2009, the FASB Issued SFAS No. 166, Accounting for 
Transfers of Financial Assets an amendment of FASB Statement No. 
140, which requires enhanced disclosures about transfers of 
financial assets and a transferor's continuing involvement with 
transfers of financial assets accounted for as sales. Also in June 
2009, the FASB issued SFAS No. 167, Amendments to FASB 
Interpretation No. 46(R), which requires enhanced disclosures about 
an enterprise's involvement in a variable interest entity, including 
unconsolidated entities. SFAS No. 166 and 167 have been codified as 
ASC Topics 860 (Transfers and Servicing) and 810 (Consolidation), 
respectively. See also Section II.D.1.b and see infra note 344 for a 
discussion of IFRS requirements that overlap with Item 5.E of Form 
20-F.
---------------------------------------------------------------------------

    As a result, and consistent with the other proposed amendments 
intended to promote the principles-based nature of MD&A, the Commission 
proposed that the current more prescriptive off-balance sheet 
arrangement definition and related disclosure requirement in Item 
303(a)(4) be replaced with a new

[[Page 2096]]

Instruction to Item 303(b). This proposed instruction would require 
registrants 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 a registrant's financial condition, changes in 
financial condition, revenues or expenses, results of operations, 
liquidity, cash requirements, or capital resources.\193\ This proposed 
instruction was intended to build on the current requirement in Item 
303(a)(2) that specifically requires consideration of off-balance sheet 
financing arrangements as part of the capital resources 
discussion.\194\
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    \193\ See Proposing Release at Section II.C.6.
    \194\ See Item 303(a)(2)(ii) of Regulation S-K [17 CFR 
302(a)(2)(ii)].
---------------------------------------------------------------------------

b. Comments
    Many commenters supported the proposal to replace Item 303(a)(4) 
with a principles-based instruction.\195\ One of these commenters 
further recommended modifying the proposal to allow registrants 
discretion to make this disclosure under a separate caption within the 
capital resources section.\196\ Another commenter stated that if there 
are concerns about specific matters that are not addressed under U.S. 
GAAP, these concerns should be addressed by the FASB.\197\ One 
commenter recommended reiterating that the amendment is not intended to 
broaden or narrow the scope of off-balance sheet arrangements 
disclosure requirements in MD&A, but rather, it is intended to 
incorporate this disclosure in a more holistic, principles-based 
discussion.\198\
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    \195\ See, e.g., letters from EEI & AGA; FedEx; FEI; SIFMA; IMA; 
E&Y Medtronic; Chamber; and Society.
    \196\ See letter from EEI & AGA.
    \197\ See letter from IMA.
    \198\ See letter from Society.
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    Several commenters expressed concern with the proposal.\199\ One 
commenter cautioned that the proposed amendments may result in the loss 
of discussion of the nature and business purpose of off-balance sheet 
arrangements and any known event, demand, commitment, trend, or 
uncertainty that will result, or is likely to result, in a material 
change in the availability of the off-balance sheet arrangement.\200\ 
Another commenter stated that the separate section for off-balance 
sheet arrangements remains important because the overlapping 
information required to be disclosed in the financial statements is 
dispersed.\201\ One commenter stated that the proposed amendments would 
allow management to hide off-balance sheet arrangements.\202\ 
Additionally, some commenters recommended that we provide illustrative 
guidance.\203\
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    \199\ See, e.g., letters from Pfizer; CalPERS; CFA & CII; and D. 
Jamieson.
    \200\ See letter from Pfizer.
    \201\ See letter from CFA & CII.
    \202\ See letter from CalPERS.
    \203\ See letters from Pfizer and Society.
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c. Final Amendments
    We are adopting the amendments to replace Item 303(a)(4) with a 
principles-based instruction as proposed.\204\ For the reasons 
discussed in the Proposing Release, we continue to believe that the 
updates to U.S. GAAP since the adoption of Item 303(a)(4), as well as 
the current amendments designed to emphasize the principles-based 
nature of MD&A, justify the replacement of the current, more 
prescriptive requirement with a principles-based instruction.\205\
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    \204\ For the same reasons discussed in the Proposing Release, 
we believe our amendments are consistent with the statutory mandate 
in Section 13(j) of the Exchange Act. See Proposing Release at 
Section II.C.6.
    \205\ We are also adopting the amendments to Items 2.03 and 2.04 
of Form 8-K as proposed to include the definition of ``off-balance 
sheet arrangements'' that is currently in Item 303(a)(4). As stated 
in the Proposing Release, we believe it is appropriate to retain the 
current definition of ``off-balance sheet arrangements'' in Form 8-K 
in light of the Form's four business day filing requirement. See 
Proposing Release at footnotes 188 and 189. In addition, we are 
making technical amendments to Item 2.03 of Form 8-K to refer to 
FASB ASC Topic 842, which has superseded FASB ASC Topic 840.
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    With respect to commenters that suggested that the amendments may 
result in a loss of discussion of the nature and business purpose of 
off-balance sheet arrangements or other information, we continue to 
believe that new Instruction 8 would mitigate any potential loss of 
information by requiring, among other things, a discussion of material 
matters of liquidity, capital resources, and financial condition as 
they relate to off-balance sheet arrangements.\206\ Furthermore, we 
highlight that current Item 303(a)(4) does not require disclosure of 
certain types of off-balance sheet arrangements that do not meet the 
specific definition in Item 303(a)(4)(ii). For example, many 
registrants in the pharmaceutical industry are contingently obligated 
to make milestone payments to licensors of drug compounds. These 
milestone payments are not covered by the definition of ``off-balance 
sheet arrangement'' in Item 303(a)(4) and currently are not required to 
be disclosed in the separately-captioned section called for by that 
item. We have nonetheless observed that registrants typically discuss 
these contingent milestone payments in MD&A to provide investors with 
an appropriate understanding of their liquidity and capital resources, 
which we believe can be useful to a broader understanding of the impact 
of off-balance sheet arrangements to a registrant's financial 
condition, and the nature and purpose of such arrangements. 
Accordingly, we believe that the principles of MD&A, supplemented with 
the new instruction, and the requirements of U.S. GAAP will elicit 
discussion sufficient to enable an understanding of the off-balance 
sheet arrangement.
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    \206\ For a discussion of the requirements in Item 303(a)(4) 
that overlap with U.S. GAAP see the Proposing Release at Section 
II.C.6.
---------------------------------------------------------------------------

    By no longer requiring this disclosure in a separately-captioned 
section, we expect that a registrant will incorporate its discussion of 
off-balance sheet arrangements into its broader discussion of liquidity 
and capital resources. We also acknowledge the commenters that stated 
that a separately-captioned section is useful. We continue to believe 
that a discussion of off-balance sheet arrangements that is more 
integrated with other aspects of MD&A will produce better disclosure 
and facilitate a more meaningful understanding of the impact of such 
arrangements; however, to the extent that a registrant determines that 
some discussion of off-balance sheet arrangements should be highlighted 
separately or in a separately captioned section in order to facilitate 
an understanding of such disclosure, or to highlight particularly 
material information about such arrangements, it has the discretion to 
do so.\207\ Finally, we have not given examples or guidance for the 
disclosure of off-balance sheet arrangements, as suggested by some 
commenters. Disclosures will need to be tailored to a registrant's 
arrangements and circumstances, and we do not want to promote a 
checklist approach to the disclosures.
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    \207\ See, e.g., Instruction 3 to amended Item 303(b).
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7. Contractual Obligations Table (Current Item 303(a)(5)) and Amended 
Item 303(b)(1)--Liquidity and Capital Resources)
a. Proposed Amendments
    Under Item 303(a)(5),\208\ registrants other than SRCs must 
disclose in tabular format their known contractual obligations. The 
item requires a registrant to arrange its table to disclose contracts 
by type of obligations,\209\ the

[[Page 2097]]

overall payments due, and by four prescribed periods.\210\ A registrant 
may disaggregate the categories of obligations, but it must disclose 
all obligations falling within the prescribed five categories and for 
the prescribed time periods. A registrant may provide footnotes to the 
table to the extent such information is necessary to understand the 
disclosures in the contractual obligations table. There is no 
materiality threshold for this item, meaning registrants must disclose 
all contractual obligations falling within the prescribed five 
categories.\211\
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    \208\ Item 303(a)(5) of Regulation S-K [17 CFR 229.303(a)(5)].
    \209\ The types of obligations required to be included are long-
term debt obligations, capital lease obligations, operating lease 
obligations, purchase obligations, and other long-term liabilities 
reflected on the registrant's balance sheet under GAAP.
    \210\ The payment obligations must be disclosed for the 
following timeframes: Less than one year; one to three years; three 
to five years; and more than five years.
    \211\ The first three categories of obligations required under 
current Item 303(a)(5) (i.e., long-term debt, capital leases, and 
operating leases) are defined by reference to the relevant U.S. GAAP 
accounting pronouncements that require disclosure of these 
obligations in the financial statements or notes thereto. The fourth 
category, purchase obligations, is defined as an agreement to 
purchase goods or services that is enforceable, legally binding on 
the registrant and specifies all significant terms. The fifth 
category of contractual obligations captures all other long-term 
liabilities that are reflected on the registrant's balance sheet 
under generally accepted accounting principles applicable to the 
registrant.
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    When the Commission implemented this disclosure requirement, its 
purpose was to ensure that aggregated information about contractual 
obligations was presented in one place and to improve transparency of a 
registrant's short- and long-term liquidity and capital resources needs 
and demands.\212\ This was intended to aid investors in determining the 
effect such obligations would have in the context of off-balance sheet 
arrangements.\213\ Commission guidance that followed the implementation 
of this requirement encouraged registrants to include narratives to the 
table to provide more context and analysis for the numbers 
presented.\214\
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    \212\ See Off-Balance Sheet Arrangements and Contractual 
Obligations Adopting Release at 5990. See also Off-Balance Sheet 
Arrangements and Contractual Obligations Proposing Release.
    \213\ See id.
    \214\ See Commission Guidance on Presentation of Liquidity and 
Capital Resources Disclosures in Management's Discussion and 
Analysis, Release No. 33-9144 (Sept. 17, 2010) [75 FR 59894 (Sept. 
28, 2010)] (``2010 MD&A Interpretive Release''), at 59896.
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    The Commission proposed eliminating Item 303(a)(5). As part of its 
rationale, the Commission stated its belief that eliminating the 
requirement would not result in a loss of material information to 
investors given the overlap with information required in the financial 
statements and in light of the concurrent proposed expansion of the 
capital resources requirement, discussed above in Section II.C.2.\215\
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    \215\ See Proposing Release at Section II.C.7.
---------------------------------------------------------------------------

b. Comments
    Many commenters supported eliminating this item,\216\ while a few 
commenters opposed the proposal.\217\ Of the commenters who supported 
eliminating this item, a few emphasized the burdens imposed by the 
table.\218\ One of these commenters stated that producing the table is 
burdensome because, as a multinational company with hundreds of 
subsidiaries, the table ``takes a significant amount of time . . . 
especially as the information is not referenced in how we operate our 
business.'' \219\ Another commenter stated that the contractual 
obligations table requires resources beyond those needed for the 
financial statements and involves departments across their organization 
including, but not limited to, accounting, information technology, real 
estate, legal, tax, and merchandising.\220\
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    \216\ See, e.g., letters from Pfizer; EEI & AGA; FedEx; Nasdaq; 
Nareit; FEI; SIFMA; IMA; E&Y UnitedHealth; Costco Wholesale 
Corporation dated April 28, 2020 (``Costco''); Chamber; Society.
    \217\ See, e.g., letters from CalPERS; CFA & CII; D. Jamieson. 
See also IAC Recommendation.
    \218\ See, e.g., letters from Eli Lilly; FEI; UnitedHealth; 
Costco.
    \219\ See letter from Eli Lilly (also opposing retaining the 
table in modified form).
    \220\ See letter from Costco.
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    Commenters that opposed the proposal questioned the cost savings to 
registrants from the proposal and suggested the proposal would increase 
burdens to investors to gather this data.\221\ A few of these 
commenters stated that the table is more important during a crisis such 
as the COVID-19 crisis.\222\ Some of these commenters stated that 
during periods of liquidity stress, such as the COVID-19 pandemic, 
investors find it extremely useful to have aggregated disclosure of 
cash commitments in a single location.\223\ Another of these commenters 
observed that this requirement was adopted during an economic 
crisis.\224\ A few of these commenters also specified that the 
information in the table is useful and material and suggested 
augmenting the table,\225\ such as with internal hyperlinks \226\ or by 
requiring the data be tagged and accompanied with a narrative.\227\ 
Some of these commenters also stated that the table is not entirely 
duplicative of disclosures elsewhere and instead is critical to 
assessing the cadence or funding of liabilities.\228\
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    \221\ See letters from CalPERS (stating that registrants already 
have systems in place to provide this disclosure while investors do 
not have the technology to efficiently find these disclosures 
elsewhere); CFA & CII; D. Jamieson. See also IAC Recommendation.
    \222\ See letters from CalPERS; CFA & CII; D. Jamieson.
    \223\ See letter from CFA & CII; D. Jamieson.
    \224\ See letter from CalPERS.
    \225\ See letters CFA & CII; D. Jamieson. See also IAC 
Recommendation (providing, as an example of the potential 
materiality of the table, a recent analyst report on the cruise line 
industry during the COVID-19 crisis and the report's reliance on the 
table to juxtapose the mismatch between revenue shortfalls and near-
term obligations).
    \226\ See, e.g., letters from CFA & CII; D. Jamieson. See also 
IAC Recommendation.
    \227\ See, e.g., letters from CFA & CII; D. Jamieson.
    \228\ See letters from CFA & CII and D. Jamieson (providing 
purchase obligations as an example of disclosure in the table that 
is not duplicated elsewhere).
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c. Final Amendments
    We are eliminating Item 303(a)(5) as proposed and, in consideration 
of comments received, we are also amending Item 303(b) to specifically 
require disclosure of material cash requirements from known contractual 
and other obligations as part of a liquidity and capital resources 
discussion. As discussed in the Proposing Release, the Commission 
believed that eliminating current Item 303(a)(5) should not result in 
the loss of material information. The Commission stated that, in 
addition to disclosure in the financial statements, registrants would, 
under the proposals to amend the discussion of capital resources, be 
required to discuss material cash requirements, which would include 
material contractual obligations.\229\ The amendments described below 
further clarify and enhance this point.
---------------------------------------------------------------------------

    \229\ See Proposing Release at Section II.C.7.
---------------------------------------------------------------------------

    We are adopting amendments to the liquidity and capital resources 
requirements in Item 303(b) that are a change from what was proposed. 
These changes are in response to commenter input on the proposed 
elimination of Item 303(a)(5) and on the proposals related to the 
liquidity and capital resource requirements. The amendments to Item 
303(b) are intended to clarify the requirements while continuing to 
emphasize a principles-based approach focused on material short- and 
long-term liquidity and capital resources needs, while also specifying 
that material cash requirements from known contractual and other 
obligations should be considered as part of these disclosures. 
Specifically, these amendments:
     Create a new Item 303(b)(1) to provide the overarching 
requirements for liquidity and capital resources

[[Page 2098]]

disclosures in order to clarify these requirements; \230\
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    \230\ See Section II.C.2 supra.
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     Incorporate in Item 303(b)(1) portions of current 
Instruction 5 to Item 303(a), which defines ``liquidity'' as the 
ability to generate adequate amounts of cash to meet the needs for 
cash, clarifying its applicability to the liquidity and capital 
resources requirements more generally;
     Codify prior Commission guidance that specifies that 
short-term liquidity and capital resources covers cash needs up to 12 
months into the future while long-term liquidity and capital resources 
covers items beyond 12 months; \231\
---------------------------------------------------------------------------

    \231\ See 1989 MD&A Interpretive Release.
---------------------------------------------------------------------------

     Require the discussion on both a short-term and long-term 
basis;
     Require the discussion to analyze material cash 
requirements from known contractual and other obligations and such 
disclosures to specify the type of obligation and the relevant time 
period for the related cash requirements;
     Include a new instruction that states that the discussion 
of material cash requirements from known contractual obligations may 
include, for example, lease obligations, purchase obligations, or other 
liabilities reflected on the registrant's balance sheet; and
     Include a new instruction that states, consistent with 
prior Commission guidance,\232\ the analysis for all of Item 303(b) 
should be in a format that facilitates easy understanding and does not 
duplicate disclosure already provided in the filing.\233\
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    \232\ See, e.g., 2003 MD&A Interpretive Release.
    \233\ Notwithstanding the adoption of Item 303(b)(1) that sets 
forth the overarching requirements for a liquidity and capital 
resources discussion and the related elimination of language in Item 
303 indicating that discussions of liquidity and capital resources 
may be combined whenever the two topics are interrelated, this new 
instruction would, for example, continue to allow registrants 
flexibility to either combine or separate the two topics.
---------------------------------------------------------------------------

    The Commission's objective in adopting current Item 303(a)(5) was 
to provide aggregated information about contractual obligations in a 
single location and to improve transparency of a registrant's short- 
and long-term liquidity and capital resources needs and demands.\234\ 
Much of the disclosure required by current Item 303(a)(5) is now 
provided in the financial statements, unlike when the requirement was 
first adopted. As a result, much of this information is also required 
to be tagged in XBRL, allowing users to extract and compare this data. 
Given these developments since the adoption of the contractual 
obligations table, and consistent with the long-standing principles-
based focus of MD&A, we are eliminating Item 303(a)(5) as proposed. 
Combined with the amended liquidity and capital resource requirements, 
our amendments are intended to improve the transparency of a 
registrant's short- and long-term liquidity and capital resources needs 
and demands while reducing undue burdens to prepare such disclosure.
---------------------------------------------------------------------------

    \234\ See Off-Balance Sheet Arrangements and Contractual 
Obligations Proposing Release.
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    Our amendments are also intended to address commenters' concerns 
about the challenges imposed by the current contractual obligations 
table. We recognize that, because the current contractual obligations 
table does not have a materiality threshold, the burdens imposed by the 
table on registrants can include identifying, evaluating, and 
aggregating contracts that are not material. By eliminating the 
prescriptive requirement to prepare a contractual obligations table and 
refocusing instead on a principles-based approach that requires a 
robust discussion of liquidity and capital resources, including a 
discussion of contractual obligations, our intent is to relieve 
registrants of these burdens while continuing to provide investors with 
material information.
    Our amendments allow registrants flexibility in discussing material 
cash requirements from known contractual and other obligations. To that 
end, while amended Instruction 4 provides examples of the types of 
known contractual obligations that may be included that are generally 
consistent with those required by current Item 303(a)(5), unlike the 
current requirement, the amendments do not prescribe specific 
categories of contractual obligations. We acknowledge a commenters' 
observation that the current table is not entirely duplicative of U.S. 
GAAP, and therefore the elimination of Item 305(a)(5) could result in a 
loss of certain information.\235\ Examples in amended Instruction 4 are 
deliberately not tied to U.S. GAAP to provide flexibility for company-
specific disclosure, avoid unnecessary duplication with the financial 
statements, and allow registrants to consider disclosing other 
categories of contractual obligations appropriate for its 
business.\236\ Additionally, as registrants prepare their financial 
statements in accordance with U.S. GAAP, and with the exception of 
certain purchase obligations, they are already required to assess 
currently prescribed categories of contractual obligations. To the 
extent obligations under these currently prescribed categories are 
material, they are required to be discussed in MD&A, regardless of 
whether our rules prescribe these categories. Likewise, our amendments 
do not specify or provide examples of ``other obligations'' that may be 
material to a registrant, allowing registrants flexibility to determine 
what may be material and necessary to be disclosed.
---------------------------------------------------------------------------

    \235\ For example, information relating to certain purchase 
obligations is not specifically called for under U.S. GAAP and is 
therefore not typically disclosed in the financial statements. 
Additionally, information related to the ``payments due by period'' 
currently required by the item may not be required to be disclosed 
in a registrant's financial statements.
    \236\ See also amended Instruction 3 to Item 303(b).
---------------------------------------------------------------------------

    While the current table requires disclosure of all contractual 
obligations aggregated by type of obligation and for specified periods, 
we recognize not all obligations presented nor the periods for which 
they are presented are material. Accordingly, our amendments to Item 
303(b)(1) further require that the disclosures specify the type of 
obligation and relevant time period for the related cash requirements, 
in recognition of commenter concerns that such information may be lost 
with the elimination of Item 303(a)(5). Our amendments are intended to 
focus only on material disclosures and specifically, disclosure of 
those periods where the cash requirements or reasonably likely effect 
of these cash requirements on liquidity and capital resources is 
material. For example, if a financial obligation is reasonably likely 
to have a material effect on liquidity and capital resources over a 
number of subsequent periods or sometime within a range of future 
periods, these amendments would require registrants to identify and 
discuss this obligation and related effects.
    We are mindful of commenters who stated that the current table is 
an easy-to-use format as it aggregates disclosure in a single location 
or otherwise requested that the table be retained and expanded. We also 
acknowledge input from registrants who emphasized that preparation of 
the table can be burdensome and costly. On balance, we believe our 
amendments help ensure that material information of contractual 
obligations continues to be provided to investors, while reducing some 
of the burdens and costs associated with the prescriptive requirements 
of current Item 303(a)(5).
    We further believe that, consistent with the objectives in the 
Proposing Release of enhancing and clarifying certain requirements in 
MD&A, the

[[Page 2099]]

changes we are making to Item 303(b)(1) will assist registrants in 
considering what disclosure is needed in that context, both in 
connection with the impact of contractual obligations on those areas 
and more generally.\237\
---------------------------------------------------------------------------

    \237\ See Section II.C.2.c supra. With respect to the 
application of the enhanced liquidity and capital resource 
requirements on SRCs, see Section II.C.11. infra.
---------------------------------------------------------------------------

8. Critical Accounting Estimates (New Item 303(b)(3))
a. Proposed Amendments
    While not specified in Item 303, the Commission has stated in prior 
guidance that, while preparing MD&A, registrants should consider 
whether accounting estimates and judgments could materially affect 
reported financial information. Specifically, the Commission addressed 
critical accounting estimates in the 2003 MD&A Interpretive 
Release.\238\ The Commission stated that when preparing MD&A 
disclosure, companies should consider whether they have made accounting 
estimates or assumptions where the nature of the estimates or 
assumptions is material due to the levels of subjectivity and judgment 
necessary to account for highly uncertain matters or the susceptibility 
of such matters to change; and the impact of the estimates and 
assumptions on financial condition or operating performance is 
material.\239\ This guidance further stated that if critical accounting 
estimates or assumptions are identified, a registrant should analyze, 
to the extent material, factors such as how it arrived at the estimate, 
how accurate the estimate/assumption has been in the past, how much the 
estimate/assumption has changed in the past, and whether the estimate/
assumption is reasonably likely to change in the future. This guidance 
also stated that a registrant should analyze its specific sensitivity 
to change based on other outcomes that are reasonably likely to occur. 
Any disclosure should supplement, not duplicate, the description of 
accounting policies that are already disclosed in the notes to the 
financial statements, and provide greater insight into the quality and 
variability of information regarding financial condition and operating 
performance.\240\
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    \238\ See 2003 MD&A Interpretive Release. Prior to this release, 
the Commission reminded registrants that, under the existing MD&A 
disclosure requirements, a registrant should address material 
implications of uncertainties associated with the methods, 
assumptions, and estimates underlying the registrant's critical 
accounting measurements, and encouraged companies to explain the 
effects of the critical accounting policies applied and the 
judgments made in their application. See Cautionary Advice Regarding 
Disclosure, Release No. 33-8040 (Dec. 12, 2001) [66 FR 65013 (Dec. 
17, 2001)].
    \239\ See id.
    \240\ See id.
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    The Commission proposed amending Item 303 to add new Item 
303(b)(4), which would explicitly require disclosure of critical 
accounting estimates in order to clarify the required disclosures of 
critical accounting estimates, facilitate compliance, and improve the 
resulting disclosure. Because registrants often repeat the information 
in the financial statement footnotes about significant accounting 
policies, the proposals were also intended to eliminate disclosure that 
duplicates the financial statement discussion of significant accounting 
policies and, instead, promote enhanced analysis of measurement 
uncertainties.
    As proposed, critical accounting estimates were defined as those 
estimates made in accordance with generally accepted accounting 
principles that involve a significant level of estimation uncertainty 
and have had or are reasonably likely to have a material impact on the 
registrant's financial condition or results of operations. By focusing 
the definition on estimation uncertainties, the Commission stated that 
it intended to avoid any unnecessary repetition of significant 
accounting policy footnotes.\241\ For each critical accounting 
estimate, the proposal would require registrants to disclose, to the 
extent material, why the estimate is subject to uncertainty, how much 
each estimate has changed during the reporting period, and the 
sensitivity of the reported amounts to the methods, assumptions, and 
estimates underlying the estimate's calculation.\242\ Lastly, the 
proposal specified that the discussion should provide quantitative as 
well as qualitative information when quantitative information is 
reasonably available and will provide material information to 
investors.
---------------------------------------------------------------------------

    \241\ Additionally, the proposals included an instruction 
stating that critical accounting estimate disclosure should 
supplement, but not duplicate, the description of accounting 
policies or other disclosures in the notes to the financial 
statements
    \242\ These proposed requirements are similar to those found in 
IFRS. See IAS 1, paragraph 129.
---------------------------------------------------------------------------

b. Comments
    Commenters were generally supportive of the proposed amendments to 
add critical accounting estimates to Item 303.\243\ However, many 
commenters raised concerns with the proposed requirements to disclose 
the sensitivity of the reported amounts to the methods, assumptions, 
and estimates underlying the estimate's calculation and how much each 
estimate has changed during the reporting period.\244\
---------------------------------------------------------------------------

    \243\ See, e.g., letters from CFA & CII; D. Jamieson; RSM; PWC; 
Pfizer; EEI & AGA; Deloitte; KPMG; Grant Thornton; CAQ; BDO; FEI; 
SIFMA; IMA; UnitedHealth; Medtronic; Chamber; ABA; E&Y Society.
    \244\ See, e.g., letters from RSM; PWC; Pfizer; EEI & AGA; 
Deloitte; KPMG; Grant Thornton; CAQ; BDO; FEI; SIFMA; IMA; 
UnitedHealth; Medtronic; Chamber; ABA; E&Y Society.
---------------------------------------------------------------------------

    Some commenters supported the proposed requirement to disclose a 
sensitivity analysis and requested that it be rigorously enforced.\245\ 
In contrast, several commenters suggested this requirement--by virtue 
of the nature of some critical accounting estimates, the potential 
interrelatedness of assumptions, and the degree of inputs used to 
arrive at the estimate--would result in investor confusion, disclosure 
that is not useful to investors, unwarranted questioning of past 
judgments, or heightened liability exposure.\246\
---------------------------------------------------------------------------

    \245\ See, e.g., letters from CFA & CII and D. Jamieson.
    \246\ See, e.g., letters from PWC; Pfizer; KPMG; CAQ; BDO; 
SIFMA; UnitedHealth; Medtronic; ABA.
---------------------------------------------------------------------------

    Many commenters stated that a sensitivity analysis is challenging 
for registrants to provide,\247\ with a number of these commenters 
stating that quantitative disclosures can be particularly challenging 
or costly.\248\ Several commenters asked the Commission to allow 
management discretion in providing the disclosure based on 
consideration of factors such as whether: a sensitivity or quantitative 
analysis would be meaningful or relevant; \249\ a reasonably likely 
change to an assumption would be material; \250\ or a sensitivity 
analysis is either practicable \251\ or produced in the ordinary course 
of business rather than solely to satisfy the disclosure 
requirement.\252\ Other commenters

[[Page 2100]]

recommended limiting the disclosure to only qualitative disclosure, 
which they believed would be more meaningful to investors than 
quantitative disclosure,\253\ or disclosures of rough ranges due to the 
difficulty in quantifying sensitivities.\254\ One commenter asked the 
Commission to specify that registrants are not required to quantify 
individual assumptions underlying their critical accounting estimates 
as long as they quantify how reasonably likely changes would materially 
affect the critical accounting estimates.\255\ Another commenter stated 
that, if the final rule requires a quantitative sensitivity analysis 
and it is impracticable to disclose the extent of the possible effects 
on an assumption, the rule should state that the registrant can 
disclose that it is reasonably possible that outcomes within the next 
fiscal year that are different than the assumption could require a 
material adjustment, similar to disclosure required under IFRS about 
estimation uncertainty.\256\
---------------------------------------------------------------------------

    \247\ See, e.g., letters from RSM; PWC; Pfizer (stating that, 
for the pharmaceutical industry, critical accounting estimates are 
often based on many complex judgments and assumptions that can be 
inherently uncertain and unpredictable, including qualitative 
changes in the industry and that disclosing sensitivity of the 
reported amounts to the assumptions would be highly subjective and 
not provide additional insight); KPMG; CAQ; BDO; FEI; SIFMA (stating 
that ``[it understood] from discussions with outside auditors that 
preparation of these kinds of quantitative disclosures, which are 
required under IFRS, is extremely burdensome on both registrants and 
their auditors''); IMA; E&Y (noting concerns about disclosing 
potentially confidential assumptions); UnitedHealth; ABA.
    \248\ See, e.g., letters from KPMG, CAQ, BDO, FEI, SIFMA, E&Y.
    \249\ See, e.g., letters from FEI; UnitedHealth; Medtronic; PWC; 
ABA.
    \250\ See, e.g., letters from RSM; KPMG; CAQ; E&Y.
    \251\ See, e.g., letters from KPMG; Chamber.
    \252\ See letter from SIFMA.
    \253\ See letter from SIFMA (stating the current proposal's 
language of ``reasonably available'' would, in the event of a 
lawsuit predicated on omission of this information, still require 
resolution of the factual issue of whether this information was 
reasonably available).
    \254\ See letter from IMA.
    \255\ See letter from E&Y.
    \256\ See letter from KPMG (citing International Accounting 
Standards (IAS) 1, paragraph 131).
---------------------------------------------------------------------------

    Several commenters asked the Commission to clarify the period over 
which the changes in estimates should be described (i.e., most recent 
period or all periods presented, including interim periods).\257\ A few 
commenters opposed the proposed requirement to disclose how much an 
estimate has changed over the reporting period,\258\ stating that the 
disclosure either could result in confusion and unwarranted questioning 
of past judgments \259\ or would be reflected in amounts that are 
reported in the financial statements and discussed in Item 303(a) 
pursuant to requirements to discuss material changes.\260\ One 
commenter recommended that an ``estimate'' in this context be the key 
assumptions or inputs underlying the estimate recognized in the 
financial statements.\261\ Two commenters that opposed disclosure of 
how much an estimate has changed over the reporting period stated their 
belief that ASC Topic 275 (Risks and Uncertainties) acknowledges that 
actual results and estimates can differ and that such differences are 
not necessarily an indication of an error or deviation from U.S. GAAP 
so long as the risks and uncertainties relating to such estimates are 
disclosed.\262\
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    \257\ See, e.g., letters from RSM; Deloitte; KPMG; CAQ.
    \258\ See, e.g., letters from Medtronic; ABA; Society.
    \259\ See letter from Medtronic.
    \260\ See letters from ABA and Society.
    \261\ See letter from KPMG.
    \262\ See letters from PWC; Medtronic.
---------------------------------------------------------------------------

    We received several comments related to aspects of the proposal 
other than disclosure of sensitivity analysis and changes in estimates. 
One commenter stated that it is challenging for registrants to 
determine ``a reference point (i.e., at the assumption level or at the 
financial statement level) in determining materiality for disclosure of 
the methods, assumptions and estimates underlying the calculation of 
the critical accounting estimate.'' \263\ Several commenters expressed 
support for the proposed instruction stating that critical accounting 
estimate disclosure is intended to supplement, not repeat, the 
description of significant accounting policies in the notes to the 
financial statements,\264\ though one commenter asked that this be 
moved to the rule itself to elevate its prominence.\265\ Several 
commenters recommended that the Commission provide illustrative 
examples of critical accounting estimate disclosures \266\ or further 
guidance \267\ to facilitate application of the final rule. Some 
commenters recommended clarifying whether this proposal is intended to 
modify current Commission guidance on critical accounting estimates or 
to change existing practice.\268\
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    \263\ See letter from RSM.
    \264\ See, e.g., letters from Grant Thornton; BDO; Chamber; ABA; 
Society.
    \265\ See letter from Grant Thornton.
    \266\ See, e.g., letters from KPMG; BDO; IMA; Society.
    \267\ See letter from IMA.
    \268\ See letters from Deloitte; E&Y (recommending this 
clarification specifically for quantitative disclosures).
---------------------------------------------------------------------------

    In response to the Commission's request for comment, a few 
commenters stated that they did not perceive any issues with or overlap 
between critical accounting estimates and critical audit matters.\269\ 
One commenter recommended aligning the definition of critical 
accounting estimates with the definition of critical accounting 
estimate used by the Public Company Accounting Oversight Board in AS 
1301: Communications with Audit Committees (``AS 1301'').\270\ While we 
did not specifically solicit comment on the submission format of 
critical accounting estimates, one commenter recommended that 
information provided be submitted in machine-readable format, stating 
that tagged critical accounting estimates disclosure may help investors 
compare critical accounting estimates with critical audit matters.\271\
---------------------------------------------------------------------------

    \269\ See, e.g., letters from IMA; Chamber; BDO.
    \270\ See letter from RSM. AS 1301 defines critical accounting 
estimate as ``[a]n accounting estimate where (a) the nature of the 
estimate is material due to the levels of subjectivity and judgment 
necessary to account for highly uncertain matters or the 
susceptibility of such matters to change and (b) the impact of the 
estimate on financial condition or operating performance is 
material.'' This definition is consistent with that contained in the 
2003 MD&A Interpretive Release.
    \271\ See letter from CFA.
---------------------------------------------------------------------------

c. Final Amendments
    We are adopting new Item 303(b)(3) \272\ substantially as proposed 
for the reasons described in the Proposing Release and above, but with 
certain modifications in response to commenters' concerns to make clear 
that: (i) The application of the material and reasonably available 
qualifier applies to all parts of the disclosure, not just to 
quantitative information; (ii) the discussion on how much each estimate 
has changed may also be met through a discussion of changes in the 
assumptions during the period; and (iii) the disclosure of changes in 
the estimate/assumption will cover a ``relevant period,'' rather than a 
``reporting period.'' \273\
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    \272\ Proposed as Item 303(b)(4).
    \273\ Consistent with the proposal, new Item 303(b)(3) does not 
require a registrant to submit the critical accounting estimates 
disclosure in a machine-readable format as requested by a commenter, 
who stated that this may help investors compare critical accounting 
estimates with critical audit matters. See letter from CFA. The 
communications auditors are expected to provide on critical audit 
matters in an audit report have a different objective than 
disclosures related to critical accounting estimates. Critical audit 
matters provide insight into matters that are especially 
challenging, subjective, and complex to audit from the perspective 
of the auditor. On the other hand, critical accounting estimates 
disclosure should provide management's insights into estimation 
uncertainties that have had or are reasonably likely to have a 
material impact on reported financial statements. See Proposing 
Release at Section II.C.8. Likewise, we are not adopting any new 
XBRL requirements for this Item more broadly. See Section IV.E infra 
for discussion on alternatives considered for Item 303 of Regulation 
S-K, including submission in a machine readable format.
---------------------------------------------------------------------------

    We agree with commenters who raised concerns that, as proposed, the 
requirements to disclose the sensitivity of reported amounts to the 
methods, assumptions, and estimates underlying a calculation and how 
much each estimate has changed during the reporting period for each 
critical accounting estimate could have been read to require disclosure 
that is not material, or that was costly or otherwise challenging to 
prepare. Specifically, these commenters stated that the proposed 
requirement could suggest that registrants are required to provide

[[Page 2101]]

quantification for ``every'' critical accounting estimate,\274\ have 
limited flexibility in presenting such disclosures,\275\ or are subject 
to a different standard than the rest of MD&A.\276\ In order to clarify 
that this was not our intent, new Item 303(b)(3) more clearly states 
that the reasonably available and material qualifier applies to all 
information about a critical accounting estimate that has had or is 
reasonably likely to have a material impact on financial condition or 
results of operations, whether qualitative or quantitative, including 
whether the information relates to sensitivity of the reported amount 
or how much the estimate has changed.\277\
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    \274\ See letter from ABA.
    \275\ See letter from PWC.
    \276\ See letter from E&Y.
    \277\ For both qualitative and quantitative information, the 
disclosure requirement is only triggered if the information is 
necessary to understand the estimation uncertainty and the impact 
the critical accounting estimate has had or is reasonably likely to 
have on financial condition or results of operations.
---------------------------------------------------------------------------

    While some commenters asked the Commission to adopt different 
thresholds, such as when ``practicable'' or ``in the ordinary course of 
business and not solely for purposes of disclosure,'' we believe that 
``reasonably available'' is the appropriate standard as it is familiar 
to registrants and consistent with current Commission rules.\278\ We 
believe that, in practice, if the disclosure is ``impracticable'' to 
provide, it would not be ``reasonably available.'' In addition, 
limiting the discussion to material information is intended to avoid 
disclosure that is not useful to investors and is consistent with the 
principles-based nature of MD&A.
---------------------------------------------------------------------------

    \278\ See, e.g. Securities Act Rule 409 [17 CFR 230.409] and 
Exchange Act Rule 12b-21 [17 CFR 240.12b-21] which generally state 
that information required need be given only insofar as it is known 
or reasonably available to the registrant.
---------------------------------------------------------------------------

    New Item 303(b)(3) will require registrants to disclose how much an 
estimate and/or assumption has changed over a relevant period. This is 
intended to allow an investor to better evaluate the uncertainty 
associated with the critical accounting estimate by observing changes 
in estimates or assumptions over time. The revised item also 
specifically references ``assumptions'' in addition to estimates 
because, as suggested by one commenter, this would make clear that 
registrants have flexibility to provide appropriate context in the 
discussion of changes underlying a critical accounting estimate. This 
disclosure requirement, along with the required sensitivity disclosure, 
is not intended to yield discussions of quantitative changes to 
reported amounts, which would be disclosed in response to other 
requirements in Item 303, such as the discussion of results of 
operations under new Item 303(b)(2). Instead, our intent is for 
registrants to provide investors with a greater understanding of the 
variability that is reasonably likely to affect the financial condition 
or results of operations so investors can adequately evaluate the 
estimation uncertainty of a critical accounting estimate.
    We also believe that such information would not be duplicative of 
financial statement disclosures, as suggested by some commenters. While 
U.S. GAAP requires discrete disclosure of the underlying assumptions 
for certain accounting estimates,\279\ it does not require a discussion 
of material changes in those assumptions over a relevant period, and 
there is no general requirement to disclose underlying assumptions for 
all material accounting estimates included in the financial statements. 
For that reason, we believe that quantification of certain assumptions, 
when material and reasonably available, may be necessary to facilitate 
understanding of the material critical accounting estimate and allow an 
investor to better understand the degree of estimation uncertainty. To 
the extent the financial statements include information about specific 
changes in the estimate or underlying assumptions, the amendments 
include an instruction \280\ that specifies that critical accounting 
estimates should supplement, but not duplicate, the description of 
accounting policies or other disclosures in the notes to the financial 
statements. Further, unlike existing requirements in U.S. GAAP, our 
amendments emphasize forward-looking information as they are intended 
to provide investors with greater insight into estimation uncertainty 
that is reasonably likely to have a material impact on financial 
condition and operating performance. We remind registrants that the 
principle that MD&A should not be a recitation of financial statements 
in narrative form extends to disclosure of critical accounting 
estimates.\281\
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    \279\ For example, ASC 820 Fair Value requires disclosure of the 
valuation techniques and inputs used to arrive at a measure of fair 
value, including judgments and assumptions made. We also note that 
while ASC 275, Risks and Uncertainties requires a discussion of 
estimates, it includes specific criteria including a reasonably 
possible ``change in the near term due to one or more future 
confirming events.'' By contrast, the critical accounting estimate 
requirement is broader as it is not tied only to changes in the near 
term and encompasses items that may not be affected by future 
events, such as the range in methods a registrant may use in 
estimation.
    \280\ See amended Instruction 3 to Item 303(b).
    \281\ See 2003 MD&A Interpretive Release.
---------------------------------------------------------------------------

    Our proposal would have required disclosure of how much estimates 
changed during a ``reporting period,'' and several commenters asked the 
Commission to specify this period. New Item 303(b)(3) will require 
disclosure of changes in each estimate and/or assumption over a 
``relevant period,'' but does not specify the period over which a 
registrant should discuss the changes in the estimate or assumption. 
This approach is intended to give registrants the flexibility to 
determine the relevant period necessary to describe material changes in 
estimates or assumptions that would facilitate an understanding of 
estimation uncertainty, consistent with the principles-based nature of 
MD&A. For certain estimates or assumptions, providing information about 
estimates and/or assumptions only as of the balance sheet date may be 
appropriate to inform investors about the nature of the estimation 
uncertainty and how reported amounts bear the risk of change. In 
contrast, other estimates or assumptions may require disclosure over 
the number of years presented in the financial statements to facilitate 
an understanding of the estimation uncertainty. We do not believe that 
the requirement to disclose changes in the estimate and/or assumption 
over a relevant period is inconsistent with the provisions of ASC Topic 
275, Risks and Uncertainties, that were cited by some commenters.\282\ 
In this regard, disclosure of changes in an estimate/assumption should 
not be implied to mean that the earlier estimate was made in error. 
Rather, the disclosure provides insight into the estimation uncertainty 
and the variability that could result over time.
---------------------------------------------------------------------------

    \282\ See letters from PWC and Medtronic.
---------------------------------------------------------------------------

    Some commenters recommended specifying a reference point (i.e., 
assumption-level or financial statement-level) in determining 
materiality for disclosure of the methods, assumptions, and estimates 
underlying the calculation of the critical accounting estimate. We are 
not specifying a reference point in order to allow flexibility to 
discuss the level that provides material information to an investor 
about the critical accounting estimate. Similarly, we have not given 
examples or guidance for particular estimates at this time, as 
suggested by some commenters. Disclosures will need to be tailored to a 
registrant's particular business, uncertainties

[[Page 2102]]

underlying its financial statement line items, and other circumstances, 
and we do not want to promote a checklist approach to the disclosures. 
In addition, although a commenter requested that we conform the 
definition of critical accounting estimate to that found in AS 1301, 
Communications with Audit Committees,\283\ we continue to believe that 
the rule's definition, which places greater focus on describing the 
estimation uncertainty, will promote disclosure that avoids any 
unnecessary repetition of significant accounting policy footnotes.
---------------------------------------------------------------------------

    \283\ See letter from RSM.
---------------------------------------------------------------------------

    We acknowledge commenters' request for clarification on whether the 
proposed critical accounting estimate disclosure requirements are 
intended to change how registrants currently approach these 
disclosures.\284\ We believe the principles of new Item 303(b)(3) are 
not materially different from the guidance on critical accounting 
estimates set forth in the 2003 MD&A Interpretive Release. Our 
amendments, including the modifications to the proposed amendments, are 
intended to clarify the required disclosures under this requirement, 
facilitate compliance, and improve the resulting disclosure.
---------------------------------------------------------------------------

    \284\ See letters from Deloitte; E&Y (recommending this 
clarification specifically for quantitative disclosures).
---------------------------------------------------------------------------

    In addition, as required by current Item 303(b), new Item 303(c) 
will continue to require that MD&A disclosure for interim periods 
include a discussion of the material changes in items specified in the 
full fiscal year requirements in amended Item 303(b).\285\ As this 
applies to critical accounting estimates disclosure in discussion of 
interim periods, registrants would be required to discuss material 
changes to the full fiscal year disclosures.
---------------------------------------------------------------------------

    \285\ See infra Section II.C.9.
---------------------------------------------------------------------------

9. Interim Period Discussion (Amended Item 303(c))
a. Proposed Amendments
    Current Item 303(b) requires registrants to provide MD&A disclosure 
for interim periods that enables market participants to assess material 
changes in financial condition and results of operations between 
certain specified periods.\286\ Current Item 303(b)(1) requires 
registrants to discuss any material change in financial condition from 
the end of the preceding fiscal year to the date of the most recent 
interim balance sheet.\287\ Current Item 303(b)(2) requires registrants 
to discuss any material changes in their results of operations for the 
most recent fiscal year-to-date period presented in their income 
statement, along with a similar discussion of the corresponding year-
to-date period of the preceding fiscal year. If a registrant is 
required or elects to provide an income statement for the most recent 
fiscal quarter, the discussion must also cover material changes with 
respect to that fiscal quarter and the corresponding fiscal quarter in 
the preceding fiscal year.\288\ Current Item 303(b)(2) also states that 
registrants subject to Rule 3-03(b) of Regulation S-X \289\ providing 
statements of comprehensive income for the twelve-month period ended as 
of the date of the most recent interim balance sheet must discuss 
material changes of that twelve-month period as compared to the 
preceding fiscal year rather than the preceding period.
---------------------------------------------------------------------------

    \286\ Item 303(b) of Regulation S-K [17 CFR 229.303(b)].
    \287\ If the interim financial statements include an interim 
balance sheet as of the corresponding interim date of the preceding 
year, the registrant must also discuss any material changes in 
financial condition from that date to the date of the most recent 
interim balance sheet provided. At their discretion, registrants may 
combine discussions of changes from both the end and the 
corresponding interim date of the preceding fiscal year when such 
discussions are required. See Item 303(b)(1).
    \288\ In addition, if the registrant elects to provide a 
statement of comprehensive income for the twelve-month period ended 
as of the date of the most recent interim balance sheet provided, 
the registrant must also discuss material changes with respect to 
that twelve-month period and the twelve-month period ended as of the 
corresponding interim balance sheet date of the preceding fiscal 
year. See Item 303(b)(2).
    \289\ These registrants include those primarily engaged in: The 
generation, transmission, or distribution of electricity; the 
manufacture, mixing transmission, or distribution of gas; the 
supplying or distribution of water; or the furnishing of telephone 
or telegraph services; or in holding securities of companies engaged 
in such business.
---------------------------------------------------------------------------

    The Commission proposed amending current Item 303(b) (to be 
renumbered as proposed Item 303(c)) to allow for flexibility in 
comparisons of interim periods and to simplify the item. Specifically, 
the Commission proposed permitting registrants to compare their most 
recently completed quarter to either the corresponding quarter of the 
prior year (as is currently required) or the immediately preceding 
quarter. Under the proposal, if a registrant elects to discuss changes 
from the immediately preceding quarter, the registrant must provide 
summary financial information that is the subject of the discussion for 
that quarter or identify the prior EDGAR filing that presents such 
information so that a reader may have ready access to the prior quarter 
financial information being discussed. In addition, under the proposed 
amendment, if in a subsequent Form 10-Q, a registrant changes the 
comparison from the comparison presented in the immediately prior Form 
10-Q, the registrant would be required to explain the reason for the 
change and present both comparisons in the filing where the change is 
announced.\290\
---------------------------------------------------------------------------

    \290\ The Commission also proposed eliminating language in 
current Item 303(b)(2) relating to requirements for registrants 
subject to Rule 3-03(b) of Regulation S-X. See Proposing Release at 
Section II.C.9.
---------------------------------------------------------------------------

b. Comments
    Commenters generally supported amending current Item 303(b) as 
proposed.\291\ Some of these commenters recommended allowing 
registrants additional flexibility by revising the existing requirement 
to compare current year-to-date information to prior year-to-date 
information and giving registrants discretion to decide whether this 
disclosure would be meaningful.\292\ Two of these commenters also 
stated that investors do not use the year-to-date comparative 
information.\293\ Both of these commenters recommended amending the 
year-to-date comparative information requirement to make such 
information optional, with greater guidance provided to registrants to 
help them determine whether to include such information.\294\
---------------------------------------------------------------------------

    \291\ See, e.g., letters from Pfizer; Nareit (noting, however, 
that some members of their task force ``reasoned that a requirement 
to only disclose information in one manner could mislead investors 
if a company had a material transaction that was not reflected in 
the comparative period presented''); FEI; SIFMA; IMA; Medtronic; 
Chamber; Society.
    \292\ See, e.g., letters from FEI; Medtronic; Chamber.
    \293\ See, e.g., letters from FEI; Medtronic.
    \294\ See id.
---------------------------------------------------------------------------

    Two commenters opposed the proposal to allow registrants 
flexibility in comparisons of interim periods.\295\ Both of these 
commenters stated that current prescribed disclosure requirements 
``provide uniformity of information essential to making assessments.'' 
\296\ Both commenters also stated that if a comparison to the prior 
quarter were relevant or material, the current structure provides the 
registrants the flexibility to make such comparisons in addition to the 
year-to-date comparative information.\297\
---------------------------------------------------------------------------

    \295\ See, e.g., letters from CFA & CII; D. Jamieson.
    \296\ See id.
    \297\ See id.
---------------------------------------------------------------------------

c. Final Amendments
    We are adopting Item 303(c) with the amendments as proposed. We 
acknowledge commenters' concerns regarding the benefits of uniform 
disclosures. However, we continue to believe that the flexibility 
provided by these amendments will help registrants

[[Page 2103]]

provide a more tailored and meaningful analysis that is relevant to 
their specific business cycles while also providing investors with 
material information to assess quarterly performance. Because not all 
businesses are seasonal, a comparison to the corresponding quarter of 
the preceding year may not be as meaningful as a comparison to the 
preceding quarter. Additionally, by requiring registrants not only to 
explain the reasons for a change in comparison from prior periods but 
also to provide both comparisons when there is such a change, we 
believe investors will benefit from greater insight into a registrant's 
decision making and have sufficient disclosure to understand any 
period-over-period change.
    We are not, as suggested by some commenters, amending the year-to-
date comparative information requirement in current Item 303(b) to make 
it optional. When adopting the precursor to current Item 303(b), the 
Commission noted the item was intended to complement discussion in 
annual reports.\298\ At that time, the Commission stated ``that the 
most meaningful discussion of financial condition for interim reporting 
purposes would deal with the end of the preceding fiscal year and the 
date of the most recent interim balance sheet provided.'' \299\ We 
continue to believe that a discussion of material year-to-date changes 
remains valuable and complements the MD&A provided in annual reports. 
We also believe that a comparative year-to-date discussion provides 
important context for the current quarter.
---------------------------------------------------------------------------

    \298\ See New Interim Financial Information Provisions and 
Revisions of Form 10-Q for Quarterly Reporting, Release No. 33-6288 
(Feb. 9, 1981), 46 FR 12480 (Feb. 17, 1981) (adopting current Item 
303(b) of Regulation S-K as then Item 11(b) of Regulation S-
K)(``Item 303(b) Adopting Release''). See also 1982 Integrated 
Disclosure Adopting Release (reorganizing Regulation S-K to, among 
other things, move the substance of Item 11(b) of Regulation S-K to 
Item 303(b) of Regulation S-K).
    \299\ See Item 303(b) Adopting Release.
---------------------------------------------------------------------------

    Additionally, we are adopting as proposed several amendments that 
will further streamline the item. These amendments will:
     Eliminate the text that states that registrants need not 
provide a discussion of the impact of inflation and changing prices, 
consistent with the amendments described above; \300\ and
---------------------------------------------------------------------------

    \300\ See supra discussion at Section II.C.5.
---------------------------------------------------------------------------

     Amend current Item 303(b)(2) (amended Item 303(c)(2)) 
material changes in results of operations--to break the requirements 
into two subsections:
    [cir] Amended Item 303(c)(2)(i) will continue to require 
registrants to discuss any material changes in their results of 
operations between the most recent year-to-date interim period(s) and 
the corresponding period(s) of the preceding fiscal year for which 
statements of comprehensive income are provided; and
    [cir] Amended Item 303(c)(2)(ii) will, as discussed above, require 
registrants to compare their most recently completed quarter to either 
the corresponding quarter of the prior year (as is currently required) 
or the immediately preceding quarter.\301\ Additionally, amended Item 
303(c) will continue to require that the interim discussion and 
analysis must include a discussion of the material changes in items 
specified in the full fiscal year requirements in amended Item 303(b).
---------------------------------------------------------------------------

    \301\ As described above, if a registrant changes the comparison 
from the prior interim period comparison, the registrant would be 
required to explain the reason for the change.
---------------------------------------------------------------------------

    We are also amending as proposed the item to eliminate language 
requiring registrants subject to Rule 3-03(b) of Regulation S-X \302\ 
that elect to provide a statement of comprehensive income for the 12-
month period ended as of the date of the most recent interim balance 
sheet to discuss material changes in that 12-month period with respect 
to the preceding fiscal year, rather than the corresponding preceding 
period. These amendments are intended to give these registrants the 
same flexibility as other registrants to make the most meaningful 
comparisons in their interim period MD&A.
---------------------------------------------------------------------------

    \302\ See supra footnote 289.
---------------------------------------------------------------------------

    Finally, as proposed, and for the reasons discussed in the 
Proposing Release, our amendments delete Instructions 2, 3, 5, 6, 7, 
and 8 to current Item 303(b) to help streamline the item and eliminate 
unnecessary instructions.\303\ The following table outlines the current 
and amended structure of amended Item 303(c): \304\
---------------------------------------------------------------------------

    \303\ Instruction 5 to Item 303(b) is currently reserved.
    \304\ The information in this table is not comprehensive and is 
intended only to highlight the general structure of the current 
rules and amendments. It does not reflect all of the substance of 
the amendments or all of the rules and forms that will be affected. 
All changes are discussed in their entirety throughout this release. 
As such, this table should be read together with this Section 
II.C.9.

------------------------------------------------------------------------
           Current structure                    Amended structure
------------------------------------------------------------------------
Item 303(b), Interim periods...........  Item 303(c), Interim periods.
(1) Material changes in financial        (1) Material changes in
 condition.                               financial condition.
(2) Material changes in results of       (2) Material changes in results
 operations, Rule 3-03(b) of Regulation   of operations.
 S-X matters.                            (i) Material changes in results
                                          of operations (year-to-date).
                                         (ii) Material changes in
                                          results of operations (quarter
                                          comparisons).
Instruction 1 to Item 303(b)...........  Instruction 1 to Item 303(c)
                                          (with amendments to reference
                                          Instructions 2, 3, 4, 6, 8,
                                          and 11 to amended Item
                                          303(b)).
Instruction 2 to Item 303(b)...........  Eliminate.
Instruction 3 to Item 303(b)...........  Eliminate.
Instruction 4 to Item 303(b)...........  Instruction 2 to Item 303(c).
Instruction 5 to Item 303(b)...........  Eliminate.
Instruction 6 to Item 303(b)...........  Eliminate.
Instruction 7 to Item 303(b)...........  Eliminate.
Instruction 8 to Item 303(b)...........  Instruction 11 to amended Item
                                          303(b).
------------------------------------------------------------------------

10. Safe Harbor for Forward-Looking Information (Current Item 303(c))
a. Proposed Amendments
    Item 303(c) \305\ currently states that the safe harbors provided 
in Section 27A of the Securities Act and Section 21E of the Exchange 
Act (together, ``statutory safe harbors'') apply to all forward-looking 
information provided in response to current Item 303(a)(4) (off-balance 
sheet arrangements) and current Item 303(a)(5) (tabular disclosure of 
contractual obligations), provided such disclosure is made by

[[Page 2104]]

certain enumerated persons.\306\ For current Item 303(a)(4), current 
Item 303(c) further states that the ``meaningful cautionary 
statements'' element of the statutory safe harbors is satisfied if a 
registrant satisfies all of current Item 303(a)(4)'s requirements.\307\
---------------------------------------------------------------------------

    \305\ Item 303(c) of Regulation S-K [17 CFR 229.303(c)].
    \306\ Such persons are the issuer; a person acting on behalf of 
the issuer; an outside reviewer retained by the issuer making a 
statement on behalf of the issuer; or an underwriter, with respect 
to information provided by the issuer or information derived from 
information provided by the issuer.
    \307\ Item 303(c)(2)(ii) of Regulation S-K [17 CFR 
229.303(c)(2)(ii)].
---------------------------------------------------------------------------

    The Commission added current Item 303(c) in 2003 when it adopted 
Items 303(a)(4) and (5).\308\ Item 303(c) was intended to remove 
possible ambiguity about the application of the statutory safe harbors 
to these items and to promote more meaningful disclosure.\309\
---------------------------------------------------------------------------

    \308\ See Off-Balance Sheet Arrangements and Contractual 
Obligations Adopting Release at 5992 (``To encourage the type of 
information and analysis necessary for investors to understand the 
impact of off-balance sheet arrangements and to reduce the burden of 
estimating the payments due under contractual obligations, the 
amendments include a safe harbor for forward-looking 
information.'').
    \309\ See id.
---------------------------------------------------------------------------

    Because the Commission proposed to eliminate both Items 303(a)(4) 
and (5), it also proposed eliminating current Item 303(c), which 
specifically and exclusively refers to those disclosure requirements. 
The proposed amendments were not intended to alter the application of 
the statutory safe harbors, which protect eligible forward-looking 
statements in MD&A against private legal actions that are based on 
allegations of a material misstatement or omission, with certain 
exceptions. \310\ The Proposing Release also reiterated the 
availability of the safe harbors in Securities Act Rule 175 \311\ and 
Exchange Act Rule 3b-6 \312\ (the ``regulatory safe harbors''), which 
expressly apply to forward-looking information in MD&A disclosure.\313\
---------------------------------------------------------------------------

    \310\ See Sections 27A of the Securities Act and 21E of the 
Exchange Act. The statutory safe harbors by their terms do not apply 
to forward-looking statements included in financial statements 
prepared in accordance with generally accepted accounting 
principles. Notably, the statutory safe harbors also would not apply 
to MD&A disclosure if the MD&A forward-looking statements were made: 
(1) In connection with an initial public offering; a tender offer; 
an offering by, or relating to the operations of, a partnership, 
limited liability company, or a direct participation investment 
program, an offering of securities by a blank check company; a roll-
up transaction; or a going private transaction; or (2) or by an 
issuer of penny stock. See Section 27A(b) of the Securities Act and 
Section 21E(b) of the Exchange Act. Also, the statutory safe harbors 
do not, absent a rule, regulation, or Commission order, apply to 
forward-looking statements by issuers covered by Section 
27A(b)(1)(A) of the Securities Act and Section 21E(b)(1)(A) of the 
Exchange Act. Because the statutory safe harbors only apply to 
forward-looking statements made by or on behalf of an issuer that is 
subject to the reporting requirements of Section 13(a) or 15(d) of 
the Exchange Act, they would not apply to forward-looking statements 
made in connection with an offering under Regulation A unless the 
issuer is a reporting company and no other exclusions from the safe 
harbor apply.
    \311\ [17 CFR 230.175].
    \312\ [17 CFR 240.3b-6].
    \313\ See Proposing Release at Section II.C.10.
---------------------------------------------------------------------------

b. Comments
    A few commenters recommended revising the proposal to expand the 
safe harbors available to registrants.\314\ One of these commenters 
recommended harmonizing the treatment of forward-looking information in 
MD&A and the financial statements.\315\ This commenter also asked the 
Commission to reiterate, in any final release, its statements in the 
Proposing Release regarding its commitment to the statutory safe 
harbors and that the amendments are not intended to alter application 
of this safe harbor. Another commenter asked the Commission to ``expand 
the statutory safe harbors to apply to all forward-looking statements 
wherever they appear in MD&A, for all transactions and registrants.'' 
\316\ This commenter also asked the Commission to ``expand the . . . 
statutory safe harbors to cover any forward-looking critical accounting 
estimates disclosure for all types of companies and transactions 
(including IPOs).'' \317\
---------------------------------------------------------------------------

    \314\ See letters from SIFMA; Chamber.
    \315\ See letter from Chamber.
    \316\ See letter from SIFMA.
    \317\ See id.
---------------------------------------------------------------------------

c. Final Amendments
    We are adopting amendments to eliminate current Item 303(c) as 
proposed. As the Commission stated when adopting Item 303(c), the item 
was intended to remove possible ambiguity about the application of the 
statutory safe harbors to the specific disclosures called for by 
current Items 303(a)(4) and (5).\318\ While the final amendments 
continue to require disclosure regarding off-balance sheet arrangements 
and contractual obligations,\319\ such disclosure will now be 
integrated into a registrant's broader MD&A discussion. We therefore 
believe the potential ambiguity that motivated the Commission to adopt 
current Item 303(c) in the context of the prescriptive requirements of 
Item 303(a)(4) and (5) no longer exists. Rather, whether and the extent 
to which disclosure related to contractual obligations or off-balance 
sheet arrangements constitutes forward-looking statements that fall 
under the protections of either the statutory or regulatory safe 
harbors would be evaluated consistently with other forward-looking 
disclosures in MD&A.
---------------------------------------------------------------------------

    \318\ See Off-Balance Sheet Arrangements and Contractual 
Obligations Adopting Release.
    \319\ See amended Instruction 8 to Item 303(b).
---------------------------------------------------------------------------

    Because our amendments to eliminate current Item 303(c) do not 
alter the availability or scope of the statutory and regulatory safe 
harbors, and because we are eliminating the prescriptive requirements 
associated with Items 303(a)(4) and (5), we are eliminating the item, 
as proposed. While we acknowledge the suggestion of one commenter to 
consider expanding the scope of the statutory safe harbors to apply 
more broadly, including to cover all transactions and issuers, an 
expansion would warrant a broader review of the statutory and 
regulatory safe harbors and any areas where expansion may be necessary 
or appropriate. It is therefore beyond the scope of the current 
rulemaking.
    As requested by a commenter, we explicitly confirm that eliminating 
current Item 303(c) does not alter the application or availability of 
the statutory safe harbors or the regulatory safe harbors for all of 
amended Item 303, including the new requirement to disclose critical 
accounting estimates.\320\ We continue to believe that the statutory 
and regulatory safe harbors for eligible forward-looking statements 
have encouraged greater disclosure of forward-looking information that 
has benefited investors and our markets. As registrants prepare their 
MD&A disclosures under the amendments, we remind registrants of the 
availability and scope of these safe harbors and encourage greater 
disclosure of forward-looking information.
---------------------------------------------------------------------------

    \320\ Instruction 7 to Item 303(a) of Regulation S-K [17 CFR 
229.303(a)], Securities Act Rule 175 [17 CFR 230.175], and Exchange 
Act Rule 3b-6 [17 CFR 240.3b-6]. Our amendments to Item 303 retain 
Instruction 7 to current Item 303(a), which will be renumbered as 
Instruction 6 to amended Item 303(b).
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11. Smaller Reporting Companies (Current Item 303(d))
a. Proposed Amendments
    Current Item 303(d) \321\ states that an SRC may provide current 
Item 303(a)(3)(iv) information for the most recent two fiscal years if 
it provides financial information on net sales and revenues and income 
from continuing operations for only two years. Item 303(d) also states 
that an SRC is not required to provide the contractual obligations 
table specified in Item 303(a)(5). Because the Commission proposed to 
eliminate current Items 303(a)(3)(iv) and (a)(5), the Commission also 
proposed eliminating current Item

[[Page 2105]]

303(d), which specifically and exclusively references these two 
disclosure requirements.
---------------------------------------------------------------------------

    \321\ Item 303(d) of Regulation S-K [17 CFR 229.303(d)].
---------------------------------------------------------------------------

b. Comments
    One commenter supported the proposal to eliminate current Item 
303(d).\322\ Some commenters, while not commenting on this specific 
proposal, indicated they generally opposed any further accommodations 
allowing SRCs to provide scaled disclosure.\323\
---------------------------------------------------------------------------

    \322\ See letter from Chamber.
    \323\ See letters from CFA & CII; D. Jamieson.
---------------------------------------------------------------------------

c. Final Amendments
    In light of the elimination of current Items 303(a)(3)(iv) and (5), 
we are adopting amendments to current Item 303(d) as proposed. 
Notwithstanding the elimination of current Item 303(a)(5), new Item 
303(b) specifically requires disclosure of material cash requirements 
from known contractual and other obligations as part of a liquidity and 
capital resources discussion.\324\ SRCs are currently required to 
provide MD&A disclosure addressing liquidity and capital resources, and 
we believe that SRCs should continue to provide this disclosure under 
the amended requirements. Excluding SRCs from the relevant discussion 
of liquidity and capital resources would be inconsistent with the 
objectives and requirements stated in amended Item 303(a), as such 
disclosure may be necessary to an understanding of the registrant's 
financial condition, cash flows, and other changes in financial 
condition and results of operations.
---------------------------------------------------------------------------

    \324\ See Section II.C.7 supra.
---------------------------------------------------------------------------

    Although SRCs are not currently required to include a contractual 
obligations table, they are already required under U.S. GAAP to assess 
most of the currently prescribed categories that would otherwise be 
included in this table. Additionally, some of the revisions to the 
liquidity and capital resources disclosure requirements codify current 
MD&A guidance, which already applies to SRCs.\325\
---------------------------------------------------------------------------

    \325\ See 1989 MD&A Interpretive Release and 2003 MD&A 
Interpretive Release.
---------------------------------------------------------------------------

    When adopting the contractual obligations table requirement, the 
Commission excluded the predecessor to SRCs, small business issuers, 
stating that the exclusion was consistent with the policies of 
facilitating capital raising by small businesses and reducing the 
compliance burdens placed on these registrants by the federal 
securities laws.\326\ Because the basis for current Item 303(d) was a 
reduction in the burdens associated with the preparation of the 
contractual obligations table itself, and because we are eliminating 
that prescriptive requirement, we believe that the elimination of 
current Item 303(d) is likewise appropriate.
---------------------------------------------------------------------------

    \326\ See Off-Balance Sheet Arrangements and Contractual 
Obligations Adopting Release. See also Small Business Initiatives, 
Release No. 33-6949 (July 30, 1992) [57 FR 36442 (Aug. 13, 1992)].
---------------------------------------------------------------------------

D. Application to Foreign Private Issuers

    We are adopting corresponding amendments that will apply to FPIs 
providing disclosure required by Form 20-F or Form 40-F largely as 
proposed.\327\ We are also adopting amendments to current Instruction 
11 to Item 303 as proposed, which specifically applies to FPIs that 
choose to file on domestic forms. Similar to our discussions above and 
for the reasons discussed in greater detail below, our amendments to 
these forms are intended to modernize, clarify, and streamline these 
disclosure requirements.
---------------------------------------------------------------------------

    \327\ To the extent that other forms, such as Form F-1, require 
information provided by Form 20-F, these amendments to Form 20-F 
will also apply to those other forms.
---------------------------------------------------------------------------

    Generally, commenters did not specifically comment on the proposed 
amendments related to FPIs. One commenter stated that, unless otherwise 
specified, its comments apply to all registrants, including FPIs.\328\
---------------------------------------------------------------------------

    \328\ See letter from CAQ.
---------------------------------------------------------------------------

1. Form 20-F
a. Selected Financial Data (Item 3.A of Form 20-F)
i. Proposed Amendments
    Similar to Item 301, Item 3.A of Form 20-F requires FPIs to provide 
selected historical financial data for the most recent five financial 
years (or such shorter period that the company has been in operation). 
Also similar to Item 301, Item 3.A specifies the information that must 
be included in the selected financial data and provides that EGCs are 
not required, in a Securities Act registration statement, to present 
selected financial data for any period prior to the earliest audited 
financial statements presented in connection with the registrant's 
initial public offering of its common equity securities.\329\ In a 
registration statement, periodic report, or other report filed under 
the Exchange Act, an EGC need not present selected financial data for 
any period prior to the earliest audited financial statements presented 
in connection with the EGC's first registration statement that became 
effective under the Exchange Act or the Securities Act.\330\ However, 
unlike Item 301, Item 3.A also permits a FPI to omit either or both of 
the earliest two years of data if it represents that it cannot provide 
the information, or cannot provide the information on a restated basis, 
without unreasonable effort or expense. Given the similarities between 
Item 3.A and Item 301, the Commission proposed deleting Item 3.A and 
the related instructions.
---------------------------------------------------------------------------

    \329\ See Instruction 3 to Item 3.A.
    \330\ Id.
---------------------------------------------------------------------------

ii. Final Amendments
    For reasons similar to those discussed above with respect to the 
elimination of Item 301, we are eliminating Item 3.A of Form 20-F, as 
proposed.\331\ We recognize that, unlike Item 301, Item 3.A. permits an 
FPI in certain situations to omit either or both of the earliest two 
years of data. However, as with Item 301, trend disclosure elicited by 
Item 3.A typically would be discussed in response to Item 5 of Form 20-
F, which requires MD&A disclosure similar to Item 303. Despite the 
deletion of Item 3.A., FPIs should continue to consider whether such 
tabular disclosure as part of an introductory section or overview, 
including to demonstrate material trends, would be appropriate.\332\
---------------------------------------------------------------------------

    \331\ See supra Section II.A.
    \332\ See 2003 MD&A Interpretive Release (``Companies should 
consider whether a tabular presentation of relevant financial or 
other information may help a reader's understanding of MD&A.''). See 
also footnote 1 of 2003 MD&A Interpretive Release which states that 
the guidance in that release is intended to apply to FPIs.
---------------------------------------------------------------------------

b. Operating and Financial Review and Prospects (Item 5 of Form 20-F)
i. Proposed Amendments
    The disclosure requirements for Item 5 of Form 20-F (Operating and 
Financial Review and Prospects) are substantively comparable to the 
MD&A requirements under Item 303 of Regulation S-K.\333\ To maintain a 
consistent approach to MD&A for domestic registrants and FPIs, the 
Commission proposed amendments to Form 20-F that generally conformed to 
the proposed amendments to Item 303.\334\
---------------------------------------------------------------------------

    \333\ When the Commission revised the wording of Item 5 of Form 
20-F in 1999, the adopting release noted that the requirements 
correspond with Item 303 of Regulation S-K. See International 
Disclosure Standards, Release No. 33-7745 (Sept. 28, 1999) [64 FR 
53900 (Oct. 5, 1999)], at 53904 (``International Disclosure 
Standards Release'').
    \334\ See Proposing Release at Section II.D.
---------------------------------------------------------------------------

ii. Final Amendments
    We are adopting the amendments to Item 5 of Form 20-F largely as 
proposed, with some modifications to conform to our amendments to Item 
303 by incorporating any relevant changes made to Item 303 in response 
to

[[Page 2106]]

comments received. Specifically, and for reasons similar to those 
discussed above with respect to the amendments to Item 303, we are 
adopting, the amendments modify the proposals for Item 5 of Form 20-F 
by:
     Consistently using the term ``reasonably likely'' 
throughout; \335\
---------------------------------------------------------------------------

    \335\ See supra Section II.C.3.
---------------------------------------------------------------------------

     Eliminating the contractual obligations table and amending 
the item to include a principles-based liquidity and capital resources 
requirement focused on material short- and long- term cash requirements 
from known contractual and other obligations; \336\ and
---------------------------------------------------------------------------

    \336\ See supra Section II.C.7.
---------------------------------------------------------------------------

     Modifying the critical accounting estimate proposal to 
emphasize that this disclosure is only required to the extent 
reasonably available and material.\337\
---------------------------------------------------------------------------

    \337\ See supra Section II.C.8.
---------------------------------------------------------------------------

    More generally, similar to our amendments to Item 303 and 
consistent with what was proposed, we are amending the forepart of Item 
5 to specify the purpose of MD&A and highlight the item's objective. 
These amendments state that the disclosure responsive to Item 5 must:
     Include other statistical data that will enhance a 
reader's understanding of the company's financial condition, changes in 
financial condition, and results of operations;
     Focus specifically on material events and uncertainties 
known to management that would cause reported financial information not 
to be necessarily indicative of future operating results or future 
financial condition;
     Provide a narrative explanation of the financial 
statements that enables investors to see a registrant ``through the 
eyes of management;'' \338\ and
---------------------------------------------------------------------------

    \338\ See 2003 MD&A Interpretative Release, at 75056. See also 
1989 Interpretative Release, at 22428.
---------------------------------------------------------------------------

     Provide information relating to other subdivisions, such 
as geographic areas or product lines, in addition to providing 
information relating to all separate segments.\339\
---------------------------------------------------------------------------

    \339\ See supra Section II.C.1.c.
---------------------------------------------------------------------------

    Additionally, the amendments:
     Amend Item 5 to specify that the discussion must include a 
quantitative and qualitative description of the reasons underlying 
material changes, including where material changes within a line item 
offset one another; \340\
---------------------------------------------------------------------------

    \340\ See supra Section II.C.1.b.
---------------------------------------------------------------------------

     Revise the liquidity and capital resources requirement in 
Item 5.B to specify that a registrant must broadly disclose material 
cash commitments, including but not limited to capital expenditures; 
\341\
---------------------------------------------------------------------------

    \341\ See supra Sections II.C.2 and II.C.7.
---------------------------------------------------------------------------

     Amend Item 5.A.2, which currently requires disclosure of 
inflation, if material, and hyperinflation if the currency in which the 
financial statements are presented is of a country that has experienced 
hyperinflation,\342\ to require only disclosure of hyperinflation; 
\343\ and
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    \342\ Rules 3-20(c) and 3-20(d) of Regulation S-X provide the 
situations when a foreign private issuer must reflect hyperinflation 
in its financial statements. Rule 3-20(d) generally describes a 
hyperinflationary environment as one that has cumulative inflation 
of approximately 100 percent or more over the most recent three-year 
period.
    \343\ See supra Section II.C.5. Consistent with our proposals, 
our amendments do not alter the requirement in Item 5.A.2 as it 
relates to hyperinflation. Instruction 1 to Item 5.A states that 
disclosure of hyperinflation must be provided if hyperinflation has 
occurred in any of the periods for which an FPI is required to 
provide audited financial statements or unaudited interim financial 
statements. We continue to believe that for FPIs in a 
hyperinflationary economy, hyperinflation is a salient issue such 
that it merits specific mention.
---------------------------------------------------------------------------

     Replace Item 5.E, which covers off-balance sheet 
arrangements, with a principles-based instruction.\344\
---------------------------------------------------------------------------

    \344\ See amended Instruction 7 to Item 5 of Form 20-F. For FPIs 
filing on Forms 20-F and 40-F that apply IFRS, the overlap between 
the requirements of those Forms and IFRS are similar to the overlap 
between Item 303(a)(4) and U.S. GAAP, as described in supra Section 
II.C.6. Certain IFRS standards require some disclosures that 
substantially overlap with the requirements of Item 5.E. of Form 20-
F including but without limitation: Information that enables users 
of the financial statements to evaluate the nature and extent of 
risks arising from financial instruments to which the entity is 
exposed or has continuing involvement in at the end of the reporting 
period and how those risks have been managed (see Paragraphs 31, 32 
and 42A of IFRS 7, Financial Instruments; Disclosures (``IFRS 7'')) 
such as: Credit risk relating to financial guarantee contracts (see 
Paragraph 35M of IFRS 7); risk relating to continuing involvement in 
transferred financial assets (see Paragraphs 42B(b), 42C and 42E of 
IFRS 7); and obligations under interests in unconsolidated entities 
(see Paragraphs 1 and 24 to 31 of IFRS 12, Disclosure of Interests 
in Other Entities).

Our rationale for these amendments is consistent with the rationale 
discussed above for amending corresponding provisions of Item 303.
    Some of the amendments to Form 20-F are unique to this form but 
consistent with MD&A's focus on materiality. Specifically, as proposed 
and for the reasons discussed in the Proposing Release, we are 
amending:
     Item 5.D of Form 20-F to require disclosure of ``material 
trends'' instead of ``the most significant recent trends;'' \345\ and
---------------------------------------------------------------------------

    \345\ See, e.g., 2003 MD&A Interpretive Release, at 75060.
---------------------------------------------------------------------------

     Instruction 1 to Item 5 to add references to the 2002 
Commission Statement,\346\ 2003 MD&A Interpretive Release, 2010 MD&A 
Interpretive Release, and the 2020 MD&A Interpretive Release \347\ to 
explicitly direct FPIs to this guidance.
---------------------------------------------------------------------------

    \346\ Commission Statement about Management's Discussion and 
Analysis of Financial Condition and Results of Operations, Release 
No. 33-8056 (Jan. 22, 2002) [67 FR 3746 (Jan. 25, 2002)] (``2002 
Commission Statement'').
    \347\ See Commission Guidance on Management's Discussion and 
Analysis of Financial Condition and Results of Operations, Release 
No. 33-10751 (Jan. 30, 2020) [85 FR 10568 (Feb. 25, 2020)].
---------------------------------------------------------------------------

    These and all of our amendments to Item 5 of Form 20-F are intended 
to ensure that existing MD&A requirements for FPIs continue to mirror 
the substantive MD&A requirements in Item 303.\348\
---------------------------------------------------------------------------

    \348\ See International Disclosure Standards Release. See also 
Off-Balance Sheet Arrangements and Contractual Obligations Adopting 
Release.
---------------------------------------------------------------------------

2. Form 40-F
a. Proposed Amendments
    Form 40-F generally permits eligible Canadian FPIs to use Canadian 
disclosure documents to satisfy the Commission's registration and 
disclosure requirements. As a result, the MD&A contained in Forms 40-F 
is largely prepared in accordance with Canadian disclosure standards. 
The Commission proposed replacing the off-balance sheet disclosure 
requirement in General Instruction B.(11) of Form 40-F with a 
principles-based instruction and deleting General Instruction B.(12), 
the contractual obligations disclosure requirement. The proposal would 
only require disclosure of off-balance sheet arrangements to the extent 
disclosure is not already provided under the MD&A required by Canadian 
law. Lastly, and consistent with the Item 303 proposals, the Commission 
proposed to eliminate General Instruction B.(13), which acknowledges 
application of the statutory safe harbor, and specifically and 
exclusively applies to General Instructions B.(11) and B.(12).
b. Final Amendments
    We are adopting the amendments to Form 40-F largely as proposed, 
with modifications to conform to our amendments to Item 303 by 
incorporating relevant changes made to Item 303 in response to comments 
received. For the reasons discussed above with respect to the liquidity 
and capital resources requirements in Item 303(b), we are replacing the 
contractual obligations disclosure requirement in General Instruction 
B.(12) with a principles-based instruction that expands the MD&A 
discussion to require analysis of material cash requirements from known 
contractual and other obligations.\349\ In addition, as

[[Page 2107]]

proposed, we are amending the form to replace General Instruction 
B.(11) with a principles-based instruction.\350\ As noted above, unlike 
Item 303 and Form 20-F, the MD&A required under Form 40-F is defined as 
required by Canadian law.\351\ Accordingly, our amendments to Form 40-F 
only require disclosure of off-balance sheet arrangements and an 
analysis of material cash requirements to the extent it is not already 
provided under the MD&A required by Canadian law. Lastly, and as 
proposed, we are eliminating General Instruction B.(13), which 
acknowledges application of the statutory safe harbor and specifically 
and exclusively applies to General Instructions B.(11) and B.(12).\352\ 
Notwithstanding this deletion and consistent with the amendments we are 
making to Item 303, given that eligible Canadian FPIs may still need to 
disclose certain contractual obligations and off-balance sheet 
transactions, the statutory safe harbors and regulatory safe harbors 
will continue to cover forward-looking statements, if applicable.
---------------------------------------------------------------------------

    \349\ See supra Section II.C.7.
    \350\ See supra Section II.C.6. We believe our amendments to 
General Instruction B.(11) of Form 40-F is consistent with the 
statutory mandate in Section 13(j) of the Exchange Act for the same 
reasons discussed in the Proposing Release. See Proposing Release at 
Section II.C.6.
    \351\ See General Instruction B.(3) of Form 40-F.
    \352\ See supra Section II.C.10.
---------------------------------------------------------------------------

3. Item 303 of Regulation S-K (Hyperinflation Requirement in Item 303 
for FPIs)
a. Proposed Amendments
    FPIs may voluntarily choose to file on forms that would require 
disclosure under Item 303. Current Instruction 11 to Item 303 requires 
``foreign private registrants'' to discuss briefly any pertinent 
governmental economic, fiscal, monetary, or political policies or 
factors that have materially affected or could materially affect, 
directly or indirectly, their operations or investments by United 
States nationals.\353\ The Commission proposed amending this FPI 
instruction to incorporate the requirement for FPIs to discuss 
hyperinflation in a hyperinflationary economy. The Commission also 
proposed replacing the reference to ``foreign private registrants'' 
with the defined term ``foreign private issuer.'' \354\
---------------------------------------------------------------------------

    \353\ See Instruction 11 to Item 303(a) of Regulation S-K.
    \354\ See Rule 405 and Rule 3b-4(c).
---------------------------------------------------------------------------

b. Final Amendments
    For consistency with the requirements of Form 20-F,\355\ we are 
adopting amendments to Item 303 as proposed. Specifically, current 
Instruction 11 to Item 303(a) is being amended as Instruction 9 to Item 
303(b) to require a ``foreign private issuer'' to consider the impact 
of hyperinflation if hyperinflation has occurred in any of the periods 
for which audited financial statements or unaudited financial 
statements are filed. This modification is intended to align the 
requirement in Item 303 more closely with Form 20-F.
---------------------------------------------------------------------------

    \355\ See supra Section II.D.1.
---------------------------------------------------------------------------

E. Additional Conforming Amendments

    The Commission proposed additional conforming amendments, 
consistent with the rationale for the proposals.\356\ No commenters 
opposed these proposals.
---------------------------------------------------------------------------

    \356\ In addition to the conforming amendments discussed in this 
section, we are also amending certain rules and forms to update 
references to the items we are amending, as follows: remove 
references to Item 301 or Item 3.A of Form 20-F (Item 10 of 
Regulation S-K [17 CFR 229.10]; Forms S-1 [17 CFR 239.11], N-2 [17 
CFR 274.11a-1], S-11 [17 CFR 239.18], S-4 [17 CFR 239.25], F-1 [17 
CFR 239.31], F-4 [17 CFR 239.34], 1-A [17 CFR 239.90], 10 [17 CFR 
249.208c], and 10-K [17 CFR 249.310]; Schedule 14A [17 CFR 240.14a-
101]; and Exchange Act Rule 14a-3 [17 CFR 240.14a-3]); and update 
references to subparagraphs of Item 303 (Securities Act Rule 419 [17 
CFR 230.419]). While the disclosure requirements for Item 9 of Form 
1-A for Regulation A issuers are similar to the MD&A requirements 
under Item 303, we did not propose amendments to Form 1-A. See 
Proposing Release at footnote 2. However, in the preparation of Part 
II of Form 1-A, Regulation A issuers have the option of disclosing 
either the information required by (i) the Offering Circular format 
(including Item 9 referenced above) or (ii) Part I of Forms S-1 or 
S-11 (except for the financial statements, selected financial data, 
and supplementary information called for by those forms). 
Accordingly, while the final rules do not amend Item 9 of Form 1-A, 
they would still impact Regulation A issuers that choose to disclose 
the information required by Part I of Forms S-1 or S-11. See 
Paragraph (a)(1)(ii) of Part II of Form 1-A.
---------------------------------------------------------------------------

1. Roll-up Transactions--Item 914 of Regulation S-K
a. Proposed Amendments
    The Commission proposed deleting references to Items 301 and 302 in 
Item 914(a) of Regulation S-K. This item applies to roll-up 
transactions, which, subject to certain exceptions, generally involve 
the combination or reorganization of one or more partnerships, directly 
or indirectly, where some or all of the investors in any such 
partnerships will receive new securities or securities in another 
entity.\357\ Item 914(a) provides that, for each partnership to be 
included in a roll-up transaction, certain financial information, 
including disclosure under Item 301 and Item 302, must be provided.
---------------------------------------------------------------------------

    \357\ See Rule 901(c) of Regulation S-K [17 CFR 229.901(c)].
---------------------------------------------------------------------------

b. Final Amendments
    We are adopting amendments to Item 914(a) to eliminate the 
reference to Item 301, as proposed, but will retain the reference to 
Item 302 in light of our final amendments to retain that item.\358\ For 
Item 301, we recognize that, in the context of Item 914(a), disclosure 
provided under this item would not be duplicative of the financial 
statements and would otherwise be unavailable. However, Item 914(a) 
requires disclosure of other specified financial information \359\ and 
states that additional or other information should be provided if 
material to an understanding of each partnership proposed to be 
included in a roll-up transaction. In light of these other 
requirements, we continue to believe that our amendment deleting 
references to Items 301 in Item 914(a) would not result in a loss of 
material information. As discussed above, our amendments to Item 302(a) 
are intended to address discrete areas of disclosure that we believe 
may be important to investors. Accordingly, we are retaining current 
references to Item 302(a).
---------------------------------------------------------------------------

    \358\ We are also including a technical amendment to Item 914 to 
eliminate the reference to the ratio of earnings to fixed charges. 
See Disclosure Update and Simplification, Release No. 33-10532 (Aug. 
17, 2018) [83 FR 50234 (Oct. 4, 2018)] at Section III.B.1.f.
    \359\ In addition to disclosure under Items 301 and 302, Item 
914(a) calls for the following financial disclosures: Ratio of 
earnings to fixed charges, cash and cash equivalents, total assets 
at book value, total assets at the value assigned for purposes of 
the roll-up transaction (if applicable), total liabilities, general 
and limited partners' equity, net increase (decrease) in cash and 
cash equivalents, net cash provided by operating activities, 
distributions; and per unit data for net income (loss), book value, 
value assigned for purposes of the roll-up transaction (if 
applicable), and distributions (separately identifying distributions 
that represent a return of capital).
---------------------------------------------------------------------------

2. Regulation AB--Items 1112, 1114, and 1115
a. Proposed Amendments
    Item 1112 of Regulation AB requires disclosure of financial 
information required by Item 301 or Item 3.A of Form 20-F about 
significant obligors of pool assets if the pool assets relating to the 
significant obligor represent 10% or more, but less than 20%, of the 
asset pool in an asset-backed securities (``ABS'') transaction. 
Similarly, Items 1114 and 1115 of Regulation AB require disclosure of 
financial information required by Item 301 or Item 3.A of Form 20-F 
about credit enhancement providers and derivatives counterparties, 
respectively, whose support represents a similar level of concentration 
in an ABS transaction. As a result of the proposal to eliminate Item

[[Page 2108]]

301 and Item 3.A of Form 20-F for corporate issuers, financial 
information about these third parties to an ABS transaction, including 
any trend information comparable to information required by Item 303 or 
Item 5 of Form 20-F, would not otherwise be available. Accordingly, the 
Commission proposed replacing in Regulation AB those requirements to 
disclose selected financial data under Item 301 or Item 3.A of Form 20-
F with requirements to disclose summarized financial information, as 
defined by Rule 1-02(bb) of Regulation S-X,\360\ for each of the last 
three fiscal years (or the life of the relevant entity or group of 
entities, if less).
---------------------------------------------------------------------------

    \360\ [17 CFR 210.1-02(bb)].
---------------------------------------------------------------------------

b. Final Amendments
    We are adopting amendments to Items 1112, 1114, and 1115 of 
Regulation AB as proposed. We continue to believe the information 
required under Rule 1-02(bb) is similar to the information currently 
required and is consistent with other types of financial statement 
disclosures that are required to be disclosed when certain significance 
thresholds have been met.\361\ The amendments require disclosure of the 
same periods as the historical data that the ABS registrant is required 
to provide for the pool assets under Item 1111 of Regulation AB.\362\ 
We recognize that the amendments would generally result in fewer 
periods being presented under these items. However, we do not believe 
requiring disclosure beyond three years is necessary as such disclosure 
would cover periods beyond those presented for the underlying pool 
assets to which the third-party financial information would relate.
---------------------------------------------------------------------------

    \361\ We are also amending Rule 1-02(bb) of Regulation S-X as 
proposed, which calls for disclosure of summary financial 
information. To eliminate any implication that a registrant would 
need to prepare disclosure that is not consistent with the 
disclosure in the entity's financial statements, the amendments 
clarify that the disclosure of summary financial information may 
vary, as appropriate, to conform to the nature of the entity's 
business.
    \362\ While ABS registrants are generally not required to 
provide financial statements, under Item 1111 of Regulation AB, ABS 
registrants must provide historical data on the pool assets as 
appropriate (e.g., the lesser of three years or the time such assets 
have existed) to allow material evaluation of the pool data. See 17 
CFR 229.1111.
---------------------------------------------------------------------------

3. Summary Prospectus in Forms S-1 and F-1
a. Proposed Amendments
    The Commission proposed replacing references to Item 301 and Item 
3.A of Form 20-F in Form S-1 and Form F-1, respectively, with Rule 1-
02(bb) of Regulation S-X, where these forms provide for use of a 
summary prospectus under Rule 431.\363\ A summary prospectus is 
intended to provide prospective investors with a condensed statement of 
the more important information in the registration statement.\364\ 
Consistent with this purpose, the Instructions as to Summary 
Prospectuses in Forms S-1 and F-1 call for disclosure of selected 
financial data under Item 301 or Item 3.A of Form 20-F, respectively. 
These instructions also state that, with the exception of these items, 
the summary prospectus shall not contain any other financial 
information.\365\
---------------------------------------------------------------------------

    \363\ See 17 CFR 230.431. See also Instruction 1(f) under 
Instructions as to Summary Prospectuses in Form S-1 and Instruction 
1(c)(v) under Instructions as to Summary Prospectuses in Form F-1.
    \364\ See Adoption of Summary Prospectus Rule and Amendments to 
Form S-1 and S-9, Release No. 33-3722 (Nov. 26, 1956) [21 FR 9642 
(Dec. 6, 1956)].
    \365\ See Instruction 2 under Instructions as to Summary 
Prospectuses for Form S-1 and Form F-1.
---------------------------------------------------------------------------

b. Final Amendments
    We are adopting amendments to Forms S-1 and F-1 as proposed. To 
preserve disclosure of financial information in summary prospectuses, 
our amendments replace the requirement for selected financial data in 
Forms S-1 and F-1 with summarized financial information under Item 1-
02(bb) of Regulation S-X. We continue to believe the information 
required under Rule 1-02(bb) is similar to the information currently 
required and is consistent with other types of financial statement 
disclosures that should be included when certain significance 
thresholds have been met.
4. Business Combinations--Form S-4, Form F-4, and Schedule 14A
a. Proposed Amendments
    The Commission proposed eliminating references to Items 301 and 302 
in Form S-4, Form F-4, and Schedule 14A. Where these forms are used in 
conjunction with a business combination, pro forma financial statements 
for the most recent fiscal year and interim period under Article 11 of 
Regulation S-X are required.\366\ Additionally, Item 3(e) and (f) in 
both Forms S-4 and F-4 require Item 301 or Item 3.A of Form 20-F 
information, respectively, on a pro forma basis. Item 14(b)(9) and (10) 
of Schedule 14A generally call for similar pro forma information in the 
context of a business combination. A related instruction stipulates 
that, for a business combination accounted for as a purchase, financial 
information is required for the same periods required by Article 11 of 
Regulation S-X. Because these pro forma requirements are effectively 
duplicative of the pro forma financial statements required elsewhere by 
the form, the Commission proposed deleting them.\367\
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    \366\ See Item 5 under Part 1 of Forms F-4 and S-4.
    \367\ The Commission also proposed deleting the related 
instruction to these items.
---------------------------------------------------------------------------

    Similarly, the Commission proposed eliminating references to Item 
301 and Item 3.A of Form 20-F in Item 17(b)(3) of both Form S-4 and 
Form F-4. Lastly, the Commission proposed deleting the reference to 
Item 302 in Item 17(b)(4) of Form S-4. Because Item 17(b) of Forms S-4 
and F-4 applies to non-reporting target companies in a business 
combination, this disclosure may not be available elsewhere. In 
connection with this, the Commission stated its belief that the 
requirement for discussion and analysis of trends in Item 303 would 
also be sufficient to address material information related to a target 
company in a business combination context.
b. Final Amendments
    We are adopting amendments to Form S-4, Form F-4, and Schedule 14A, 
to eliminate the reference to Item 301, as proposed, but will retain 
the reference to Item 302 in light of our final amendments, which will 
retain that item. As discussed above, our amendments to Item 302(a) are 
intended to address discrete areas of disclosure that we believe may be 
important to investors. Accordingly, we are retaining current 
references to Item 302(a), including in Form S-4 and Schedule 14A.
5. Form S-20
a. Proposed Amendments
    The Commission proposed a conforming change to Form S-20 to remove 
references to Item 302 of Regulation S-K.\368\ Form S-20 is used to 
register standardized options under the Securities Act and requires 
limited information about the clearing agency registrant and the 
options being registered. Since the adoption of Rule 238 in 2002, which 
exempts from Securities Act Section 5 the registration of offerings of 
standardized options that are issued by a registered clearing agency 
and traded on a national securities exchange, Form S-20 is rarely 
used.\369\
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    \368\ 17 CFR 239.20. Current references in Form S-20 to Item 302 
are references to the item's predecessor, Item 12.
    \369\ See Exemption for Standardized Options From Provisions of 
the Securities Act of 1933 and From the Registration Requirements of 
the Securities Exchange Act of 1934, Release No. 33-8171 (Dec. 23, 
2002) [68 FR 188 (Jan. 2, 2003)] (``New Securities Act Rule 238 does 
not make Form S-20 obsolete. We are retaining Form S-20 for use by 
an issuer of standardized options that is not a clearing agency 
registered under Section 17A of the Exchange Act, such as a foreign 
clearing agency, or for use by issuers of standardized options that 
do not trade on a registered national securities exchange or on a 
registered national securities association.''). Since the effective 
date of Rule 238 in 2003, we estimate that approximately one entity 
has used Form S-20.

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[[Page 2109]]

b. Final Amendments
    As discussed above, our amendments to Item 302(a) are intended to 
address discrete areas of disclosure that we believe may be important 
to investors. Accordingly, we are retaining current references to Item 
302(a), including in Form S-20.\370\
---------------------------------------------------------------------------

    \370\ We are making a technical amendment to Form S-20 to update 
the reference from Item 12, the predecessor to Item 302, to 
reference Item 302.
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F. Compliance Date

    The final rules are effective February 10, 2021. After considering 
feedback from commenters,\371\ registrants will be required to apply 
the amended rules for their first fiscal year ending on or after August 
9, 2021 (the ``mandatory compliance date''). Registrants will be 
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.
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    \371\ See, e.g., letters from RSM; Nareit; SIFMA; CalPERS; E&Y 
ABA; Society; CAQ; Chamber. Commenters generally supported a 
transition period greater than 180 days. See, e.g., letters from 
RSM; Nareit; SIFMA; CalPERS; E&Y ABA; Society. Several of these 
commenters stated that registrants may need more time to transition 
to certain of the proposed amendments, such as to prepare 
disclosures in response to the proposed critical accounting estimate 
requirements. See, e.g., letters from RSM; SIFMA; E&Y Society. Some 
commenters recommended a longer transition period because of the 
COVID-19 pandemic. See letters from Nareit; CalPERS. Other 
commenters recommended modifying the compliance date to require 
compliance in the first annual report on Form 10-K or Form 20-F that 
is due on or after the proposed effective date of 180 days, thereby 
allowing registrants a minimum of 180 days and requiring initial 
compliance on an annual report. See letters from ABA and Society. 
However, a few commenters supported a transition period of 180 days. 
See letters from Chamber; CAQ.
---------------------------------------------------------------------------

    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. For example, upon effectiveness of the 
final amendments, a registrant may immediately cease providing 
disclosure pursuant to former Item 301, and may voluntarily provide 
disclosure pursuant to amended Item 303 before its mandatory compliance 
date. In this case, the registrant must provide disclosure pursuant to 
each provision of amended Item 303 in its entirety, and must begin 
providing such disclosure in any applicable filings going forward.\372\
---------------------------------------------------------------------------

    \372\ To the extent that registrants have questions about 
application of the amended rules in advance of their mandatory 
compliance date, they should reach out to Commission staff for 
additional transition guidance.
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III. Other Matters

    If any of the provisions of these rules, or the application thereof 
to any person or circumstance, is held to be invalid, such invalidity 
shall not affect other provisions or application of such provisions to 
other persons or circumstances that can be given effect without the 
invalid provisions or application.
    Pursuant to the Congressional Review Act,\373\ the Office of 
Information and Regulatory Affairs has designated these rules as not a 
``major rule,'' as defined by 5 U.S.C. 804(2).
---------------------------------------------------------------------------

    \373\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

IV. Economic Analysis

A. Introduction

    As discussed above, we are adopting amendments to modernize, 
simplify, and enhance certain financial disclosure requirements in 
Regulation S-K. Specifically, the final amendments will (1) eliminate 
Item 301 of Regulation S-K, Selected Financial Data, (2) streamline 
Item 302 of Regulation S-K, Supplementary Financial Information; and 
(3) amend Item 303 of Regulation S-K, Management's Discussion & 
Analysis of Financial Condition and Results of Operations. The 
amendments are intended to eliminate duplicative disclosures and 
enhance MD&A disclosures for the benefit of investors, while 
simplifying compliance efforts for registrants.
    Overall, investors and registrants may benefit from the amendments 
to the extent that they help avoid duplicative disclosure and result in 
more tailored disclosures that allow investors to better understand the 
registrant's business through the eyes of management. We acknowledge 
the risk that modernizing and simplifying the approach to MD&A may 
result in the loss of certain information to investors. However, we 
believe that any loss of information would be limited because the 
disclosures eliminated as a result of the amendments are mostly 
duplicative. Additionally, under the principles-based approach we are 
adopting, registrants will still be required to disclose material 
information relevant to an assessment of the financial condition and 
results of operations, further mitigating the effects of any potential 
loss of information.
    We are mindful of the costs and benefits of the final amendments. 
The discussion below addresses the potential economic effects of these 
amendments, including the likely benefits and costs, as well as the 
likely effects on efficiency, competition, and capital formation.\374\ 
At the outset, we note that, where possible, we have attempted to 
quantify the benefits, costs, and effects on efficiency, competition, 
and capital formation expected to result from the final amendments. In 
many cases, however, we are unable to quantify the potential economic 
effects because we lack information necessary to provide a reasonable 
estimate. For example, we are unable to reasonably quantify the costs 
to investors of accessing and assessing alternative information 
sources, such as the footnotes to financial statements or voluntary 
earnings announcements. We are also unable to quantify the potential 
information processing cost savings that may arise from the elimination 
of disclosures that are duplicative or immaterial. No commenters 
provided data or estimates that would allow us to quantify benefits or 
costs generated by the amendments. Where we are unable to quantify the 
economic effects of the final amendments, we provide a qualitative 
assessment of their potential effects.
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    \374\ Section 2(b) of the Securities Act [15 U.S.C. 77b(b)] and 
Section 3(f) of the Exchange Act [17 U.S.C. 78c(f)] require the 
Commission, when engaging in rulemaking where it is required to 
consider or determine whether an action is necessary or appropriate 
in the public interest, to consider, in addition to the protection 
of investors, whether the action will promote efficiency, 
competition, and capital formation. Further, Section 23(a)(2) of the 
Exchange Act [17 U.S.C. 78w(a)(2)] requires the Commission, when 
making rules under the Exchange Act, to consider the impact that the 
rules would have on competition, and prohibits the Commission from 
adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the Exchange Act.
---------------------------------------------------------------------------

    Two commenters expressed their concerns regarding the cost 
estimates in the proposal.\375\ One of these commenters stated that we 
failed to quantify the negative impact on investors.\376\ Further, one 
of these commenters stated that we should empirically study the costs 
and benefits of the proposed rule, and cited to specific studies.\377\ 
We have qualitatively discussed the costs and benefits of the rule 
below, including

[[Page 2110]]

those to investors.\378\ However, as discussed above, in many cases, we 
are unable to accurately quantify the potential economic effects of the 
final amendments, and we lack information necessary to undertake 
empirical study of the final rule. For example, we are unable to 
quantify the costs to investors of the increased flexibility provided 
to registrants under the final amendments because we lack the data 
(e.g., search or information processing costs) necessary for such 
quantification. Commenters did not provide data or estimates on such 
costs. We have, however, addressed the additional studies referenced by 
these commenters.\379\
---------------------------------------------------------------------------

    \375\ See CalPERS and PRI Letters.
    \376\ See CalPERS Letter.
    \377\ See PRI Letter.
    \378\ See infra Section C.
    \379\ See infra Section IV(C)(1).
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B. Baseline and Affected Parties

    The current disclosure requirements under Items 301, 302, and 303 
of Regulation S-K, and the related requirements under Items 3.A and 5 
of Form 20-F, and General Instructions B.(11), (12), and (13) of Form 
40-F, together with the current disclosure practices registrants have 
adopted to comply with these requirements, form the baseline from which 
we estimate the likely economic effects of the final amendments.\380\ 
The disclosure requirements apply to various filings, including 
registration statements, periodic reports, and certain proxy statements 
filed with the Commission. Thus, the parties that are likely to be 
affected by the amendments include investors and other market 
participants that use the information in these filings (such as 
financial analysts, investment advisers, and portfolio managers), as 
well as registrants subject to the relevant disclosure requirements 
discussed above.
---------------------------------------------------------------------------

    \380\ See supra Section I.
---------------------------------------------------------------------------

    One commenter stated that we did not attempt to identify who uses 
the disclosures affected by the rule and why.\381\ We continue to 
believe that investors, financial analysts, investment advisers, and 
portfolio managers use the information in these filings. We believe 
that these parties use the information in these filings in connection 
with making investment decisions, such as comparing information across 
companies, valuing companies, investing in companies, exercising 
control of voting securities, etc. Investors affected by the final 
amendments may directly hold a variety of types of securities issued by 
reporting companies, such as stocks or bonds, or they may indirectly 
hold these securities by investing in funds that hold securities issued 
by reporting companies. In addition, prospective investors may also be 
affected by the rule as they may derive information from those filings 
affected by the final amendments. Because the final amendments would 
affect current and potential individual and institutional investors, 
both large and small investors will be affected.
---------------------------------------------------------------------------

    \381\ See CalPERS Letter.
---------------------------------------------------------------------------

    The final amendments may affect both domestic registrants and 
FPIs.\382\ We estimate that during calendar year 2019 there were 
approximately 6,987 registrants that filed on domestic forms \383\ and 
849 FPIs that filed on F-forms, other than registered investment 
companies. Among the registrants that filed on domestic forms, 
approximately 30 percent were large accelerated filers, 18.5 percent 
were accelerated filers, and 51.5 percent were non-accelerated filers. 
In addition, we estimate that approximately 43 percent of these 
domestic issuers were SRCs and 21.1 percent were EGCs. The final 
amendments will also affect ABS issuers. ABS issuers are required to 
file on Forms SF-1 and SF-3 and, as a result, may be subject to the 
changes to Regulation AB requirements in this release. We estimate that 
during calendar year 2019, there were 24 unique depositors filing at 
least one Form SF-1 or Form SF-3.
---------------------------------------------------------------------------

    \382\ The number of domestic registrants and FPIs affected by 
the final amendments is estimated as the number of unique companies, 
identified by Central Index Key (CIK), that filed a Form 10-K, Form 
20-F, and Form 40-F, an amendment thereto, or both a Form 10-Q and a 
Form S-1, S-3, or S-4 with the Commission during calendar year 2019. 
For purposes of this economic analysis, these estimates do not 
include registrants that filed only a Securities Act registration 
statement during calendar year 2019, or only a Form 10-Q not 
preceded by a Securities Act registration statement, in order to 
avoid including entities, such as certain co-registrants of debt 
securities, which may not have an independent reporting obligation 
and therefore would not be affected by the amendments. We believe 
that most registrants that have filed a Securities Act registration 
statement or a Form 10-Q not preceded by a Securities Act 
registration statement, other than such co-registrants, would be 
captured by this estimate. The estimates for the percentages of 
SRCs, EGCs, accelerated filers, large accelerated filers, and non-
accelerated filers are based on data obtained by Commission staff 
using a computer program that analyzes SEC filings, with 
supplemental data from Ives Group Audit Analytics.
    \383\ This number includes fewer than 20 FPIs that filed on 
domestic forms in 2019 and approximately 100 BDCs.
---------------------------------------------------------------------------

C. Potential Benefits and Costs of the Amendments

    In this section, we discuss the anticipated economic benefits and 
costs of the final amendments. We first analyze the overall economic 
effects of the amendments. We then discuss the potential benefits and 
costs of specific amendments.
1. Overall Potential Benefits and Costs
    We anticipate the final amendments \384\ will benefit registrants 
and investors in several ways. First, by eliminating certain 
duplicative disclosure requirements, the amendments could reduce 
registrants' disclosure burden and associated compliance costs. Second, 
by modernizing and simplifying Item 303 disclosure requirements, the 
final amendments may benefit registrants and investors by reducing 
disclosure burdens and associated compliance costs. In addition, to the 
extent the amendments result in more tailored and informative 
disclosure, they could potentially reduce information asymmetry between 
registrants and investors, which could enhance the investment decision 
process, improve firms' liquidity, and decrease the cost of capital. 
Finally, certain of the amendments emphasize a more principles-based 
approach to MD&A, which we believe will benefit registrants and 
investors by underscoring the flexibility available in presenting 
financial results that are more indicative of their business and 
accordingly provide investors with better information on which to base 
decisions.\385\ A more principles-based

[[Page 2111]]

approach, however, could lead to registrants incurring increased costs 
associated with assessing materiality.
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    \384\ See supra Sections II.A. through II.F.
    \385\ A number of academic studies have explored the use of 
prescriptive thresholds and materiality criteria. Many of these 
papers highlight a preference for principles-based materiality 
criteria. See, e.g., Eugene A. Imhoff Jr. and Jacob K. Thomas, 
Economic consequences of accounting standards: The lease disclosure 
rule change, 10 J. Acct. & Econ. 277 (1988) (providing evidence that 
management modifies existing lease agreements to avoid crossing 
rules-based criteria for lease capitalization); Cheri L. Reither, 
What are the best and the worst accounting standards?, 12 Acct. 
Horizons 283 (1998) (documenting that due to the widespread abuse of 
bright-lines in rules for lease capitalization, SFAS No. 13 was 
voted the least favorite FASB standard by a group of accounting 
academics, regulators, and practitioners); Christopher P. Agoglia, 
Timothy S. Doupnik, and George T. Tsakumis, Principles-based versus 
rules-based accounting standards: The influence of standard 
precision and audit committee strength on financial reporting 
decisions, 86 The Acct. Rev. 747 (2011) (conducting experiments in 
which experienced financial statement preparers are placed in a 
lease classification decision context and finding that preparers 
applying principles-based accounting are less likely to make 
aggressive reporting decisions than preparers applying a more 
precise rules-based standard and supporting the notion that a move 
toward principles-based accounting could result in better financial 
reporting); Usha Rodrigues and Mike Stegemoller, An inconsistency in 
SEC disclosure requirements? The case of the ``insignificant'' 
private target, 13 J. Corp. Fin. 251 (2007) (providing evidence, in 
the context of mergers and acquisitions, where rule-based 
[disclosure] thresholds deviate from investor preferences). Papers 
that highlight a preference for rules-based materiality criteria are 
cited below in footnote 391.
---------------------------------------------------------------------------

    Many commenters agreed that the final amendments would decrease 
compliance costs for registrants.\386\ Some commenters, however, 
questioned whether the elimination of duplicative disclosure would 
result in cost savings, stating that registrants already have the 
procedures in place to disclose this information.\387\ However, the 
elimination of disclosure requirements, even where the information must 
be disclosed elsewhere and registrants already have the disclosure 
procedures in place, would lead to certain costs savings to 
registrants. For example, registrants will not need to devote time or 
resources to preparing or reviewing the duplicative disclosure. The 
resulting cost savings may be small, but we do not believe they are 
negligible.
---------------------------------------------------------------------------

    \386\ See letters from PWC; Pfizer; Eli Lilly; EEI & AGA; KPMG; 
CAQ; FedEx; Nasdaq; Nareit; FEI; SIFMA; IMA; E&Y UnitedHealth; 
Medtronic; Chamber; ABA; Society.
    \387\ See letters from NASAA; CalPERS. See also IAC 
Recommendation.
---------------------------------------------------------------------------

    We believe the final amendments could provide various benefits to 
investors. First, the amendments that clarify and codify existing 
guidance, such as the amendments related to critical accounting 
estimates and capital resources, could enhance MD&A disclosure. More 
robust and informative disclosure on these topics could facilitate 
investors' decision making and enhance investor protection. Second, if 
the amendments result in enhanced and improved disclosure, they could 
allow investors to more efficiently process the disclosure and make 
better-informed investment decisions. In particular, investors may 
benefit from more tailored disclosures that allow them to better 
understand the registrant's business through the eyes of management. 
Investors also could benefit from the reduction of duplicative 
disclosure, because reducing such duplication may improve the 
readability and conciseness of the information provided, help investors 
focus on material information, and facilitate more efficient 
information processing.\388\
---------------------------------------------------------------------------

    \388\ See Alastair Lawrence, Individual Investors and Financial 
Disclosure, 56 J. Acct. & Econ., 130 (2013). Using data on trades 
and portfolio positions of 78,000 households, this article shows 
that individuals invest more in firms with clear and concise 
financial disclosures. This relation is reduced for high frequency 
trading, financially literate investors, and speculative individual 
investors. The article also shows that individuals' returns increase 
with clearer and more concise disclosures, implying such disclosures 
reduce individuals' relative information disadvantage. A one 
standard deviation increase in disclosure readability and 
conciseness corresponds to return increases of 91 and 58 basis 
points, respectively. The article acknowledges that, given the 
changes in financial disclosure standards and the possible advances 
in individual investor sophistication, the extent to which these 
findings, which are based on historical data from the 1990s, would 
differ from those today is unknown. Recent advances in information 
processing technology, such as machine learning for textual 
analysis, may also affect the generalizability of these findings.
---------------------------------------------------------------------------

    However, investors could incur certain transition costs under the 
final amendments. For example, investors who are used to the current 
disclosure format might experience costs when adjusting to the new 
format. Several commenters expressed concern that eliminating 
duplicative disclosure could result in greater work for investors to 
locate this disclosure, with particular burdens on investors who lack 
skills to navigate EDGAR effectively, and potential direct and indirect 
impacts of having to adjust to operating in this way.\389\ Investors 
could incur monetary costs such as database subscriptions, or 
opportunity costs such as time spent, if they need to obtain or 
reconstruct information through alternative sources. However, any such 
costs should decrease over time as investors become more familiar with 
the new disclosure format. In a similar vein, some commenters stated 
that the elimination of certain disclosure items as a result of the 
final amendments would increase the time and costs for investors to 
obtain such disclosure through other means.\390\ However, we do not 
expect such costs to be significant since registrants would still need 
to disclose material information relevant to an assessment of the 
financial condition and results of operations.
---------------------------------------------------------------------------

    \389\ See letters from CalPERS; CFA & CII; D. Jamieson; NASAA. 
See also IAC Recommendation.
    \390\ See letters from NASAA; CalPERS; CFA & CII; D. Jamieson; 
E&Y. See also IAC Recommendation.
---------------------------------------------------------------------------

    There could be certain additional costs associated with the 
amendments to the extent that they result in the elimination of 
disclosure material to an investment decision if registrants misjudge 
what information is material, or if disclosure becomes less comparable 
across firms.\391\ The risk of misjudgment may be mitigated by factors 
including accounting, financial reporting, and disclosure controls or 
procedures,\392\ as well as the antifraud provisions of the securities 
laws.\393\ There also may be incentives for registrants to voluntarily 
disclose additional information if the benefits of reduced information 
asymmetry exceed the disclosure costs. One commenter further cited 
academic studies it believes indicate how issuers could respond to the 
increased flexibility provided under the final rule, including through 
the increased use of boilerplate disclosure.\394\ For example, one 
study shows that MD&A disclosure has become longer and its usefulness 
(measured by stock market reaction to changes in MD&A) has 
declined.\395\ This study, however, acknowledges that its documented 
decrease in the usefulness of MD&A disclosure could be due to a host of 
factors (e.g., increased corporate interim disclosures, more media 
outlets, faster information dissemination, ease of private information 
search), and not necessarily the use of more principles-based 
disclosure requirements in MD&A. Two of the academic studies cited by 
the commenter also purport to provide evidence of increasing use of 
boilerplate disclosure in companies' annual reports, and a correlation 
between boilerplate disclosure and liquidity as well as analyst 
coverage.\396\ However, one of the studies presents evidence that three 
specific disclosure requirements that are not part of MD&A--fair value, 
internal controls, and risk factors--play a significant role

[[Page 2112]]

in any increase in boilerplate disclosure.\397\ To the extent that the 
increased flexibility of the final amendments may encourage 
opportunistic behavior by management of the registrants, this could 
result in boilerplate disclosure in some circumstances. However, we 
continue to believe that this potential risk may be mitigated by other 
factors including accounting disclosure requirements, financial 
reporting, and disclosure controls or procedures, as well as the 
antifraud provisions of the securities laws. To the extent that the 
final amendments will increase the relevancy and materiality of the 
information disclosed in the registrants filings, investors would 
benefit from the final rule.
---------------------------------------------------------------------------

    \391\ See Mark W. Nelson, Behavioral Evidence on the Effects of 
Principles- and Rules-Based Standards, 17 Acct. Horizons 91 (2003); 
and Katherine Schipper, Principles-based accounting standards, 17 
Acct. Horizons 61 (2003) (noting potential advantages of rules-based 
accounting standards, including: Increased comparability among 
firms, increased verifiability for auditors, and reduced litigation 
for firms). See also Randall Rentfro and Karen Hooks, The effect of 
professional judgment on financial reporting comparability, 1 J. 
Acct. & Fin. Res. 87 (2004) (finding that comparability in financial 
reporting may be reduced under principles-based standards, which 
rely more heavily on the exercise of professional judgment, but 
comparability may improve as financial statement preparers become 
more experienced and hold higher organizational rank); Andrew A. 
Acito, Jeffrey J. Burks, and W. Bruce Johnson, The Materiality of 
Accounting Errors: Evidence from SEC Comment Letters, 36 Contemp. 
Acct. Res. 839, 862 (2019) (studying managers' responses to SEC 
inquiries about the materiality of accounting errors and finding 
that managers are inconsistent in their application of certain 
qualitative considerations and may omit certain qualitative 
considerations from their analysis that weigh in favor of an error's 
materiality).
    \392\ See, e.g., Exchange Act Rules 13b-2b [17 CFR 240.13b-2b], 
13a-15e [17 CFR 240.13a-15e], and 13a-15f [17 CFR 240.13a-15f].
    \393\ See, e.g., Exchange Act Rule 10b-5(b) [17 CFR 240.10b-
5(b)].
    \394\ See PRI Letter.
    \395\ See, e.g. Stephen V. Brown and Jennifer Wu Tucker, 
Large[hyphen]Sample Evidence on Firms' Year[hyphen]over[hyphen]Year 
MD&A Modifications, 49 J. Acct. Res. 309 (2011)
    \396\ See, e.g. Travis Dyer, Mark H. Lang and Lorien Stice-
Lawrence, The Evolution of 10-K Textual Disclosure: Evidence from 
Latent Dirichlet Allocation, J. Acct. & Econ., forthcoming, at Fig. 
5, panel B (Mar. 7, 2016); Mark Lang & Lorien Stice-Lawrence, Text 
Analysis and International Financial Reporting: Large Sample 
Evidence, J. Acct. & Econ., forthcoming, at 17 (Mar. 13, 2014).
    \397\ Travis Dyer, Mark H. Lang and Lorien Stice-Lawrence, The 
Evolution of 10-K Textual Disclosure: Evidence from Latent Dirichlet 
Allocation, J. Acct. & Econ., forthcoming.
---------------------------------------------------------------------------

    Another commenter suggested that we did not make an effort to 
examine the impacts on investors seeking to compare different 
issuers.\398\ We acknowledge the more principles-based approach 
resulting from certain final amendments may lead to decreased 
comparability among different registrants. However, to the extent that 
such an approach will result in the disclosure of important information 
for each issuer, we believe that it will be beneficial to investors 
despite the potential decrease in comparability. With respect to costs 
related to comparability of information provided by a single issuer 
over time, to the extent that investors may incur costs in comparing 
such information, we expect such costs to be limited to the initial 
adjustment period for investors, and to decline over time as investors 
become more familiar with the amended disclosures. The potential loss 
of comparability within the same registrant over time, for example, 
from the elimination of selected historical financial data, should be 
minimal as investors in most instances can pull that data from 
previously filed financial statements via XBRL.
---------------------------------------------------------------------------

    \398\ See letter from CalPERS.
---------------------------------------------------------------------------

    The final amendments likely would affect individual registrants and 
investors differently. For example, any compliance cost reduction might 
be more beneficial to smaller registrants that are financially 
constrained. Similarly, although eliminating information that is not 
material should benefit all investors, retail investors could benefit 
more as they are less likely to have the time and resources to devote 
to reviewing and evaluating disclosure. On the other hand, retail 
investors could also incur additional costs as a result of the 
amendments because they may need to obtain information from alternative 
sources, which could involve monetary costs, such as database 
subscriptions, or opportunity costs, such as time spent searching for 
alternative sources. These costs may be higher for retail investors 
than for institutional investors. One commenter broadly stated that we 
did not attempt to examine the impacts on investment decisions across 
different asset classes.\399\ We believe that investors, whether 
shareholders, bondholders, or holders of other securities, use 
information derived from registrants' filings to make informed 
investment decisions. We do not anticipate different effects of the 
final amendments on investors of different asset classes.
---------------------------------------------------------------------------

    \399\ See CalPERS Letter.
---------------------------------------------------------------------------

2. Benefits and Costs of Specific Amendments
    We expect the final amendments to result in costs and benefits to 
registrants and investors, and we discuss those costs and benefits item 
by item in this section. The changes to each item would impact the 
compliance burden for registrants in filing forms that require 
disclosures that are responsive to such items. Overall, we expect the 
net effect of the amendments on a registrant's compliance burden to be 
limited. As explained in this section, we expect certain aspects of the 
proposed amendments to increase compliance burdens, and others to 
decrease the burdens. The quantitative estimates of changes in those 
burdens for purposes of the Paperwork Reduction Act of 1995 (``PRA'') 
\400\ are further discussed in Section V below. For purposes of the 
PRA, we estimate that the effect of the amendments would vary for 
different forms. However, taken together, the amendments are likely to 
result in a net decrease in burden hours for all forms, ranging from 
0.1 to 5.9 burden hours per form.\401\ Similarly, we believe the final 
amendments will not have significant economic effect on investors 
overall. Investors would benefit from the increased relevance and 
materiality of the disclosure resulting from the amendments, but in the 
meantime, investors may incur some costs to adapt to the new form of 
disclosure.
---------------------------------------------------------------------------

    \400\ 44 U.S.C. 3501 et seq.
    \401\ See infra Section V.B.
---------------------------------------------------------------------------

a. Selected Financial Data (Item 301)
    Current Item 301 requires certain registrants \402\ to furnish 
selected financial data in comparative tabular form for each of the 
registrant's last five fiscal years and any additional fiscal years 
necessary to keep the information from being misleading.\403\ The 
purpose of this disclosure is to supply in a convenient and readable 
format selected financial data that highlights certain significant 
trends in the registrant's financial conditions and results of 
operations. For certain registrants, information disclosed under Item 
301 has also been disclosed in historical financial data and related 
XBRL data submissions that can be accessed through prior filings on 
EDGAR. Several commenters noted that much information disclosed under 
Item 301 is readily available in such prior filings.\404\
---------------------------------------------------------------------------

    \402\ As discussed supra in Section II.A, SRCs are not required 
to provide Item 301 information and an EGC that is providing the 
information called for by Item 301 in a Securities Act registration 
statement need not present selected financial data for any period 
prior to the earliest audited financial statements presented in 
connection with the EGC's IPO of its common equity securities. In 
addition, an EGC that is providing the information called for by 
Item 301 in a registration statement, periodic report, or other 
report filed under the Exchange Act need not present selected 
financial data for any period prior to the earliest audited 
financial statements presented in connection with its first 
registration statement that became effective under the Exchange Act 
or Securities Act. See Item 301(c) of Regulation S-K; Item 301(d)(1) 
of Regulation S-K.
    \403\ See supra Section II.A.
    \404\ See letters from FEI; Eli Lilly; UnitedHealth.
---------------------------------------------------------------------------

    The current disclosure requirement under Item 301 can result in 
duplicative disclosure, and it can be costly for registrants to provide 
such disclosures under certain circumstances.\405\ For example, 
providing disclosure of the earliest two years often creates challenges 
for registrants when such information has not been previously 
provided.\406\ Therefore, eliminating this requirement may facilitate 
capital raising activity and increase efficiency for non-EGC issuers 
contemplating an IPO. Overall, we expect the elimination of Item 301 
will benefit registrants by eliminating duplicative disclosures and 
reducing compliance costs. We also note that the benefit associated 
with eliminating the costs of providing Item 301 disclosure may be 
offset by the costs associated with making materiality determinations 
under a principles-based disclosure framework. In general, we do not 
expect the elimination of Item 301 will affect the cost of capital 
given that the eliminated disclosures are largely

[[Page 2113]]

duplicative. To the extent that there is information loss under certain 
circumstances, such as in the case of non-EGC IPOs, these registrants 
could potentially experience an increase in the cost of capital as a 
result of reduced disclosure. However, if the increase in the cost of 
capital were significant, registrants would likely voluntarily provide 
the disclosures.
---------------------------------------------------------------------------

    \405\ See letters from FEI; Eli Lilly; UnitedHealth; and [EEI & 
AGA]
    \406\ See supra Section II.A. See also Proposing Release at 
Section II.A.
---------------------------------------------------------------------------

    To the extent the final amendments result in the elimination of 
disclosure that is not material, investors may benefit. In particular, 
if the readability and conciseness of the information provided 
improves,\407\ investors may be able to process information more 
effectively by focusing on the material information. Also, the other 
amendments we are making to Item 303, as well as our reiteration of 
prior Commission MD&A guidance, may permit or encourage registrants to 
present more tailored information, which also may benefit investors by 
allowing them to better understand the registrant's business.
---------------------------------------------------------------------------

    \407\ See supra footnote 388.
---------------------------------------------------------------------------

    Investors may incur costs to the extent the amendments result in a 
loss of information.\408\ While we do not anticipate significant 
information loss from the elimination of Item 301, we recognize that 
selected financial data for the two earliest years would no longer be 
disclosed in non-EGC IPOs. However, the purpose of the item is to 
highlight certain significant trends in the registrant's financial 
condition and results of operations, and we expect that any material 
trend information that would have been disclosed pursuant to Item 301 
would be disclosed under Item 303.\409\ We also recognize investors may 
incur certain other costs that, for example, result from the inability 
to view the information required by Item 301 in one place.\410\ In 
particular, investors would incur search costs if they have to spend 
more time to retrieve the information from prior filings and to the 
extent investors are used to the current format and rely on the 
compiled comparable data, they may incur costs to adjust to new 
disclosure formats. One commenter expressed concern that our analysis 
fails to quantify the costs to investors.\411\ We do not, however, 
believe that it is feasible to accurately measure and quantify these 
costs because we lack information necessary to provide a reasonable 
estimate. For example, we are unable to quantify search costs and costs 
of adjustment to the new disclosure format because they would differ 
among different investors (e.g., retail investors or institutional 
investors) and investors of different degrees of sophistication. In 
addition, one commenter stated that the loss of this information may 
ease pressure on registrants to explain results, and therefore weaken 
management discipline, which could harm long-term investors.\412\ We 
believe, however, that pressure on registrants to explain results will 
remain as a result of Item 303 disclosure requirements, among other 
factors.
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    \408\ See letter from NASAA.
    \409\ Commission guidance has also emphasized the importance of 
trend disclosure in MD&A. See, e.g., 2003 MD&A Interpretive Release.
    \410\ See letters from CFA & CII and CalPERS.
    \411\ See CalPERS letter.
    \412\ See letter from NASAA.
---------------------------------------------------------------------------

    Elimination of Item 301 will also affect the financial information 
disclosure by ABS issuers. As discussed above, Items 1112, 1114, and 
1115 of Regulation AB require disclosure of financial information 
required by Item 301 or Item 3.A of Form 20-F about certain significant 
obligors of pool assets, credit enhancement providers, and derivatives 
counterparties. By eliminating Item 301 and Item 3.A of Form 20-F for 
corporate issuers, this financial information about these third parties 
to an ABS transaction, including any trend information comparable to 
information required by Item 303 or Item 5 of Form 20-F, may not 
otherwise be available. To mitigate this potential information loss, 
the final amendments will replace in Regulation AB those requirements 
to disclose selected financial data under Item 301 or Item 3.A of Form 
20-F with requirements to disclose summarized financial information, as 
defined by Rule 1-02(bb) of Regulation S-X, for each of the last three 
fiscal years (or the life of the relevant entity or group of entities, 
if less).
    Since the changes related to ABS issuers are intended to conform to 
the other changes related to selected financial data and MD&A, our 
analysis of the costs and benefits for registrants and their investors 
under the amendments to Item 301 and Item 3.A of Form 20-F can be 
carried over to ABS issuers. In addition, while this amendment would 
generally result in the presentation of fewer periods, we do not expect 
this amendment to have a significant effect on ABS issuers and their 
investors. The presentation of the earlier years will cover periods 
beyond those presented for the underlying pool assets. ABS investors 
mainly rely on the information relating to the underlying pool assets.
b. Supplementary Financial Information (Item 302(a))
    Under current Item 302(a), certain registrants are required to 
disclose quarterly financial data of specified operating results and 
variances in these results from amounts previously reported on a Form 
10-Q.\413\ Such registrants must provide quarterly information for each 
full quarter within the two most recent fiscal years and any subsequent 
period for which financial statements are included or required by 
Article 3 of Regulation S-X. Item 302(a) also requires disclosure 
related to effects of any discontinued operations and unusual or 
infrequently occurring items. As discussed above, we are amending Item 
302(a) to only require disclosure where there are one or more 
retrospective changes to the statements of comprehensive income for any 
of the quarters within the two most recent fiscal years and any 
subsequent interim period for which financial statements are included 
or are required to be included by Article 3 of Regulation S-X that, 
individually or in the aggregate, are material. In such cases, the 
disclosure must provide an explanation of the reasons for such material 
changes, and include, for each affected quarterly period and the fourth 
quarter in the affected year, summarized financial information related 
to the statements of comprehensive income and earnings per share 
reflecting such changes.
---------------------------------------------------------------------------

    \413\ As discussed in Section II.B.1, SRCs, FPIs, issuers 
conducting an IPO, and registrants that have a class of securities 
registered under Section 15(d) of the Exchange Act are not subject 
to Item 302(a).
---------------------------------------------------------------------------

    Since the information required under the current item, other than 
fourth quarter data and the effect of a retrospective change in the 
earliest of the two years,\414\ typically can be found in prior 
quarterly filings through EDGAR, the prescriptive requirements under 
current Item 302(a) typically result in duplicative disclosures. By 
eliminating these duplicative disclosures and reducing the associated 
compliance costs, the final amendments would benefit registrants. We do 
not expect the elimination of these duplicative disclosures to affect 
registrants negatively. While a decrease in disclosure could 
potentially increase the company's cost of capital in general, the 
final amendments should elicit information regarding material 
retrospective changes that should mitigate this risk. Additionally, a 
registrant can always choose to disclose the information required under 
the current item in its filings or through

[[Page 2114]]

other channels. For example, as some commenters indicated, separate 
fourth quarter information is often disclosed in earnings releases.
---------------------------------------------------------------------------

    \414\ See supra footnote 47 and corresponding text.
---------------------------------------------------------------------------

    Investors could benefit to the extent that the final amendments 
result in less duplicative disclosure and less disclosure of immaterial 
information. The final amendments may result in improved readability 
and conciseness of the information provided, helping investors focus on 
material information and facilitating more efficient information 
processing by investors. The amendments will also allow registrants to 
present financial information that is more reflective of their own 
industry and firm operating cycles, which could allow investors to 
better understand their business.
    We anticipate information loss from the elimination of fourth 
quarter financial information currently required under Item 302(a), 
other than where there has been a material retrospective change during 
the year that would require disclosure of fourth quarter information. 
It is generally expected that fourth quarter financial data could be 
calculated from annual report and cumulative third quarter data. 
Nonetheless, calculating or otherwise obtaining fourth quarter data may 
be costly for investors. While such costs might be minimal for 
institutional investors, which have both resources and sophistication 
to obtain the needed financial information, for retail investors, the 
search costs might be substantially larger, which could involve 
monetary costs such as database subscriptions, or opportunity costs 
such as time spent searching for alternative sources and cross-
referencing. Additionally, investors could make mistakes in deriving 
the fourth quarter financial information. To the extent that there is a 
lack of accurate fourth quarter information which cannot be obtained 
through alternative means, investors' decision making could be 
affected.\415\
---------------------------------------------------------------------------

    \415\ See letter from NASAA.
---------------------------------------------------------------------------

    However, such potential loss of information will be mitigated by 
the fact that the final amendments will require disclosure of fourth 
quarter financial information where there has been a material 
retrospective change during the fiscal year. Also, the potential 
information loss from the amendments to Item 302(a) might be mitigated 
under MD&A's principles-based framework. We believe that fourth quarter 
data may not be material to all registrants or in every fiscal year. 
For example, for investors in companies with long operating cycles, 
fourth quarter data might not be as incrementally important as annual 
data. However, to the extent that there are material trends or events 
in the fourth quarter or throughout the fiscal year, registrants would 
be required to address those matters in their MD&A.
c. Item 303(a) Restructuring and Streamlining
    The final rules include multiple changes that are intended to 
clarify and streamline the requirements of Item 303. For example, we 
are adopting a new Item 303(a) to provide a succinct and clear 
description of the purpose of MD&A. As discussed above, emphasizing the 
purpose of MD&A at the outset of the item is intended to provide 
clarity and focus to registrants as they consider what information to 
discuss and analyze, which could encourage management to disclose those 
factors that are most specific and relevant to a registrant's business. 
Other changes include restructuring and streamlining language in Item 
303 and the related instructions.
    We anticipate that the amendments will provide registrants with 
more clarity on disclosure requirements. When there is confusion 
related to disclosure requirements, registrants may either over-
disclose and incur additional compliance costs, or under-disclose and 
face increased litigation risk. To the extent that the final amendments 
reduce registrants' confusion, registrants could potentially benefit 
from reduced compliance costs and litigation risk. More informative 
disclosure could potentially benefit both registrants and investors by 
reducing information asymmetry in the market. Reduced information 
asymmetry could help investors make more informed investment decisions, 
which may benefit registrants in their capital raising. For 
registrants, reduced information asymmetry could also potentially 
improve firm liquidity and reduce cost of capital.
d. Capital Resources (Item 303(b)(1)(ii)))
    Current Item 303(a)(2), which requires a registrant to discuss its 
material commitments for capital expenditures as of the end of the 
latest fiscal period, does not define the term ``capital resources.'' 
The lack of specificity was intended to provide management flexibility 
for a meaningful discussion when this disclosure requirement was 
adopted in 1980. Nonetheless, the Commission has previously provided 
guidance to clarify this requirement.\416\ Further, while the required 
disclosure of material commitments of capital expenditures historically 
relates to physical assets, such as buildings and equipment, this 
requirement may not fully reflect market developments. While capital 
expenditures remain important in many industries, certain expenditures 
that are not necessarily capital investments may be increasingly 
important to companies. For example, expenditures for human resources 
or intellectual property may be essential for companies in certain 
industries. The amendments to current Item 303(a)(2) (new Item 
303(b)(1)(ii)) are intended to encompass these types of expenditures. 
The amendments will also explicitly require, consistent with the 
Commission's 2003 MD&A Interpretive Release that registrants broadly 
disclose material cash commitments, including but not limited to 
capital expenditures. We believe the final amendments will modernize 
the requirement and make the disclosure more reflective of current and 
future industry outlays.
---------------------------------------------------------------------------

    \416\ See 2003 MD&A Interpretive Release.
---------------------------------------------------------------------------

    We believe that the final amendments could benefit registrants by 
providing additional clarity on the term ``capital resources'' and 
reducing confusion, thereby eliciting appropriate disclosure from 
registrants and potentially decreasing litigation risk. Capital 
expenditures vary across industries. While firms in traditional 
industries rely more on physical assets, firms in other industries such 
as the technology sector may invest more heavily in intellectual 
property and human capital. By specifying only capital expenditures, 
the rule may not be clear about what information should be provided. As 
a result, registrants may over-disclose and incur additional compliance 
costs, or under-disclose and face increased litigation risk. Further, 
we expect that registrants will benefit from decreased compliance costs 
to the extent that the amendments reduce the need to consult existing 
Commission guidance to process and understand the disclosure 
requirements. As many registrants may already be following relevant 
Commission guidance, this effect is not expected to be significant.
    The amendments should also benefit investors through improved 
disclosure. As discussed above, lack of clarity might lead to under- or 
over-disclosure by registrants. For example, disclosure focusing only 
on capital expenditures rather than on material cash commitments more 
generally might lead to under-disclosure for less capital intensive 
industries. As a result, investors might not receive adequate or 
consistent information to make informed investment decisions. By 
providing clarity on the requirement,

[[Page 2115]]

the amendments may facilitate more informative disclosure.
    The amendments might increase the disclosure burden for some 
registrants by prompting disclosure of material investments in non-
physical assets that registrants might not otherwise be disclosing. 
However, we do not anticipate a significant increase in compliance 
costs. As discussed above, some registrants already include disclosure 
beyond capital expenditures, which the Commission's MD&A guidance has 
encouraged.\417\ Also, better disclosure may eventually benefit 
registrants, because it could reduce information asymmetry between 
management and investors, reduce the cost of capital, and thereby 
improve firms' liquidity and their access to capital markets.\418\
---------------------------------------------------------------------------

    \417\ See supra Section II.C.2 and 2003 MD&A Interpretive 
Release.
    \418\ See Douglas W. Diamond and Robert E. Verrecchia, 
Disclosure, Liquidity, and the Cost of Capital, 46 J. Fin. 1325 
(1991) (finding that revealing public information to reduce 
information asymmetry can reduce a firm's cost of capital through 
increased liquidity). See also Christian Leuz and Robert E. 
Verrecchia, The Economic Consequences of Increased Disclosure, 38 J. 
Acct. Res. 91 (2000) (providing empirical evidence that increased 
disclosure leads to lower information asymmetry component of the 
cost of capital in a sample of German firms); Christian Leuz and 
Peter D. Wysocki, The Economics of Disclosure and Financial 
Reporting Regulation: Evidence and Suggestions for Future Research, 
54 J. Acct. Res. 525 (2016) (providing a comprehensive survey of the 
literature on the economic effect of disclosure). Studies that 
provide both theoretical and empirical evidence on the link between 
information asymmetry and cost of capital include Thomas E. Copeland 
and Dan Galai, Information Effects on the Bid[hyphen]Ask Spread, 38 
J. Fin. 1457 (1983) (proposing a theory of information effects on 
the bid-ask spread); David Easley and Maureen O'Hara, Price, Trade 
Size, and Information in Securities Markets, 19 J. Fin. Econ. 69 
(1987) (using a model to provide explanation for the price effect of 
block trades); David Easley and Maureen O'Hara, Information and the 
Cost of Capital, 59 J. Fin. 1553 (2004) (showing that differences in 
the composition of information between public and private 
information affect the cost of capital, with investors demanding a 
higher return to hold stocks with greater private information); 
Yakov Amihud and Haim Mendelson, Asset Pricing and the Bid-Ask 
Spread, 17 J. Fin. 223 (1986) (predicting that market-observed 
expected return is an increasing and concave function of the spread, 
and providing empirical results that are consistent with the 
predictions of the model).
---------------------------------------------------------------------------

e. Results of Operations--Known Trends or Uncertainties (Item 
303(b)(2)(ii))
    Current Item 303(a)(3)(ii) requires a registrant to describe any 
known trends or uncertainties that have had or that the registrant 
expects will have a material impact (favorable or unfavorable) on net 
sales or revenues or income from continuing operations. As discussed 
above, we are adopting the amendments to Item 303(b)(2)(ii) 
substantially as proposed but with a slight modification to use a 
``reasonably likely'' disclosure threshold throughout amended Item 303. 
For example, the final amendments clarify that when a registrant knows 
of 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, the reasonably likely change must 
be disclosed. This amendment aligns current Item 303(a)(3)(ii) with the 
Commission's guidance on forward-looking disclosure.\419\ Since many 
registrants may already be following relevant Commission guidance, the 
marginal increase in compliance costs is not expected to be 
significant.
---------------------------------------------------------------------------

    \419\ See supra footnote 145.
---------------------------------------------------------------------------

    As discussed above, the language in current Item 303(a)(3)(ii) 
differs from other Item 303 disclosure requirements for forward-looking 
information.\420\ This differing language may have led to confusion and 
inconsistent practice regarding what events should be disclosed. While 
the Commission has sought to alleviate some of these concerns by 
clarifying the standard for forward-looking information in its MD&A 
guidance,\421\ the amendments could further benefit registrants by 
reducing any residual confusion, eliciting more consistent disclosure, 
and potentially decreasing compliance costs and litigation risk. In 
addition, a consistent disclosure threshold throughout Item 303 may 
allow investors to make more meaningful comparisons across firms and 
make more informed investment decisions. One commenter suggested that 
the changes could result in the disclosure of various alternative 
scenarios that could confuse or mislead investors,\422\ but we believe 
that this increased consistency throughout Item 303 will decrease the 
likelihood of confusing disclosure overall.
---------------------------------------------------------------------------

    \420\ See supra Section II.C.3. See also supra footnote 144 and 
145.
    \421\ See 1989 MD&A Interpretive Release.
    \422\ See letter from FEI.
---------------------------------------------------------------------------

    Some registrants may experience an increased cost of compliance 
under the final amendments to the extent that these registrants, for 
example, have been disclosing events that will cause a material change 
in the relationship between costs and revenues as opposed to events 
that are reasonably likely to cause the change. One commenter, for 
example, noted that the amended Item 303(a)(3)(ii) will require new 
processes and controls to manage relevant judgments.\423\ Also, some 
registrants might need to spend resources to evaluate the future 
likelihood that such events might occur. However, such registrants 
might be few in light of existing Commission guidance, and the increase 
in compliance costs could be offset by the potential decrease in the 
cost of capital as a result of enhanced disclosure and reduced 
information asymmetry.\424\
---------------------------------------------------------------------------

    \423\ See id.
    \424\ See supra footnote 418.
---------------------------------------------------------------------------

f. Results of Operations--Net Sales and Revenues (Item 303(b)(2)(iii))
    Current Item 303(a)(3)(iii) requires management to discuss certain 
factors, such as changes in prices or volume, that led to certain 
material increases in net sales or revenues. The final amendments 
broaden the current requirement, which focuses on ``material increases 
in net sales or revenue'' in the ``financial statements'' to instead 
require disclosure of ``material changes from period to period in one 
or more line items'' in the ``statement of comprehensive income.'' Item 
303(b) would similarly clarify that MD&A requires a narrative 
discussion of the underlying reasons for material changes in 
quantitative and qualitative terms.
    The final amendments are intended to codify Commission guidance on 
results of operations disclosure. The Commission has previously stated 
that MD&A disclosure should include both qualitative and quantitative 
analysis and clarified that a results of operations discussion should 
describe increases or decreases in any line item, including net sales 
or revenues.\425\ The need for registrants to consult both current Item 
303(a)(3)(iii) and the Commission's guidance to understand the 
requirement could lead to confusion and inconsistent disclosure 
practice among registrants. The additional clarity provided by the 
amendments could benefit registrants by reducing any confusion, 
eliciting more consistent disclosure, and potentially decreasing 
compliance costs and litigation risk.
---------------------------------------------------------------------------

    \425\ See, e.g., 2003 MD&A Interpretative Release and 1989 MD&A 
Interpretative Release.
---------------------------------------------------------------------------

    The final amendments could increase disclosure burdens for 
registrants, thus potentially increasing compliance costs. However, 
since many registrants may already be following relevant Commission 
guidance, the marginal increase in compliance costs is not expected to 
be significant.\426\ Additionally, to the extent that registrants do 
incur additional

[[Page 2116]]

compliance costs, such costs could be offset by the potential decrease 
in the cost of capital as a result of improved disclosure and reduced 
information asymmetry.\427\
---------------------------------------------------------------------------

    \426\ See letter from FEI.
    \427\ See supra footnote 418.
---------------------------------------------------------------------------

    The amendments will require registrants to provide a nuanced 
discussion of the underlying reasons that may be contributing to 
material changes in line items, and therefore should enhance the 
disclosure. More consistent and informative disclosure would allow 
investors to make more meaningful comparisons across firms and make 
more informed investment decisions. However, any potential benefits to 
investors may be limited to the extent registrants already are 
following the relevant Commission guidance.
g. Results of Operations--Inflation and Price Changes (Current Item 
303(a)(3)(iv), Instruction 8, and Instruction 9)
    The final amendments will eliminate current Item 303(a)(3)(iv) and 
related Instructions 8 and 9, which generally require that registrants 
specifically discuss the impact of inflation and price changes on their 
net sales, revenue, and income from operations for the three most 
recent fiscal years, to the extent material. The purpose of the 
elimination is to streamline Item 303 by eliminating the specific 
reference to these topics, which may not be material to most 
registrants. This change is consistent with the principles-based 
disclosure framework of Item 303.
    We do not believe that these changes will result in a loss of 
material information for market participants.\428\ Registrants will 
still be required to discuss in their MD&A the impact of inflation and 
changing prices, if material, as is currently required.
---------------------------------------------------------------------------

    \428\ See letter from FEI.
---------------------------------------------------------------------------

    The elimination of this item could benefit registrants by 
streamlining Item 303 and reducing compliance costs. Similar to what we 
have discussed above,\429\ to the extent that the elimination 
encourages registrants that currently disclose inflation and changing 
prices even if not material to modify such disclosure,\430\ investors 
could potentially benefit from a focus on material information, which 
would allow them to process information more effectively. Similarly, 
emphasizing a principles-based approach may encourage registrants to 
present more tailored information, which also may benefit investors.
---------------------------------------------------------------------------

    \429\ See supra Section III.B.2.i.
    \430\ See supra footnote 385.
---------------------------------------------------------------------------

h. Off-Balance Sheet Arrangements (Instruction 8 to Item 303(b))
    Current Item 303(a)(4) requires, in a separately-captioned section, 
disclosure of a registrant's off-balance sheet arrangements that have 
or are reasonably likely to have a current or future effect on a 
registrant's financial condition, changes in financial condition, 
revenues or expenses, results of operations, liquidity, capital 
expenditures, or capital resources that is material to investors. The 
final amendments will replace Item 303(a)(4) with a new principles-
based instruction that will require registrants 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 a 
registrant's financial condition, changes in financial condition, 
revenues or expenses, results of operations, liquidity, cash 
requirements, or capital resources.
    We do not believe the amendments will lead to significant 
information loss, as we expect the principles-based instruction will 
continue to elicit material information about off-balance sheet 
arrangements.\431\ As discussed above, we believe that the amendments 
will encourage registrants to consider and integrate disclosure of off-
balance sheet arrangements in the context of their broader MD&A 
disclosures and may avoid boilerplate disclosure that either duplicates 
information in the financial statements, or cross-references the 
financial statements without additional disclosure to put such 
information into appropriate context. We acknowledge that the 
flexibility associated with the principles-based approach might lead to 
certain opportunistic firm behavior if registrants cherry pick the 
information to be disclosed, although we do not believe this risk is 
significant.
---------------------------------------------------------------------------

    \431\ See letter from FEI.
---------------------------------------------------------------------------

    The amendments could benefit registrants by avoiding duplicative 
disclosure and reducing compliance costs. As discussed above, to the 
extent the amendments improve the readability and conciseness of the 
information provided, they may help investors process information more 
effectively. Also, emphasizing a principles-based approach may 
encourage registrants to provide disclosure that is more tailored and 
informative, which could benefit investors.
    One commenter noted that obtaining a complete picture of an 
entity's off-balance sheet exposures can be challenging for some 
investors because this information may be dispersed throughout a 
registrant's financial statements.\432\ We believe that investors might 
need to spend time searching for the information and adjusting to the 
new format and location of the disclosure as the final amendments will 
no longer require the relevant disclosure in a separately captioned 
section. Retail investors are likely to be affected more than 
institution investors. Nevertheless, such costs are likely to be one-
time or decrease over time for both retail and institutional investors.
---------------------------------------------------------------------------

    \432\ See letter from CFA & CII.
---------------------------------------------------------------------------

i. Tabular Disclosure of Contractual Obligations (Current Item 
303(a)(5))
    Under current Item 303(a)(5), registrants other than SRCs must 
disclose in tabular format their known contractual obligations. There 
is no materiality threshold for this item. A registrant must arrange 
its table to disclose the aggregate amount of contractual obligations 
by type and with subtotals by four prescribed periods. The Commission 
originally adopted this requirement so that aggregated information 
about contractual obligations was presented in one place and to improve 
transparency of a registrant's short- and long-term liquidity and 
capital resources needs and demands.\433\ However, as discussed above, 
most of the information presented in response to this requirement is 
already included in the notes to the financial statements. In order to 
promote the principles-based nature of MD&A and streamline disclosures 
by reducing overlapping requirements, the final amendments will 
eliminate Item 303(a)(5) and enhance the liquidity and capital 
resources requirements to specifically require disclosure of material 
cash requirements from known contractual and other obligations. The 
amendments also specify that such disclosures must include the type of 
obligation and the relevant time period for the related cash 
requirements. Under this approach, registrants will be relieved of the 
burden associated with the current prescriptive table and be afforded 
more flexibility to integrate a discussion of contractual obligations 
in the broader context of its liquidity and capital resources 
disclosures.
---------------------------------------------------------------------------

    \433\ See Off-Balance Sheet Arrangements and Contractual 
Obligations Adopting Release, at 5990. See also Off-Balance Sheet 
Arrangements and Contractual Obligations Proposing Release.

---------------------------------------------------------------------------

[[Page 2117]]

    We believe the amendments could lead to reduced compliance costs by 
avoiding duplicative, prescriptive disclosures, therefore benefiting 
registrants, while also providing important information to investors 
regarding the registrants' liquidity and capital resource needs.\434\ 
We recognize that there might be increased costs associated with 
assessing the materiality of contractual obligations under the 
principles-based approach. However we do not expect such costs to be 
significant given that the materiality standard is already used by 
registrants when preparing MD&A disclosures. As discussed above, to the 
extent the elimination of redundant or immaterial disclosure improves 
the readability and conciseness of the information provided, the 
amendments could potentially benefit investors by helping them process 
information more effectively. Also, since a principles-based approach 
allows registrants to present more tailored information, it could lead 
to more informative disclosure, which would benefit investors.
---------------------------------------------------------------------------

    \434\ See, e.g., letters from Costco; Eli Lilly; FEI
---------------------------------------------------------------------------

    We recognize that there could be a loss of certain information due 
to the elimination of the item. As discussed in Section II.C.7, some of 
the information in the contractual obligations table such as purchase 
obligations is not specifically called for under U.S. GAAP and is 
therefore not typically disclosed in the financial statements. 
Additionally, information related to the ``payments due by period'' 
currently required by the item may be difficult to ascertain from a 
registrant's financial statements. However, since the final amendments 
will encompass material cash requirements from known contractual and 
other obligations, are not limited to those called for by U.S. GAAP, 
and will require that such disclosures specify the type of obligation 
and the relevant time period for the related cash requirements, we 
believe any loss of information will not be significant.
    We expect investors could experience certain additional costs. A 
centralized location and tabular format make it convenient for 
investors to extract and analyze information.\435\ Under the 
amendments, the absence of a centralized location and tabular format 
may cause investors to incur search costs to derive the data from the 
financial statements or from information embedded in MD&A, or monetary 
costs to obtain the information through alternative channels, such as 
database subscriptions. Investors may also incur opportunity costs, 
such as time spent searching for alternative sources, and these costs 
may fall more heavily on retail investors than on other types of 
investors, such as institutional investors. Additionally, one commenter 
suggested that the preparation of the contractual obligations table is 
a useful exercise for management to obtain a ``picture of such 
obligations,'' \436\ and to the extent that management needs but does 
not otherwise have such information, management and investors could be 
subjected to costs. However, to the extent management needs such a 
table to conduct its duties or the benefits of collecting this 
information in one place outweighs the costs, we expect that management 
will continue to obtain this information without the additional costs 
of preparing related disclosure.
---------------------------------------------------------------------------

    \435\ See letter from CFA & CII.
    \436\ See letter from CFA & CII.
---------------------------------------------------------------------------

j. Critical Accounting Estimates (Item 303(b)(3))
    Item 303(a) does not currently explicitly require registrants to 
disclose critical accounting estimates. U.S. GAAP requires disclosure 
of significant accounting policies in the notes to the financial 
statements, but does not require similar disclosure of estimates and 
assumptions, except in limited circumstances. IFRS does require 
disclosures regarding sources of estimation uncertainty and judgments 
made in the process of applying accounting policies that have the most 
significant effect on the amounts recognized in the financial 
statements.\437\ Although the Commission has issued guidance on 
disclosure of critical accounting estimates, many registrants repeat 
the discussion of significant accounting policies from the notes to the 
financial statements in their MD&A and provide limited additional 
discussion of critical accounting estimates. We are amending Item 303 
to explicitly require such disclosure due to the importance of critical 
accounting estimates in providing meaningful insight into the 
uncertainties related to these estimates and reported financials and 
how accounting policies of registrants faced with similar facts and 
circumstances may differ, and also to eliminate disclosure that 
duplicates the financial statement discussion of significant accounting 
policies. Providing a clear disclosure framework could benefit 
registrants by reducing confusion and duplicative disclosure, thereby 
decreasing compliance costs.
---------------------------------------------------------------------------

    \437\ See IAS 1, paragraphs 122 to 133.
---------------------------------------------------------------------------

    A number of commenters expressed concerns that the required 
disclosure of critical accounting estimates may result in information 
that is not material and costly or otherwise challenging to 
prepare.\438\ To allay such concerns, the final amendments will clarify 
that the material and reasonably available qualifier applies to all 
parts of the disclosure, not just to quantitative information.
---------------------------------------------------------------------------

    \438\ See letters from RSM; PWC; Pfizer; EEI & AGA; Deloitte; 
KPMG; Grant Thornton; CAQ; BDO; FEI; SIFMA; IMA; UnitedHealth; 
Medtronic; Chamber; ABA; E&Y Society.
---------------------------------------------------------------------------

    Investors will likely benefit from the amendments. The amendments 
could elicit more informative disclosure from registrants related to 
their estimates and assumptions, which would help investors better 
understand any potential risk or uncertainty related to these estimates 
and make more informed investment decisions. The amendments could also 
promote more consistent disclosure practices among registrants by 
providing more clarity, allowing investors to make more meaningful 
comparisons across registrants and better informed investment 
decisions.
    We recognize that this disclosure requirement could introduce 
additional costs to market participants. While we do not anticipate 
that investors would incur any direct costs (other than information 
processing costs) associated with this amendment, compliance costs 
might increase for registrants because of the more explicit disclosure 
requirement compared to the existing Commission guidance. However, some 
of these costs may be minimized because this disclosure requirement 
only applies to the extent the information is material and reasonably 
available. Additionally, the potential increase in compliance costs 
might decline over time as registrants become more accustomed to the 
new filing requirements. We also note that, consistent with Commission 
guidance, some registrants may already provide disclosures related to 
critical accounting estimates that do not duplicate the financial 
statement disclosures, thus the increase in compliance costs might be 
minimal to those registrants. Finally, the increase in compliance costs 
could be offset by a potential decrease in registrants' cost of 
capital, because such disclosure could reduce information asymmetry 
between investors and firms.\439\
---------------------------------------------------------------------------

    \439\ See supra footnote 418.

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[[Page 2118]]

k. Interim Period Discussion (Item 303(c))
    Current Item 303(b) requires registrants to provide MD&A disclosure 
for interim periods that enables market participants to assess material 
changes in financial condition and results of operations between 
certain specified periods. The final rules will amend current Item 
303(b) (renumbered as Item 303(c)), to allow for flexibility in 
comparisons of interim periods and to streamline the item. 
Specifically, under Item 303(c), registrants will be allowed 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 amendments will also streamline the 
instructions to current Item 303(b), consistent with the amendments to 
current Item 303(a) and the related instructions.
    This more flexible approach is intended to allow registrants to 
provide an analysis that is better tailored to their business cycles. 
This may result in more informative disclosure that could reduce 
information asymmetry and firms' cost of capital, benefiting 
registrants.\440\ In addition, streamlining the item could avoid 
duplicative disclosure and reduce associated compliance costs.
---------------------------------------------------------------------------

    \440\ See id.
---------------------------------------------------------------------------

    Investors also may benefit from the amendments. As noted above, the 
amendments will provide registrants flexibility to choose the interim 
period presented, which could allow them to provide a more tailored 
analysis. This, in turn, could allow investors to make better informed 
investment decisions. While this flexibility may encourage certain 
registrants to be opportunistic in terms of what to disclose, thus 
potentially negatively affecting investors, we do not anticipate this 
risk to be significant because we believe that other disclosure 
obligations are likely to provide material disclosure. More flexibility 
in disclosure could also decrease comparability across firms, 
potentially increasing the cost of investors' decision-making. However, 
we do not expect the flexibility in reporting to significantly reduce 
comparability, because registrants in the same industry are likely to 
have similar business cycles and choose similar interim periods. 
Therefore, concerns about a reduction of comparability across firms in 
the same industry could be mitigated. The resulting reduction of 
duplicative disclosure might increase the effectiveness of information 
processing by investors, thus helping them make more informed 
decisions. Investors will also benefit from the requirement that 
companies that choose to change the method of their presentation must 
discuss the reasons for changing the basis of comparison and provide 
both comparisons in the first filing in which the change is made. This 
requirement is intended to prevent companies from using a change in 
presentations to obscure negative information, and to discourage 
frequent switching between them from quarter to quarter.
l. Safe Harbor for Forward-Looking Information (Current Item 303(c))
    Current Item 303(c) \441\ states that the safe harbors provided in 
Section 27A of the Securities Act and 21E of the Exchange Act apply to 
all forward-looking information provided in response to Item 303(a)(4) 
(off-balance sheet arrangements) and Item 303(a)(5) (contractual 
obligations), provided such disclosure is made by certain enumerated 
persons.\442\ The final amendments will eliminate this item to conform 
to the elimination of Items 303(a)(4) and (a)(5). As discussed above, 
the final amendments replace the current prescriptive off-balance sheet 
disclosure required by these items with more principles-based 
requirements located in other paragraphs of Item 303. We do not believe 
eliminating Item 303(c) will have any economic effect by itself because 
forward-looking disclosure responsive to the new principles-based 
requirements will continue to be protected by the existing statutory 
and regulatory safe harbors. Therefore, we do not expect changes in 
market behavior. To the extent that the elimination of the section may 
result in any confusion as to the application of the safe harbors, 
there could be a cost to registrants. However, we believe such cost 
should be minimal, as registrants are already familiar with analyzing 
the applicability of the safe harbors.
---------------------------------------------------------------------------

    \441\ Item 303(c) of Regulation S-K.
    \442\ Such persons are: An issuer; a person acting on behalf of 
the issuer; an outside reviewer retained by the issuer making a 
statement on behalf of the issuer; or an underwriter, with respect 
to information provided by the issuer or information derived from 
information provided by the issuer.
---------------------------------------------------------------------------

m. Smaller Reporting Companies (Current Item 303(d))
    Current Item 303(d) \443\ states that an SRC may provide Item 
303(a)(3)(iv) information for the most recent two fiscal years if it 
provides financial information on net sales and revenues and income 
from continuing operations for only two years. Item 303(d) also states 
that an SRC is not required to provide the contractual obligations 
chart specified in Item 303(a)(5). To conform to the elimination of the 
prescriptive requirements of Item 303(a)(3)(iv) and (a)(5), the final 
rules will eliminate Item 303(d). SRCs may rely on Instruction 1 to 
Item 303(b),\444\ which states that an SRC's discussion shall cover the 
two-year period required in Sec. Sec.  210.8-01 through 210.8-08 
(Article 8 of Regulation S-X).
---------------------------------------------------------------------------

    \443\ Item 303(d) of Regulation S-K.
    \444\ Amended Item 303(b).
---------------------------------------------------------------------------

    The elimination of Item 303(d) will have the effect of subjecting 
SRCs to the newly-adopted disclosure requirements in Item 303(b), a 
principles-based liquidity and capital resources disclosure requirement 
that includes a requirement to discuss material contractual obligations 
in the context of that disclosure.\445\ We do not believe that the 
preparation of such disclosure will be burdensome for SRCs because SRCs 
are currently required to provide a discussion and analysis that 
addresses material impacts on their liquidity and capital resources and 
are also required under U.S. GAAP to assess most of the currently 
prescribed categories of contractual obligations. We believe that this 
disclosure will have a benefit to investors because such disclosure may 
be necessary to an understanding of the registrant's financial 
condition, cash flows, and other changes in financial condition and 
results of operations.
---------------------------------------------------------------------------

    \445\ See supra Section II.C.7 and II.C.9.
---------------------------------------------------------------------------

n. Foreign Private Issuers
    The changes related to Item 3.A and Item 5 of Form 20-F and General 
Instructions B.(11), (12), and (13) of Form 40-F are intended to 
conform to the other changes related to selected financial data and 
MD&A. Therefore, our analysis of the costs and benefits for domestic 
issuers and their investors under the amendments to Item 301 can be 
carried over to FPIs and their investors under the amended items. The 
changes could benefit FPIs through a reduction in compliance costs, 
although the benefits are likely to be smaller given that current Item 
3.A permits a FPI to omit either or both of the earliest two years of 
data under certain conditions and registrants that file on Form 40-F 
use Canadian disclosure documents to satisfy the Commission's 
registration and disclosure requirements. Since FPIs would have more 
flexibility to provide information that is better tailored to their 
industry or country, investors could benefit from more informative 
disclosure. However, investors might incur additional search

[[Page 2119]]

costs when looking for information through alternative channels.
    To maintain a consistent approach to MD&A for domestic registrants 
and FPIs, the final rules will make changes to Forms 20-F and 40-F that 
generally conform to the amendments to Item 303. Therefore, our 
discussion of the costs and benefits for domestic issuers and their 
investors under the amendments to Item 303 generally can be carried 
over to FPIs under the amended item. The final rules add to Item 303 
the current Form 20-F instruction that requires FPIs that are not 
subject to the multijurisdictional disclosure system to discuss 
hyperinflation in a hyperinflationary economy. This disclosure can be 
beneficial to investors when analyzing FPIs, as hyperinflation in some 
FPIs' home countries might be an important risk factor for the firm's 
results of operations or financial health.

D. Anticipated Effects on Efficiency, Competition, and Capital 
Formation

    We believe the final amendments could have positive effects on 
efficiency, competition, and capital formation. As discussed above, we 
expect the amendments could reduce duplicative disclosure and elicit 
disclosure that is more focused on material information and tailored to 
a registrant's business, making the disclosure more informative. We 
believe more informative disclosure could reduce information asymmetry 
between firms and investors, thereby improving firm liquidity and price 
efficiency.\446\ We also believe the amendments could promote 
competition in the capital markets and facilitate capital formation. 
This is because more informative disclosure could allow investors to 
make more meaningful comparisons across firms and make more informed 
investment decisions, and as a result, more value-enhancing projects 
may receive more capital allocation.
---------------------------------------------------------------------------

    \446\ See supra footnote 418. See also David Hirshleifer and 
Siew Hong Teoh, Limited attention, information disclosure, and 
financial reporting, 36 J. Acct. & Econ. 337 (2003) (developing a 
theoretical model where investors have limited attention and 
processing power and showing that, with partially attentive 
investors, the means of presenting information may have an impact on 
stock price reactions, misvaluation, long-run abnormal returns, and 
corporate decisions).
---------------------------------------------------------------------------

    However, as discussed above, since registrants no longer need to 
present certain information (e.g., five-year comparable data), 
investors could incur costs when searching for alternative channels to 
obtain or reconstruct the information. Since each investor would have 
to consider the need for alternative sources of information, the final 
amendments could result in inefficiency in the information distribution 
process. Additionally, if registrants misjudge what information is 
material, there could be an increase in information asymmetries between 
registrants and investors, negatively affecting efficiency, 
competition, and capital formation. However, we expect this risk to be 
mitigated by factors such as accounting controls and the antifraud 
provisions of the securities laws.
    The amendments, in particular by simplifying and codifying certain 
positions expressed in various Commission guidance, might reduce the 
compliance costs of private companies considering going public. For 
companies considering an IPO, the benefit of easing the burdens 
associated with preparing these disclosures for the first time could 
decrease the costs of going public and thus leave more capital for 
future investment. This could lead to more efficient capital formation.

E. Alternatives

1. Alternatives Regarding Item 301
    As an alternative to the elimination of Item 301, which requires 
registrants to furnish selected financial data in comparative tabular 
form for each of the registrant's last five fiscal years, we considered 
amending the item to require only the same number of years of data as 
presented in the registrant's financial statements in that same filing. 
Similarly, another alternative we considered is expanding the current 
EGC accommodation to all initial registrants. The EGC accommodation 
generally provides that an EGC need not present selected financial data 
for any period prior to the earliest audited period presented in its 
initial filing.\447\ This accommodation allows EGCs to build up to the 
full five years of selected financial data.
---------------------------------------------------------------------------

    \447\ See Item 301(d) of Regulation S-K [17 CFR 229.301].
---------------------------------------------------------------------------

    The benefit of these alternatives would be potential cost savings 
from a reduction in compliance burdens by not having to reproduce the 
earliest years of selected financial data. These alternatives might be 
sufficient for investors to make a quick comparison with the most 
recent financial data without cross-referencing to other sources. 
However, given the nature of electronic access to financial data 
through EDGAR, we think the potential benefits of these alternatives 
would be more limited than the elimination of Item 301. We decided not 
to adopt the alternative of requiring the same number of years of data 
as presented in the registrant's financial statements in that same 
filing because such disclosure would be largely duplicative and 
therefore, have limited utility. Regarding the alternative that we 
expand the current EGC accommodation to all initial registrants, while 
this approach could provide cost savings to non-EGC initial registrants 
at the beginning, in the long run, these registrants would still face 
the same duplicative disclosure problem that other registrants do 
currently. As a result, we decided not to adopt this alternative.
    As another alternative, we considered amending Item 301 to require 
the earliest years only in circumstances where the company can 
represent that the information cannot be provided without unreasonable 
effort and expense, as is currently allowed under Item 3.A of Form 20-
F. Under this approach, registrants would experience reduced compliance 
costs under the exempted circumstances, albeit a smaller reduction 
compared to the final amendments, because they would still need to 
disclose selected financial data for the earliest years when it is 
deemed not time consuming and costly. At the same time, while investors 
would still incur search costs if they prefer to analyze five years' 
financial data, such costs would be smaller compared to the proposed 
approach. We decided not to adopt this alternative because the lack of 
a consistent or objective standard to determine when additional 
financial disclosure is required could be time consuming or burdensome 
for registrants.
2. Alternatives Regarding Item 302
    Some commenters stated that, in some instances, it was difficult to 
calculate fourth quarter data from data disclosed elsewhere.\448\ As an 
alternative to streamlining Item 302(a) to only require disclosure of 
retrospective changes from amounts previously reported within the last 
two most recent fiscal years that, individually or in the aggregate, 
are material, we considered requiring a registrant to only disclose 
fourth quarter data elsewhere in its annual report, such as in MD&A. 
This approach could prevent or mitigate the potential loss of the 
fourth quarter financial data under the proposed approach. As discussed 
above, however, we believe that the revised disclosure requirements in 
Item 302(a) will allow investors to calculate this data in most 
instances without substantial costs, while also highlighting material 
retrospective changes better than the existing

[[Page 2120]]

requirement. Therefore, we decided not to adopt this alternative.
---------------------------------------------------------------------------

    \448\ See, e.g., letters from NASAA and CFA & CII.
---------------------------------------------------------------------------

3. Alternatives Regarding Item 303
    We are amending current Item 303(a)(2) to specify that a registrant 
should broadly disclose material cash requirements, including but not 
limited to capital expenditures. We considered adopting a definition 
for the term ``capital resources.'' While defining the term could 
provide more clarity for registrants, it would also result in a 
disclosure requirement more prescriptive in nature, inconsistent with 
our current objective to promote the principles-based nature of MD&A. 
We therefore decided not to adopt this alternative.
    Another alternative, as suggested by commenters, that we considered 
adopting was a term with a narrower meaning than material cash 
requirements such as ``material cash commitments'' or ``material cash 
commitments outside of normal operations.'' \449\ According to those 
commenters, using ``material cash requirements'' could increase 
compliance costs in the form of new record keeping and controls. We 
have decided not to adopt this alternative because, as mentioned above, 
our amendments are limited to and address only those cash requirements 
that are material and hence should not require extensive or new 
procedures or controls. Since registrants can and do have cash 
requirements related to their routine operations that are material, 
such an alternative could also result in material information remaining 
undisclosed, thus negatively affecting investors.
---------------------------------------------------------------------------

    \449\ See letter from FEI and IMA.
---------------------------------------------------------------------------

    As an alternative to the replacement of the Item 303(a)(4) off-
balance sheet arrangements disclosure requirement, we considered 
allowing registrants discretion to make the disclosure currently 
required under Item 303(a)(4) under a separate caption within the 
capital resources section. Compared to the final amendments, such an 
alternative would have kept information on off-balance sheet items in a 
single location instead of such information being dispersed throughout 
the financial statements, thus making it easier for investors to 
locate. Such an alternative, however, would still result in duplicate 
disclosure and compliance costs for issuers.
    As an alternative to the elimination of Item 303(a)(5), which 
requires registrants to disclose in tabular format contractual 
obligations by type of obligation, overall payments due and prescribed 
periods, we considered maintaining the prescriptive contractual 
obligations disclosure requirement in a modified form. For example, we 
considered reducing the prescribed time periods that need to be 
disclosed, or requiring disclosures of only short-term or long-term 
obligations rather than requiring disclosure to be grouped in the four 
time periods currently specified in Item 303(a)(5). While this approach 
could be more beneficial to investors by reducing their search costs 
compared to the final approach, it would result in redundant disclosure 
and higher compliance costs to registrants.
    As an alternative to the adopted Item 303(b)(3), we considered 
issuing additional guidance on critical accounting estimates that 
enhances the guidance issued in the 2003 MD&A Release. While this 
alternative could save compliance costs for registrants because it 
would not create a new requirement, the savings might not necessarily 
be significant, given the existing Commission guidance on this topic. 
Further, we believe that by codifying existing guidance, adopted Item 
303(b)(3) should provide investors with more enhanced disclosure and 
protection by ensuring that companies consistently provide such 
disclosure. Therefore, we decided not to adopt this alternative.
    Another alternative that we could have adopted is the use of 
different thresholds for information necessary to understand critical 
accounting estimates, such as when ``practicable'' or ``in the ordinary 
course of business and not solely for purposes of disclosure.'' As 
mentioned above, however, we believe that if the disclosure is 
``impracticable'' to provide, it would not be ``reasonably available.'' 
In addition, limiting the discussion to material information is 
intended to avoid disclosure that is not useful to investors and is 
consistent with the principles-based nature of MD&A.
    Another alternative that we considered was to require disclosure of 
how much a critical accounting estimate has changed during a reporting 
period. This alternative could have provided information on the 
quantitative changes to the reported amounts. But such an alternative 
could result in information that is not material and may impede 
investors' assessments of the uncertainty associated with the critical 
accounting estimate. We believe that the adopted requirement which 
allows issuers to address the change in a critical accounting estimate 
through a discussion of the change in the assumptions of that estimate 
over a relevant period would provide investors with a greater 
understanding of the variability that is reasonably likely to impact 
the financial condition or results of operations.
    Another alternative that some commenters suggested is to specify a 
relevant period for which this disclosure is required (e.g., most 
recent period, all periods presented, etc.).\450\ Such a specification 
would make it easier for issuers to comply and hence reduce their 
compliance costs. We note, however, that for different estimates the 
relevant disclosure may vary over different periods of time to 
facilitate an understanding of the estimation uncertainty. Thus, such 
an alternative would have restricted issuers' flexibility in 
determining the relevant period necessary to describe material changes 
in estimates or assumptions that would facilitate an understanding of 
estimation uncertainty. Therefore, we decided not to adopt this 
alternative.
---------------------------------------------------------------------------

    \450\ See, e.g., letters from RSM; Deloitte; KPMG; CAQ.
---------------------------------------------------------------------------

    Item 303(c) would allow flexibility for registrants 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. As an alternative, we considered an 
approach under which registrants would be required to compare the most 
recent quarter to both the corresponding quarter of the prior year and 
the immediately preceding quarter. While this alternative approach 
would provide investors with more disclosure, it might not be clear to 
investors which time period is more representative of the registrant's 
business, and registrants would incur more compliance costs. Also, this 
alternative is less consistent with the principles-based nature of 
MD&A. Therefore, we decided not to adopt this alternative.
    We proposed deleting Item 303(d) which, in part, provides that an 
SRC is not required to provide the contractual obligations table 
specified in Item 303(a)(5). In a change from the Proposing Release, 
the final amendments add a principles-based disclosure requirement for 
contractual obligations to Item 303 and, unlike the existing SRC carve-
out in Item 303(d), do not carve out SRCs from this disclosure 
requirement. As an alternative, we could have carved out SRCs from this 
disclosure requirement. Such an alternative could have reduced SRCs' 
compliance costs. However, such an alternative could have discouraged 
the disclosure of material contractual obligations that may be 
important for investors. By adopting a principles-

[[Page 2121]]

based approach that requires a robust discussion of material 
contractual obligations, the final amendments will help ensure that 
investors are provided with information about material contractual 
obligations, without imposing significant new compliance burdens on 
SRCs.
4. Alternatives Regarding Structured Disclosure
    The final amendments do not require registrants to structure 
disclosures required by the amendments in a machine-readable format. An 
alternative suggested by some commenters \451\ would be to require 
registrants to structure MD&A in the Inline XBRL format. Requiring 
registrants to structure MD&A disclosures could create benefits for 
investors (either through direct use of the data or through reliance on 
the data as extracted and analyzed by intermediaries) as well as other 
market participants by enabling more efficient retrieval, aggregation, 
and analysis of disclosed information and facilitating comparisons 
across issuers and time periods.\452\ However, filers could incur 
increased costs under this alternative, with a block text and detail 
tagging requirement imposing greater costs than a block text tagging-
only requirement. In the Proposing Release, the Commission noted that 
such costs would be incremental to the costs that registrants already 
incur to structure financial statement and cover page disclosures in 
the Inline XBRL format and that concerns as to filer cost might be 
partially alleviated by the overall decline in the costs of XBRL 
tagging over time, including for small public companies.\453\ In 
response to a request for comment on whether current XBRL-tagging 
requirements reliably facilitate compilation and comparison of certain 
financial information, and a separate request for comment as to whether 
to require MD&A to be structured in Inline XBRL format, one commenter 
recommended reconsidering current XBRL requirements more broadly, 
stating concerns about the cost and data quality.\454\ This commenter 
also stated that XBRL should be optional and provided specific 
information based on a survey finding that issuers incur substantial 
costs associated with XBRL despite the fact that less than ten percent 
``observ[e] active analyst or investor use of the XBRL data.'' \455\ As 
discussed above, the final amendments emphasize MD&A's principles-based 
framework, which encourages registrants to provide meaningful 
disclosure that is tailored to their specific facts and circumstances. 
This may make MD&A less comparable across issuers, thereby reducing the 
benefits of this alternative. As a result, we did not adopt this 
alternative.
---------------------------------------------------------------------------

    \451\ See letters from XBRL US dated April 28, 2020 (``XBRL 
US''); Data Coalition dated April 28, 2020 (``Data Coalition''); CFA 
& CII; D. Jamieson.
    \452\ See Rel. No. 33-10514 (Jun. 28, 2018), Inline XBRL Filing 
of Tagged Data [83 FR 40846 (Aug. 16, 2018)] (``Inline XBRL Adopting 
Release''), at 40851, footnote 71 and accompanying text, and 40862. 
See also, e.g., Mohini Singh, Data and Technology: How Information 
is Consumed in the New Age, CFA Institute: Data Technology (Jul. 3, 
2018) (describing examples of analytical, benchmarking, and 
regulatory XBRL usage); Chunhui Liu, Tawei Wang, and Lee J. Yao, 
XBRL's Impact on Analyst Forecast Behavior: An Empirical Study, 33 
J. Acct. & Pub. Pol'y 69 (2014) (finding that XBRL adoption has 
significantly increased information quantity and quality, as 
measured by analyst following and forecast accuracy).
    \453\ A 2018 AICPA pricing survey of 1,032 reporting companies 
with $75 million or less in market capitalization found an average 
cost of $5,850 per year, a median cost of $2,500 per year, and a 
maximum cost of $51,500 per year for fully outsourced XBRL creation 
and filing, representing a 45% decline in average cost and a 69% 
decline in median cost since 2014. See AICPA, ``XBRL costs for small 
reporting companies have declined 45% since 2014,'' available at 
https://www.aicpa.org/InterestAreas/FRC/AccountingFinancialReporting/XBRL/DownloadableDocuments/XBRL%20Costs%20for%20Small%20Companies.pdf. See also Mohini Singh, 
The Cost of Structured Data: Myth vs. Reality, CFA Institute: Survey 
(Aug. 2017), available at https://www.cfainstitute.org/-/media/documents/survey/the-cost-of-structured-data-myth-vs-reality-august-2017.ashx.
    \454\ See letter from Nasdaq.
    \455\ Id. (stating that a ``2019 Nasdaq survey of 151 issuers 
found that they spend, on average, over $334,000 per firm per 
quarter to outside vendors, lawyers, and other advisors to address 
the requirement of quarterly reporting, including $20,000 per firm 
per quarter in XBRL costs alone. Meanwhile, only eight percent of 
issuers reported observing active analyst or investor use of XBRL 
data.''). See also letter from Nasdaq, Inc. dated March 21, 2019 to 
the Request for Comment on Earnings Releases and Quarterly Reports, 
Release No. 33-10588 (Dec. 18, 2018) [83 FR 65601 (Dec. 21, 2018)] 
(providing selected survey results including an average response of 
$20,000, a median response of $7,500, and a maximum response of 
$350,000 in XBRL costs per quarter). Comment letters related to the 
Request for Comment on Earnings Releases and Quarterly Reports are 
available at https://www.sec.gov/comments/s7-26-18/s72618.htm.
---------------------------------------------------------------------------

V. Paperwork Reduction Act

A. Summary of the Collections of Information

    Certain provisions of our rules, schedules, and forms that would be 
affected by the final amendments contain ``collection of information'' 
requirements within the meaning of the PRA.\456\ The Commission 
published a notice requesting comment on changes to these collection of 
information requirements in the Proposing Release and submitted these 
requirements to the Office of Management and Budget (``OMB'') for 
review in accordance with the PRA.\457\ The hours and costs associated 
with preparing, filing, and sending the schedules and forms constitute 
reporting and cost burdens imposed by each collection of information. 
An agency may not conduct or sponsor, and a person is not required to 
comply with, a collection of information unless it displays a currently 
valid OMB control number. Compliance with the information collections 
is mandatory. Responses to the information collections are not kept 
confidential and there is no mandatory retention period for the 
information disclosed. The titles for the collections of information 
are:
---------------------------------------------------------------------------

    \456\ 44 U.S.C. 3501 et seq.
    \457\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    ``Form 1-A'' (OMB Control No. 3235-0286);
    ``Form 10'' (OMB Control No. 3235-0064);
    ``Form 10-Q'' (OMB Control No. 3235-0070);
    ``Form 10-K'' (OMB Control No. 3235-0063);
    ``Schedule 14A'' (OMB Control No. 3235-0059);
    ``Form 20-F'' (OMB Control No. 3235-0288);
    ``Form 40-F'' (OMB Control No. 3235-0381);
    ``Form F-1'' (OMB Control No. 3235-0258);
    ``Form F-4'' (OMB Control No. 3235-0325);
    ``Form N-2'' (OMB Control No. 3235-0026);
    ``Form S-1'' (OMB Control No. 3235-0065);
    ``Form S-4'' (OMB Control No. 3235-0324);
    ``Form S-11'' (OMB Control No. 3235-0067);
    The Commission adopted all of the existing regulations, schedules, 
and forms pursuant to the Securities Act, the Exchange Act, and/or the 
Investment Company Act. The regulations, schedules, and forms set forth 
the disclosure requirements for registration statements, periodic 
reports, and proxy and information statements filed by registrants to 
help investors make informed investment and voting decisions.
    A description of the final amendments, including the need for the 
information and its use, as well as a description of the likely 
respondents, can be found in Section II above, and a discussion of the 
economic effects of the final amendments can be found in Section IV 
above.

B. Summary of Comment Letters and Revisions to PRA Estimates

    In the Proposing Release, the Commission requested comment on the

[[Page 2122]]

PRA burden hour and cost estimates and the analysis used to derive such 
estimates. We did not receive any comments that directly addressed the 
PRA analysis of the proposed amendments. As discussed, above, however, 
we have made some changes to the proposed amendments as a result of 
comments received. We have revised our estimates from the Proposing 
Release accordingly, as discussed in more detail below.

C. Effects of the Amendments on the Collections of Information

    The following PRA Table 1 summarizes the estimated effects of the 
final amendments on the paperwork burdens associated with the affected 
collections of information listed in Section V.A.

 PRA Table 1--Estimated Paperwork Burden Effects of the Final Amendments
------------------------------------------------------------------------
                                        Affected
   Final amendments and effects      collections of      Estimated net
                                       information          effect *
------------------------------------------------------------------------
Item 301: Selected Financial Data
 Elimination of Item 301    Forms 10,   2 hour
 requirement to furnish selected    10-K, S-1, S-4,     net decrease in
 financial data for each of the     and S-11.           compliance
 registrant's last five fiscal     ..................   burden per form.
 years because Item 303 already     Schedule    0.2 hour
 calls for disclosure of material   14A **.             net decrease in
 trend information, which would                         compliance
 decrease the paperwork burden by                       burden per
 reducing repetitive information                        schedule.
 about a registrant's historical
 performance.
 Replacing the reference    Form N-2    0.3 hour
 to Item 301 with a reference to    .       net decrease in
 Rule 1-02(bb) of Regulation S-X   ..................   compliance
 in Items 1112, 1114, and 1115 of  ..................   burden per form.
 Regulation AB would generally     ..................   No
 result in similar disclosure       Forms SF-   change in
 being presented under these        1 and SF-3.         compliance
 Items, and therefore not affect                        burden per form.
 the burden estimate.
    Item 302(a): Supplementary
      Financial Information
 Streamlining Item 302(a)   Forms 10,   2 hour
 to eliminate disclosure            10-K, S-1, S-4,     net decrease in
 requirement except when there      and S-11.           compliance
 are one or more retrospective     ..................   burden per form.
 changes to the statements of       Schedule    0.2 hour
 comprehensive income for any of    14A **.             net decrease in
 the quarters within the two most  ..................   compliance
 recent fiscal years and any       ..................   burden per
 subsequent interim period for      Form N-2    schedule.
 which financial statements are     .       0.3 hour
 included or required to be                             net decrease in
 included by Article 3 of                               compliance
 Regulation S-X that,                                   burden per form.
 individually or in the
 aggregate, are material.
  Item 303(a): Full Fiscal Years
Restructuring and Streamlining:
 Establishing a new         Forms 10,   2.1 hour
 paragraph Item 303(a), to          10-K, 10-Q, S-1,    net increase in
 emphasize the purpose of the       S-4, and S-11.      compliance
 MD&A section at the outset to     ..................   burden per form.
 clarify and focus registrants is   Form 1-     0.3 hour
 expected to have a minimal         A[supcaret].        net increase in
 impact on the paperwork burden,   ..................   compliance
 as the change would codify        ..................   burden per form.
 existing guidance. Estimated       Schedule    0.3 hour
 burden increase: 0.1 hour per      14A **.             net increase in
 form and per schedule.                                 compliance
                                                        burden per
                                                        schedule.
 Amendments to streamline   Form N-2    0.5 hour
 the text of new Item 303 would     .       net increase in
 have no effect on the paperwork                        compliance
 burden because these amendments                        burden per form.
 are clarifications of existing
 requirements.
Liquidity and Capital Resources:
 Expanding Item
 303(b)(1)(ii) (current Item
 303(a)(2)) to also require a
 discussion of material cash
 requirements, in addition to
 commitments for capital
 expenditures, would increase the
 paperwork burden.
 Clarifying the liquidity
 and capital resources disclosure
 requirements of Item 303(b)(1),
 including to specifically
 require disclosure of material
 cash requirements from known
 contractual and other
 obligations. Estimated burden
 increase: 1.5 hour per form and
 0.2 hour increase per schedule.
 [ohm]
Results of Operations--Known
 Trends or Uncertainties:
 Amending Item
 303(b)(2)(ii) (current Item
 303(a)(3)(ii)) to clarify that a
 registrant should disclose
 reasonably likely changes in the
 relationship between costs and
 revenues would increase the
 paperwork burden, although this
 effect is expected to be minimal
 because the amendment is
 consistent with existing
 guidance. Estimated burden
 increase: 1.0 hour per form and
 0.1 hour increase per schedule.
Results of Operations--Net Sales,
 Revenues, and Line Item Changes:
 Amending Item 303(b)
 (current Item 303(a)(3), Item
 303(a)(3)(iii) and Instruction 4
 to Item 303(a)) to clarify that
 a registrant should include in
 its MD&A a discussion of the
 reasons underlying material
 changes from period-to-period in
 one or more line items could
 marginally increase the
 paperwork burden by requiring a
 more nuanced discussion
 consistent with the overall
 objective of MD&A. Estimated
 burden increase: 1.0 hour per
 form and 0.1 hour increase per
 schedule.
Results of Operations--Inflation
 and Price Changes:

[[Page 2123]]

 
 Eliminating the specific
 reference to inflation within
 current Item 303(a)(3)(iv) for
 issuers should marginally reduce
 the paperwork burden, although
 such decrease is expected to be
 minimal. Estimated burden
 decrease: 0.5 hours per form and
 0.1 hour decrease per schedule.
Off-Balance Sheet Arrangements:
 Replacing current Item
 303(a)(4) with an instruction
 emphasizing a more principles-
 based approach with respect to
 off-balance sheet arrangement
 disclosures, would reduce
 duplicative disclosures and
 decrease the paperwork burden.
 Estimated burden decrease: 1.0
 hour per form and 0.1 hour
 decrease per schedule.
 Amending Items 2.03 and
 2.04 of Form 8-K to retain the
 definition of ``off-balance
 sheet arrangements'' that is in
 current Item 303(a)(4) would not
 result in any changes in
 reporting obligations under Item
 2.03 and Item 2.04 of Form 8-K,
 and would therefore result in no
 change in paperwork burden for
 this form.
Contractual Obligations Table:
 Eliminating current Item
 303(a)(5), the requirement that
 registrants provide a tabular
 disclosure of contractual
 obligations, would reduce
 duplicative disclosures and
 decrease the paperwork burden.
 Estimated burden decrease: 2.0
 hour per form and 0.2 hour
 decrease per schedule.
Critical Accounting Estimates:
 Adopting Item 303(b)(3)
 to explicitly require disclosure
 of critical accounting estimates
 would provide more clarity on
 the uncertainties involved in
 creating an accounting policy
 and how significant accounting
 policies of registrants may
 differ. This would increase the
 paperwork burden. Estimated
 burden increase: 2.0 hours per
 form and 0.2 hour increase per
 schedule.
   Item 303(c): Interim Periods
 Amending Item 303(c)       Forms 10,   4.0 hour
 (current Item 303(b)) to allow     10-K, 10-Q, S-1,    net decrease in
 for more flexibility in interim    S-4, and S-11.      compliance
 periods compared and eliminating  ..................   burden per form.
 certain instructions and           Form 1-A    0.4 hour
 providing cross-references to      [supcaret].         net decrease in
 similar instructions to Item                           compliance
 303(b) would decrease the                              burden per form.
 paperwork burden.
                                    Schedule    0.4 hour
                                    14A **.             net decrease in
                                                        compliance
                                                        burden per
                                                        schedule.
                                    Form N-2    0.7 hour
                                    .       net decrease in
                                                        compliance
                                                        burden per form.
 Current Item 303(c): Safe Harbor
 for Forward-Looking Information
 Eliminating current Item
 303(c) as a conforming change
 would have no effect on the
 paperwork burden.
       Current Item 303(d):
     Accommodations for SRCs
 Eliminating current Item
 303(d) as a conforming change
 would have no effect on the
 paperwork burden.
          Effect on FPIs
 Eliminating Item 3.A and   Form 20-F   2.0 hour
 generally conforming Item 5 of                         net decrease in
 Form 20-F to the final                                 compliance
 amendments to Item 303 would                           burden per form.
 reduce the paperwork burden.
 Eliminating the            Form 40-F   2.0 hour
 contractual obligations                                net decrease in
 disclosure requirement and                             compliance
 replacing the off-balance sheet                        burden per form.
 disclosure requirements in Forms
 20-F and 40-F with a principles-
 based instruction would reduce
 the paperwork burden.
 Amending current           Forms F-1   3.5 hour
 Instruction 11 to Item 303 to      and F-4.            net decrease per
 conform to the hyperinflation                          form.
 disclosure requirements of Form
 20[dash]F would not affect the
 paperwork burden.
                                  --------------------------------------
    Total........................   Form 1-A.   0.1 hour
                                                        net decrease per
                                                        form.
                                    Form 10-Q   1.9 hour
                                                        net decrease per
                                                        form.
                                    Forms 10,   5.90
                                    10-K, S-1, S-4,     hour net
                                    and S-11.           decrease per
                                                        form.
                                    Schedule    0.5 hour
                                    14A.                net decrease per
                                                        form.
                                    Forms F-1   3.5 hour
                                    and F-4.            net decrease per
                                                        form.
                                    Form 20-F   2.0 hour
                                                        net decrease per
                                                        form.
                                    Form 40-F   2.0 hour
                                                        net decrease per
                                                        form.

[[Page 2124]]

 
                                    Form N-2.   0.8 hour
                                                        net decrease per
                                                        form.
------------------------------------------------------------------------
* Estimated net effect expressed as an increase or decrease of burden
  hours on average and derived from Commission staff review of samples
  of relevant sections of the affected forms and schedules.
** The lower estimated average incremental burden for Schedule 14A
  reflects the Commission staff estimates that no more than 10% of the
  Schedules 14A filed annually include Item 301-303 disclosures.
 Form N-2 states that disclosure under Items 301-303 of
  Regulation S-K is only required if ``the Registrant is regulated as a
  business development company under the 1940 Act.'' The estimated
  average incremental burden for Form N-2 reflects the fact that
  approximately 13% of registrants are BDCs (of the estimated 765 closed-
  end funds that could file on Form N-2 as of July 20, 2020, only 99
  were BDCs. See Use of Derivatives by Registered Investment Companies
  and Business Development Companies, Release No IC-34084 (Nov. 2, 2020)
  at 273.). The estimated burden has been reduced to adjust for this
  percentage.
[supcaret] In the preparation of Part II of Form 1-A, Regulation A
  issuers have the option of disclosing either the information required
  by (i) the Offering Circular format or (ii) Part I of Forms S-1 or S-
  11 (except for the financial statements, selected financial data, and
  supplementary information called for by those forms). The burden
  associated with Form 1-A is affected only to the extent that an issuer
  chooses to use Part I of these forms. The Commission staff estimates
  that 10.6% of Form 1-A filings reflect this election.
[ohm] The estimated burden increase associated with these amendments has
  been increased from 1.0 hour per form and 0.1 hour per schedule that
  was reflected in the Proposing Release. See Proposing Release at
  12106. The increase has been made to account for amended Item
  303(b)(1) (clarifying the liquidity and capital resources disclosure
  requirements of the item).
[phiv] The estimated burden decrease has been increased from 1.0 hour
  per form and 0.2 hours per schedule that was reflected in the
  Proposing Release. See Proposing Release at 12106. Input from
  commenters suggested that the original estimate did not sufficiently
  reflect the amount of time required to produce the table of
  contractual obligations. See e.g., letters from Eli Lilly; FEI;
  UnitedHealth; Costco.
\3\ To the extent that SRCs may face some increased burden as a result
  of this change, it is reflected in the estimated burden associated
  with amended Item 303(b)(1).

D. Incremental and Aggregate Burden and Cost Estimates for the Final 
Amendments

    Below we estimate the incremental and aggregate reductions in 
paperwork burden as a result of the final amendments. These estimates 
represent the average burden for all registrants, both large and small. 
In deriving our estimates, we recognize that the burdens will likely 
vary among individual registrants based on a number of factors, 
including the nature of their business. We do not believe that the 
final amendments would change the frequency of responses to the 
existing collections of information; rather, we estimate that the final 
amendments would change only the burden per response, as estimated 
above.
    The burden estimates were calculated by multiplying the estimated 
number of responses by the estimated average amount of time it would 
take a registrant to prepare and review disclosure required under the 
final amendments. For purposes of the PRA, the burden is to be 
allocated between internal burden hours and outside professional costs. 
PRA Table 2 below sets forth the percentage estimates we typically use 
for the burden allocation for each collection of information. We also 
estimate that the average cost of retaining outside professionals is 
$400 per hour.\458\
---------------------------------------------------------------------------

    \458\ We recognize that the costs of retaining outside 
professionals may vary depending on the nature of the professional 
services, but for purposes of this PRA analysis, we estimate that 
such costs would be an average of $400 per hour. This estimate is 
based on consultations with several registrants, law firms, and 
other persons who regularly assist registrants in preparing and 
filing reports with the Commission.

     PRA Table 2--Standard Estimated Burden Allocation for Specified
                       Collections of Information
------------------------------------------------------------------------
                                                             Outside
       Collection of information          Internal (%)    professionals
                                                               (%)
------------------------------------------------------------------------
Forms 1-A, 10-K, 10-Q, 8-K, Schedule                 75               25
 14A...................................
Forms S-1, S-4, S-11, F-1, F-4, SF-1,                25               75
 SF-3, and 10..........................
Forms 20-F and 40-F....................              25               75
Form N-2...............................              25               75
------------------------------------------------------------------------

    PRA Table 3 below illustrates the incremental change to the total 
annual compliance burden of affected collections of information, in 
hours and in costs, as a result of the final amendments.

             PRA Table 3--Calculation of the Incremental Change in Burden Estimates of Current Responses Resulting From the Final Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                       Number of          Burden hour        Reduction in        Reduction in        Reduction in        Reduction in
                                       estimated         reduction per     burden hours for    company hours for  professional hours  professional costs
    Collection of Information           affected       current affected    current affected    current affected       for current         for current
                                       responses           response            responses           responses      affected responses  affected responses
                                               (A) *                 (B)  (C) = (A) x (B) **    (D) = (C) x 0.25     (E) = (C) - (D)    (F) = (E) x $400
                                                                                                         or 0.75
--------------------------------------------------------------------------------------------------------------------------------------------------------
S-1..............................                901                 5.9               5,316               1,329               3,987          $1,594,800
S-4..............................                551                 5.9               3,251                 813               2,438             975,200

[[Page 2125]]

 
S-11.............................                 64                 5.9                 378                  95                 283             113,200
F-1..............................                 63                 3.5                 221                  55                 166              66,400
F-4..............................                 39                 3.5                 137                  34                 103              41,200
N-2..............................                298                 0.8                 238                 179                  59              23,600
1-A..............................                179                 0.1                  18                  14                   4               1,600
10...............................                216                 5.9               1,274                 319                 955             382,000
10-K.............................              8,137                 5.9              48,008              36,006              12,002           4,800,800
10-Q.............................             22,907                 1.9              43,523              32,642              10,881           4,352,400
20-F.............................                725                 2.0               1,450                 363               1,087             434,800
40-F.............................                132                 2.0                 264                  66                 198              79,200
Sch. 14A.........................              5,586                 0.5               2,793               2,095                 698             279,200
                                  ----------------------------------------------------------------------------------------------------------------------
    Total........................             39,798                43.8             106,871              74,010              32,861          13,144,400
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The number of estimated affected responses is based on the number of responses in the Commission's current OMB PRA filing inventory. The OMB PRA
  filing inventory represents a three-year average.
** The estimated reductions in Columns (C), (D), and (E) are rounded to the nearest whole number.

    The following PRA Table 4 summarizes the requested paperwork 
burden, including the estimated total reporting burdens and costs, 
under the final amendments.

                                                               PRA Table 4--Requested Paperwork Burden Under the Final Amendments
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Current burden                                  Program change                                  Revised burden
                                                 -----------------------------------------------------------------------------------------------------------------------------------------------
            Collection of information                                                                Number of                     Reduction in
                                                  Current annual  Current burden   Current cost      affected      Reduction in    professional       Annual       Burden hours     Cost burden
                                                     responses         hours          burden         responses     company hours       costs         responses
                                                             (A)             (B)             (C)             (D)    (E) [dagger]    (F) [Dagger]       (G) = (A)   (H) = (B)-(E)   (I) = (C)-(F)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
S-1.............................................             901         147,208    $180,319,975             901           1,329      $1,594,800             901         145,879    $178,725,175
S-4.............................................             551         562,465     677,378,579             551             813         975,200             551         561,652     676,403,379
S-11............................................              64          12,214      14,925,768              64              95         113,200              64          12,119      14,812,568
F-1.............................................              63          26,692      32,275,375              63              55          66,400              63          26,637      32,208,975
F-4.............................................              39          14,049      17,073,825              39              34          41,200              39          14,015      17,032,625
N-2.............................................             298          94,350       6,269,752             298             179          23,600             298          94,171       6,246,152
1-A.............................................             179          98,396      13,111,912             179              14           1,600             179          98,382      13,110,312
10..............................................             216          11,855      14,091,488             216             319         382,000             216          11,536      13,709,488
10-K............................................           8,137      14,198,780   1,895,224,719           8,137          36,006       4,800,800           8,137      14,162,774   1,890,423,919
10-Q............................................          22,907       3,209,558     425,120,754          22,907          32,642       4,352,400          22,907       3,176,916     420,768,354
20-F............................................             725         479,304     576,875,025             725             363         434,800             725         478,941     576,440,225
40-F............................................             132          14,237      17,084,560             132              66          79,200             132          14,171      17,005,360
Sch. 14A........................................           5,586         551,101      73,480,012           5,586           2,095         279,200           5,586         549,006      73,200,812
    Total.......................................          39,798      19,399,109   3,941,630,388          39,798          74,010      13,144,400          39,798      19,325,099   3,928,485,988
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
[dagger] From Column (D) in PRA Table 3.
[Dagger] From Column (F) in PRA Table 3.

VII. Final Regulatory Flexibility Act Certification

    In connection with the Proposing Release, the Commission certified 
that the proposals would not, if adopted, have a significant economic 
impact on a substantial number of small entities. The certification, 
including the factual bases for the determination, was published with 
the Proposing Release in satisfaction of Section 605(b) of the 
Regulatory Flexibility Act (``RFA'').\459\ The Commission requested 
comment on the certification and received none.
---------------------------------------------------------------------------

    \459\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

    We are adopting the amendments as proposed with several minor 
changes and two substantive changes relating to Item 302(a), disclosure 
of selected quarterly financial data of specified operating results, 
and Item 303, disclosure of liquidity and capital resources. As 
discussed above, we believe that the impact on small entities as a 
result of these changes will not be significant.\460\ We expect the 
final amendments will reduce the paperwork burden for all registrants, 
including small entities.\461\ Although, we anticipate that the 
economic impact of the reduction in the paperwork burden will be 
modest, the reduction in the burden will be beneficial to all 
registrants, including small entities. Accordingly, the Commission 
hereby certifies, pursuant to 5 U.S.C. 605(b),

[[Page 2126]]

that the final amendments will not have a significant economic impact 
on a substantial number of small entities for purposes of the RFA.
---------------------------------------------------------------------------

    \460\ This includes elimination of current Item 303(d), which 
provides, in relevant part, an accommodation for SRCs with respect 
to the contractual obligations table required by current Item 
303(a)(5). Because the basis for current Item 303(d) was a reduction 
in the burdens associated with the preparation of the contractual 
obligations table itself, and because we are eliminating that 
prescriptive requirement, we do not believe that the elimination of 
current Item 303(d) will have a significant impact on SRCs. See 
Section II.C.11 supra.
    \461\ See supra Section V.D.
---------------------------------------------------------------------------

VIII. Statutory Authority

    The amendments contained in this release are being adopted under 
the authority set forth in Sections 7, 10, 19(a), and 28 of the 
Securities Act of 1933, as amended, Sections 3(b), 12, 13, 14, 23(a), 
and 36 of the Securities Exchange Act of 1934, as amended, and Sections 
8, 24, 30, and 38 of the Investment Company Act of 1940, as amended.

List of Subjects

17 CFR Part 210

    Accountants, Accounting, Banks, Banking, Employee benefit plans, 
Holding companies, Insurance companies, Investment companies, Oil and 
gas exploration, Reporting and recordkeeping requirements, Securities, 
Utilities.

17 CFR Parts 229, 239, 240, and 249

    Administrative practice and procedure, Reporting and recordkeeping 
requirements, Securities.

Text of the Final Rule and Form Amendments

    In accordance with the foregoing, we are amending title 17, chapter 
II of the Code of Federal Regulations as follows:

PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL 
STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 
1934, INVESTMENT COMPANY ACT OF 1940, INVESTMENT ADVISERS ACT OF 
1940, AND ENERGY POLICY AND CONSERVATION ACT OF 1975

0
1. The authority citation for part 210 continues to read as follows:

    Authority:  15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77aa(25), 77aa(26), 77nn(25), 77nn(26), 78c, 78j-1, 78l, 78m, 78n, 
78o(d), 78q, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-20, 80a-29, 80a-30, 
80a-31, 80a-37(a), 80b-3, 80b-11, 7202 and 7262, and sec. 102(c), 
Pub. L. 112-106, 126 Stat. 310 (2012), unless otherwise noted.


0
2. Amend Sec.  210.1-02 by revising paragraphs (bb)(1) introductory 
text and (bb)(2) to read as follows:


Sec.  210.1-02  Definitions of terms used in Regulation S-X (17 CFR 
part 210).

* * * * *
    (bb) * * *
    (1) Except as provided in paragraph (bb)(2) of this section, 
summarized financial information referred to in this part shall mean 
the presentation of summarized information as to the assets, 
liabilities and results of operations of the entity for which the 
information is required. Summarized financial information shall include 
the following disclosures, which may be subject to appropriate 
variation to conform to the nature of the entity's business:
* * * * *
    (2) Summarized financial information for unconsolidated 
subsidiaries and 50 percent or less owned persons referred to in and 
required by Sec.  210.10-01(b) for interim periods shall include the 
information required by paragraph (bb)(1)(ii) of this section.
* * * * *

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND 
CONSERVATION ACT OF 1975--REGULATION S-K

0
3. The authority citation for part 229 continues to read as follows:

    Authority:  15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 
77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 78n, 78n-1, 78o, 78u-
5, 78w, 78ll, 78 mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-
31(c), 80a-37, 80a-38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C. 
1350; sec. 953(b), Pub. L. 111-203, 124 Stat. 1904 (2010); and sec. 
102(c), Pub. L. 112-106, 126 Stat. 310 (2012).


Sec.  229.10   [Amended]

0
4. Amend Sec.  229.10(f) introductory text in the table by removing 
entries for ``Item 301'' and ``Item 303''.


Sec.  229.301  [Removed and Reserved]

0
5. Remove and reserve Sec.  229.301.

0
6. Amend Sec.  229.302 by revising paragraph (a) to read as follows:


Sec.  229.302  (Item 302) Supplementary financial information.

    (a) Disclosure of material quarterly changes. When there are one or 
more retrospective changes to the statements of comprehensive income 
for any of the quarters within the two most recent fiscal years or any 
subsequent interim period for which financial statements are included 
or are required to be included by Sec. Sec.  210.3-01 through 210.3-20 
of this chapter (Article 3 of Regulation S-X) that individually or in 
the aggregate are material, provide an explanation of the reasons for 
such material changes and disclose, for each affected quarterly period 
and the fourth quarter in the affected year, summarized financial 
information related to the statements of comprehensive income as 
specified in Sec.  210.1-02(bb)(1)(ii) of this chapter (Rule 1-
02(bb)(1)(ii) of Regulation S-X) and earnings per share reflecting such 
changes.
    (1) If the financial statements to which this information relates 
have been reported on by an accountant, appropriate professional 
standards and procedures, as enumerated in Auditing Standards issued by 
the Public Company Accounting Oversight Board (``PCAOB''), shall be 
followed by the reporting accountant with regard to the disclosure 
required by this paragraph (a).
    (2) This paragraph (a) applies to any registrant, except a foreign 
private issuer, that has securities registered pursuant to sections 
12(b) (15 U.S.C. 78l(b)) (other than mutual life insurance companies) 
or 12(g) of the Exchange Act (15 U.S.C. 78l(g)) after the registrant's 
initial registration of securities under these sections.
    (3) A registrant that qualifies as a smaller reporting company, as 
defined by Sec.  229.10(f)(1), is not required to provide the 
information required by this section.
* * * * *

0
7. Revise Sec.  229.303 to read as follows:


Sec.  229.303  (Item 303) Management's discussion and analysis of 
financial condition and results of operations.

    (a) Objective. The objective of the discussion and analysis is to 
provide material information relevant to an assessment of the financial 
condition and results of operations of the registrant including an 
evaluation of the amounts and certainty of cash flows from operations 
and from outside sources. The discussion and analysis must focus 
specifically on material events and uncertainties known to management 
that are reasonably likely to cause reported financial information not 
to be necessarily indicative of future operating results or of future 
financial condition. This includes descriptions and amounts of matters 
that have had a material impact on reported operations, as well as 
matters that are reasonably likely based on management's assessment to 
have a material impact on future operations. The discussion and 
analysis must be of the financial statements and other statistical data 
that the registrant believes will enhance a reader's understanding of 
the registrant's financial condition, cash flows and other changes in 
financial condition and results of operations. A discussion and 
analysis that meets the requirements of this paragraph (a) is expected 
to better allow investors to

[[Page 2127]]

view the registrant from management's perspective.
    (b) Full fiscal years. The discussion of financial condition, 
changes in financial condition and results of operations must provide 
information as specified in paragraphs (b)(1) through (3) of this 
section and such other information that the registrant believes to be 
necessary to an understanding of its financial condition, changes in 
financial condition and results of operations. Where the financial 
statements reflect material changes from period-to-period in one or 
more line items, including where material changes within a line item 
offset one another, describe the underlying reasons for these material 
changes in quantitative and qualitative terms. Where in the 
registrant's judgment a discussion of segment information and/or of 
other subdivisions (e.g., geographic areas, product lines) of the 
registrant's business would be necessary to an understanding of such 
business, the discussion must focus on each relevant reportable segment 
and/or other subdivision of the business and on the registrant as a 
whole.
    (1) Liquidity and capital resources. Analyze the registrant's 
ability to generate and obtain adequate amounts of cash to meet its 
requirements and its plans for cash in the short-term (i.e., the next 
12 months from the most recent fiscal period end required to be 
presented) and separately in the long-term (i.e., beyond the next 12 
months). The discussion should analyze material cash requirements from 
known contractual and other obligations. Such disclosures must specify 
the type of obligation and the relevant time period for the related 
cash requirements. As part of this analysis, provide the information in 
paragraphs (b)(1)(i) and (ii) of this section.
    (i) Liquidity. Identify any known trends or any known demands, 
commitments, events or uncertainties that will result in or that are 
reasonably likely to result in the registrant's liquidity increasing or 
decreasing in any material way. If a material deficiency is identified, 
indicate the course of action that the registrant has taken or proposes 
to take to remedy the deficiency. Also identify and separately describe 
internal and external sources of liquidity, and briefly discuss any 
material unused sources of liquid assets.
    (ii) Capital resources. (A) Describe the registrant's material cash 
requirements, including commitments for capital expenditures, as of the 
end of the latest fiscal period, the anticipated source of funds needed 
to satisfy such cash requirements and the general purpose of such 
requirements.
    (B) Describe any known material trends, favorable or unfavorable, 
in the registrant's capital resources. Indicate any reasonably likely 
material changes in the mix and relative cost of such resources. The 
discussion must consider changes among equity, debt, and any off-
balance sheet financing arrangements.
    (2) Results of operations. (i) Describe any unusual or infrequent 
events or transactions or any significant economic changes that 
materially affected the amount of reported income from continuing 
operations and, in each case, indicate the extent to which income was 
so affected. In addition, describe any other significant components of 
revenues or expenses that, in the registrant's judgment, would be 
material to an understanding of the registrant's results of operations.
    (ii) Describe any known trends or uncertainties that have had or 
that are reasonably likely to have a material favorable or unfavorable 
impact on net sales or revenues or income from continuing operations. 
If the registrant knows of 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), the change in 
the relationship must be disclosed.
    (iii) If the statement of comprehensive income presents material 
changes from period to period in net sales or revenue, if applicable, 
describe the extent to which such changes are attributable to changes 
in prices or to changes in the volume or amount of goods or services 
being sold or to the introduction of new products or services.
    (3) Critical accounting estimates. Critical accounting estimates 
are those estimates made in accordance with generally accepted 
accounting principles that involve a significant level of estimation 
uncertainty and have had or are reasonably likely to have a material 
impact on the financial condition or results of operations of the 
registrant. Provide qualitative and quantitative information necessary 
to understand the estimation uncertainty and the impact the critical 
accounting estimate has had or is reasonably likely to have on 
financial condition or results of operations to the extent the 
information is material and reasonably available. This information 
should include why each critical accounting estimate is subject to 
uncertainty and, to the extent the information is material and 
reasonably available, how much each estimate and/or assumption has 
changed over a relevant period, and the sensitivity of the reported 
amount to the methods, assumptions and estimates underlying its 
calculation.
    Instructions to paragraph (b): 1. Generally, the discussion must 
cover the periods covered by the financial statements included in the 
filing and the registrant may use any presentation that in the 
registrant's judgment enhances a reader's understanding. A smaller 
reporting company's discussion must cover the two-year period required 
in Sec. Sec.  210.8-01 through 210.8-08 of this chapter (Article 8 of 
Regulation S-X) and may use any presentation that in the registrant's 
judgment enhances a reader's understanding. For registrants providing 
financial statements covering three years in a filing, discussion about 
the earliest of the three years may be omitted if such discussion was 
already included in the registrant's prior filings on EDGAR that 
required disclosure in compliance with Sec.  229.303 (Item 303 of 
Regulation S-K), provided that registrants electing not to include a 
discussion of the earliest year must include a statement that 
identifies the location in the prior filing where the omitted 
discussion may be found. An emerging growth company, as defined in 
Sec.  230.405 of this chapter (Rule 405 of the Securities Act) or Sec.  
240.12b-2 of this chapter (Rule 12b-2 of the Exchange Act), may provide 
the discussion required in paragraph (b) of this section for its two 
most recent fiscal years if, pursuant to Section 7(a) of the Securities 
Act of 1933 (15 U.S.C. 77g(a)), it provides audited financial 
statements for two years in a Securities Act registration statement for 
the initial public offering of the emerging growth company's common 
equity securities.
    2. If the reasons underlying a material change in one line item in 
the financial statements also relate to other line items, no repetition 
of such reasons in the discussion is required and a line-by-line 
analysis of the financial statements as a whole is neither required nor 
generally appropriate. Registrants need not recite the amounts of 
changes from period to period if they are readily computable from the 
financial statements. The discussion must not merely repeat numerical 
data contained in the financial statements.
    3. Provide the analysis in a format that facilitates easy 
understanding and that supplements, and does not duplicate, disclosure 
already provided in the filing. For critical accounting estimates, this 
disclosure must supplement, but not duplicate, the description of 
accounting policies or

[[Page 2128]]

other disclosures in the notes to the financial statements.
    4. For the liquidity and capital resources disclosure, discussion 
of material cash requirements from known contractual obligations may 
include, for example, lease obligations, purchase obligations, or other 
liabilities reflected on the registrant's balance sheet. Except where 
it is otherwise clear from the discussion, the registrant must discuss 
those balance sheet conditions or income or cash flow items which the 
registrant believes may be indicators of its liquidity condition.
    5. Where financial statements presented or incorporated by 
reference in the registration statement are required by Sec.  210.4-
08(e)(3) of this chapter (Rule 4-08(e)(3) of Regulation S-X) to include 
disclosure of restrictions on the ability of both consolidated and 
unconsolidated subsidiaries to transfer funds to the registrant in the 
form of cash dividends, loans or advances, the discussion of liquidity 
must include a discussion of the nature and extent of such restrictions 
and the impact such restrictions have had or are reasonably likely to 
have on the ability of the parent company to meet its cash obligations.
    6. Any forward-looking information supplied is expressly covered by 
the safe harbor rule for projections. See 17 CFR 230.175 [Rule 175 
under the Securities Act], 17 CFR 240.3b-6 [Rule 3b-6 under the 
Exchange Act], and Securities Act Release No. 6084 (June 25, 1979).
    7. All references to the registrant in the discussion and in this 
section mean the registrant and its subsidiaries consolidated.
    8. Discussion of 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 a registrant's financial condition, changes in 
financial condition, revenues or expenses, results of operations, 
liquidity, cash requirements or capital resources must be provided even 
when the arrangement results in no obligations being reported in the 
registrant's consolidated balance sheets. Such off-balance sheet 
arrangements may include: Guarantees; retained or contingent interests 
in assets transferred; contractual arrangements that support the 
credit, liquidity or market risk for transferred assets; obligations 
that arise or could arise from variable interests held in an 
unconsolidated entity; or obligations related to derivative instruments 
that are both indexed to and classified in a registrant's own equity 
under U.S. GAAP.
    9. If the registrant is a foreign private issuer, briefly discuss 
any pertinent governmental economic, fiscal, monetary, or political 
policies or factors that have materially affected or could materially 
affect, directly or indirectly, its operations or investments by United 
States nationals. The discussion must also consider the impact of 
hyperinflation if hyperinflation has occurred in any of the periods for 
which audited financial statements or unaudited interim financial 
statements are filed. See Sec.  210.3-20(c) of this chapter (Rule 3-
20(c) of Regulation S-X) for a discussion of cumulative inflation rates 
that may trigger the requirement in this instruction 9 to this 
paragraph (b).
    10. If the registrant is a foreign private issuer, the discussion 
must focus on the primary financial statements presented in the 
registration statement or report. The foreign private issuer must refer 
to the reconciliation to United States generally accepted accounting 
principles and discuss any aspects of the difference between foreign 
and United States generally accepted accounting principles, not 
discussed in the reconciliation, that the registrant believes are 
necessary for an understanding of the financial statements as a whole, 
if applicable.
    11. The term statement of comprehensive income is as defined in 
Sec.  210.1-02 of this chapter (Rule 1-02 of Regulation S-X).
    (c) Interim periods. If interim period financial statements are 
included or are required to be included by 17 CFR 210.3 [Article 3 of 
Regulation S-X], a management's discussion and analysis of the 
financial condition and results of operations must be provided so as to 
enable the reader to assess material changes in financial condition and 
results of operations between the periods specified in paragraphs 
(c)(1) and (2) of this section. The discussion and analysis must 
include a discussion of material changes in those items specifically 
listed in paragraph (b) of this section.
    (1) Material changes in financial condition. Discuss any material 
changes in financial condition from the end of the preceding fiscal 
year to the date of the most recent interim balance sheet provided. If 
the interim financial statements include an interim balance sheet as of 
the corresponding interim date of the preceding fiscal year, any 
material changes in financial condition from that date to the date of 
the most recent interim balance sheet provided also must be discussed. 
If discussions of changes from both the end and the corresponding 
interim date of the preceding fiscal year are required, the discussions 
may be combined at the discretion of the registrant.
    (2) Material changes in results of operations. (i) Discuss any 
material changes in the registrant's results of operations with respect 
to the most recent fiscal year-to-date period for which a statement of 
comprehensive income is provided and the corresponding year-to-date 
period of the preceding fiscal year.
    (ii) Discuss any material changes in the registrant's results of 
operations with respect to either the most recent quarter for which a 
statement of comprehensive income is provided and the corresponding 
quarter for the preceding fiscal year or, in the alternative, the most 
recent quarter for which a statement of comprehensive income is 
provided and the immediately preceding sequential quarter. If the 
latter immediately preceding sequential quarter is discussed, then 
provide in summary form the financial information for that immediately 
preceding sequential quarter that is subject of the discussion or 
identify the registrant's prior filings on EDGAR that present such 
information. If there is a change in the form of presentation from 
period to period that forms the basis of comparison from previous 
periods provided pursuant to this paragraph, the registrant must 
discuss the reasons for changing the basis of comparison and provide 
both comparisons in the first filing in which the change is made.
    Instructions to paragraph (c): 1. If interim financial statements 
are presented together with financial statements for full fiscal years, 
the discussion of the interim financial information must be prepared 
pursuant to this paragraph (c) and the discussion of the full fiscal 
year's information must be prepared pursuant to paragraph (b) of this 
section. Such discussions may be combined. Instructions 2, 3, 4, 6, 8, 
and 11 to paragraph (b) of this section apply to this paragraph (c).
    2. The registrant's discussion of material changes in results of 
operations must identify any significant elements of the registrant's 
income or loss from continuing operations which do not arise from or 
are not necessarily representative of the registrant's ongoing 
business.

0
8. Amend Sec.  229.914 by revising paragraph (a) to read as follows:

[[Page 2129]]

Sec.  229.914   (Item 914) Pro forma financial statements: selected 
financial data.

    (a) In addition to the information required by Sec.  229.302 (Item 
302 of Regulation S-K), for each partnership proposed to be included in 
a roll-up transaction provide: cash and cash equivalents, total assets 
at book value, total assets at the value assigned for purposes of the 
roll-up transaction (if applicable), total liabilities, general and 
limited partners' equity, net increase (decrease) in cash and cash 
equivalents, net cash provided by operating activities, distributions; 
and per unit data for net income (loss), book value, value assigned for 
purposes of the roll-up transaction (if applicable), and distributions 
(separately identifying distributions that represent a return of 
capital). This information must be provided for the previous two fiscal 
years. Additional or other information must be provided if material to 
an understanding of each partnership proposed to be included in a roll-
up transaction.
* * * * *

0
9. Amend Sec.  229.1112 by revising paragraph (b)(1) and Instruction 
3.a. to paragraph (b) to read as follows:


Sec.  229.1112   (Item 1112) Significant obligors of pool assets.

* * * * *
    (b) * * *
    (1) If the pool assets relating to a significant obligor represent 
10% or more, but less than 20%, of the asset pool, provide summarized 
financial information, as defined by Sec.  210.1-02(bb) of this chapter 
(Rule 1-02(bb) of Regulation S-X), for the significant obligor for each 
of the last three fiscal years (or the life of the significant obligor 
and its predecessors, if less), provided, however, that for a 
significant obligor under Sec.  229.1101(k)(2) (Item 1101(k)(2) of 
Regulation AB), only net operating income for the most recent fiscal 
year and interim period is required.
* * * * *
    Instructions to Item 1112(b): * * *
    3. * * *
    a. If the summarized financial information required by paragraph 
(b)(1) of this section is presented on a basis of accounting other than 
U.S. GAAP or International Financial Reporting Standards (IFRS) as 
issued by the International Accounting Standards Board (IASB), then 
present a reconciliation to U.S. GAAP and 17 CFR part 210 (Regulation 
S-X), pursuant to Item 17 of Form 20-F. If a reconciliation is 
unavailable or not obtainable without unreasonable cost or expense, at 
a minimum provide a narrative description of all material variations in 
accounting principles, practices and methods used in preparing the non-
U.S. GAAP financial statements used as a basis for the summarized 
financial information from those accepted in the U.S.
* * * * *

0
10. Amend Sec.  229.1114 by revising paragraph (b)(2)(i) and 
Instruction 4a. to paragraph (b) to read as follows:


Sec.  229.1114   (Item 1114) Credit enhancement and other support, 
except for certain derivatives instruments.

* * * * *
    (b) * * *
    (2) * * *
    (i) If any entity or group of affiliated entities providing 
enhancement or other support described in paragraph (a) of this section 
is liable or contingently liable to provide payments representing 10% 
or more, but less than 20%, of the cash flow supporting any offered 
class of the asset-backed securities, provide summarized financial 
information, as defined by Sec.  210.1-02(bb) of this chapter (Rule 1-
02(bb) of Regulation S-X), for each such entity or group of affiliated 
entities for each of the last three fiscal years (or the life of the 
entity or group of affiliated entities and any predecessors, if less).
* * * * *
    Instruction 4 to Item 1114(b). * * *
    a. If the summarized financial information required by paragraph 
(b)(1) of this section is presented on a basis of accounting other than 
U.S. GAAP or IFRS as issued by the IASB, then present a reconciliation 
to U.S. GAAP and 17 CFR part 210 (Regulation S-X), pursuant to Item 17 
of Form 20-F. If a reconciliation is unavailable or not obtainable 
without unreasonable cost or expense, at a minimum provide a narrative 
description of all material variations in accounting principles, 
practices and methods used in preparing the non-U.S. GAAP financial 
statements used as a basis for the summarized financial information 
from those accepted in the U.S.
* * * * *

0
11. Amend Sec.  229.1115 by revising paragraph (b)(1) to read as 
follows:


Sec.  229.1115   (Item 1115) Certain derivatives instruments.

* * * * *
    (b) * * *
    (1) If the aggregate significance percentage related to any entity 
or group of affiliated entities providing derivative instruments 
contemplated by this section is 10% or more, but less than 20%, provide 
summarized financial information, as defined by Sec.  210.1-02(bb) of 
this chapter (Rule 1-02(bb) of Regulation S-X), for such entity or 
group of affiliated entities for each of the last three fiscal years 
(or the life of the entity or group of affiliated entities and any 
predecessors, if less).
* * * * *

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
12. The authority citation for part 230 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Pub. L. 112-106, sec. 201(a), sec. 401, 126 
Stat. 313 (2012), unless otherwise noted.
* * * * *
    Sections 230.400 to 230.499 issued under secs. 6, 8, 10, 19, 48 
Stat. 78, 79, 81, and 85, as amended (15 U.S.C. 77f, 77h, 77j, 77s).
* * * * *

0
13. Amend Sec.  230.419 by revising (f)(1) to read as follows:


Sec.  230.419  Offering by blank check companies.

* * * * *
    (f) * * *
    (1) Furnish to security holders audited financial statements for 
the first full fiscal year of operations following consummation of an 
acquisition pursuant to paragraph (e) of this section, together with 
the information required by Sec.  229.303(b) of this chapter (Item 
303(b) of Regulation S-K), no later than 90 days after the end of such 
fiscal year; and
* * * * *

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

0
14. The authority citation for part 239 continues to read in part as 
follows:

    Authority:  15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-
3, 77sss, 78c, 78l, 78m, 78n, 78o(d), 78o-7 note, 78u-5, 78w(a), 
78ll, 78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 
80a-26, 80a-29, 80a-30, and 80a-37; and sec. 107, Pub. L. 112-106, 
126 Stat. 312, unless otherwise noted.

    Sections 239.31, 239.32 and 239.33 are also issued under 15 
U.S.C. 78l, 78m, 78o, 78w, 80a-8, 80a-29, 80a-30, 80a-37 and 12 
U.S.C. 241.
* * * * *

0
15. Amend Form S-1 (referenced in Sec.  239.11) by:
0
a. Removing and reserving Item 11(f) of Part I--Information Required in 
Prospectus;

[[Page 2130]]

0
b. Revising paragraphs (f) and (g) of Instruction 1 under 
``Instructions as to Summary Prospectus''; and
0
c. Adding paragraph (h) of Instruction 1 under ``Instructions as to 
Summary Prospectus''.
    The revisions and additions read as follows:

    Note: The text of Form S-1 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

INSTRUCTIONS AS TO SUMMARY PROSPECTUSES

    1. * * *
    (f) As to Item 11, a brief statement of the general character of 
the business done and intended to be done and a brief statement of the 
nature and present status of any material pending legal proceedings;
    (g) A tabular presentation of notes payable, long term debt, 
deferred credits, minority interests, if material, and the equity 
section of the latest balance sheet filed, as may be appropriate; and
    (h) Subject to appropriate variation to conform to the nature of 
the registrant's business, provide summarized financial information 
defined by Rule 1-02(bb)(1)(i) and (ii) of Regulation S-X (Sec.  210.1-
02(bb) of this chapter) in comparative columnar form for the periods 
for which financial statements are required by Regulation S-X (17 CFR 
part 210).
* * * * *

0
16. Amend Form S-20 (referenced in Sec.  239.20) by revising Item 7 and 
paragraph (1) to Item 8 to read as follows:

    Note: The text of Form S-20 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM S-20

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

PART II INFORMATION NOT REQUIRED IN PROSPECTUS

* * * * *

Item 7. Financial Statements.

    Include financial statements meeting the requirements of Regulation 
S-X [17 CFR 210] and the supplementary financial information specified 
by Item 302 of Regulation S-K [17 CFR 229.302].

Item 8. Undertakings.

    Furnish the following undertakings:
    1. The undersigned registrant hereby undertakes to file a post-
effective amendment, not later than 120 days after the end of each 
fiscal year subsequent to that covered by the financial statements 
presented herein, containing financial statements meeting the 
requirements of Regulation S-X [17 CFR part 210] and the supplementary 
financial information specified by Item 302 of Regulation S-K [17 CFR 
229.302].
* * * * *

0
17. Amend Form S-4 (referenced in Sec.  239.25) by:

    Note: The text of Form S-4 does not appear in the Code of 
Federal Regulations.

0
a. Removing and reserving paragraphs (d), (e), and (f) of Item 3 
(``Risk Factors, Ratio of Earnings to Fixed Charges and Other 
Information'') and the related subparagraphs in their entirety and 
removing the Instruction to paragraph (e) and (f) under Part I, Section 
A (``Information About the Transaction'');
0
b. Removing and reserving paragraph (b)(3)(iii) of Item 12 
(``Information with respect to S-3 Registrants'') under Part I, Section 
B (``Information About the Registrant'');
0
c. Removing and reserving paragraph (a)(3)(iii) of Item 13 
(``Incorporation of Certain Information by Reference'') under Part I, 
Section B (``Information About the Registrant'');
0
d. Removing and reserving paragraph (f) of Item 14 (``Information with 
Respect to Registrants Other Than S-3 Registrants'' under Part I, 
Section B (``Information About the Registrant''); and
0
e. Removing and reserving paragraphs (b)(3) and (4) of Item 17 
(``Information with Respect to Companies Other Than S-3 Companies'') 
under Part I, Section C (``Information About the Company Being 
Acquired'').

0
18. Amend Form F-1 (referenced in Sec.  239.31) by:
0
a. Revising the paragraph 1(c)(v) under ``Instructions as to Summary 
Prospectuses''; and
0
b. Adding paragraph 1(c)(vi).
    The revision and addition read as follows:

    Note: The text of Form F-1 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM F-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

INSTRUCTIONS AS TO SUMMARY PROSPECTUSES

    1. * * *
    (c) * * *
    (v) As to Item 4, a brief statement of the general character of the 
business done and intended to be done and a brief statement of the 
nature and present status of any material pending legal proceedings;
    (vi) Subject to appropriate variation to conform to the nature of 
the registrant's business, provide summarized financial information 
defined by Rule 1-02(bb)(1)(i) and (ii) of Regulation S-X (Sec.  210.1-
02(bb) of this chapter) in comparative columnar form for the periods 
for which financial statements are required by Item 8.A. of Form 20-F. 
If interim period financial statements are included, the summarized 
financial information should be updated for that interim period, which 
may be unaudited, provided that fact is stated. If summarized financial 
data for interim periods is provided, comparative data from the same 
period in the prior financial year shall also be provided, except that 
the requirement for comparative balance sheet data is satisfied by 
presenting the year-end balance sheet information.
* * * * *

0
19. Amend Form F-4 (referenced in Sec.  239.34) by:

    Note: The text of Form F-4 does not appear in the Code of 
Federal Regulations.

0
a. Removing and reserving paragraphs (d), (e), and (f) of Item 3 
(``Risk Factors, Ratio of Earnings to Fixed Charges and Other 
Information'') and the related subparagraphs in their entirety and 
removing the Instruction to paragraph (e) and (f) under Part I, Section 
A (``Information About the Transaction'');
0
b. Removing and reserving paragraph (b)(3)(v) of Item 12 (``Information 
With Respect to F-3 Registrants'') under Part I, Section B 
(``Information About the Registrant'');
0
c. Removing and reserving paragraph (f) of Item 14 (``Information With 
Respect to Foreign Registrants Other Than F-3 Registrants'') under Part 
I, Section B (``Information about the Registrant''); and
0
d. Removing and reserving paragraph (b)(3) of Item 17 (``Information 
With

[[Page 2131]]

Respect to Foreign Companies Other Than F-3 Companies'') under Part I, 
Section C (``Information About the Company Being Acquired'').

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
20. The authority citation for part 240 continues to read in part as 
follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm, 
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et 
seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 
1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-
106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
    Sections 240.14a-1, 240.14a-3, 240.14a-13, 240.14b-1, 240.14b-2, 
240.14c-1, and 240.14c-7 also issued under secs. 12, 15 U.S.C. 781, 
and 14, Pub. L. 99-222, 99 Stat. 1737, 15 U.S.C. 78n;
* * * * *


Sec.  240.14a-3   [Amended]

0
21. Amend Sec.  240.14a-3 by removing and reserving paragraph 
(b)(5)(i).


Sec.  240.14a-101  [Amended]

0
22. Amend Sec.  240.14a-101 under Item 14 by removing and reserving 
paragraphs (b)(8) through (10), the instructions to paragraphs (b)(8), 
(b)(9), and (b)(10), and paragraph (d)(6).

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
23. The authority citation for part 249 continues to read in part as 
follows:

    Authority:  15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b), Pub. L. 111-203, 124 
Stat. 1904; Sec. 102(a)(3), Pub. L. 112-106, 126 Stat. 309 (2012); 
Sec. 107, Pub. L. 112-106, 126 Stat. 313 (2012), and Sec. 72001, 
Pub. L. 114-94, 129 Stat. 1312 (2015), unless otherwise noted.
* * * * *
    Section 249.310 is also issued under secs. 3(a), 202, 208, 302, 
406 and 407, Pub. L. 107-204, 116 Stat. 745.
* * * * *

0
24. Amend Form 20-F (referenced in Sec.  249.220f) by:
0
a. Removing and reserving General Instruction G(c);
0
b. Removing and reserving Item 3.A;
0
c. Removing Instructions to Item 3.A;
0
d. Revising Item 5;
0
e. In Instruction 3 of Instructions to Item 8.A.2, removing the final 
sentence; and
0
f. In Item 11(b), removing the reference ``small business issuers'' and 
adding in its place the term ``smaller reporting companies''.
    The revision reads as follows:

    Note: The text of Form 20-F does not, and this amendment will 
not, appear in the Code of Federal Regulations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F

* * * * *

Item 5. Operating and Financial Review and Prospects

    The purpose of this standard is to provide management's explanation 
of factors that have materially affected the company's financial 
condition and results of operations for the historical periods covered 
by the financial statements, and management's assessment of factors and 
trends which are anticipated to have a material effect on the company's 
financial condition and results of operations in future periods. A 
discussion and analysis that meets these requirements is expected to 
better allow investors to view the registrant from management's 
perspective. Discuss the company's financial condition, changes in 
financial condition and results of operations for each year and interim 
period for which financial statements are required. The discussion must 
include a quantitative and qualitative description of the reasons 
underlying material changes, including where material changes within a 
line item offset one another, to the extent necessary for an 
understanding of the company's business as a whole. Information 
provided also must relate to all separate segments and/or other 
subdivisions (e.g., geographic areas, product lines) of the company. 
The discussion must include other statistical data that the company 
believes will enhance a reader's understanding of the company's 
financial condition, cash flows and other changes in financial 
condition, and results of operations. The discussion and analysis must 
also focus specifically on material events and uncertainties known to 
management that would cause reported financial information not to be 
necessarily indicative of future operating results or of future 
financial condition. Provide the information specified below as well as 
such other information that is necessary for an investor's 
understanding of the company's financial condition, changes in 
financial condition and results of operations.
    A. Operating results. Provide information regarding significant 
factors, including unusual or infrequent events or new developments, 
materially affecting the company's income from operations, indicating 
the extent to which income was so affected. Describe any other 
significant component of revenue or expenses necessary to understand 
the company's results of operations.
    1. If the statement of comprehensive income presents material 
changes from period to period in net sales or revenue, if applicable, 
describe the extent to which such changes are attributable to changes 
in prices or to changes in the volume or amount of products or services 
being sold or to the introduction of new products or services.
    2. If the currency in which financial statements are presented is 
of a country that has experienced hyperinflation, disclose the 
existence of such inflation, a five year history of the annual rate of 
inflation and a discussion of the impact of hyperinflation on the 
company's business.
    3. Provide information regarding the impact of foreign currency 
fluctuations on the company, if material, and the extent to which 
foreign currency net investments are hedged by currency borrowings and 
other hedging instruments.
    4. Provide information regarding any governmental economic, fiscal, 
monetary or political policies or factors that have materially 
affected, or could materially affect, directly or indirectly, the 
company's operations or investments by host country shareholders.
    B. Liquidity and capital resources. Analyze the registrant's 
ability to generate and obtain adequate amounts of cash to meet its 
requirements and its plans for cash in the short-term (i.e., the next 
12 months from the most recent fiscal period end required to be 
presented) and separately in the long-term (i.e., beyond the next 12 
months). The discussion should analyze material cash requirements from 
known contractual and other obligations. Such disclosures must specify 
the type of obligation and the relevant time period for the related 
cash requirements. As part of this analysis, provide the following 
information:
    1. Information regarding the company's liquidity including:
    (a) A description of the internal and external sources of liquidity 
and a brief discussion of any material unused sources of liquidity. 
Include a statement

[[Page 2132]]

by the company that, in its opinion, the working capital is sufficient 
for the company's present requirements, or, if not, how it proposes to 
provide the additional working capital needed.
    (b) an evaluation of the sources and amounts of the company's cash 
flows, including the nature and extent of any legal or economic 
restrictions on the ability of subsidiaries to transfer funds to the 
company in the form of cash dividends, loans or advances and the impact 
such restrictions have had or are reasonably likely to have on the 
ability of the company to meet its cash obligations.
    2. Information regarding the type of financial instruments used, 
the maturity profile of debt, currency and interest rate structure. The 
discussion also must include funding and treasury policies and 
objectives in terms of the manner in which treasury activities are 
controlled, the currencies in which cash and cash equivalents are held, 
the extent to which borrowings are at fixed rates, and the use of 
financial instruments for hedging purposes.
    3. Information regarding the company's material cash requirements, 
including commitments for capital expenditures, as of the end of the 
latest financial year and any subsequent interim period and an 
indication of the general purpose of such requirements and the 
anticipated sources of funds needed to satisfy such requirements.
    C. Research and development, patents and licenses, etc. Provide a 
description of the company's research and development policies for the 
last three years.
    D. Trend information. The company must identify material recent 
trends in production, sales and inventory, the state of the order book 
and costs and selling prices since the latest financial year. The 
company also must discuss, for at least the current financial year, any 
known trends, uncertainties, demands, commitments or events that are 
reasonably likely to have a material effect on the company's net sales 
or revenues, income from continuing operations, profitability, 
liquidity or capital resources, or that would cause reported financial 
information not necessarily to be indicative of future operating 
results or financial condition.
    E. Critical Accounting Estimates
    A registrant that does not apply in its primary financial 
statements IFRS as issued by the IASB must discuss information about 
its critical accounting estimates. This disclosure should supplement, 
not duplicate, the description of accounting policies in the notes to 
the financial statements.
    Critical accounting estimates. Critical accounting estimates are 
those estimates made in accordance with generally accepted accounting 
principles that involve a significant level of estimation uncertainty 
and have had or are reasonably likely to have a material impact on the 
financial condition or results of operations of the registrant. Provide 
qualitative and quantitative information necessary to understand the 
estimation uncertainty and the impact the critical accounting estimate 
has had or is reasonably likely to have on the registrant's financial 
condition or results of operations to the extent the information is 
material and reasonably available. This information should include why 
each critical accounting estimate is subject to uncertainty and, to the 
extent the information is material and reasonably available, how much 
each estimate and/or assumption has changed over a relevant period, and 
the sensitivity of the reported amounts to the material methods, 
assumptions and estimates underlying its calculation.
    Instructions to Item 5:
    1. Refer to the Commission's interpretive releases (No. 33-6835) 
dated May 18, 1989, (No. 33-8056) dated January 22, 2002, (No. 33-8350) 
dated December 19, 2003, (No. 33-9144) dated September 17, 2010, and 
(No. 33-10751) dated January 30, 2020 for guidance in preparing this 
discussion and analysis by management of the company's financial 
condition and results of operations.
    2. The discussion must focus on the primary financial statements 
presented in the document. You should refer to the reconciliation to 
U.S. GAAP, if any, and discuss any aspects of the differences between 
foreign and U.S. GAAP, not otherwise discussed in the reconciliation, 
that you believe are necessary for an understanding of the financial 
statements as a whole.
    3. We encourage you to supply forward-looking information, but that 
type of information is not required. Forward-looking information is 
covered expressly by the safe harbor provisions of Section 27A of the 
Securities Act and Section 21E of the Exchange Act. Forward-looking 
information is different than presently known data which will have an 
impact on future operating results, such as known future increases in 
costs of labor or materials. You are required to disclose this latter 
type of data if it is material.
    4. To the extent the primary financial statements reflect the use 
of exceptions permitted or required by IFRS 1, the issuer must:
    a. Provide detailed information as to the exceptions used, 
including:
    i. An indication of the items or class of items to which the 
exception was applied; and
    ii. A description of what accounting principle was used and how it 
was applied;
    b. Include, where material, qualitative disclosure of the impact on 
financial condition, changes in financial condition and results of 
operations that the treatment specified by IFRS would have had absent 
the election to rely on the exception.
    5. An issuer filing financial statements that comply with IFRS as 
issued by the IASB must, in providing information in response to 
paragraphs of this Item 5 that refer to pronouncements of the FASB, 
provide disclosure that satisfies the objective of the Item 5 
disclosure requirements. In responding to this Item 5, an issuer need 
not repeat information contained in financial statements that comply 
with IFRS as issued by the IASB.
    6. Generally, the discussion must cover the periods covered by the 
financial statements and the registrant may use any format that in the 
registrant's judgment enhances a reader's understanding. For 
registrants providing financial statements covering three years in a 
filing, a discussion of the earliest of the three years may be omitted 
if such discussion was already included in any other of the 
registrant's prior filings on EDGAR that required disclosure in 
compliance with Item 5 of Form 20-F, provided that registrants electing 
not to include a discussion of the earliest year must include a 
statement that identifies the location in the prior filing where the 
omitted discussion may be found.
    7. Discussion of 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 a registrant's financial condition, changes in 
financial condition, revenues or expenses, results of operations, 
liquidity, cash requirements or capital resources must be provided even 
when the arrangement results in no obligations being reported in the 
registrant's consolidated balance sheets. Such off-balance sheet 
arrangements may include: Guarantees; retained or contingent interests 
in assets transferred; contractual arrangements that support the 
credit, liquidity or market risk for transferred assets; obligations 
that arise or could arise from variable interests held in an 
unconsolidated entity; or obligations related to derivative instruments 
that are both indexed to and classified in a

[[Page 2133]]

registrant's own equity, or not reflected in the statement of financial 
position.
    8. For the Liquidity and Capital Resources disclosure, discussion 
of material cash requirements from known contractual obligations may 
include, for example, lease obligations, purchase obligations, or other 
liabilities reflected on the registrant's balance sheet. Except where 
it is otherwise clear from the discussion, the registrant must indicate 
those balance sheet conditions or income or cash flow items which the 
registrant believes may be indicators of its liquidity condition.
    9. Provide the analysis in a format that facilitates easy 
understanding and that supplements, and does not duplicate, disclosure 
already provided in the filing.
    Instruction to Item 5.A:
    1. You must provide the information required by Item 5.A.2 with 
respect to hyperinflation if hyperinflation has occurred in any of the 
periods for which you are required to provide audited financial 
statements or unaudited interim financial statements in the document. 
See Rule 3-20(c) of Regulation S-X for a discussion of cumulative 
inflation rates that trigger this requirement.
* * * * *

Item 8. Financial Information

* * * * *
    Instructions to Item 8.A.2:
* * * * *
    In initial registration statements, if the financial statements 
presented pursuant to Item 8.A.2 are prepared in accordance with U.S. 
generally accepted accounting principles, the earliest of the three 
years may be omitted if that information has not previously been 
included in a filing made under the Securities Act of 1933 or the 
Securities Exchange Act of 1934.
* * * * *

Item 11. Quantitative and Qualitative Disclosures About Market Risk

* * * * *
    (e) Smaller reporting companies. Smaller reporting companies, as 
defined in Sec.  230.405 of this chapter and Sec.  240.12b-2 of this 
chapter, need not provide the information required by this Item 11, 
whether or not they file on forms specially designated as smaller 
reporting company [or small business issuer] forms.
* * * * *

0
25. Amend Form 40-F (referenced in Sec.  249.240f) by:
0
a. Revising General Instruction B.(11) and (12);
0
b. Removing and reserving General Instructions B.(13); and
0
c. Removing the Instructions following General Instruction B.(13).
    The revision reads as follows:

    Note: The text of Form 40-F does not, and this amendment will 
not, appear in the Code of Federal Regulations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 40-F

* * * * *

B. Information To Be Filed on This Form

* * * * *
    (11) Off-balance sheet arrangements. To the extent not discussed in 
management's discussion and analysis that is provided pursuant to 
General Instruction B.(3) of this form, discuss the 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 a 
registrant's financial condition, changes in financial condition, 
revenues or expenses, results of operations, liquidity, cash 
requirements or capital resources must be provided even when the 
arrangement results in no obligations being reported in the 
registrant's consolidated balance sheets. Such off-balance sheet 
arrangements may include: Guarantees; retained or contingent interests 
in assets transferred; contractual arrangements that support the 
credit, liquidity or market risk for transferred assets; obligations 
that arise or could arise from variable interests held in an 
unconsolidated entity; or obligations related to derivative instruments 
that are both indexed to and classified in a registrant's own equity, 
or not reflected in the statement of financial position.
    (12) To the extent not discussed in management's discussion and 
analysis that is provided pursuant to General Instruction B.(3) of this 
form, analyze material cash requirements from known contractual and 
other obligations. Such disclosures must specify the type of obligation 
and the relevant time period for the related cash requirements. 
Discussion of material cash requirements from known contractual 
obligations may include, for example, lease obligations, purchase 
obligations, or other liabilities reflected on the registrant's balance 
sheet.
    (13) [Reserved]
* * * * *

0
26. Amend Form 8-K (referenced in Sec.  249.308) by revising Item 
2.03(c) and 2.03(d) to read as follows:

    Note: The text of Form 8-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

* * * * *

INFORMATION TO BE INCLUDED IN THE REPORT

* * * * *

Item 2.03 Creation of a Direct Financial Obligation or an Obligation 
under an Off-Balance Sheet Arrangement of a Registrant.

* * * * *
    (c) For purposes of this Item 2.03, direct financial obligation 
means any of the following:
    (1) a long-term debt obligation means a payment obligation under 
long-term borrowings referenced in FASB ASC paragraph 470-10-50-1 (Debt 
Topic) as may be modified or supplemented);
    (2) a finance lease obligation means a payment obligation under a 
lease that would be classified as a finance lease pursuant to FASB ASC 
Topic 842, Leases, as may be modified or supplemented;
    (3) an operating lease obligation means a payment obligation under 
a lease that would be classified as an operating lease pursuant to FASB 
ASC Topic 840, as may be modified or supplemented; or
    (4) a short-term debt obligation that arises other than in the 
ordinary course of business.
    (d) For purposes of this Item 2.03, off-balance sheet arrangement 
means any transaction, agreement or other contractual arrangement to 
which an entity unconsolidated with the registrant is a party, under 
which the registrant has:
    (1) Any obligation under a guarantee contract that has any of the 
characteristics identified in FASB ASC paragraph 460-10-15-4 
(Guarantees Topic), as may be modified or supplemented, and that is not 
excluded from the initial recognition and measurement provisions of 
FASB ASC paragraphs 460-10-15-7, 460-10-25-1, and 460-10-30-1.
    (2) A retained or contingent interest in assets transferred to an 
unconsolidated entity or similar arrangement that serves as credit, 
liquidity or market risk support to such entity for such assets;
    (3) Any obligation, including a contingent obligation, under a 
contract that would be accounted for as a derivative instrument, except 
that it is

[[Page 2134]]

both indexed to the registrant's own stock and classified in 
stockholders' equity in the registrant's statement of financial 
position, and therefore excluded from the scope of FASB ASC Topic 815, 
Derivatives and Hedging, pursuant to FASB ASC subparagraph 815-10-15-
74(a), as may be modified or supplemented; or
    (4) Any obligation, including a contingent obligation, arising out 
of a variable interest (as defined in the FASB ASC Master Glossary), as 
may be modified or supplemented) in an unconsolidated entity that is 
held by, and material to, the registrant, where such entity provides 
financing, liquidity, market risk or credit risk support to, or engages 
in leasing, hedging or research and development services with, the 
registrant.
* * * * *

0
27. Amend Form 10 (referenced in Sec.  249.310) by revising Item 2 
(``Financial Information'') to read as follows:

    Note:  The text of Form 10 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934

* * * * *

INFORMATION REQUIRED IN REGISTRATION STATEMENT

* * * * *

Item 2. Financial Information.

    Furnish the information required by Items 303 and 305 of Regulation 
S-K (Sec. Sec.  229.303 and 229.305 of this chapter).
* * * * *

0
28. Amend Form 10-K (referenced in Sec.  249.310) by:
0
a. Removing and reserving General Instruction J.(1)(g);
0
b. Revising General Instruction I.(2)(a); and
0
c. Removing and reserving Item 6 (``Selected Financial Data'') of Part 
II.
    The revision reads as follows:

    Note: The text of Form 10-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15D OF THE SECURITIES EXCHANGE 
ACT OF 1934

GENERAL INSTRUCTIONS

* * * * *
    2. * * *
    (a) Such registrants may omit the information called for by Item 7, 
Management's Discussion and Analysis of Financial Condition and Results 
of Operations provided that the registrant includes in the Form 10-K a 
management's narrative analysis of the results of operations explaining 
the reasons for material changes in the amount of revenue and expense 
items between the most recent fiscal year presented and the fiscal year 
immediately preceding it. Explanations of material changes should 
include, but not be limited to, changes in the various elements which 
determine revenue and expense levels such as unit sales volume, prices 
charged and paid, production levels, production cost variances, labor 
costs and discretionary spending programs. In addition, the analysis 
should include an explanation of the effect of any changes in 
accounting principles and practices or method of application that have 
a material effect on net income as reported.
* * * * *

PART 274-- FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 
1940

0
29. The general authority citation for part 274 continues to read as 
follows:

    Authority:  15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 
78n, 78o(d), 80a-8, 80a-24, 80a-26, 80a-29, and Pub. L. 111-203, 
sec. 939A, 124 Stat. 1376 (2010), unless otherwise noted.
* * * * *

0
30. Amend Form N-2 (referenced in referenced in Sec. Sec.  239.14 and 
274.11a-1) by revising paragraph 2 of Item 4 to read as follows:

    Note: The text of Form N-2 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM N-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

Part A--INFORMATION REQUIRED IN A PROSPECTUS

* * * * *

Item 4. * * *

    2. Business Development Companies. If the Registrant is regulated 
as a business development company under the Investment Company Act, 
furnish in a separate section the information required by Items 302 and 
303 of Regulation S-K.
* * * * *

    By the Commission.

    Dated: November 19, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-26090 Filed 1-8-21; 8:45 am]
BILLING CODE 8011-01-P