On January 30, 2020, the U.S. Securities and Exchange Commission announced that it has voted to propose amendments to (1) to eliminate Item 301, Selected Financial Data; Item 302, Supplementary Financial Information; and Item 303(a)(5) – MD&A, Tabular disclosure of contractual obligations; and (2) to modernize, simplify and enhance the disclosure requirements in Item 303, Management’s Discussion & Analysis of Financial Condition and Results of Operations (MD&A).

Among other things, the proposed amendments to Item 303 would:

• Add a new Item 303(a), Objective, to state the principal objectives of the MD&A;
• Replace Item 303(a)(4), Off-balance sheet arrangements, with a principles-based instruction to prompt registrants to discuss off-balance sheet arrangements in the broader context of the MD&A;
• Eliminate Item 303(a)(5), Tabular disclosure of contractual obligations, given the overlap with information required in the financial statements and to promote the principles-based nature of the MD&A;
• Revise the interim MD&A requirement in Item 303(b) to provide flexibility by allowing companies to compare their most recently completed quarter to either the corresponding quarter of the prior year (as is currently required) or to the immediately preceding quarter; and
• Add a new disclosure requirement to Item 303, Critical accounting estimates, to explicitly require disclosure of critical accounting estimates and eliminate disclosure that duplicates the financial statement discussion of significant policies. The SEC’s proposed amendments define a critical accounting estimate as an estimate made in accordance with generally accepted accounting principles that involves a significant level of estimation uncertainty and has had or is reasonably likely to have a material impact on the registrant’s financial condition or results of operations. For each critical accounting estimate, the proposed amendments would require registrants to disclose, to the extent material, why the estimate is subject to uncertainty, how much each estimate has changed during the reporting period, the sensitivity of the reported amounts to the material methods, assumptions and estimates underlying the estimate’s calculation.

With respect to the proposed new disclosure requirement to Item 303, Critical accounting estimates, the SEC noted that despite its previous guidance on this issue, many registrants repeated the discussion of significant accounting policies from the notes to the financial statements in the MD&A and provided limited additional discussion of the critical accounting estimates. United States generally accepted accounting principles do not require a similar disclosure of estimates and assumptions in the notes to the financial statements except in a limited number of circumstances. However, International Financial Reporting Standards requires disclosures regarding sources of estimation uncertainty and judgments made in the process of applying accounting policies that have the most significant effect on the amounts recognized in the financial statements. To discourage duplicative disclosures, the SEC has included an instruction in the proposed rule specifying that the disclosure of critical accounting estimates shall supplement, but not duplicate, the description of accounting policies or other disclosures in the notes to the financial statements.

The SEC is also proposing certain parallel amendments applicable to financial disclosures provided by foreign private issuers.

The comment period ends on April 28, 2020.