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SEC issues C&DIs on revised MD&A rules

Defining Issues | January 2020

The SEC staff added three new Compliance & Disclosure Interpretations to provide guidance when preparing MD&A

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The Division of Corporation Finance issued guidance on preparing MD&A when a company has omitted a discussion of the earliest of the three years in a filing, pursuant to amended Reg S-K. The guidance establishes three new Compliance & Disclosure Interpretations of Reg S-K.

Applicability

C&DIs 110.02, 110.03, 110.04

  • Public companies, including registered investment companies and registered investment advisers

Relevant dates

  • Effective immediately

Key impacts

In 2019, as part of the FAST Act Modernization and Simplication of Regulation S-K, the SEC amended certain disclosure requirements and related rules and forms. Among the changes were revisions to Managemement’s Discussion and Analysis of financial condition and results of operations (Item 303) of Regulation S-K.

Revised Instruction 1 of Item 303(a) permits companies that file three years of financial statements to omit the earliest year’s discussion if it was already included in a prior filing and such information is not necessary to a reader’s understanding of the company’s financial condition. Companies that elect not to include a discussion of the earliest year must clearly identify where the omitted disclosure appears in a prior filing.

The Division of Corporation Finance issued three new C&DIs to provide guidance on the revised MD&A rules. 

  • The statement identifying the location of the discussion in a prior filing does not incorporate such disclosure into the current filing unless the registrant expressly states that the information is incorporated by reference. C&DI 110.02
  • If management believes the discussion of the earliest year is necessary to an understanding of the company’s financial condition, changes in financial condition and results of operations (pursuant to Item 303(a)), the current filing should include such discussion or expressly incorporate its discussion from the previous filing by reference. C&DI 110.03
  • If a company incorporates its current year 10-K by reference to update an effective registration statement, and that 10-K identifies the location of the earliest year discussion in a previous filing (and is not expressly incorporated by reference), the discussion of the earliest year is not incorporated by reference into the registration statement. C&DI 110.04

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