Now that most of us are through the crunch of year-end and first-quarter reporting, it is time to give some thoughtful consideration to how we will implement the
As a reminder, this is the rule that modernized and updated several areas in S-K Item 303, including:
The transition for the new rules provides that companies can voluntarily adopt the changes on an S-K item-by-item basis after the effective date of February 10, 2021. If a company does not early implement the new rule, the mandatory transition date is the company’s fiscal year that ends on or after August 9, 2021. For calendar year-end companies, the new rules must be implemented for the year ended December 31, 2021.
This is the Final Rule that also changed the requirement for the five-year summary and quarterly information disclosures. We explored these changes in
Implementing the new MD&A rules will require more planning and thought. There are many considerations, ranging from the new liquidity and capital resources requirements to clearer critical accounting estimate disclosures. Additionally, in most organizations, there are several stakeholders in MD&A disclosure who will need to be involved in the implementation. To hopefully help in this process, we are starting
Perhaps more importantly, the new principles-based MD&A requirements are designed to help companies build a clearer and more informative MD&A. This transition provides an opportunity to make MD&A more informative and helpful for investors. Companies can combine the objective of improving their MD&A with the process of implementing the new S-K Item 303 guidance.
Our next post will explore the changes to the objective of MD&A and discuss how to use this objective as we draft MD&A to make it simpler and easier to follow.
In the meantime, to provide an example of a company that went all in and implemented the new rules for their year-ended December 31, 2020, check out
To help readers understand why their 2020 Form 10-K looks different, Lumen provided this helpful disclosure at the very beginning of Item 1 about the changes in their 10-K related to new rules:
Changes from Prior Periodic Reports
In this report we have complied with the disclosures required by the Securities and Exchange Commission (“SEC”) release No. 33-10825 “Modernization of Regulation S-K Items 101, 103, and 105”, and we have early adopted the changes in disclosure standards included in SEC release No. 33-10890 “Management’s Discussion and Analysis, Selected Financial Data, Supplementary Financial Information.”
Modernization of Regulation S-K Items 101, 103 and 105
Effective as of November 9, 2020, the SEC issued Release No. 33-10825, “Modernization of Regulation S-K Items 101, 103, and 105.” This release was adopted to modernize the description of business, legal proceedings, and risk factor disclosures that registrants are required to make pursuant to Regulation S-K. Specifically, this release requires registrants to provide disclosures relating to their human capital resources and to restructure their risk factor disclosures. Additionally, the release increases the threshold for disclosure of environmental proceedings to which the government is a party.
These changes are required for any annual period subsequent to the effective date of November 9, 2020. As such, we have adopted these changes in this report.
Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information
In November 2020, the SEC issued Release No. 33-10890, “Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information” which will become fully effective on August 9, 2021, with voluntary compliance permitted on or after February 10, 2021. This release was adopted to modernize, simplify, and enhance certain financial disclosure requirements in Regulation S-K. Specifically, the SEC eliminated the requirement for selected financial data, only requiring quarterly disclosure when there are retrospective changes affecting comprehensive income, and amending the matters required to be presented under Management’s Discussion and Analysis (“MD&A”) to, among other things, eliminate the requirement of the contractual obligations table.
With our early adoption of this release, we have eliminated from this document the items discussed above that are no longer required. Information on our contractual obligations is still disclosed in a narrative within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this report.
Lumen’s MD&A can be found on page 34 of their
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