On August 8, 2019, the SEC proposed rules that would revise disclosures for Regulation S-K Item 101 (description of business), Item 103 (legal proceedings) and Item 105 (risk factors), in an effort to make disclosures more useful for investors and make compliance easier for registrants.
For Item 101(a), which discusses the general development of a registrant’s business, the proposed amendments would eliminate the prescribed five-year time frame for such disclosure and provide for only an update of general developments after a registrant’s initial filing. Disclosure would focus on any material developments for the current reporting period, and hyperlinks to the most recently filed disclosure would be required, in order to provide a comprehensive discussion. Item 101(c) would be revised to include disclosure related to human capital resources and would expand the regulatory compliance disclosure requirement to include material government regulations instead of just environmental laws.
The proposed changes to Item 103 would allow registrants to include hyperlinks or cross-references to required information on legal proceedings that is located elsewhere in the document, in order to eliminate duplication. For the disclosure of environmental proceedings to which the government is a party, the $100,000 reporting threshold would be increased to $300,000.
Item 105 would be revised to change the disclosure standard for risk factors from the “most significant” to the “material” factors. For risk factor sections that exceed 15 pages, a summary risk factor disclosure would be required. Additionally, registrants would be required to organize risk factors under headings. General risk factors that could apply to other companies would appear at the end under a separate heading captioned “General Risk Factors.”
The proposal is part of a comprehensive evaluation of the disclosure requirements that was recommended in the SEC’s Report on Review of Disclosure Requirements in Regulation S-K, prepared pursuant to the JOBS Act. The proposal is subject to a public comment period, and comments must be received by October 22, 2019.