SEC moves toward principles-based disclosure in proposed amendments

Continuing its move toward more principles-based disclosure and away from line-item requirements, the US Securities and Exchange Commission (the “SEC”) has proposed amendments to its disclosure requirements that would eliminate the following:

  • Selected financial data – Item 301 of Regulation S-K and Item 3.A of Form 20-F
  • Off-balance sheet arrangements – Item 303(a)(4) of Regulation S-K and Item 5.E of Form 20-F
  • Tabular disclosure of contractual obligations – Item 303(a)(5) of Regulation S-K and Item 5.F of Form 20-F

The proposed amendments would add to the requirements for further capital resources discussion in the Operating and Financial Review and Prospects (“OFR”) / Management’s Discussion and Analysis (“MD&A”), as well as disclosure of critical accounting estimates under Item 303(a) of Regulation S-K and Item 5.F of Form 20-F. Parallel amendments have also been proposed to Form 40-F.

Proposed Amendments

The following are the key proposed changes that would apply to foreign private issuers (“FPIs”):

MD&A Guidance

The SEC also issued MD&A guidance stating that, where companies disclose metrics (such as environmental metrics), they should consider existing MD&A requirements and the need to include any further material information, that may be necessary to make the presentation of the metric, in light of the circumstances under which it is presented, not misleading. A company should first consider the extent to which an existing regulatory disclosure framework applies, such as US GAAP or IFRS; or, for non-GAAP measures, Regulation G or Item 10 of Regulation S-K.

Companies should also consider what additional information may be necessary to provide an adequate context for an investor to understand the metric presented. The SEC would generally expect the following disclosure to accompany the metric:

  • a clear definition of the metric and how it is calculated;
  • a statement indicating the reasons why the metric provides useful information to investors; and
  • a statement indicating how management uses the metric in managing or monitoring the performance of the business.

If a company changes the method by which it calculates or presents the metric from one period to another or otherwise, the company should consider the need to disclose, to the extent material:

  • the differences in the way the metric is calculated or presented compared to prior periods;
  • the reasons for such changes;
  • the effects of any such change on the amounts or other information being disclosed and on amounts or other information previously reported; and
  • such other differences in methodology and results as would reasonably be expected to be relevant to an understanding of the company’s performance or prospects.


Notably, the SEC has not proposed any climate change-related disclosure requirements, although SEC Chair Jay Clayton acknowledged the issue in his statement by summarizing the SEC’s current approach. While Commissioner Hester Peirce said that the SEC “ought not step outside [its] lane and take on the role of environmental regulator or social engineer,” Commissioner Allison Herren Lee called the SEC’s lack of any proposals on the subject “the elephant in the room.”

We will continue to monitor developments in this area and welcome any queries you may have.