an issuer of standardized options that is not a clearing agency
registered under Section 17A of the Exchange Act, such as a foreign
clearing agency, or for use by issuers of standardized options that
do not trade on a registered national securities exchange or on a
registered national securities association.''). Since the effective
date of Rule 238 in 2003, we estimate that approximately one entity
has used Form S-20.
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Request for Comment
    85. If we eliminate Item 302, should we also eliminate reference to
this item in Form S-20? Are there any unique considerations in the
context of Form S-20?

F. Compliance Date

    We propose to provide a transition period after the publication of
a final rule in the Federal Register to provide registrants with
adequate time to adjust their disclosures in light of the proposed
amendments. Though companies would be able to begin voluntarily
complying with the proposed amendments upon effectiveness, we propose a
compliance date of 180 days after effectiveness of any final rule, if
adopted. The Commission believes that this transition period would
allow sufficient time to prepare for and come into compliance with the
amended reporting requirements, but we request comment on whether this
time period is appropriate.
Request for Comment
    86. Is the proposed transition period necessary and appropriate? If
not, what time period would be necessary for registrants to comply with
the proposed amendments?
    87. Would certain proposed amendments (e.g., critical accounting
estimates) require more time to prepare for than other requirements?

III. General Request for Comments

    We request and encourage any interested person to submit comments
on any aspect of our proposals, other matters that might have an impact
on the proposed amendments, and any suggestions for additional changes.
With respect to any comments, we note that they are of greatest
assistance to our rulemaking initiative if accompanied by supporting
data and analysis of the issues addressed in those comments and by
alternatives to our proposals where appropriate.

IV. Economic Analysis

A. Introduction

    As discussed above, we are proposing amendments to modernize,
simplify, and enhance certain financial disclosure requirements in
Regulation S-K. Specifically, we are proposing (1) to eliminate Item
301 of Regulation S-K, Selected Financial Data, and Item 302 of
Regulation S-K, Supplementary Financial Information; and (2) to amend
Item 303 of Regulation S-K, Management's Discussion & Analysis of
Financial Condition and Results of Operations. The proposed amendments
are intended to eliminate duplicative disclosures and enhance MD&A
disclosures for the benefit of investors, while simplifying compliance
efforts for registrants.
    Overall, investors and registrants may benefit from the proposed
amendments if they would help avoid duplicative disclosure and if
emphasizing the current principles-based approach to MD&A results in
more tailored disclosures that allow investors to better understand the
registrant's business through the eyes of management. We acknowledge
the risk that emphasizing the current principles-based approach may
result in certain loss of information to investors. However, we believe
that any loss of information would be limited because the proposed
eliminations are mostly duplicative. Additionally, under the proposed
principles-based approach, registrants would still be required to
provide disclosure about these topics if they are material to an
investment decision, further mitigating the potential loss of
information.
    We are mindful of the costs and benefits of the proposed
amendments. The discussion below addresses the potential economic
effects of the proposed amendments, including the likely benefits and
costs, as well as the likely effects on efficiency, competition, and
capital formation.\348\ At the outset, we note that, where possible, we
have attempted to quantify the benefits, costs, and effects on
efficiency, competition, and capital formation expected to result from
the proposed amendments. In many cases, however, we are unable to
quantify the potential economic effects because we lack information
necessary to provide a reasonable estimate. For example, we are unable
to quantify, with precision, the costs to investors of accessing
alternative information sources (e.g., footnotes to financial
statements or earnings announcements) under each disclosure item. We
are also unable to quantify the potential information processing cost
savings that may arise from the elimination of disclosures that are
duplicative or not material to an investment decision. Where we are
unable to quantify the economic effects of the proposed amendments, we
provide a qualitative assessment of the potential effects and encourage
commenters to provide data and information that would help quantify the
benefits, costs, and the potential impacts of the proposed amendments
on efficiency, competition, and capital formation.
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    \348\ Section 2(b) of the Securities Act [15 U.S.C. 77b(b)] and
Section 3(f) of the Exchange Act [17 U.S.C. 78c(f)] require the
Commission, when engaging in rulemaking where it is required to
consider or determine whether an action is necessary or appropriate
in the public interest, to consider, in addition to the protection
of investors, whether the action will promote efficiency,
competition, and capital formation. Further, Section 23(a)(2) of the
Exchange Act [17 U.S.C. 78w(a)(2)] requires the Commission, when
making rules under the Exchange Act, to consider the impact that the
rules would have on competition, and prohibits the Commission from
adopting any rule that would impose a burden on competition not
necessary or appropriate in furtherance of the Exchange Act.
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B. Baseline and Affected Parties

    The current disclosure requirements under Items 301, 302, and 303
of Regulation S-K, and the related requirements under Items 3.A and 5
of Form 20-F, and General Instructions B.(11), (12), and (13) of Form
40-F, together with the current disclosure practices registrants have
adopted to comply with these requirements, form the baseline from which
we estimate the likely economic effects of the proposed
amendments.\349\ The disclosure requirements apply to various filings,
including registration statements, periodic reports, and certain proxy
statements filed with the Commission. Thus, the parties that are likely
to be affected by the proposed amendments include investors and other
market participants that use the information in these filings (such as
financial analysts, investment advisors, and portfolio managers), as
well as registrants subject to the relevant disclosure requirements
discussed above.
---------------------------------------------------------------------------

    \349\ See supra Section I.
---------------------------------------------------------------------------

    The proposed amendments may affect both domestic registrants and
FPIs.\350\

We estimate that during calendar year 2018 there were approximately
6,919 registrants that filed on domestic forms \351\ and 806 FPIs that
filed on F-forms, other than registered investment companies. Among the
registrants that filed on domestic forms, approximately 29 percent were
large accelerated filers, 19 percent were accelerated filers, and 52
percent were non-accelerated filers. In addition, we estimate that
approximately 33 percent of these domestic issuers were SRCs \352\ and
21.3 percent were EGCs. The proposed amendments would also affect ABS
issuers. ABS issuers are required to file on Forms SF-1 and SF-3 and,
as a result, may be subject to the proposed changes to Regulation AB
requirements in this release. We estimate that during calendar year
2018, there were 36 unique depositors filing at least one Form SF-1 or
Form SF-3.
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    \350\ The number of domestic registrants and FPIs affected by
the proposed amendments is estimated as the number of unique
companies, identified by Central Index Key (CIK), that filed a Form
10-K, Form 10-Q, Form 20-F, and Form 40-F or an amendment thereto
with the Commission during calendar year 2018. The estimates for the
percentages of SRCs, are based on information from Form 10-K, Form
20-F, and Form 40-F. For purposes of this economic analysis, these
estimates do not include issuers that filed only initial Securities
Act registration statements during calendar year 2018, and no
Exchange Act reports, in order to avoid including entities, such as
certain co-registrants of debt securities, which may not have
independent reporting obligations and therefore would not be
affected by the proposed amendments. Nevertheless, the proposed
amendments would affect any registrant that files a Securities Act
or Exchange Act registration statement or is subject to Exchange Act
reporting obligations. We believe that most registrants that have
filed a Securities Act or Exchange Act registration statement, other
than the co-registrants described above, would be captured by this
estimate through their annual or quarterly filings. The estimates
for the percentages of SRCs, EGCs, accelerated filers, large
accelerated filers, and non-accelerated filers are based on data
obtained by Commission staff using a computer program that analyzes
SEC filings, with supplemental data from Ives Group Audit Analytics.
    \351\ This number includes fewer than 25 FPIs that filed on
domestic forms in 2018 and approximately 100 BDCs.
    \352\ This estimate is based on the definition of SRCs prior to
the September 2018 effective date of recent amendments to this
definition. See Amendments to the Smaller Reporting Company
Definition, Release No. 33-10513 (June 28, 2018) [83 FR 31992 (July
10, 2018)]. As these amendments increased the number of registrants
who are eligible to be SRCs, it is likely that the percentage of
registrants that are SRCs is now higher than 33 percent.
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C. Potential Benefits and Costs of the Proposed Amendments

    In this section, we discuss the anticipated economic benefits and
costs of the proposed amendments. We first analyze the overall economic
effects of the proposed amendments. We then discuss the potential
benefits and costs of specific proposed amendments.
1. Overall Potential Benefits and Costs
    We anticipate the proposed amendments \353\ would benefit
registrants in several ways. First, by eliminating certain duplicative
disclosure requirements, the proposed amendments could reduce
registrants' disclosure burden and associated compliance costs. Second,
by modernizing and simplifying Item 303 disclosure requirements, the
proposal may benefit registrants by reducing disclosure burdens and
associated compliance costs. In addition, to the extent the proposed
amendments result in more tailored and informative disclosure, they
could potentially reduce information asymmetry between registrants and
investors, improve firms' liquidity, and decrease the cost of capital.
Finally, certain of the proposed amendments emphasize a more
principles-based approach to MD&A, which we believe would benefit
registrants by underscoring the flexibility available in presenting
financial results that are more indicative of their business.\354\ A
more principles-based approach, however, could lead to registrants
incurring increased costs associated with assessing materiality.
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    \353\ See supra Sections II.A. through II.E.
    \354\ A number of academic studies have explored the use of
prescriptive thresholds and materiality criteria. Many of these
papers highlight a preference for principles-based materiality
criteria. See, e.g., Eugene A. Imhoff Jr. and Jacob K. Thomas,
Economic consequences of accounting standards: The lease disclosure
rule change, 10.4 J. Acct. & Econ. 277-310 (1988) (providing
evidence that management modifies existing lease agreements to avoid
crossing rules-based criteria for lease capitalization); Cheri L.
Reither, What are the best and the worst accounting standards?, 12.3
Acct. Horizons 283 (1998) (documenting that due to the widespread
abuse of bright-lines in rules for lease capitalization, SFAS No. 13
was voted the least favorite FASB standard by a group of accounting
academics, regulators, and practitioners); Christopher P. Agoglia,
Timothy S. Doupnik, and George T. Tsakumis. Principles-based versus
rules-based accounting standards: The influence of standard
precision and audit committee strength on financial reporting
decisions, 86.3 The Acct. Rev. 747-767 (2011) (conducting
experiments in which experienced financial statement preparers are
placed in a lease classification decision context and finding that
preparers applying principles-based accounting are less likely to
make aggressive reporting decisions than preparers applying a more
precise rules-based standard and supporting the notion that a move
toward principles-based accounting could result in better financial
reporting); Usha Rodrigues and Mike Stegemoller, An inconsistency in
SEC disclosure requirements? The case of the ``insignificant''
private target, 13.2-3 J. Corp. Fin. 251-269 (2007) (providing
evidence, in the context of mergers and acquisitions, where rule-
based [disclosure] thresholds deviate from investor preferences).
Papers that highlight a preference for rules-based materiality
criteria are cited below.
---------------------------------------------------------------------------

    We believe investors could also benefit from the proposed
amendments. First, proposed amendments that clarify and codify existing
guidance, such as the proposed amendments related to critical
accounting estimates and capital resources, could enhance MD&A
disclosure. More robust and informative disclosure on these topics
could facilitate investors' decision making and enhance investor
protection. Second, if the proposed amendments result in more enhanced
and principles-based disclosure, they could allow investors to more
efficiently process the disclosure and make better-informed investment
decisions. In particular, investors may benefit from more tailored
disclosures that allow them to better understand the registrant's
business through the eyes of management. Investors also could benefit
from the reduction of duplicative disclosure, because reducing such
duplication may improve the readability and conciseness of the
information provided, help investors focus on material information, and
facilitate more efficient information processing.\355\
---------------------------------------------------------------------------

    \355\ See A. Lawrence, Individual Investors and Financial
Disclosure, 56 J. Acct. & Econ., 130-147 (2013). Using data on
trades and portfolio positions of 78,000 households, this article
shows that individuals invest more in firms with clear and concise
financial disclosures. This relation is reduced for high frequency
trading, financially literate investors, and speculative individual
investors. The article also shows that individuals' returns increase
with clearer and more concise disclosures, implying such disclosures
reduce individuals' relative information disadvantage. A one
standard deviation increase in disclosure readability and
conciseness corresponds to return increases of 91 and 58 basis
points, respectively. The article acknowledges that, given the
changes in financial disclosure standards and the possible advances
in individual investor sophistication, the extent to which these
findings, which are based on historical data from the 1990s, would
differ from those today is unknown. Recent advances in information
processing technology, such as machine learning for textual
analysis, may also affect the generalizability of these findings.
---------------------------------------------------------------------------

    However, investors could incur certain costs under the proposed
amendments. For example, investors who are used to the current
disclosure format might experience costs when adjusting to the new
format. However, this cost should decrease over time. Investors could
also incur monetary costs such as database subscriptions, or
opportunity costs such as time spent, if they need to obtain or
reconstruct information through alternative sources. However, we do not
expect such costs to be significant since registrants would still need
to disclose material information. There could be certain additional
costs associated with the proposed amendments to the extent that they
result in the elimination of disclosure material to an investment
decision if registrants misjudge what information is material, or if
disclosure becomes less comparable across firms.\356\ The risk of
misjudgment may

be mitigated by factors including accounting, financial reporting, and
disclosure controls or procedures,\357\ as well as the antifraud
provisions of the securities laws. In terms of the potential loss of
comparability, the cost related to it should be minimal since investors
can pull data from the financial statements via XBRL.
---------------------------------------------------------------------------

    \356\ See Mark W. Nelson, Behavioral evidence on the effects of
principles- and rules-based standards, 17.1 Accounting Horizons 91-
104 (2003); and Katherine Schipper, Principles-based accounting
standards, 17.1 Accounting Horizons 61-72 (2003) (noting potential
advantages of rules-based accounting standards, including: Increased
comparability among firms, increased verifiability for auditors, and
reduced litigation for firms). See also Randall Rentfro and Karen
Hooks, The effect of professional judgment on financial reporting
comparability, 1 Journal of Accounting and Finance Research 87-98
(2004) (finding that comparability in financial reporting may be
reduced under principles-based standards, which rely more heavily on
the exercise of professional judgment, but comparability may improve
as financial statement preparers become more experienced and hold
higher organizational rank); Andrew A. Acito, Jeffrey J. Burks, and
W. Bruce Johnson, The Materiality of Accounting Errors: Evidence
from SEC Comment Letters, 36.2 Contemp. Acct. Res. 839, 862 (2019)
(studying managers' responses to SEC inquiries about the materiality
of accounting errors and finding that managers are inconsistent in
their application of certain qualitative considerations and may omit
certain qualitative considerations from their analysis that weigh in
favor of an error's materiality).
    \357\ See, e.g., Exchange Act Rules 13b-2b [17 CFR 240.13b-2b],
13a-15e [17 CFR 240.13a-15e], and 13a-15f [17 CFR 240.13a-15f].
---------------------------------------------------------------------------

    Some of the costs of the proposed amendments could be mitigated by
external disciplining mechanisms, such as the Commission staff's filing
review program. In general, registrants would remain subject to the
antifraud provisions of the securities laws.\358\ There also may be
incentives for registrants to voluntarily disclose additional
information if the benefits of reduced information asymmetry exceed the
disclosure costs.
---------------------------------------------------------------------------

    \358\ See, e.g., Exchange Act Rule 10b-5(b) [17 CFR 240.10b-
5(b)].
---------------------------------------------------------------------------

    The proposed amendments likely would affect registrants and
investors differently. For example, any compliance cost reduction might
be more beneficial to smaller registrants that are financially
constrained. Similarly, although eliminating information that is not
material should benefit all investors, retail investors could benefit
more as they are less likely to have the time and resources to devote
to reviewing and evaluating disclosure. On the other hand, retail
investors could also incur additional costs as a result of the proposed
amendments because they may need to obtain information from alternative
sources, which could involve monetary costs, such as database
subscriptions, or opportunity costs, such as time spent searching for
alternative sources. These costs may be higher for retail investors
than for institutional investors.
2. Benefits and Costs of Specific Proposed Amendments
    We expect the proposed amendments would result in costs and
benefits to registrants and investors, and we discuss those costs and
benefits item by item in this section. The proposed changes to each
item would impact the compliance burden for registrants in filing forms
that require disclosures that are responsive to such items. Overall, we
expect the net effect of the proposed amendments on a registrant's
compliance burden to be limited. As explained in this section, we
expect certain aspects of the proposed amendments to increase
compliance burdens, and others to decrease the burdens. The
quantitative estimates of changes in those burdens for purposes of the
Paperwork Reduction Act of 1995 (``PRA'') \359\ are further discussed
in Section V below. For purposes of the PRA, we estimate that the
effect of the proposed amendments would vary for different forms.
However, taken together, the amendments are likely to result in a net
decrease in burden hours for all forms, ranging from 0.1 to 6.5 burden
hours per form.\360\
---------------------------------------------------------------------------

    \359\ Paperwork Reduction Act of 1995, Public Law 104-13, 109
Stat. 163 (1995) (codified at 44 U.S.C. 3501 et seq.).
    \360\ See infra Section V.B.
---------------------------------------------------------------------------

a. Selected Financial Data (Item 301)
    Item 301 requires certain registrants \361\ to furnish selected
financial data in comparative tabular form for each of the registrant's
last five fiscal years and any additional fiscal years necessary to
keep the information from being misleading.\362\ The purpose of this
disclosure is to supply in a convenient and readable format selected
financial data that highlights certain significant trends in the
registrant's financial conditions and results of operations. For
certain registrants, information disclosed under Item 301 has also been
disclosed in historical financial data and related XBRL data
submissions that can be accessed through prior filings on EDGAR.
---------------------------------------------------------------------------

    \361\ As discussed above in Section II.A, SRCs are not required
to provide Item 301 information and EGCs that are providing the
information called for by Item 301 in a Securities Act registration
statement need not present selected financial data for any period
prior to the earliest audited financial statements presented in
connection with the EGC's IPO of its common equity securities. In
addition, an EGC that is providing the information called for by
Item 301 in a registration statement, periodic report, or other
report filed under the Exchange Act need not present selected
financial data for any period prior to the earliest audited
financial statements presented in connection with its first
registration statement that became effective under the Exchange Act
or Securities Act. See Item 301(c) of Regulation S-K; Item 301(d)(1)
of Regulation S-K.
    \362\ See supra Section II.A.
---------------------------------------------------------------------------

    The current disclosure requirement under Item 301 could result in
duplicative disclosure, and it can be costly for registrants to provide
such disclosures under certain circumstances. For example, as discussed
above, providing disclosure of the earliest two years often creates
challenges for registrants when such information has not been
previously provided.\363\ Therefore, eliminating this requirement may
facilitate capital raising activity and increase efficiency for non-EGC
issuers contemplating an IPO. Overall, we expect the proposed
elimination of Item 301 would benefit registrants by eliminating
duplicative disclosures and reducing compliance costs. We also note
that the benefit associated with eliminating the costs of providing
Item 301 disclosure may be offset by the costs associated with making
materiality determinations under a principles-based disclosure
framework. In general, we do not expect the proposed elimination of
Item 301 would affect the cost of capital given that the eliminated
disclosures are largely duplicative. To the extent that there is
information loss under certain circumstances, such as in the case of
non-EGC IPOs, these registrants could potentially experience an
increase in the cost of capital as a result of reduced disclosure.
However, in these circumstances registrants would likely voluntarily
provide the disclosures to the extent the increase in cost of capital
would be significant.
---------------------------------------------------------------------------

    \363\ See supra Section II.A.
---------------------------------------------------------------------------

    To the extent the proposed amendments result in the elimination of
disclosure that is not material, investors may benefit. In particular,
if the readability and conciseness of the information provided
improves,\364\ investors may be able to process information more
effectively by focusing on the material information. Also, a
principles-based approach may permit or encourage registrants to
present more tailored information, which also may benefit investors by
allowing them to better understand the registrant's business.
---------------------------------------------------------------------------

    \364\ See supra note 355.
---------------------------------------------------------------------------

    Investors may incur costs to the extent the proposed amendments
result in a loss of information. While we do not anticipate significant
information loss from the elimination of Item 301, we recognize that
selected financial information for the two earliest years would no
longer be disclosed in non-EGC IPOs. However, the purpose of the item
is to highlight certain significant

trends in the registrant's financial condition and results of
operations and we expect that any material trend information that would
have been disclosed pursuant to Item 301 would be disclosed under Item
303. We also recognize investors may incur certain other costs. In
particular, investors would incur search costs if they have to spend
more time to retrieve the information from prior filings. Additionally,
to the extent investors are used to the current format and rely on the
compiled comparable data, they may incur costs to adjust to new
disclosure formats.
    Elimination of Item 301 would affect the financial information
disclosure by ABS issuers. As discussed above, the currently available
financial information set forth in Item 301 or Item 3.A of Form 20-F
about significant obligors of pool assets, credit enhancement
providers, and derivatives counterparties as required by Item 1112,
Items 1114, and 1115 of Regulation AB may not otherwise be available.
To mitigate this potential information loss, 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, for each of the last three fiscal years (or the life of
the relevant entity or group of entities, if less).
    Since the proposed changes related to ABS issuers are intended to
conform to the other changes related to selected financial data and
MD&A, our analysis of the costs and benefits for registrants and their
investors under the proposed amendments to Item 301 and Item 3.A of
Form 20-F can be carried over to ABS issuers. While this proposal would
generally result in fewer periods being presented, we do not expect it
to have a significant effect on ABS issuers and their investors,
because the disclosure of the earlier years would cover periods beyond
those presented for the underlying pool assets to which the third-party
financial information would relate.
b. Supplementary Financial Information (Item 302)
    Under Item 302(a), certain registrants are required to disclose
quarterly financial data of specified operating results and variances
in these results from amounts previously reported on a Form 10-Q.\365\
Registrants must provide quarterly information for each full quarter
within the two most recent fiscal years and any subsequent period for
which financial statements are included or required by Article 3 of
Regulation S-X. Item 302(a) also requires disclosure related to effects
of any discontinued operations and unusual or infrequently occurring
items.
---------------------------------------------------------------------------

    \365\ As discussed in Section II.B.1, SRCs, FPIs, issuers
conducting an IPO, and registrants that have a class of securities
registered under Section 15(d) of the Exchange Act are not subject
to Item 302(a).
---------------------------------------------------------------------------

    Since the financial data required under this item (including
disclosure related to the effect of any discontinued operations and
unusual or infrequently occurring items), other than fourth-quarter
data, typically can be found in prior quarterly filings through EDGAR,
the prescriptive disclosure requirements under existing Item 302(a)
result in duplicative disclosures. By eliminating the duplicative
disclosure and associated compliance costs, the proposed amendments
would benefit registrants. We do not expect the proposed elimination of
Item 302(a) to affect registrants negatively. While a decrease in
disclosure could potentially increase the company's cost of capital in
general, registrants can always choose to disclose the quarterly
financial information through other channels, such as an earnings
release.
    Investors could benefit to the extent that the proposed amendments
result in less duplicative disclosure and less disclosure of immaterial
information. The proposed amendments may result in improved readability
and conciseness of the information provided, help investors focus on
material information, and facilitate more efficient information
processing by investors. The proposed amendments would also allow
registrants to present financial information that is more reflective of
their own industry and firm operating cycles, which could allow
investors to better understand their business.
    We anticipate information loss from the proposed elimination of
fourth quarter financial information currently required under Item
302(a), which is otherwise not explicitly required to be disclosed.
Though fourth quarter financial data could be calculated from annual
report and cumulative third quarter data, it may be costly for
investors to calculate or obtain. While such costs might be minimal for
institutional investors, which have both resources and sophistication
to obtain the needed financial information, for retail investors, the
search costs might be substantially larger, which could involve
monetary costs such as database subscriptions, or opportunity costs
such as time spent searching for alternative sources and cross-
referencing. Additionally, investors could make mistakes in deriving
the fourth quarter financial information. Finally, in the case of a
restatement, investors, including more sophisticated institutional
investors, might not be able to accurately back out the fourth quarter
information. To the extent that there is lack of accurate fourth
quarter information which cannot be obtained through alternative means,
investors' decision making could be affected.
    However, the potential information loss from the elimination of
Item 302(a) might be mitigated under MD&A's principles-based framework.
We believe that fourth quarter data may not be material to all
registrants or in every fiscal year. For example, for investors in
companies with long operating cycles, fourth quarter data might not be
as incrementally important as annual data. However, to the extent that
there are material trends or events in the fourth quarter or throughout
the fiscal year, registrants would be required to address those matters
in their MD&A.
    Item 302(b) requires issuers engaged in oil and gas producing
activities, other than SRCs, to disclose information about those
activities that is required by U.S. GAAP for each period presented. The
FASB has recently proposed to amend U.S. GAAP to require the
incremental disclosure called for by Item 302(b). Thus, because the
disclosure required by Item 302(b) would be included in the notes to
the registrant's financial statements, the proposed elimination of Item
302(b) would remove duplicative disclosure on this topic, benefiting
both registrants and investors. Registrants could benefit from the
reduced compliance burden. Investors should not face information loss
from this aspect of the proposed amendments, as this requirement
completely overlaps with the proposed amendments to U.S. GAAP. However,
investors may incur costs to adjust to the new disclosure format. Such
costs are likely to be one-time costs or to decrease over time.
c. Item 303(a) Restructuring and Streamlining
    The proposal includes multiple changes that are intended to clarify
and streamline the requirements of Item 303. For example, we are
proposing a new Item 303(a) to provide a succinct and clear description
of the purpose of MD&A. As discussed above, emphasizing the purpose of
MD&A at the outset of the item is intended to provide clarity and focus
to registrants as they consider what information to discuss and
analyze, which could

encourage management to disclose those factors that are most specific
and relevant to a registrant's business. Other changes include
restructuring and streamlining language in Item 303 and the related
instructions.
    We anticipate that the proposed amendments would provide
registrants with more clarity on disclosure requirements. When there is
confusion related to disclosure requirements, registrants may either
over-disclose and incur additional compliance costs, or under-disclose
and face increased litigation risk. To the extent that the proposed
amendments reduce registrants' confusion, registrants could potentially
benefit from reduced compliance costs and litigation risk. More
informative disclosure could potentially benefit both registrants and
investors by reducing information asymmetry in the market. Reduced
information asymmetry could help investors make more informed
investment decisions, which may benefit registrants in their capital
raising. For registrants, reduced information asymmetry could also
potentially improve firm liquidity and reduce cost of capital.
d. Capital Resources (Item 303(a)(2))
    Item 303(a)(2), which requires a registrant to discuss its material
commitments for capital expenditures as of the end of the latest fiscal
period, does not define the term ``capital resources.'' The lack of
specificity was intended to provide management flexibility for a
meaningful discussion when this disclosure requirement was adopted in
1980. Nonetheless, the Commission has previously provided guidance to
clarify the nature of this requirement.\366\ Further, while the
required disclosure of material commitments of capital expenditures
generally relates to physical assets, such as buildings and equipment,
this requirement may not fully reflect market developments. While
capital expenditures remain important in many industries, certain
expenditures that are not necessarily capital investments may be
increasingly important to companies. For example, expenditures for
human resources or intellectual property may be essential for companies
in certain industries. The proposed amendments to Item 303(a)(2) are
intended to encompass these types of expenditures. The proposed
amendments would also require, consistent with the Commission's 2003
MD&A Interpretive Release, that registrants broadly disclose material
cash commitments, including but not limited to capital expenditures. We
believe the proposed amendments would modernize the requirement and
make the disclosure more reflective of current and future industry
outlays.
---------------------------------------------------------------------------

    \366\ See 2003 MD&A Interpretive Release.
---------------------------------------------------------------------------

    We believe that the proposed amendments could benefit registrants
by providing additional clarity on the term ``capital resources'' and
reducing confusion, thereby eliciting appropriate disclosure from
registrants and potentially decreasing litigation risk. Capital
expenditures vary across industries. While firms in traditional
industries rely more on physical assets, firms in other industries such
as the technology sector may invest more heavily in intellectual
property and human capital. Specifying only capital expenditures in the
rule could lead to confusion about what information should be provided.
As a result, registrants may over-disclose and incur additional
compliance costs, or under-disclose and face increased litigation risk.
Further, we expect that registrants would benefit from decreased
compliance costs to the extent that the proposed amendments reduce the
need to consult existing Commission guidance to process and understand
the disclosure requirements.
    The proposed amendments should also benefit investors through
improved disclosure. As discussed above, lack of clarity might lead to
under- or over-disclosure by registrants. For example, disclosure
focusing only on capital expenditures rather than on material cash
commitments more generally might lead to under-disclosure for less
capital intensive industries. As a result, investors might not receive
adequate or consistent information to make informed investment
decisions. By providing clarity on the requirement, the proposed
amendments may facilitate more informative disclosure.
    The proposed amendments might increase the disclosure burden for
some registrants because they may prompt disclosure of material
investments in non-physical assets that registrants might not otherwise
be disclosing. However, we do not anticipate a significant increase in
compliance costs. As discussed above, some registrants already include
disclosure beyond capital expenditures, which the Commission's MD&A
guidance has encouraged.\367\ Also, better disclosure should eventually
benefit registrants, because it could reduce information asymmetry
between management and investors, reduce the cost of capital, and
thereby improve firms' liquidity and their access to capital
markets.\368\
---------------------------------------------------------------------------

    \367\ See supra Section II.C.2 and footnote 129.
    \368\ See Douglas W. Diamond and Robert E. Verrecchia,
Disclosure, Liquidity, and the Cost of Capital, 46 J. Fin. 1325
(1991) (finding that revealing public information to reduce
information asymmetry can reduce a firm's cost of capital through
increased liquidity). See also Christian Leuz and Robert E.
Verrecchia, The Economic Consequences of Increased Disclosure, 38 J.
Acct. Res. 91 (2000) (providing empirical evidence that increased
disclosure leads to lower information asymmetry component of the
cost of capital in a sample of German firms); Christian Leuz and
Peter D. Wysocki, The Economics of Disclosure and Financial
Reporting Regulation: Evidence and Suggestions for Future Research,
54 J. Acct. Res. 525 (2016) (providing a comprehensive survey of the
literature on the economic effect of disclosure). Studies that
provide both theoretical and empirical evidence on the link between
information asymmetry and cost of capital include Thomas E. Copeland
and Dan Galai, Information Effects on the Bid[hyphen]Ask Spread, 38
J. Fin. 1457 (1983) (proposing a theory of information effects on
the bid-ask spread); David Easley and Maureen O'Hara, Price, Trade
Size, and Information in Securities Markets, 19 J. Fin. Econ. 69
(1987) (using a model to provide explanation for the price effect of
block trades); David Easley and Maureen O'Hara, Information and the
Cost of Capital, 59 J. Fin. 1553 (2004) (showing that differences in
the composition of information between public and private
information affect the cost of capital, with investors demanding a
higher return to hold stocks with greater private information);
Yakov Amihud and Haim Mendelson, Asset Pricing and the Bid-Ask
Spread, 17 J. Fin. 223 (1986) (predicting that market-observed
expected return is an increasing and concave function of the spread,
and providing empirical results that are consistent with the
predictions of the model).
---------------------------------------------------------------------------

e. Results of Operations--Known Trends or Uncertainties (Item
303(a)(3)(ii))
    Item 303(a)(3)(ii) requires a registrant to describe any known
trends or uncertainties that have had or that the registrant expects
will have a material impact (favorable or unfavorable) on net sales or
revenues or income from continuing operations. The proposed amendments
clarify that when a registrant knows of events that are reasonably
likely to cause a material change in the relationship between costs and
revenues, such as known or reasonably likely future increases in costs
of labor or materials or price increases or inventory adjustments, the
reasonably likely change must be disclosed. This proposed amendment
would conform the language in this paragraph to other Item 303
disclosure requirements for known trends and align Item 303(a)(3)(ii)
with the Commission's guidance on forward-looking disclosure.\369\
---------------------------------------------------------------------------

    \369\ See supra note 139.
---------------------------------------------------------------------------

    As discussed above, the language in the existing Item 303(a)(3)(ii)
differs from other Item 303 disclosure requirements for forward-looking
information.\370\ This differing language

may have led to confusion and inconsistent practice regarding what
events should be disclosed. While the Commission has sought to
alleviate some of these concerns by clarifying the standard for
forward-looking information in its MD&A guidance,\371\ the proposed
amendment could further benefit registrants by reducing any residual
confusion, eliciting more consistent disclosure, and potentially
decreasing compliance costs and litigation risk. In addition, more
consistent disclosure may allow investors to make more meaningful
comparisons across firms and make more informed investment decisions.
---------------------------------------------------------------------------

    \370\ See supra Section II.C.3. See also supra note 138 and 139.
    \371\ See 1989 MD&A Interpretive Release.
---------------------------------------------------------------------------

    Some registrants may experience an increased cost of compliance
under the proposed amendments to the extent that these registrants have
been disclosing events that will cause a material change in the
relationship between costs and revenues as opposed to events that are
reasonably likely to cause the change. Also, some registrants might
need to spend resources to evaluate the future likelihood that such
events might occur. However, such registrants might be few in light of
existing Commission guidance, and the increase in compliance costs
could be offset by the potential decrease in cost of capital as a
result of enhanced disclosure and reduced information asymmetry.\372\
---------------------------------------------------------------------------

    \372\ See supra note 368.
---------------------------------------------------------------------------

f. Results of Operations--Net Sales, Revenues, and Line Item Changes
(Item 303(a)(3)(iii) and Instruction 4)
    Item 303(a)(3)(iii) currently requires management to discuss
certain factors, such as changes in prices or volume, that led to
certain material increases in net sales or revenues. The proposed
amendments broaden the current requirement focusing on ``material
increases in net sales or revenue'' in the ``financial statements'' to
instead require disclosure of ``material changes from period to period
in one more line items'' in the ``statement of comprehensive income.''
Additionally, the proposed amendments would amend Item 303(a)(3)(iii)
to require disclosure specifying the reasons underlying these material
changes. Instead of specifying disclosure of ``material increases'' in
net sales or revenue, our proposed revisions would tie the required
disclosure to ``material changes'' in net sales or revenues. The
proposed amendments to Instruction 4 would similarly clarify that MD&A
requires a narrative discussion of the underlying reasons for material
changes in quantitative and qualitative terms.
    The proposed amendments are intended to codify Commission guidance
on results of operations disclosure. The Commission has previously
stated that MD&A disclosure should include both qualitative and
quantitative analysis and clarified that a results of operations
discussion should describe increases or decreases in any line item,
including net sales or revenues.\373\ The need for registrants to
consult both existing Item 303(a)(3)(iii) and the Commission's guidance
to understand the requirement could lead to confusion and inconsistent
disclosure practice in registrants. The additional clarity provided by
the proposed amendments could benefit registrants by reducing any
confusion, eliciting more consistent disclosure, and potentially
decreasing compliance costs and litigation risk.
---------------------------------------------------------------------------

    \373\ See, e.g., 2003 MD&A Interpretative Release and 1989 MD&A
Interpretative Release.
---------------------------------------------------------------------------

    The proposed amendments could increase disclosure burdens for
registrants, thus potentially increasing compliance costs. However,
since many registrants may already be following relevant Commission
guidance, the marginal increase in compliance costs is not expected to
be significant. Additionally, to the extent that registrants do incur
additional compliance costs, such costs could be offset by the
potential decrease in cost of capital as a result of increased
disclosure and reduced information asymmetry.\374\
---------------------------------------------------------------------------

    \374\ See supra note 368.
---------------------------------------------------------------------------

    The proposed amendments would require registrants to provide a
nuanced discussion of the underlying reasons that may be contributing
to material changes in line items, and therefore should enhance the
disclosure. More consistent and informative disclosure would allow
investors to make more meaningful comparisons across firms and make
more informed investment decisions. However, any potential benefits to
investors may be limited to the extent registrants already are
following the relevant Commission guidance.
g. Results of Operations--Inflation and Price Changes (Item
303(a)(3)(iv), Instruction 8, and Instruction 9)
    We propose to eliminate Item 303(a)(3)(iv) and related Instructions
8 and 9, which generally require that registrants specifically discuss
the impact of inflation and price changes on their net sales, revenue,
and income from operations for the three most recent fiscal years, to
the extent material. The purpose of the proposed elimination is to
streamline Item 303 by eliminating the specific reference to these
topics, which may not be material to most registrants. This proposed
change is consistent with the principles-based disclosure framework of
Item 303.
    We do not believe that these proposed changes would result in a
loss of material information for market participants. Registrants would
still be required to discuss in their MD&A the impact of inflation and
changing prices, if material.
    The proposed elimination of this item could benefit registrants by
streamlining Item 303 and reducing compliance costs. Similar to what we
have discussed above,\375\ to the extent that the elimination
encourages registrants that currently disclose inflation and changing
prices even if not material to modify such disclosure,\376\ investors
could potentially benefit from a focus on material information, which
would allow them to process information more effectively. Also,
emphasizing a principles-based approach may encourage registrants to
present more tailored information, which also may benefit investors.
---------------------------------------------------------------------------

    \375\ See supra Section III.B.2.i.
    \376\ See supra note 354.
---------------------------------------------------------------------------

h. Off-Balance Sheet Arrangements (Item 303(a)(4))
    Current Item 303(a)(4) requires, in a separately-captioned section,
disclosure 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. We
propose to replace Item 303(a)(4) with a new principles-based
instruction 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.
    We do not believe the proposed amendments would lead to significant
information loss, as we expect the proposed principles-based
instruction would continue to elicit material information about off-
balance sheet arrangements. As discussed above, we believe that the
proposed amendments would encourage registrants to consider

and integrate disclosure of off-balance sheet arrangements in the
context of their broader MD&A disclosures and may avoid boilerplate
disclosure that either duplicates information in the financial
statements, or cross-references the financial statements without
additional disclosure to put such information into appropriate context.
    The proposed amendments could benefit registrants by avoiding
duplicative disclosure and reducing compliance costs. As discussed
above, to the extent the proposed amendments improve the readability
and conciseness of the information provided, they may help investors
process information more effectively. Also, emphasizing a principles-
based approach may encourage registrants to provide disclosure that is
tailored and informative, which could be more beneficial to investors.
    Investors might need to spend time searching for the information
and adjusting to the new format and location of the disclosure as the
proposal would no longer require the relevant disclosure in a
separately captioned section. Such costs are likely to be one-time or
decrease over time.
i. Tabular Disclosure of Contractual Obligations (Item 303(a)(5))
    Under existing Item 303(a)(5), registrants other than SRCs must
disclose in tabular format their known contractual obligations. There
is no materiality threshold for this item. A registrant must arrange
its chart to disclose the aggregate amount of contractual obligations
by type and with subtotals by four prescribed periods. The Commission
adopted this requirement so that aggregated information about
contractual obligations was presented in one place.\377\ However, as
discussed above, most of the information presented in response to this
requirement is already included in the notes to the financial
statements. In order to promote the principles-based nature of MD&A and
streamline disclosures by reducing overlapping requirements, we propose
to eliminate Item 303(a)(5).
---------------------------------------------------------------------------

    \377\ See Off-Balance Sheet Arrangements and Contractual
Obligations Adopting Release, at 5990.
---------------------------------------------------------------------------

    We believe the proposal could lead to reduced compliance costs by
avoiding duplicative disclosure, therefore benefiting registrants. On
the other hand, we also recognize that there might be increased costs
associated with assessing the materiality of contractual obligations
under the proposed principles-based approach. However we do not expect
such costs to be significant given that the materiality standard is
already used by registrants when preparing MD&A disclosures. As
discussed above, to the extent the elimination of redundant or
immaterial disclosure improves the readability and conciseness of the
information provided, the proposed amendment could potentially benefit
investors, because it may help them process information more
effectively by focusing on material information. Also, since a
principles-based approach allows registrants to present more tailored
information, it could lead to more informative disclosure, which would
benefit investors.
    We recognize that there could be a loss of certain information due
to the proposed elimination of the item. As discussed in Section
II.C.7, some of the information in the contractual obligations table
such as purchase obligations is not specifically called for under U.S.
GAAP. Additionally, information related to the ``payments due by
period'' currently required by the item may be difficult to ascertain
from a registrant's financial statements. However, since the proposed
amendments to capital resources disclosure would encompass material
contractual obligations, we believe any loss of information would not
be significant.
    We expect investors could experience certain additional costs. A
centralized location and tabular format make it convenient for
investors to extract and analyze information. Under the proposed
amendments, the absence of a centralized location and tabular format
may cause investors to incur search costs to derive the data from the
financial statements, or monetary costs to obtain the information
through alternative channels, such as database subscriptions. Investors
may also incur opportunity costs, such as time spent searching for
alternative sources, and these costs may fall more heavily on retail
investors than on other types of investors, such as institutional
investors.
j. Critical Accounting Estimates
    Item 303(a) does not currently include a subsection requiring
registrants to disclose critical accounting estimates. U.S. GAAP also
does not require similar disclosure of estimates and assumptions in the
notes to financial statements, except in limited circumstances.
However, 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.\378\ Although the Commission
has issued guidance on disclosure of critical accounting estimates,
many registrants repeat the discussion of significant accounting
policies from the notes to the financial statements in their MD&A and
provide limited additional discussion of critical accounting estimates.
We propose amending Item 303 to explicitly require such disclosure due
to the importance of critical accounting estimates in providing
meaningful insight into the uncertainties related to these estimates
and reported financials and how accounting policies of registrants
faced with similar facts and circumstances may differ.
---------------------------------------------------------------------------

    \378\ See supra note 227.
---------------------------------------------------------------------------

    As discussed above, commenters have suggested that there is
confusion as to how and whether to disclose critical accounting
estimates, resulting in inconsistent disclosure practice among
registrants. As noted above, many registrants simply repeat the
discussion of significant accounting policies from the notes to the
financial statements in their MD&A, which is duplicative and may not be
particularly informative to investors. Providing a clear disclosure
framework could benefit registrants by reducing confusion and
duplicative disclosure, thereby decreasing compliance costs.
    Investors would also likely benefit from the proposed amendments.
The proposed amendments could elicit more informative disclosure from
registrants related to their estimates and assumptions, which would
help investors better understand any potential risk or uncertainty
related to these estimates and make more informed investment decisions.
The proposed amendments could also promote more consistent disclosure
practices among registrants by providing more clarity, allowing
investors to make more meaningful comparisons across registrants and
better informed investment decisions.
    We recognize that the proposed disclosure requirement could
introduce additional costs to market participants. While we do not
anticipate that investors would incur any direct costs (other than
information processing costs) associated with this proposal, compliance
costs might increase for registrants because of the proposed more
prescriptive disclosure compared to the existing more principles-based
approach. However, the potential increase in compliance costs might
decline over time as registrants become more accustomed to the new
filing requirements. We also note that,

consistent with Commission guidance, some registrants may already
provide disclosures related to critical accounting estimates that do
not duplicate the financial statement disclosures, thus the increase in
compliance costs might be minimal to those registrants. In addition,
the increase in compliance costs could be offset by a potential
decrease in registrants' cost of capital, because such disclosure could
reduce information asymmetry between investors and firms.\379\ Taken
together, we expect any potential increase in registrants' disclosure-
related costs to be small.
---------------------------------------------------------------------------

    \379\ See supra note 368.
---------------------------------------------------------------------------

k. 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. The proposal would amend current Item 303(b)
to allow for flexibility in comparisons of interim periods and to
streamline the item. Specifically, under the proposed Item 303(c),
registrants would be allowed 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. The
proposed amendments would also streamline the instructions to current
Item 303(b), consistent with the proposed amendments to current Item
303(a) and the related instructions.
    This more flexible approach is intended to allow registrants to
provide analysis that is better tailored to their business cycles. This
may result in more informative disclosure that could reduce information
asymmetry and firms' cost of capital, benefiting registrants.\380\ In
addition, streamlining the item could avoid duplicative disclosure and
reduce associated compliance costs.
---------------------------------------------------------------------------

    \380\ Id.
---------------------------------------------------------------------------

    Investors also may benefit from the proposed amendments. As noted
above, the proposed amendments would provide registrants flexibility to
choose the interim period presented, which could allow them to provide
a more tailored analysis. This, in turn, could allow investors to make
better informed investment decisions. On the other hand, more
flexibility in disclosure could also decrease comparability across
firms, potentially increasing the cost of investors' decision-making.
However, we do not expect the flexibility in reporting to significantly
reduce comparability, since registrants in the same industry may be
likely to have similar business cycles and choose similar interim
periods. Therefore, the concern about a reduction of comparability
across firms in the same industry could be mitigated. Streamlining this
item is potentially beneficial to investors, as the resultant reduction
of duplicative disclosure might increase the effectiveness of
information processing by investors, thus helping them make more
informed decisions.
l. Safe Harbor for Forward-Looking Information (Item 303(c))
    Item 303(c) \381\ states that the safe harbors provided in Section
27A of the Securities Act and 21E of the Exchange Act 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.\382\ We propose to eliminate this item to conform to the
proposed elimination of Items 303(a)(4) and 303(a)(5). We do not
believe this proposed change would have any economic effect by itself.
Disclosure would continue to be protected by the existing safe harbors,
and therefore, we do not expect changes in market behavior. To the
extent that the elimination of the section may result in any confusion
as to the application of the safe harbors, there could be a cost to
registrants. However, we believe such cost should be de minimis.
---------------------------------------------------------------------------

    \381\ Item 303(c) of Regulation S-K.
    \382\ Such persons are: An 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.
---------------------------------------------------------------------------

m. Smaller Reporting Companies (Item 303(d))
    Item 303(d) \383\ 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). To conform to the proposals to eliminate
Item 303(a)(3)(iv) and (a)(5), we propose to eliminate Item 303(d).
SRCs may continue to rely on Instruction 1 to Item 303(a),\384\ which
states that an SRC's discussion shall cover the two-year period
required in Article 8 of Regulation S-X. As we propose to eliminate
this item as a conforming change, we do not believe this proposed
change would have any economic effect by itself.
---------------------------------------------------------------------------

    \383\ Item 303(d) of Regulation S-K.
    \384\ Proposed renumbered Item 303(b).
---------------------------------------------------------------------------

n. Foreign Private Issuers
    The proposed changes related to Item 3.A and Item 5 of Form 20-F
and General Instructions B.(11), (12), and (13) of Form 40-F for FPIs
are intended to conform to the other changes related to selected
financial data and MD&A. Therefore, our analysis of the costs and
benefits for domestic issuers and their investors under the proposed
amendments to Item 301 can be carried over to FPIs and their investors
under the amended items. The proposed changes could benefit FPIs
through a reduction in compliance costs, although the benefits are
likely to be smaller given that current Item 3.A permits a FPI to omit
either or both of the earliest two years of data under certain
conditions and registrants that file on Form 40-F use Canadian
disclosure documents to satisfy the Commission's registration and
disclosure requirements. Since FPIs would have more flexibility to
provide information that is better tailored to their industry or
country, investors could benefit from more informative disclosure.
However, investors might incur additional search costs when looking for
information through alternative channels.
    To maintain a consistent approach to MD&A for domestic registrants
and FPIs, we are proposing changes to Forms 20-F and 40-F that
generally conform to our proposed amendments to Item 303. Therefore,
our discussion of the costs and benefits for domestic issuers and their
investors under the proposed amendments to Item 303 generally can be
carried over to FPIs under the amended item. The proposal adds to Item
303 the current Form 20-F instruction that requires FPIs that are not
subject to the multijurisdictional disclosure system to discuss
hyperinflation in a hyperinflationary economy. This disclosure can be
important to investors when analyzing FPIs, as hyperinflation in some
FPIs' home countries might be an important risk factor for the firm's
results of operations or financial health.

D. Anticipated Effects on Efficiency, Competition, and Capital
Formation

    We believe the proposed amendments could have positive effects on
efficiency, competition, and capital formation. As discussed above, we
expect the proposed amendments could reduce duplicative disclosure and
elicit disclosure that is more focused on material information and
tailored to a

registrant's business, making the disclosure more informative. We
believe more informative disclosure could reduce information asymmetry
between firms and investors, thereby improving firm liquidity and price
efficiency.\385\ We also believe the proposed amendments could promote
competition in the capital markets and facilitate capital formation.
This is because more informative disclosure could allow investors to
make more meaningful comparisons across firms and make more informed
investment decisions, and as a result, more value-enhancing projects
may receive more capital allocation.
---------------------------------------------------------------------------

    \385\ See supra note 368. See also David Hirshleifer and Siew
Hong Teoh, Limited attention, information disclosure, and financial
reporting, 36 J. Acct. & Econ. 337-386 (2003) (developing a
theoretical model where investors have limited attention and
processing power and showing that, with partially attentive
investors, the means of presenting information may have an impact on
stock price reactions, misvaluation, long-run abnormal returns, and
corporate decisions).
---------------------------------------------------------------------------

    However, as discussed above, since registrants no longer need to
present certain information (e.g., five-year comparable data),
investors could incur costs when searching for alternative channels to
obtain or reconstruct the information. Since each investor would have
to consider the need for alternative sources of information, it could
result in inefficiency in the information distribution process.
Additionally, if registrants misjudge what information is material,
there could be an increase in information asymmetries between
registrants and investors, negatively affecting efficiency,
competition, and capital formation. However, we expect this risk to be
offset by mitigating factors, including accounting controls and the
antifraud provisions of the securities laws.
    The proposed amendments, in particular by simplifying and codifying
certain positions expressed in various Commission guidance, might
reduce the compliance costs of private companies considering going
public and this cost reduction may be more significant for SRCs. For
companies considering an IPO, the benefit of easing the burdens
associated with preparing these disclosures for the first time could
decrease the costs of going public and thus leave more capital for
future investment. This could lead to more efficient capital formation.

E. Alternatives

    As an alternative to the proposed elimination of Item 301, which
requires registrants to furnish selected financial data in comparative
tabular form for each of the registrant's last five fiscal years, we
considered amending the item to require only the same number of years
of data as presented in the registrant's financial statements in that
same filing. Similarly, another alternative we considered is expanding
the current EGC accommodation to all initial registrants. The EGC
accommodation generally provides that an EGC need not present selected
financial data for any period prior to the earliest audited period
presented in its initial filing.\386\ This accommodation allows EGCs to
build up to the full five years of selected financial data.
---------------------------------------------------------------------------

    \386\ See Item 301(d) of Regulation S-K [17 CFR 229.301].
---------------------------------------------------------------------------

    The benefit of these alternatives would be potential cost savings
from a reduction in compliance burdens by not having to reproduce the
earliest years of selected financial data. These alternatives might be
sufficient for investors to make a quick comparison with the most
recent financial data without cross-referencing to other sources.
However, given the nature of electronic access to financial data
through EDGAR, we think the potential benefits of these alternatives
would be more limited than the proposed elimination of Item 301. We
decided not to propose the alternative of requiring the same number of
years of data as presented in the registrant's financial statements in
that same filing because such disclosure would be largely duplicative
and therefore, have limited utility. Regarding the alternative that we
expand the current EGC accommodation to all initial registrants, while
this approach could provide cost savings to non-EGC initial registrants
at the beginning, in the long run, these registrants would still face
the same duplicative disclosure problem that other registrants do
currently. As a result, we decided not to propose this alternative.
    As another alternative, we considered amending Item 301 to require
the earliest years only in circumstances where the company can
represent that the information cannot be provided without unreasonable
effort and expense, as is currently allowed under Item 3.A of Form 20-
F. For example, as a commenter noted, there are several situations
where such disclosure can be costly.\387\ Under this approach,
registrants would experience reduced compliance costs under the
exempted circumstances, albeit a smaller reduction compared to the
proposed approach, because they would still need to disclose selected
financial data for the earliest years when it is deemed not time
consuming and costly. On the other hand, while investors would still
incur search costs if they prefer to analyze five years' financial
data, such costs would be smaller compared to the proposed approach. We
decided not to propose this alternative because the lack of a
consistent or objective standard to determine when additional financial
disclosure is required could be time consuming or burdensome for
registrants.
---------------------------------------------------------------------------

    \387\ See supra note 28 and 29 and corresponding text.
---------------------------------------------------------------------------

    As an alternative to the proposed elimination of Item 302, which
requires disclosure of quarterly financial data of selected operating
results and variances in these results from amounts previously reported
on a Form 10-Q, we considered requiring a registrant to separately
disclose fourth quarter data elsewhere in its annual report, such as in
MD&A. This approach could prevent or mitigate the potential loss of the
fourth quarter financial data under the proposed approach. We decided
not to propose this alternative because the fourth quarter information
may not be material or significant to investors in all circumstances.
Therefore, separate presentation of the fourth quarter information
might not justify its cost.
    We are proposing to amend current Item 303(a)(2) to specify that a
registrant should broadly disclose material cash commitments, including
but not limited to capital expenditures. We considered proposing a
definition for the term ``capital resources.'' While defining the term
could provide more clarity for registrants, it would also result in a
disclosure requirement more prescriptive in nature, inconsistent with
our current objective to promote the principles-based nature of MD&A.
We therefore decided not to propose this alternative.
    As an alternative to the proposed elimination of Item 303(a)(5),
which requires registrants to disclose in tabular format contractual
obligations by type of obligation, overall payments due and prescribed
periods, we considered maintaining the contractual obligations
disclosure requirement in a modified form. For example, we considered
allowing this disclosure in a non-tabular format. While this approach
could prevent any potential information loss, the non-tabular
presentation of information may not be as clear as the tabular format.
Also, this approach may not generate meaningful savings for registrants
through reduced compliance costs. Another alternative we considered was
to reduce the prescribed time periods that need to be disclosed. For
example, we could require disclosures of only short-term or long-

term obligations rather than requiring disclosure to be grouped in the
four time periods currently specified in Item 303(a)(5). While this
approach could be more beneficial to investors by reducing their search
costs compared to the proposed approach, it would result in redundant
disclosure and higher compliance costs to registrants.
    As an alternative to proposed Item 303(b)(4), we considered issuing
additional guidance on critical accounting estimates that enhances the
guidance issued in the 2003 MD&A Release. While this alternative could
save compliance costs for registrants because it would not create a new
requirement, the savings might not necessarily be significant, given
the existing Commission guidance on this topic. Further, we believe
that by codifying existing guidance, proposed Item 303(b)(4) would
provide investors with more enhanced disclosure and protection by
ensuring that companies consistently provide such disclosure.
Therefore, we decided not to propose this alternative.
    Proposed Item 303(b) would allow flexibility for 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. As an alternative, we considered
an approach under which registrants would be required to compare the
most recent quarter to both the corresponding quarter of the prior year
and the immediately preceding quarter. While this alternative approach
would provide investors with more disclosure, it might not be clear to
investors which time period is more representative of the registrant's
business, and registrants would incur more compliance costs. Also, this
alternative is less consistent with the principles-based nature of
MD&A. Therefore, we decided not to propose this alternative.
    The proposed amendments do not require registrants to structure
financial disclosures in a machine-readable format. An alternative
suggested by some commenters \388\ was to require registrants to
structure MD&A in the Inline XBRL format. Requiring registrants to
structure MD&A disclosures could create benefits for investors (either
through direct use of the data or through reliance on the data as
extracted and analyzed by intermediaries) as well as other market
participants by enabling more efficient retrieval, aggregation, and
analysis of disclosed information and facilitating comparisons across
issuers and time periods.\389\ However, as other commenters observed,
filers would incur increased costs under this alternative, with a block
text and detail tagging requirement imposing greater costs than a block
text tagging-only requirement.\390\ This increased cost effect may be
mitigated by the fact that registrants are or will be required to
structure financial statement and cover page disclosures in the Inline
XBRL format,\391\ and would therefore incur only the incremental cost
associated with tagging the additional disclosures. Also, concerns as
to filer cost might be partially alleviated by the overall decline in
the costs of XBRL tagging over time, including for SRCs. \392\ However,
our proposed amendments emphasize MD&A's principles-based framework,
which encourages registrants to provide meaningful disclosure that is
tailored to their specific facts and circumstances. This may make MD&A
less comparable across issuers, thereby reducing the benefits of this
alternative. As a result, we did not propose this alternative, but
solicit comment on the specific benefits and costs of such a tagging
requirement.
---------------------------------------------------------------------------

    \388\ See, e.g., letters from CalPERS, California State
Teachers' Retirement System (July 21, 2016), CFA Institute,
Deloitte, RGA, Data Coalition (July 21, 2016) (``Data Coalition''),
Merrill Corporation (July 19, 2016) (``Merrill''), and XBRL US (July
21, 2016) (``XBRL US''). In addition, the Commission received
several comments supporting an Inline XBRL structuring requirement
for MD&A disclosure in connection with the Inline XBRL proposing
release. See, e.g., letters from CFA Institute (July 1, 2017) and
XBRL US (July 1, 2017 and Feb. 1, 2018).
    \389\ See Inline XBRL Adopting Release, at 40851, footnote 71
and accompanying text, and 40862. See also, e.g., Mohini Singh,
``Data and Technology: How Information is Consumed in the New Age,''
CFA Institute (July 3, 2018) (describing examples of analytical,
benchmarking, and regulatory XBRL usage); Chunhui Liu, Tawei Wang,
and Lee J. Yao (2014), ``XBRL's Impact on Analyst Forecast Behavior:
An Empirical Study,'' Journal of Accounting and Public Policy, 33(1)
(finding that XBRL adoption has significantly increased information
quantity and quality, as measured by analyst following and forecast
accuracy).
    \390\ See, e.g., letters from Institute of Management
Accountants (July 29, 2016); FEI I and II; Maryland Bar Securities
Committee, Northrop Grumman, and CCMC.
    \391\ See Inline XBRL Adopting Release; FAST Act Adopting
Release.
    \392\ Preliminary statistics from a pricing survey being
conducted by the AICPA and XBRL US indicate that the cost of XBRL
formatting has declined 41% since 2014 and that the average cost of
XBRL preparation for SRCs in 2017 averaged $5,850 per year. See
AICPA, ``Research shows XBRL filing costs are lower than expected,''
available at https://www.aicpa.org/InterestAreas/FRC/AccountingFinancialReporting/XBRL/DownloadableDocuments/XBRL%20Costs%20for%20Small%20Companies.pdf. See also Mohini Singh,
``The Cost of Structured Data: Myth vs. Reality,'' CFA Institute
(August 2017), available at https://www.cfainstitute.org/-/media/documents/survey/the-cost-of-structured-data-myth-vs-reality-august-2017.ashx.
---------------------------------------------------------------------------

Request for Comment
    We request comment on all aspects of our economic analysis,
including the potential costs and benefits of the proposed amendments
and alternatives thereto, and whether the proposed amendments, if
adopted, would promote efficiency, competition, and capital formation
or have an impact on investor protection. In addition, we also seek
comment on alternative approaches to the proposed amendments and the
associated costs and benefits of these approaches. Commenters are
requested to provide empirical data, estimation methodologies, and
other factual support for their views, in particular, on costs and
benefits estimates.
    Specifically, we seek comment with respect to the following
questions: Are there any costs and benefits to any entity that are not
identified or misidentified in the above analysis? Are there any
effects on efficiency, competition, and capital formation that are not
identified or misidentified in the above analysis? Should we consider
any of the alternative approaches outlined above instead of the
proposed amendments? Which approach and why? Are there any other
alternative approaches to improving MD&A disclosure that we should
consider? If so, what are they and what would be the associated costs
or benefits of these alternative approaches?

V. Paperwork Reduction Act

A. Summary of the Collections of Information

    Certain provisions of our rules, schedules, and forms that would be
affected by the proposed amendments contain ``collection of
information'' requirements within the meaning of the PRA.\393\ The
Commission is submitting the proposed amendments to the Office of
Management and Budget (``OMB'') for review in accordance with the
PRA.\394\ The hours and costs associated with preparing, filing, and
sending the schedules and forms constitute reporting and cost burdens
imposed by each collection of information. An agency may not conduct or
sponsor, and a person is not required to comply with, a collection of
information unless it displays a currently valid OMB control number.
Compliance with the information collections is mandatory. Responses to
the information collections are not kept confidential and there is no
mandatory retention period for the

information disclosed. The titles for the collections of information
are:
---------------------------------------------------------------------------

    \393\ 44 U.S.C. 3501 et seq.
    \394\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    ``Form 1-A'' (OMB Control No. 3235-0286);
    ``Form 10'' (OMB Control No. 3235-0064);
    ``Form 10-Q'' (OMB Control No. 3235-0070);
    ``Form 10-K'' (OMB Control No. 3235-0063);
    ``Schedule 14A'' (OMB Control No. 3235-0059);
    ``Form 20-F'' (OMB Control No. 3235-0288);
    ``Form 40-F'' (OMB Control No. 3235-0381);
    ``Form F-1'' (OMB Control No. 3235-0258);
    ``Form F-4'' (OMB Control No. 3235-0325);
    ``Form N-2'' (OMB Control No. 3235-0026);
    ``Form S-1'' (OMB Control No. 3235-0065);
    ``Form S-4'' (OMB Control No. 3235-0324);
    ``Form S-11'' (OMB Control No. 3235-0067);
    We adopted all of the existing regulations, schedules, and forms
pursuant to the Securities Act, the Exchange Act, and/or the Investment
Company Act. The regulations, schedules, and forms set forth the
disclosure requirements for registration statements, periodic reports,
and proxy and information statements filed by registrants to help
investors make informed investment and voting decisions.
    A description of the proposed amendments, including the need for
the information and its proposed use, as well as a description of the
likely respondents, can be found in Section II above, and a discussion
of the economic effects of the proposed amendments can be found in
Section IV above.

B. Summary of the Proposed Amendments' Effects on the Collections of
Information

    The following Table 1 summarizes the estimated effects of the
proposed amendments on the paperwork burdens associated with the
affected forms listed in Section V.A.

     PRA Table 1--Estimated Paperwork Burden Effects of the Proposed
                               Amendments
------------------------------------------------------------------------
                                                         Estimated net
 Proposed amendments and effects     Affected forms         effect *
------------------------------------------------------------------------
Item 301: Selected Financial Data
 Elimination of Item 301    Forms 10,   2 hour
 requirement to furnish selected    10-K, S-1, S-4,     net decrease in
 financial data for each of the     and S-11.           compliance
 registrant's last five fiscal     ..................   burden per form.
 years because Item 303 already     Schedule    0.2 hour
 calls for disclosure of material   14A \**\.           net decrease in
 trend information, which would    ..................   compliance
 decrease the paperwork burden by  ..................   burden per
 reducing repetitive information    Form N-2    schedule.
 about a registrant's historical    .       0.3 hour
 performance.                      ..................   net decrease in
 Replacing the reference   ..................   compliance
 to Item 301 with a reference to    Forms SF-   burden per form.
 Rule 1-02(bb) of Regulation S-X    1 and SF-3.         No
 in Items 1112, 1114, and 1115 of                       change in
 Regulation AB would generally                          compliance
 result in similar disclosure                           burden per form.
 being presented under these
 Items, and therefore not affect
 the burden estimate.
    Item 302(a): Supplementary
      Financial Information

 Elimination of Item        Forms 10,   3 hour
 302(a) requirement to disclose     10-K, S-1, S-4,     net decrease in
 selected quarterly financial       and S-11.           compliance
 data of selected operating        ..................   burden per form.
 results because Item 302(a)        Schedule    0.3 hour
 information is largely available   14A \**\.           net decrease in
 in Forms 10-Q, which would                             compliance
 decrease the paperwork burden by                       burden per
 reducing repetitive information                        schedule.
 about a registrant's quarterly
 performance.
                                    Form N-2    0.5 hour
                                    .       net decrease in
                                                        compliance
                                                        burden per form.
  Item 302(b): Information About
 Oil and Gas Producing Activities
 Elimination of Item        Forms 10,   0.1 hour
 302(b) disclosures required for    10-K, S-1, S-4,     net decrease in
 registrants engaged in oil and     and S-11.           compliance
 gas producing activities would    ..................   burden per form.
 decrease the paperwork burden by   Schedule    0.1 hour
 reducing repetitive disclosure     14A \**\.           net decrease in
 that, subject to the adoption of                       compliance
 the FASB's Accounting Standards                        burden per
 Update, will be duplicative of                         schedule.
 U.S. GAAP.
  Item 303(a): Full Fiscal Years
Restructuring and Streamlining:
 Establishing a new         Forms 10,   2.6 hour
 paragraph to emphasize the         10-K, 10-Q, S-1,    net increase in
 purpose of the MD&A section at     S-4, and S-11.      compliance
 the outset to clarify and focus   ..................   burden per form.
 registrants is expected to have    Form 1-A    0.3 hour
 a minimal impact on the            [supcaret].         net increase in
 paperwork burden, as the change   ..................   compliance
 would codify existing guidance.   ..................   burden per form.
 Estimated burden increase: 0.1     Schedule    0.3 hour
 hour per form and per schedule.    14A\**\.            net increase in
 Amendments to streamline  ..................   compliance buren
 the text of new Item 303 would    ..................   per schedule.
 have no effect on the paperwork    Form N-2    0.4 hour
 burden because these amendments    .       net increase in
 are clarifications of existing                         compliance
 requirements.                                          burden per form.
Capital Resources:
 Expanding Item 303(a)(2)
 to also require a discussion of
 material cash requirements, in
 addition to commitments for
 capital expenditures, would
 increase the paperwork burden.
 Estimated burden increase: 1
 hour per form and 0.1 hour
 increase per schedule.
Results of Operations--Known
 Trends or Uncertainties:

 Amending Item
 303(a)(3)(ii) to clarify that a
 registrant should disclose
 reasonably likely changes in the
 relationship between costs and
 revenues would increase the
 paperwork burden, although this
 effect is expected to be minimal
 because the amendment is
 consistent with existing
 guidance. Estimated burden
 increase: 1.0 hour per form and
 0.1 hour increase per schedule.
Results of Operations--Net Sales,
 Revenues, and Line Item Changes:
 Amending Item 303(a),
 Item 303(a)(3)(iii) and
 Instruction 4 to Item 303(a) to
 clarify that a registrant should
 include in its MD&A a discussion
 of the reasons underlying
 material changes from period-to-
 period in one or more line items
 could marginally increase the
 paperwork burden by requiring a
 more nuanced discussion
 consistent with the overall
 objective of MD&A. Estimated
 burden increase: 1.0 hour per
 form and 0.1 hour increase per
 schedule.
Results of Operations--Inflation
 and Price Changes:
 Eliminating the specific
 reference to inflation within
 Item 303(a)(3)(iv) for issuers
 should marginally reduce the
 paperwork burden, although such
 decrease is expected to be
 minimal. Estimated burden
 decrease: 0.5 hours per form and
 0.1 hour decrease per schedule.
Off-Balance Sheet Arrangements:
 Replacing Item 303(a)(4)
 with an instruction emphasizing
 a more principles-based approach
 with respect to off-balance
 sheet arrangement disclosures,
 would reduce duplicative
 disclosures and decrease the
 paperwork burden. Estimated
 burden decrease: 1.0 hour per
 form and 0.1 hour decrease per
 schedule.
 Amending Items 2.03 and
 2.04 of Form 8-K to retain the
 definition of ``off-balance
 sheet arrangements'' that is
 currently in Item 303(a)(4)
 would not result in any changes
 in reporting obligations under
 Item 2.03 and Item 2.04 of Form
 8-K, and would therefore result
 in no change in paperwork burden
 for this form.
Contractual Obligations Table:
 Eliminating Item
 303(a)(5), the requirement that
 registrants provide a tabular
 disclosure of contractual
 obligations, would reduce
 duplicative disclosures and
 decrease the paperwork burden.
 Estimated burden decrease: 1.0
 hour per form and 0.1 hour
 decrease per schedule.
Critical Accounting Estimates:
 Amending Item 303 to
 explicitly require disclosure of
 critical accounting estimates
 would provide more clarity on
 the uncertainties involved in
 creating an accounting policy
 and how significant accounting
 policies of registrants may
 differ. This would increase the
 paperwork burden. Estimated
 burden increase: 2.0 hours per
 form and 0.2 hour increase per
 schedule.
   Item 303(b): Interim Periods
 Amending Item 303(b) to    Forms 10,   4.0 hour
 allow for more flexibility in      10-K, 10-Q, S-1,    net decrease in
 interim periods compared and       S-4, and S-11.      compliance
 eliminating certain instructions  ..................   burden per form.
 and providing cross-references     Form 1-A    0.4 hour
 to similar instructions in Item    [supcaret].         net decrease in
 303(a) would decrease the         ..................   compliance
 paperwork burden.                 ..................   burden per form.
                                    Schedule    0.4 hour
                                    14A \**\.           net decrease in
                                   ..................   compliance
                                   ..................   burden per
                                    Form N-2    schedule.
                                    .       0.7 hour
                                                        net decrease in
                                                        compliance
                                                        burden per form.
   Item 303(c): Safe Harbor for
   Forward-Looking Information
 Eliminating Item 303(c)
 as a conforming change would
 have no effect on the paperwork
 burden.
 Item 303(d): Accommodations for
               SRCs
 Eliminating Item 303(d)
 as a conforming change would
 have no effect on the paperwork
 burden.
          Effect on FPIs
 Eliminating Item 3.A and   Form 20-F   2.0 hour
 generally conforming Item 5 of                         net decrease in
 Form 20-F to the proposed                              compliance
 amendments to Item 303 would                           burden per form.
 reduce the paperwork burden.
 Eliminating the            Form 40-F   2.0 hour
 contractual obligations                                net decrease in
 disclosure requirement and                             compliance
 replacing the off-balance sheet                        burden per form.
 disclosure requirements in Forms
 20-F and 40-F with a principles-
 based instruction would reduce
 the paperwork burden.
 Amending current           Forms F-1   3.5 hour
 Instruction 11 to Item 303 to      and F-4.            net decrease per
 conform to the hyperinflation                          form.
 disclosure requirements of Form
 20-F would not affect the
 paperwork burden.
                                  --------------------------------------
    Total........................   Form 1-A.   0.1 hour
                                                        net decrease per
                                                        form.
                                    Form 10-Q   1.4 hour
                                                        net decrease per
                                                        form.
                                    Forms 10,   6.5 hour
                                    10-K, S-1, S-4,     net decrease per
                                    and S-11.           form.

                                    Schedule    0.7 hour
                                    14A.                net decrease per
                                                        form.
                                    Forms F-1   3.5 hour
                                    and F-4.            net decrease per
                                                        form.
                                    Form 20-F   2.0 hour
                                                        net decrease per
                                                        form.
                                    Form 40-F   2.0 hour
                                                        net decrease per
                                                        form.
                                    Form N-2.   1.1 hour
                                                        net decrease per
                                                        form.
------------------------------------------------------------------------
\*\ Estimated effect expressed as increase or decrease of burden hours
  on average and derived from Commission staff review of samples of
  relevant sections of the affected forms.
\**\ The lower estimated average incremental burden for Schedule 14A
  reflects the Commission staff estimates that no more than 10% of the
  Schedule 14As filed annually include Item 301-303 disclosures.
 Form N-2 states that disclosure under Items 301-303 of
  Regulation S-K is only required if ``the Registrant is regulated as a
  business development company under the 1940 Act.'' The estimated
  average incremental burden for Form N-2 reflects the fact that
  approximately 17% of registrants are BDCs. The estimated burden has
  been reduced to adjust for this percentage.
[ne] The reduced estimated average incremental burden for the proposed
  elimination of Item 302(b) reflects the fact that approximately 3.5%
  of registrants engage in oil and gas producing activities. For
  purposes of this PRA analysis, BDCs have been deemed not to be engaged
  in oil and gas producing activities.
[supcaret] In the preparation of Part II of Form 1-A, Regulation A
  issuers have the option of disclosing either the information required
  by (i) the Offering Circular format or (ii) Part I of Forms S-1 or S-
  11 (except for the financial statements, selected financial data, and
  supplementary information called for by those forms). The burden
  associated with Form 1-A is affected only to the extent that an issuer
  chooses to use Part I of these forms. The Commission staff estimates
  that 10.6% of Form 1-A filings reflect this election.

C. Incremental and Aggregate Burden and Cost Estimates for the Proposed
Amendments

    Below we estimate the incremental and aggregate reductions in
paperwork burden as a result of the proposed amendments. These
estimates represent the average burden for all registrants, both large
and small. In deriving our estimates, we recognize that the burdens
will likely vary among individual registrants based on a number of
factors, including the nature of their business. We do not believe that
the proposed amendments would change the frequency of responses to the
existing collections of information; rather, we estimate that the
proposed amendments would change only the burden per response.
    The burden reduction estimates were calculated by multiplying the
estimated number of responses by the estimated average amount of time
it would take a registrant to prepare and review disclosure required
under the proposed amendments. For purposes of the PRA, the burden is
to be allocated between internal burden hours and outside professional
costs. Table 2 below sets forth the percentage estimates we typically
use for the burden allocation for each form. We also estimate that the
average cost of retaining outside professionals is $400 per hour.\395\
---------------------------------------------------------------------------

    \395\ We recognize that the costs of retaining outside
professionals may vary depending on the nature of the professional
services, but for purposes of this PRA analysis, we estimate that
such costs would be an average of $400 per hour. This estimate is
based on consultations with several registrants, law firms, and
other persons who regularly assist registrants in preparing and
filing reports with the Commission.

  PRA Table 2--Standard Estimated Burden Allocation for Specified Forms
                              and Schedules
------------------------------------------------------------------------
                                                              Outside
           Form/schedule type                Internal      professionals
                                             (percent)       (percent)
------------------------------------------------------------------------
Forms 1-A, 10-K, 10-Q, 8-K, Schedule 14A              75              25
Forms S-1, S-4, S-11, F-1, F-4, SF-1, SF-             25              75
 3, and 10..............................
Forms 20-F and 40-F.....................              25              75
Form N-2................................              25              75
------------------------------------------------------------------------

    Table 3 below illustrates the incremental change to the total
annual compliance burden of affected forms, in hours and in costs, as a
result of the proposed amendments.
---------------------------------------------------------------------------

    \396\ The number of estimated affected responses is based on the
number of responses in the Commission's current OMB PRA filing
inventory. The OMB PRA filing inventory represents a three-year
average. We do not expect that the proposed amendments would
materially change the number of responses in the current OMB PRA
filing inventory.
    \397\ The estimated reductions in Columns (C), (D), and (E) are
rounded to the nearest whole number.

           PRA Table 3--Calculation of the Incremental Change in Burden Estimates of Current Responses Resulting From the Proposed Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Reduction in        Reduction in
                                       Number of          Burden hour        Reduction in        Reduction in        professional        professional
               Form                    estimated         reduction per     burden hours for   company hours  for  hours  for current  costs  for current
                                        affected       current affected    current affected    current  affected        affected            affected
                                       responses           response            responses           responses           responses           responses
                                           (A) \396\                 (B)     (C) = (A) x (B)    (D) = (C) x 0.25       (E) = (C)-(D)    (F) = (E) x $400
                                                                                \397\             or 0.75
--------------------------------------------------------------------------------------------------------------------------------------------------------
S-1..............................                901                 6.5               5,857               1,464               4,393          $1,757,200
S-4..............................                551                 6.5               3,582                 896               2,687           1,074,800
S-11.............................                 64                 6.5                 416                 104                 312             124,800
F-1..............................                 63                 4.5                 284                  71                 213              85,200
F-4..............................                 39                 4.5                 176                  44                 132              52,800
N-2..............................                166                 1.1                 183                  46                 137              54,800
1-A..............................                179                 0.1                  18                  14                   5               2,000
10...............................                216                 6.5               1,404                 351               1,053             421,200
10-K.............................              8,137                 6.5              52,891              39,668              13,223           5,289,200
10-Q.............................             22,907                 1.4              32,070              24,053               8,018           3,207,200
20-F.............................                725                 2.0               1,450                 363               1,088             435,200
40-F.............................                132                 2.0                 264                  66                 198              79,200
Sch. 14A.........................              5,586                 0.7               3,910               2,933                 978             391,200
                                  ----------------------------------------------------------------------------------------------------------------------
    Total........................             39,666  ..................  ..................              70,073  ..................          12,974,800
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The following Table 4 summarizes the requested paperwork burden,
including the estimated total reporting burdens and costs, under the
proposed amendments.
---------------------------------------------------------------------------

    \398\ From Column (D) in PRA Table 3.
    \399\ From Column (F) in PRA Table 3.

                                                              PRA Table 4--Requested Paperwork Burden Under the Proposed Amendments
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      Current                        Requested
                                                      burden          Program        change in       Number of                     Reduction in
                      Form                            current         change          burden         affected      Reduction in    professional       Annual       Burden hours     Cost burden
                                                      annual          current      current  cost     responses     company hours       costs         responses
                                                     responses     burden  hours      burden
                                                             (A)             (B)             (C)             (D)       (E) \398\       (F) \399\       (G) = (A)   (H) = (B)-(E)   (I) = (C)-(F)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
S-1.............................................             901         148,556    $182,048,700             901           1,464      $1,757,200             901         147,092    $180,291,500
S-4.............................................             551         563,216     678,291,204             551             896       1,074,800             551         562,320     677,216,404
S-11............................................              64          12,290      15,016,968              64             104         124,800              64          12,186      14,892,168
F-1.............................................              63          26,815      32,445,300              63              71          85,200              63          26,744      32,360,100
F-4.............................................              39          14,076      17,106,000              39              44          52,800              39          14,032      17,053,200
N-2.............................................             166          73,250       4,668,396             166              46          54,800             166          73,204       4,613,596
1-A.............................................             179          98,396      13,111,912             179              14           2,000             179          98,382      13,109,912
10..............................................             216          12,072      14,356,888             216             351         421,200             216          11,721      13,935,688
10-K............................................           8,137      14,220,652   1,896,891,869           8,137          39,058       5,207,600           8,137      14,181,594   1,891,684,269
10-Q............................................          22,907       3,253,411     432,290,354          22,907          24,053       3,207,200          22,907       3,229,358     429,083,154
20-F............................................             725         479,304     576,875,025             725             363         435,200             725         478,941     576,439,825
40-F............................................             132          14,237      17,084,560             132              66          79,200             132          14,171      17,005,360
Sch. 14A........................................           5,586       3,253,411     432,290,354           5,586           2,933         391,200           5,586       3,250,478     431,899,154
                                                 -----------------------------------------------------------------------------------------------------------------------------------------------
    Total.......................................          39,666      22,169,686   4,312,477,530          39,666          70,073      12,974,800          39,666      22,099,613   4,299,502,730
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Request for Comment
    Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order
to:
     Evaluate whether the proposed collections of information
are necessary for the proper performance of the functions of the
Commission, including whether the information will have practical
utility;
     Evaluate the accuracy and assumptions and estimates of the
burden of the proposed collection of information;
     Determine whether there are ways to enhance the quality,
utility, and clarity of the information to be collected;
     Evaluate whether there are ways to minimize the burden of
the collection of information on those who respond, including through
the use of automated collection techniques or other forms of
information technology; and
     Evaluate whether the proposed amendments would have any
effects on any other collection of information not previously
identified in this section.
    Any member of the public may direct to us any comments concerning
the accuracy of these burden estimates and any suggestions for reducing
these burdens. Persons submitting comments on the collection of
information requirements should direct their comments to the Office of
Management and Budget, Attention: Desk Officer for the U.S. Securities
and Exchange Commission, Office of Information and Regulatory Affairs,
Washington, DC 20503, and send a copy to, Vanessa A. Countryman,
Secretary, U.S. Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090, with reference to File No. S7-01-20.
Requests for materials submitted to OMB by the Commission with regard
to the collection of information should be

in writing, refer to File No. S7-01-20 and be submitted to the U.S.
Securities and Exchange Commission, Office of FOIA Services, 100 F
Street NE, Washington, DC 20549-2736. OMB is required to make a
decision concerning the collection of information between 30 and 60
days after publication of this proposed rule. Consequently, a comment
to OMB is best assured of having its full effect if the OMB receives it
within 30 days of publication.

VI. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (SBREFA),\400\ the Commission must advise OMB as to whether
the proposed amendments constitute a ``major'' rule. Under SBREFA, a
rule is considered ``major'' where, if adopted, it results or is likely
to result in:
---------------------------------------------------------------------------

    \400\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

     An annual effect on the U.S. economy of $100 million or
more;
     A major increase in costs or prices for consumers or
individual industries; or
     Significant adverse effects on competition, investment, or
innovation.
    We request comment on whether our proposal would be a ``major
rule'' for purposes of the Small Business Regulatory Enforcement
Fairness Act. In particular, we request comment on the potential effect
on the U.S. economy on an annual basis; any potential increase in costs
or prices for consumers or individual industries; and any potential
effect on competition, investment, or innovation.
    Commenters are requested to provide empirical data and other
factual support for their views to the extent possible.

VII. Regulatory Flexibility Act Certification

    When an agency issues a rulemaking proposal, the Regulatory
Flexibility Act (``RFA'') \401\ requires the agency to prepare and make
available for public comment an Initial Regulatory Flexibility Analysis
(``IRFA'') that will describe the impact of the proposed rule on small
entities.\402\ Section 605 of the RFA allows an agency to certify a
rule, in lieu of preparing an IRFA, if the proposed rulemaking is not
expected to have a significant economic impact on a substantial number
of small entities.\403\
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    \401\ 5 U.S.C. 601 et seq.
    \402\ 5 U.S.C. 603(a).
    \403\ 5 U.S.C. 605(b).
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    The proposed amendments would have an impact on a substantial
number of small entities.\404\ However, the Commission expects that the
impact on entities affected by the proposed rule would not be
significant.\405\ The primary effects of the proposed amendments would
be to (1) modernize, simplify, and enhance the disclosure requirements
for MD&A in Item 303, such as by codifying prior Commission
interpretive guidance and eliminating duplicative disclosures; (2)
simplify duplicative disclosure requirements by eliminating Item 301,
Selected Financial Data, and Item 302, Supplementary Financial
Information; and (3) generally make conforming changes that would apply
to FPIs filing on Forms 20-F or 40-F. As a result, we expect that the
impact of the proposed amendments would be a reduction in the paperwork
burden of affected entities, including small entities, and that the
overall impact of the paperwork burden reduction would be modest.\406\
Accordingly, the Commission hereby certifies, pursuant to 5 U.S.C.
605(b), that the proposed amendments to Items 301, 302, and 303 of
Regulation S-K and Forms 20-F and 40-F and the related conforming
changes, if adopted, would not have a significant economic impact on a
substantial number of small entities for purposes of the RFA.
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    \404\ We estimate that there are 1,171 issuers that file with
the Commission, other than investment companies, that may be
considered small entities and are potentially subject to the
proposed amendments. This estimate is based on staff analysis of
issuers, excluding co-registrants, with EDGAR filings of Form 10-K,
20-F, and 40-F, or amendments, filed during the calendar year of
January 1, 2018, to December 31, 2018. Analysis is based on data
from XBRL filings, Compustat, and Ives Group Audit Analytics.
    \405\ See Section IV.B above.
    \406\ We estimate that the proposed amendments are likely to
result in a net decrease of between 0.1 and 6.5 burden hours per
form for purposes of the PRA. See Section V.B above.
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Request for Comment
    We request comment on this certification. In particular, we solicit
comment on the following: Do commenters agree with the certification?
If not, please describe the nature of any impact of the proposed
amendments on small entities and provide empirical data to illustrate
the extent of the impact. Such comments will be considered in the
preparation of the final rules (and in a Final Regulatory Flexibility
Analysis if one is needed) and will be placed in the same public file
as comments on the proposed rules themselves.

VIII. Statutory Authority and Text of Proposed Rule and Form Amendments

    The amendments contained in this release are being proposed under
the authority set forth in Sections 7, 10, 19(a), and 28 of the
Securities Act of 1933, as amended, Sections 3(b), 12, 13, 14, 23(a),
and 36 of the Securities Exchange Act of 1934, as amended, and Sections
8, 24, 30, and 38 of the Investment Company Act of 1940, as amended.

List of Subjects

17 CFR Part 210

    Accountants, Accounting, Banks, Banking, Employee benefit plans,
Holding companies, Insurance companies, Investment companies, Oil and
gas exploration, Reporting and recordkeeping requirements, Securities,
Utilities.

17 CFR Parts 229, 239, 240, and 249

    Administrative practice and procedure, Reporting and recordkeeping
requirements, Securities.

    In accordance with the foregoing, we propose to amend Title 17,
Chapter II of the Code of Federal Regulations as follows:

PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL
STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF
1934, INVESTMENT COMPANY ACT OF 1940, INVESTMENT ADVISERS ACT OF
1940, AND ENERGY POLICY AND CONSERVATION ACT OF 1975

0
1. The authority citation for part 210 continues to read as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3,
77aa(25), 77aa(26), 77nn(25), 77nn(26), 78c, 78j-1, 78l, 78m, 78n,
78o(d), 78q, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-20, 80a-29, 80a-30,
80a-31, 80a-37(a), 80b-3, 80b-11, 7202 and 7262, and sec. 102(c),
Pub. L. 112-106, 126 Stat. 310 (2012), unless otherwise noted.
0
2. Amend Sec.  210.1-02 by revising paragraph (bb)(1) introductory text
and (bb)(2) to read as follows:

Sec.  210.1-02  Definitions of terms used in Regulation S-X (17 CFR
part 210).

* * * * *
    (bb) * * * (1) Except as provided in paragraph (bb)(2) of this
section, summarized financial information referred to in this
regulation shall mean the presentation of summarized information as to
the assets, liabilities and results of operations of the entity for
which the information is required. Summarized financial information
shall include the following disclosures, which may be subject to
appropriate variation to conform to the nature of the entity's
business:
* * * * *

    (2) Summarized financial information for unconsolidated
subsidiaries and 50 percent or less owned persons referred to in and
required by Sec.  210.10-01(b) for interim periods shall include the
information required by paragraph (bb)(1)(ii) of this section.
* * * * *

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND
CONSERVATION ACT OF 1975--REGULATION S-K

0
3. The authority citation for part 229 continues to read as follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj,
77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 78n, 78n-1, 78o, 78u-
5, 78w, 78ll, 78 mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-
31(c), 80a-37, 80a-38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C.
1350; sec. 953(b), Pub. L. 111-203, 124 Stat. 1904 (2010); and sec.
102(c), Pub. L. 112-106, 126 Stat. 310 (2012).

Sec.  229.301  [Removed and Reserved]

0
4. Remove and reserve Sec.  229.301.

Sec.  229.302  [Removed and Reserved]

0
5. Remove and reserve Sec.  229.302.
0
6. Revise Sec.  229.303 to read as follows:

Sec.  229.303  (Item 303) Management's discussion and analysis of
financial condition and results of operations.

    (a) Objective. The objective of the discussion and analysis is to
provide material information relevant to an assessment of the financial
condition and results of operations of the registrant including an
evaluation of the amounts and certainty of cash flows from operations
and from outside sources. This discussion and analysis must provide a
narrative explanation of the registrant's financial statements that
allows investors to view the registrant from management's perspective.
The discussion and analysis must 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 of future financial condition. This includes
descriptions and amounts of matters that are reasonably expected to
have a material impact on future operations and have not had a material
impact on past operations, and matters that have had a material impact
on reported operations and are not reasonably expected to have a
material impact upon future operations. The discussion and analysis
must be of the financial statements and other statistical data that the
registrant believes will enhance a reader's understanding of the
registrant's financial condition, changes in financial condition and
results of operations.
    (b) Full fiscal years. The discussion of financial condition,
changes in financial condition and results of operations must provide
information as specified in paragraphs (b)(1) through (4) of this
section and such other information that the registrant believes to be
necessary to an understanding of its financial condition, changes in
financial condition and results of operations. Where the financial
statements reflect material changes from period-to-period in one or
more line items, including where material changes within a line item
offset one another, describe the underlying reasons for these material
changes in quantitative and qualitative terms. The reasons for material
changes must be described to the extent necessary to an understanding
of the registrant's businesses as a whole. Where in the registrant's
judgment a discussion of segment information and/or of other
subdivisions (e.g., geographic areas, product lines) of the
registrant's business would be necessary to an understanding of such
business, the discussion must focus on each relevant segment and/or
other subdivision of the business and on the registrant as a whole.
    (1) Liquidity. Identify any known trends or any known demands,
commitments, events or uncertainties that will result in or that are
reasonably likely to result in the registrant's liquidity increasing or
decreasing in any material way. If a material deficiency is identified,
indicate the course of action that the registrant has taken or proposes
to take to remedy the deficiency. Also identify and separately describe
internal and external sources of liquidity, and briefly discuss any
material unused sources of liquid assets.
    (2) Capital resources. (i) Describe the registrant's material cash
requirements, including commitments for capital expenditures, as of the
end of the latest fiscal period, the anticipated source of funds needed
to satisfy such cash requirements and the general purpose of such
requirements.
    (ii) Describe any known material trends, favorable or unfavorable,
in the registrant's capital resources. Indicate any expected material
changes in the mix and relative cost of such resources. The discussion
must consider changes between equity, debt and any off-balance sheet
financing arrangements.
    (3) Results of operations. (i) Describe any unusual or infrequent
events or transactions or any significant economic changes that
materially affected the amount of reported income from continuing
operations and, in each case, indicate the extent to which income was
so affected. In addition, describe any other significant components of
revenues or expenses that, in the registrant's judgment, would be
material to an understanding of the registrant's results of operations.
    (ii) Describe any known trends or uncertainties that have had or
that the registrant reasonably expects will have a material favorable
or unfavorable impact on net sales or revenues or income from
continuing operations. If the registrant knows of events that are
reasonably likely to cause a material change in the relationship
between costs and revenues (such as known or reasonably likely future
increases in costs of labor or materials or price increases or
inventory adjustments), the reasonably likely change in the
relationship must be disclosed.
    (iii) If the statement of comprehensive income presents material
changes from period to period in net sales or revenue, if applicable,
describe the extent to which such changes are attributable to changes
in prices or to changes in the volume or amount of goods or services
being sold or to the introduction of new products or services.
    (4) Critical accounting estimates. Critical accounting estimates
are those estimates made in accordance with generally accepted
accounting principles that involve a significant level of estimation
uncertainty and have had or are reasonably likely to have a material
impact on financial condition or results of operations. Discuss, to the
extent material, why each critical accounting estimate is subject to
uncertainty, how much each estimate has changed during the reporting
period, and the sensitivity of the reported amount to the methods,
assumptions and estimates underlying its calculation. The discussion
should provide quantitative as well as qualitative information when
quantitative information is reasonably available and will provide
material information to investors.
    Instructions to paragraph 303(b):
    1. Generally, the discussion must cover the periods covered by the
financial statements included in the filing and the registrant may use
any presentation that in the registrant's judgment enhances a reader's
understanding. A smaller reporting company's discussion must cover the
two-year period required in Article 8 of Regulation S-X and may use any
presentation that in the registrant's

judgment enhances a reader's understanding. For registrants providing
financial statements covering three years in a filing, discussion about
the earliest of the three years may be omitted if such discussion was
already included in the registrant's prior filings on EDGAR that
required disclosure in compliance with Item 303 of Regulation S-K,
provided that registrants electing not to include a discussion of the