SEC Proposes Amendments To MD&A Disclosures

Continuing its disclosure effectiveness initiative, on January 30, 2020, the SEC proposed amendments to Management’s Discussion & Analysis of Financial Conditions and Operations (MD&A) required by Item 303 of Regulation S-K.  In addition, to eliminate duplicative disclosures, the SEC also proposed to eliminate Item 301 – Selected Financial Data and Item 302 – Supplementary Financial Information.  Like all recent disclosure effectiveness rule amendments and proposals, the rule changes are meant to modernize and take a more principles based approach to disclosure requirements.  In addition, the proposed rule changes are intended to reduce repetition and disclosure of information that is not material.

On the same day the SEC issued an Interpretive Release on MD&A.  A week earlier the SEC issued three new compliance and disclosure interpretations on the subject.

Among the proposed changes, the new rule would add a new Item 303(a) to state the principal objectives of MD&A, replace the specific requirement to disclose off-balance-sheet arrangements with

Forward Looking Statements Disclaimers

Forward-looking statements disclaimers appear in almost all things SEC and public company related from registration statements to reports filed in accordance with the Securities Exchange Act to press releases.  Like many disclaimers, they are usually looked past by readers, including at times by the attorneys reviewing or preparing the documents.  On many occasions we will have a new client come to the firm that has been using the same forward-looking statements disclaimer for years that has perpetually been cut and pasted into every document, and which would fail to provide the intended protections if ever tested.

The Private Securities Litigation Reform Act of 1995

Many companies start a forward-looking statements disclaimer paragraph with the sentence “[I]nformation contained herein contains ‘forward looking statements’ within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities and Exchange Act of 1934, as amended.”  Sections 27A and 21E, both created by the Private Securities Litigation

What Does The SEC Do And What Is Its Purpose?

As I write about the myriad of constantly changing and progressing securities law-related policies, rules, regulations, guidance and issues, I am reminded that sometimes it is important to go back and explain certain key facts to lay a proper foundation for an understanding of the topics which layer on this foundation. In this blog, I am doing just that by explaining what the Securities and Exchange Commission (SEC) is and its purpose. Most of information in this blog comes from the SEC website, which is an extremely useful resource for practitioners, issuers, investors and all market participants.


The mission of the SEC is to protect investors, maintain fair, orderly and efficient markets and facilitate capital formation.  Although each mission should be a priority, the reality is that the focus of the SEC changes based on its Chair and Commissioners and political pressure. Outgoing Chair Mary Jo White viewed the SEC enforcement division and task of investor protection as her

SEC Issues Report On Regulation S-K

As required by Section 72003 of the Fixing America’s Surface Transportation Act (the “FAST Act”), on November 23, 2016, the SEC issued a Report on Modernization and Simplification of Regulation S-K (the “Report”) including detailed recommendations for changes.

The Report continues the ongoing review and proposed revisions to Regulations S-K and S-X as related to reports and registration statements filed under the Exchange Act of 1934 (“Exchange Act”) and Securities Act of 1933 (“Securities Act”). Regulation S-K, as amended over the years, was adopted as part of a uniform disclosure initiative to provide a single regulatory source related to non-financial statement disclosures and information required to be included in registration statements and reports filed under the Exchange Act and the Securities Act. Regulation S-X contains specific financial statement preparation and disclosure requirements.

The Disclosure Effectiveness Initiative began in December 2013, when the SEC, as required by the JOBS Act, issued its first report on the Regulation S-K disclosure requirements. The

SEC Issues Proposed Regulation S-K And S-X Amendments

On July 13, 2016, the SEC issued a 318-page proposed rule change on Regulation S-K and Regulation S-X to amend disclosures that are redundant, duplicative, overlapping, outdated or superseded (S-K and S-X Amendments). The proposed rule changes follow the 341-page concept release and request for public comment on sweeping changes to certain business and financial disclosure requirements issued on April 15, 2016. See my two-part blog on the S-K Concept Release HERE and HERE.

The proposed S-K and S-X Amendments are intended to facilitate the disclosure of information to investors while simplifying compliance efforts by companies. The proposed S-K and S-X Amendments come as a result of the Division of Corporation Finance’s Disclosure Effectiveness Initiative and as required by Section 72002 of the FAST Act. Prior to the issuance of these S-K and S-X Amendments, on June 27, 2016, as part of the same initiative, the SEC issued proposed amendments to the definition of “Small Reporting Company” (see

SEC Issues New C&DI On Use Of Non-GAAP Measures; Regulation G – Part 1

On May 17, 2016, the SEC published 12 new Compliance & Disclosure Interpretations (C&DI) related to the use of non-GAAP financial measures by public companies.  The SEC permits companies to present non-GAAP financial measures in their public disclosures subject to compliance with Regulation G and item 10(e) of Regulation S-K.  Regulation G and Item 10(e) require reconciliation to comparable GAAP numbers, the reasons for presenting the non-GAAP numbers and govern the presentation format itself including requiring equal or greater prominence to the GAAP financial information.

The new C&DI follows a period of controversy, press and speeches on the subject.  In the last couple of months SEC Chair Mary Jo White, SEC Deputy Chief Accountant Wesley Bricker, Chief Accountant James Schnurr and Corp Fin Director Keith Higgins have all given speeches at various venues across the company admonishing public companies for their increased use of non-GAAP financial measures.  Mary Jo White suggested new rule making may be on the horizon,

OTC Markets Amends Listing Standards For OTCQB To Include Regulation A+ Issuers

OTC Markets has unveiled changes to the quotations rule and standards for the OTCQB, which changes become effective July 10, 2015.  The OTC Markets rule amendments will allow a company to use its required Regulation A+ ongoing reporting requirements to satisfy the initial and ongoing OTCQB disclosure requirements.

Concurrently with this substantive amendment, OTCQB has made clarifying general amendments to its listing standards for all listed and prospective OTCQB companies.  OTC Markets has invited comments on the proposed changes. 

To summarize, the Regulation A related amendment to the OTCQB rules and regulations includes:

  • The addition of definitions for “Regulation A” and “Regulation A Reporting Company”
  • Initial Disclosure Obligations – a Regulation A Reporting Company can meet the OTCQB initial disclosure obligations by having filed all required reports on EDGAR, including annual audited financial statements;
  • OTCQB Certification – clarifying amendment to the OTCQB Certification including that a Regulation A Reporting Company is required to file periodic reports with the SEC under
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SEC Rules – The Commission Publishes List of New Regulations for Review

The SEC has published its annual list of rules that are scheduled to be reviewed this year and to invite comment from the public as to whether these rules should be continued without change, amended or rescinded.  The SEC is required to review rules each year that have a significant impact on small entities.

The current list includes 25 rules that were adopted by the SEC in 2003.  I note that many of these rules were enacted as a follow-on to the Sarbanes Oxley Act of 2002 and in response to the then current financial crisis.  Persons interested in submitting comments to the SEC regarding these rules can do so through the SEC website.  I have ordered the list such that rules that most impact my clients appear first.

Below is a list of rules that will be reviewed this year for potential amendment and a brief summary of the existing rule.

Conditions for Use of Non-GAAP Financial Measures

PCAOB Amends Auditing Standards For Related-Party And Significant, Unusual Transactions

ABA Journal’s 10th Annual Blawg 100


 On October 21, 2014, the SEC approved amendments to certain auditing standards that impact small cap companies that maintain GAAP compliant audits and file reports with the SEC under the Securities Exchange Act of 1934 (“Exchange Act”).  The SEC Order approved proposed rule changes that had been submitted to by the Public Company Accounting Oversight Board (the “PCAOB”) regarding the auditing standards for related party transactions and the standards regarding significant unusual transactions. 

The amended rules apply to all SEC audits including those for broker-dealers and go into effect for the audits for fiscal year ends beginning on or after December 15, 2014.

Related Party Transactions

The SEC has approved new Auditing Standard No. 18 (AU No. 18) setting forth guidance and procedures for auditors to use in identifying and evaluating related party transactions.  AU No. 18 is intended to strengthen requirements for identifying, assessing and responding to the risks of material misstatement