standard for disclosure under Item 303 from the standard for disclosure
necessary to avoid liability for fraud under Rule 10b-5 and stated that
the ``probability/magnitude test for materiality approved by the
Supreme Court in Basic, Inc., v. Levinson . . . is inapposite to Item
303 disclosure.'' \320\ The Commission has

also stated that this ``reasonably likely'' standard is a lower
threshold than ``more likely than not.'' \321\
---------------------------------------------------------------------------

    \320\ Id. In Basic, the Supreme Court framed the issue of
materiality of forward-looking disclosure as depending upon a
balancing of both ``the indicated probability that the event will
occur and the anticipated magnitude of the event in light of the
totality of the company activity.'' 485 U.S. at 231 (quoting SEC v.
Texas Gulf Sulphur Co., 401 F.2d 833, 849 (2d Cir. 1968)).
    \321\ See 2002 Commission Statement about MD&A at 3748.
---------------------------------------------------------------------------

    Several federal courts of appeals have since referenced the
Commission's two-step test and addressed its role in potential
liability under Exchange Act Section 10(b) and Rule 10b-5 thereunder.
Although the courts are divided on the issue of whether Item 303
requirements create a general duty to disclose in the Rule 10b-5
context, these courts have agreed that the Supreme Court's standard in
Basic v. Levinson is the appropriate standard for determining liability
under Rule 10b-5 rather than the Commission's two-step test.\322\
---------------------------------------------------------------------------

    \322\ See Stratte-McClure v. Morgan Stanley, 776 F.3d 94, 100-
104 (2d Cir. 2015) (holding that Item 303 requirements do give rise
to a duty to disclose that may serve as the basis for liability
under Rule 10b-5, but indicating that the Basic test for materiality
of forward-looking disclosures controls instead of the Commission's
two-step test); In re NVIDIA Corp. Sec. Lit., 768 F.3d 1046, 1054-56
(9th Cir. 2014) (holding that Item 303 does not create a duty to
disclose for Rule 10b-5 purposes and distinguishing the two-step
test from the Basic materiality standard for forward-looking
disclosure); Oran v. Stafford, 226 F.3d 275, 287-288 (3d Cir. 2000)
(leaving open the question of whether an Item 303 violation could
ever serve as the basis for liability under Rule 10b-5, but holding
that Basic supplied the applicable standard for testing 10b-5
liability for forward-looking disclosures).
---------------------------------------------------------------------------

ii. Request for Comment
    99. Does the two-step test for disclosure of a known trend, demand,
commitment, event or uncertainty result in the most meaningful forward-
looking disclosure? Why or why not? How do registrants determine when
something is ``reasonably likely'' to occur?
    100. Should we revise the two-step test to apply a different
standard in the first prong and if so, how? For example, should we
require disclosure when a trend, event or uncertainty is more likely
than not, probable, or reasonably possible to occur, rather than
``reasonably likely'' to occur? \323\
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    \323\ See ASC 450-20-25-1. Under U.S. GAAP, when a loss
contingency exists, the likelihood that the future event or events
will confirm the loss or impairment of an asset or the incurrence of
a liability can range from probable to remote. The areas within that
range are: Probable (the future event or events are likely to
occur), reasonably possible (the chance of the future event or
events occurring is more than remote but less than likely) and
remote (the chance of the future event or events occurring is
slight).
    In the context of Item 303(a)(4) (off-balance sheet
arrangements), the Commission previously considered whether the
``reasonably likely'' threshold was appropriate for prospective
information. Most commenters supported the ``reasonably likely''
standard. Many commenters opposed a ``remote'' threshold stating it
would be difficult for management to apply, yield voluminous
disclosures; attribute undue prominence to information that is not
important to investors; confuse or mislead investors; and elicit
information that would not be comparable among firms. The Commission
adopted the ``reasonably likely'' threshold concluding that it
focused on the information most important to an understanding of a
registrant's off-balance sheet arrangements and their material
effects. The Commission also noted potential difficulty in
attempting to comply with the ``remote'' threshold and that use of a
consistent threshold throughout MD&A would preclude the potential
confusion that could result from disparate thresholds. See Off-
Balance Sheet and Contractual Obligations Adopting Release.
---------------------------------------------------------------------------

    101. Should we eliminate the two-step test in favor of a different
standard for identifying required and optional forward-looking
disclosure and, if so, what test would be appropriate? For example,
should we revise Item 303 to incorporate the probability/magnitude
standard from Basic v. Levinson? \324\ Which standard--the two-part
test, Basic's probability/magnitude standard, or some other standard--
should we require, and why? Would any particular formulation be more or
less burdensome for registrants?
---------------------------------------------------------------------------

    \324\ See supra note 320.
---------------------------------------------------------------------------

    102. We have stated previously that quantification of the material
effects of known material trends and uncertainties can promote
understanding and may be required to the extent material.\325\ Should
we revise Item 303 to specifically require registrants, to the extent
practicable, to quantify the material effects of known trends and
uncertainties as well as the factors that contributed to those known
trends and uncertainties? Why?
---------------------------------------------------------------------------

    \325\ See 2003 MD&A Interpretive Release.
---------------------------------------------------------------------------

d. Key Indicators of Financial Condition and Operating Performance

i. Discussion

    The Commission has previously stressed that registrants should
identify and address those key variables and other qualitative and
quantitative factors that are peculiar to and necessary for an
understanding and evaluation of the individual registrant.\326\ Key
performance indicators include both financial and non-financial
measures. Non-financial measures may relate to external or macro-
economic matters as well as those specific to a registrant or
industry.\327\ The Commission has also encouraged registrants to
consider whether disclosure of all key variables and other factors that
management uses to manage the business would be material to investors
or would promote an understanding of MD&A.\328\
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    \326\ See id. (quoting the 1989 MD&A Interpretive Release, which
quotes Management's Discussion and Analysis of Financial Condition
and Results of Operations, Release No. 33-6349 (Sept. 28, 1981) [not
published in the Federal Register]).
    \327\ External or macro-economic matters, such as interest rates
or economic growth rates, and their anticipated trends can be
important variables for many registrants. The Commission has further
encouraged registrants to consider disclosing information that may
be peripheral to the accounting function, but is integral to the
business or operating activity. Examples of such measures, depending
on the circumstances of a particular registrant, can include those
based on units or volume, customer satisfaction, time-to-market,
interest rates, product development, service offerings, throughput
capacity, affiliations/joint undertakings, market demand, customer/
vendor relations, employee retention, business strategy, changes in
the managerial approach or structure, regulatory actions or
regulatory environment, and any other pertinent macroeconomic
measures. See 2003 MD&A Interpretive Release at note 27 and
accompanying text.
    \328\ See id.
---------------------------------------------------------------------------

    Some registrants discuss industry-specific key performance
indicators in MD&A, although there is not a specific requirement for
this disclosure. For example, electronic gaming or social media
companies typically discuss their numbers of monthly active users;
numbers of unique users; numbers of unique payers; and other metrics
relating to usage. Software service companies typically discuss their
numbers of subscribers; customer renewal rates; and customer retention
rates. Hospitals typically discuss their numbers of admissions; numbers
of beds; the average length of inpatient stays; and occupancy rates.
Retailers typically discuss comparable store sales, sales per square
foot or gross merchandise value. Recent academic studies find that the
industry-specific key factors disclosed by retailers and manufacturers
provide incremental information that can help to predict registrants'
future performance beyond traditional financial statement
variables.\329\
---------------------------------------------------------------------------

    \329\ See, e.g., C. Cole and C. Jones, The Usefulness of MD&A
Disclosures in Retail Industry, 30 J. Acct. Auditing Fin. 127, 127-
149 (2015). See also Y. Sun, Do MD&A Disclosures Help Users
Interpret Disproportionate Inventory Increases?, 85 Acct. Rev. 1411,
1411-1440 (2010) (measuring the informativeness of this disclosure
by measuring to what degree the information in the disclosure can
help to predict variables such as future revenues and earnings or
contemporary stock returns, beyond financial statement variables or
other factors that can help to predict these variables).
---------------------------------------------------------------------------

    Where there is no commonly accepted method of calculating a
particular non-financial metric, the Commission has said that the
registrant should provide an explanation of the calculation of the
metric to promote comparability across registrants within the
industry.\330\ In addition, key performance indicators, where
disclosed, should be included in a format that will enhance the
understanding of the discussion and analysis.\331\
---------------------------------------------------------------------------

    \330\ See 2003 MD&A Interpretive Release.
    \331\ See id.

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

ii. Request for Comment
    103. Should we revise Item 303 to include a principles-based
requirement for all registrants to disclose performance metrics and
other key variables important to their business? Why or why not?
    104. Should we require disclosure of any commentary, analysis,
performance indicators or business drivers related to a registrant's
key indicators? If so, why? For example, would it be feasible to adopt
prescriptive requirements for discussion of specific performance
metrics that are applicable to an entire industry and are easily
comparable between registrants?
    105. What types of investors or audiences are most likely to value
industry-specific key performance indicators?
    106. What would be the costs and benefits of requiring registrants
in certain industries to disclose standardized performance metrics? How
could we identify which performance metrics should be standardized
across an industry?
4. Results of Operations (Item 303(a)(3))
    Item 303(a)(3) requires a discussion and analysis of a registrant's
results of operations and specifies four areas of disclosure:
     Any unusual or infrequent events or transactions or any
significant economic changes that materially affected the amount of
reported income from continuing operations and the extent to which
income was so affected; \332\
---------------------------------------------------------------------------

    \332\ Item 303(a)(3)(i) of Regulation S-K [17 CFR
229.303(a)(3)(i)].
---------------------------------------------------------------------------

     known trends or uncertainties that have had, or that the
registrant reasonably expects will have, a material impact on net sales
or revenues or income from continuing operations; \333\
---------------------------------------------------------------------------

    \333\ Item 303(a)(3)(ii) of Regulation S-K [17 CFR
229.303(a)(3)(ii)].
---------------------------------------------------------------------------

     material increases in net sales or revenues, including the
extent such increases are attributable to increases in prices,
increases in the volume or amount of goods or services being sold, or
to the introduction of new products or services; \334\ and
---------------------------------------------------------------------------

    \334\ Item 303(a)(3)(iii) of Regulation S-K [17 CFR
229.303(a)(3)(iii)].
---------------------------------------------------------------------------

     for the three most recent fiscal years, a discussion of
the impact of inflation and changing prices on the registrant's net
sales and revenues, and on income from continuing operations.\335\
---------------------------------------------------------------------------

    \335\ Item 303(a)(3)(iv) of Regulation S-K [17 CFR
229.303(a)(3)(iv)].
---------------------------------------------------------------------------

    Instruction 1 to Item 303(a) states that the discussion and
analysis shall cover the three-year period covered by the financial
statements and use year-to-year comparisons or any other format that in
the registrant's judgment would enhance a reader's understanding.\336\
Instruction 4 to Item 303(a) provides that registrants need not recite
the amounts of changes from year to year that are readily computable
from the financial statements.\337\
---------------------------------------------------------------------------

    \336\ SRCs may limit their disclosure to the two-year period
covered by their financial statements. Instruction 1 to Item 303(a)
of Regulation S-K [17 CFR 229.303(a)].
    \337\ Instruction 4 to Item 303(a) of Regulation S-K [17 CFR
229.303(a)].
---------------------------------------------------------------------------

a. Comments Received
    S-K Study: One commenter recommended that we eliminate the
requirement to include prior-period results in MD&A as this information
is readily available in prior filings.\338\ This commenter added that
the existing requirements in Item 303 should be sufficient to result in
a comprehensive discussion of a three-year trend without a year-to-year
comparison.
---------------------------------------------------------------------------

    \338\ See Ernst & Young 1.
---------------------------------------------------------------------------

    Disclosure Effectiveness Initiative: A few commenters recommended
eliminating prior period results in MD&A as this information is readily
available in previous filings.\339\ One of these commenters stated it
would be more appropriate to require a discussion of only the most
recently completed annual or quarterly period and that discussion of
prior periods ``can create more confusion and distraction than
elucidation among investors.'' \340\ Another one of these commenters
stated its belief that two years of financial statements is sufficient
disclosure as the five-year selected financial data would provide
multiyear trend information.\341\ This commenter also stated its belief
that a two year financial statement requirement would eliminate
``clutter'' in MD&A and ``allow users to focus on new, material
information about the latest fiscal year.''
---------------------------------------------------------------------------

    \339\ See, e.g., CCMC; IBM; SCSGP (noting that the existing
requirements in Item 303 are sufficient to elicit a discussion of
trends over the relevant three-year period, if such a trend exists
and is material); A. Radin; Ernst & Young 2.
    \340\ See CCMC.
    \341\ See Ernst & Young 2 (also noting that financial statements
covering three years are more voluminous and costly to prepare and
that most foreign jurisdictions only require two years of financial
statements).
---------------------------------------------------------------------------

    One commenter disagreed with eliminating the requirement to include
prior-period results in MD&A because doing so would require investors
to look for the information elsewhere.\342\ One commenter suggested
revising Instruction 4 to Item 303(a) to allow registrants to omit a
discussion of changes in line items on the financial statements, to the
extent those changes are not material and such omission would not
materially impair an investor's understanding of the registrant's
results of operations.\343\
---------------------------------------------------------------------------

    \342\ See CFA Institute.
    \343\ See ABA 2.
---------------------------------------------------------------------------

b. Discussion
    Prior to the Commission's adoption of the MD&A disclosure
requirements, Guide 22 and Guide 1 called for a summary of earnings and
operations, as well as a full narrative explanation of the summary. The
Guides also called for a separate discussion and analysis of the
summary, including explanations of material changes from period to
period in revenues and expenses.\344\ This discussion was intended to
enable investors to compare periodic results of operations and to
assess the source and probability of recurrence of earnings or
losses.\345\ When adding MD&A to Regulation S-K in 1980, the Commission
eliminated the summary of operations disclosure in favor of new
requirements for a discussion ``focused on the financial statements''
with an emphasis on favorable or unfavorable trends and the
identification of significant events or uncertainties.\346\ The
Commission also expressed its view that a three-year financial
statement requirement provides the minimum data necessary for an
understanding of the changes in performance for two years.\347\
---------------------------------------------------------------------------

    \344\ Guide 22 applied only to registration statements under the
Securities Act. Guide 1, applicable to Exchange Act filings, was
adopted in 1974 to require disclosure similar to that of Guide 22.
While Guide 22 focused on a summary of earnings, Guide 1 required a
discussion and analysis of a registrant's summary of operations.
Both Guides were eliminated in 1980 when their requirements were
merged into a single requirement, now Item 303, calling for
discussion and analysis of financial condition and results of
operations. This represented a shift in focus towards the financial
statements rather than upon a summary of operations. See Guidelines
Adopting Release. When eliminating the Guides, the Commission noted
that the ``narrow approach'' set forth in Guides 1 and 22 did not
ordinarily produce a discussion that focused upon the financial
condition of a registrant as a whole. The Commission also noted that
``there is a growing need to analyze an enterprise's liquidity and
capital resources, in addition to its revenues and income.'' See
1980 Form 10-K Adopting Release at 63636.
    \345\ See Guidelines Adopting Release.
    \346\ 1980 Form 10-K Adopting Release at 63636.
    \347\ See Uniform Instructions as to Financial Statements--
Regulation S-X, Release No. 33-6179 (Jan. 15, 1980) [45 FR 5963
(Jan. 24, 1980)].
---------------------------------------------------------------------------

    In 2003, the staff conducted a review of annual reports filed by
all Fortune 500 registrants and issued a significant number of comments
seeking, among other things, greater analysis of

registrants' results of operation.\348\ The staff also discouraged
registrants from providing rote calculations of percentage changes of
financial statement items and boilerplate explanations of immaterial
changes to these figures, encouraging them to include instead a
detailed analysis of material year-to-year changes and trends.\349\ The
staff continues to seek greater analysis of material year-to-year
changes and trends by encouraging registrants to quantify components of
material changes in financial statement line items and provide
additional explanation of the underlying factors that cause such
changes.
---------------------------------------------------------------------------

    \348\ See Summary by the Division of Corporation Finance of
Significant Issues Addressed in the Review of the Periodic Reports
of the Fortunate 500 Companies (2003), available at https://www.sec.gov/divisions/corpfin/fortune500rep.htm.
    \349\ See id. The staff also commented on boilerplate analyses
that did not provide any insight into registrants' past performance
or business prospects as understood by management.
---------------------------------------------------------------------------

c. Request for Comment
    107. Should we retain, eliminate or modify the period-to-period
comparisons provided in MD&A? Why?
    108. How could Item 303(a)(3) be improved? Would any additional
disclosure about a registrant's results of operations be important to
investors? If so, what additional disclosure would be important and
why?
    109. Does the three-year comparison provide material information
about trends or uncertainties that would not be reflected in filings
for prior periods? Should we permit registrants to omit the earliest
period in the three-year comparison when the earliest of the three
years does not provide information that is important to investors? What
would be the advantages and disadvantages of limiting the period-to-
period comparisons in MD&A to the most recent two fiscal periods?
    110. Should we allow registrants to eliminate the earliest of the
two periods discussed so long as they cross-reference or include a
hyperlink to the prior periods discussion in earlier Forms 10-K and 10-
Q? Why or why not?
    111. In complying with Item 303(a)(3), registrants almost
exclusively rely on period-to-period comparisons even though our rules
permit ``any other format that in the registrant's judgment would
enhance a reader's understanding.'' \350\ Why do registrants rely
almost exclusively on year-to-year comparisons? Would formats or
presentations other than period-to-period comparisons enhance a
reader's understanding of results of operations or encourage greater
analysis of the income statement? If so, how? What other formats or
presentations could result in a discussion and analysis of the material
information necessary to an understanding of a registrant's
performance, financial condition and prospects for the future? Should
we require registrants to provide the comparison in a standardized
tabular format or any other format?
---------------------------------------------------------------------------

    \350\ Instruction 1 to Item 303(a) of Regulation S-K [17 CFR
229.303(a)] states the discussion must cover the three-year period
covered by the financial statements and use year-to-year comparisons
or any other format that in the registrant's judgment would enhance
a reader's understanding.
---------------------------------------------------------------------------

    112. Does the disclosure required by Item 303(a)(3) provide useful
information about registrants that have not yet generated revenue or
begun operations? Would additional disclosure about these registrants,
such as a description of their plans of operations be more useful to
investors? If so, what additional information, if any, that is not
already required under Item 101(a)(2) would be useful to investors?
\351\
---------------------------------------------------------------------------

    \351\ Item 101(a)(2) requires first-time registrants that have
not generated revenues from operations in each of the last three
fiscal years and are offering securities to the public to provide a
plan of operations. The item requires disclosure relating to the
registrant's ability to fund its operations, research and
development, anticipated material acquisition of plant and
equipment, and any anticipated material changes in number of
employees.
---------------------------------------------------------------------------

5. Liquidity and Capital Resources (Item 303(a)(1) and (a)(2))
    Analysis of a registrant's liquidity and capital resources is
critical to assessing a registrant's future prospects.\352\ Item
303(a)(1) requires a registrant to 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.\353\ If a material
deficiency is identified, a registrant must indicate the course of
action it has taken or proposes to take to remedy the deficiency.\354\
Item 303(a)(1) also requires a registrant to identify and separately
describe its internal and external sources of liquidity and briefly
discuss any material unused sources of liquid assets.\355\
---------------------------------------------------------------------------

    \352\ See 2003 MD&A Interpretive Release.
    \353\ Item 303(a)(1) of Regulation S-K [17 CFR 229.303(a)(1)].
The two-step test for disclosure of prospective information set
forth in the 1989 MD&A Interpretive Release also applies to
disclosure of a known trend, demand, commitment, event or
uncertainty materially affecting liquidity and capital resources.
See supra note 319 and accompanying text.
    \354\ Item 303(a)(1) of Regulation S-K [17 CFR 229.303(a)(1)].
    \355\ Id.
---------------------------------------------------------------------------

    Item 303(a)(2) requires discussion and analysis of a registrant's
capital resources. A registrant must describe its material commitments
for capital expenditures and indicate the general purpose of those
commitments and the anticipated source of funds needed to fulfill those
commitments.\356\ A registrant also must describe any known material
trends, favorable or unfavorable, in its capital resources, including
changes in equity, debt and any off-balance sheet financing
arrangements.\357\
---------------------------------------------------------------------------

    \356\ Item 303(a)(2)(i) of Regulation S-K [17 CFR
229.303(a)(2)(i)].
    \357\ Item 303(a)(2)(ii) of Regulation S-K [17 CFR
229.303(a)(2)(ii)].
---------------------------------------------------------------------------

a. Comments Received
    S-K Study. None.
    Disclosure Effectiveness Initiative. One commenter generally
suggested requiring increased disclosure of liquidity funding
gaps.\358\
---------------------------------------------------------------------------

    \358\ See CFA Institute.
---------------------------------------------------------------------------

b. Analysis of ``Liquidity'' and ``Capital Resources''
i. Discussion
    The Commission first adopted requirements for disclosure of
liquidity and capital resources in 1980 to address what it viewed as a
growing need to analyze enterprise liquidity and capital resources in
addition to revenues and income.\359\ More recently, the Commission has
observed that disclosure about liquidity and capital resources is
critical to an assessment of a registrant's prospects for the future
and even the likelihood of its survival.\360\ The Commission also has
provided guidance regarding the type of information that a registrant
should disclose about its liquidity and capital resources.\361\ In
determining appropriate disclosure, registrants should evaluate
separately their ability to meet upcoming cash requirements over both
the short and long term.\362\ Registrants are expected to use the
statement of cash flows and other indicators in analyzing their
liquidity and to present a balanced discussion dealing with cash

flows from investing and financing activities as well as from
operations.\363\
---------------------------------------------------------------------------

    \359\ See 1980 Form 10-K Adopting Release.
    \360\ See 2003 MD&A Interpretive Release. See also 2010
Liquidity and Capital Resources Interpretive Release (stating that
as financing activities undertaken by registrants become more
diverse and complex, it is increasingly important that the
discussion and analysis of liquidity and capital resources provided
by registrants meet the objectives of MD&A).
    \361\ See, e.g., 1989 MD&A Interpretive Release and 2003 MD&A
Interpretive Release.
    \362\ See id.
    \363\ See 1989 MD&A Interpretive Release.
---------------------------------------------------------------------------

    Despite the Commission's guidance, the staff has observed that
discussions of liquidity and capital resources often recite various
changes in line items from the statement of cash flows without a
detailed analysis. Although registrants generally discuss their
liquidity needs and the sources of cash available to meet those needs
as of the end of the reporting period, disclosure of known trends and
uncertainties affecting their future needs and availability of cash
often is less detailed.
    When adopting disclosure requirements for liquidity and capital
resources, the Commission recognized that the terms ``liquidity'' and
``capital resources'' lacked precision in definition but stated that
``additional specificity would decrease the flexibility needed by
management for a meaningful discussion.'' \364\ The Commission stated
its intent for management to use ``whatever liquidity parameters they
deem to be most appropriate.'' \365\ To that end, Item 303 does not
define ``capital resources'' and defines ``liquidity'' only in general
terms, as the ability of an enterprise to generate adequate amounts of
cash to meet its needs for cash.\366\
---------------------------------------------------------------------------

    \364\ 1980 Form 10-K Adopting Release at 63636.
    \365\ Id. at 63636.
    \366\ Instruction 5 to Item 303(a) of Regulation S-K [17 CFR
229.303(a)]. See also 1980 Form 10-K Adopting Release.
---------------------------------------------------------------------------

ii. Request for Comment
    113. How could we revise Item 303(a) to elicit a more meaningful
analysis of a registrant's liquidity and capital resources while
retaining the flexibility of registrants to analyze liquidity and
capital resources in the context of their business and the way they
manage liquidity?
    114. Item 303(a) provides that discussions of liquidity and capital
resources may be combined whenever the two topics are interrelated.
Would it lead to more useful analysis if we required registrants to
provide separate disclosure of these two topics? Why? Would doing so
encourage greater disclosure of trends, events and uncertainties
affecting capital resources?
    115. When drafting MD&A, how do registrants currently interpret the
term ``capital resources''? Would defining the term ``capital
resources'' be helpful for registrants or, alternatively, is the plain
meaning of the term sufficiently clear? In light of the reference to
capital expenditures and the sources of funds needed to fulfill those
expenditures in Item 303(a)(2)(i), do registrants currently interpret
the term ``capital resources'' as including mostly funds committed for
material capital expenditures and the source of those funds?
    116. Should we modify the definition of ``liquidity'' in
Instruction 5 to Item 303(a) and, if so, how?
    117. For what periods should we require discussion and analysis of
liquidity and capital resources and why? Should our requirements
include more periods than what is required by the statement of cash
flows? Why? Are developments in the most recent fiscal year sufficient
to constitute a ``trend'' as the term is used in Item 303?
    118. Should we require registrants to provide a sensitivity
analysis in the discussion and analysis of liquidity and capital
resources? If so, what should be the nature of such an analysis? If
not, why not?
    119. Should the registrant provide additional measures of intra-
period liquidity and capital resources? For example, should the
registrant provide measures of average daily liquidity, average
quarterly liquidity, or other measures? Should the registrant provide a
chart or graph of intra-period liquidity? How should such information
be considered in connection with the information provided at the end of
the quarter?
    120. Should we consider more detailed disclosure requirements for
liquidity, such as liquidity risks and maturity mismatches?
c. Short-Term Borrowings
i. Discussion
    Access to short-term borrowings for working capital and to fund
operations can be an important component of a registrant's liquidity
and capital resources.\367\ Short-term borrowings include federal funds
purchased and securities sold under agreements to repurchase,\368\
commercial paper,\369\ borrowings from banks, borrowings from factors
or other financial institutions, and any other short-term borrowings
reflected on the registrant's balance sheet.\370\
---------------------------------------------------------------------------

    \367\ See D. Booth & J. Renier, Fed Policy in the Financial
Crisis: Arresting the Adverse Feedback Loop, FRBD Economic Letter,
Sept. 2009, available at https://www.dallasfed.org/assets/documents/research/eclett/2009/el0907.pdf (``Many businesses were hampered by
the squeeze on short-term financing, a key source of working capital
needed to prevent deeper reductions in inventories, jobs and
wages.'').
    \368\ ASC 860-10 defines a repurchase agreement as an
arrangement under which the transferor (repo party) transfers a
security to the transferee (repo counterparty or reverse party) in
exchange for cash and concurrently agrees to reacquire the security
at a future date for an amount equal to the cash exchanged plus a
stipulated interest factor.
    \369\ Commercial paper consists of short-term promissory notes
issued primarily by corporations. Maturities range up to 270 days
but average about 30 days.
    \370\ See Rules 5-19 and 9-03.13(3) of Regulation S-X [17 CFR
210.5-19 and 210.9-03.13(3)].
---------------------------------------------------------------------------

    Short-term borrowings are common among financial institutions and
industrial companies alike.\371\ In the last few years, low interest
rates have prompted many non-financial registrants to take advantage of
lower borrowing costs and use short-term borrowings to, among other
things, buy back stock and pay off longer-term debt.\372\ For one type
of short-term borrowing, repurchase agreements, advancements in
technology and changes in the regulatory landscape have made it more
efficient for parties to engage in these transactions, likely
increasing the amount of activity in this market.\373\
---------------------------------------------------------------------------

    \371\ For example, the Federal Reserve Board reported that
domestic outstanding commercial paper balances at the end of
December 2015 were $174.5 billion for non-financial issuers and
$206.6 billion for financial issuers respectively. See Commercial
Paper Outstanding (last visited March 21, 2016) available at https://www.federalreserve.gov/releases/cp/outstanding.htm.
    \372\ See, e.g., David Randall, Fed Delay Could Spur More Debt
Issues to Fund Share Buybacks, Reuters, Sept. 23, 2015, available at
http://www.reuters.com/article/2015/09/23/us-usa-fed-buybacks-analysis-idUSKCN0RN0D320150923 (suggesting the Federal Reserve's
decision to delay raising interest rates will likely encourage
companies to incur more debt to repurchase their own shares); Serena
Ng and Vipal Monda Companies Use Short-Term Debt to Advantage, The
Wall Street Journal, Sept. 11, 2013, available at http://www.wsj.com/articles/SB10001424127887323893004579059473557078830
(noting that the low cost of short-term funds due to low interest
rates has prompted companies to engage in short-term borrowings to
repurchase stock, fund acquisitions, pay off longer-term debt, or
profit from the gap between short and long-term interest rates);
John Atkins, Economy: Short-term Business Borrowing Hits Highest
Level Since 2001, Forbes, Feb. 22, 2013, available at http://www.forbes.com/sites/spleverage/2013/02/22/economy-short-term-business-borrowing-hits-highest-level-since-2001.
    \373\ See Victoria Baklanova, Adam Copeland, and Rebeca
McCaughrin, Reference Guide to U.S. Repo and Securities Lending
Markets, Federal Reserve Bank of NY Staff Report, Sept. 2015,
available at https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr740.pdf, at 16 (noting that, while dealers appear to
represent the largest participants in the market for repurchase
agreements, non-dealer activity has likely increased such as through
service providers that allow non-dealer counterparties to engage
directly in a repurchase agreement without an intermediary).
---------------------------------------------------------------------------

    Short-term borrowings can be affected, sometimes severely and
rapidly, by illiquidity in the markets as a whole.\374\ This market
illiquidity can

present increased risks to registrants who rely on short-term
borrowings.\375\ Due to their short-term nature, a registrant's use of
such arrangements can fluctuate significantly during a reporting
period. As a result, presentation of period-end amounts of short-term
borrowings alone may not accurately capture a registrant's funding
needs or use of such borrowings during the relevant period.\376\
---------------------------------------------------------------------------

    \374\ See Philip E. Strahan, Liquidity Risk and Credit in the
Financial Crisis, FRBSF Economic Letter (May 14, 2012), available at
http://www.frbsf.org/economic-research/publications/economic-letter/2012/may/liquidity-risk-credit-financial-crisis/. See also, Adonis
Antoniades, Liquidity Risk and the Credit Crunch of 2007-2008:
Evidence from Micro-Level Data on Mortgage Loan Applications, Dec.
2014, available at http://www.bis.org/publ/work473.pdf; Marcia
Millon Cornett, Jamie John McNutt, Philip E. Strahan, Hassan
Tehranian, Liquidity Risk Management and Credit Supply in the
Financial Crisis, 101 J. Fin. Econ. (2011), 297-312; Jose
Berrospide, Bank Liquidity Hoarding and the Financial Crisis: An
Empirical Evaluation, Federal Reserve Board Finance and Economics
Discussion Series, Nov. 29, 2012; A. Martin et al., Repo Runs, FRBNY
Staff Report No. 444 (Apr. 2010) (demonstrating that institutions
funded by short-term collateralized borrowings are subject to the
threat of runs similar to those faced by commercial banks).
    \375\ For instance, financing rates may increase or terms may
become unfavorable, it may become more costly or impossible to roll
over short-term borrowings, or for financial institutions, demand
depositors may withdraw funds. See, e.g., Gary B. Gorton, Andrew
Metrick, Lei Xie, The Flight from Maturity, Yale School of
Management May 2015-, available at http://www.nber.org/papers/w20027.pdf.; M. Brunnermeier, Deciphering the Liquidity and Credit
Crunch 2007-2008, 23 J. Econ. Persp. 77 (2009), at 79-80, available
at https://www.princeton.edu/~markus/research/papers/
liquidity_credit_crunch.pdf.
    \376\ See Short-Term Borrowings Disclosure, Release No. 33-9143
(Sept. 17, 2010) [75 FR 59866 (Sept. 28, 2010)] (``Short-Term
Borrowings Proposing Release'').
---------------------------------------------------------------------------

    Our rules require a liquidity analysis on both a long-term and
short-term basis.\377\ The Commission has stated that registrants
should consider describing the sources of short-term funding and the
circumstances that are reasonably likely to affect those sources of
liquidity.\378\ In addition, the Commission and its staff have provided
guidance that certain registrants should disclose short-term borrowings
to the extent relevant and material to the operations of the
entity.\379\
---------------------------------------------------------------------------

    \377\ Instruction 3 to Item 303(a) of Regulation S-K [17 CFR
229.303(a)].
    \378\ See 2002 Commission Statement about MD&A at 3748 (``MD&A
disclosures should not be overly general. For example, disclosure
that the registrant has sufficient short-term funding to meet its
liquidity needs for the next year provides little useful
information. Instead, registrants should consider describing the
sources of short-term funding and the circumstances that are
reasonably likely to affect those sources of liquidity.'').
    \379\ See 2010 Liquidity and Capital Resources Interpretive
Release at 59895 (stating that, ``if the registrant's financial
statements do not adequately convey the registrant's financing
arrangements during the period, or the impact of those arrangements
on liquidity, because of a known trend, demand, commitment, event or
uncertainty, additional narrative disclosure should be considered
and may be required to enable an understanding of the amounts
depicted in the financial statements''); Industry Guide 3,
Statistical Disclosure by Bank Holding Companies (``Industry Guide
3''), available at https://www.sec.gov/about/forms/industryguides.pdf; and Staff Accounting Bulletin, Topic 11:K
(Application of Article 9 and Industry Guide 3), available at
https://www.sec.gov/interps/account/sabcodet11.htm (``In the staff's
view, Article 9 [of Regulation S-X] and Guide 3, while applying
literally only to bank holding companies, provide useful guidance to
certain other registrants . . . Thus, to the extent particular
guidance is relevant and material to the operations of an entity,
the staff believes the specified information, or comparable data,
should be provided.'').
---------------------------------------------------------------------------

    The Commission has previously considered the applicability of
short-term borrowing disclosure requirements for all registrants. In
1994, in connection with the elimination of various financial statement
disclosure schedules, the Commission eliminated a short-term borrowings
disclosure requirement for registrants that were not bank holding
companies.\380\ Former Rule 12-10 of Regulation S-X required those
registrants to include with their financial statements a schedule of
short-term borrowings that disclosed the maximum amount outstanding
during the year, the average amount outstanding during the year, and
the weighted-average interest rate during the period, with amounts
broken out into specified categories of short-term borrowings.\381\ In
proposing to eliminate this schedule, the Commission noted ``the
disclosures concerning the registrant's liquidity and capital resources
that are required in the MD&A would appear to be sufficiently
informational to permit elimination of the short term borrowing
schedule.'' \382\ In repealing Rule 12-10, the Commission ``concluded
that the costs of furnishing the information outweigh[ed] its
usefulness.'' \383\
---------------------------------------------------------------------------

    \380\ See Financial Statements of Significant Foreign Equity
Investees and Acquired Foreign Businesses of Domestic Issuers and
Financial Schedules, Release No. 33-7118 (Dec. 13, 1994) [59 FR
65632 (Dec. 20, 1994)] (``Financial Schedules Adopting Release'').
    \381\ The categories in former Rule 12-10 were amounts payable
to: Banks for borrowings; factors or other financial institutions
for borrowings; and holders of commercial paper.
    \382\ See Financial Statements of Significant Foreign Equity
Investees and Acquired Foreign Businesses of Domestic Issuers and
Financial Schedules, Release No. 33-7055 (Apr. 19, 1994) [59 FR
21814 (Apr. 26, 1994)] at 21818.
    \383\ See Financial Schedules Adopting Release at 65635.
---------------------------------------------------------------------------

    In 2010, the Commission proposed new disclosure requirements for
short-term borrowings.\384\ When proposing these rules, the Commission
stated its belief that they differed from former Rule 12-10 by, among
other things, requiring short-term borrowings disclosure in MD&A, in
tabular form, alongside a discussion and analysis to provide context
for the quantitative data.\385\ Some commenters expressed concern about
these proposed rules and emphasized the costs associated with
compliance, which they asserted would outweigh the usefulness of the
disclosure. A significant number of commenters were financial
institutions \386\ and related organizations,\387\ with only a small
number of investors submitting comments.\388\ While the Commission did
not adopt these rules, there have been other regulatory actions
relating to short-term borrowings disclosure.\389\
---------------------------------------------------------------------------

    \384\ See Short-Term Borrowings Proposing Release. As proposed,
these rules would have codified the provisions in Industry Guide 3
for disclosure of short-term borrowings in Regulation S-K for all
registrants. These proposed rules were intended to provide important
information so investors could better understand the role of short-
term financing and the related risks to the registrant. At that
time, the Commission proposed amending its MD&A requirements to
include a new section that would provide tabular information of a
registrant's short-term borrowings, as well as a discussion and
analysis of these borrowings. These proposed amendments would have
(i) expanded the Industry Guide 3 provisions for disclosure of
short-term borrowings in Regulation S-K, (ii) required disclosure on
an annual and quarterly basis, and (iii) expanded Industry Guide 3
disclosure to all registrants that provide an MD&A. If the proposals
had been adopted, the Commission would have authorized the staff to
eliminate the corresponding provisions of Industry Guide 3 to avoid
redundant disclosure requirements. See id. at 59868, footnote note
21 and accompanying text.
    \385\ See id.
    \386\ See, e.g., comment letters to File No. S7-22-10 from
Credit Suisse Group AG (Nov. 29, 2010), Barclays Bank PLC (Nov. 29,
2010), JP Morgan Chase & Co. (Nov. 29, 2010), Morgan Stanley (Nov.
29, 2010) and Citigroup Inc. (Nov. 29, 2010) available at http://www.sec.gov/comments/s7-22-10/s72210.shtml.
    \387\ See, e.g., comment letters to File No. S7-22-10 from the
American Bankers Association (Nov. 29, 2010) and British Bankers'
Associations (Dec. 1, 2010).
    \388\ See comment letters to File No. S7-22-10 from Fidelity
Management & Research Company (Nov. 29, 2010), Doug Morgan (Sept.
20, 2010) and Yong Zheng (Dec. 13, 2010). Fidelity supported the
proposed requirements and recommended ``more granular disclosure on
repo portfolios.'' Some of Fidelity's recommendations have since
been addressed by revised FASB guidance on accounting for repurchase
financings. Registrants currently are required to disclose
information on transfers accounted for as sales in transactions that
are economically similar to repurchase agreements. In addition,
registrants must provide increased transparency about the types of
collateral pledged in repurchase agreements and similar transactions
accounted for as secured borrowings. See ASU 2014-11 ``Transfers and
Servicing (Topic 860): Repurchase-to-Maturity Transactions,
Repurchase Financings, and Disclosures.''
    \389\ See supra note 388. See also 2010 Liquidity and Capital
Resources Interpretive Release.
---------------------------------------------------------------------------

    While a number of commenters generally supported the proposed
rules' objectives of greater transparency of short-term borrowings as
part of a registrant's overall liquidity profile, they also expressed
numerous concerns about the quantitative requirements of the proposed
rule. For example, commenters were opposed to the

proposed requirement to further disaggregate amounts in the table by
currency, interest rate or other meaningful category \390\ as well as
the proposed requirement to disclose all categories of short-term
borrowings by eliminating a threshold for allowing aggregation into
categories.\391\
---------------------------------------------------------------------------

    \390\ See comment letters to File No. S7-22-10 from the American
Bar Association (Dec. 17, 2010), American Bankers Association (Nov.
29, 2010), Barclays Bank PLC (Nov. 29, 2010), Citigroup Inc. (Nov.
29, 2010), Cleary Gottlieb Steen & Hamilton LLP (Nov. 29, 2010),
Chevron Corp. (Nov. 16, 2010), Credit Suisse Group AG (Nov. 29,
2010), Institute of Management Accountants (Nov. 16, 2010), New York
City Bar Association (Nov. 29, 2010), Regions Financial Corp. (Nov.
29, 2010), UBS AG (Nov. 29, 2010).
    \391\ See comment letters to File No. S7-22-10 from the American
Bankers Association (Nov. 29, 2010), Barclays Bank PLC (Nov. 29,
2010), Cleary Gottlieb Steen & Hamilton LLP (Nov. 29, 2010), Davis
Polk & Wardwell LLP (Nov. 29, 2010), Institute of Management
Accountants (Nov. 16, 2010), Morgan Stanley (Nov. 29, 2010), Regions
Financial Corp. (Nov. 29, 2010), Barclays Bank PLC (Nov. 29, 2010),
Ford Motor Company (Nov. 29, 2010), BDO USA LLP (Nov. 22, 2010) and
American Bar Association (Dec. 17, 2010).
    The proposed rule was a change from existing Industry Guide 3
instructions, which allows categories of short-term borrowings to be
aggregated where they do not exceed thirty percent of the company's
stockholders' equity at the end of the period. Instruction to Item
VII of Industry Guide 3.
---------------------------------------------------------------------------

ii. Request for Comment
    121. Do current disclosure requirements under Item 303 elicit
adequate disclosure of a registrant's reliance on short-term
borrowings?
    122. Should we revise Item 303 to require specific line-item
disclosure of a registrant's use and analysis of short-term borrowings
as a source of funding? Are there aspects of the 2010 proposal we
should revisit? Would doing so lead to any additional disclosure or
analysis that registrants do not already provide under current
requirements and guidance? Should we consider other qualitative or
quantitative measures for disclosure of short-term borrowings? If so,
what measures should we consider?
    123. Should we consider different disclosure requirements for
financial institutions versus non-financial institutions? If so, which
disclosure should we require and why?
    124. Should we require registrants to provide chart or graph of its
short-term borrowings?
6. Off-Balance Sheet Arrangements (Item 303(a)(4))
    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.\392\
To the extent necessary to an understanding of such arrangements and
effect, registrants must disclose the following items and such other
information that the registrant believes is necessary for such an
understanding:
---------------------------------------------------------------------------

    \392\ Item 303(a)(4) of Regulation S-K [17 CFR 229.303(a)(4)].
---------------------------------------------------------------------------

     The nature and business purpose of such off-balance sheet
arrangements;
     the importance to the registrant of such off-balance sheet
arrangements in respect of its liquidity, capital resources, market
risk support, credit risk support or other benefits;
     the amounts of revenues, expenses and cash flows arising
from such arrangements; the nature and amounts of any interests
retained, securities issued and other indebtedness incurred in
connection with such arrangements; and the nature and amounts of any
other obligations or liabilities (including contingent obligations or
liabilities) of the registrant arising from such arrangements that are
or are reasonably likely to become material and the triggering events
or circumstances that could cause them to arise; and
     any known event, demand, commitment, trend or uncertainty
that will result in or is reasonably likely to result in the
termination, or material reduction in availability of a registrant's
off-balance sheet arrangements that provide material benefits, and the
course of action that the registrant has taken or proposes to take in
response to any such circumstances.
    Item 303(a)(4)(ii) defines off-balance sheet arrangements as
certain guarantees, retained or contingent interests in assets
transferred to an unconsolidated entity, obligations under certain
derivative instruments,\393\ and variable interests in an
unconsolidated entity.
---------------------------------------------------------------------------

    \393\ For registrants whose financial statements are prepared in
accordance with U.S. GAAP, the definition includes a contract that
would be accounted for as a derivative instrument, except that it is
both indexed to the registrant's own stock and classified in the
registrant's statement of stockholders' equity. See ASC 815-10-15-
74. For other registrants, the definition includes derivative
instruments that are both indexed to the registrant's own stock and
classified in stockholders' equity, or not reflected, in the
company's statement of financial position.
---------------------------------------------------------------------------

a. Comments Received
    S-K Study. One commenter stated that disclosure of off-balance
sheet arrangements was redundant with financial statement disclosure
requirements.\394\
---------------------------------------------------------------------------

    \394\ See Ernst & Young 1.
---------------------------------------------------------------------------

    Disclosure Effectiveness Initiative. A few commenters stated that
disclosure of off-balance sheet arrangements was redundant of
disclosure in the financial statements.\395\ These commenters suggested
either eliminating this requirement or expressly allowing registrants
to cross-reference to the disclosure in the financial statements. One
of these commenters also noted that disclosures under this item are
``generally boilerplate and/or redundant'' and recommended a more
``principles-based'' approach to this disclosure.\396\ One commenter
listed off-balance sheet disclosure as ``some of the most challenging
disclosures'' that could be improved.\397\
---------------------------------------------------------------------------

    \395\ See, e.g., CCMC, SCSGP, ABA 1, and ABA 2.
    \396\ See ABA 1. For example, this commenter suggested requiring
registrants to disclose the potential impact on the registrant of
the acceleration or increase of material off-balance sheet
arrangements.
    \397\ See CFA Institute. This commenter did not provide specific
recommendations on how to improve this disclosure.
---------------------------------------------------------------------------

b. Discussion
    The Sarbanes-Oxley Act required the Commission to adopt rules
providing that each annual and quarterly financial report required to
be filed with the Commission must include disclosure about off-balance
sheet arrangements.\398\ Earlier in 2002, prior to enactment of the
Sarbanes-Oxley Act, the Commission issued a statement on the
desirability of enhanced disclosure in MD&A of off-balance sheet
arrangements.\399\ Much of the language and many of the concepts in the
Sarbanes-Oxley Act were consistent with the language and concepts in
this Commission statement.\400\
---------------------------------------------------------------------------

    \398\ Section 401(a) of the Sarbanes-Oxley Act added Section
13(j) to the Exchange Act [15 U.S.C. 78m(j)], which directed the
Commission to adopt rules requiring each annual and quarterly
financial report filed with the Commission to disclose ``all
material off-balance sheet transactions, arrangements, obligations
(including contingent obligations), and other relationships of the
issuer with unconsolidated entities or other persons, that may have
a material current or future effect on financial condition, changes
in financial condition, results of operations, liquidity, capital
expenditures, capital resources, or significant components of
revenues or expenses.''
    \399\ See 2002 Commission Statement about MD&A.
    \400\ See id. See also Disclosure in Management's Discussion and
Analysis About Off-Balance Sheet Arrangements, Contractual
Obligations and Contingent Liabilities and Commitments, Release No.
33-8144, Nov. 4, 2002 [67 FR 68054 (Nov. 8, 2002)] (``Off-Balance
Sheet and Contractual Obligations Proposing Release'').
---------------------------------------------------------------------------

    In its 2002 statement, the Commission noted that off-balance sheet
arrangements often are integral to both liquidity and capital resources
and that registrants should ``consider all of these items together, as
well as individually,''

when drafting MD&A disclosure.\401\ The Commission further noted that
off-balance sheet arrangements and transactions with unconsolidated,
limited purpose entities should be discussed pursuant to Item 303(a)
when they are ``reasonably likely to affect materially liquidity or the
availability of or requirements for capital resources.'' \402\
---------------------------------------------------------------------------

    \401\ See 2002 Commission Statement about MD&A at 3748.
    \402\ See id. at 3748.
---------------------------------------------------------------------------

    The 2002 statement was consistent with Commission rules and
guidance existing at the time. For example, Item 303(a)(2)(ii)
specifically required registrants to disclose off-balance sheet
financing arrangements in their discussion of capital resources.\403\
Similarly, the 1989 MD&A Interpretive Release indicated that a
registrant's discussion of long-term liquidity and long-term capital
resources must address demands or commitments, including any off-
balance sheet items.\404\
---------------------------------------------------------------------------

    \403\ Item 303(a)(2)(ii) of Regulation S-K [17 CFR
229.303(a)(2)(ii)]. The item specifies that the discussion shall
consider changes between equity, debt and any off-balance sheet
financing arrangements.
    \404\ See 1989 MD&A Interpretive Release at 22431 (``The
discussion of long-term liquidity and long-term capital resources
must address material capital expenditures, significant balloon
payments or other payments due on long-term obligations, and other
demands or commitments, including any off-balance sheet items, to be
incurred beyond the next 12 months, as well as the proposed sources
of funding required to satisfy such obligations.'').
---------------------------------------------------------------------------

    In response to the Sarbanes-Oxley Act, the Commission adopted more
specific disclosure requirements for off-balance sheet arrangements in
2003.\405\ When adopting these rules, the Commission reiterated that,
while only one item in its MD&A rules specifically identifies off-
balance sheet arrangements,\406\ other requirements ``clearly require
disclosure of off-balance sheet arrangements if necessary to an
understanding of a registrant's financial condition, changes in
financial condition or results of operations.'' \407\ The new rules
were intended to clarify the disclosures that registrants must make
about off-balance sheet arrangements and required registrants to
provide those disclosures in a separately designated section of
MD&A.\408\
---------------------------------------------------------------------------

    \405\ See Off-Balance Sheet and Contractual Obligations Adopting
Release.
    \406\ Item 303(a)(2)(ii) of Regulation S-K [17 CFR
229.303(a)(2)(ii)].
    \407\ See Off-Balance Sheet and Contractual Obligations Adopting
Release at 5983.
    \408\ See id.
---------------------------------------------------------------------------

    In 2004, as part of a broader effort to expand the events that
registrants must report on a current basis, the Commission adopted
additional requirements for disclosing off-balance sheet arrangements
on Form 8-K.\409\ These new provisions of Form 8-K, which remain in
effect today, require registrants to file a report upon the creation of
a direct financial obligation or an obligation under an off-balance
sheet arrangement (Item 2.03) and to file a report if a triggering
event occurs that causes the increase or acceleration of a such an
obligation and the consequences of the event are material to the
registrant (Item 2.04).\410\ While the Form 8-K requirements rely on
the definition of ``off-balance sheet arrangement'' in Item
303(a)(4)(ii), the substance of the disclosure is different. Unlike
Item 303(a)(4), Form 8-K does not require registrants to provide an
analysis of off-balance sheet arrangements or their importance to the
registrant.
---------------------------------------------------------------------------

    \409\ See 2004 Form 8-K Adopting Release.
    \410\ 17 CFR 249.308.
---------------------------------------------------------------------------

    In the proposing release for Item 303(a)(4), the Commission
recognized that parts of the proposed off-balance sheet disclosure
requirements might overlap with disclosure presented in the footnotes
to the financial statements. The Commission stated that the proposed
rules were designed to provide more comprehensive information and
analysis in MD&A than what was provided in the footnotes.\411\
---------------------------------------------------------------------------

    \411\ See Off-Balance Sheet and Contractual Obligations
Proposing Release.
---------------------------------------------------------------------------

    Since the adoption of Item 303(a)(4), the FASB has issued
additional requirements that further overlap with this item.\412\
Currently, U.S. GAAP requires disclosure about transactions or
arrangements that overlap with Item 303(a)(4)'s definition of off-
balance sheet arrangements. For example, U.S. GAAP requires disclosure
in the notes to the financial statements of the nature and amount of a
guarantee,\413\ retained or contingent interests in assets transferred
to unconsolidated entities,\414\ pertinent information of derivative
instruments that are classified as stockholder's equity under U.S.
GAAP,\415\ and obligations under variable interests in unconsolidated
entities.\416\
---------------------------------------------------------------------------

    \412\ In June 2009, the FASB issued SFAS No. 166, Accounting for
Transfers of Financial Assets an amendment of FASB Statement No.
140, which requires enhanced disclosures about transfers of
financial assets and a transferor's continuing involvement with
transfers of financial assets accounted for as sales. Also in June
2009, the FASB issued SFAS No. 167, Amendments to FASB
Interpretation No. 46(R), which requires enhanced disclosures about
an enterprise's involvement in a variable interest entity, including
unconsolidated entities. SFAS No. 166 and 167 have been codified as
ASC Topics 860 (Transfers and Servicing) and 810 (Consolidation),
respectively.
    \413\ See ASC 460-10-50.
    \414\ See ASC 860-10-50-3, ASC 860-20-50.
    \415\ See ASC 815-40-50-5, ASC 505-10-50.
    \416\ See ASC 810-10-50-4.
---------------------------------------------------------------------------

    Because of this overlap, in response to Item 303(a)(4), registrants
often provide cross-references to the relevant notes to their financial
statements or provide disclosure that is duplicative of information in
the notes. While many of the requirements in Item 303(a)(4) overlap
with U.S. GAAP, some of the requirements related to the location,
presentation and nature of the disclosure are not the same.
Additionally, Item 303(a)(4) disclosure is not audited.
    Location of Disclosure. In its 2002 statement, the Commission
observed that investors will often find information relating to a
particular matter more meaningful if it is disclosed in a single
location, rather than presented in a fragmented manner throughout the
filing.\417\ In proposing the off-balance sheet disclosure
requirements, the Commission identified as one of its objectives to
provide investors with information necessary to understand a
registrant's off-balance sheet arrangements that are neither readily
apparent nor easily understood from reading the financial statements
alone.\418\
---------------------------------------------------------------------------

    \417\ See 2002 Commission Statement about MD&A.
    \418\ See Off-Balance Sheet and Contractual Obligations
Proposing Release.
---------------------------------------------------------------------------

    Item 303(a)(4)(i) specifies that off-balance sheet arrangements
should be discussed in a separately-captioned section. The instructions
to Item 303(a)(4) permit that discussion to cross-reference to
information provided in the footnotes to the financial statements,
rather than repeat it, provided that the MD&A disclosure integrates the
substance of the footnotes in a manner designed to inform readers of
the significance of the information that is cross-referenced.\419\ By
contrast, U.S. GAAP does not prescribe the location of these
disclosures, which may be dispersed throughout the notes to the
financial statements. However, interactive data allows investors to
isolate disclosures about off-balance sheet arrangements even when it
is dispersed within the notes to the financial statements.
---------------------------------------------------------------------------

    \419\ Instruction 5 to Item 303(a)(4) of Regulation S-K [17 CFR
229.303(a)(4)].
---------------------------------------------------------------------------

    Presentation of Disclosure. Item 303(a)(4) requires disclosure for
the most recent period and a discussion of changes from the previous
year where necessary to an understanding of the disclosure.\420\ U.S.
GAAP does not

require discussion of changes from the previous year.
---------------------------------------------------------------------------

    \420\ Instruction 4 to Item 303(a)(4) [17 CFR 229.303(a)(4)].
---------------------------------------------------------------------------

    Nature of Disclosures. While Item 303(a)(4) and U.S. GAAP both
require disclosure of the nature and amounts associated with off-
balance sheet arrangements, Regulation S-K requires additional
disclosure about the business purpose of the off-balance sheet
arrangement \421\ and the importance of the off-balance sheet
arrangement to the registrant's liquidity, capital resources, market
risk support, credit risk support, and other benefits.\422\ Item
303(a)(4) also requires disclosure of any known event, demand,
commitment, trend, or uncertainty that will result in or is reasonably
likely to result in the termination or material reduction in the
availability of material off-balance sheet arrangements to the
registrant and the course of action the registrant has taken or
proposes to take to address such circumstances. U.S. GAAP does not
require this disclosure.
---------------------------------------------------------------------------

    \421\ Item 303(a)(4)(i)(A) of Regulation S-K [17 CFR
229.303(a)(4)(i)(A)].
    \422\ Item 303(a)(4)(i)(B) of Regulation S-K [17 CFR
229.303(a)(4)(i)(B)].
---------------------------------------------------------------------------

c. Request for Comment
    125. Does Item 303(a)(4) elicit disclosure that is important to
investors? Is this information otherwise available in Commission
filings?
    126. If we retain the disclosure requirements in Item 303(a)(4),
should we expand the disclosure required by this item? If so, what
additional disclosure would be important to investors and why? For
example, should we revise our rules to require registrants to analyze
the risks and financial potential associated with its off-balance sheet
arrangements?
    127. If we retain the disclosure requirements in Item 303(a)(4),
should this information be located in MD&A, the notes to the financial
statements, or both? Is the location of the disclosure important? Are
there challenges associated with auditing this information?
    128. If we eliminate Item 303(a)(4), do the other requirements in
Item 303 and the requirements in U.S. GAAP require adequate disclosure
in terms of the location, presentation and nature of information about
off-balance sheet arrangements? Would eliminating Item 304(a)(4) result
in costs to investors?
    129. In the adopting release for Item 303(a)(4), the Commission
noted that ``[t]he MD&A rules already require disclosure regarding off-
balance sheet arrangements and other contingencies.'' \423\ Do the
disclosure requirements in Item 303 regarding liquidity and capital
resources require adequate disclosure about matters that will result in
or is reasonably likely to result in the termination or material
reduction in the availability of material off-balance sheet
arrangements to the registrant and the course of action the registrant
has taken or proposes to take to address such circumstances?
---------------------------------------------------------------------------

    \423\ See Off-Balance Sheet and Contractual Obligations Adopting
Release at 5982.
---------------------------------------------------------------------------

    130. Should we require additional disclosure of off-balance sheet
arrangements that occurred during a reporting period, such as an
exhibit identifying all such arrangements?
7. Contractual Obligations (Item 303(a)(5))
    Item 303(a)(5) requires tabular disclosure of a registrant's known
contractual obligations for long-term debt, capital leases, operating
leases, purchase obligations and other long-term liabilities reflected
on the registrant's balance sheet under U.S. GAAP.\424\ The Commission
has defined the first three categories of obligations (long-term debt,
capital leases and operating leases) by reference to the relevant U.S.
GAAP accounting pronouncements that require disclosure of these
obligations in the financial statements or notes thereto.\425\
---------------------------------------------------------------------------

    \424\ 17 CFR 229.303(a)(5) of Regulation S-K [17 CFR
229.303(a)(5)].
    \425\ Item 303(a)(5)(ii) of Regulation S-K [17 CFR
229.303(a)(5)(ii)] (referring to ASC Topics 470-10-50-1 and 840 in
defining the terms ``long-term debt obligation,'' ``capital lease
obligation'' and ``operating lease obligation'').
---------------------------------------------------------------------------

    For purchase obligations, the Commission defined this term as an
agreement to purchase goods or services that is enforceable, legally
binding on the registrant and specifies all significant terms.\426\ The
Commission stated that the definition of ``purchase obligations'' is
designed to capture the registrant's capital expenditures for purchases
of goods or services over a five-year period.\427\ Some purchase
obligations are executory contracts, and therefore are not recognized
as liabilities in accordance with U.S. GAAP.\428\
---------------------------------------------------------------------------

    \426\ Item 303(a)(5)(ii) of Regulation S-K [17 CFR
229.303(a)(5)(ii)].
    \427\ See Off-Balance Sheet and Contractual Obligations Adopting
Release.
    \428\ See id.
---------------------------------------------------------------------------

    The fifth category of contractual obligations, ``Other Long-Term
Liabilities Reflected on the Registrant's Balance Sheet under GAAP,''
captures all other long-term liabilities that are reflected on the
registrant's balance sheet under the registrant's applicable U.S. GAAP.
Common examples of other obligations disclosed in this line-item of the
table include postretirement benefits, interest on debt, and tax
liabilities for uncertain tax positions.
    Item 303(a)(5) requires registrants to disclose the amounts of
payments due by specified time periods, aggregated by the type of
contractual obligation.\429\ Registrants must disclose payments due in
less than 1 year, 1-3 years, 3-5 years and more than 5 years, as well
as the total, aggregate amount of obligations in each category. Amounts
are required to be set forth in the aggregate and there is no
materiality qualifier.
---------------------------------------------------------------------------

    \429\ Item 303(a)(5)(i) of Regulation S-K. Registrants may
disaggregate the categories specified in the item and use other
categories suitable to their businesses, so long as the presentation
includes all of the registrant's obligations that fall within the
specified categories.
---------------------------------------------------------------------------

a. Comments Received
    S-K Study. None.
    Disclosure Effectiveness Initiative. One commenter called for
improvements in the ability to contextualize the table of contractual
obligations, but did not provide additional details.\430\ Another
commenter recommended that we add an instruction to Item 303(a)(5)
indicating that, to the extent disclosure in response to the item is
included in the notes to the financial statements, registrants should
use cross-references to avoid duplicative disclosure.\431\
---------------------------------------------------------------------------

    \430\ See CFA Institute.
    \431\ See ABA 2.
---------------------------------------------------------------------------

b. Discussion
    In response to a 2001 petition for an interpretive release,\432\
the Commission issued a statement in 2002 recommending that registrants
present information about contractual obligations and commercial
commitments in a single location within the filing.\433\ The statement
included a recommended table of contractual obligations resembling that
of current Item 303(a)(5).\434\ This recommended table became a line-
item requirement when the Commission adopted Item 303(a)(5) in
2003.\435\
---------------------------------------------------------------------------

    \432\ See Petition for Issuance of Interpretive Release
Concerning MD&A under Regulation S-K, Item 303, (Dec. 31, 2001),
available at https://www.sec.gov/rules/petitions/petndiscl-12312001.htm.
    \433\ See 2002 Commission Statement about MD&A.
    \434\ See id. The recommended table included long-term debt,
capital lease and operating lease obligations and covered similar
periods.
    \435\ See Off-Balance Sheet and Contractual Obligations Adopting
Release.
---------------------------------------------------------------------------

    When adopting Item 303(a)(5), the Commission recognized that much
of the disclosure required by this item is addressed under U.S. GAAP
requirements.\436\ Similarly, disclosure

about other obligations not required by U.S. GAAP, ``such as purchase
contracts, may or may not be disclosed, but if disclosed, it is usually
dispersed throughout the filing and may not be presented in a
consistent manner among registrants.'' \437\
---------------------------------------------------------------------------

    \436\ See Off-Balance Sheet and Contractual Obligations Adopting
Release at 5986 (``The preparation of financial statements in
accordance with GAAP already requires registrants to assess payments
under all of the above categories of contractual obligations, except
for purchase obligations.'').
     Item 303(a)(5) directly refers to ASC Topics in defining three
of the five required categories of contractual obligations that must
be included within the table. See supra note 425 and accompanying
text.
    \437\ See Off-Balance Sheet and Contractual Obligations Adopting
Release at 5990.
---------------------------------------------------------------------------

    By providing aggregated information of contractual obligations in a
single location and appropriate context for investors to assess the
impact of off-balance sheet arrangements with respect to liquidity and
capital resources, Item 303(a)(5) was intended to improve transparency
of a registrant's short- and long-term liquidity and capital resource
needs. This disclosure was also intended to ``improve an investor's
ability to compare registrants.'' \438\
---------------------------------------------------------------------------

    \438\ Id. at 5990.
---------------------------------------------------------------------------

    The Commission has issued guidance on Item 303(a)(5) on one
occasion since its adoption.\439\ In a 2010 interpretive release, the
Commission noted that registrants and industry groups had raised
questions about how to treat a number of items under the contractual
obligations requirement, including: interest payments, repurchase
agreements, tax liabilities, synthetic leases, and obligations that
arise under off-balance sheet arrangements.\440\ Because the questions
tended to be fact-specific and closely related to a registrant's
particular business and circumstances, the Commission declined to
provide specific guidance about these items or the presentation of the
contractual obligations table. Instead, the Commission noted that the
requirement itself permits flexibility and encouraged registrants to
develop a presentation method that is clear, understandable and
appropriately reflects the categories of obligations that are
meaningful in light of its capital structure and business.\441\
---------------------------------------------------------------------------

    \439\ In the 2003 MD&A Interpretive Release, the Commission
stated that it was not addressing specifically disclosures of
contractual obligations because it had had little experience with
companies' application of the new rule, adopted a few months
earlier. Nevertheless, the Commission noted that the overall
guidance in the 2003 MD&A Interpretive Release is applicable to all
MD&A discussions. See 2003 MD&A Interpretive Release.
    \440\ See 2010 Liquidity and Capital Resources Interpretive
Release.
    \441\ See id. The Commission noted that the staff has observed
that divergent practices have developed in connection with Item
303(a)(5) disclosure, with registrants drawing different conclusions
about the information to be included in the table, but also
acknowledged that the rule permits flexibility so the presentation
can reflect company-specific information suitable to a company's
business.
---------------------------------------------------------------------------

    The Commission's guidance also explained that tabular disclosure of
contractual obligations should be prepared with the goal of presenting
a meaningful snapshot of cash requirements arising from contractual
payment obligations. Registrants were instructed to highlight any
changes in presentation that are made so that investors may use the
information to make comparisons from period to period. The Commission
suggested that footnotes should be used to provide information
necessary for an understanding of the timing and amount of specified
contractual obligations. Registrants also should consider additional
narrative discussion outside of the table to promote understanding of
the tabular data.\442\ In practice, however, registrants typically do
not include additional narrative with their contractual obligations
table.
---------------------------------------------------------------------------

    \442\ See id.
---------------------------------------------------------------------------

c. Request for Comment
    131. Does the table of contractual obligations present a meaningful
snapshot of a registrant's cash requirements for contractual
obligations? How could the format of the disclosure in the table be
improved? Should we consider an alternative presentation or format for
this disclosure?
    132. Should we require narrative disclosure to accompany the
tabular disclosure? For example, should we require registrants to
discuss how they plan to meet current and future obligations disclosed
in the table? If so, what additional narrative disclosure would be
useful to investors?
    133. Item 303(a)(5) was intended to provide aggregated information
of contractual obligations in a single location and appropriate context
for investors to assess the impact of off-balance sheet arrangements
with respect to liquidity and capital resources. Would narrative
disclosure improve readers' ability to compare registrants by
reconciling the information in the table to information elsewhere in
MD&A and financial statements? Should comparability among registrants
continue to be a goal? Should we continue to require this disclosure in
a single location or is disclosure elicited under U.S. GAAP, in various
parts of a registrant's filings, sufficient?
    134. Item 303(a)(5) requires disclosure of five categories of
contractual obligations. Should we expand the rule to include other
categories of contractual obligations and if so, what categories should
we consider?
    135. Would additional guidance or instructions about how to treat
certain types of obligations, such as interest payments, repurchase
agreements or tax liabilities, be helpful to registrants in preparing
this disclosure? Would such guidance limit the intended flexibility of
the rule?
    136. In the 2010 Liquidity and Capital Resources Interpretive
Release, the Commission suggested that separating amounts in the table
into those that are reflected on the balance sheet and those arising
from off-balance arrangements might be useful to a clear understanding
of the information presented. Should we revise Item 303(a)(5) to
require registrants to separate amounts in the table of contractual
obligations into those that are reflected on the balance sheet and
those arising from off-balance sheet arrangements? Should we require
this disclosure pursuant to some threshold amount?
8. Critical Accounting Estimates
    A registrant's results of operations, financial condition, and
changes to financial condition often depend on estimates involved in
applying accounting policies that entail uncertainties and
subjectivity. Critical accounting estimates are those accounting
judgments and estimates that relate to the items that are material to
the financial statements, taken as a whole, and that management
believes are most critical--that is, those that are most important to
portraying the registrant's financial condition and results and require
management's most difficult, subjective or complex judgments.\443\
While U.S. GAAP requires financial statement footnote disclosure about
accounting policies,\444\ Item 303 requires disclosure of trends,
events or uncertainties known to management that could materially
affect reported financial information. Item 303 does not specifically
address critical accounting estimates.
---------------------------------------------------------------------------

    \443\ See Accounting Policies; Cautionary Advice Regarding
Disclosure, Release No. 33-8040 (Dec. 12, 2001) [66 FR 65013 (Dec.
17, 2001)] (``Cautionary Advice Release'').
    \444\ See ASC Topic 235-10-50-1.
---------------------------------------------------------------------------

a. Comments Received
    S-K Study. None.
    Disclosure Effectiveness Initiative. One commenter recommended
amending Item 303 to require disclosure about management's significant

judgments and assumptions underlying its use of critical accounting
estimates.\445\ This commenter also recommended amending Item 303 to
explain that the disclosure about critical accounting estimates
required in MD&A is meant to supplement, not duplicate, the information
provided in the notes to the financial statements.\446\ In addition,
this commenter suggested that we consider whether requiring independent
auditor negative assurance would enhance the quality of the recommended
disclosures by imposing more rigor in its preparation.\447\ Another
commenter recommended that the Commission work with accounting
standard-setters to improve financial statement presentation and
related disclosures, such as estimates, judgments and choices.\448\ One
commenter also suggested that the Commission work with the auditing
profession to eliminate descriptions of recent accounting changes for
pronouncements that have no effect on a registrant.\449\ Another
commenter recommended that the Commission coordinate with the FASB to
review and clarify the disclosure objectives of critical accounting
estimates in MD&A and significant accounting policies in the financial
statements to determine whether they provide distinct and useful
information and provide guidance on how both requirements should work
best.\450\
---------------------------------------------------------------------------

    \445\ See ABA 1.
    \446\ See id. See also ABA 2. The Commission has also stated
that critical accounting estimates should supplement and not
duplicate the description of accounting policies in the notes to the
financial statements. See, e.g., 2003 MD&A Interpretive Release.
    \447\ See ABA 1.
    \448\ See CFA Institute.
    \449\ See A. Radin.
    \450\ See SCSGP.
---------------------------------------------------------------------------

b. Discussion
    In 2001, the Commission encouraged registrants to explain in their
MD&A the judgments and uncertainties affecting the application of their
critical accounting policies, as well as the likelihood that materially
different amounts would be reported under different conditions or using
different assumptions.\451\ The Commission also stated its intent to
consider new rules to elicit more precise disclosures about the
critical accounting policies.\452\
---------------------------------------------------------------------------

    \451\ See Cautionary Advice Release. The Commission alerted
registrants to the need for greater investor awareness of the
sensitivity of financial statements to the methods, assumptions and
estimates underlying their preparation and stated that the objective
of this disclosure is consistent with the objective of MD&A.
    \452\ See id.
---------------------------------------------------------------------------

    In 2002, the Commission proposed new rules that would have
required, among other things, disclosure of accounting estimates
resulting from the application of critical accounting policies.\453\
The proposed rules would have defined a ``critical accounting
estimate'' as an accounting estimate that meets the following two
criteria: (i) The accounting estimate must require the registrant to
make assumptions about matters that are highly uncertain at the time
the accounting estimate is made; and (ii) it must be the case that
different estimates that the registrant reasonably could have used for
the accounting estimate in the current period, or changes in the
accounting estimate that are reasonably likely to occur from period to
period, would have a material impact on the presentation of the
registrant's financial condition, changes in financial condition or
results of operations.\454\ As proposed, registrants would have been
required to:
---------------------------------------------------------------------------

    \453\ See Disclosure in Management's Discussion and Analysis
about the Application of Critical Accounting Policies, Release No.
33-8098 (May 10, 2002) [67 FR 35620 (May 20, 2002)] (``Critical
Accounting Proposing Release''). The Commission also proposed rules
requiring a registrant that has initially adopted an accounting
policy with a material impact on its financial presentation to
disclose information that includes: what gave rise to the initial
adoption; the impact of the adoption; the accounting principle
adopted and method of applying it; and the choices it had among
accounting principles. See id.
    \454\ See id.
---------------------------------------------------------------------------

     Describe the critical accounting estimates (including the
methodology underlying each critical accounting estimate, assumptions
about highly uncertain matters and other assumptions that are material)
and identify where and how they affect the registrant's reported
financial results, financial condition and changes in financial
condition; \455\
---------------------------------------------------------------------------

    \455\ Disclosure would have been required, if applicable,
regarding why the accounting estimate was reasonably likely to
change in future periods with a material impact on the registrant's
financial presentation. In certain situations, disclosures would
have been required for individual segments of the registrant's
business.
---------------------------------------------------------------------------

     provide a better understanding of the sensitivity of the
reported operating results and financial condition to changes in the
critical accounting estimates or their underlying assumptions; \456\
and
---------------------------------------------------------------------------

    \456\ More specifically, the rules would have required, for each
critical accounting estimate, discussion of changes that would
result either from (i) making reasonably possible, near-term changes
in the most material assumptions underlying the estimate, or (ii)
using in place of the recorded estimate the ends of the range of
reasonably possible amounts that the registrant likely determined
when formulating its recorded estimate.
---------------------------------------------------------------------------

     state whether or not senior management discussed the
development, selection and disclosure of those critical accounting
estimates with the registrant's audit committee.\457\
---------------------------------------------------------------------------

    \457\ See Critical Accounting Proposing Release.
---------------------------------------------------------------------------

    The Commission did not adopt these rules, but subsequently provided
interpretive guidance on disclosure of critical accounting
estimates.\458\ In the 2003 MD&A Interpretive Release, the Commission
stated that registrants should provide disclosure about critical
accounting estimates or assumptions in MD&A where:
---------------------------------------------------------------------------

    \458\ This interpretive guidance was provided based on the
Division staff's review of registrant disclosures, including its
Fortune 500 review. The Commission concluded that additional
guidance would be especially useful in a few areas of MD&A,
including disclosure of critical accounting estimates. See 2003 MD&A
Interpretive Release.
---------------------------------------------------------------------------

     The nature of the estimates or assumptions is material due
to the levels of subjectivity and judgment necessary to account for
highly uncertain matters or the susceptibility of such matters to
change; and
     the impact of the estimates and assumptions on financial
condition or operating performance is material.\459\
---------------------------------------------------------------------------

    \459\ See id.

The Commission also clarified that this disclosure should supplement,
not duplicate, the description of accounting policies that are already
disclosed in the notes to the financial statements.\460\ While
accounting policy notes in the financial statements generally describe
the method used to apply an accounting principle, the discussion in
MD&A should present a registrant's analysis of the uncertainties
involved in applying the principle.\461\
---------------------------------------------------------------------------

    \460\ See id. The Commission further stated that ``[e]qually
important, companies should address the questions that arise once
the critical accounting estimate or assumption has been identified,
by analyzing, to the extent material, such factors as how they
arrived at the estimate, how accurate the estimate/assumption has
been in the past, how much the estimate/assumption has changed in
the past, and whether the estimate/assumption is reasonably likely
to change in the future.'' See id. at 75065.
    The FASB has also stated that distinguishing between a change in
an accounting principle and a change in an accounting estimate is
sometimes difficult, and in some cases, a change in accounting
estimate is effected by a change in accounting principle. See ASC
Topic 250-10-45-18.
    \461\ See 2003 MD&A Interpretive Release.
---------------------------------------------------------------------------

    Despite Commission guidance, many registrants repeat the discussion
of significant accounting policies from the notes to the financial
statements in their discussion of critical accounting estimates in MD&A
and provide limited additional discussion of the critical accounting
estimates. We are seeking public input on how to revise our
requirements to improve the discussion of critical accounting estimates
in MD&A.

c. Request for Comment
    137. Should we revise Item 303 to require disclosure about critical
accounting estimates? If so, what information would be important to
investors?
    138. Should we define ``critical accounting estimates''? If so,
should the definition be based on our 2001 guidance,\462\ the
definition proposed in 2002,\463\ or something else? Why? Are there any
other elements to a ``critical accounting estimate'' that have not been
captured in prior definitions?
---------------------------------------------------------------------------

    \462\ See Cautionary Advice Release.
    \463\ See Critical Accounting Proposing Release.
---------------------------------------------------------------------------

    139. Why do registrants repeat the discussion of accounting
policies presented in the notes to the financial statements? How can we
encourage registrants to eliminate repetition in MD&A of the discussion
of accounting policies provided in the notes to the financial
statements?
    140. Do registrants find the guidance for disclosing critical
accounting estimates from the 2003 MD&A Interpretive Release helpful in
determining whether such disclosure is required? Would it be helpful
for registrants if we incorporated this or other elements of our
guidance on critical accounting estimates into Regulation S-K?
    141. Should we revise our requirements to elicit more comparable
disclosure among registrants? If so, how? Should we adopt prescriptive
requirements relating to critical accounting estimates? Are there any
accounting estimates common to a particular industry that are
``critical'' to all participants in that industry?
    142. Should we require the disclosure of management's judgments and
estimates that form the basis for MD&A disclosure? For example, should
we require registrants to disclose the quantitative and qualitative
factors that form its assessment of materiality? Should we require
registrants to disclose how they assessed materiality?
    143. Should we require management to disclose the nature of its
assessment of errors that it determined to be immaterial and therefore
were not corrected?
    144. Should we require disclosure of other critical accounting
estimates, such as those that impact other metrics or measures, such as
the number of new customers or the number of subscribers?

C. Risk and Risk Management

    Disclosure of a registrant's most significant risks provides
investors with important context for assessing the registrant's
financial potential. Risk-related disclosure is required by multiple
items of Regulation S-K and certain financial reporting
requirements.\464\ In this section, we focus on:
---------------------------------------------------------------------------

    \464\ Although we focus on Items 503(c) and 305 of Regulation S-
K, risk-related disclosure may be provided in response to other
requirements, such as Items 101(d)(3) (risk attendant to foreign
operations), 103 (legal proceedings), or 303 (MD&A). For financial
reporting requirements, risk-related disclosure may be included in
the financial statements in response to ASC Topics 275 (risks and
uncertainties), 450 (contingencies), or 825 (financial instruments),
among others. The staff is separately considering Items 101(d)(3)
and 103 in developing recommendations for the Commission for
potential changes to update or simplify certain disclosure
requirements. For a description of this project, see Section I. For
a discussion of Item 303, see Section IV.B.3 to IV.B.7.
---------------------------------------------------------------------------

     Item 503(c), which requires disclosure of the most
significant factors that make an investment in a registrant's
securities speculative or risky; \465\ and
---------------------------------------------------------------------------

    \465\ Item 503(c) of Regulation S-K [17 CFR 229.503(c)].
---------------------------------------------------------------------------

     Item 305, which requires quantitative and qualitative
disclosure about market risk.\466\
---------------------------------------------------------------------------

    \466\ Item 305 of Regulation S-K [17 CFR 229.305].
---------------------------------------------------------------------------

Also in this section, we explore different approaches to risk-related
disclosure. Specifically, we consider whether requiring additional
disclosure of management's approach to risk and risk management and
consolidating risk-related disclosure would, on balance, be beneficial
to investors and registrants. We also seek to better understand how our
disclosure requirements could be updated to enhance investors' ability
to evaluate a registrant's risk exposures. We are especially interested
in feedback on how we can improve the content and readability of the
risk factors included in a filing as well as the potential advantages
and disadvantages of different approaches to risk-related disclosure.
1. Risk Factors (Item 503(c))
    Item 503(c) requires disclosure of the most significant factors
that make an investment in a registrant's securities speculative or
risky and specifies that the discussion should be concise and organized
logically.\467\ Although the requirement is principles-based, it
includes the following specific examples as factors that may make an
offering speculative or risky:
---------------------------------------------------------------------------

    \467\ Item 503(c) of Regulation S-K [17 CFR 229.503(c)].
---------------------------------------------------------------------------

     A registrant's lack of an operating history,
     a registrant's lack of profitable operations in recent
periods,
     a registrant's financial position,
     a registrant's business or proposed business, or
     the lack of a market for a registrant's common equity
securities or securities convertible or exercisable for common equity
securities.\468\

    \468\ Id.
---------------------------------------------------------------------------

Additionally, Item 503(c) directs registrants to explain how each risk
affects the registrant and discourages disclosure of risks that could
apply to any registrant.
a. Comments Received
    S-K Study. None.
    Disclosure Effectiveness Initiative. We received several comment
letters with recommendations on risk factor disclosure.\469\ One
commenter suggested a comprehensive default framework for risk factor
disclosure that would classify risk factors based upon relative
likelihood and relative impact.\470\ This proposed framework would
require registrants to classify both relative likelihood and relative
impact into one of three tiers based on the risk's probable occurrence
and the relative seriousness of the consequences if a risk
materializes.
---------------------------------------------------------------------------

    \469\ See, e.g., letter from Tom C.W. Lin and attached law
review article, (July 30, 2014) (``Lin''); CFA Institute; Shearman;
A. Radin; CCMC; letters from Reps. Langevin and Himes (June 17,
2015) (``Reps. Langevin and Himes''); Reps. Grijalva, Waters and
Lowenthal (July 24, 2015) (``Reps. Grijalva, Waters and
Lowenthal''); Sens. Cardin, et al. (Aug. 18, 2015) (``Sens. Cardin,
et al.'').
    \470\ See Lin.
---------------------------------------------------------------------------

    One commenter stated that risk factors should be more entity-
specific and connected to financial results.\471\ Another commenter
noted that registrants disclose risk factors that ``go well beyond
those that make an investment `speculative''' and stated that any new
risk factor disclosure requirements should be principles-based. This
commenter suggested revising Item 503(c) to include examples of generic
disclosure that need not be included as risk factors.\472\ One
commenter generally recommended reducing lengthy, unnecessary risk
factor disclosure.\473\ Another commenter urged that any such
requirement be grounded in the principle of materiality, suggesting
that we consider whether a

reformulated risk discussion should highlight the risks that management
views as most significant.\474\
---------------------------------------------------------------------------

    \471\ See CFA Institute (stating that the ability to price risk
is important to disclosure effectiveness).
    \472\ See Shearman. The commenter suggested the following
factors could be included in a revised Item 503(c) as examples of
generic risks that do not need to be disclosed as risk factors:
macro-economic risks that effect all businesses in a particular
industry; general stock market risks, such as volatility in a
company's stock price; summaries of regulation; and risk disclosure
that repeats disclosure provided in response to other specific
requirements or financial disclosures, such as risks related to key
management, legal proceedings and the payment of dividends.
    \473\ See A. Radin (noting the ``excessive volume'' of
disclosures required by Regulations S-K and S-X).
    \474\ See CCMC.
---------------------------------------------------------------------------

    Several comment letters stated there should be additional risk-
related disclosure on specific topics.\475\ One set of commenters
encouraged us to require additional disclosure about cybersecurity and
related risks.\476\ Another group of commenters focused on additional
disclosure of risks associated with oil and gas exploration, including
drilling in the Arctic Ocean.\477\
---------------------------------------------------------------------------

    \475\ See, e.g., Reps. Langevin and Himes; Reps. Grijalva,
Waters and Lowenthal; Sens. Cardin, et al.
    \476\ See, e.g., Reps. Langevin and Himes.
    \477\ See, e.g., Reps. Grijalva, Waters and Lowenthal; Sens.
Cardin, et al.
---------------------------------------------------------------------------

    We received two comment letters on the impact of the Private
Securities Litigation Reform Act (``PSLRA'') on risk-related
disclosure. One commenter acknowledged that liability concerns may
contribute to the length of Exchange Act documents but expressed
concern about any effort to require issuers to reduce the length or
number of risk factors included in a filing.\478\ Another commenter
attributed the growing length of risk factor disclosure to liability
concerns and noted that any efforts to reduce risk factor disclosure,
without concomitant changes to the relevant rules or the protection of
a safe harbor, are unlikely to be effective because there is little
incentive for registrants to scale-back risk factor disclosure.\479\
---------------------------------------------------------------------------

    \478\ See SCSGP (referencing the Commission's proposal to limit
the number of risk factors included in a filing in connection with
the Commission's Plain English initiative and comments received in
connection with that initiative, one of which states ``no issuer
should ever be put in the position of choosing significant material
risks in order to satisfy a numerical limitation.'').
    \479\ See Shearman (stating that the PSLRA's safe harbor, which
requires issuers that disclose forward-looking information to also
disclose cautionary information, contributes to lengthy risk factors
disclosures).
---------------------------------------------------------------------------

b. Discussion
    The five factors specified in Item 503(c) as factors that may make
an offering speculative or risky have not changed since the Commission
published its initial guidance on risk factor disclosure in 1964. These
factors were derived from previous stop order proceedings under Section
8(d) of the Securities Act where the Commission suspended the
effectiveness of previously filed registration statements due, in part,
to inadequate disclosure about speculative aspects of the registrant's
business.\480\
---------------------------------------------------------------------------

    \480\ See Guides for Preparation and Filing of Registration
Statements, Release No. 33-4936 (Dec. 9, 1968) [33 FR 18617 (Dec.
17, 1968)] (``1968 Guides'') (citing In the Matter of Doman
Helicopters, Inc., 41 SE.C. 431 (Mar. 27, 1963); In the Matter of
Universal Camera Corporation, 19 SE.C. 648 (June 28, 1945)).
---------------------------------------------------------------------------

    Since the Commission first published guidance on risk factor
disclosure in 1964,\481\ it has been reiterated that this disclosure
should be:
---------------------------------------------------------------------------

    \481\ See Guides for Preparation and Filing of Registration
Statements, Release No. 33-4666 (Feb. 7, 1964) [29 FR 2490 (Feb. 15,
1964)] (``1964 Guides'').
---------------------------------------------------------------------------

     Focused on the ``most significant'' or ``principal''
factors that make a registrant's securities speculative or risky, \482\
---------------------------------------------------------------------------

    \482\ ``Principal'' was the term used in the 1982 Integrated
Disclosure Adopting Release and ``most significant'' was the term
used in the Plain English Disclosure Adopting Release.
---------------------------------------------------------------------------

     placed in the forefront of the filing,\483\ and
---------------------------------------------------------------------------

    \483\ See 1964 Guides; 1968 Guides; and 1982 Integrated
Disclosure Adopting Release.
---------------------------------------------------------------------------

     organized and concise.\484\

    \484\ See 1964 Guides; 1968 Guides; 1982 Integrated Disclosure
Adopting Release; and Securities Offering Reform Release.
---------------------------------------------------------------------------

Commission and Division guidance also has emphasized that registrants
should avoid ``boiler plate'' risk factors, and that a discussion of
risk in purely generic terms does not indicate how a risk may affect an
investment in a particular registrant.\485\ When adding risk factor
requirements to annual and quarterly reports and Exchange Act
registration statements on Form 10, the Commission discouraged the
unnecessary restatement of risk factors in quarterly reports,
emphasizing that quarterly reports need only disclose material changes
from risk factors previously disclosed in other Exchange Act
reports.\486\
---------------------------------------------------------------------------

    \485\ See Plain English Disclosure Adopting Release. See also
Updated Staff Legal Bulletin No. 7: Plain English Disclosure (June
7, 1999), available at https://www.sec.gov/interps/legal/cfslb7a.htm
(``Updated Staff Legal Bulletin No. 7'').
    \486\ See Securities Offering Reform Release. In adopting new
item requirements in Forms 10-K, 10-KSB, and 10 to require risk
factor disclosure, the Commission noted that, though not previously
required, many registrants had included for several years risk
factor disclosure in their Exchange Act reports, perhaps to take
advantage of the safe harbor in Securities Act Section 27A and the
judicially-created ``bespeaks caution'' defense.
---------------------------------------------------------------------------

    The length and number of risk factors disclosed by registrants
varies. Although Item 503(c) directs registrants to provide a concise
risk factors discussion, one study found that registrants include an
average of 22 different risk factors in disclosure spanning an average
of 8 pages.\487\ Another study found that registrants increased the
length of risk factor disclosures from 2006 to 2013 by more than
eighty-five percent in terms of word count relative to the total word
count of Form 10-K filings, and that this increase in quantity may not
be associated with better disclosure.\488\ A third study found that the
average number of risk factors disclosed in certain sectors of the
energy industry ranged between twelve and fifty-one.\489\ For quarterly
reports, it is not unusual for registrants to repeat the entire risk
factor discussion from their previously filed annual reports,\490\ even
though registrants are required to disclose only material changes from
previously disclosed risks.\491\
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    \487\ See Investor Responsibility Research Center Institute, The
Corporate Risk Factor Disclosure Landscape, Jan. 2016, available at
http://irrcinstitute.org/wp-content/uploads/2016/01/FINAL-EY-Risk-Disclosure-Study.pdf.
    \488\ See Anne Beatty et al., Sometimes Less is More: Evidence
from Financial Constraints Risk Factor Disclosures, Mar. 2015,
available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2186589 (``Beatty et al.''). To examine the
``informativeness'' of risk factor disclosures, the authors of this
study analyzed risk factor disclosures about financial constraints
and argue that as litigation risk increased during and after the
financial crisis, registrants were more likely to disclose
immaterial information, resulting in a deterioration of disclosure
quality.
    \489\ See PricewaterhouseCoopers LLP, Stay Informed, 2012
Financial Reporting Survey: Energy industry current trends in SEC
reporting, Feb. 2013, available at http://www.pwc.com/en_GX/gx/oil-gas-energy/publications/pdfs/pwc-sec-financial-reporting-energy.pdf.
This report reviewed financial reporting trends of 87 registrants
with market capitalizations of at least $1 billion that apply U.S.
GAAP in the following subsectors of the energy industry: downstream,
drillers, independent oil and gas, major integrated oil and gas,
midstream and oil field equipment and services. Based on this study,
the average number of risk factors in the major integrated oil and
gas sector was 12 while the average number of risk factors in the
midstream sector was 51. In one sector, the maximum number of risk
factors was 95.
    \490\ See PricewaterhouseCoopers LLP, Stay Informed: 2014
technology financial reporting trends, Aug. 2014, available at
http://www.pwc.com/en_US/us/technology/publications/assets/pwc-2014-technology-financial-reporting-trends.pdf. This report reviewed the
annual and periodic filings of 135 registrants in the software and
Internet, computers and networking, and semiconductors sectors.
Based on this study, over half of the registrants surveyed repeated
all of their risk factors in their quarterly filings.
    \491\ See Item 1A of Part II of Form 10-Q.
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    Although Item 503(c) instructs registrants not to present risks
that could apply to any registrant, risk factor disclosure typically
includes generic risk factors. Registrants often use risk factors that
are similar to those used by others in their industry or circumstances
as the starting point for risk disclosure, and the disclosure is not
always tailored to each registrant's particular risk profile. Examples
of generic disclosures include risk factors about a registrant's
failure to compete successfully, the effect of general economic
conditions on a registrant's business, changes in regulation, and
dependence upon a registrant's

management team. Despite the inclusion of generic risks, however,
academic studies find that risk factor disclosure is informative and
that the public availability of this information decreases information
asymmetry among investors.\492\
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    \492\ See, e.g., John Campbell et al., The Information Content
of Mandatory Risk Factor Disclosures in Corporate Filings, 19 Rev.
Acct. Stud. 396, 396-455 (Sept. 2010); Beatty et al.
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c. Request for Comment
    145. How could we improve risk factor disclosure? For example,
should we revise our rules to require that each risk factor be
accompanied by a specific discussion of how the registrant is
addressing the risk?
    146. Should we require registrants to discuss the probability of
occurrence and the effect on performance for each risk factor? If so,
how could we modify our disclosure requirements to best provide this
information to investors? For example, should we require registrants to
describe their assessment of risks?
    147. How could we modify our rules to require or encourage
registrants to describe risks with greater specificity and context? For
example, should we require registrants to disclose the specific facts
and circumstances that make a given risk material to the registrant?
How should we balance investors' need for detailed disclosure with the
requirement to provide risk factor disclosure that is ``clear and
concise''? Should we revise our rules to require registrants to present
their risk factors in order of management's perception of the magnitude
of the risk or by order of importance to management? Are there other
ways we could improve the organization of registrants' risk factors
disclosure? How would this help investors navigate the disclosure?
    148. What, if anything, detracts from an investor's ability to gain
important information from a registrant's risk factor disclosure? Do
lengthy risk factor disclosures hinder an investor's ability to
understand the most significant risks?
    149. How could we revise our rules to discourage registrants from
providing risk factor disclosure that is not specific to the registrant
but instead describes risks that are common to an industry or to
registrants in general? Alternatively, are generic risk factors
important to investors?
    150. Should we specify generic risks that registrants are not
required to disclose, and if so, how should we identify those risks?
Are there other ways that we could help registrants focus their
disclosure on material risks?
    151. Should we retain or eliminate the examples provided in Item
503(c)? Should we revise our requirements to include additional or
different examples? Would deleting these examples encourage registrants
to focus on their own risk identification process?
    152. Should we require registrants to identify and disclose in
order their ten most significant risk factors without limiting the
total number of risk factors disclosed? \493\ If so, should other risk
factors be included in a separate section of the filing or in an
exhibit to distinguish them from the most significant risks?
Alternatively, should we require registrants to provide a risk factors
summary in addition to the complete disclosure? Would a summary help
investors better understand a registrant's risks by highlighting
certain information? Are there challenges associated with requiring a
summary of the most significant risks?
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    \493\ The Commission has previously considered proposals to
either limit the number of risk factors included in a filing or
require registrants to list risk factors in the order of priority to
the registrant. The Commission did not adopt either of these
requirements in response to comments received from investors. See
Plain English Disclosure Adopting Release at 6370 (``In response to
comments, the new rules will not require issuers to limit the length
of the summary, limit the number of risk factors, or prioritize risk
factors.'').
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    153. Are there ways, in addition to those we have used in Item 503,
our Plain English Rules and guidance on MD&A, to ensure that
registrants include meaningful, rather than boilerplate, risk factor
disclosure?
    154. Risk profiles of registrants are constantly changing and
evolving. For example, registrants today face risks, such as those
associated with cybersecurity, climate change, and arctic
drilling,\494\ that may not have existed when the 1964 Guides and 1968
Guides were published. Is Item 503(c) effective for capturing emerging
risks? If not, how should we revise Item 503(c) to make it more
effective in this regard?
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    \494\ For a discussion of some emerging risks that registrants
may face, see Section 0.
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    155. What types of investors or audiences are most likely to value
the Item 503(c) disclosures?
    156. What is the cost of providing the disclosure required by Item
503(c), including the administrative and compliance costs of preparing
and disseminating this disclosure? How would these costs change if we
made any of the changes contemplated here? Please provide quantified
estimates where possible and include only those costs associated with
providing disclosure under Item 503(c).
2. Quantitative and Qualitative Disclosures About Market Risk (Item
305)
    Item 305 requires quantitative and qualitative disclosure of market
risk sensitive instruments that affect a registrant's financial
condition.\495\ Item 305(a) requires registrants to provide
quantitative disclosure about market risk sensitive instruments using
one or more of three disclosure alternatives:
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    \495\ Item 305 of Regulation S-K [17 CFR 229.305]. For the
purposes of Item 305(a) and (b), market risk sensitive instruments
include derivative financial instruments, other financial
instruments, and derivative commodity instruments. Each of these
terms is defined in General Instruction 3 to Items 305(a) and (b).
See Disclosure of Market Risk Sensitive Instruments Release.
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    (1) Tabular presentation of fair value information and contract
terms relevant to determining future cash flows, categorized by
expected maturity dates;
    (2) Sensitivity analysis expressing the potential loss in future
earnings, fair values, or cash flows from selected hypothetical changes
in market rates and prices; or
    (3) Value at risk (``VaR'') disclosures expressing the potential
loss in future earnings, fair values, or cash flows from market
movements over a selected period of time and with a selected likelihood
of occurrence.\496\
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    \496\ Item 305(a) of Regulation S-K [17 CFR 229.305(a)].
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    Registrants are required to categorize market risk sensitive
instruments into instruments entered into for trading purposes and
instruments entered into for purposes other than trading.\497\ To the
extent material, within both the trading and other than trading
portfolios, registrants must provide separate quantitative information
for each market risk exposure category (e.g., interest rate risk,
foreign currency exchange rate risk, commodity price risk, and other
relevant market risks, such as equity price risk).\498\
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    \497\ Id.
    \498\ Id. In their materiality assessment, registrants are
required to evaluate both the materiality of the fair values of
derivative financial instruments, other financial instruments, and
derivative commodity instruments as of the end of the latest fiscal
year and the materiality of potential, near-term losses in future
earnings, fair values, and/or cash flows from reasonably possible
near-term changes in market rates or prices. See General Instruction
5 to Items 305(a) and (b) of Regulation S-K [17 CFR 229.305(a) and
(b)].
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    Item 305(b) requires qualitative information about market risk.
Registrants must describe, to the extent material, their primary market
risk exposures, how those exposures are managed, and any changes to
either the primary market risk exposures or the way that risk exposures
are managed.\499\

One of Item 305's primary objectives is to provide investors with
forward looking information about a registrant's potential market risk
exposure.\500\ To specifically cover the forward-looking aspects of
disclosure provided in response to Item 305, the Commission adopted a
safe harbor as part of the rule.\501\
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    \499\ Item 305(b) of Regulation S-K [17 CFR 229.305(b)].
    \500\ See Disclosure of Market Risk Sensitive Instruments
Release.
    \501\ Item 305(d) of Regulation S-K [17 CFR 229.305(d)].
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a. Comments Received
    S-K Study. A few commenters suggested that EGCs should be exempt
from Item 305 disclosure.\502\ Another commenter expressed concern that
the FASB's 2012 Exposure Draft on liquidity risk and interest rate risk
disclosures could have created redundancies with some of the
disclosures currently required in Items 305 and 303.\503\
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    \502\ See, e.g., Silicon Valley and M. Liles.
    \503\ See Ernst & Young 1 (referring to Proposed Accounting
Standards Update on FASB's Web site, Financial Instruments (Topic
825): Disclosures about Liquidity Risk and Interest Rate Risk). The
2012 Exposure Draft is no longer on the FASB's active agenda. See
FASB Technical Agenda (last visited Mar. 2, 2016), available at
http://www.fasb.org/jsp/FASB/Page/TechnicalAgendaPage&cid=1175805470156#tab_1175805486413.
    The 2012 Exposure Draft aimed to provide more useful information
on exposures to liquidity risk and to interest rate risk by
requiring, among other things, tabular disclosure of liquidity risk
related to financial assets and financial liabilities or cash flow
obligations, disaggregated by expected maturities; carrying amounts
of classes of financial assets and financial liabilities, segregated
according to time intervals based on contractual repricing; an
interest rate sensitivity table showing the effects on net income
and shareholder equity of specific hypothetical shifts of interest
rates; and quantitative or narrative disclosure as necessary to
understand exposures to liquidity risk and interest rate risk. For a
discussion of the 2012 Exposure Draft, see Section IV.C.2.b.iii.
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    Disclosure Effectiveness Initiative. Several commenters noted that,
while financial reporting in accordance with evolving accounting
standards has greatly expanded since the adoption of Item 305,
including the adoption of ASC Topic 815, Item 305 and other disclosure
requirements in Regulation S-K have not been revisited to identify and
eliminate redundancies.\504\ One of these commenters suggested
eliminating Item 305 in light of current U.S. GAAP requirements, or,
alternatively, re-focusing Item 305 to permit principles-based
disclosure of market risk.\505\ Another commenter stated that improving
market risk disclosures should be a high priority and that there should
be a better linkage among the financial statements and other risk-
related disclosure.\506\ One commenter asserted that there is confusion
in the marketplace about what specific disclosure is required under
Item 305.\507\ Another commenter stated that updating Item 305 should
be a ``central aspect'' of disclosure effectiveness efforts and
included specific suggestions for revisions, including improving
VaR.\508\ Though not commenting on Item 305 specifically, one commenter
stated its belief that standardized disclosure of common exposures to
derivatives is warranted.\509\
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    \504\ See, e.g., CCMC (noting that ASC Topic 815 provides
substantial guidance about hedge accounting and also stating there
is some redundancy between Item 305 and Item 303, evidenced by the
fact that some public companies do not provide stand-alone
disclosure in response to Item 305); SCSGP (noting overlap between
certain market risk disclosures required by S-K Item 305, ASC 820
Fair Value Measurements, and ASC 815 Derivatives and Hedging); ABA
2.
    \505\ See ABA 2 (citing ASC 820 Fair Value Measurements and ASC
815 Derivatives and Hedging and suggesting that any such principles-
based disclosure of market risk could be included in MD&A). The