Divided SEC amends Regulation S-K rules to modernize descriptions of business, legal proceedings and risk factors
August 26, 2020
Authored by: R. Randall Wang and Vicki Westerhaus
On August 26, 2020, by a 3-2 party-line vote, the SEC adopted amendments to Regulation S-K that aim to modernize the descriptions of business and legal proceedings, and risk factor disclosure requirements. The amendments reflect a principles-based approach in which disclosure objectives are set and management is permitted to exercise judgment on how to satisfy those objectives — tailored to the particular registrant — to the extent such information is material to an understanding of the topic.
We have prepared a client alert describing the amendments in more detail. The following is a brief summary.
Description of Business (Items 101(a) and (c)). The amendments provide a nonexclusive list of the types of information that a company may need to disclose, based on a principles-based approach. For example, a company would describe its dependence on key products and services that are material instead of focusing on products and services that meet the quantitative thresholds based on revenue currently prescribed in Item 101(c)(1)(i).
Among other things, the revised list of disclosure topics relating to the general development of a company’s business and accompanying business description:
- Eliminates the look-back in Item 101(a) – generally five years, or three years for smaller reporting companies — to focus on material developments of a company’s business, regardless of a specific time frame.
- Revises and expands the list of disclosure topics in Item 101(c) with a principles-based, non-exclusive list of topics.
- Require, to the extent material, new disclosures regarding “human capital resources,” which includes any