discussion of a registrant's off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on a
registrant's financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures, or capital resources that is material to investors.\154\
Generally, Item 303(a)(4)(ii) defines off-balance sheet arrangements as
certain guarantees, retained or contingent interests in assets
transferred to an unconsolidated entity, obligations under certain
derivative instruments,\155\ and variable interests in any
unconsolidated entity. To the extent necessary to an understanding of
such arrangements and effect, registrants must disclose the following
items and such other information that the registrant believes is
necessary for such an understanding:
---------------------------------------------------------------------------

    \153\ Item 5.E. of Form 20-F and General Instruction B.(11) of
Form 40-F contain requirements for issuers that use those forms that
are virtually identical to the requirements of Item 303(a)(4).
    \154\ Item 303(a)(4) of Regulation S-K [17 CFR 229.303(a)(4)].
    \155\ For registrants whose financial statements are prepared in
accordance with U.S. GAAP, the definition includes a contract that
would be accounted for as a derivative instrument, except that it is
both indexed to the registrant's own stock and classified in the
registrant's statement of stockholders' equity. See ASC 815-10-15-
74. For other registrants, the definition includes derivative
instruments that are both indexed to the registrant's own stock and
classified in stockholders' equity, or not reflected, in the
registrant's statement of financial position. See Item 5.E.2.(c) of
Form 20-F.
---------------------------------------------------------------------------

     The nature and business purpose of such off-balance sheet
arrangements; \156\
---------------------------------------------------------------------------

    \156\ Item 303(a)(4)(i)(A) of Regulation S-K [17 CFR
229.303(a)(4)(i)(A)].
---------------------------------------------------------------------------

     The importance to the registrant of such off-balance sheet
arrangements in respect of its liquidity, capital resources, market
risk support, credit risk support, or other benefits; \157\
---------------------------------------------------------------------------

    \157\ Item 303(a)(4)(i)(B) of Regulation S-K [17 CFR
229.303(a)(4)(i)(B)].
---------------------------------------------------------------------------

     The amounts of revenues, expenses, and cash flows arising
from such arrangements; the nature and amounts of any interests
retained, securities

issued, and other indebtedness incurred in connection with such
arrangements; and the nature and amounts of any other obligations or
liabilities (including contingent obligations or liabilities) of the
registrant arising from such arrangements that are or are reasonably
likely to become material and the triggering events or circumstances
that could cause them to arise; \158\ and
---------------------------------------------------------------------------

    \158\ Item 303(a)(4)(i)(C) of Regulation S-K [17 CFR
229.303(a)(4)(i)(C)].
---------------------------------------------------------------------------

     Any known event, demand, commitment, trend, or uncertainty
that will result in or is reasonably likely to result in the
termination, or material reduction in availability, of a registrant's
off-balance sheet arrangements that provide material benefits, and the
course of action that the registrant has taken or proposes to take in
response to any such circumstances.\159\
---------------------------------------------------------------------------

    \159\ Item 303(a)(4)(i)(D) of Regulation S-K [17 CFR
229.303(a)(4)(i)(D)].
---------------------------------------------------------------------------

    In 2002, the Commission issued a statement that the quality of
disclosure of off-balance sheet arrangements in MD&A should be
improved.\160\ The Commission also noted that off-balance sheet
arrangements often are integral to both liquidity and capital resources
and that registrants should ``consider all of these items together, as
well as individually,'' when drafting MD&A disclosure.\161\ The
Commission further noted that off-balance sheet arrangements and
transactions with unconsolidated, limited purpose entities should be
discussed pursuant to Item 303(a) when they are ``reasonably likely to
affect materially liquidity or the availability of or requirements for
capital resources.'' \162\
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    \160\ See Commission Statement about Management's Discussion and
Analysis of Financial Condition and Results of Operations, Release
No. 33-8056 (Jan. 22, 2002) [67 FR 3746 (Jan. 25, 2002)] (``2002
Commission Statement'').
    \161\ See id. at 3748.
    \162\ See id.
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    The 2002 Commission Statement was consistent with Commission rules
and guidance at the time. For example, Item 303(a)(2)(ii) specifically
requires registrants to disclose off-balance sheet financing
arrangements in their discussion of capital resources.\163\ Similarly,
the 1989 MD&A Interpretive Release indicated that a registrant's
discussion of long-term liquidity and long-term capital resources must
address demands or commitments, including any off-balance sheet
items.\164\
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    \163\ Item 303(a)(2)(ii) of Regulation S-K [17 CFR
229.303(a)(2)(ii)]. The item specifies that the discussion shall
consider changes between equity, debt, and any off-balance sheet
financing arrangements.
    \164\ See 1998 MD&A Interpretive Release at 22431 (``The
discussion of long-term liquidity and long-term capital resources
must address material capital expenditures, significant balloon
payments or other payments due on long-term obligations, and other
demands or commitments, including any off-balance sheet items, to be
incurred beyond the next 12 months, as well as the proposed sources
of funding required to satisfy such obligations.'').
---------------------------------------------------------------------------

    Several months after the 2002 Commission Statement, the Sarbanes-
Oxley Act \165\ was enacted and added Section 13(j) to the Exchange
Act, which required the Commission to adopt rules providing that each
annual and quarterly financial report required to be filed with the
Commission disclose all material off-balance sheet arrangements.\166\
To implement Section 13(j), in 2003 the Commission adopted specific
disclosure requirements for off-balance sheet arrangements in current
Item 303(a)(4).\167\ When adopting Item 303(a)(4), the Commission
reiterated that, while at that time only one item in Item 303
specifically identified off-balance sheet arrangements,\168\ other
requirements ``clearly require[d] disclosure of off-balance sheet
arrangements if necessary to an understanding of a registrant's
financial condition, changes in financial condition or results of
operations.'' \169\ The 2003 amendments supplemented and clarified the
disclosures that registrants must make about off-balance sheet
arrangements and required registrants to provide those disclosures in a
separately designated section of MD&A.\170\
---------------------------------------------------------------------------

    \165\ Sarbanes-Oxley Act of 2002, Public Law 107-204, 116 Stat
745 (Jul. 2002) (``Sarbanes-Oxley Act'').
    \166\ Section 401(a) of the Sarbanes-Oxley Act added Section
13(j) to the Exchange Act [15 U.S.C. 78m(j)], which directed the
Commission to adopt rules requiring each annual and quarterly
financial report filed with the Commission to disclose ``all
material off-balance sheet transactions, arrangements, obligations
(including contingent obligations), and other relationships of the
issuer with unconsolidated entities or other persons, that may have
a material current or future effect on financial condition, changes
in financial condition, results of operations, liquidity, capital
expenditures, capital resources, or significant components of
revenues or expenses.''
    \167\ See Disclosure in Management's Discussion and Analysis
about Off-Balance Sheet Arrangements and Aggregate Contractual
Obligations, Release No. 33-8182 (Jan. 28, 2003), [68 FR 5981(Feb.
5, 2003)] (``Off-Balance Sheet Arrangements and Contractual
Obligations Adopting Release''), at 5983.
    \168\ Item 303(a)(2)(ii) of Regulation S-K [17 CFR
229.303(a)(2)(ii)].
    \169\ See Off-Balance Sheet Arrangements and Contractual
Obligations Adopting Release, at 5983.
    \170\ See id.
---------------------------------------------------------------------------

    In the release proposing Item 303(a)(4), the Commission recognized
that parts of the proposed off-balance sheet disclosure requirements
might overlap with disclosure presented in the footnotes to the
financial statements.\171\ The Commission stated, however, that the
proposed rules were designed to provide more comprehensive information
and analysis in MD&A than the disclosure that U.S. GAAP required in
footnotes to financial statements.\172\
---------------------------------------------------------------------------

    \171\ See Disclosure in Management's Discussion and Analysis
About Off-Balance Sheet Arrangements, Contractual Obligations and
Contingent Liabilities and Commitments, Release No. 33-8144 (Nov. 4,
2002) 67 FR 68054 (Nov. 8, 2002), at n.72.
    \172\ See id.
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    Since the adoption of Item 303(a)(4), the FASB has issued
additional requirements that have caused U.S. GAAP to further overlap
with the item.\173\ For example, U.S. GAAP now requires disclosure in
the notes to the financial statements of the nature and amount of a
guarantee,\174\ retained or contingent interests in assets transferred
to unconsolidated entities,\175\ pertinent information of derivative
instruments that are classified as stockholders' equity under U.S.
GAAP,\176\ and obligations under variable interests in unconsolidated
entities.\177\ In the Commission staff's experience, this overlap often
leads to registrants providing cross-references to the relevant notes
to their financial statements or providing disclosure that is
duplicative of information in the notes in response to Item 303(a)(4).
Nevertheless, while many of the requirements in Item 303(a)(4) overlap
with U.S. GAAP, some of the requirements related to the location,
presentation, and nature of the disclosure are not the same.
Additionally, Item 303(a)(4) disclosure is not audited. Below we
discuss these differences in greater detail.
---------------------------------------------------------------------------

    \173\ In June 2009, the FASB Issued SFAS No. 166, Accounting for
Transfers of Financial Assets an amendment of FASB Statement No.
140, which requires enhanced disclosures about transfers of
financial assets and a transferor's continuing involvement with
transfers of financial assets accounted for as sales. Also in June
2009, the FASB issued SFAS No. 167, Amendments to FASB
Interpretation No. 46(R), which requires enhanced disclosures about
an enterprise's involvement in a variable interest entity, including
unconsolidated entities. SFAS No. 166 and 167 have been codified as
ASC Topics 860 (Transfers and Servicing) and 810 (Consolidation),
respectively. See also Section II.D.1.b and note 315 below for a
discussion of IFRS requirements that overlap with Item 5.E of Form
20-F.
    \174\ See ASC 460-10-50.
    \175\ See ASC 860-10-50-3, ASC 860-20-50.
    \176\ See ASC 815-40-50-5, ASC 505-10-50.
    \177\ See ASC 810-10-50-4.
---------------------------------------------------------------------------

    Location of Disclosure. Item 303(a)(4)(i) specifies that off-
balance sheet arrangements should be discussed in a separately-
captioned section. The instructions to Item 303(a)(4) permit that
discussion to cross-reference information in the footnotes to the
financial statements, rather than repeat it, provided that the MD&A
disclosure

integrates the substance of the footnotes in a manner designed to
inform readers of the significance of the information that is cross-
referenced.\178\ By contrast, U.S. GAAP does not prescribe the location
of these disclosures, which may be dispersed throughout the notes to
the financial statements. However, the submission of this information
in interactive data format, which is required in periodic reports on
Forms 10-K, 10-Q, 20-F, 40-F and reports on Forms 8-K and 6-K that
contain revised or updated financial statements, allows investors to
isolate disclosures about off-balance sheet arrangements even when it
is dispersed throughout the notes to the financial statements.
---------------------------------------------------------------------------

    \178\ Instruction 5 to Item 303(a)(4) of Regulation S-K [17 CFR
229.303(a)(4)].
---------------------------------------------------------------------------

    Presentation of Disclosure. Item 303(a)(4) requires disclosure for
the most recent period and a discussion of changes from the previous
year where necessary to an understanding of the disclosure.\179\ U.S.
GAAP does not require discussion of changes from the previous year.
---------------------------------------------------------------------------

    \179\ Instruction 4 to Item 303(a)(4) of Regulation S-K [17 CFR
229.303(a)(4)].
---------------------------------------------------------------------------

    Nature of Disclosures. While Item 303(a)(4) and U.S. GAAP both
require disclosure of the nature and amounts associated with off-
balance sheet arrangements, Item 303(a)(4)(i)(A) requires additional
disclosure about the business purpose of the off-balance sheet
arrangement and the importance of the off-balance sheet arrangement to
the registrant's liquidity and capital resources. Item 303(a)(4) also
requires disclosure of any known event, demand, commitment, trend, or
uncertainty that will result in or is reasonably likely to result in
the termination or material reduction in the availability of material
off-balance sheet arrangements to the registrant and the course of
action the registrant has taken or proposes to take to address such
circumstances. U.S. GAAP does not require this disclosure.
    In the Concept Release, the Commission solicited comment on the
importance of disclosure elicited by Item 303(a)(4) and whether and how
we should amend the requirements. Some commenters supported retaining
the requirements.\180\ One of these commenters stated that without this
disclosure requirement, ``a registrant could create significant off-
balance sheet liabilities that have the potential to impair its
financial condition without investors knowing of it.'' \181\ Another
commenter stated that off-balance sheet arrangements disclosure
requirements should be retained and expanded, and stated that it was
comfortable with duplications between the financial statements and MD&A
disclosures.\182\ This commenter indicated that an executive overview
analyzing the risks associated with off-balance sheet arrangements
would be beneficial.
---------------------------------------------------------------------------

    \180\ See, e.g., letters from CFA, CalPERS, and S. Percoco.
    \181\ See letter from CFA.
    \182\ See letter from CalPERS.
---------------------------------------------------------------------------

    Several commenters encouraged the Commission to eliminate or amend
Item 303(a)(4), stating that the requirements substantially overlap
with U.S. GAAP.\183\ Some commenters suggested that the Commission
apply the principles-based disclosure framework in MD&A to off-balance
sheet arrangements.\184\ Other commenters recommended that the
Commission make clear that no disclosure is required related to off-
balance sheet arrangements that are not material.\185\
---------------------------------------------------------------------------

    \183\ See. e.g., letters from Chamber, CGCIV, Davis Polk, E&Y,
KPMG LLP (July 21, 2016) (``KPMG''), Arthur J. Radin, Janover LLC
(``A. Radin''), and SIFMA.
    \184\ See, e.g., letters from CGCIV, Chamber, and PWC.
    \185\ See letters from Davis Polk and Fenwick.
---------------------------------------------------------------------------

    In light of the updates made to U.S. GAAP that result in
substantial overlap between U.S. GAAP and Item 303(a)(4) of Regulation
S-K, and consistent with our other proposed amendments intended to
promote the principles-based nature of MD&A, we believe that the
current more prescriptive off-balance sheet arrangement definition and
related disclosure requirement in Item 303(a)(4) should be replaced
with a principles-based instruction. Specifically, we propose to
replace current Item 303(a)(4) with a new Instruction to Item 303(b)
that would require registrants to discuss commitments or obligations,
including contingent obligations, arising from arrangements with
unconsolidated entities or persons that have, or are reasonably likely
to have, a material current or future effect on a registrant's
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, cash requirements, or
capital resources.\186\ This proposed instruction would build on the
current requirement in Item 303(a)(2) that specifically requires
consideration of off-balance sheet financing arrangements as part of
the capital resources discussion.\187\
---------------------------------------------------------------------------

    \186\ See proposed Instruction 8 to Item 303(b).
    \187\ See Item 303(a)(2)(ii) of Regulation S-K [17 CFR
302(a)(2)(ii)].
---------------------------------------------------------------------------

    The proposed amendment should result in greater integration of
material off-balance sheet arrangements disclosure within the context
of broader MD&A disclosures as those arrangements enumerated in Item
303(a)(4) may be discussed more cohesively with other off-balance sheet
arrangements that are not enumerated in Item 303(a)(4). We believe this
could result in more effective discussion of the impact of these
arrangements. Commission staff and commenters have observed that the
current requirements often result in boilerplate disclosure or a
duplication of disclosures in the financial statements. Further, Item
303(a)(4)'s requirement for disclosure in a separately captioned
section often results in a disjointed presentation of off-balance sheet
arrangements that may lack the necessary context of how these
obligations should be considered in light of a registrant's overall
financial condition. We believe that the proposed amendment would
result in disclosure that would be more useful to understanding the
impact of off-balance sheet arrangements, and may help avoid
boilerplate or disjointed disclosure.
    We acknowledge that, as discussed above, certain Item 303(a)(4)
requirements related to the location, presentation, and nature of the
disclosure do not overlap with U.S. GAAP. However, we believe that
proposed Instruction 8 would mitigate any potential loss of information
by requiring a discussion of material matters of liquidity, capital
resources, and financial condition as they relate to off-balance sheet
arrangements. Below, we seek comment on what material information, if
any, may be lost if we adopt the proposed amendments.
    Unlike Item 303(a)(4), the proposed instruction would not define
``off-balance sheet arrangements.'' Rather, it states that discussion
of commitments or obligations, including contingent obligations, of the
registrant arising from arrangements with unconsolidated entities or
persons that have or are reasonably likely to have a material current
or future effect on a registrant's financial condition, changes in
financial condition, revenues or expenses, results of operations,
liquidity, cash requirements, or capital resources shall be provided
even when the arrangement results in no obligations being reported in
the registrant's consolidated balance sheets. The instruction provides
examples of such arrangements that are substantially the same as those
included in the current definition of off-balance sheet arrangements in
Item 303(a)(4), including: Guarantees; retained or contingent interests
in assets transferred; contractual arrangements that support the
credit, liquidity, or market risk for assets transferred; obligations
that arise or could arise from variable interests held in an

unconsolidated entity; or obligations related to derivative instruments
that are both indexed to and classified in a registrant's own equity
under U. S. GAAP and are therefore not presented as liabilities on a
registrant's balance sheet.
    While the examples in the proposed instruction are substantially
the same as those in the current off-balance sheet arrangements
definition in Item 303(a)(4), the examples do not include references to
specific paragraphs in U.S. GAAP. Despite the elimination of these
cross-references, the amendments are not intended to broaden the types
of arrangements for which MD&A disclosure would be required. In this
regard, under existing MD&A requirements, registrants are required to
discuss in MD&A any known demands, commitments, events or uncertainties
that will result in or that are reasonably likely to result in the
registrant's liquidity decreasing in any material way, even if the
known demand did not meet the definition of an off-balance sheet
arrangement in Item 303(a)(4). Under the proposed amendments, those
same arrangements would continue to be required to be discussed in
MD&A. For the same reason, the proposed amendments also would not
narrow the scope of what would be required to be disclosed in MD&A. The
primary difference from what is currently required, and would be
required under the proposed amendments, is that the discussion would no
longer occur in a separately-captioned section; but rather, it would be
made in the context of a more holistic, principles-based analysis.
    We considered whether our proposal is consistent with Section 13(j)
of the Exchange Act, as added by Section 401(a) of the Sarbanes-Oxley
Act, which required the Commission to adopt rules providing that each
annual and quarterly financial report required to be filed with the
Commission shall disclose all material off-balance sheet arrangements.
We believe that Section 13(j) remains satisfied because, under proposed
Instruction 8 to Item 303(b), disclosure of all material off-balance
sheet arrangements would continue to be required in annual and
quarterly reports. As discussed above, although a discussion of off-
balance sheet arrangements would no longer be required to be provided
in a separately captioned section, registrants would still be required
to discuss such arrangements in the broader context of their MD&A
disclosures.
    We also propose to amend Items 2.03 and 2.04 of Form 8-K to include
the definition of ``off-balance sheet arrangements'' that is currently
in Item 303(a)(4). Currently, Form 8-K defines off-balance sheet
arrangements by cross reference to Item 303(a)(4)(ii).\188\ This
proposed amendment would not result in any changes in reporting
obligations under Item 2.03 and Item 2.04 of Form 8-K.\189\
---------------------------------------------------------------------------

    \188\ See Item 2.03(d) and Item 2.04(d) of Form 8-K. In 2004, as
part of a broader effort to expand the events that registrants must
report on a current basis, the Commission adopted additional
requirements for disclosing off-balance sheet arrangements on Form
8-K. These provisions require registrants to file a Form 8-K upon
the creation of a direct financial obligation or an obligation under
an off-balance sheet arrangement (Item 2.03) and to file a Form 8-K
if a triggering event occurs that causes the increase or
acceleration of such an obligation and the consequences of the event
are material to the registrant (Item 2.04). While the Form 8-K
requirements rely on the definition of ``off-balance sheet
arrangement'' in Item 303(a)(4)(ii), the purpose of the disclosure
is different. Unlike Item 303(a)(4), Form 8-K does not require
registrants to provide an analysis of off-balance sheet arrangements
or their importance to the registrant.
    \189\ We believe it is appropriate to retain the current,
prescriptive definition of ``off-balance sheet arrangements'' in
Form 8-K in light of its four business day filing requirement. See
Instruction B.1 and Instructions to Item 2.03 of Form 8-K. Our
intent is that a prescriptive definition will provide registrants
with greater certainty when filing a Form 8-K.
---------------------------------------------------------------------------

Request for Comment
    28. Should we amend the off-balance sheet arrangements disclosure
requirement by replacing Item 303(a)(4) with Instruction 8 to Item
303(b), as proposed? Is the proposed instruction a sufficient
replacement for the current requirement for a separately-captioned
presentation of off-balance sheet arrangements?
    29. Are there alternative approaches we should consider to address
the potential for boilerplate or duplicative disclosure?
    30. Would the proposed amendments result in the loss of material
information to investors that would not be disclosed elsewhere? If so,
what information would be lost? Are the proposed amendments
sufficiently tailored to avoid discussion of immaterial off-balance
sheet arrangements?
    31. Would the proposed amendments result in more meaningful MD&A
disclosures about off-balance sheet arrangements? Are the proposed
amendments likely to reduce boilerplate or duplicative disclosure?
    32. Should we amend Items 2.03 and 2.04 of Form 8-K to incorporate
the definition of ``off-balance sheet arrangements'' that is currently
in Item 303(a)(4), as proposed? Would the proposed amendments create
any confusion as to when a reporting obligation under Item 2.03 or Item
2.04 of Form 8-K would be triggered?
7. Contractual Obligations Table (Item 303(a)(5))
    Under Item 303(a)(5),\190\ registrants other than SRCs must
disclose in tabular format their known contractual obligations. The
item requires a registrant to arrange its table to disclose contracts
by type of obligations,\191\ the overall payments due, and by four
prescribed periods.\192\ A registrant may disaggregate the categories
of obligations, but it must disclose all obligations falling within the
prescribed five categories and for the prescribed time periods. A
registrant may provide footnotes to the table to the extent such
information is necessary to understand the disclosures in the
contractual obligations table. There is no materiality threshold for
this item, meaning registrants must disclose all contractual
obligations falling within the prescribed four categories.
---------------------------------------------------------------------------

    \190\ Item 303(a)(5) of Regulation S-K [17 CFR 229.303(a)(5)].
    \191\ The types of obligations include long-term debt
obligations, capital lease obligations, operating lease obligations,
purchase obligations, and other long-term liabilities reflected on
the registrant's balance sheet under GAAP.
    \192\ The payment obligations must be disclosed for the
following timeframes: Less than one year; one to three years; three
to five years; and more than five years.
---------------------------------------------------------------------------

    When the Commission implemented this disclosure requirement, its
purpose was to ensure that aggregated information about contractual
obligations was presented in one place.\193\ This was intended to aid
investors in determining the effect such obligations would have in the
context of off-balance sheet arrangements.\194\ Commission guidance
that followed the implementation of this requirement encouraged
registrants to include narratives to the table to provide more context
and analysis for the numbers presented.\195\
---------------------------------------------------------------------------

    \193\ See Off-Balance Sheet Arrangements and Contractual
Obligations Adopting Release at 5990.
    \194\ See id.
    \195\ See Commission Guidance on Presentation of Liquidity and
Capital Resources Disclosures in Management's Discussion and
Analysis, Release No. 33-9144 (Sept. 17, 2010) [75 FR 59894 (Sept.
28, 2010)] (``2010 MD&A Interpretive Release''), at 59896.
---------------------------------------------------------------------------

    In the Concept Release, the Commission solicited comment on the
meaningfulness of disclosure elicited by Item 303(a)(5). Several
commenters recommended retaining and enhancing this item
requirement,\196\ with two of these commenters supporting an additional
requirement to include pension obligations.\197\ Another

commenter recommended enhancing this disclosure by requiring XBRL
tagging and disclosure of single, discrete years (as opposed to grouped
years).\198\ Some of these commenters recommended requiring, or at
least encouraging, registrants to provide a narrative to the
contractual obligations table.\199\
---------------------------------------------------------------------------

    \196\ See, e.g., letters from RGA, Bloomberg, Better Markets,
Inc. (Jul. 21, 2016) (``Better Markets''), S. Percoco, and CFA
Institute.
    \197\ See letters from Bloomberg and S. Percoco.
    \198\ See letter from RGA.
    \199\ See, e.g., letters from Better Markets, S. Percoco, and
CFA Institute.
---------------------------------------------------------------------------

    Many commenters, however, recommended that we simplify or eliminate
Item 303(a)(5).\200\ Some commenters encouraged the Commission to
consider whether the contractual obligations table is necessary given
the overlap with the disclosure requirements of U.S. GAAP.\201\ One
commenter also noted that ``to the degree that elimination of
duplicative topics is unavoidable, registrants should be able to cross-
reference within a filing.'' \202\ Another commenter broadly supported
the idea of making MD&A contractual obligations disclosure more
principles-based ``to highlight material issues regarding [a
registrant's] liquidity'' and allowing the relevant factual information
to be provided in the financial statements.\203\ One commenter
questioned whether the contractual obligations table, as currently
structured, provides a complete picture of a registrant's obligations
and liquidity concerns.\204\
---------------------------------------------------------------------------

    \200\ See, e.g., letters from E&Y, SIFMA, BDO, EEI and AGA,
Davis Polk, General Motors, FEI, A. Radin, Deloitte, Chamber, FedEx,
CGCIV, CAQ, KPMG, PWC, Chevron, Fenwick, and Grant Thornton.
    \201\ See letters from General Motors, PWC, Grant Thornton, CAQ,
and Deloitte.
    \202\ See letter from General Motors.
    \203\ See letter from SIFMA.
    \204\ As an example, the commenter noted that a registrant can
have a large or small amount of contractual obligations, but the
disclosure of such amount does not necessarily provide investors
with information about the registrant's ability to generate
liquidity, its contractual obligations at any other point in time,
or a complete picture of its expected uses of cash. See letter from
E&Y.
---------------------------------------------------------------------------

    Several commenters recommended the Commission eliminate Item
303(a)(5), stating that the disclosure requirement is largely redundant
with what is required in the financial statements.\205\ One of these
commenters indicated that the Commission should eliminate disclosure
requirements that are redundant with U.S. GAAP or IFRS, as
applicable.\206\ This commenter stated that ``[i]dentical, or even
similar disclosures, to GAAP appear unnecessary considering that
accounting standards undergo a high level of scrutiny in the standards-
setting process and are subjected to ongoing FASB monitoring for needed
revisions.'' \207\ Another commenter stated that the information
provided in response to Item 303(a)(5) is largely the same as that
provided in a registrant's financial statements and questioned its
utility.\208\ The commenter went on to state that the information in
the Item 303(a)(5) contractual obligations table did not provide
insight as to whether a registrant could pay the obligations as they
became due.
---------------------------------------------------------------------------

    \205\ See, e.g., letters from A. Radin, Deloitte, Chamber,
FedEx, CGCIV, CAQ, KPMG, PWC, Chevron, Fenwick, E&Y, and Grant
Thornton.
    \206\ See letter from KPMG.
    \207\ The commenter then also included a chart that, among other
things, noted the items that overlap between Item 303(a)(5) and U.S.
GAAP requirements.
    \208\ See letter from Grant Thornton.
---------------------------------------------------------------------------

    In the FAST Act Report, Commission staff recommended eliminating
the contractual obligations table while enhancing the liquidity
discussion requirements.\209\ Under this recommendation, registrants
would no longer be required to present contractual obligations in a
table, but registrants would have to provide a hyperlink to the
relevant information in the financial statements. One commenter on the
FAST Act Report stated that eliminating the contractual obligations
table would be a ``step backwards.'' \210\ The commenter wrote that
``[t]he table as it exists is a user-friendly, central location for the
complete display of all a firm's future cash obligations.''
---------------------------------------------------------------------------

    \209\ See Report on Modernization and Simplification of
Regulation S-K (Nov. 23, 2016), available at https://www.sec.gov/reportspubs/sec-fast-act-report-2016.pdf.
    \210\ See letter to the FAST Act Report from Jack T. Ciesielski,
R.G. Associates, Inc. (Dec. 12, 20016), available at https://www.sec.gov/comments/fast/fast.htm.
---------------------------------------------------------------------------

    Although the Commission did not propose to eliminate Item 303(a)(5)
in the FAST Act Proposing Release,\211\ we now propose to eliminate
Item 303(a)(5), consistent with our objective to promote the
principles-based nature of MD&A and streamline disclosures by reducing
redundancy.\212\ We do not believe that eliminating the requirement
would result in a loss of material information to investors given the
overlap with information required in the financial statements and our
proposed expansion of the capital resources requirement, discussed
above in Section II.C.2.
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    \211\ See FAST Act Proposing Release.
    \212\ Item 2.03 of Form 8-K defines ``direct financial
obligation'' by cross references to Item 303(a)(5)(ii)--Definitions.
Accordingly, we are proposing to replace these cross references in
Form 8-K with the definitions from Item 303(a)(5)(ii).
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    As many commenters pointed out,\213\ much of the information
presented in response to this requirement overlaps with U.S. GAAP and
is therefore included in the notes to the financial statements.\214\ As
commenters also observed, the current table does not provide insight
into the registrant's ability to pay its obligations as they become due
\215\ and may not provide a complete picture of the registrant's
expected uses of cash.\216\ Our proposals to enhance the liquidity and
capital resources discussion are intended to address some of these
commenter concerns. We recognize that some of the information in the
contractual obligations table is not specifically called for under U.S.
GAAP.\217\ However, under our capital resources proposals, described
above in Section II.C.2, registrants would be required to discuss
material cash requirements, which would include material contractual
obligations.
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    \213\ See, supra note 201.
    \214\ For example, the following ASC requirements overlap with
Item 303(a)(5): ASC 470-10-50 (debt); ASC 840-10-50 (leases); ASC
842 (leases); ASC 440-10-50 (purchase commitments); and ASC 410,
420, 450, and 710 (other long-term obligations).
    \215\ See, e.g., letters from Grant Thornton, General Motors,
CAQ, and E&Y.
    \216\ See, e.g., letters from CAQ and E&Y.
    \217\ See Off-Balance Sheet Arrangements and Contractual
Obligations Adopting Release, at 5986 (``The preparation of
financial statements in accordance with GAAP already requires
registrants to assess payments under all of the above categories of
contractual obligations, except for purchase obligations.'').
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Request for Comment

    33. Should we eliminate the contractual obligations disclosure
requirement, as proposed?
    34. Would investors be deprived of material information under the
proposal?
    35. Is the disclosure of information related to contractual
obligations in the notes to the financial statements an adequate
substitute for its separate tabular presentation in Item 303(a)(5)?
Would there be any costs or challenges to investors of compiling
information required in Item 303(a)(5) from other sources and, if so,
what would the costs or challenges be? Do current XBRL-tagging
requirements facilitate compilation and comparison of such information?
    36. How do market participants use the ``payments due by period''
information in the contractual obligations table and is the disclosure
material to an investor's investment decision? If we eliminate Item
303(a)(5), should we require registrants to disclose information
regarding the time periods in which material contractual obligations
will become due?
    37. If we eliminate the required table of contractual obligations,
as proposed,

what information about contractual obligations are registrants likely
to provide in their MD&A?
    38. Should we retain the contractual obligations disclosure
requirement in a modified form (e.g., with a materiality threshold, but
not require a tabular presentation, etc.)? If so, what modifications
should we make to the requirement?
    39. If we retain the current contractual obligations disclosure
requirement, should we revise it to enhance the information provided to
investors (e.g., should we expressly require a narrative to the
contractual obligations table)?
8. Critical Accounting Estimates
    While not specified in Item 303, the Commission in prior guidance
has stated that, while preparing MD&A, registrants should consider
whether accounting estimates and judgments could materially affect
reported financial information.
    Specifically, in 2001, the Commission reminded registrants that,
under the existing MD&A disclosure requirements, a registrant should
address material implications of uncertainties associated with the
methods, assumptions, and estimates underlying the registrant's
critical accounting measurements.\218\ The Commission also encouraged
companies to explain the effects of the critical accounting policies
applied and the judgments made in their application.\219\ In 2002, the
Commission proposed rules to require disclosure of critical accounting
estimates, but it never adopted this proposal.\220\
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    \218\ See Cautionary Advice Regarding Disclosure, Release No.
33-8040 (Dec. 12, 2001) [66 FR 65013 (Dec. 17, 2001)] (``Cautionary
Advice Release'').
    \219\ See id.
    \220\ See Disclosure in Management's Discussion and Analysis
about the Application of Critical Accounting Policies, Release No.
33-8098 (May 10, 2002) [67 FR 35620 (May 20, 2002)] (``2002 Critical
Accounting Policies Proposal''). See also, Concept Release, at
239452, for a summary of the 2002 Critical Accounting Policies
Proposal.
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    In the 2003 MD&A Interpretive Release, the Commission addressed
critical accounting estimates.\221\ The Commission stated that when
preparing MD&A disclosure, companies should consider whether they have
made accounting estimates or assumptions where the nature of the
estimates or assumptions is material due to the levels of subjectivity
and judgment necessary to account for highly uncertain matters or the
susceptibility of such matters to change; and the impact of the
estimates and assumptions on financial condition or operating
performance is material.\222\ This guidance further stated that if
critical accounting estimates or assumptions are identified, a
registrant should analyze, to the extent material, factors such as how
it arrived at the estimate, how accurate the estimate/assumption has
been in the past, how much the estimate/assumption has changed in the
past, and whether the estimate/assumption is reasonably likely to
change in the future. This guidance also stated that a registrant
should analyze its specific sensitivity to change based on other
outcomes that are reasonably likely to occur. Any disclosure should
supplement, not duplicate, the description of accounting policies that
are already disclosed in the notes to the financial statements, and
provide greater insight into the quality and variability of information
regarding financial condition and operating performance.\223\
---------------------------------------------------------------------------

    \221\ See 2003 MD&A Interpretive Release.
    \222\ See id.
    \223\ See id.
---------------------------------------------------------------------------

    U.S. GAAP does not require a similar disclosure of estimates and
assumptions in the notes to financial statements except in a limited
number of circumstances.\224\ Instead, U.S. GAAP requires disclosure of
the accounting principles followed and the methods of applying those
principles that materially affect the determination of financial
position, cash flows, or results of operations.\225\ Unlike U.S. GAAP,
any discussion in MD&A should present a registrant's analysis of the
uncertainties involved in applying the principles.\226\ IFRS 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.\227\
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    \224\ For example, ASC 820-10-50-1C requires similar disclosure
related to fair value measurements.
    \225\ See ASC 235-10-50-3.
    \226\ See 2003 MD&A Interpretive Release, at 75064.
    \227\ International Accounting Standard (``IAS'') 1, paragraphs
122 to 133.
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    In the Concept Release, the Commission noted that, despite its
guidance, many registrants repeat the discussion of significant
accounting policies from the notes to the financial statements in MD&A
and provide limited additional discussion of the critical accounting
estimates.\228\ The Commission solicited comment on how to improve the
discussion of critical accounting estimates in MD&A.
---------------------------------------------------------------------------

    \228\ See Concept Release, at 23953.
---------------------------------------------------------------------------

    The Commission received a range of comments on critical accounting
estimates. Many commenters acknowledged that registrants typically
provide disclosure that is duplicative of their accounting policies or
does not otherwise provide meaningful analysis of the estimates and
assumptions involved.\229\ Several commenters recommended revising Item
303 to include a critical accounting estimate requirement,\230\ with
some of these commenters suggesting this may improve the resulting
disclosure.\231\ While some of the commenters that recommended revising
Item 303 supported a prescriptive rule for critical accounting
estimates,\232\ others suggested revising the item to provide a
principles-based framework for critical accounting estimates.\233\ One
commenter stated that a critical accounting estimate requirement in
Item 303 should specifically state that the disclosure is meant to
supplement, and not duplicate, the description of accounting policies
in the footnotes to the financial statements.\234\ This same commenter
also recommended that Item 303 require a discussion about the judgments
and assumptions that management must make in order to prepare its
financial statements and that have the most significant impact on such
financial statements.
---------------------------------------------------------------------------

    \229\ See, e.g., letters from A. Radin, NYSSCPA, Deloitte, PWC,
Investment Program Association (Jul. 21, 2016), Davis Polk, Fenwick,
CalPERS, NAREIT and American Bar Association (Dec. 15, 2017)
(``ABA'').
    \230\ See, e.g., letters from Deloitte, NYSSCPA, BDO, CAQ, Grant
Thornton, PWC, CalPERS, S. Percoco, and ABA.
    \231\ See, e.g., letters from Deloitte, BDO, and Grant Thornton.
    \232\ See, e.g., letters from NYSSCPA and CalPERS.
    \233\ See letters from Deloitte, Grant Thornton, BDO, PWC, and
CAQ.
    \234\ See letter from ABA.
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    Some commenters suggested that, if Item 303 is revised to address
critical accounting estimates specifically, the Commission should not
codify the Commission's guidance on disclosure of critical accounting
estimates and related disclosure requirements as set forth in the 2003
MD&A Interpretive Release.\235\ One commenter suggested that disclosure
of critical accounting estimates should be required when: (i) It is at
least reasonably possible that the estimate of the effect on the
financial statements of a condition, situation, or set of circumstances
that existed at the date of the financial statements will change in the
near term due to one or more future confirming events; and (ii) the
effect of the change would be material to the financial
statements.\236\ Two commenters stated that the

disclosures should describe the process employed in creating the
estimate.\237\
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    \235\ See, e.g., letters from A. Radin, CalPERS, NAREIT, and S.
Percoco.
    \236\ See letter from KPMG (citing KPMG, LLP letter (Dec. 9,
2002) to the 2002 Critical Accounting Policies Proposal).
    \237\ See letters from CAQ and CalPERS.
---------------------------------------------------------------------------

    Other commenters suggested that the Commission coordinate with the
FASB to enhance U.S. GAAP so that it requires these disclosures.\238\
Yet others suggested that the Commission eliminate guidance related to
critical accounting estimates because they believe the disclosures are
not useful and the dynamic nature of uncertainties makes it overly
challenging to quantify the reasonably likely range of outcomes with a
solid basis for investor reliance.\239\ A few commenters stated that
current Commission guidance is sufficient but recommended that the
Commission provide additional illustrative guidance.\240\ Two of these
commenters opposed revising Item 303 to require disclosure of critical
accounting estimates and opposed adopting a ``strict definition'' of
critical accounting estimates; these commenters stated that any
clarification in this area should be done through a revised
interpretive release.\241\
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    \238\ See, e.g., letters from E&Y, Northrop Grumman, and KPMG.
    \239\ See letters from A. Radin, Davis Polk, and Fenwick.
    \240\ See, e.g., letters from Chevron, CGCIV, and Chamber.
    \241\ See letter from Chamber and CGCIV.
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    We propose to amend Item 303(a) \242\ to explicitly require
disclosure of critical accounting estimates.\243\ We are persuaded by
commenters who stated that a requirement in Item 303 would facilitate
compliance and may improve the resulting disclosure.\244\ As stated by
many commenters, registrants often repeat the information in the
financial statement footnotes about significant accounting policies. By
proposing to codify this requirement, our intent is to eliminate
disclosure that duplicates the financial statement discussion of
significant accounting policies and, instead, promote enhanced analysis
of measurement uncertainties.
---------------------------------------------------------------------------

    \242\ Proposed to be renumbered as Item 303(b).
    \243\ See proposed Item 303(b)(6).
    \244\ See, e.g., letters from Deloitte, BDO and Grant Thornton.
---------------------------------------------------------------------------

    Our proposed amendments are also intended to clarify for
registrants the required disclosures related to critical accounting
estimates. To this end, our proposals 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. By focusing the definition on estimation uncertainties, we
intend to avoid any unnecessary repetition of significant accounting
policy footnotes. 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.\245\
---------------------------------------------------------------------------

    \245\ These disclosure requirements are similar to those found
in IFRS. See IAS 1, paragraph 129.
---------------------------------------------------------------------------

    We believe the proposed amendments would clarify for registrants
the disclosures required to address any critical accounting estimates,
help avoid boilerplate or duplicative disclosures, and provide
investors with material information regarding critical accounting
estimates. We also believe that the disclosure elicited by the proposed
amendments would facilitate further understanding of an analysis of
amounts reported in the financial statements by providing greater
insight on the uncertainties involved in creating and applying an
accounting policy and how significant accounting policies of
registrants faced with similar facts and circumstances may differ.
    We recognize that some of the disclosure that would be required
under our proposals may be provided already under U.S. GAAP \246\ or
IFRS.\247\ To discourage duplicative disclosures, we are proposing, as
suggested by one commenter, to also include an instruction 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.\248\
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    \246\ For example, with respect to recurring fair value
measurements categorized with Level 3 of the fair value, ASC 820-10-
50-2 requires a narrative description of the sensitivity of the fair
value measurement to changes in unobservable inputs if a change in
those inputs to a different amount might result in a significantly
higher or lower fair value measurement. We are not proposing to
eliminate any requirement that this information be provided.
    \247\ See IAS 1, paragraphs 125 to 133.
    \248\ See letter from ABA.
---------------------------------------------------------------------------

    We considered the potential for overlap with auditor communications
of critical audit matters.\249\ A critical audit matter is defined as
``any matter arising from the audit of the financial statements that
was communicated or required to be communicated to the audit committee
and that: (1) Relates to accounts or disclosures that are material to
the financial statements; and (2) involved especially challenging,
subjective, or complex auditor judgment.'' \250\ Beginning with audits
of fiscal years ending on or after June 30, 2019,\251\ audit reports
are required, among other things, to include a description of ``the
principal considerations that led the auditor to determine that the
matter is a critical audit matter.'' \252\ The communications auditors
are expected to provide on critical audit matters in an audit report
have a different objective than disclosures related to critical
accounting estimates. In this regard, critical audit matters provide
insight into matters that are especially challenging, subjective, and
complex to audit from the perspective of the auditor. On the other
hand, critical accounting estimates disclosure should provide
management's insights into estimation uncertainties that have had or
are reasonably likely to have a material impact on reported financial
statements. A critical accounting estimate may not be a critical audit
matter because it may not involve especially challenging, subjective,
or complex auditor judgment, but it would still require analysis in
MD&A. Likewise, a critical audit matter that would require reporting in
the audit report may not necessarily be a critical accounting estimate,
as proposed, because it may not involve estimation uncertainty that can
materially affect reported amounts.\253\ For these reasons, we do

not believe that proposed Item 303(a)(4) would necessarily result in
duplicative disclosure.
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    \249\ See PCAOB Standard AS 3101, The Auditor's Report on an
Audit of Financial Statements When the Auditor Expresses an
Unqualified Opinion (``AS 3101''). See also letter from Grant
Thornton (stating that ``[w]hile the two concepts have different
meanings, there may be some confusion amongst stakeholders as to the
relationship between the two.'').
    \250\ See AS 3101.
    \251\ The requirements related to critical audit matters in AS
3101 apply to reports of independent registered public accounting
firms that are included in certain registrant filings. These
requirements are effective for audits of fiscal years ending on or
after June 30, 2019 for large accelerated filers; and for fiscal
years ending on or after December 15, 2020, for all other companies
to which the requirements apply. See Public Company Accounting
Oversight Board; Order Granting Approval of Proposed Rules on the
Auditor's Report on an Audit of Financial Statements When the
Auditor Expresses an Unqualified Opinion, and Departures from
Unqualified Opinions and Other Reporting Circumstances, and Related
Amendments to Auditing Standards, Release No. 33-81916 (Oct. 23,
2017) [82 FR 49886 (Oct. 27, 2017)].
    \252\ See paragraph 14 of AS 3101.
    \253\ See e.g., ``Implementation of Critical Audit Matters: A
Deeper Dive on the Determination of CAMS'' (Mar. 18, 2019), at 6
available at https://pcaobus.org/Standards/Documents/Implementation-of-Critical-Audit-Matters-Deeper-Dive.pdf.
    Additionally, our proposal to require critical accounting
estimates would apply to EGCs. In contrast, disclosure of critical
audit matters is not required for audits of EGCs. See paragraph 5 of
AS 3101.
---------------------------------------------------------------------------

Request for Comment
    40. Should we amend Item 303 to require disclosure of critical
accounting estimates, as proposed?
    41. Is the proposed definition of critical accounting estimates
sufficiently clear? Are there alternative definitions that we should
consider?
    42. Should any registrants, such as SRCs, EGCs, or IPO issuers, be
exempted from this proposed requirement? If so, which registrants, and
should there be a time limitation on such an accommodation?
    43. Would the proposed amendments result in disclosures that are
duplicative of U.S. GAAP or IFRS, as applicable? If so, how? Are there
alternatives we should consider to encourage registrants to provide
disclosures that will supplement, rather than duplicate, disclosures
that appear in the financial statements?
    44. Would the proposed amendments provide clarity to registrants on
disclosures regarding critical accounting estimates? Would the proposed
amendments provide investors with material information regarding
critical accounting estimates?
    45. Some commenters suggested we issue a revised interpretive
release addressing critical accounting estimates \254\ and others
suggested we provide illustrative examples to facilitate this
disclosure.\255\ Instead of amending Item 303, should we issue revised
guidance addressing critical accounting estimates? Should we provide
illustrative examples?
---------------------------------------------------------------------------

    \254\ See, e.g., letters from Chamber and CGCIV.
    \255\ See, e.g., letters from PWC, KPMG, and Chevron.
---------------------------------------------------------------------------

    46. The Commission has previously encouraged registrants to
include, in their MD&A, explanations of the judgments and uncertainties
affecting application of their accounting policies.\256\ For example,
critical accounting judgments may include whether financial assets are
held-to-maturity investments, whether an instrument is classified as
debt or equity, or judgments made about the appropriate scope for a
transaction. Should the Commission be more prescriptive in this area
and, for example, adopt a requirement for registrants to disclose
critical accounting judgments? Would such a requirement elicit material
information that would not otherwise be provided, including as a result
of the proposed critical accounting estimates requirement? As an
alternative to a new requirement, should we refer the matter to the
FASB for potential incorporation into U.S. GAAP?
---------------------------------------------------------------------------

    \256\ See Cautionary Advice Release, at 65013.
---------------------------------------------------------------------------

9. Interim Period Discussion (Item 303(b))
    Item 303(b) requires registrants to provide MD&A disclosure for
interim periods that enables market participants to assess material
changes in financial condition and results of operations between
certain specified periods.\257\ Item 303(b)(1) requires registrants to
discuss any material change in financial condition from the end of the
preceding fiscal year to the date of the most recent interim balance
sheet.\258\ Item 303(b)(2) requires registrants to discuss any material
changes in their results of operations for the most recent fiscal year-
to-date period presented in their income statement, along with a
similar discussion of the corresponding year-to-date period of the
preceding fiscal year. If a registrant is required or elects to provide
an income statement for the most recent fiscal quarter, the discussion
must also cover material changes with respect to that fiscal quarter
and the corresponding fiscal quarter in the preceding fiscal year.\259\
Item 303(b)(2) also states that registrants subject to Rule 3-03(b) of
Regulation S-X \260\ providing statements of comprehensive income for
the twelve-month period ended as of the date of the most recent interim
balance sheet must discuss material changes of that twelve-month period
as compared to the preceding fiscal year rather than the preceding
period.
---------------------------------------------------------------------------

    \257\ Item 303(b) of Regulation S-K [17 CFR 229.303(b)].
    \258\ If the interim financial statements include an interim
balance sheet as of the corresponding interim date of the preceding
year, the registrant must also discuss any material changes in
financial condition from that date to the date of the most recent
interim balance sheet provided. At their discretion, registrants may
combine discussions of changes from both the end and the
corresponding interim date of the preceding fiscal year when such
discussions are required. See Item 303(b)(1).
    \259\ In addition, if the registrant elects to provide a
statement of comprehensive income for the twelve-month period ended
as of the date of the most recent interim balance sheet provided,
the registrant must also discuss material changes with respect to
that twelve-month period and the twelve-month period ended as of the
corresponding interim balance sheet date of the preceding fiscal
year. See Item 303(b)(2).
    \260\ These registrants include those primarily engaged in: The
generation, transmission, or distribution of electricity; the
manufacture, mixing transmission, or distribution of gas; the
supplying or distribution of water; or the furnishing of telephone
or telegraph services; or in holding securities of companies engaged
in such business.
---------------------------------------------------------------------------

    The Commission adopted the precursor to current Item 303(b) as part
of its effort to integrate and simplify its disclosure system.\261\ The
Commission stated at the time that the amendments it was adopting
formed ``an integral part of the Commission's program to integrate the
disclosure requirements of the Exchange Act with those of the
Securities Act, and to encourage and facilitate the integration of
corporate reporting on formal Commission filings with informal
corporate communications with shareholders.'' \262\ The Commission also
noted that the amendments were complements to the annual report
amendments adopted around the same time.\263\
---------------------------------------------------------------------------

    \261\ See New Interim Financial Information Provisions and
Revisions of Form 10-Q for Quarterly Reporting, Release No. 33-6288
(Feb. 9, 1981), 46 FR 12480 (Feb. 17, 1981) (adopting current Item
303(b) of Regulation S-K as then Item 11(b) of Regulation S-K)
(``Item 303(b) Adopting Release''). See also 1982 Integrated
Disclosure Adopting Release (reorganizing Regulation S-K to, among
other things, move the substance of Item 11(b) of Regulation S-K to
Item 303(b) of Regulation S-K).
    \262\ See Item 303(b) Adopting Release, at 12481.
    \263\ Id.
---------------------------------------------------------------------------

    The Commission recently solicited comment on the current quarterly
reporting process and how the Commission can reduce the administrative
burdens on reporting companies associated with this process while
enhancing the investor protections associated with periodic reporting
under the Exchange Act.\264\ The Commission also sought input on the
benefits, costs, and burdens of the current quarterly reporting system,
and possible approaches to simplifying the process through which
investors access, process, and evaluate information.\265\
---------------------------------------------------------------------------

    \264\ Request for Comment on Earnings Releases and Quarterly
Reports, Release No. 33-10588 (Dec. 18, 2018) [83 FR 65601 (Dec. 21,
2018)] (the ``Request for Comment''). Comment letters in response to
the Request for Comment are available at https://www.sec.gov/comments/s7-26-18/s72618.htm. References to comment letters in this
Section II.C.9 are to those letters received in response to the
Request for Comment.
    \265\ The request for comment also addressed other items
relating to (1) the use of earnings releases to satisfy the core
disclosure requirements of Form 10-Q, (2) the frequency of interim
reporting, and (3) earnings guidance.
---------------------------------------------------------------------------

    Multiple commenters responding to the Request for Comment
recommended that the Commission consider allowing more flexibility in
interim period MD&A, or otherwise streamline or eliminate certain
discussion requirements.\266\ One commenter recommended that the
Commission

evaluate whether registrants should only be required to discuss year-
to-date results of operations in their MD&A (and not be required to
provide a separate discussion of the results of operations of
individual quarters).\267\ Other commenters, however, recommended that
the Commission assess whether registrants should be required to discuss
year-to-date results and condition (i.e., evaluate whether registrants
should be permitted to exclude year-to-date discussions).\268\ One of
these commenters recommended that the Commission permit flexibility in
how registrants present their MD&A by allowing registrants to choose
the presentation that is most consistent with how they manage their
respective businesses (e.g., quarter over quarter vs. year over
year).\269\ Another commenter recommended the Commission consider
allowing management to exercise judgment in omitting certain year-to-
date and/or quarterly information from interim period MD&A if the
omitted information is consistent with prior trends or repeats
information provided elsewhere in a quarterly report.\270\
---------------------------------------------------------------------------

    \266\ See, e.g., letters in response to the Request for Comment
from Bank of America (Mar. 21, 2019) (``BoA''), BDO USA, LLP (Mar.
21, 2019) (``BDO 2''), Center for Audit Quality (Mar. 20, 2019)
(``CAQ 2''), Financial Executives International (``FEI 2''), Cleary
Gottlieb Steen & Hamilton LLP (Mar. 27, 2019) (``Cleary Gottlieb''),
and Institute of Management Accountants (Mar. 21, 2019).
    \267\ See letter from Ernst & Young (Mar. 21, 2019) (``Ernst'').
    \268\ See letters from BoA, BDO 2, CAQ 2, CCR, Cleary Gottlieb,
FEI 2, and IMA.
    \269\ See letter from BDO.
    \270\ See letter from CAQ 2.
---------------------------------------------------------------------------

    Other commenters noted that Form 10-Q's prescribed disclosures
ensure uniformity among registrants.\271\ One of these commenters
stated that the structured format of quarterly reports allows certain
market participants to analyze results and to produce tools that ``aid
investors to make more informed investment decisions.'' \272\ Another
commenter stated that there should be some element of uniformity in
required disclosures so that there is consistency among
registrants.\273\
---------------------------------------------------------------------------

    \271\ See, e.g., letters from AFL-CIO (Mar. 21, 2019), BDO 2,
Better Markets (Mar. 21, 2019), CAQ 2, CIT Group Inc. (Mar. 21,
2019) (``CIT''), Edison Electric Institute and American Gas
Association (Mar. 21, 2019), Gallagher Co. (Mar. 14, 2019),
Investment Company Institute (Mar. 21, 2019), KPMG LLP (Mar. 21,
2019), Marcum LLP (Mar. 21, 2019), Mazars USA LLP (Mar. 21, 2019),
New York City Bar Association (Apr. 10, 2019), RSM US LLP (Mar. 20,
2019) (``RSM''), T. Rowe Price (Mar. 20, 2019), Think Computer
Foundation (Mar. 20, 2019), and XBRL US (Mar. 21, 2019).
    \272\ See letter from Better Markets.
    \273\ See letter from CIT.
---------------------------------------------------------------------------

    Several commenters encouraged the Commission to conduct further
outreach with investors and companies.\274\ On July 18, 2019, the
Commission held a roundtable discussion on whether the quarterly
reporting system should be modified to address the impact of short-
termism on our capital markets.\275\ During the roundtable discussion,
multiple panelists discussed the need for streamlined MD&A disclosures,
including interim period MD&A.\276\ One panelist suggested that the
Commission allow registrants to make MD&A comparisons to the preceding
interim period or to discuss only year-to-date changes.\277\ Another
panelist noted that ``companies will want to talk about discrete
quarters'' because ``that's how they do their earnings releases.''
\278\
---------------------------------------------------------------------------

    \274\ See, e.g, letters from CAQ 2, FEI 2, Ernst, Grant
Thornton, RSM, and Tapestry Networks.
    \275\ Roundtable on Short-term/Long-term Management of Public
Companies, our Periodic Reporting System and Regulatory Requirements
(July 18, 2019), archived at https://www.sec.gov/video/webcast-archive-player.shtml?document_id=roundtable-short-long-term-071819.
    \276\ See id. at 2:40:56, Statement of Steven Jacobs. See also
id. at 3:22:20, Statement of Nicolas Grabar.
    \277\ See supra note 275 at 2:48:36, Statement of Nicolas
Grabar.
    \278\ See supra note 275 at 2:40:56, Statement of Steven Jacobs.
---------------------------------------------------------------------------

    We propose to amend Item 303(b) (to be renumbered as proposed Item
303(c)) to allow for flexibility in comparisons of interim periods and
to simplify the item.\279\ Specifically, we propose to permit
registrants 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. Under the proposal, if a
registrant elects to discuss changes from the immediately preceding
sequential quarter, the registrant must provide summary financial
information that is the subject of the discussion for that quarter or
identify the prior EDGAR filing that presents such information so that
a reader may have ready access to the prior quarter financial
information being discussed. In addition, under the proposed amendment,
if a registrant changes the comparison from the prior interim period
comparison, the registrant would be required to explain the reason for
the change and present both comparisons in the filing where the change
is announced. For example, if a registrant in its third quarter Form
10-Q decides to compare its results to the preceding quarter after the
registrant had compared such quarter to the corresponding quarter of
the previous year in its earlier report, the registrant would be
required to present both comparisons in that third quarter Form 10-Q
and explain the reasons for the change in comparison.
---------------------------------------------------------------------------

    \279\ The proposed changes to Item 303(a) would flow through to
Item 303(b) because Item 303(b) currently provides that the interim
discussion and analysis must include a discussion of the material
changes in items specified in Item 303(a) (with the exception of
inflation and changing prices, which we propose to eliminate).
---------------------------------------------------------------------------

    We believe that these changes would allow registrants additional
flexibility to provide an analysis that they believe is most relevant
to an understanding of the frequency and amplitude of past business
cycles while also ensuring that investors have appropriate information
to assess the comparisons being presented. We recognize that not all
businesses are seasonal and a comparison to the corresponding quarter
of the preceding year may not be as meaningful as a comparison to the
preceding quarter. We also believe that this proposal would respond to
commenters' concern about the need for flexibility in MD&A.\280\ These
changes are intended to provide market participants with the most
relevant information about a registrant while reducing comparisons that
may obscure the most material trends. We believe that requiring
registrants to provide both comparisons and explain the reasons for a
change in comparison from prior periods would ensure that investors and
other market participants have sufficient information to understand and
adjust to any period over period change.
---------------------------------------------------------------------------

    \280\ See supra note 266.
---------------------------------------------------------------------------

    We are also proposing amendments to simplify Item 303(b) (to be
renumbered as proposed Item 303(c)) that would:
     Eliminate the text that states that registrants need not
provide a discussion of the impact of inflation and changing prices,
consistent with the proposed amendments described above; \281\ and
---------------------------------------------------------------------------

    \281\ See discussion, supra at Section II.C.5.
---------------------------------------------------------------------------

     Amend Item 303(b)(2) (proposed Item 303(c)(2)) material
changes in results of operations--to break the requirements into two
subsections:
    [cir] Proposed Item 303(c)(2)(i) would continue to require
registrants to discuss any material changes in their results of
operations between the most recent year-to-date interim period(s) and
the corresponding period(s) of the preceding fiscal year for which
statements of comprehensive income are provided; and
    [cir] Proposed Item 303(c)(ii) would, as discussed above, require
registrants to compare their most recently completed quarter to either
of the corresponding quarter of the prior year (as is currently
required) or to the immediately preceding quarter.\282\
---------------------------------------------------------------------------

    \282\ As described above, if a registrant changes the comparison
from the prior interim period comparison, the registrant would be
required to explain the reason for the change.
---------------------------------------------------------------------------

    We are also proposing to eliminate language requiring registrants
subject to Rule 3-03(b) of Regulation S-X \283\ that

elect to provide a statement of comprehensive income for the twelve-
month period ended as of the date of the most recent interim balance
sheet to discuss material changes in that twelve-month period with
respect to the preceding fiscal year, rather than the corresponding
preceding period. We propose giving these registrants the same
flexibility as other registrants to make the most meaningful
comparisons in their interim period MD&A. In addition to simplifying
Item 303, this change is meant to modernize the current Item 303
requirement. We have not observed any registrants in recent history
that provided the statements of comprehensive income in registration
statements permitted by Rule 3-03(b) of Regulation S-X. Accordingly, we
do not believe the elimination of the provisions in Item 303(b) would
cause any impact. We also believe that the additional flexibility we
are proposing for all registrants would allow registrants subject to
Rule 3-03(b) of Regulation S-X \284\ to make the most meaningful
comparisons in their MD&A.
---------------------------------------------------------------------------

    \283\ See supra note 260.
    \284\ See d.
---------------------------------------------------------------------------

    Finally, we are proposing to delete Instructions 2, 3, 5, 6, 7, and
8 to current paragraph (b).\285\ We are proposing to eliminate
Instruction 2 because we no longer believe it necessary that an
instruction make explicit the presumption that readers have read or
have access to the MD&A for the preceding fiscal year. We also propose
to eliminate Instructions 3 and 6 because they duplicate current
Instructions 4 \286\ and 7 to Item 303(a), respectively.\287\ Instead,
we propose a new Instruction 1 to proposed Item 303(c) that would
cross-reference the applicable instructions in proposed Item 303(b). We
propose to eliminate Instruction 7 to Item 303(b) in light of our
proposal to eliminate Item 303(a)(5), the subsection that requires
disclosure of contractual obligations. We also propose to eliminate
Instruction 5, which is currently reserved. Finally, we propose to move
Instruction 8 to current Item 303(b) to Instruction 10 of proposed Item
303(b). The following table outlines the current and proposed structure
of Item 303(b) (proposed Item 303(c)): \288\
---------------------------------------------------------------------------

    \285\ Instruction 5 to Item 303(b) is currently reserved.
    \286\ As discussed in Section II.C.4, we are proposing to revise
current Instruction 4 to Item 303(a) to clarify that registrants
must discuss the ``underlying reasons'' for material changes in
``quantitative and qualitative terms.'' We are also proposing to
clarify that registrants must discuss material changes within a line
item.
    \287\ We also propose to move the text of Instruction 8 to a new
Instruction 11 to Item 303(a) (proposed Item 303(b)), and reference
it in proposed Instruction 1 to Item 303(c).
    \288\ The information in this table is not comprehensive and is
intended only to highlight the general structure of the current
rules and proposed amendments. It does not reflect all of the
substance of the proposed amendments or all of the rules and forms
that are proposed to be affected. All changes are discussed in their
entirety throughout this release. As such, this table should be read
together with this Section II.C.9.

------------------------------------------------------------------------
           Current structure                    Proposed structure
------------------------------------------------------------------------
Item 303(b), Interim periods...........  Item 303(c), Interim periods.
(1) Material changes in financial        (1) Material changes in
 condition.                               financial condition.
(2) Material changes in results of       (2) Material changes in results
 operations, Rule 3-03(b) of Regulation   of operations.
 S-X matters.                             (i) Material changes in
                                          results of operations (year-to-
                                          date).
                                          (ii) Material changes in
                                          results of operations (quarter
                                          comparisons).
Instruction 1 to Item 303(b)...........  Instruction 1 to Item 303(c)
                                          (with amendments to reference
                                          Instructions 2, 5, 9, and 10
                                          to proposed Item 303(b)).
Instruction 2 to Item 303(b)...........  Eliminate.
Instruction 3 to Item 303(b)...........  Eliminate.
Instruction 4 to Item 303(b)...........  Instruction 2 to Item 303(c).
Instruction 5 to Item 303(b)...........  Eliminate.
Instruction 6 to Item 303(b)...........  Eliminate.
Instruction 7 to Item 303(b)...........  Eliminate.
Instruction 8 to Item 303(b)...........  Instruction 10 to proposed Item
                                          303(b).
------------------------------------------------------------------------

Request for Comment
    47. Should we amend the interim period disclosure requirements in
Item 303(b), as proposed? Alternatively, in order to permit registrants
flexibility to choose their presentation in the manner that is most
consistent with how their business is managed, should we allow
registrants to include a discussion of material changes in the results
of operations with respect to either the most recent fiscal year-to-
date period or the most recent fiscal quarter? Are there other
approaches we should consider?
    48. What would the benefits and/or drawbacks be of allowing
registrants more flexibility regarding the interim period comparisons
they discuss in MD&A?
    49. Would the ability to compare interim period information across
registrants be significantly affected by allowing flexibility for
interim period comparisons, as proposed?
    50. How do market participants use Item 303(b) disclosures? What
are the benefits and drawbacks of the current period-to-period
comparisons requirements?
    51. How would our proposed amendments affect registrants subject to
Rule 3-03(b) of Regulation S-X? We are not proposing to eliminate Rule
3-03(b). If adopted, would the Commission's disclosure rules and
guidance be sufficiently clear about disclosure these registrants must
provide? What would the consequences of these proposed changes be for
market participants?
---------------------------------------------------------------------------

    \289\ Item 303(c) of Regulation S-K [17 CFR 229.303(c)].
    \290\ Such persons are the issuer; a person acting on behalf of
the issuer; an outside reviewer retained by the issuer making a
statement on behalf of the issuer; or an underwriter, with respect
to information provided by the issuer or information derived from
information provided by the issuer.
---------------------------------------------------------------------------

10. Safe Harbor for Forward-Looking Information (Item 303(c))
    Item 303(c) \289\ states that the safe harbors provided in Section
27A of the Securities Act and 21E of the Exchange Act (together,
``statutory safe harbors'') apply to all forward-looking information
provided in response to Item 303(a)(4) (off-balance sheet arrangements)
and Item 303(a)(5) (contractual obligations), provided such disclosure
is made by certain enumerated persons.\290\ Item 303(c) confirms
application of the statutory safe harbors to Item 303(a)(4) and Item
303(a)(5), and states that all of the required disclosures under these
two items are deemed to be ``forward-looking statements'' as that term
is defined in the statutory safe harbors,

except for historical facts.\291\ With respect to Item 303(a)(4), Item
303(c) further states that the ``meaningful cautionary statements''
element of the statutory safe harbors is satisfied if a registrant
satisfies all of Item 303(a)(4) requirements.\292\
---------------------------------------------------------------------------

    \291\ Item 303(c)(2)(i) of Regulation S-K [17 CFR
229.303(c)(2)(i)].
    \292\ Item 303(c)(2)(ii) of Regulation S-K [17 CFR
229.303(c)(2)(ii)].
---------------------------------------------------------------------------

    The Commission added Item 303(c) in 2003 when it adopted Items
303(a)(4) and (5).\293\ Item 303(c) was intended to remove possible
ambiguity about the application of the statutory safe harbors to these
items.\294\ Since we propose to eliminate both Items 303(a)(4) and (5),
we are also proposing to eliminate Item 303(c), which specifically and
exclusively refers to those disclosure requirements.
---------------------------------------------------------------------------

    \293\ See Off-Balance Sheet Arrangements and Contractual
Obligations Adopting Release at 5992 (``To encourage the type of
information and analysis necessary for investors to understand the
impact of off-balance sheet arrangements and to reduce the burden of
estimating the payments due under contractual obligations, the
amendments include a safe harbor for forward-looking
information.'').
    \294\ See id.
---------------------------------------------------------------------------

    Nevertheless, forward-looking information included in off-balance
sheet arrangement disclosures provided in response to proposed
Instruction 8 to Item 303(b), along with disclosures regarding
contractual obligations, would continue to be covered by existing safe
harbors. The proposed amendments are intended to be conforming changes
and would not alter the availability of the regulatory safe harbors in
Securities Act Rule 175 \295\ and Exchange Act Rule 3b-6,\296\ which
expressly apply to forward-looking information in MD&A disclosure.\297\
These rules establish a safe harbor for ``forward-looking statements''
and define such statements to include statements of ``future economic
performance contained in management's discussion and analysis.'' \298\
These rules were adopted with the express purpose of encouraging
forward-looking information and in response to commenters'
recommendations stating that the absence of a safe harbor could
discourage forward-looking information.\299\
---------------------------------------------------------------------------

    \295\ [17 CFR 230.175].
    \296\ [17 CFR 240.3b-6].
    \297\ Instruction 7 to Item 303(a) of Regulation S-K [17 CFR
229.303(a)], Securities Act Rule 175 [17 CFR 230.175], and Exchange
Act Rule 3b-6 [17 CFR 240.3b-6].
    \298\ See Rule 175(c)(3) and Rule 3b-6(c)(3) [17 CFR
230.175(c)(3) and 17 CFR 240.3b-6(b)(3)].
    \299\ See Safe Harbor Rule for Projections, Release No. 33-6084
(June 25, 1979) [44 FR 38810 (July 2, 1979)].
---------------------------------------------------------------------------

    Our proposed amendments are also not intended to alter the
application of the statutory safe harbor provisions of the Private
Securities Litigation Reform Act.\300\ While these provisions apply
more broadly, they also protect eligible forward-looking statements
\301\ in MD&A against private legal actions that are based on
allegations of a material misstatement or omission. We continue to
believe that the safe harbors for eligible forward-looking statements
and the safe harbor provisions of the Private Securities Litigation
Reform Act have encouraged greater disclosure of forward-looking
information that has benefited investors and our markets.
---------------------------------------------------------------------------

    \300\ See Sections 27A of the Securities Act and 21E of the
Exchange Act.
    \301\ The statutory safe harbors by their terms do not apply to
forward-looking statements included in financial statements prepared
in accordance with generally accepted accounting principles.
Notably, the statutory safe harbors also would not apply to MD&A
disclosure if the MD&A forward-looking statements were made in
connection with: An initial public offering; a tender offer; an
offering by a partnership, limited liability company, or a direct
participation investment program, or the forward-looking statement
is made by an issuer of penny stock or is made by an issuer in
connection with an offering of securities by a blank check company,
or is made in connection with a roll-up transaction or a going
private transaction. See Section 27A(b) of the Securities Act and
Section 21E(b) of the Exchange Act. Also, the statutory safe harbors
do not, absent a rule, regulation, or Commission order, apply to
forward-looking statements by issuers covered by Section
27A(b)(1)(A) of the Securities Act and Section 21E(b)(1)(A) of the
Exchange Act. Because the statutory safe harbors only apply to
forward-looking statements made by or on behalf of an issuer that is
subject to the reporting requirements of Section 13(a) or 15(d) of
the Exchange Act, they would not apply to forward-looking statements
made in connection with an offering under Regulation A unless the
issuer is a reporting company and no other exclusions from the safe
harbor apply.
---------------------------------------------------------------------------

Request for Comment
    52. Should we eliminate Item 303(c), as proposed?
    53. If we eliminate Item 303(c), is it necessary or helpful to
provide a specific instruction referring to the statutory safe harbors
for forward-looking statements that may apply to the proposed off-
balance sheet arrangement disclosures? Should we instead retain Item
303(c) and acknowledge that the statutory safe harbors would apply to
all of Item 303?
11. Smaller Reporting Companies (Item 303(d))
    Item 303(d) \302\ states that an SRC may provide Item 303(a)(3)(iv)
information for the most recent two fiscal years if it provides
financial information on net sales and revenues and income from
continuing operations for only two years. Item 303(d) also states that
an SRC is not required to provide the contractual obligations chart
specified in Item 303(a)(5). In light of our proposals to eliminate
Item 303(a)(3)(iv) and (a)(5), we are also proposing to eliminate Item
303(d), which specifically and exclusively references these two
disclosure requirements. SRCs may continue to rely on Instruction 1 to
Item 303(a),\303\ which states that an SRC's discussion shall cover the
two-year period required in Article 8 of Regulation S-X.
---------------------------------------------------------------------------

    \302\ Item 303(d) of Regulation S-K [17 CFR 229.303(d)].
    \303\ Proposed renumbered Item 303(b).
---------------------------------------------------------------------------

Request for Comment
    54. Should we eliminate Item 303(d), as proposed?
    55. Are there any proposed amendments to Item 303 where we should
consider providing further accommodations to SRCs?
General Requests for Comment for Item 303
    56. Are there any other changes we should consider to Item 303 to
streamline, update, or modernize MD&A disclosure requirements?
    57. Should we require MD&A to be structured in Inline eXtensible
Business Reporting Language (``Inline XBRL'') format? \304\ If so,
should MD&A be structured using block tags, detail tags, or some
combination of the two? How would investors and other market
participants benefit from such a requirement, and what would be the
costs and burdens to registrants? Would the costs and burdens be
disproportionately high for any group of issuers?
---------------------------------------------------------------------------

    \304\ Registrants subject to the financial disclosure
requirements of Regulation S-K are either currently required or will
be required to file their financial statements and filing cover page
disclosures in the Inline XBRL format. See [17 CFR 229.601(b)(101)].
See also Inline XBRL Filing of Tagged Data, Securities Act Release
No. 10514 (June 28, 2018) [83 FR 40846 (Aug. 16, 2018), at 40851]
(``Inline XBRL Adopting Release'').
---------------------------------------------------------------------------

    58. Should we amend Item 9 of Form 1-A to reflect any of the
proposals in this release?

D. Application to Foreign Private Issuers

    We are proposing corresponding amendments that would apply to FPIs
providing disclosure required by Form 20-F or Form 40-F.\305\ We are
also proposing amendments to current Instruction 11 to Item 303, which
specifically applies to FPIs that choose to file on domestic forms.
Similar to our discussions above and for the reasons discussed in
greater detail below, our proposals to these forms are intended to

modernize, clarify, and streamline these disclosure requirements.
---------------------------------------------------------------------------

    \305\ These proposals would also apply to those forms calling
for information in Forms 20-F, such as Form F-1.
---------------------------------------------------------------------------

1. Form 20-F
a. Selected Financial Data (Item 3.A of Form 20-F)
    Similar to Item 301, Item 3.A of Form 20-F requires FPIs to provide
selected historical financial data for the most recent five financial
years (or such shorter period that the company has been in operation).
Also similar to Item 301, Item 3.A specifies the information that must
be included in the selected financial data and provides that EGCs are
not required to present selected financial data for any period prior to
the earliest audited financial statements presented in connection with
the registrant's initial public offering of its common equity
securities. In a registration statement, periodic report, or other
report filed under the Exchange Act, an EGC need not present selected
financial data for any period prior to the earliest audited financial
statements presented in connection with the EGC's first registration
statement that became effective under the Exchange Act or the
Securities Act.\306\ However, unlike Item 301, Item 3.A also permits a
FPI to omit either or both of the earliest two years of data if it
represents that it cannot provide the information, or cannot provide
the information on a restated basis, without unreasonable effort or
expense.
---------------------------------------------------------------------------

    \306\ See Instruction 3 to Item 3.A.
---------------------------------------------------------------------------

    Given the similarities between Item 3.A and Item 301, we propose to
delete Item 3.A and the related instructions. As with Item 301, trend
disclosure elicited by Item 3.A typically would be discussed in
disclosure provided in response to Item 5 of Form 20-F, which requires
MD&A disclosure similar to Item 303. FPIs may, however, continue to
include a tabular presentation of the line items discussed in the MD&A,
to the extent they believe that such a presentation would be useful to
an understanding of the disclosure.\307\
---------------------------------------------------------------------------

    \307\ See 2003 MD&A Interpretive Release (``Companies should
consider whether a tabular presentation of relevant financial or
other information may help a reader's understanding of MD&A.''). See
also footnote 1 of 2003 MD&A Interpretive Release which states that
the guidance in that release is intended to apply to FPIs.
---------------------------------------------------------------------------

Request for Comment
    59. Should we eliminate Item 3.A of Form 20-F, as proposed? Would
the proposed elimination of Item 3.A result in the loss of material
information that is otherwise not available to investors? If so, what
information would be lost, and are there alternatives we should
consider that would elicit this information?
    60. The Commission revised Form 20-F in 1999 to conform in large
part to the international disclosure standards endorsed by the
International Organization of Securities Commissions (``IOSCO'') for
the non-financial statement portions of a disclosure document, which
have served as the basis for the disclosure requirements in several
foreign jurisdictions.\308\ One of the objectives of the IOSCO
standards was to facilitate the cross-border flow of securities and
capital by promoting the use of a single disclosure document that would
be accepted in multiple jurisdictions. If we revise Item 3.A of Form
20-F as proposed, would such revision reduce the ability of FPIs to use
a single document in multiple jurisdictions?
---------------------------------------------------------------------------

    \308\ See International Disclosure Standards, Release No. 33-
7745 (Sept. 28, 1999) [64 FR 53900 (Oct. 5, 1999)].
---------------------------------------------------------------------------

    61. Would the proposed amendments conflict with home-country
requirements in some jurisdictions if the FPI were engaging in a cross-
border offering or listing? If so, please explain.
    62. Unlike Item 301, Item 3.A provides an accommodation to FPIs for
either or both of the earliest two years of data. Given this
accommodation, should we retain this item? Does Item 3.A require
disclosure that is duplicative of the financial statements?
    63. Are there any unique considerations with respect to FPIs in
this context?
    64. Are the requirements of Item 5 of Form 20-F sufficient to
provide investors with necessary disclosure of trends in a registrant's
results of operations and financial condition? If we eliminate Item 3.A
as proposed, should we amend Item 5 of Form 20-F to explicitly require
a tabular presentation of line items discussed in the disclosure?
    65. What are the costs to FPIs of providing required selected
financial data?
    66. How do market participants use the selected financial data
disclosures provided by FPIs? Do market participants rely on any time
segment of data more than others (e.g., the most recent two or three
years)?
b. Operating and Financial Review and Prospects (Item 5 of Form 20-F)
    The disclosure requirements for Item 5 of Form 20-F (Operating and
Financial Review and Prospects) are substantively comparable to the
MD&A requirements under Item 303 of Regulation S-K.\309\ To maintain a
consistent approach to MD&A for domestic registrants and FPIs, our
proposed amendments to Form 20-F generally conform to our proposed
amendments to Item 303.
---------------------------------------------------------------------------

    \309\ When the Commission revised the wording of Item 5 of Form
20-F in 1999, the adopting release noted that the requirements
correspond with Item 303 of Regulation S-K. See International
Disclosure Standards, Release No. 33-7745 (Sept. 28, 1999) [64 FR
53900 (Oct. 5, 1999)], at 53904 (``International Disclosure
Standards Release'').
---------------------------------------------------------------------------

    Some of our proposals would amend Item 5 of Form 20-F to
incorporate portions of both current and proposed Item 303.
Specifically, we are proposing to incorporate portions of current
Instructions 1 and 3 to Item 303(a) that specify the purpose of MD&A,
into the forepart of Item 5 of Form 20-F to highlight the item's
objective. Our proposals would revise Item 5 to state that the
discussion must:
     Include other statistical data that will enhance a
reader's understanding of the company's financial condition, changes in
financial condition, and results of operations; and
     Focus specifically on material events and uncertainties
known to management that would cause reported financial information not
to be necessarily indicative of future operating results or future
financial condition.
    We are also proposing to codify into the forepart of Item 5
Commission guidance that states that a registrant should provide a
narrative explanation of its financial statements that enables
investors to see a registrant ``through the eyes of management.'' \310\
Consistent with our rationale for proposing analogous changes to Item
303,\311\ we believe that emphasizing the purpose of MD&A at the outset
of the Item will provide clarity and focus to registrants as they
consider what information to discuss and analyze. We are also proposing
to revise the forefront of Item 5 to state that, in addition to
providing information relating to all separate segments, FPIs must also
provide information relating to other subdivisions, such as geographic
areas or product lines. This proposed revision is intended to conform
Form 20-F to both current Item 303, by referencing other subdivisions
and including geographic areas as an example, and proposed Item 303, by
adding product lines as an example.\312\
---------------------------------------------------------------------------

    \310\ See 2003 MD&A Interpretative Release, at 75056. See also
1989 Interpretative Release, at 22428.
    \311\ See Section II.C.1 above.
    \312\ See footnote 98 above and corresponding sentence.

---------------------------------------------------------------------------

    For the reasons discussed above, we are proposing to:
     Revise Item 5 to specify that the discussion must include
a quantitative and qualitative description of the reasons underlying
material changes, including where material changes within a line item
offset one another; \313\
---------------------------------------------------------------------------

    \313\ See Section II.C.4 above.
---------------------------------------------------------------------------

     Revise the liquidity and capital resources requirement in
Item 5.B to specify that a registrant must broadly disclose material
cash commitments, including but not limited to capital expenditures;
\314\
---------------------------------------------------------------------------

    \314\ See Sections II.C.2 and II.C.7 above.
---------------------------------------------------------------------------

     Replace Item 5.E, which covers off-balance sheet
arrangements, with a principles-based instruction; \315\
---------------------------------------------------------------------------

    \315\ See proposed Instruction 7 to Item 5 of Form 20-F. For
FPIs filing on Forms 20-F and 40-F that apply IFRS, the overlap
between the requirements of those Forms and IFRS are similar to the
overlap between Item 303(a)(4) and U.S. GAAP, as described in
Section II.C.6 above.
    IFRS now requires the following disclosures that substantially
overlap with the requirements of Item 5.E. of Form 20-F: The nature
and amount of a guarantee (see Paragraph 35M of IFRS 7, Financial
Instruments: Disclosures (``IFRS 7'')); retained or contingent
interests in assets transferred to unconsolidated entities (see
Paragraphs 42B and 42E of IFRS 7); the significance of financial
instruments for the entity's financial position and performance; and
the nature and extent of risks arising from financial instruments to
which the entity is exposed and how the entity manages those risks
(see Paragraphs 1 of IFRS 7); and obligations under interests in
unconsolidated entities (see Paragraphs 1 and 24 to 31 of IFRS 12,
Disclosure of Interests in Other Entities).
    We believe our proposed amendments to Item 5.E of Form 20-F are
consistent with the statutory mandate in Section 13(j) of the
Exchange Act for the same reasons discussed above in Section II.C.6.
---------------------------------------------------------------------------

     Eliminate Item 5.F., which covers tabular disclosure of
contractual obligations; \316\ and
---------------------------------------------------------------------------

    \316\ See Sections II.C.6 and II.C.7 above. Similar to our
discussion above, current IFRS requirements overlap with the
contractual obligations table. For example, IFRS 7.39(a), requires
disclosure of a maturity analysis for long-term debt obligations;
IFRS 16.58 requires disclosure of a maturity analysis of lease
obligations; and IAS 37.85 requires disclosure of the expected
timing of outflows of economic benefits related to each class of
provision. IFRS does not have a specific requirement to disclose the
timing of purchase obligations.
    We are also proposing to delete the Instructions to Item 5.E and
5.F.
---------------------------------------------------------------------------

     Eliminate Item 5.G, which acknowledges application of the
statutory safe harbor and specifically and exclusively applies to Item
5.E and Item 5.F.\317\
---------------------------------------------------------------------------

    \317\ See Section II.C.10 above. Similar to this discussion
above, we remind FPIs of the existing regulatory and statutory safe
harbors. Additionally, Form 20-F reminds companies that forward-
looking information is expressly covered by statutory safe harbor
provisions. See Instruction 3 to Item 5 of Form 20-F.
---------------------------------------------------------------------------

    Consistent with our proposal to amend Item 303 above, we are also
proposing to revise Item 5 to explicitly require disclosure of critical
accounting estimates.\318\
---------------------------------------------------------------------------

    \318\ See Section II.C.8 above. As discussed in this section,
the 2003 MD&A Interpretive Release addressed critical accounting
estimates. The guidance in the 2003 MD&A Interpretive Release
applies to MD&A drafted pursuant to Item 5 of Form 20-F. See
footnote 1 of the 2003 MD&A Interpretive Release.
---------------------------------------------------------------------------

    We are also proposing a change to the requirement in Form 20-F that
requires disclosure of inflation for FPIs.\319\ Item 5.A.2 requires
disclosure of the impact of inflation, if material, and hyperinflation,
if the currency in which the financial statements are presented is of a
country that has experienced hyperinflation.\320\ Instruction 1 to Item
5.A states that disclosure of hyperinflation must be provided if
hyperinflation has occurred in any of the periods for which an FPI is
required to provide audited financial statements or unaudited interim
financial statements. We believe that for FPIs in a hyperinflationary
economy, hyperinflation is a salient issue such that it merits specific
mention. As it relates to hyperinflation, we are therefore not
proposing to amend Item 5.A.2 or the related instruction. However, and
consistent with our change to Item 303,\321\ we are proposing to amend
the portion of Item 5.A.2 calling for disclosure of the impact of
inflation, if material. Some of our proposals to amend Form 20-F are
unique to this form but are consistent with MD&A's focus on
materiality. Specifically, we are proposing to:
---------------------------------------------------------------------------

    \319\ See Section II.C.5 above.
    \320\ Rules 3-20(c) and 3-20(d) of Regulation S-X provide the
situations when a registrant must discuss hyperinflation in a
company's financial statements. Rule 3-20(d) generally describes a
hyperinflationary environment as one that has cumulative inflation
of approximately 100 percent or more over the most recent three-year
period.
    \321\ See Section II.C.5 above.
---------------------------------------------------------------------------

     Amend Item 5.D of Form 20-F, which requires FPIs to
identify ``the most significant recent trends,'' to instead, require
disclosure of ``material trends,'' consistent with Item 303 and MD&A's
focus on materiality; \322\ and
---------------------------------------------------------------------------

    \322\ See, e.g., 2003 MD&A Interpretive Release, at 75060.
---------------------------------------------------------------------------

     Amend Instruction 1 to Item 5, which currently references
only the 1989 MD&A Interpretive Release, to add the 2002 Commission
Statement, 2003 MD&A Interpretive Release, 2010 MD&A Interpretive
Release \323\ and the Companion Guidance, to direct FPIs to the
Commission's guidance.
---------------------------------------------------------------------------

    \323\ See 2010 MD&A Interpretive Release.
---------------------------------------------------------------------------

    These and all of our proposals to Item 5 of Form 20-F are
consistent with our policy of having the existing MD&A requirements for
FPIs mirror the substantive MD&A requirements in Item 303.\324\
---------------------------------------------------------------------------

    \324\ See International Disclosure Standards Release. See also
Off-Balance Sheet Arrangements and Contractual Obligations Adopting
Release.
---------------------------------------------------------------------------

Request for Comment
    67. Should we amend Item 5 of Form 20-F as proposed?
    68. Would the proposed deletions in Item 5 result in the loss of
material information that is otherwise not available to investors? If
so, what information would be lost, and are there alternatives we
should consider that would elicit this information?
    69. Would the proposed additions to Item 5 create burdens for
companies?
    70. If we revise Item 5 of Form 20-F as proposed, would such
revision reduce the ability of FPIs to use a single document in
multiple jurisdictions?
    71. Would the proposed amendments conflict with home-country
requirements in some jurisdictions? If so, please explain.
    72. Are there any unique considerations with respect to FPIs in the
context of MD&A and Item 5 disclosures?
2. Form 40-F
    Form 40-F generally permits eligible Canadian FPIs to use Canadian
disclosure documents to satisfy the Commission's registration and
disclosure requirements. As a result, the MD&A contained in Form 40-F
is largely prepared in accordance with Canadian disclosure standards.
General Instructions B.(11) and B.(12), however, were added when the
Commission adopted the off-balance sheet arrangements and contractual
obligations disclosure requirements.\325\ For the reasons discussed
above, we are proposing to eliminate the contractual obligations
disclosure requirement in B.(12) of Form 40-F.\326\ In addition, we are
also proposing to make parallel changes (as discussed above) to the
off-balance sheet disclosure requirement in Form 40-F by replacing
General Instruction B.(11) with a principles-based instruction.\327\ As
noted above, unlike Item 303 and Form 20-F, the MD&A required under
Form 40-F is defined as required by Canadian law.\328\ Accordingly, our
proposal to amend Item 40-F would only require

disclosure of off-balance sheet arrangements to the extent it is not
already provided under the MD&A required by Canadian law. Lastly, and
consistent with our proposals above, we are proposing to eliminate
General Instruction B.(13), which acknowledges application of the
statutory safe harbor and specifically and exclusively applies to
General Instructions B.(11) and B.(12).\329\
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    \325\ See Off-Balance Sheet Arrangements and Contractual
Obligations Adopting Release.
    \326\ See Section II.C.7 and footnote 316 above.
    \327\ See Section II.C.6 and footnote 153 above. We believe our
proposed amendments to General Instruction B.(11) of Form 40-F is
consistent with the statutory mandate in Section 13(j) of the
Exchange Act for the same reasons discussed above in Section II.C.6.
    \328\ See General Instruction B.(3) of Form 40-F.
    \329\ See Section II.C.10 and footnote 317.
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Request for Comment
    73. Should we amend Form 40-F, as proposed?
    74. Would replacing General Instruction B.(11) of Form 40-F with a
more principles-based instruction result in the loss of material
information that is otherwise not available to investors? If so, what
information would be lost, and are there alternatives we should
consider that would elicit this information?
    75. Would the proposed deletion of General Instruction B.(12) of
Form 40-F result in the loss of material information that is otherwise
not available to investors? If so, what information would be lost, and
are there alternatives we should consider that would elicit this
information?
    76. If we eliminate General Instruction B.(13) of Form 40-F, is it
necessary or helpful to provide a specific instruction referring to the
statutory safe harbors for forward-looking statements that may apply to
the proposed off-balance sheet arrangement disclosures? Should we
instead retain General Instruction B.(13) of Form 40-F and acknowledge
that the statutory safe harbors would apply?
    77. Are there any unique considerations with respect to eligible
Canadian FPIs in this context?
3. Item 303 of Regulation S-K
    FPIs may voluntarily choose to file on forms that would require
disclosure under Item 303. Current Instruction 11 to Item 303 requires
``foreign private registrants'' to discuss briefly any pertinent
governmental economic, fiscal, monetary, or political policies or
factors that have materially affected or could materially affect,
directly or indirectly, their operations or investments by United
States nationals.\330\
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    \330\ See Instruction 11 to Item 303(a) of Regulation S-K.
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    For consistency with the requirements of Form 20-F,\331\ we are
proposing to amend this FPI instruction to incorporate the requirement
for FPIs to discuss hyperinflation in a hyperinflationary economy.\332\
Proposed Instruction 9 would also replace ``foreign private
registrants'' with the defined term ``foreign private issuer.'' \333\
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    \331\ See Section II.D.1.b above.
    \332\ See proposed Instruction 9.
    \333\ See Rule 405 and Rule 3b-4(c).
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Request for Comment
    78. Should we retain and amend the FPI instruction to Item 303, as
proposed?

E. Additional Conforming Amendments

    We propose additional conforming amendments that are consistent
with the proposed amendments described above.\334\
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    \334\ If the proposed amendments are adopted, the Commission
will also amend certain rules and forms to update references to the
items we are proposing to amend. Specifically, if adopted as
proposed, conforming amendments will be made to: Remove references
to Item 301 or Item 3.A of Form 20-F (Item 10 of Regulation S-K [17
CFR 229.10]; Forms S-1 [17 CFR 239.11], N-2 [17 CFR 274.11a-1], S-11
[17 CFR 239.18], S-4 [17 CFR 239.25], F-1 [17 CFR 239.31], F-4 [17
CFR 239.34], 1-A [17 CFR 239.90], 10 [17 CFR 249.208c], and 10-K [17
CFR 249.310]; Schedule 14A [17 CFR 240.14a-101]; and Exchange Act
Rule 14a-3 [17 CFR 240.14a-3]); remove references to Item 302 (Items
10 [17 CFR 229.10; Forms S-1 [17 CFR 239.11], N-2 [17 CFR 274.11a-
1], S-11 [17 CFR 239.18], S-4 [17 CFR 239.25], 1-A [17 CFR 239.90],
10 [17 CFR 249.208c], and 10-K [17 CFR 249.310]; Schedule 14A [17
CFR 240.14a-101]; Securities Act Rule 175 [17 CFR 230.175]; Exchange
Act Rules 3b-6 [17 CFR 240.3b-6] and 14a-3 [17 CFR 240.14a-3]; and
Trust Indenture Act of 1939 Rule 0-11 [17 CFR 260.0-11].); and
update references to subparagraphs of Item 303 (Securities Act Rule
419 [17 CFR 230.419]).
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1. Roll-Up Transactions--Item 914 of Regulation S-K
    We propose to delete references to Items 301 and 302 in Item 914(a)
of Regulation S-K. This item applies to roll-up transactions, which
generally involve the combination or reorganization of one or more
partnerships, directly or indirectly, where some or all of the
investors in any such partnerships will receive new securities, or
securities in another entity.\335\ Item 914(a) provides that, for each
partnership to be included in a roll-up transaction, certain financial
information, including disclosure under Item 301 and Item 302, must be
provided.
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    \335\ See Rule 901 of Regulation S-K [17 CFR 229.901].
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    In the context of Item 914(a), disclosure provided under Items 301
and 302 would not be duplicative of the financial statements and would
otherwise be unavailable. However, Item 914(a) specifies disclosure of
other financial information \336\ and states that additional or other
information should be provided if material to an understanding of each
partnership proposed to be included in a roll-up transaction. In light
of these other requirements, we believe deleting references to Items
301 and 302 in Item 914(a) would not result in a loss of material
information.
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    \336\ In addition to disclosure under Items 301 and 302, Item
914(a) calls for the following financial disclosures: Ratio of
earnings to fixed charges, cash and cash equivalents, total assets
at book value, total assets at the value assigned for purposes of
the roll-up transaction (if applicable), total liabilities, general
and limited partners' equity, net increase (decrease) in cash and
cash equivalents, net cash provided by operating activities,
distributions; and per unit data for net income (loss), book value,
value assigned for purposes of the roll-up transaction (if
applicable), and distributions (separately identifying distributions
that represent a return of capital).
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Request for Comment
    79. If we eliminate Items 301 and 302 should we also delete these
references in Item 914(a) and not specify additional disclosure
requirements, as proposed? Are there any unique considerations for
roll-up transactions that would necessitate some or all of the
information required by Items 301 and 302?
2. Regulation AB--Items 1112, 1114, and 1115
    Item 1112 of Regulation AB requires disclosure of financial
information required by Item 301 or Item 3.A of Form 20-F about
significant obligors of pool assets if the pool assets relating to the
significant obligor represent 10% or more, but less than 20%, of the
asset pool in an asset-backed securities (``ABS'') transaction.
Similarly, Items 1114 and 1115 of Regulation AB require disclosure of
financial information required by Item 301 or Item 3.A of Form 20-F
about credit enhancement providers and derivatives counterparties,
respectively, whose support represents a similar level of concentration
in an ABS transaction. With our proposal to eliminate Item 301 and Item
3.A of Form 20-F for corporate issuers, financial information about
these third parties to an ABS transaction, including any trend
information comparable to information required by Item 303 or Item 5 of
Form 20-F, may not otherwise be available. Therefore, we propose to
replace in Regulation AB those requirements to disclose selected
financial data under Item 301 or Item 3.A of Form 20-F with
requirements to disclose summarized financial information, as defined
by Rule 1-02(bb) of Regulation S-X,\337\ for

each of the last three fiscal years (or the life of the relevant entity
or group of entities, if less). We believe the information required
under Rule 1-02(bb) is similar to the information currently required,
and is consistent with other types of financial statement disclosures
that are required to be disclosed when certain significance thresholds
have been met.\338\ As proposed, these requirements span the same
periods as the historical data that the ABS registrant is required to
provide for the pool assets under Item 1111 of Regulation AB.\339\
While this proposal would generally result in fewer periods being
presented under these items, we do not believe requiring disclosure
beyond three years is necessary. Such disclosure would cover periods
beyond those presented for the underlying pool assets to which the
third-party financial information would relate.
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    \337\ [17 CFR 210.1-02(bb)]. We are also proposing amendments to
Rule 1-02(bb) of Regulation S-X, which calls for disclosure of
summary financial information. To eliminate any implication that a
registrant would need to prepare disclosure that is not consistent
with the disclosure in the entity's financial statements, the
proposed amendments would clarify that the disclosure of summary
financial information may vary, as appropriate, to conform to the
nature of the entity's business.
    \338\ For example, Rule 4-08(g) of Regulation S-X [17 CFR 210.4-
08(g)] requires disclosure of summarized financial information for
equity method investees when significance thresholds are met.
    \339\ While ABS registrants are generally not required to
provide financial statements, under Item 1111 of Regulation AB, ABS
registrants must provide historical data on the pool assets as
appropriate (e.g., the lesser of three years or the time such assets
have existed) to allow material evaluation of the pool data. See 17
CFR 229.1111.
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Request for Comment
    80. If we eliminate Item 301 and Item 3.A of Form 20-F, should we
replace these references in Items 1112, 1114, and 1115 of Regulation AB
with a reference to Rule 1-02(bb) of Regulation S-X, as proposed? Would
the potential fewer earlier periods being presented under these items
result in the loss of material information? Are there alternatives that
we should consider? Should we explicitly require a tabular presentation
of the summarized financial information for ABS?
3. Summary Prospectus in Forms S-1 and F-1
    We are proposing to replace references to Item 301 and Item 3.A of
Form 20-F in Form S-1 and Form F-1, respectively, with Rule 1-02(bb) of
Regulation S-X, where these forms provide for use of a summary
prospectus under Rule 431.\340\ A summary prospectus is intended to
provide prospective investors with a condensed statement of the more
important information in the registration statement.\341\ Consistent
with this purpose, the Instructions as to Summary Prospectuses in Forms
S-1 and F-1 call for disclosure of selected financial data under Item
301 or Item 3.A of Form 20-F, respectively. These instructions also
state that, with the exception of these items, the summary prospectus
shall not contain any other financial information.\342\ To preserve
disclosure of financial information in summary prospectuses, we propose
to replace the requirement for selected financial data in Forms S-1 and
F-1 with summarized financial information under Item 1-02(bb) of
Regulation S-X. We believe the information required under Rule 1-02(bb)
is similar to the information currently required and is consistent with
other types of financial statement disclosures that should be included
when certain significance thresholds have been met.
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    \340\ See 17 CFR 230.431. See also Instruction 1(f) under
Instructions as to Summary Prospectuses in Form S-1 and Instruction
1(c)(v) under Instructions as to Summary Prospectuses in Form F-1.
    \341\ See Adoption of Summary Prospectus Rule and Amendments to
Form S-1 and S-9, Release No. 33-3722 (Nov. 26, 1956) [21 FR 9642
(Dec. 6, 1956)].
    \342\ See Instruction 2 under Instructions as to Summary
Prospectuses for Form S-1 and Form F-1.
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Request for Comment
    81. If we eliminate Item 301 and Item 3.A of Form 20-F, as
proposed, should we replace these references in the Instructions as to
Summary Prospectuses of Forms S-1 and F-1 with Item 1-02(bb) of
Regulation S-X, as proposed?
4. Business Combinations--Form S-4, Form F-4 and Schedule 14A
    We are proposing to eliminate references to Items 301 and 302 in
Form S-4, Form F-4, and Schedule 14A. Where these forms are used in
conjunction with a business combination, pro forma financial statements
for the most recent fiscal year and interim period under Article 11 of
Regulation S-X are required.\343\ Additionally, Item 3(e) and (f) in
both Forms S-4 and F-4 require Item 301 or Item 3.A of Form 20-F
information, respectively, on a pro forma basis. Item 14(b)(9) and (10)
of Schedule 14A generally call for similar pro forma information in the
context of a business combination. A related instruction stipulates
that, for a business combination accounted for as a purchase, financial
information is required for the same periods required by Article 11 of
Regulation S-X. Because these pro forma requirements are effectively
duplicative of the pro forma financial statements required elsewhere by
the form, we propose to delete them.\344\
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    \343\ See Item 5 under Part 1 of Forms F-4 and S-4.
    \344\ We are also proposing to delete the related instruction to
these items.
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    Similarly, we are proposing to eliminate references to Item 301 and
Item 3.A of Form 20-F in Item 17(b)(3) of both Form S-4 and Form F-4.
We are also proposing to delete the reference to Item 302 in Item
17(b)(4) of Form S-4. Because Item 17(b) of Forms S-4 and F-4 applies
to non-reporting target companies in a business combination, this
disclosure may not be available elsewhere. We believe, however,
consistent with the discussion above,\345\ that the requirement for
discussion and analysis of trends in Item 303 would also be sufficient
to address material information related to a target company in a
business combination context.
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    \345\ See Section II.A above.
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Request for Comment
    82. If we eliminate Item 301 and Item 3.A of Form 20-F as proposed,
should we also eliminate references to these items in Form S-4 and F-4
and Schedule 14A, as proposed? Are there any unique considerations in
the context of a business combination?
    83. In Forms S-4 and F-4, pro forma information of selected
financial data is required as part of the prospectus summary. Are there
any unique considerations in the context of a business combination such
that Item 301 and Item 3.A of Form 20-F pro forma information should be
required as part of the prospectus summary?
    84. Should we eliminate the requirement to provide Item 301, Item
3.A of Form 20-F, and Item 302 disclosure in Forms S-4 and F-4 for non-
reporting target companies, as proposed?
5. Form S-20
    We are proposing a conforming change to Form S-20 to remove
references to Item 302 of Regulation S-K.\346\ Form S-20 is used to
register standardized options under the Securities Act and requires
limited information about the clearing agency registrant and the
options being registered. Since the adoption of Rule 238 in 2002, which
exempts from Securities Act Section 5 the registration of offerings of
standardized options that are issued by a registered clearing agency
and traded on a national

securities exchange, Form S-20 is rarely used.\347\
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    \346\ 17 CFR 239.20. Current references in Form S-20 to Item 302
are references to the item's predecessor, Item 12.
    \347\ See Exemption for Standardized Options From Provisions of
the Securities Act of 1933 and From the Registration Requirements of
the Securities Exchange Act of 1934, Release No. 33-8171 (Dec. 23,
2002) [68 FR 188 (Jan. 2, 2003)] (``New Securities Act Rule 238 does
not make Form S-20 obsolete. We are retaining Form S-20 for use by