SEC Adopts Amendments To Modernize MD&A And Other Financial Disclosure Requirements (UPDATED) – Corporate/Commercial Law

[This post revises and updates my 
earlier post  primarily to reflect the contents of the
adopting  release.]

By a vote of three to two, the SEC has adopted new
amendments to simplify, modernize and enhance
Management’s Discussion and Analysis of Financial Condition
and Results of Operations and the other financial disclosure
requirements of Regulation S-K. The amendments were adopted largely
as proposed in January, with some modifications intended to address
comments received. Once again, like other recent rulemakings, these
amendments tilt toward a more principles-based, company-specific
approach, highlighting the importance of materiality and trend
disclosures. MD&A discussions have long been the subject of
criticism as too mechanical, with companies sometimes chided for
just “doing the math” without more. A new provision
describes the objectives of MD&A with the goal of encouraging a
more thoughtful, less rote MD&A and allowing investors a better
view of the company from management’s perspective. In some
cases, the amendments eliminate prescriptive requirements in favor
of more general disclosures that are integrated into the primary
discussions. And some of the proposed changes are fairly
dramatic—such as eliminating selected financial data and the
Table of Contractual Obligations, and streamlining the requirement
to disclose Supplementary Financial Information. Companies may also
find the new explicit mandate to discuss critical accounting
estimates to be a challenge. Whether the changes result in more
nuanced, analytical disclosure remains to be seen. The amendments
will become effective 30 days after publication in the Federal
Register.

Included at the end of this post is a version of the SEC’s
table of changes.

Background

The amendments were initially proposed on January 30 (see
this PubCo post), as part of the SEC’s Disclosure
Effectiveness Initiative and follow on the 
2013 S-K Study, the Report on Review of Disclosure
Requirements in Regulation S-K, required by Section 108 of the
JOBS Act, and the 341-page 2016 concept
release, which sought comment on modernizing certain business
and financial disclosure requirements in Reg S-K (see 
this PubCo post). The amendments take into account the comment
letters received in response to the proposal, as well as the
staff’s experience with Reg S-K as part of Corp Fin’s
disclosure review program and changes in the regulatory and
business landscape since the adoption of Reg S-K.

Commissioners Allison Lee and Caroline Crenshaw dissented. In
their
joint statement, Lee and Crenshaw are appreciative that some of
the changes to Item 303 of Reg S-K—such as the statement of
the objective of MD&A to provide a thoughtful narrative
discussion and the new requirement to provide disclosure regarding
critical accounting estimates—”should enhance the
quality of MD&A disclosures,” but take issue with two
“significant aspects” of the final amendments that are
once again rooted in the fundamental controversy over
principles-based versus more prescriptive rulemaking, an issue that
has pervaded the SEC’s regulatory process almost throughout the
term of SEC Chair Jay Clayton. (For a more detailed discussion, see

this PubCo post.)

First, they object to the elimination of the Table of
Contractual Obligations, which they believe “provides
investors with critical insight into supply chain and risk
management.” While the proponents of the changes maintain that
the Table is duplicative of information available elsewhere, the
two commissioners contend that purchase obligations, required in
the Table, are not always required by GAAP and not typically
otherwise disclosed.  Yet they provide valuable information.
Second, as with the SEC’s recent effort to modernize the Reg
S-K requirements for business, legal proceedings and risk
factor disclosures (see 
this PubCo post), on which Lee and Crenshaw similarly
dissented, this rulemaking also fails to address climate risk,
despite a significant proportion of public comments calling for the
SEC to do so. Instead of taking “the opportunity to issue
standardized disclosure requirements that would facilitate
efficient comparisons of how companies manage these risks and
assets,” the SEC opted again for principles-based disclosure
requirements. While some companies do provide climate disclosure in
response to principles-based disclosure requirements, the
“majority of U.S. based large companies have failed to
acknowledge the financial risks of climate change in their
filings.” In addition, the information that is provided is
“non-standardized, inconsistent, and incomparable
disclosures,” which does not “allow market participants
to accurately price and compare the risks and opportunities
associated with these risks.” (See 
this PubCo post.) Indeed, they cite a major study finding that
“many institutional investors rank ‘climate
risk-disclosures’ as being just as important as financial
statements when predicting investment performance.”

Nevertheless, they see a “silver lining.” In their
view, the opportunity remains to address climate, human capital and
other ESG risks, with a new comprehensive rulemaking in the
future.  They advocate that the SEC establish “an
internal task force and ESG Advisory Committee that is dedicated to
building upon the recommendations of leading organizations, such as
the Task Force on Climate-Related Financial Disclosures, and
defining a clear plan to address sustainable investing.”

Elimination of selected financial data and revision of
supplementary financial information (Items 301 and 302)

The final amendments eliminate the five-year table of selected
financial data as proposed. With the ready availability of data on
EDGAR and trend information already required in MD&A, the SEC
views the table to no longer be necessary and the cost of
preparation not justified. Nevertheless, the SEC encourages
companies to consider including trend information for the earlier
periods in MD&A if material as well as a tabular presentation
of relevant financial or other information, as part of an
introduction to MD&A.

The SEC had originally proposed to also eliminate the
requirement to provide supplementary financial data, which
comprises quarterly tabular operating data for two years, noting
that, where fourth quarter results were material or there was a
material retrospective change, that disclosure would still be
elicited by existing requirements.  However, in response to
comments critical of the change, the SEC instead elected to revise
Item 302(a) to replace the current requirement for quarterly
tabular disclosure with a principles-based requirement for
disclosure regarding material retrospective changes, such as
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. 

More specifically, the Item will be retained and streamlined 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.” Companies will be required to
explain the reasons for the 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.” “Affected quarters” could include a
single quarter in which the material retrospective change applies,
or subsequent quarters during the relevant period that were
impacted by the earlier change. The SEC notes that not all changes
in accounting principles would result in a retrospective change,
depending on whether the standard will be applied retrospectively
to interim periods. Other than requiring quarterly financial data
when there have been material retrospective changes, the
requirement to provide quarterly data, including for the fourth
quarter, is being eliminated as duplicative or, for the most part,
readily calculable (not to mention that the SEC expects that some
companies will voluntarily provide fourth quarter disclosure.

In another change from the current rule, amended Item 302(a)
will apply beginning with the first filing on Form 10-K after a
company’s initial Exchange Act registration. However, if a new
Exchange Act filer 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, the company may present
Item 302(a) disclosures for the same year-to-date 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.

MD&A

The changes to MD&A are intended to streamline and clarify
the rule and to elicit a more thoughtful and nuanced MD&A
analysis.

Objectives of MD&A (new Item 303(a))

This new item, which has been adopted largely as proposed,
collapses some of the prior instructions and prior guidance into a
new paragraph designed to provide principles-based direction
regarding the objectives of MD&A. The SEC advises that, in
preparing MD&A, companies should “regularly revisit
these objectives and consider ways to enhance the quality of the
analysis provided.” The objectives emphasize a company’s
“future prospects and highlight the importance of materiality
and trend disclosures to a thoughtful MD&A,” and are
intended to remind companies “that MD&A should provide an
analysis that encompasses short term results as well as future
prospects.” The SEC believes that a “discussion and
analysis that meets these requirements is expected to better allow
investors to view the registrant from management’s
perspective.”

Under the new rule, the discussion should include:

• “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.”

Discussion of full fiscal years (amended Item 303(b))

Overall, the SEC is seeking to elicit a less mechanical, more
analytical discussion. To that end, the final amendments clarify
that companies are required to disclose the “underlying
reasons for material changes in quantitative and qualitative
terms,” highlighting “the importance of the analysis
provided in MD&A.” Discussion is required regarding
material changes, including where material changes within a line
item offset one another. Companies are also required to discuss,
where, in the company’s judgment, necessary to an understanding
of the business, reportable segment information and/or information
regarding other subdivisions (e.g., geographic areas,
product lines) of the company’s business.

Capital resources—material cash requirements (new Item
303(b)(1) and amended Item 303(b)(1)(ii))

The final amendments, as proposed, require companies to disclose
the company’s material cash requirements for known
contractual and other obligations, including commitments
for capital expenditures, instead of focusing only on disclosure of
material commitments for capital expenditures, as the
current rule provides.  Notwithstanding several comments
expressing concern that the term “requirements” was too
broad and could result in extensive new record keeping and
controls, the SEC elected to adopt the provision as proposed,
contending that the term “requirements” is “more
consistent with the intended purpose of MD&A” and with
prior SEC guidance emphasizing the need for attention to disclosure
of cash requirements. Given that the amendments are limited to
material cash requirements, the SEC did not believe that they
reflected a new threshold for disclosure or would require new
procedures. 

In addition, in response to comments received regarding the
proposed elimination of the Table of Contractual Obligations
(discussed below), the SEC adopted a major overhaul of Item
303(b), adopting amendments that were not originally
proposed.  The amendments 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.” These new
amendments:

• provide the overarching requirements
  for liquidity and capital resources disclosures;




• define “liquidity” as the
  ability to generate amounts of cash adequate to meet the needs for
  cash and clarify its application to the liquidity and capital
  resources requirements more generally;




• require discussion of liquidity on a
  short- and long-term basis, codifying prior SEC guidance 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;




• require an analysis of material cash
  requirements from known contractual and other obligations,
  including identification of the type of obligation and the relevant
  time period for the related cash requirements;




• indicate that known contractual
  obligations may include, for example, lease obligations, purchase
  obligations or other liabilities reflected on the company’s
  balance sheet; and




• consistent with prior SEC guidance,
  state that the entire Item 303(b) analysis should be “in a
  format that facilitates easy understanding and does not duplicate
  disclosure already provided in the filing.”

The amendments do not prescribe specific categories of
contractual obligations, allowing companies flexibility in
discussing material cash requirements.  However, to the extent
that GAAP requires companies to assess currently prescribed
categories of contractual obligations and those obligations are
material, they will be required to be discussed in MD&A. As a
general matter, unless otherwise clear from the discussion,
companies are required to “discuss those balance sheet
conditions or income or cash flow items which the registrant
believes may be indicators of its liquidity condition.”

Results of operations

• Known trends or uncertainties
  (amended Item 303(b)(2)(ii)).  The final amendments
  require disclosure of (i) 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 and (ii) any known 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. Note that the “reasonably
  likely” threshold applies throughout Item 303 and requires
  application of a two-step test, based on objectively reasonable
  assessments by management of the “likelihood that an event
  will occur balanced with a materiality analysis regarding the need
  for disclosure.” Companies applying the “reasonably
  likely” threshold will need to consider:

The express requirement to discuss the effects of inflation is
being eliminated, but inflation and changing prices are still
expected to be discussed 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.
(And note that, as discussed below, foreign private issuers will
still be required to address hyperinflation.)

• Net sales and revenues
  (amended Item 303(b)(2)(iii)). As proposed, the final
  amendments provide that, to the extent there are
  material changes in net sales or revenues (not
  just increases, but also decreases), a narrative
  discussion is required of the extent to which the changes are
  attributable to changes in prices, the amount of goods or services
  being sold or to the introduction of new products or services. The
  narrative may also implicate a discussion of inflation. As noted
  above, the narrative must include a discussion of the
  “underlying reasons” for these material changes in
  quantitative and qualitative terms.

Off-balance sheet arrangements (new Instruction 8 to Item
303(b))

In light of changes to U.S. GAAP that require overlapping
information, the final amendments eliminate, as proposed, the
current prescriptive definition of off-balance sheet arrangement
(incorporating a definition instead in Form 8-K) and the related
requirement for disclosure under a separately captioned section.
That requirement is replaced with a principles-based instruction to
Item 303 requiring a discussion of off-balance sheet arrangements
that have or are reasonably likely to have a material current or
future effect on a company’s financial condition, changes in
financial condition, revenues or expenses, results of operations,
liquidity, cash requirements or capital resources. The SEC expects
companies to incorporate their discussions of off-balance sheet
arrangements into their broader discussions of liquidity and
capital resources.

The instruction identifies a number of off-balance sheet
arrangements, including “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.” As an
example offered in support of its principles-based approach, the
SEC explains that the current prescriptive definition was deficient
in that it did not include certain types of off-balance sheet
arrangements, such as contingent obligations of some pharma
companies to make milestone payments to licensors of drug
compounds. Nevertheless, companies have often disclosed these
obligations in MD&A, supporting the SEC’s belief that a
principles-based instruction will better elicit information
“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.”

Contractual obligations table (current Item 303(a)(5)) and
amended Item 303(b)(1)—liquidity and capital resources)

The SEC is eliminating the prescriptive contractual obligations
table, as proposed, and focusing instead on a principles-based
requirement to provide, as discussed above, “a robust
discussion of liquidity and capital resources, including a
discussion of contractual obligations.” The SEC’s 
intent is to eliminate the burdens associated with preparation of
the table while continuing to provide investors with material
information.

Critical accounting estimates (new Item 303(b)(3))

In prior guidance, the SEC has said that, in addition to
discussing critical accounting policies in
MD&A, companies should address the material implications of
uncertainties associated with critical
accounting estimates. The disclosure was supposed to
supplement the policies discussion, but often just duplicated it.
To eliminate this duplication and promote enhanced analysis of
estimation uncertainties, the SEC is amending Item 303(a)
to explicitly require disclosure regarding critical accounting
estimates, including changes in estimates and the
sensitivity of the reported amounts to the underlying
estimates. As the SEC stated in the proposal, the intent of the
requirement is to further understanding of amounts reported in the
financials “by providing greater insight on the uncertainties
involved in creating and applying an accounting policy and how
significant accounting policies of registrants faced with similar
facts and circumstances may differ.”

Many commenters on the proposal had expressed concerns regarding
the need to provide a sensitivity analysis, noting the challenging
and costly nature of the requirement for some companies and the
possibility that it might elicit immaterial information. Some also
objected that “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.” Some
commenters also asked the SEC to clarify the applicable period for
changes in estimates. Some also opposed the requirement to disclose
changes in estimates, contending that the disclosure either could
“result in confusion and unwarranted questioning of past
judgments or would be reflected in amounts that are reported in the
financial statements” and discussed in MD&A.

In response, the SEC is modifying the final rule to 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.”

The final amendments define “critical accounting
estimates” as estimates made in accordance with GAAP
“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.” Companies will be required to 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.” Companies
will need to discuss “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.” (Emphasis
added.)

According to the SEC, the requirement to disclose how much an
estimate and/or assumption has changed over a relevant period 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
new reference to “assumptions” in addition to estimates
is intended to make clear that companies “have flexibility to
provide appropriate context in the discussion of changes underlying
a critical accounting estimate.” And the SEC also makes the
point that “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.”
Notably, the requirement to disclose changes, as well as the
sensitivity disclosure, are “not intended to yield discussions
of quantitative changes to reported amounts,” but rather
“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.” An instruction specifies that critical accounting
estimates should supplement, not duplicate, the description in the
notes to the financial statements.

Discussion of interim periods (amended Item 303(c))

The final amendments are intended to provide companies with more
flexibility in their discussions of interim periods by permitting
comparison of the most recently completed quarter to either the
corresponding quarter of the prior year (as is currently
required) or  to the immediately preceding
quarter. The objective is to allow companies to 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.” For
example, businesses that are not seasonal may find a sequential
quarter analysis to be more relevant than a comparison to the
corresponding quarter of the prior year. Under the final
amendments, if the company opts to provide a sequential quarter
analysis, the company must provide summary financial information
for that preceding quarter or identify the relevant prior EDGAR
filing. In addition, if a company changes the comparison from the
prior interim period comparison (e.g., provides sequential
quarter analysis after previously providing analysis of the
corresponding quarter of the prior year), the company would be
required to explain the reason for the change and present both
comparisons in the filing. The SEC believes that this requirement
will provide investors greater insight into the company’s
decision-making. The final amendments will continue to require a
discussion of the material changes in items specified in the full
fiscal year requirements in amended Item 303(b), including critical
accounting estimates.

Smaller reporting companies

Smaller reporting companies are currently not required to
provide the Table of Contractual Obligations and, as the Table is
being eliminated, the SEC is also eliminating the specific
exclusion for SRCs.  However, 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, and the SEC emphasizes that SRCs
should comply with the amended MD&A disclosure requirement.

Application to foreign private issuers

The SEC is adopting parallel amendments applicable to financial
disclosures provided by foreign private issuers largely as proposed
(with some conforming changes). The corresponding amendments apply
to FPIs using Form 20-F or Form 40-F, as well as to current
Instruction 11 to Item 303, which specifically applies to FPIs that
choose to file on domestic forms. Instruction 11 is being amended
to incorporate the requirement for FPIs to discuss hyperinflation
in a hyperinflationary economy.

Additional conforming amendments

There are also a number of additional conforming amendments, not
discussed in this post, that affect roll-up transactions, Reg AB,
summary prospectuses in Forms S-1 and F-1, and to business
combinations in Form S-4, Form F-4 and Schedule 14A (eliminating
references to Item 301, as well as some duplicative
requirements)

Compliance date

As noted above, the final amendments will become effective 30
days after publication in the Federal Register. Companies
will be required to comply for “their first fiscal year ending
on or after… the ‘mandatory compliance date,'” which
is the date that is 210 days after publication in
the Federal Register.  The SEC staff has
separately confirmed to us that the reference is intended to apply
to the first annual report on Form 10-K for the first
fiscal year ending on or after the mandatory compliance date.
 Assuming publication of the new rules this year, companies
with calendar-year fiscal years will be required to comply
beginning with their Forms 10-K for 2021 to be filed in 2022. In
addition, companies “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. “
Although companies will not be required to apply the amended rules
until the mandatory compliance date, the final amendments permit
early compliance any time after the effective date, so long as the
disclosure is responsive to an amended item in its entirety and the
company provides disclosure responsive to that entire amended item
in any applicable filings going forward.

Table of Changes

Below is a slightly modified version of the SEC’s table of
changes

Current Item or Issue	Summary Description of Amended Rules	Principal Objective(s)
Item 301 Selected financial data	Registrants will no longer be required to provide 5 years of selected financial data.	Modernize disclosure requirement in light of technological developments and simplify disclosure requirements.
Item 302(a) Supplementary financial information	Registrants will no longer be required to provide 2 years of tabular selected quarterly financial data. The item will be replaced with a principles-based requirement for material retrospective changes.	Reduce repetition and focus disclosure on material information. Modernize disclosure requirement in light of technological developments.
Item 303(a) MD&A	Clarify the objective of MD&A and streamline the fourteen instructions.	Simplify and enhance the purpose of MD&A.
Item 303(a)(2) Capital resources	Registrants will need to provide material cash requirements, including commitments for capital expenditures, as of the latest fiscal period, the anticipated source of funds needed to satisfy such cash requirements, and the general purpose of such requirements.	Modernize and enhance disclosure requirements to account for capital expenditures that are not necessarily capital investments.
Item 303(a)(3)(ii) Results of operations	Registrants will need to disclose known 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.	Clarify item requirement by using a disclosure threshold of “reasonably likely,” which is consistent with the Commission’s interpretative guidance on forward-looking statements.
Item 303(a)(3)(iii) Results of operations	Clarify that a discussion of material changes in net sales or revenue is required (rather than only material increases).	Clarify MD&A disclosure requirements by codifying existing Commission guidance.
Item 303(a)(3)(iv) Results of operations Instructions 8 and 9 (Inflation and price changes)	The item and instructions will be eliminated. Registrants will still be required to discuss these matters if they are part of a known 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.	Encourage registrants to focus on material information that is tailored to a registrant’s businesses, facts, and circumstances.
Item 303(a)(4) Off- balance sheet arrangements	The item will be replaced by a new instruction to Item 303. Under the new instruction, registrants will be required 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 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.	Prompt registrants to consider and integrate disclosure of off-balance sheet arrangements within the context of their MD&A.
Item 303(a)(5) Contractual obligations	Registrants will no longer be required to provide a contractual obligations table. A 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.	Promote the principles-based nature of MD&A and simplify disclosures.
Instruction 4 to Item 303(a) (Material changes in line items)	Incorporate a portion of the instruction into amended Item 303(b). Clarify in amended Item 303(b) that where there are material changes in a line item, including 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.	Enhance analysis in MD&A. Clarify MD&A disclosure requirements by codifying existing Commission guidance on the importance of analysis in MD&A.
Item 303(b) Interim periods	Registrants will be permitted to compare their most recently completed quarter to either the corresponding quarter of the prior year or to the immediately preceding quarter. Registrants subject to Rule 3-03(b) of Regulation S-X will be afforded the same flexibility.	Allow for flexibility in comparison of interim periods to help registrants provide a more tailored and meaningful analysis relevant to their business cycles.
Critical Accounting Estimates	Registrants will be explicitly required to disclose critical accounting estimates.	Facilitate compliance and improve resulting disclosure. Eliminate disclosure that duplicates the financial statement discussion of significant policies. Promote meaningful analysis of measurement uncertainties.

Originally Published by Cooley, November 2020

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