The Securities and Exchange Commission this morning announced relaxed rules related to company disclosures. The commission attempted to justify the relaxation of rules on the basis that “disclosure requirements have not undergone significant revision in over 30 years.”
The commission goes further to state that the changes “reflect the many changes in our capital markets and the domestic and global economy in recent decades,” however this provides little justification for the relaxation of rules under what is referred to as Regulation S-K. Regulation S-K lays out varies reporting requirements for SEC filings.
The changes today specifically relate to the description of business (item 101), legal proceedings (item 103), and risk factor disclosures (item 105).
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In regards to disclosures on the description of business, making disclosures “principles based,” meaning that information disclosed should only be material to the understanding of the general development of business. The previous five year time frame that was to be revealed under this disclosure has now been altered to a “materiality framework” as well. Previously, general development of the company over the last five years, including subsidiaries and predeceasors, were required to be disclosed.
Item 103 was changed in particular as it relates to disclosures on “government environmental proceedings.” Specifically, monetary sanctions levied against a company (or expected to be levied) in relation to environmental proceedings, which previously had to be disclosed when sanctions were $100,000 or higher, have now had the threshold raised. Instead, the threshold is now $300,000, or at the companies “election,” it may “select a different threshold that it determines is reasonably designed to result in disclosure of material environmental proceedings.”
This self-prescribed threshold cannot exceed the lesser of $1.0 million, or one percent of the current assets of the registrant. In short – environmental monetary sanction disclosures have seen their disclosure threshold effectively raised by a factor of ten.
The last section modified, item 105, pertains to risk disclosures. Most prominently among the modifications, is that now companies are require to only disclose “material” risk factors. A summary page of risk factors must also now be included if risk factors exceed fifteen pages, while all risk factors must be organized under relevant headings.
The amendments to Registration S-K are to be effective thirty days after publication within the federal register. The full details of the modifications can be found here.
Information for this briefing was found via Newsfile. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
