[Federal Register Volume 83, Number 193 (Thursday, October 4, 2018)]
[Rules and Regulations]
[Pages 50148-50234]
[FR Doc No: 2018-18142]

Vol. 83

Thursday,

No. 193

October 4, 2018

Part II

Securities and Exchange Commission

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17 CFR Parts 210, 229, 230, et al.

Disclosure Update and Simplification; Rules

Federal Register / Vol. 83 , No. 193 / Thursday, October 4, 2018 /
Rules and Regulations

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 229, 230, 239, 240, 249, and 274

[Release No. 33-10532; 34-83875; IC-33203; File No. S7-15-16]
RIN 3235-AL82

Disclosure Update and Simplification

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: We are adopting amendments to certain of our disclosure
requirements that have become redundant, duplicative, overlapping,
outdated, or superseded, in light of other Commission disclosure
requirements, U.S. Generally Accepted Accounting Principles (``U.S.
GAAP''), or changes in the information environment. We are also
referring certain Commission disclosure requirements that overlap with,
but require information incremental to, U.S. GAAP to the Financial
Accounting Standards Board (``FASB'') for potential incorporation into
U.S. GAAP. The amendments are intended to facilitate the disclosure of
information to investors and simplify compliance without significantly
altering the total mix of information provided to investors. These
amendments are part of an initiative by the Division of Corporation
Finance to review disclosure requirements applicable to issuers to
consider ways to improve the requirements for the benefit of investors
and issuers. We are also adopting these amendments as part of our
efforts to implement title LXXII of the Fixing America's Surface
Transportation Act.

DATES: Effective on November 5, 2018.

FOR FURTHER INFORMATION CONTACT: Ryan Milne, Associate Chief
Accountant, at<PHONE_NUMBER>, Division of Corporation Finance; Alison
Staloch, Chief Accountant, at<PHONE_NUMBER>, Division of Investment
Management; Tim White, Senior Special Counsel, at<PHONE_NUMBER>,
Division of Trading and Markets; Harriet Orol, Branch Chief, at (212)
336-9080, Office of Credit Ratings; Securities and Exchange Commission,
100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to, or
referring to the FASB:

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                    Commission reference                                    CFR citation (17 CFR)
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Regulation S-X \1\:
  Rule 1-02................................................  Sec.   210.1-02.
  Rule 2-01................................................  Sec.   210.2-01.
  Rule 2-02................................................  Sec.   210.2-02.
  Rule 3-01................................................  Sec.   210.3-01.
  Rule 3-02................................................  Sec.   210.3-02.
  Rule 3-03................................................  Sec.   210.3-03.
  Rule 3-04................................................  Sec.   210.3-04.
  Rule 3-05................................................  Sec.   210.3-05.
  Rule 3-12................................................  Sec.   210.3-12.
  Rule 3-14................................................  Sec.   210.3-14.
  Rule 3-15................................................  Sec.   210.3-15.
  Rule 3-17................................................  Sec.   210.3-17.
  Rule 3-20................................................  Sec.   210.3-20.
  Rule 3A-01...............................................  Sec.   210.3A-01.
  Rule 3A-02...............................................  Sec.   210.3A-02.
  Rule 3A-03...............................................  Sec.   210.3A-03.
  Rule 3A-04...............................................  Sec.   210.3A-04.
  Rule 4-01................................................  Sec.   210.4-01.
  Rule 4-07................................................  Sec.   210.4-07.
  Rule 4-08................................................  Sec.   210.4-08.
  Rule 4-10................................................  Sec.   210.4-10.
  Rule 5-02................................................  Sec.   210.5-02.
  Rule 5-03................................................  Sec.   210.5-03.
  Rule 5-04................................................  Sec.   210.5-04.
  Rule 6-03................................................  Sec.   210.6-03.
  Rule 6-04................................................  Sec.   210.6-04.
  Rule 6-07................................................  Sec.   210.6-07.
  Rule 6-09................................................  Sec.   210.6-09.
  Rule 6A-04...............................................  Sec.   210.6A-04.
  Rule 6A-05...............................................  Sec.   210.6A-05.
  Rule 7-03................................................  Sec.   210.7-03.
  Rule 7-04................................................  Sec.   210.7-04.
  Rule 7-05................................................  Sec.   210.7-05.
  Rule 8-01................................................  Sec.   210.8-01.
  Rule 8-02................................................  Sec.   210.8-02.
  Rule 8-03................................................  Sec.   210.8-03.
  Rule 8-04................................................  Sec.   210.8-04.
  Rule 8-05................................................  Sec.   210.8-05.
  Rule 8-06................................................  Sec.   210.8-06.
  Rule 9-03................................................  Sec.   210.9-03.
  Rule 9-04................................................  Sec.   210.9-04.
  Rule 9-05................................................  Sec.   210.9-05.
  Rule 9-06................................................  Sec.   210.9-06.
  Rule 10-01...............................................  Sec.   210.10-01.
  Rule 11-02...............................................  Sec.   210.11-02.
  Rule 11-03...............................................  Sec.   210.11-03.
  Rule 12-16...............................................  Sec.   210.12-16.
  Rule 12-17...............................................  Sec.   210.12-17.

  Rule 12-18...............................................  Sec.   210.12-18.
  Rule 12-21...............................................  Sec.   210.12-21.
  Rule 12-22...............................................  Sec.   210.12-22.
  Rule 12-23...............................................  Sec.   210.12-23.
  Rule 12-24...............................................  Sec.   210.12-24.
  Rule 12-27...............................................  Sec.   210.12-27.
  Rule 12-28...............................................  Sec.   210.12-28.
  Rule 12-29...............................................  Sec.   210.12-29.
Regulation S-K \2\:
  Item 10..................................................  Sec.   229.10.
  Item 101.................................................  Sec.   229.101.
  Item 201.................................................  Sec.   229.201.
  Item 302.................................................  Sec.   229.302.
  Item 303.................................................  Sec.   229.303.
  Item 406.................................................  Sec.   229.406.
  Item 503.................................................  Sec.   229.503.
  Item 504.................................................  Sec.   229.504.
  Item 508.................................................  Sec.   229.508.
  Item 512.................................................  Sec.   229.512.
  Item 601.................................................  Sec.   229.601.
Regulation M-A \3\:
  Item 1010................................................  Sec.   229.1010.
Regulation AB \4\:
  Item 1118................................................  Sec.   229.1118.
Securities Act of 1933 (Securities Act) \5\:
  Rule 158.................................................  Sec.   230.158.
  Rule 405.................................................  Sec.   230.405.
  Rule 436.................................................  Sec.   230.436.
  Form S-1.................................................  Sec.   239.11.
  Form S-3.................................................  Sec.   239.13.
  Form S-11................................................  Sec.   239.18.
  Form S-4.................................................  Sec.   239.25.
  Form F-1.................................................  Sec.   239.31.
  Form F-3.................................................  Sec.   239.33.
  Form F-4.................................................  Sec.   239.34.
  Form F-6.................................................  Sec.   239.36.
  Form F-7.................................................  Sec.   239.37.
  Form F-8.................................................  Sec.   239.38.
  Form F-10................................................  Sec.   239.40.
  Form F-80................................................  Sec.   239.41.
  Form SF-1................................................  Sec.   239.44.
  Form SF-3................................................  Sec.   239.45.
  Form 1-A.................................................  Sec.   239.90.
  Form 1-K.................................................  Sec.   239.91.
  Form 1-SA................................................  Sec.   239.92.
Securities Exchange Act of 1934 (Exchange Act) \6\:
  Rule 3a51-1..............................................  Sec.   240.3a51-1.
  Rule 10A-1...............................................  Sec.   240.10A-1.
  Rule 12b-2...............................................  Sec.   240.12b-2.
  Rule 12g-3...............................................  Sec.   240.12g-3.
  Rule 13a-10..............................................  Sec.   240.13a-10.
  Rule 13b2-2..............................................  Sec.   240.13b2-2.
  Rule 15c3-1g.............................................  Sec.   240. 15c3-1g.
  Rule 15d-2...............................................  Sec.   240.15d-2.
  Rule 15d-10..............................................  Sec.   240.15d-10.
  Rule 17a-5...............................................  Sec.   240.17a-5.
  Rule 17a-12..............................................  Sec.   240.17a-12.
  Rule 17g-3...............................................  Sec.   240.17g-3.
  Rule 17h-1T..............................................  Sec.   240.17h-1T.
  Form 10..................................................  Sec.   249.210.
  Form 20-F................................................  Sec.   249.220f.
  Form 40-F................................................  Sec.   249.240f.
  Form 10-K................................................  Sec.   249.310.
  Form 11-K................................................  Sec.   249.311.
  Form 10-D................................................  Sec.   249.312.
  Form X-17A-5.............................................  Sec.   249.617.
Investment Company Act of 1940 (Investment Company Act)
 \7\:
  Form N-8B-2..............................................  Sec.   274.12.
Securities Act and Investment Company Act:
  Form N-5.................................................  Sec.   239.24 and 274.5.
  Form N-1A................................................  Sec.   239.15A and 274.11A.
  Form N-2.................................................  Sec.   239.14 and 274.11a-1.
  Form N-3.................................................  Sec.   239.17a and 274.11b.

  Form N-4.................................................  Sec.   239.17b and 274.11c.
  Form N-6.................................................  Sec.   239.17c and 274.11d.
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I. Introduction and Background
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    \1\ 17 CFR 210.10 through 210.12-29.
    \2\ 17 CFR 229.10 through 229.1208.
    \3\ 17 CFR 229.1000 through 229.1016.
    \4\ 17 CFR 229.1100 through 229.1125.
    \5\ 15 U.S.C. 77a et seq.
    \6\ 15 U.S.C. 78a et seq.
    \7\ 15 U.S.C. 80a et seq.
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    A. Scope of Amendments
    1. Issuers With Offerings Registered Under the Securities Act
and Classes of Securities Registered Under the Exchange Act
    2. Issuers Offering Securities Under Regulation A
    3. Issuers Regulated Under the Investment Company Act
    4. Other Entities
    B. Comments on Objective and Scope of the Proposing Release
    C. FASB-Related Considerations
    1. Role of the FASB
    2. Interaction of Commission Disclosure Requirements and U.S.
GAAP
    3. Current FASB Projects Concerning the Application of U.S. GAAP
    D. Disclosure Location Considerations
II. Redundant or Duplicative Requirements
    A. Background
    B. Redundant or Duplicative Disclosure Requirements With U.S.
GAAP
    1. Foreign Currencies
    2. Other
    C. Redundant or Duplicative Disclosure Requirements With Other
Commission Requirements
    1. Proposed Amendments
    2. Comments on Proposed Amendments
    3. Final Amendments
III. Overlapping Requirements
    A. Background
    B. Overlapping Requirements--Proposed Deletions
    1. Overlapping Disclosure Requirements With U.S. GAAP
    2. Other Overlapping Disclosure Requirements
    3. Overlapping Disclosure Requirements With Both U.S. GAAP and
Other Commission Disclosure Requirements
    C. Overlapping Requirements--Proposed Integrations
    1. Foreign Currency Restrictions
    2. Restrictions on Dividends and Related Items
    3. Geographic Areas
    D. Overlapping Requirements--FASB Referrals
    1. Discount on Shares
    2. Income Tax Disclosures
    3. Major Customers
    4. Legal Proceedings
    5. Other
IV. Outdated Requirements
    A. Background
    B. Disclosure Requirements Outdated Due to Passage of Time
    C. Disclosure Requirements Outdated Due to Changes in the
Regulatory, Business, or Technological Environment
    1. Market Price Disclosure
    2. Other
V. Superseded Requirements
    A. Background
    B. Disclosure Requirements Superseded by U.S. GAAP
    1. Gains or Loss on Sale of Properties by REITS
    2. Consolidation
    3. Development Stage Companies
    4. Insurance Companies
    5. Extraordinary Items
    6. Other
    C. Disclosure Requirements Superseded by Other Commission
Requirements
    1. Auditing Standards
    2. Other
    D. Non-Existent or Incorrect References and Typographical Errors
VI. Other Matters
VII. Economic Analysis
    A. Baseline and Affected Parties
    B. Anticipated Benefits and Costs
    1. Redundant or Duplicative Requirements
    2. Overlapping Requirements
    3. Outdated Requirements
    4. Superseded Requirements
    C. Anticipated Effects on Efficiency, Competition, and Capital
Formation
    D. Alternatives
VIII. Paperwork Reduction Act
    A. Background
    B. Summary of the Final Amendments
    C. Summary of Comment Letters and Revisions to Proposals
    D. Burden and Cost Estimates
    1. Forms 10, 10-K, 10-Q, 20-F, and 1-SA
    2. Forms S-1, S-3, S-4, S-11, SF-1, SF-3, F-1, F-3, F-4, and 1-A
IX. Final Regulatory Flexibility Act Analysis
    A. Need for, and Objectives of, the Amendments
    B. Significant Issues Raised by Public Comments
    C. Small Entities Subject to the Amendments
    D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
    E. Agency Action To Minimize Effect on Small Entities
X. Statutory Authority

I. Introduction and Background

    On July 13, 2016, the Commission proposed amendments to certain
disclosure requirements that have become redundant, duplicative,
overlapping, outdated, or superseded, in light of other Commission
disclosure requirements, U.S. GAAP, International Financial Reporting
Standards (``IFRS''), or changes in the information environment.\8\ The
Commission also solicited comments on a number of disclosure
requirements that overlap with, but require information incremental to,
U.S. GAAP \9\ to determine whether to retain, modify, eliminate, or
refer them to the FASB for potential incorporation into U.S. GAAP.\10\
Today we are adopting most of the proposed amendments substantially as
proposed. In some cases, based on input from commenters, we are making
modifications to the proposed amendments, and in other cases, we are
not adopting the proposed amendments. In a few instances, we are
adopting additional changes to our rules to make technical corrections
and similar amendments identified in connection with this rulemaking.
We believe the amendments will facilitate the disclosure of information
to investors and simplify compliance without significantly altering the
total mix of information provided to investors.\11\ We also believe
that by eliminating redundant, duplicative, overlapping, outdated, or
superseded disclosure requirements we may improve investors' ability to
make investment decisions more efficiently and reduce issuer compliance
costs, which may encourage capital formation. These amendments are a
result of the staff's ongoing evaluation of our disclosure requirements
\12\ and also are part of our efforts to implement title LXXII, section
72002(2) of the Fixing America's

Surface Transportation Act \13\ (the ``FAST Act'').
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    \8\ See Disclosure Update and Simplification Release No. 33-
10110 (July 13, 2016) [81 FR 51607 (Aug. 4, 2016)] (``Proposing
Release'').
    \9\ In this release, we refer to such requirements as
``incremental'' Commission disclosure requirements.
    \10\ We refer to the proposed amendments and this additional
comment solicitation collectively as ``proposals.''
    \11\ The Supreme Court has held that a fact is material if there
is ``a substantial likelihood that the disclosure of the omitted
fact would have been viewed by the reasonable investor as having
significantly altered the `total mix' of information made
available.'' See TSC Industries, Inc. v. Northway, Inc., 426 U.S.
438 (1976).
    \12\ The staff, under its Disclosure Effectiveness Initiative,
is reviewing the disclosure requirements in Regulation S-K and
Regulation S-X and is considering ways to improve the disclosure
regime for the benefit of both companies and investors. The goal is
to comprehensively review the requirements and make recommendations
on how to update them to facilitate timely, material disclosure by
companies and investors' access to that information.
    \13\ Public Law 114-94.
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    The staff will review these amendments, including any impact on
disclosure and capital formation, not later than five years after the
effective date of the amendments, and report to the Commission.

A. Scope of Amendments

    The amendments affect a variety of entities we regulate. Throughout
this release, we refer to the affected entities as issuers. The
requirements discussed may apply to entities other than issuers of
securities or to subsets of such issuers and, thus, each requirement
should be referenced for its specific scope. Entities other than
issuers may include, for example, significant acquirees for which
financial statements are required under Rule 3-05 of Regulation S-X,
significant equity method investments for which financial statements
are required under 17 CFR 210.3-09 (``Rule 3-09'' of Regulation S-X),
broker-dealers, investment advisers, and nationally recognized
statistical rating organizations (``NRSROs'').
1. Issuers With Offerings Registered Under the Securities Act and
Classes of Securities Registered Under the Exchange Act
    The final rule amendments affect different categories of issuers
differently. Our references to domestic issuers encompass large
accelerated filers,\14\ accelerated filers,\15\ and non-accelerated
filers,\16\ as well as emerging growth companies \17\ (``EGCs'') and
smaller reporting companies \18\ (``SRCs''). In this release, we have
highlighted the Commission disclosure requirements that affect SRCs
differently from non-SRCs. Our references to foreign private issuers
\19\ include issuers that may be large accelerated filers, accelerated
filers, or non-accelerated filers, as well as EGCs.\20\ Specifically:
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    \14\ Under Exchange Act Rule 12b-2 [17 CFR 240.12b-2], a large
accelerated filer is an issuer with an aggregate worldwide market
value of voting and non-voting common equity held by its non-
affiliates of $700 million or more, as of the last business day of
its most recently completed second fiscal quarter. In addition, the
issuer needs to have been subject to reporting requirements for at
least twelve calendar months, have filed at least one annual report,
and not be eligible to use the requirements for smaller reporting
companies for its annual and quarterly reports.
    \15\ Under Exchange Act Rule 12b-2, an accelerated filer is an
issuer with an aggregate worldwide market value of voting and non-
voting common equity held by its non-affiliates of $75 million or
more, but less than $700 million, as of the last business day of its
most recently completed second fiscal quarter. In addition, the
issuer needs to have been subject to reporting requirements for at
least twelve calendar months, have filed at least one annual report,
and not be eligible to use the requirements for smaller reporting
companies for its annual and quarterly reports.
    \16\ Although the term ``non-accelerated filer'' is not defined
in Commission rules, we use it throughout this release to refer to a
reporting company that does not meet the definition of either an
``accelerated filer'' or a ``large accelerated filer'' under
Exchange Act Rule 12b-2.
    \17\ An EGC is an issuer with less than $1.07 billion in total
annual gross revenues during its most recently completed fiscal
year. If an issuer qualifies as an EGC on the first day of its
fiscal year, it maintains that status until the earliest of (1) the
last day of the fiscal year of the issuer during which it has total
annual gross revenues of $1.07 billion or more; (2) the last day of
its fiscal year following the fifth anniversary of the first sale of
its common equity securities pursuant to an effective registration
statement; (3) the date on which the issuer has, during the previous
3-year period, issued more than $1.07 billion in non-convertible
debt; or (4) the date on which the issuer is deemed to be a ``large
accelerated filer'' (as defined in Exchange Act Rule 12b-2). See
Rule 405 of Regulation C under the Securities Act and Rule 12b-2 of
the Exchange Act.
    \18\ An SRC is an issuer that had a public float of less than
$75 million as of the last business day of its most recently
completed second fiscal quarter or had annual revenues of less than
$50 million during the most recently completed fiscal year for which
audited financial statements are available. See Rule 405 of
Regulation C, Rule 12b-2 of the Exchange Act, and Item 10(f) of
Regulation S-K.
    On June 28, 2018, the Commission adopted amendments to the SRC
definition. Under the amended rules, a company with a public float
of less than $250 million will qualify as a SRC. A company with no
public float or with a public float of less than $700 million will
qualify as a SRC if it had annual revenues of less than $100 million
during its most recently completed fiscal year. See Amendments to
Smaller Reporting Company Definition, Release No. 33-10513 (Jun. 28,
2018) [83 FR 31992 (July 10, 2018)]. The rules will be effective
September 10, 2018.
    \19\ See Rule 405 of Regulation C and Exchange Act Rule 3b-4(c)
[17 CFR 240.3b-4(c)]. A foreign private issuer is any foreign issuer
other than a foreign government, except for an issuer that has more
than 50 percent of its outstanding voting securities held of record
by U.S. residents and any of the following: a majority of its
officers or directors are citizens or residents of the United
States; more than 50 percent of its assets are located in the United
States; or its business is principally administered in the United
States.
    \20\ Foreign private issuers may only use the scaled rules
available to SRCs if they file on domestic forms under U.S. GAAP.
See Rule 8-01 of Regulation S-X. The amendments affect these SRCs in
the same ways as domestic SRC issuers.
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     Amendments involving Regulation S-K relate to domestic
issuers \21\ and foreign private issuers that elect to file on forms
used by domestic issuers.
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    \21\ Domestic issuers include foreign issuers that do not meet
the definition of foreign private issuer.
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     Amendments involving Regulation S-X generally relate to
domestic issuers and foreign private issuers that report under U.S.
GAAP or a comprehensive body of accounting principles other than U.S.
GAAP or IFRS \22\ with a reconciliation to U.S. GAAP.\23\
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    \22\ Throughout this release, we refer to a comprehensive body
of accounting principles other than U.S. GAAP or IFRS as ``Another
Comprehensive Body of Accounting Principles.''
    \23\ Foreign private issuers that report under IFRS must comply
with the IFRS requirements for the form and content of financial
statements, rather than with the specific presentation and
disclosure provisions in Articles 3A, 4, 5, 6, 6A, 7, 8, 9, 10, and
certain parts of Article 3 of Regulation S-X. Where an amendment to
Regulation S-X also affects foreign private issuers that report
under IFRS, we discuss both U.S. GAAP and IFRS.
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     Amendments involving Commission forms relate to either
domestic issuers or foreign private issuers, depending on the form
under discussion. For example, the amendments to the ``F'' series of
forms \24\ only affect foreign private issuers.
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    \24\ For example, these forms include Forms F-1, F-3, F-4, and
20-F.
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Some of the amendments also affect asset-backed issuers.\25\
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    \25\ ``Asset-backed issuer'' is defined in Item 1101(b) of
Regulation AB [17 CFR 229.1101(b)]. See the amendments regarding:
(1) Invitations for competitive bids discussed in Section III.B.2,
(2) available information discussed in Section IV.C.2, (3) matters
submitted to a vote of security holders discussed in Section V.C.2,
and (4) incorrect references in General Instruction J(1)(e) to Form
10-K discussed in Section V.D.
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2. Issuers Offering Securities Under Regulation A
    Some of the amendments affect Regulation A issuers, as follows:
\26\
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    \26\ See Rules 251-263 of Regulation A [17 CFR 230.251-230.263].
Regulation A is an exemption from Securities Act registration for
offerings by issuers that comply with the requirements of the
exemption. A Tier 1 offering under Regulation A limits the sum of
the aggregate offering price and the aggregate sales within 12
months before the start of the offering to $20 million, while a Tier
2 offering limits that sum to $50 million. Rule 251(a)(1) and (2) of
Regulation A.
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     Amendments involving Regulation S-K affect Regulation A
issuers that provide narrative disclosure that follows Part I of Form
S-1 or Part I of Form S-11 in Part II of Form 1-A.
     Amendments involving Rule 4-10, Rule 8-04, Rule 8-05, and
Rule 8-06 of Regulation S-X affect all Regulation A issuers. Amendments
involving Rule 8-03(a) of Regulation S-X affect Regulation A issuers
that report under U.S. GAAP. Amendments involving the remaining rules
in 17 CFR 210.8-01 through 210.8-08 (``Article 8'' of Regulation S-X)
affect only Regulation A issuers in a Tier 2 offering that report under
U.S. GAAP. No other amendments involving Regulation S-X affect
Regulation A issuers.
     Amendments involving Regulation A forms may affect issuers
that report

under U.S. GAAP or Canadian issuers that report under IFRS.\27\
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    \27\ Only U.S. and Canadian issuers may rely on Regulation A and
use Form 1-A. See Rule 251(b)(1) of Regulation A [17 CFR
230.251(b)(1)]. U.S. issuers must report under U.S. GAAP. Canadian
issuers may report under U.S. GAAP or IFRS. See paragraph (a)(2) of
Part F/S of Form 1-A, Item 7(b) of Form 1-K, and Item 3 of Form 1-
SA.
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    In this release, we have highlighted the Commission disclosure
requirements that affect Regulation A issuers.\28\
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    \28\ Statements about the effect of an amendment on Regulation A
issuers throughout this release reflect that the form and content
requirements in Regulation S-X do not apply to Canadian Regulation A
issuers that report under IFRS. Please refer to Section V.C.2.
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3. Issuers Regulated Under the Investment Company Act
    Certain amendments are applicable to issuers regulated under the
Investment Company Act, as follows:
     Amendments involving Regulation S-K affect business
development companies to which the regulation applies.
     Amendments involving Regulation S-X affect investment
companies to which the regulation applies.
     Amendments involving Investment Company Act forms may
affect investment companies, depending on the form in question.
4. Other Entities
    Certain amendments also are applicable to registered broker-
dealers, investment advisers, and NRSROs.

B. Comments on Objective and Scope of the Proposing Release

    Many commenters were generally supportive of the objective of the
release.\29\ These commenters indicated that the proposed amendments
would improve the effectiveness and usefulness of the information
presented to investors while also decreasing the costs of preparing
that information, which would also benefit investors. Some of these
commenters also identified additional redundancies and overlapping
disclosures that the Commission should address.\30\ In addition, some
commenters recommended that the Commission establish a process to
address future redundant, overlapping, outdated, or superseded
disclosures.\31\
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    \29\ See, e.g. letters from Center for Audit Quality (Oct. 3,
2016) (``CAQ''); CFA Institute (Dec. 7, 2016) (``CFA''); Financial
Executives International (Oct. 27, 2016) (``FEI''); Shearman &
Sterling LLP (Dec. 1, 2016) (``Shearman''); and U.S. Chamber of
Commerce (Oct. 27, 2016) (``USCC'').
    \30\ See, e.g. letters from CAQ and Ernst & Young LLP (Oct. 31,
2016) (``E&Y'').
    \31\ See, e.g. letters from CAQ; CFA; Corporate Governance
Coalition for Investor Value (Oct. 27, 2016) (``CGCIV''); FEI; and
USCC.
---------------------------------------------------------------------------

    Some commenters objected to the overall objective and scope of the
release to the extent it could result in the elimination of any
currently required disclosures.\32\ These commenters stated that
investors want more (not less) disclosures and provided examples, such
as environmental, social, and governance disclosures.\33\ Some
commenters also expressed concern that, due to the proposed amendments'
reliance on U.S. GAAP, and considering the FASB's standard-setting
projects related to disclosure framework and materiality, information
that is material under the current disclosure framework would no longer
be provided to investors.\34\
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    \32\ See, e.g. letters from American Federation of Labor and
Congress of Industrial Organizations (Oct. 31, 2016) and Americans
for Financial Reform (``AFL-CIO and AFR''); Financial Accountability
and Corporate Transparency Coalition (Oct. 3, 2016) (``FACT
Coalition''); Public Citizen (Oct. 18, 2016) (``Public Citizen'');
and Robert E. Rutkowski (Nov. 7, 2016) (``Rutkowski'').
    \33\ Id.
    \34\ See, e.g. letters from AFL-CIO and AFR; California Public
Employees' Retirement System (Nov. 2, 2016) (``CalPERS''); and
Public Citizen. See also discussion in Section I.D below.
---------------------------------------------------------------------------

    Several commenters also expressed concern about the timing of the
proposal.\35\ For example, some commenters were concerned that there
was not sufficient time for the staff to consider the comments received
on the Commission's earlier concept release on disclosures required by
Regulation S-K \36\ in determining its proposals because those comments
were due the same month the proposal was issued.\37\ Other commenters
were concerned that the 60-day comment period specified in the
Proposing Release did not provide an adequate amount of time to fully
consider and provide thoughtful, comprehensive comments.\38\ In
response to these comments, the Commission extended the comment period
by 30 days.\39\ We also note that the topics discussed in the
Regulation S-K Concept Release were generally broader in scope than the
relatively more discrete changes set forth in the Proposing Release.
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    \35\ See, e.g. letters from AFL-CIO and AFR; Domini Social
Investments LLC (Nov. 1, 2016) (``Domini''); and Public Citizen.
    \36\ See Business and Financial Disclosure Required by
Regulation S-K, Release No. 33-10064 (Apr. 13, 2016) (``Regulation
S-K Concept Release'') [81 FR 23915 (Apr. 22, 2016)]
    \37\ See, e.g. letters from AFL-CIO and AFR and FACT Coalition.
    \38\ See, e.g. letters from American Gas Association (Aug. 24,
2016) and Center for Audit Quality (Aug. 4, 2016).
    \39\ See Extension of Comment Period for Disclosure Update and
Simplification, Release No. 33-10220 (September 23, 2016) [81 FR
66898 (Sept. 29, 2016)]
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C. FASB-Related Considerations

1. Role of the FASB
    The federal securities laws set forth the Commission's broad
authority and responsibility to prescribe the methods to be followed in
the preparation of accounts and the form and content of financial
statements to be filed under those laws,\40\ as well as its
responsibility to ensure that investors are furnished with other
information necessary for investment decisions.\41\ To assist it in
meeting this responsibility, the Commission historically has looked to
private-sector standard-setting bodies to develop accounting principles
and standards.\42\ At the time of the FASB's formation in 1973, the
Commission reexamined its policy and formally recognized pronouncements
of the FASB that establish and amend accounting principles and
standards as ``authoritative'' in the absence of any contrary
determination by the Commission.\43\ The Commission concluded at that
time that the expertise and resources that the private sector could
offer to the process of setting accounting standards would be
beneficial to investors.
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    \40\ See, e.g., Sections 7 [15 U.S.C. 77g], 19(a) [15 U.S.C.
77s(a)] and Schedule A, Items (25) and (26) of the Securities Act
[15 U.S.C. 77aa(25) and (26)]; Sections 3(b) [15 U.S.C. 78c(b)],
12(b) [17 CFR 78l(b)] and 13(b) [17 CFR 78m(b)] of the Exchange Act;
and Sections 8 [15 U.S.C. 80a-8], 30(e) [15 U.S.C. 80a-29(e)], 31[15
U.S.C. 80a-30], and 38(a) [15 U.S.C. 80a-37(a)] of the Investment
Company Act.
    \41\ See Policy Statement: Reaffirming the Status of the FASB as
a Designated Private-Sector Standard Setter, Release No. 33-8221
(Apr. 25, 2003) [68 FR 23333 May 1, 2003], (``2003 FASB Policy
Statement'').
    \42\ Id.
    \43\ See Accounting Series Release No. 150 (Dec. 20, 1973).
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    The Sarbanes-Oxley Act of 2002 \44\ (``Sarbanes-Oxley Act'')
established criteria that must be met in order for the work product of
an accounting standard-setting body to be recognized as ``generally
accepted'' for purposes of the federal securities laws.\45\ In
accordance with these criteria, the Commission has designated the FASB
as the private-sector accounting standard setter for U.S. financial
reporting purposes.\46\ As the designated private-

sector accounting standard setter in the United States, the FASB seeks
to undertake a transparent, public standard-setting process.\47\ As
required under the securities laws, including the Sarbanes-Oxley Act,
the Commission monitors the FASB's ongoing compliance with the
expectations and views expressed in the 2003 FASB Policy Statement.\48\
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    \44\ Public Law 107-204, 116 Stat. 745 (2002)
    \45\ See section 19 of the Securities Act [15 U.S.C. 77s].
    \46\ Section 108 of the Sarbanes-Oxley Act amended section 19 of
the Securities Act to provide that the Commission ``may recognize,
as `generally accepted' for purposes of the securities laws, any
accounting principles established by a standard setting body that
met certain criteria.'' The Commission has determined that the FASB
satisfies the criteria in section 19 and, accordingly, the FASB's
financial accounting and reporting standards are recognized as
``generally accepted'' for purposes of the federal securities laws.
See 2003 FASB Policy Statement.
    \47\ See http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1351027215692. See also pages 2 and 5 of the FASB
Rules of Procedures, available at http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176162391050.
    \48\ The 2003 FASB Policy Statement describes the Commission's
three key expectations for the FASB. First, the FASB shall consider,
in adopting accounting principles, the extent to which international
convergence on high quality accounting standards is necessary or
appropriate in the public interest and for the protection of
investors, including consideration of moving towards greater
reliance on principles-based accounting standards whenever it is
reasonable to do so. Second, the FASB shall take reasonable steps to
continue to improve the timeliness with which it completes its
projects, while satisfying appropriate public notice and comment
requirements. Last, the FASB shall continue to be objective in its
decision-making and to weigh carefully the views of its constituents
and the expected benefits and perceived costs of each standard.
    See https://www.sec.gov/rules/policy/33-8221.htm.
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2. Interaction of Commission Disclosure Requirements and U.S. GAAP
a. Overview
    Although the FASB functions as the designated private-sector
accounting standard setter in the United States, some Commission rules
contain accounting and disclosure requirements. In some cases, these
Commission requirements mandate disclosures that the FASB later added
to U.S. GAAP.\49\ Other Commission disclosure requirements have been
superseded by U.S. GAAP.\50\ From time to time, the Commission has
reviewed and amended its disclosure requirements to eliminate rules
that became redundant, duplicative, or overlapping as the FASB updated
U.S. GAAP.\51\ In keeping with this historical practice, many of the
amendments we are adopting revise or eliminate Commission disclosure
requirements related to information that is addressed by more recently
updated U.S. GAAP requirements.
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    \49\ See, e.g., Rule 4-08(h) of Regulation S-X, parts of which
were subsequently incorporated into U.S. GAAP.
    \50\ See, e.g., Rule 10-01(a)(7) of Regulation S-X, which refers
to the disclosures required by ASC 915 on development stage
entities, which the FASB has since eliminated.
    \51\ See, e.g., General Revision of Regulation S-X, Release No.
33-6233 (Sept. 2, 1980) [45 FR 63660 (Sept. 25, 1980)], Phase One
Recommendations of Task Force on Disclosure Simplification Release
No. 33-7300 (May 31, 1996) [61 FR 30397 (June 14, 1996)], and
Technical Amendments to Rules, Forms, Schedules, and Codification of
Financial Reporting Policies, Release No. 33-9026, (Apr. 15, 2009)
[74 FR 18612 (Apr. 23, 2009)].
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    A number of Commission disclosure requirements require information
that is incremental to U.S. GAAP rather than being duplicative or
overlapping. In the Proposing Release, the Commission solicited comment
on certain of these incremental Commission disclosure requirements to
determine whether to retain, modify, eliminate, or refer them to the
FASB for potential incorporation into U.S. GAAP.
b. Comments on Interaction of Commission Disclosure Requirements and
U.S. GAAP
    Several commenters generally supported the referral of certain
Commission disclosure requirements to the FASB for potential
incorporation into U.S. GAAP.\52\ These commenters were supportive of a
disclosure regime that can be consistently applied to all issuers and
indicated that it is beneficial to limit the sources of financial
disclosure requirements. In expressing support for a consistently
applied disclosure regime, some of these commenters also indicated that
having different financial reporting requirements \53\ based on the
size of the issuer may eliminate information that is material to
investors and may make preparation of financial statements as well as
analysis of various issuers' financial statements more difficult.\54\
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    \52\ See, e.g. letters from CAQ; CFA; Crowe Horwath LLP (Oct.
28, 2016); Grant Thornton LLP (Nov. 1, 2016) (``Grant''); and KPMG
LLP (Oct. 19, 2016) (``KPMG'').
    \53\ For example, Rules 8-03(b)(5) and 10-01(b)(7) of Regulation
S-X both require disclosure of the effect of changes in reporting
entities on net income and per share amounts in interim periods.
However, Rule 10-01(b)(7) incrementally requires, for non-SRCs,
disclosure of the effect on retained earnings.
    \54\ See letters from CAQ; CFA; Grant; and KPMG.
---------------------------------------------------------------------------

    Some commenters expressed concern about placing more reliance on
U.S. GAAP disclosure requirements without more formal Commission input
or approval in the FASB standard-setting process.\55\ One commenter
expressed concern about relying on the FASB to develop or require
financial disclosures that might be considered appropriate for issuers
but not other entities that apply U.S. GAAP.\56\ This commenter stated
that such an approach could result in ``unnecessarily costly''
disclosure by entities that are not issuers.
---------------------------------------------------------------------------

    \55\ See letters from American Bankers Association (Sept. 15,
2016) (``ABA''); California State Teachers' Retirement System (Nov.
18, 2016) (``CalSTRS;''); R.G. Associates, Inc. (Nov. 2, 2016)
(``R.G. Associates''); and Stephen P. Percoco. (Nov. 7, 2016).
    \56\ See letter from ABA. The FASB scopes financial accounting
and reporting for companies by (1) public business entities (PBEs);
(2) not-for-profit entities; and (3) all other entities. The
definition of PBEs encompasses an entity that ``(a) is required by
the U.S. Securities and Exchange Commission (SEC) to file or furnish
financial statements, or does file or furnish financial statements
(including voluntary filers), with the SEC (including other entities
whose financial statements or financial information are required to
be or are included in a filing).'' This definition is broader than
entities with a class of securities registered under the Exchange
Act. For example, a privately-owned entity meets the definition of a
PBE if it is acquired by a registrant and its financial statements
are required under Rule 3-05 of Regulation S-X. See FASB's
Accounting Standards Update 2013-12, Definition of a Public Business
Entity.
---------------------------------------------------------------------------

c. Final Amendments
    We have determined to retain these incremental requirements and
refer some of them to the FASB for its consideration of whether to
incorporate such disclosure requirements into U.S. GAAP \57\ as part of
its standard-setting process.\58\ The discussions in this Section, as
well as Sections II.B, III.B, and III.D, constitute our referral to the
FASB.\59\
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    \57\ See further discussion in Sections II and III below.
    \58\ The FASB's Rules of Procedure sets forth procedures
followed by the FASB in establishing and improving standards of
financial accounting and reporting for nongovernmental entities,
including procedures related to the issuance of such standards and
other communications. See http://fasb.org/cs/ContentServer?c=Document_C&cid=1176162391050&d=&pagename=FASB%2FDocument_C%2FDocumentPage.
    The International Accounting Standards Board (``IASB''), which
is subject to oversight by the IFRS Foundation, is responsible for
IFRS and establishes its own standard-setting agenda. The staff
monitors and participates in the IASB's standard setting activities.
In connection with such participation, staff will seek to discuss
this rulemaking with the IASB's staff. For further information, see
http://www.ifrs.org/About-us/Pages/IFRS-Foundation-and-IASB.aspx.
    \59\ See Section II.B of the 2003 FASB Policy Statement.
---------------------------------------------------------------------------

    Any incorporation of these incremental Commission disclosure
requirements into U.S. GAAP could potentially affect all entities that
prepare financial statements under U.S. GAAP, including those outside
the scope of our regulatory authority. Because U.S. GAAP historically
has scaled disclosure requirements only by public business entities
versus other entities, and not by issuer status, incorporation into
U.S. GAAP could result in the application of some of these requirements
to SRCs and issuers relying on Regulation A or Regulation Crowdfunding.
    By April 4, 2020, we request that the FASB complete its process to
determine whether the referred disclosure items will be added to its
agenda of projects

for potential standard-setting.\60\ The FASB will determine whether
and, if so, how to respond to our referrals.\61\ In the meantime, we
are retaining these disclosure requirements as suggested by commenters.
Any future consideration of amendments to these disclosure requirements
will take into account the outcome of the standard-setting activities
undertaken by the FASB, if any, in response to the referrals we are
making.
---------------------------------------------------------------------------

    \60\ We recognize that the FASB will need to expend time and
resources to consider the referrals we are making in this release,
in addition to carrying out its other standard-setting activities.
We believe that 18 months should provide sufficient time for the
FASB to appropriately consider these referrals without imposing
undue constraints on the FASB's current standard-setting agenda. Any
impact to the FASB's current operations, as a result of the
referrals described in this release, including any potential change
to its annual budget and related accounting support fee paid for by
issuers, could depend on how much overlap there is with existing
FASB projects and how the FASB allocates its resources. See Section
109(e) of the Sarbanes-Oxley Act.
    \61\ See supra note 59.
---------------------------------------------------------------------------

3. Current FASB Projects Concerning the Application of U.S. GAAP
    The FASB updates U.S. GAAP from time to time through its standard-
setting projects. In the Proposing Release, the Commission invited
commenters to consider two projects on the FASB's agenda when
evaluating the proposals and providing feedback. In one project, the
FASB proposed changes to U.S. GAAP \62\ to describe how entities would
assess whether disclosures are material \63\ and included a proposal to
revise U.S. GAAP to include a reference to materiality as a legal
concept.\64\ In another project, the FASB undertook to evaluate
disclosure requirements for interim reporting.\65\ In that project, the
FASB has reached a tentative decision that disclosures about matters
required to be provided in annual financial statements should be
updated in the interim report if there is a substantial likelihood that
the updated information would be viewed by a reasonable investor as
significantly altering the total mix of information available to the
investor.\66\
---------------------------------------------------------------------------

    \62\ FASB Exposure Draft, Notes to Financial Statements (Topic
235): Assessing Whether Disclosures Are Material (Sept. 24, 2015),
available at: http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176166402325&acceptedDisclaimer=true.
    \63\ In 2014, the IASB amended IFRS to clarify that an entity
does not have to disclose information required by IFRS if that
information would not be material. See Disclosure Initiative
(Amendments to IAS 1).
    \64\ Commenters on the FASB's standard-setting project have
expressed a range of views on the proposed amendments and their
potential impact on the volume of financial disclosures. The comment
letters are available at: http://www.fasb.org/jsp/FASB/CommentLetter_C/CommentLetterPage&cid=1218220137090&project_id=2015-310.
    \65\ See Project Update for Disclosure Framework: Disclosures-
Interim Reporting, available at: http://fasb.org/jsp/FASB/FASBContent_C/ProjectUpdatePage&cid=1176164227056.
    See also Minutes from FASB Board Meeting (May 29, 2014),
available at: http://www.fasb.org/jsp/FASB/FASBContent_C/ProjectUpdatePage&cid=1176164227056.
    \66\ See Minutes from FASB Board Meeting (May 29, 2014),
available at: http://www.fasb.org/jsp/FASB/FASBContent_C/ProjectUpdatePage&cid=1176164227056.
---------------------------------------------------------------------------

    These FASB projects were, and the interim reporting project
remains, subject to public comment and FASB deliberation and could
impact those disclosure requirements we have decided to eliminate or
revise on the basis that U.S. GAAP requires the same or similar
disclosure. In particular, for Commission rules that contain a
specified disclosure threshold, investors may receive less information
if the disclosure requirement is incorporated into U.S. GAAP and the
issuer determines that the information is not material. Throughout the
Proposing Release, the Commission identified disclosure requirements
that contemplate a disclosure threshold in some manner, for example,
through the use of terms such as ``material'' or ``significant'' or
through the use of bright line disclosure thresholds.
    Several commenters expressed concern about the interaction between
the current FASB projects and the proposed amendments.\67\ Prior to the
FASB's decision on materiality discussed below, some commenters
submitted comment letters opposing reliance on U.S. GAAP as a basis to
eliminate redundant or overlapping disclosure requirements, citing the
FASB's potential change in its definition of materiality as the main
reason for this opposition. One of these commenters also expressed
concern that the FASB's materiality project could remove the phrase
``an entity shall at a minimum provide'' from several of the U.S. GAAP
disclosure requirements referenced in the Proposing Release.\68\ Other
commenters stated that the FASB's disclosure framework projects \69\
would not have a significant effect on the proposed amendments,
provided that definitions of materiality applied by the Commission and
the FASB remain consistent.\70\ Several commenters were supportive of
interim disclosure requirements and supported the FASB's tentative
decision.\71\
---------------------------------------------------------------------------

    \67\ See, e.g. letters from AFL-CIO and AFR; CalPERS; Domini;
and Public Citizen.
    \68\ See letter from CalPERS.
    \69\ The current topic-specific FASB disclosure framework
projects include the interim reporting project and four disclosure
areas that are relevant to the amendments. These disclosure areas
are: Fair value measurement, defined benefit plans, income taxes,
and inventory.
    \70\ See, e.g. letters from CAQ; E&Y and KPMG.
    \71\ See letters from CAQ; CFA; KPMG; and PricewaterhouseCoopers
LLP (Nov. 1, 2016) (``PwC'').
---------------------------------------------------------------------------

    After the end of the comment period for the Proposing Release, the
FASB concluded deliberations on a number of matters. For instance, in
March 2018, the FASB decided not to amend U.S. GAAP to include a
definition of materiality and also not to amend the disclosure sections
currently in U.S. GAAP.\72\ The FASB also made decisions related to
FASB Concepts Statement No. 8. The FASB Concepts Statements are not
U.S. GAAP; rather, the FASB Concepts Statements collectively compose
the FASB's Conceptual Framework, which sets forth general principles to
aid the FASB in identifying factors to be considered when setting
disclosure requirements for individual accounting standards and
evaluating existing disclosure requirements.\73\ Among the decisions
from March, the FASB will revise the concept of materiality included in
the Conceptual Framework to clarify that the definition that was
previously contained in FASB Concepts Statement No. 2,\74\ which is
also the definition quoted in SEC Staff Accounting Bulletin No. 99,\75\
is the definition to be used by the FASB when it considers and
formulates its standard setting projects. We believe these decisions by
the FASB have clarified that the concept of materiality has not changed
from the historical view of how an issuer applies materiality to the
financial statements.
---------------------------------------------------------------------------

    \72\ See summary of decisions reached at the FASB Board Meeting
(Mar. 21, 2018), available at: https://www.fasb.org/jsp/FASB/FASBContent_C/ProjectUpdateExpandPage&cid=1176170687841.
    \73\ See Project Update for Disclosure Framework: Board's
Decision Process, available at: http://fasb.org/jsp/FASB/FASBContent_C/ProjectUpdatePage&cid=1176163077030.
    \74\ Statement of Financial Accounting Concepts No. 2,
Qualitative Characteristics of Accounting Information.
    \75\ See SEC Staff Accounting Bulletin: No. 99--Materiality,
which is available at: https://www.sec.gov/interps/account/sab99.htm.
---------------------------------------------------------------------------

    We believe the FASB's decision not to amend U.S. GAAP to include a
definition of materiality, as well as the decisions related to FASB
Concepts Statement No. 8, substantially address the concerns expressed
by commenters about the impact of the current FASB standard-setting
projects. As a result of these decisions, we believe there will not be
changes to how an issuer applies the concept of materiality to its
financial statements, including the related notes. We are therefore
eliminating certain of

our disclosure requirements, as proposed, on the basis that U.S. GAAP
requires the same or similar disclosures.\76\ In addition, issuers
remain liable for their disclosures, including the omission of any
information required to make the disclosures not misleading.\77\
Issuers should continue to consider both quantitative and qualitative
factors in assessing materiality for the accounting and disclosure of
an item, and also should continue to consider whether they have made
critical accounting estimates and assumptions for which disclosure
should be provided in MD&A.\78\ Further, U.S. GAAP requires a
description of an issuer's significant accounting policies.\79\
---------------------------------------------------------------------------

    \76\ See Sections II.B., III.B., and V.B. below.
    \77\ Exchange Act Rule 12b-20 [17 CFR 240.12b-20].
    \78\ See Commission Guidance Regarding Management's Discussion
and Analysis of Financial Condition and Results of Operations,
Release No. 33-8350 (Dec. 19, 2003) [68 FR 75056 (Dec. 29, 2003)]
(``2003 MD&A Release'').
    \79\ ASC 235-10-50 requires identification and description of
the accounting principles followed by an issuer and the methods of
applying those principles that materially affect the determination
of financial position, cash flows, or results of operations.
---------------------------------------------------------------------------

D. Disclosure Location Considerations

a. Overview
    In some cases, our amendments result in the relocation of
disclosures within a filing,\80\ with the following consequences:
---------------------------------------------------------------------------

    \80\ For example, as discussed in Section III.B.2, our
amendments eliminate the disclosures about an issuer's status as a
real estate investment trust (``REIT'') in the audited notes to the
financial statements, in reliance on required disclosures within the
same filing, but outside the audited financial statements. See also
Section III.C.1 of the Proposing Release, supra note 1, at 51616.
---------------------------------------------------------------------------

     Prominence Considerations--the current location of some
disclosures may provide a certain level of prominence and/or context to
other disclosures located with them. The relocation of these
disclosures may change the prominence and/or context of both the
relocated disclosures and the remaining disclosures. We refer to these
consequences collectively as ``Disclosure Location--Prominence
Considerations.''
     Financial Statement Considerations--the amendments related
to some topics result in the relocation of disclosures from outside to
inside the financial statements, subjecting this information to annual
audit and/or interim review, internal control over financial reporting
(``ICFR''), and XBRL tagging requirements, as applicable. The safe
harbor under the Private Securities Litigation Reform Act of 1995
(``PSLRA'') would not be available for such disclosures.\81\
Conversely, relocation of disclosures from inside to outside the
financial statements would have the opposite effect--namely, this
information would not be subject to annual audit and/or interim review,
ICFR, and XBRL tagging requirements, as applicable, while the safe
harbor under the PSLRA would be available. These topics would also be
subject to Disclosure Location--Prominence Considerations. We refer to
these consequences collectively as ``Disclosure Location--Financial
Statement Considerations.''
---------------------------------------------------------------------------

    \81\ Public Law 104-67, 109 Stat. 737 (1995).
---------------------------------------------------------------------------

     Bright Line Disclosure Threshold Considerations--some
overlapping requirements, while similar, are not redundant or
duplicative because one set of requirements includes a bright line
disclosure threshold, while the other set of requirements does not.\82\
Where a requirement contains a bright line disclosure threshold,
matters involving amounts below that threshold are not required to be
disclosed. With the exception of disclosure requirements about major
customers, the Commission disclosure requirements we discuss contain
bright line disclosure thresholds, while the corresponding U.S. GAAP
requirements do not. For these topics, the elimination of the bright
line threshold would potentially change the disclosure provided to
investors. We refer to these considerations collectively as ``Bright
Line Disclosure Threshold Considerations.''
---------------------------------------------------------------------------

    \82\ For example, Regulation S-K requires, as discussed in
Section III.D.5, disclosure of the amount of revenue from products
and services that account for 10 percent or more of consolidated
revenue. See also Section III.E.13 of the Proposing Release, supra
note 1, at 51632. The corresponding U.S. GAAP requirements do not
contain such bright line disclosure thresholds.
---------------------------------------------------------------------------

b. Comments on Disclosure Location Considerations
    Some commenters indicated that, due to the emergence of electronic
data analysis and search tools, investors and other users are generally
placing less emphasis on disclosure location.\83\ Views were mixed on
relocating disclosures into the financial statements. Some commenters
stated that they prefer most financial disclosures to be within the
financial statements given the audit requirement and ICFR,\84\ while
others opposed relocation for these same reasons.\85\ Numerous
commenters also expressed concern about moving disclosures that contain
forward-looking information into the financial statements. These
commenters noted that such relocation would introduce liability
concerns for registrants because the safe harbor under PSLRA would no
longer apply and could create potential verification and auditability
issues for auditors.\86\ Other commenters also expressed concern that
it could result in loss of information that may currently be provided
by registrants voluntarily.\87\
---------------------------------------------------------------------------

    \83\ See, e.g. letters from CAQ and Davis Polk & Wardwell LLP
(Nov. 2, 2016) (``Davis'').
    \84\ See, e.g. letters from Council of Institutional Investors
(Sept. 22, 2016) (``CII'') and The Ohio Society of CPAs (Nov. 2,
2016).
    \85\ See, e.g. letters from CGCIV and Edison Electric Institute
and American Gas Association (November 2, 2016) (``EEI and AGA'');
and USCC.
    \86\ See, e.g. letters from CAQ; Davis; EEI and AGA; and FEI.
    \87\ See, e.g. letters from CalPERS; FEI; and R.G. Associates.
---------------------------------------------------------------------------

    Some commenters opposed eliminating any bright line thresholds in
Commission disclosure requirements because the thresholds establish a
baseline of disclosure for all registrants in certain areas.\88\ These
commenters expressed concern about using a materiality standard for
disclosure because it may reduce the information made available to
investors or diminish comparability of registrants. Other commenters
were supportive of eliminating the bright line thresholds, especially
the thresholds discussed in the Proposing Release, and generally
supported a more principles-based disclosure framework.\89\ These
commenters also indicated that materiality is a better disclosure
standard because certain of the existing bright line thresholds result
in disclosure that, in their view, is immaterial to investors and
costly to provide.
---------------------------------------------------------------------------

    \88\ See, e.g. letters from AFL-CIO and AFR; CalPERS; CFA;
Public Citizen; and R.G. Associates.
    \89\ See, e.g. letters from CAQ; CGCIV; The Clearing House
Association L.L.C. (Oct. 28, 2016) (``Clearing House''); Davis; FEI;
and USCC.
---------------------------------------------------------------------------

c. Final Amendments
    We are adopting the majority of the proposed amendments that were
identified with Disclosure Location--Prominence Considerations or
Financial Statement Considerations because (a) commenters were
supportive of the amendment and did not express concern with the
relocation of the disclosure; or (b) the overlapping U.S. GAAP
disclosure requirements, identified in the Proposing Release, are
already subject to audit and ICFR requirements.\90\ We also are
amending

one disclosure requirement identified with Bright Line Disclosure
Thresholds Considerations relating to restrictions on dividends as
proposed.\91\ We are not adopting other proposed amendments due to
concern about the relocation of the disclosure and possible loss of
forward-looking and voluntary information. In addition, we are
referring some of the disclosure requirements with Disclosure Location
or Bright Line Disclosure Threshold Considerations to the FASB for
potential incorporation into U.S. GAAP.
---------------------------------------------------------------------------

    \90\ The proposed amendments that give rise to Disclosure
Location Prominence or Financial Statement Considerations include
those discussed in the following sections of the Proposing Release:
Section III.B.2 REIT Disclosures--Status as a REIT; Section
III.B.3.f Insurance Companies--Reinsurance Transactions, Interim
Financial Statements--Material Events Subsequent to the End of the
Most Recent Fiscal Year; Section III.B.3.c Segments; Section
III.B.3.d Geographic Areas; Section III.B.3.e Seasonality; Section
III.B.1.c Research and Development Activities; Section III.B.1.d
Warrants, Rights, and Convertible Instruments; Section III.C.2
Restrictions on Dividends and Related Items; Section III.C.3
Geographic Areas; Section III.D.3 Major Customers; Section III.D.5
Products and Services; and Section V.B.2 Dividends Per Share in
Interim Financial Statements. We are not adopting any requirements
to disclose forward-looking information in a registrant's financial
statements.
    \91\ See discussion in Section III.C.2 below.
---------------------------------------------------------------------------

II. Redundant or Duplicative Requirements

A. Background

    In the Proposing Release, the Commission identified a number of
disclosure requirements that require substantially similar disclosures
as U.S. GAAP, IFRS, or other Commission disclosure requirements. The
Commission proposed to eliminate these redundant or duplicative
Commission disclosure requirements to simplify issuer compliance
efforts in light of the obligation to provide substantially the same
information to investors under other requirements.

B. Redundant or Duplicative Disclosure Requirements With U.S. GAAP

1. Foreign Currencies
    Rule 3-20 of Regulation S-X describes the currency requirements for
financial statements of foreign private issuers. The third sentence of
Rule 3-20(d) of Regulation S-X provides the definition of ``the
currency of an operation's primary economic environment'' and ``a
hyperinflationary environment.'' The Commission proposed to eliminate
these definitions because U.S. GAAP provides substantially the same
definitions.\92\
---------------------------------------------------------------------------

    \92\ ASC 830-10-45-2, ASC 830-10-45-12, and ASC 830-10-55-10.
---------------------------------------------------------------------------

    While most commenters \93\ supported the elimination, two
commenters \94\ recommended that the Commission retain these
provisions. These commenters indicated that while the definitions are
the same in the Commission disclosure requirement and U.S. GAAP, the
definition in U.S. GAAP \95\ can be interpreted to apply only to a
subsidiary, division, branch or joint venture of the issuer rather than
the issuer itself, whereas Rule 3-20(d) applies to both the issuer and
each of its material operations.\96\
---------------------------------------------------------------------------

    \93\ See letters from Davis; Deloitte; & Touche LLP (Oct. 5,
2016) (``Deloitte''); E&Y EEI and AGA; Grant; KPMG; and R.G.
Associates.
    \94\ See letters from CAQ and PwC.
    \95\ ASC 830-10-45-2, ASC 830-10-45-12, and ASC 830-10-55-10.
    \96\ First sentence of Rule 3-20(d) of Regulation S-X.
---------------------------------------------------------------------------

    After further consideration and in light of concerns raised about
whether Rule 3-20(d) and U.S. GAAP are duplicative, we are retaining
the definitions in the current rule and referring the issue to the FASB
for potential clarification in U.S. GAAP.
2. Other
    The Commission proposed to eliminate a number of other requirements
that are substantially redundant or duplicative of U.S. GAAP
disclosures. The table below describes each of these requirements and
identifies the corresponding U.S. GAAP requirement.\97\ For the
Commission disclosure requirements proposed for elimination that apply
to foreign private issuers that report using IFRS, we identify the
corresponding IFRS requirement.\98\
---------------------------------------------------------------------------

    \97\ These proposed amendments are discussed in further detail
in Section II.B of the Proposing Release.
    \98\ See supra note 23.

------------------------------------------------------------------------
                                 Description of
    Commission disclosure          commission
  requirement proposed for         disclosure        Corresponding U.S.
         elimination          requirement proposed    GAAP requirement
                                 for elimination
------------------------------------------------------------------------
                              Consolidation
------------------------------------------------------------------------
All except fourth sentence    Permits               ASC 810-10-45-
 of Rule 3A-02(b)(1) of        consolidation of an   12.\99\
 Regulation S-X.               entity's financial
                               statements for its
                               fiscal period if
                               the period does not
                               differ from that of
                               the issuer by more
                               than 93 days and
                               requires
                               recognition by
                               disclosure or
                               otherwise of
                               material
                               intervening events.
First sentence of Rule 3A-    Requires              ASC 810-10-15-10.
 02(d) of Regulation S-X.      consideration of
                               the propriety of
                               consolidation under
                               certain
                               restrictions.\100\
Last two sentences of first   Requires disclosure   ASC 235-10-50-1 and
 paragraph of Rule 3A-02 of    of the accounting     ASC 810-10-50-1.
 Regulation S-X and 3A-03(a)   policies followed
 of Regulation S-X.            in consolidation or
                               combination.\101\
First sentence of Rule 3A-04  Requires elimination  ASC 323-10-35-5a and
 of Regulation S-X.            of intercompany       ASC 810-10-45-1
                               transactions.         through 45-9.
------------------------------------------------------------------------
                               Obligations
------------------------------------------------------------------------
Reference to issuances in     Requires disclosure   ASC 855-10-50-2 and
 Rule 4-08(f) of Regulation    of significant        855-10-55-2a.
 S-X.                          changes \102\ in
                               amounts of debt
                               issued subsequent
                               to the latest
                               balance sheet date.
------------------------------------------------------------------------
                         Income Tax Disclosures
------------------------------------------------------------------------
First sentence of Rule 4-     Requires an income    ASC 740-10-50-12.
 08(h)(2) of Regulation S-X.   tax rate
                               reconciliation.

Fourth sentence of Rule 4-    Permits the income    ASC 740-10-50-12
 08(h)(2) of Regulation S-X.   tax rate
                               reconciliation to
                               be presented in
                               either percentages
                               or dollars.
------------------------------------------------------------------------
              Warrants, Rights, and Convertible Instruments
------------------------------------------------------------------------
Rule 4-08(i) of Regulation S- Requires disclosure   Non-compensatory
 X.                            of the title and      \104\ warrants or
                               amount of             rights: ASC 505-10-
                               securities subject    50-3 and ASC 815-40-
                               to warrants or        50-5.
                               rights, the          Compensatory
                               exercise price, and   warrants or rights:
                               the exercise          ASC 505-10-50-3,
                               period.\103\          ASC 718-10-50-1,
                                                     and ASC 718-10-50-
                                                     2.
------------------------------------------------------------------------
                             Related Parties
------------------------------------------------------------------------
Reference to identification   Requires              ASC 850-10-50-1.
 of related party              identification of
 transactions in Rule 4-       related party
 08(k)(1) of Regulation S-X.   transactions.
------------------------------------------------------------------------
                              Contingencies
------------------------------------------------------------------------
References to ``material      Require disclosure    ASC 270-10-50-6.
 contingencies'' in Rule 8-    of material
 03(b)(2),\105\ the second     contingencies in
 sentence of Rule 10-          interim financial
 01(a)(5) of Regulation S-X,   statements,
 and the entire last           notwithstanding
 sentence of Rule 10-          disclosure in the
 01(a)(5) of Regulation S-     annual financial
 X.\106\                       statements.
------------------------------------------------------------------------
                           Earnings per Share
------------------------------------------------------------------------
Reference to ``earnings per   Requires              ASC 270-10-50-1b.
 share'' in first sentence     presentation of
 of Rule 10-01(b)(2) of        earnings per share
 Regulation S-X.               on the face of an
                               interim income
                               statement.
------------------------------------------------------------------------
Item 601(b)(11) of            Require disclosure    ASC 260-10-50-1a,
 Regulation S-K \107\ and      of the computation    Rule 10-01(b)(2) of
 Instruction 6 to              of earnings per       Regulation S-X, and
 ``Instructions as to          share in annual       IAS 33, paragraph
 Exhibits'' of Form 20-F.      filings.              70.\108\
------------------------------------------------------------------------
                           Insurance Companies
------------------------------------------------------------------------
Last sentence of Rule 7-      Requires a            ASC 944-80-50-1a.
 03(a)(11) of Regulation S-X.  description of the
                               activities being
                               reported in the
                               separate
                               accounts.\109\
Rule 7-04.3(c) of Regulation  Requires disclosure   ASC 235-10-50-1 and
 S-X.                          of the method         ASC 320-10-50-9b.
                               followed in
                               determining the
                               cost of investments
                               sold.\110\
------------------------------------------------------------------------
                         Bank Holding Companies
------------------------------------------------------------------------
Rule 9-03.6(a) of Regulation  Requires disclosure   ASC 320-10-50-1B,
 S-X.                          of the carrying and   ASC 320-10-50-2,
                               market values of      ASC 320-10-50-5,
                               (1) securities of     and ASC 942-320-50-
                               the U.S. Treasury     2.
                               and other U.S.
                               Government agencies
                               and corporations,
                               (2) securities of
                               states of the U.S.
                               and political
                               subdivisions, and
                               (3) other
                               securities.
Rule 9-03.7(d) of Regulation  Requires disclosure   ASC 310-10-50-
 S-X.                          of changes in the     11B(c).
                               allowance for loan
                               losses.
First part of Rule 9-         Requires disclosure   ASC 235-10-50-1 and
 04.13(h) of Regulation S-X.   of the method         ASC 320-10-50-9b.
                               followed in
                               determining the
                               cost of investment
                               securities sold.
------------------------------------------------------------------------
                    Changes in Accounting Principles
------------------------------------------------------------------------
Requirement to disclose       Requires disclosure   ASC 250-10-45-12 to
 reason for change in          of the reasons for    16, ASC 250-10-50-
 accounting principle in       making material       1a, and ASC 270-10-
 Rule 8-03(b)(5) \111\ and     accounting changes    50-1g.
 Rule 10-01(b)(6) \112\ of     in an interim
 Regulation S-X.               period.
------------------------------------------------------------------------
                           Interim Adjustments
------------------------------------------------------------------------
Third sentence of Rule 3-     Provide examples of   ASC 270-10-45-10.
 03(d) and third sentence of   adjustments in
 Rule 10-01(b)(8) of           order for interim
 Regulation S-X.               financial
                               statements to be
                               fairly stated.
------------------------------------------------------------------------
        Interim Financial Statements--Common Control Transactions
------------------------------------------------------------------------
Part of first sentence of     Requires that common  ASC 805-50-45-1 to
 Rule 10-01(b)(3) of           control               5.
 Regulation S-X.               transactions be
                               reflected in
                               current and prior
                               comparative
                               period's interim
                               financial
                               statements.
------------------------------------------------------------------------

               Interim Financial Statements--Dispositions
------------------------------------------------------------------------
Rule 10-01(b)(5) of           Requires disclosure   ASC 205-20-50-5B,
 Regulation S-X.               of the effect of      ASC 205-20-50-5C,
                               discontinued          ASC 260-10-45-3,
                               operations on         and ASC 270-10-50-
                               interim revenues,     7.
                               net income, and
                               earnings per share
                               for all periods
                               presented.
------------------------------------------------------------------------

    Commenters generally supported these proposed amendments due to the
redundant or duplicative nature of the Commission disclosure
requirements with U.S. GAAP and IFRS, \113\ and no commenter
specifically opposed the amendments. We are adopting all of the
amendments described in the table above as proposed.
---------------------------------------------------------------------------

    \99\ ASC 810-10-45-12 uses the phrase ``about three months''
instead of 93 days.
    \100\ Rule 3A-02(d) requires due consideration of the propriety
of consolidation in the presence of political, economic, or currency
restrictions. ASC 810-10-15-10 states that subsidiaries shall not be
consolidated in the presence of foreign exchange restrictions,
controls, or other governmentally imposed uncertainties so severe
that they cast significant doubt on the parent's ability to control
the subsidiary.
    \101\ Rule 3A-02 states that the accounting policy disclosure
should also include the circumstances associated with any departure
from the normal practice of consolidating majority owned
subsidiaries and not consolidating entities that are not majority
owned. ASC 235-10-50-1 states that the accounting disclosure shall
encompass important judgments about the appropriateness of
accounting principles and unusual or innovative applications of U.S.
GAAP.
    \102\ ASC 855-10-50-2 requires disclosure of events subsequent
to the balance sheet date that are of such a nature that non-
disclosure would render the financial statements misleading. ASC
855-10-55-55-2a provides that the sale of a bond subsequent to the
balance sheet date is an example of such a subsequent event.
    \103\ For compensatory warrants or rights, U.S. GAAP requires
disclosure of the nature and terms of such arrangements, the number
and weighted-average exercise price, and the weighted-average
contractual term.
    \104\ Compensatory warrants and rights are those issued to an
employee, non-employee or other entity for supply of goods or
services for the issuer's benefit, whereas non-compensatory warrants
and rights are those issued for all other reasons.
    \105\ This rule specifically applies to SRCs and Regulation A
issuers in a Tier 2 offering that report under U.S. GAAP.
    \106\ This rule specifically applies to companies other than
SRCs (``non-SRCs'').
    \107\ We also proposed conforming revisions to delete references
to Item 601(b)(11) of Regulation S-K in the Exhibit Table and in
Rule 10-01(b)(2) of Regulation S-X.
    \108\ IAS 33, paragraph 70, is the IFRS requirement that
corresponds to the Commission disclosure requirement in Instruction
6 to ``Instructions as to Exhibits'' of Form 20-F.
    \109\ ASC 944-80-50-1a requires disclosure of the nature of the
contracts reported in separate accounts.
    \110\ ASC 320-10-50-9b refers to the ``cost of a security
sold.''
    \111\ This rule specifically applies to SRCs and Regulation A
issuers in a Tier 2 offering that report under U.S. GAAP.
    \112\ This rule specifically applies to non-SRCs.
    \113\ See, e.g. letters from CAQ; Davis; EEI & AGA; and R.G.
Associates.
---------------------------------------------------------------------------

C. Redundant or Duplicative Disclosure Requirements With Other
Commission Requirements

1. Proposed Amendments
    In the Proposing Release, the Commission identified disclosure
requirements that are redundant or duplicative of other Commission
requirements. In most of these cases, the rule or item proposed to be
eliminated is a reference to another Commission requirement and
elimination would not affect compliance with the underlying
requirement. The table below describes each proposed amendment.
---------------------------------------------------------------------------

    \114\ 17 CFR 210.3A-01 through 210.3A-04.
    \115\ We also proposed conforming revisions to delete the
reference to Item 601(b)(19) of Regulation S-K in the Exhibit Table.
    \116\ 17 CFR 249.308a.
    \117\ We also proposed to amend the Exhibit Table within Item
601 of Regulation S-K to clarify that Item 601(b)(13) applies to
Form 10-Q.

------------------------------------------------------------------------
                                 Description of
    Commission disclosure          commission        Corresponding other
  requirement proposed for         disclosure            commission
         elimination          requirement proposed       disclosure
                                 for elimination         requirement
------------------------------------------------------------------------
                            Foreign Currency
------------------------------------------------------------------------
Last sentence of Rule 3-      States that foreign   Item 17(c)(2) of
 20(d) of Regulation S-X.      private issuers       Form 20-F.
                               must comply with     Also Item 4 of Form
                               Item 17(c)(2) of      F-1, General
                               Form 20-F, which      Instructions I.B of
                               requires disclosure   Form F-3, and Items
                               and quantification    11, 12, and 13 of
                               of departures from    Form F-4, which
                               the methodology of    indirectly refer to
                               Rule 3-20 if their    Item 17 of Form 20-
                               financial             F.
                               statements are
                               prepared on a basis
                               other than U.S.
                               GAAP or IFRS.
------------------------------------------------------------------------
                              Consolidation
------------------------------------------------------------------------
Rule 4-08(a) of Regulation S- Requires compliance   Article 3A itself
 X.                            with Article          requires
                               3A.\114\              compliance. The
                                                     requirement is
                                                     repeated in Rule 4-
                                                     08(a).
Rule 3A-01 of Regulation S-X  States subject        The same information
                               matter of Article     is set forth in the
                               3A.                   title of Article
                                                     3A.
------------------------------------------------------------------------
                  Report Furnished to Security Holders
------------------------------------------------------------------------
Item 601(b)(19) of            Provides specific     General Instruction
 Regulation S-K. \115\         instructions to       D(3) to Form 10-Q,
                               address the           which refers to
                               incorporation by      Item 601(b)(13) of
                               reference into Form   Regulation S-
                               10-Q \116\ of         K.\117\
                               information that is
                               separately made
                               available to
                               security holders.
------------------------------------------------------------------------

2. Comments on Proposed Amendments
    Commenters generally supported these proposed amendments.\118\ One
commenter recommended retaining the last sentence of Rule 3-20(d) of
Regulation S-X without providing further explanation.\119\
---------------------------------------------------------------------------

    \118\ See letters from Davis; Deloitte; E&Y EEI and AGA; Grant;
KPMG; and R.G. Associates.
    \119\ See letter from PwC. The last sentence of Rule 3-20(d)
states that ``Departures from the methodology presented in this
paragraph shall be quantified pursuant to Item 17(c)(2) of Form 20-
F.''
---------------------------------------------------------------------------

3. Final Amendments
    We are adopting the other amendments as proposed, with one
exception. After additional analysis, we are not adopting the proposed
elimination of the last sentence in Rule 3-20(d) because it relates to
a small population of issuers (i.e. foreign private issuers that do not
apply either U.S. GAAP or IFRS) and to avoid any unintended
consequences in light of a commenter's recommendation. Additionally,
the amendments eliminate a redundant requirement in Instruction 3 to
Item 504 of Regulation S-K that was identified subsequent to the
proposal.\120\
---------------------------------------------------------------------------

    \120\ The requirement to disclose the sources of any material
amounts of other funds needed to accomplish the specific purpose is
stated twice within the instruction.
---------------------------------------------------------------------------

III. Overlapping Requirements

A. Background

    In the Proposing Release, the Commission identified disclosure
requirements that are related to, but not the same as, U.S. GAAP, IFRS,
or other Commission disclosure requirements, which we refer to in this
release as overlapping requirements. The Commission proposed the
following related to these requirements:
     Delete disclosure requirements that: (1) Require
disclosures that convey reasonably similar information to or are
encompassed by the disclosures that result from compliance with the
overlapping U.S. GAAP, IFRS, or Commission disclosure requirements; or
(2) require disclosures incremental to the overlapping U.S. GAAP, IFRS,
or Commission disclosure requirements and may no longer be useful to
investors.
     Integrate Commission disclosure requirements that overlap
with, but require information incremental to, other Commission
disclosure requirements.
    The Commission also solicited comment on certain Commission
disclosure requirements that overlap with, but require information
incremental to, U.S. GAAP to determine whether to retain, modify,
eliminate, or refer them to the FASB for potential incorporation into
U.S. GAAP.

B. Overlapping Requirements--Proposed Deletions

1. Overlapping Disclosure Requirements With U.S. GAAP

    The Proposing Release identified several disclosure requirements
that the Commission believed to be overlapping with U.S. GAAP.

a. Repurchase and Reverse Repurchase Agreements \121\
---------------------------------------------------------------------------

    \121\ See the related discussion in Section III.D.5.
---------------------------------------------------------------------------

(1) Proposed Amendments

    Since the requirements in Regulation S-X governing repurchase and
reverse repurchase agreements were adopted in 1986, the FASB has
amended the U.S. GAAP requirements for the accounting and disclosures
for repurchase agreements and similar transactions,\122\ which has
resulted in overlapping disclosure requirements. We discuss these
overlapping requirements and the proposed amendments below.
---------------------------------------------------------------------------

    \122\ See Accounting Standards Update (``ASU'') No. 2014-11,
Transfers and Servicing (Topic 860): Repurchase-to-Maturity
Transactions, Repurchase Financings, and Disclosures.
---------------------------------------------------------------------------

(a) Balance Sheet Presentation
    Regulation S-X \123\ and U.S. GAAP \124\ both require separate
presentation of repurchase liabilities associated with repurchase
agreements on the face of the balance sheet.\125\ Regulation S-X,
unlike U.S. GAAP, sets forth a 10 percent threshold for separate
presentation.\126\ The Commission proposed to delete the requirement
for separate presentation in Rule 4-08(m)(1)(i) and the related 10
percent threshold and noted the Bright Line Disclosure Threshold
Considerations. The Commission also proposed to retain the requirement
to include accrued interest payables in the separately presented
liability amounts.
---------------------------------------------------------------------------

    \123\ See Rule 4-08(m)(1)(i) of Regulation S-X.
    \124\ See ASC 860-30-45-2.
    \125\ Regulation S-X requires separate presentation of
repurchase liabilities incurred pursuant to repurchase agreements.
U.S. GAAP is broader in that it includes other transactions with
similar characteristics--specifically, ``transactions in which cash
is obtained in exchange for financial assets with an obligation for
an opposite exchange later,'' such as dollar rolls (an agreement to
sell and repurchase similar but not identical securities) and
securities lending transactions. See ASC 860-30-15-3.
    \126\ Specifically, Regulation S-X requires separate
presentation if the carrying amount (or market value, if higher than
the carrying amount or if there is no carrying amount) of the
securities or other assets sold under repurchase agreements, in the
aggregate, exceeds 10 percent of total assets.
---------------------------------------------------------------------------

(b) Disaggregated Disclosures
    While Regulation S-X \127\ and U.S. GAAP \128\ both require
disaggregated disclosures about repurchase agreements, they differ in
the form and content of the disaggregated disclosures. First,
Regulation S-X and U.S. GAAP both require disaggregated disclosures of
repurchase liabilities by class of collateral and maturity interval.
U.S. GAAP permits an entity to determine the appropriate level of
disaggregation and classes of collateral to be presented on the basis
of the nature, characteristics, and risks of the collateral pledged,
whereas Regulation S-X provides a few illustrative examples of classes.
Regulation S-X also specifies maturity intervals (e.g., overnight, up
to 30 days), whereas U.S. GAAP permits judgment to determine an
appropriate range of maturity intervals. Further, Rule 4-08(m)(1)(ii)
of Regulation S-X requires the disaggregated disclosure to be combined
in the form of a single table. Although U.S. GAAP is silent about the
form of disclosure, its sole example of an approach to comply with its
requirements is a single table that includes both classes of collateral
as well as maturity intervals similar to those required by Regulation
S-X.\129\ Overall, U.S. GAAP permits more judgment to determine the
classes to be presented, the range of maturity intervals, and the form
of disclosure than Regulation S-X.\130\
---------------------------------------------------------------------------

    \127\ See Rule 4-08(m)(1)(ii) of Regulation S-X.
    \128\ See ASC 860-30-50-7.
    \129\ See ASC 860-30-55-4.
    \130\ Id.
---------------------------------------------------------------------------

    Second, Regulation S-X specifies tabular disclosure of the carrying
amount of associated assets sold under repurchase agreements
disaggregated by class of asset sold and maturity interval (e.g.,
overnight, up to 30 days) of the repurchase agreement.\131\ Instead of
a tabular format, U.S. GAAP requires separate presentation on the
transferor's balance sheet of the carrying amount of assets that the
transferee has the right to sell or repledge.\132\ U.S. GAAP also
requires disclosure in the notes to the financial statements of the
carrying amount and balance sheet classification of both the assets
pledged as collateral that the transferee does not have the right to
sell or repledge and the associated liabilities, along with
quantitative information about the relationship(s) between them.\133\
---------------------------------------------------------------------------

    \131\ See Rules 4-08(m)(1)(ii)(A)(i) and 4-08(m)(1)(ii)(B) of
Regulation S-X.
    \132\ See ASC 860-30-25-5a.
    \133\ See ASC 860-30-50-1A.b.1 and 2.

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

    The Commission proposed to delete the identified Regulation S-X
requirements because the disclosures that result from compliance with
U.S. GAAP, and the accompanying disclosure objectives and aggregation
principles, convey reasonably similar information as the disclosures
required by Regulation S-X.\134\
---------------------------------------------------------------------------

    \134\ U.S. GAAP requires that its minimum disclosure
requirements about transactions such as repurchase agreements be
supplemented as necessary to meet certain disclosures objectives
(e.g., providing investors with an understanding of how transfers of
financial assets affect an issuer's financial statements) and
aggregation principles (e.g., presentation in a manner that clearly
and fully explains the transferor's risk exposure related to the
transferred financial assets and any restrictions on the assets of
the entity). See ASC 860-10-50.
---------------------------------------------------------------------------

    Third, Regulation S-X requires disaggregated disclosures of the
market value of assets sold under repurchase agreements for which
unrealized changes in market value are reported in income.\135\
Although the FASB deliberated adding a requirement to U.S. GAAP to
disclose the market value of these assets, it ultimately decided
against doing so due to operability concerns.\136\
---------------------------------------------------------------------------

    \135\ See Rules 4-08(m)(1)(ii)(A)(i) and 4-08(m)(1)(ii)(B) of
Regulation S-X. These rules, however, do not require disclosure of
the carrying amount and market value of securities and other assets
for which unrealized changes in market value are reported in current
income or which have been obtained under reverse repurchase
agreements. This scope is narrower than that for the U.S. GAAP
requirement to separately present carrying amounts, which applies to
all assets sold under repurchase agreements.
    \136\ See Minutes from FASB Board Meeting (Mar. 12, 2014),
available at: http://www.fasb.org/jsp/FASB/Document_C/DocumentPage&cid=1176163899372. See also Accounting Standards Update
(``ASU'') No. 2014-11, Transfers and Servicing (Topic 860):
Repurchase-to-Maturity Transactions, Repurchase Financings, and
Disclosures.
---------------------------------------------------------------------------

    Based on the foregoing, the Commission proposed to delete Rule 4-
08(m)(1)(ii), with the exception of the requirement in Rule 4-
08(m)(1)(ii)(A)(ii) to disclose the interest rate on repurchase
liabilities, which the Commission would retain. Regulation S-X, unlike
U.S. GAAP, sets forth a 10 percent threshold for the disaggregated
disclosures;\137\ therefore, the proposed amendments give rise to
Bright Line Disclosure Threshold Considerations.
---------------------------------------------------------------------------

    \137\ Specifically, Regulation S-X requires the tabular
disclosures if the aggregate carrying amount (or market value, if
higher than the carrying amount) of the securities or other assets
sold under repurchase agreements exceeds 10 percent of total assets.
The amount of securities or other assets sold under repurchase
agreements excludes securities and other assets for which unrealized
changes in market value are reported in current income or have been
obtained under reverse repurchase agreements.
---------------------------------------------------------------------------

(c) Collateral Policy
    The Commission proposed to delete the requirement in Regulation S-X
\138\ to disclose an issuer's policy with regard to taking possession
of assets purchased under reverse repurchase agreements because U.S.
GAAP requires disclosure of the issuer's policy for requiring
collateral or other security.\139\ Although U.S. GAAP is not as
specific as Regulation S-X about taking possession of collateral, the
Commission believed Regulation S-X requires disclosures that are
encompassed by the disclosures that result from compliance with U.S.
GAAP.
---------------------------------------------------------------------------

    \138\ See Rule 4-08(m)(2)(i)(B)(1) of Regulation S-X.
    \139\ See ASC 860-30-50-1Aa.
---------------------------------------------------------------------------

    Regulation S-X, unlike U.S. GAAP, requires these disclosures when
the aggregate carrying amount of reverse repurchase agreements exceeds
10 percent of total assets. As such, the proposed amendment gives rise
to Bright Line Disclosure Threshold Considerations.
(2) Comments on Proposed Amendments
    Commenters were split on the proposals related to the requirements
for repurchase and reverse repurchase agreements. A number of
commenters expressed support for the proposed amendments except for the
elimination of the collateral policy disclosure requirement.\140\ These
commenters agreed that the U.S. GAAP disclosures provide reasonably
similar information for the balance sheet presentation and
disaggregated disclosure requirements. Certain commenters were not
supportive of the deletion of the collateral policy disclosure
requirements \141\ and recommended referring the requirement to the
FASB for potential incorporation into U.S. GAAP.\142\ These commenters
stated that the disclosure provides useful information to understanding
the credit risk associated with the transactions in which the issuer
does not take possession of the collateral.
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    \140\ See letters from CAQ; Clearing House; Deloitte; E&Y and
KPMG.
    \141\ See Rule 4-08(m)(2)(i)(B)(1) of Regulation S-X.
    \142\ See letters from CAQ; Grant; and PwC.
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    Several other commenters opposed the proposed amendments,
expressing concern that the amendments would eliminate disclosures that
are material to investors and other users of the financial
statements.\143\ For example, one of the commenters stated that the
information required by Rule 4-08(m)(1)(ii) is essential to
understanding an issuers' liabilities in the repo market.\144\ Another
commenter indicated that it cannot support the proposed revisions to
repurchase and reverse repurchase agreements disclosure requirements at
this time, given the importance of these disclosures, the relative
newness of the changes to the U.S. GAAP requirements, and the existence
of differences in the form and content of the respective
requirements.\145\ One commenter also indicated that it believes
repurchase and reverse repurchase agreements should be discussed in SEC
filings more than just in the financial statement footnotes because
they are complex financial instruments that can have a dramatic impact
on the financing and liquidity of financial institutions and other
businesses.\146\
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    \143\ See, e.g. letters from As You Sow, Bellamy Woods LLC,
Brighton Shores LLC, CSC LLC, Essential Information, Greenpeace,
Howard's End LLC, Institute for Policy Studies--Global Economy
Project, Interfaith Center on Corporate Responsibility, NF Trust,
OpenTheGovernment, Public Citizen, Rolyan Fund, Sunlight Foundation
and Zevin Asset Management, LLC (Oct. 31, 2016) (``As You Sow, et
al.''); CalPERS; and CII.
    \144\ See letter from Zevin Asset Management, LLC (Nov. 2, 2016)
(``Zevin'').
    \145\ See letter from CII.
    \146\ See letter from Elise J. Bean (Oct. 3, 2016) (``Bean'').
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    Additionally, while one commenter explicitly supported the
elimination of the 10 percent threshold in Rule 4-08(m)(1)(ii),\147\
other commenters expressed concerns, indicating that the removal could
result in less disclosure of information that is material to
investors.\148\
---------------------------------------------------------------------------

    \147\ See letter from Clearing House.
    \148\ See letters from As You Sow, et al. and Public Citizen.
---------------------------------------------------------------------------

(3) Final Amendments
    In light of the comments about the importance of the information,
we are retaining the Regulation S-X disclosure requirements related to
repurchase and reverse repurchase agreements and referring these
requirements to the FASB for potential incorporation into U.S. GAAP.
b. Derivative Accounting Policies
(1) Proposed Amendments
    Regulation S-X \149\ and U.S. GAAP \150\ both require disclosure in
the notes to the financial statements of accounting policies for
certain derivative instruments. Regulation S-X applies to: (1)
Derivative financial instruments, as

defined under U.S. GAAP, and (2) derivative commodity instruments such
as commodity futures, swaps, and options that are permitted to be
settled in cash or with another financial instrument, to the extent
such instruments are not within the definition of derivative financial
instruments. For both types of instruments, Regulation S-X requires,
where material, disclosure of the accounting policies; the criteria
required to be met for each accounting method used; the accounting
method used if those criteria are not met; the method used to account
for terminations of derivatives designated as hedges or derivatives
used to affect the terms, fair values, or cash flows of a designated
item; the method used to account for derivatives when the designated
item matures, is sold, is extinguished, or is terminated; and how the
derivative instruments are reported in the financial statements.
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    \149\ See Rule 4-08(n) of Regulation S-X and Note 2(b) to Rule
8-01 of Regulation S-X. Rule 4-08(n) applies to non-SRCs and Note
2(b) to Rule 8-01 applies to SRCs and Regulation A issuers in a Tier
2 offering that report under U.S. GAAP.
    \150\ See ASC 815-10-50.
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    U.S. GAAP requires disclosure of accounting principles and methods
that materially affect the financial statements, including those
involving a selection from existing acceptable alternatives, and
important judgments about the appropriateness of the principles.\151\
In the Proposing Release, the Commission stated that it believes these
U.S. GAAP principles call for reasonably similar information as the
corresponding requirements in Regulation S-X, as they require
disclosure of the accounting method applied to each aspect of a
material derivative transaction from inception to termination.
---------------------------------------------------------------------------

    \151\ See ASC 235-10-50-1 and ASC 235-10-50-3.
---------------------------------------------------------------------------

    In addition, for derivative financial instruments, as defined under
U.S. GAAP, U.S. GAAP requires disclosure of how and why the issuer uses
derivative instruments, how the derivative instruments and related
hedged items are accounted for, and how they affect the financial
statements.\152\ Although Regulation S-X is more detailed than U.S.
GAAP, the specificity in Regulation S-X stemmed, in part, from the
absence of a comprehensive accounting model for derivatives when the
Commission adopted these disclosure requirements.\153\ Since that time,
the FASB has adopted an accounting model for derivative financial
instruments, as defined under U.S. GAAP.\154\ Because U.S. GAAP has a
comprehensive accounting model for contracts that meet the definition
of a derivative financial instrument, the Commission stated in the
Proposing Release that it believes that the additional specific
disclosure requirements in Rule 4-08(n) are no longer applicable.
---------------------------------------------------------------------------

    \152\ See ASC 815-10-50.
    \153\ See Disclosure of Accounting Policies for Derivative
Financial Instruments and Derivative Commodity Instruments, and
Disclosure of Quantitative and Qualitative Information about Market
Risk Inherent in Derivative Financial Instruments, Other Financial
Instruments and Derivative Commodity Instruments, Release No. 33-
7386, (Jan. 31, 1997) [62 FR 6044 (Feb. 10, 1997)]. In this adopting
release, the Commission stated that in the absence of comprehensive
accounting literature, registrants have developed accounting
practices for options and complex derivatives by analogy to the
limited amount of literature that does exist. The Commission also
noted that those analogies are complicated because, under existing
accounting literature, there are at least three distinctively
different methods of accounting for derivatives (e.g. fair value
accounting, deferral accounting, and accrual accounting). The
Commission further observed that the underlying concepts and
criteria used in determining the applicability of those accounting
methods is not consistent.
    \154\ See SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, codified in ASC 815.
---------------------------------------------------------------------------

    Based on the foregoing, the Commission proposed to delete Rule 4-
08(n) and Note 2(b) to Rule 8-01.
(2) Comments on Proposed Amendments
    While several commenters \155\ supported the proposed deletion of
the Regulation S-X requirements related to derivative accounting
policies, two commenters \156\ expressed concern. One of these
commenters,\157\ while supportive of deleting the disclosure
requirements, indicated that U.S. GAAP does not provide clear guidance
on how to measure written options that do not meet the definition of a
derivative financial instrument under U.S. GAAP.\158\ For this reason,
this commenter recommended referring this issue to the FASB for
potential incorporation into U.S. GAAP. The other commenter stated that
the Commission should increase instead of decrease disclosures related
to derivatives.\159\
---------------------------------------------------------------------------

    \155\ See letters from CAQ; Deloitte; E&Y Grant; and PwC.
    \156\ See letters from Bean and KPMG.
    \157\ See letter from KPMG.
    \158\ ASC 815-10-35-1 requires all derivative instruments to be
measured subsequently at fair value and written options that do not
qualify for equity classification have been measured at fair value
in the financial statements. See ASC 815-10-S99-4. The commenter
stated the disclosure requirement in Rule 4-08(n) has been applied
by analogy to measure these options at fair value. Rule 4-08(n) is
not measurement guidance.
    \159\ See letter from Bean.
---------------------------------------------------------------------------

(3) Final Amendments
    We are eliminating most of the requirements in Rule 4-08(n) as
proposed. However, after additional consideration, we are not
eliminating the requirement to disclose where in the statement of cash
flows the effect of derivative financial instruments is reported.\160\
U.S. GAAP does not have a similar disclosure requirement.\161\ We also
are referring the statement of cash flows disclosure requirement to the
FASB for potential incorporation into U.S. GAAP. We continue to believe
that the U.S. GAAP disclosure requirements and related principles \162\
call for information that is reasonably similar to the information
called for by the disclosure requirements in Regulation S-X and that
some of the additional disclosure requirements in Rule 4-08(n) are no
longer applicable. Finally, we are sharing the comment letters that
request review of the disclosures for derivatives and accounting for
written options with the FASB because these considerations are beyond
the scope of this rulemaking.\163\
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    \160\ Because we are no longer eliminating all of 4-08(n), we
are retaining Note 2(b) to Rule 8-01.
    \161\ ASC 815 and ASC 230.
    \162\ See ASC 235-10-50-1, ASC 235-10-50-3, and ASC 815-10-50.
    \163\ The FASB, in its role of establishing and maintaining U.S.
GAAP, continuously monitors the financial reporting environment and
objectively considers all stakeholder views on accounting and
reporting issues in order to evaluate the effectiveness of U.S. GAAP
in providing investors with decision useful information and to
determine whether changes to U.S. GAAP are needed. The items raised
by commenters here is an external source of data available for the
FASB's consideration when evaluating potential improvements to U.S.
GAAP.
---------------------------------------------------------------------------

c. Research and Development Activities
(1) Proposed Amendments
    Regulation S-K requires disclosures, if material, of the amount
spent on research and development activities for all years
presented.\164\ The Commission proposed to delete this requirement
because, although Regulation S-K uses terms that differ from U.S.
GAAP,\165\ U.S. GAAP requires reasonably similar disclosures.
---------------------------------------------------------------------------

    \164\ See Item 101(c)(1)(xi) of Regulation S-K for non-SRCs and
Item 101(h)(4)(x) of Regulation S-K for SRCs. Item 101(c)(1)(xi)
only requires this disclosure by non-SRCs if material.
    \165\ See ASC 730-10-50-1 and ASC 730-20-50-1.
---------------------------------------------------------------------------

    First, Regulation S-K refers to the ``amount spent,'' while U.S.
GAAP refers to ``costs charged to expense'' or ``costs incurred.'' The
Commission release adopting this requirement used the term ``expense''
when discussing this requirement.\166\
---------------------------------------------------------------------------

    \166\ See Adoption of Disclosure Regulation and Amendments of
Disclosure Forms and Rules, Release No. 33-5893 (Dec. 23, 1977) [42
FR 65554 (Dec. 30, 1977)] (``Regulation S-K Adopting Release'').
---------------------------------------------------------------------------

    Regulation S-K also uses the term ``company-sponsored,'' but U.S.
GAAP

does not. However, the Regulation S-K Adopting Release specified that
the amount of company-sponsored research and development expenses to be
disclosed should be determined in accordance with U.S. GAAP, suggesting
no difference in scope was intended.\167\
---------------------------------------------------------------------------

    \167\ Id.
---------------------------------------------------------------------------

    In addition, Regulation S-K refers to ``customer-sponsored''
research and development activities, while U.S. GAAP refers to
``research and development performed on behalf of others.'' Because
U.S. GAAP refers to all other parties, which is broader than customers,
the disclosures required by U.S. GAAP would encompass those required by
Regulation S-K.
    Further, Item 101(c)(1)(xi) only refers to customer-sponsored
``research activities'' rather than research and development
activities. However, we do not believe this difference is substantive
because Item 101(h)(4)(x) refers to ``research and development
activities'' and it was intended to ``parallel'' Item
101(c)(1)(xi).\168\
---------------------------------------------------------------------------

    \168\ See Small Business Initiatives, Release No. 33-6949, (Jul.
30, 1992) [57 FR 36442 (Aug. 13, 1992)].
---------------------------------------------------------------------------

    Similarly, Item 5.C of Form 20-F requires foreign private issuers
to describe their research and development policies, where significant,
and disclose the amount spent on company-sponsored research and
development activities. The Commission proposed to delete the
requirement to disclose the amount spent, as foreign private issuers
are already required to disclose the amount of research and development
expenses in the notes to the financial statements.\169\ In certain
circumstances, IFRS requires that amounts spent on development be
capitalized as an intangible asset, instead of expensed, and also
disclosed.\170\ While Commission disclosure requirements use terms
different from IFRS, the Commission stated in the Proposing Release
that it believes IFRS results in reasonably similar disclosures for the
same reasons discussed above with regards to differences in terminology
between Commission disclosure requirements and U.S. GAAP.
---------------------------------------------------------------------------

    \169\ Paragraph 126 of IAS 38, Intangible Assets, requires
foreign private issuers that report under IFRS to disclose the
aggregate amount of research and development expenses in the notes
to their financial statements. Foreign private issuers that report
under U.S. GAAP or Another Comprehensive Body of Accounting
Principles with a reconciliation to U.S. GAAP are also required to
disclose the amount of research and development expenses in the
notes to their financial statements.
    \170\ See paragraphs 57 and 118 of IAS 38, Intangible Assets for
the criteria to be used when determining whether to capitalize
development expenditures, including internal costs, and the related
disclosures. The capitalized amounts are amortized and reflected as
amortization expense on the income statement.
---------------------------------------------------------------------------

    Form 1-A also requires Regulation A issuers to disclose, if
material, the amount spent on research and development activities for
all years presented.\171\ As this requirement is based on the
requirement in Regulation S-K, Regulation A issuers that report under
either U.S. GAAP or IFRS provide substantially the same information in
the notes to their financial statements, as described above.
---------------------------------------------------------------------------

    \171\ Item 7(a)(1)(iii) of Form 1-A.
---------------------------------------------------------------------------

    Accordingly, the Commission proposed to delete Item 101(c)(1)(xi)
of Regulation S-K and Item 101(h)(4)(x) of Regulation S-K, Item 5.C of
Form 20-F, and Item 7(a)(1)(iii) of Form 1-A. The Proposing Release
noted Disclosure Location--Prominence Considerations, because these
disclosures are located in the business description section of the
filing, while the corresponding U.S. GAAP and IFRS disclosures are in
the notes to the financial statements.
(2) Comments on Proposed Amendments
    Most commenters were supportive of the proposed amendments.\172\
Additionally, a commenter recommended that the Commission consider
feedback from preparers and users, including feedback provided in
response to the S-K Concept Release, that issuers may be less willing
to voluntarily supplement the required disclosures in the notes to the
financial statements with forward-looking information because note
disclosures are not subject to the safe harbor under the PSLRA. This
commenter indicated some registrants do voluntarily provide qualitative
disclosures about research and development activities and the loss of
this information may be material to a user's understanding of the
registrant's financial statements.\173\ Another commenter recommended
also rescinding the requirement to disclose a description of a foreign
private issuer's research and development policies for the last three
years in Item 5.C of Form 20-F or clarifying whether this disclosure
requirement relates to accounting policies or research and development
activities.\174\
---------------------------------------------------------------------------

    \172\ See letters from CAQ; Deloitte; E&Y Grant; KPMG; and PwC.
    \173\ See letter from KPMG.
    \174\ See letter from E&Y.
---------------------------------------------------------------------------

    One commenter did not support the deletion of Item 101(c)(1)(xi)
and Item 101(h)(4)(x) of Regulation S-K, indicating that these
disclosures, along with other disclosures required by Item 101, are
necessary in assessing and understanding a company's ability to create
long-term value for shareholders.\175\
---------------------------------------------------------------------------

    \175\ See letter from CalSTRS.
---------------------------------------------------------------------------

(3) Final Amendments
    We are adopting the amendments as proposed. We do not believe
eliminating these requirements regarding amounts spent on research and
development activities will affect the assessment and understanding of
a company's ability to create long-term value for shareholders, as this
information will remain in the notes to the financial statements. In
addition, disclosure of trend information related to research and
development activities and expenses, where material, is required by
Item 303 of Regulation S-K,\176\ and we expect registrants to continue
to provide such disclosures as necessary. Further, the proposed
amendments do not preclude registrants from continuing to provide
voluntary disclosures as part of the description of their business or
elsewhere outside the financial statements.
---------------------------------------------------------------------------

    \176\ For example, Item 303(a)(3)(ii) of Regulation S-K requires
a description of ``any known trends or uncertainties that have had
or that the registrant reasonably expects will have a material
favorable or unfavorable impact on net sales or revenues or income
from continuing operations. If the registrant knows of events that
will cause a material change in the relationship between costs and
revenues (such as known future increases in costs of labor or
materials or price increases or inventory adjustments), the change
in the relationship shall be disclosed.''
---------------------------------------------------------------------------

    We are not eliminating the requirement to disclose a description of
a foreign private issuer's research and development policies for the
last three years, as one commenter suggested. This requirement was
initially adopted as part of the description of business disclosure,
and it is intended to cover research and development activity rather
than an accounting policy.\177\
---------------------------------------------------------------------------

    \177\ See Adoption of Foreign Issuer Integrated Disclosure
System, Release No. 34-19258 (Nov. 19, 1982) [47 FR 54764 (Dec. 6,
1982)]; Foreign Private Issuers, Release No. 34-14128 (Nov. 2, 1977)
[42 FR 58684 (Nov. 10, 1977)].
---------------------------------------------------------------------------

d. Warrants, Rights, and Convertible Instruments
(1) Proposed Amendments
    Item 201(a)(2)(i) of Regulation S-K requires disclosure on Form S-1
or Form 10 of the amount of common equity subject to outstanding
options, warrants, or convertible securities, when the class of common
equity has no established United States public trading market. U.S.
GAAP more broadly requires disclosure of the terms of significant
contracts to issue additional shares, the number of shares authorized

for certain equity awards,\178\ and, in the calculation of diluted
earnings per share, the weighted-average incremental shares that would
be issued from the assumed exercise or conversion of options, warrants,
and convertible securities.\179\ As such, the Commission proposed to
delete Item 201(a)(2)(i) of Regulation S-K.
---------------------------------------------------------------------------

    \178\ ASC 470-20-50, ASC 505-10-50-3, ASC 505-50-50-1, ASC 718-
10-50-1, ASC 718-10-50-2, and ASC 815-40-50-5.
    \179\ ASC 260-10-50. U.S. GAAP also requires disclosure of
amounts not included in the calculation of diluted earnings per
share because exercise or conversion of the securities would have
had an antidilutive effect in the period. In aggregate, these
amounts may be similar to, but not the same as, those required by
Item 201(a)(2)(i) of Regulation S-K, as U.S. GAAP determines the
incremental shares as a weighted average based on the period
outstanding during the year and assumes that cash received from the
assumed exercise or conversion is used to repurchase outstanding
shares.
---------------------------------------------------------------------------

    The Proposing Release explained that the proposed amendments give
rise to Disclosure Location--Prominence Considerations because Item
201(a)(2)(i) disclosures are located with related information about the
potential dilution of equity for which there is no established United
States public trading market, while the U.S. GAAP disclosures are in
the notes to the financial statements.
(2) Comments on Proposed Amendments
    Most commenters were supportive of the proposed amendments.\180\
One commenter opposed the amendments, stating that these requirements
should not be eliminated because U.S. GAAP does not explicitly require
the same information and the disclosure requirements in Regulation S-K
are more ``straightforward.'' \181\
---------------------------------------------------------------------------

    \180\ See letters from CAQ; Deloitte; E&Y Grant; KPMG; and PwC.
    \181\ See letter from Bean.
---------------------------------------------------------------------------

(3) Final Amendments
    We are eliminating Item 201(a)(2)(i) of Regulation S-K as proposed.
We believe U.S. GAAP elicits reasonably similar information to that
required by the disclosure requirement in Regulation S-K, and in some