Disclosure Update and Simplification, 50148-50234 [2018-18142]

Download as PDF 50148 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations 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 Securities and Exchange Commission. ACTION: Final rule. AGENCY: 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are adopting amendments to certain of our disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other Commission disclosure requirements, SUMMARY: U.S. Generally Accepted Accounting Principles (‘‘U.S. GAAP’’), or changes in the information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 (202) 551–3400, Division of Corporation Finance; Alison Staloch, Chief Accountant, at (202) 551–6918, Division of Investment Management; Tim White, Senior Special Counsel, at (202) 551–5777, 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: CFR citation (17 CFR) daltland on DSKBBV9HB2PROD with RULES2 Commission reference Regulation S–X 1: Rule 1–02 .................................................................................................................................................................... Rule 2–01 .................................................................................................................................................................... Rule 2–02 .................................................................................................................................................................... Rule 3–01 .................................................................................................................................................................... Rule 3–02 .................................................................................................................................................................... Rule 3–03 .................................................................................................................................................................... Rule 3–04 .................................................................................................................................................................... Rule 3–05 .................................................................................................................................................................... Rule 3–12 .................................................................................................................................................................... Rule 3–14 .................................................................................................................................................................... Rule 3–15 .................................................................................................................................................................... Rule 3–17 .................................................................................................................................................................... Rule 3–20 .................................................................................................................................................................... Rule 3A–01 ................................................................................................................................................................. Rule 3A–02 ................................................................................................................................................................. Rule 3A–03 ................................................................................................................................................................. Rule 3A–04 ................................................................................................................................................................. Rule 4–01 .................................................................................................................................................................... Rule 4–07 .................................................................................................................................................................... Rule 4–08 .................................................................................................................................................................... Rule 4–10 .................................................................................................................................................................... Rule 5–02 .................................................................................................................................................................... Rule 5–03 .................................................................................................................................................................... Rule 5–04 .................................................................................................................................................................... Rule 6–03 .................................................................................................................................................................... Rule 6–04 .................................................................................................................................................................... Rule 6–07 .................................................................................................................................................................... Rule 6–09 .................................................................................................................................................................... Rule 6A–04 ................................................................................................................................................................. Rule 6A–05 ................................................................................................................................................................. Rule 7–03 .................................................................................................................................................................... Rule 7–04 .................................................................................................................................................................... Rule 7–05 .................................................................................................................................................................... Rule 8–01 .................................................................................................................................................................... Rule 8–02 .................................................................................................................................................................... Rule 8–03 .................................................................................................................................................................... Rule 8–04 .................................................................................................................................................................... Rule 8–05 .................................................................................................................................................................... Rule 8–06 .................................................................................................................................................................... Rule 9–03 .................................................................................................................................................................... Rule 9–04 .................................................................................................................................................................... Rule 9–05 .................................................................................................................................................................... Rule 9–06 .................................................................................................................................................................... Rule 10–01 .................................................................................................................................................................. Rule 11–02 .................................................................................................................................................................. Rule 11–03 .................................................................................................................................................................. Rule 12–16 .................................................................................................................................................................. Rule 12–17 .................................................................................................................................................................. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\04OCR2.SGM 04OCR2 § 210.1–02. § 210.2–01. § 210.2–02. § 210.3–01. § 210.3–02. § 210.3–03. § 210.3–04. § 210.3–05. § 210.3–12. § 210.3–14. § 210.3–15. § 210.3–17. § 210.3–20. § 210.3A–01. § 210.3A–02. § 210.3A–03. § 210.3A–04. § 210.4–01. § 210.4–07. § 210.4–08. § 210.4–10. § 210.5–02. § 210.5–03. § 210.5–04. § 210.6–03. § 210.6–04. § 210.6–07. § 210.6–09. § 210.6A–04. § 210.6A–05. § 210.7–03. § 210.7–04. § 210.7–05. § 210.8–01. § 210.8–02. § 210.8–03. § 210.8–04. § 210.8–05. § 210.8–06. § 210.9–03. § 210.9–04. § 210.9–05. § 210.9–06. § 210.10–01. § 210.11–02. § 210.11–03. § 210.12–16. § 210.12–17. Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations CFR citation (17 CFR) daltland on DSKBBV9HB2PROD with RULES2 Commission reference Rule 12–18 .................................................................................................................................................................. Rule 12–21 .................................................................................................................................................................. Rule 12–22 .................................................................................................................................................................. Rule 12–23 .................................................................................................................................................................. Rule 12–24 .................................................................................................................................................................. Rule 12–27 .................................................................................................................................................................. Rule 12–28 .................................................................................................................................................................. Rule 12–29 .................................................................................................................................................................. Regulation S–K 2: Item 10 ........................................................................................................................................................................ Item 101 ...................................................................................................................................................................... Item 201 ...................................................................................................................................................................... Item 302 ...................................................................................................................................................................... Item 303 ...................................................................................................................................................................... Item 406 ...................................................................................................................................................................... Item 503 ...................................................................................................................................................................... Item 504 ...................................................................................................................................................................... Item 508 ...................................................................................................................................................................... Item 512 ...................................................................................................................................................................... Item 601 ...................................................................................................................................................................... Regulation M–A 3: Item 1010 .................................................................................................................................................................... Regulation AB 4: Item 1118 .................................................................................................................................................................... Securities Act of 1933 (Securities Act) 5: Rule 158 ...................................................................................................................................................................... Rule 405 ...................................................................................................................................................................... Rule 436 ...................................................................................................................................................................... Form S–1 .................................................................................................................................................................... Form S–3 .................................................................................................................................................................... Form S–11 .................................................................................................................................................................. Form S–4 .................................................................................................................................................................... Form F–1 ..................................................................................................................................................................... Form F–3 ..................................................................................................................................................................... Form F–4 ..................................................................................................................................................................... Form F–6 ..................................................................................................................................................................... Form F–7 ..................................................................................................................................................................... Form F–8 ..................................................................................................................................................................... Form F–10 ................................................................................................................................................................... Form F–80 ................................................................................................................................................................... Form SF–1 .................................................................................................................................................................. Form SF–3 .................................................................................................................................................................. Form 1–A .................................................................................................................................................................... Form 1–K .................................................................................................................................................................... Form 1–SA .................................................................................................................................................................. Securities Exchange Act of 1934 (Exchange Act) 6: Rule 3a51–1 ................................................................................................................................................................ Rule 10A–1 ................................................................................................................................................................. Rule 12b–2 .................................................................................................................................................................. Rule 12g–3 .................................................................................................................................................................. Rule 13a–10 ................................................................................................................................................................ Rule 13b2–2 ................................................................................................................................................................ Rule 15c3–1g .............................................................................................................................................................. Rule 15d–2 .................................................................................................................................................................. Rule 15d–10 ................................................................................................................................................................ Rule 17a–5 .................................................................................................................................................................. Rule 17a–12 ................................................................................................................................................................ Rule 17g–3 .................................................................................................................................................................. Rule 17h–1T ................................................................................................................................................................ Form 10 ....................................................................................................................................................................... Form 20–F ................................................................................................................................................................... Form 40–F ................................................................................................................................................................... Form 10–K .................................................................................................................................................................. Form 11–K .................................................................................................................................................................. Form 10–D .................................................................................................................................................................. Form X–17A–5 ............................................................................................................................................................ Investment Company Act of 1940 (Investment Company Act) 7: Form N–8B–2 .............................................................................................................................................................. Securities Act and Investment Company Act: Form N–5 .................................................................................................................................................................... Form N–1A .................................................................................................................................................................. Form N–2 .................................................................................................................................................................... Form N–3 .................................................................................................................................................................... VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 PO 00000 Frm 00003 Fmt 4701 50149 Sfmt 4700 E:\FR\FM\04OCR2.SGM 04OCR2 § 210.12–18. § 210.12–21. § 210.12–22. § 210.12–23. § 210.12–24. § 210.12–27. § 210.12–28. § 210.12–29. § 229.10. § 229.101. § 229.201. § 229.302. § 229.303. § 229.406. § 229.503. § 229.504. § 229.508. § 229.512. § 229.601. § 229.1010. § 229.1118. § 230.158. § 230.405. § 230.436. § 239.11. § 239.13. § 239.18. § 239.25. § 239.31. § 239.33. § 239.34. § 239.36. § 239.37. § 239.38. § 239.40. § 239.41. § 239.44. § 239.45. § 239.90. § 239.91. § 239.92. § 240.3a51–1. § 240.10A–1. § 240.12b–2. § 240.12g–3. § 240.13a–10. § 240.13b2–2. § 240. 15c3–1g. § 240.15d–2. § 240.15d–10. § 240.17a–5. § 240.17a–12. § 240.17g–3. § 240.17h–1T. § 249.210. § 249.220f. § 249.240f. § 249.310. § 249.311. § 249.312. § 249.617. § 274.12. § 239.24 and 274.5. § 239.15A and 274.11A. § 239.14 and 274.11a–1. § 239.17a and 274.11b. 50150 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations CFR citation (17 CFR) Commission reference Form N–4 .................................................................................................................................................................... Form N–6 .................................................................................................................................................................... daltland on DSKBBV9HB2PROD with RULES2 I. Introduction and Background 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 1 17 CFR 210.10 through 210.12–29. 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. 2 17 VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 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 PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 § 239.17b and 274.11c. § 239.17c and 274.11d. 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 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. E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Surface Transportation Act 13 (the ‘‘FAST Act’’). 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 nonaccelerated filers,16 as well as emerging growth companies 17 (‘‘EGCs’’) and daltland on DSKBBV9HB2PROD with RULES2 13 Public Law 114–94. 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 nonaffiliates 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 VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 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: • Amendments involving Regulation S–K relate to domestic issuers 21 and foreign private issuers that elect to file on forms used by domestic issuers. • 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 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. 21 Domestic issuers include foreign issuers that do not meet the definition of foreign private issuer. PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 50151 than U.S. GAAP or IFRS 22 with a reconciliation to U.S. GAAP.23 • 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. Some of the amendments also affect asset-backed issuers.25 2. Issuers Offering Securities Under Regulation A Some of the amendments affect Regulation A issuers, as follows: 26 • 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 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. 24 For example, these forms include Forms F–1, F–3, F–4, and 20–F. 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. 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. E:\FR\FM\04OCR2.SGM 04OCR2 50152 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations under U.S. GAAP or Canadian issuers that report under IFRS.27 In this release, we have highlighted the Commission disclosure requirements that affect Regulation A issuers.28 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. daltland on DSKBBV9HB2PROD with RULES2 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 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. 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. 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. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 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 standardsetting projects related to disclosure framework and materiality, information that is material under the current disclosure framework would no longer be provided to investors.34 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. 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. 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)] PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 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. 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 private40 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). 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’’ E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations 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 2. Interaction of Commission Disclosure Requirements and U.S. GAAP daltland on DSKBBV9HB2PROD with RULES2 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 for purposes of the federal securities laws. See 2003 FASB Policy Statement. 47 See https://www.fasb.org/jsp/FASB/Page/ SectionPage&cid=1351027215692. See also pages 2 and 5 of the FASB Rules of Procedures, available at https://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. 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)]. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 amendments we are adopting revise or eliminate Commission disclosure requirements related to information that is addressed by more recently updated U.S. GAAP requirements. 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 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 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 nonSRCs, disclosure of the effect on retained earnings. 54 See letters from CAQ; CFA; Grant; and KPMG. 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- PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 50153 that such an approach could result in ‘‘unnecessarily costly’’ disclosure by entities that are not issuers. 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 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 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. 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 https:// fasb.org/cs/ContentServer?c=Document_C&cid= 1176162391050&d=&pagename=FASB%2 FDocument_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 https:// www.ifrs.org/About-us/Pages/IFRS-Foundationand-IASB.aspx. 59 See Section II.B of the 2003 FASB Policy Statement. E:\FR\FM\04OCR2.SGM 04OCR2 50154 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations 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. daltland on DSKBBV9HB2PROD with RULES2 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 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 SarbanesOxley Act. 61 See supra note 59. 62 FASB Exposure Draft, Notes to Financial Statements (Topic 235): Assessing Whether Disclosures Are Material (Sept. 24, 2015), available at: https://www.fasb.org/jsp/FASB/Document_C/ DocumentPage?cid=1176166402325&accepted Disclaimer=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: https:// 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: https:// fasb.org/jsp/FASB/FASBContent_C/ProjectUpdate Page&cid=1176164227056. See also Minutes from FASB Board Meeting (May 29, 2014), available at: https://www.fasb.org/jsp/ FASB/FASBContent_C/ProjectUpdatePage&cid= 1176164227056. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 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 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 66 See Minutes from FASB Board Meeting (May 29, 2014), available at: https://www.fasb.org/jsp/ FASB/FASBContent_C/ProjectUpdatePage&cid= 1176164227056. 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. PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 consistent.70 Several commenters were supportive of interim disclosure requirements and supported the FASB’s tentative decision.71 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. 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 70 See, e.g. letters from CAQ; E&Y; and KPMG. letters from CAQ; CFA; KPMG; and PricewaterhouseCoopers LLP (Nov. 1, 2016) (‘‘PwC’’). 72 See summary of decisions reached at the FASB Board Meeting (Mar. 21, 2018), available at: https:// www.fasb.org/jsp/FASB/FASBContent_C/Project UpdateExpandPage&cid=1176170687841. 73 See Project Update for Disclosure Framework: Board’s Decision Process, available at: https:// fasb.org/jsp/FASB/FASBContent_C/ProjectUpdate Page&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. 71 See E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations 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 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: • 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 76 See Sections II.B., III.B., and V.B. below. Act Rule 12b–20 [17 CFR 240.12b– 77 Exchange daltland on DSKBBV9HB2PROD with RULES2 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. 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. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 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.’’ • 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.’’ 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 81 Public Law 104–67, 109 Stat. 737 (1995). 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. 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). 82 For PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 50155 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 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. 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 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. 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. 90 The proposed amendments that give rise to Disclosure Location Prominence or Financial Statement Considerations include those discussed E:\FR\FM\04OCR2.SGM Continued 04OCR2 50156 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations 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. 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 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. Commission disclosure requirement proposed for elimination Description of commission disclosure requirement proposed for elimination 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 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 Corresponding U.S. GAAP requirement Consolidation All except fourth sentence of Rule 3A–02(b)(1) of Regulation S–X. First sentence of Rule 3A–02(d) of Regulation S–X. Last two sentences of first paragraph of Rule 3A–02 of Regulation S–X and 3A–03(a) of Regulation S–X. First sentence of Rule 3A–04 of Regulation S– X. Permits consolidation of an 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. Requires consideration of the propriety of consolidation under certain restrictions.100 Requires disclosure of the accounting policies followed in consolidation or combination.101 ASC 810–10–45–12.99 Requires elimination of intercompany transactions. ASC 323–10–35–5a and ASC 810–10–45–1 through 45–9. ASC 810–10–15–10. ASC 235–10–50–1 and ASC 810–10–50–1. Obligations Reference to issuances in Rule 4–08(f) of Regulation S–X. Requires disclosure of significant changes 102 in amounts of debt issued subsequent to the latest balance sheet date. ASC 855–10–50–2 and 855–10–55–2a. Income Tax Disclosures daltland on DSKBBV9HB2PROD with RULES2 First sentence of Rule 4–08(h)(2) of Regulation S–X. 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 VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 Requires an income tax rate reconciliation ..... 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. 92 ASC 830–10–45–2, ASC 830–10–45–12, and ASC 830–10–55–10. PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 ASC 740–10–50–12. 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. 97 These proposed amendments are discussed in further detail in Section II.B of the Proposing Release. 98 See supra note 23. E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Commission disclosure requirement proposed for elimination Description of commission disclosure requirement proposed for elimination Fourth sentence of Rule 4–08(h)(2) of Regulation S–X. Permits the income tax rate reconciliation to be presented in either percentages or dollars. 50157 Corresponding U.S. GAAP requirement ASC 740–10–50–12 Warrants, Rights, and Convertible Instruments Rule 4–08(i) of Regulation S–X ......................... Requires disclosure of the title and amount of securities subject to warrants or rights, the exercise price, and the exercise period.103 Non-compensatory 104 warrants or rights: ASC 505–10–50–3 and ASC 815–40–50–5. Compensatory warrants or rights: ASC 505– 10–50–3, ASC 718–10–50–1, and ASC 718–10–50–2. Related Parties Reference to identification of related party transactions in Rule 4–08(k)(1) of Regulation S–X. Requires identification of related party transactions. ASC 850–10–50–1. Contingencies References to ‘‘material contingencies’’ in Rule 8–03(b)(2),105 the second sentence of Rule 10–01(a)(5) of Regulation S–X, and the entire last sentence of Rule 10–01(a)(5) of Regulation S–X.106 Require disclosure of material contingencies in interim financial statements, notwithstanding disclosure in the annual financial statements. ASC 270–10–50–6. Earnings per Share Reference to ‘‘earnings per share’’ in first sentence of Rule 10–01(b)(2) of Regulation S–X. Requires presentation of earnings per share on the face of an interim income statement. ASC 270–10–50–1b. Item 601(b)(11) of Regulation S–K 107 and Instruction 6 to ‘‘Instructions as to Exhibits’’ of Form 20–F. Require disclosure of the computation of earnings per share in annual filings. ASC 260–10–50–1a, Rule 10–01(b)(2) of Regulation S–X, and IAS 33, paragraph 70.108 Insurance Companies Last sentence of Rule 7–03(a)(11) of Regulation S–X. Rule 7–04.3(c) of Regulation S–X ..................... Requires a description of the activities being reported in the separate accounts.109 Requires disclosure of the method followed in determining the cost of investments sold.110 ASC 944–80–50–1a. ASC 235–10–50–1 and ASC 320–10–50–9b. Bank Holding Companies Rule 9–03.6(a) of Regulation S–X ..................... Rule 9–03.7(d) of Regulation S–X ..................... First part of Rule 9–04.13(h) of Regulation S–X Requires disclosure of the carrying and market values of (1) securities of the U.S. Treasury and other U.S. Government agencies and corporations, (2) securities of states of the U.S. and political subdivisions, and (3) other securities. Requires disclosure of changes in the allowance for loan losses. Requires disclosure of the method followed in determining the cost of investment securities sold. ASC 320–10–50–1B, ASC 320–10–50–2, ASC 320–10–50–5, and ASC 942–320–50– 2. ASC 310–10–50–11B(c). ASC 235–10–50–1 and ASC 320–10–50–9b. Changes in Accounting Principles Requirement to disclose reason for change in accounting principle in Rule 8–03(b)(5) 111 and Rule 10–01(b)(6) 112 of Regulation S–X. Requires disclosure of the reasons for making material accounting changes in an interim period. ASC 250–10–45–12 to 16, ASC 250–10–50– 1a, and ASC 270–10–50–1g. Interim Adjustments daltland on DSKBBV9HB2PROD with RULES2 Third sentence of Rule 3–03(d) and third sentence of Rule 10–01(b)(8) of Regulation S–X. Provide examples of adjustments in order for interim financial statements to be fairly stated. ASC 270–10–45–10. Interim Financial Statements—Common Control Transactions Part of first sentence of Rule 10–01(b)(3) of Regulation S–X. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 Requires that common control transactions be reflected in current and prior comparative period’s interim financial statements. PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 ASC 805–50–45–1 to 5. E:\FR\FM\04OCR2.SGM 04OCR2 50158 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Commission disclosure requirement proposed for elimination Description of commission disclosure requirement proposed for elimination Corresponding U.S. GAAP requirement Interim Financial Statements—Dispositions Rule 10–01(b)(5) of Regulation S–X .................. 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. Requires disclosure of the effect of discontinued operations on interim revenues, net income, and earnings per share for all periods presented. 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 Commission disclosure requirement proposed for elimination Description of commission disclosure requirement proposed for elimination ASC 205–20–50–5B, ASC 205–20–50–5C, ASC 260–10–45–3, and ASC 270–10–50– 7. 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. Corresponding other commission disclosure requirement Foreign Currency Last sentence of Rule 3–20(d) of Regulation S– X. States that foreign private issuers must comply with Item 17(c)(2) of Form 20–F, which requires disclosure and quantification of departures from the methodology of Rule 3– 20 if their financial statements are prepared on a basis other than U.S. GAAP or IFRS. Item 17(c)(2) of Form 20–F. Also Item 4 of Form F–1, General Instructions I.B of Form F–3, and Items 11, 12, and 13 of Form F–4, which indirectly refer to Item 17 of Form 20–F. Consolidation Rule 4–08(a) of Regulation S–X ........................ Requires compliance with Article 3A.114 Rule 3A–01 of Regulation S–X .......................... States subject matter of Article 3A .................. Article 3A itself requires compliance. The requirement is repeated in Rule 4–08(a). The same information is set forth in the title of Article 3A. Report Furnished to Security Holders daltland on DSKBBV9HB2PROD with RULES2 Item 601(b)(19) of Regulation S–K. 115 Provides specific instructions to address the incorporation by reference into Form 10– Q 116 of information that is separately made available to security holders. 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 VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 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 weightedaverage 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. PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 General Instruction D(3) to Form 10–Q, which refers to Item 601(b)(13) of Regulation S– K.117 108 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. 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. E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations 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 refer them to the FASB for potential incorporation into U.S. GAAP. 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 The Proposing Release identified several disclosure requirements that the Commission believed to be overlapping with U.S. GAAP. III. Overlapping Requirements daltland on DSKBBV9HB2PROD with RULES2 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 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.’’ 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. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 B. Overlapping Requirements— Proposed Deletions 1. Overlapping Disclosure Requirements With U.S. GAAP a. Repurchase and Reverse Repurchase Agreements 121 (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. (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. 121 See the related discussion in Section III.D.5. Accounting Standards Update (‘‘ASU’’) No. 2014–11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. 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. 122 See PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 50159 (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 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.133 127 See Rule 4–08(m)(1)(ii) of Regulation S–X. ASC 860–30–50–7. 129 See ASC 860–30–55–4. 130 Id. 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. 128 See E:\FR\FM\04OCR2.SGM 04OCR2 50160 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations 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 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 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. daltland on DSKBBV9HB2PROD with RULES2 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. 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: https://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. 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. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 (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. 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. 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, 138 See Rule 4–08(m)(2)(i)(B)(1) of Regulation S– X. 139 See ASC 860–30–50–1Aa. 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. 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 140 See PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 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 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 (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 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’’). 147 See letter from Clearing House. 148 See letters from As You Sow, et al. and Public Citizen. 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. E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations 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. 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. 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 151 See ASC 235–10–50–1 and ASC 235–10–50– 3. daltland on DSKBBV9HB2PROD with RULES2 152 See ASC 815–10–50. 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 153 See VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 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. 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 (3) Final Amendments We are eliminating most of the requirements in Rule 4–08(n) as proposed. However, after additional 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. 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. PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 50161 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 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. 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 Regulation S–K also uses the term ‘‘company-sponsored,’’ but U.S. GAAP 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. 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. 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’’). E:\FR\FM\04OCR2.SGM 04OCR2 50162 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations 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 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 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 companysponsored 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 daltland on DSKBBV9HB2PROD with RULES2 167 Id. 168 See Small Business Initiatives, Release No. 33– 6949, (Jul. 30, 1992) [57 FR 36442 (Aug. 13, 1992)]. 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. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 between Commission disclosure requirements and U.S. GAAP. 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. 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 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 171 Item 7(a)(1)(iii) of Form 1–A. letters from CAQ; Deloitte; E&Y; Grant; KPMG; and PwC. 173 See letter from KPMG. 174 See letter from E&Y. 172 See PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 understanding a company’s ability to create long-term value for shareholders.175 (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. 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 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 175 See letter from CalSTRS. 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.’’ 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)]. 176 For E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations 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. 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 (3) Final Amendments daltland on DSKBBV9HB2PROD with RULES2 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 cases, would elicit information for a broader array of potentially dilutive arrangements. For example, disclosure of the existence of contingently issuable shares is not an explicit requirement in Item 201(a)(2)(i), though it is explicitly contemplated by the U.S. GAAP requirement.182 178 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. 180 See letters from CAQ; Deloitte; E&Y; Grant; KPMG; and PwC. 181 See letter from Bean. 182 See ASC 260–10–50. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 e. Equity Compensation Plans (1) Proposed Amendments Regulation S–K prescribes the form and content for the disclosure of existing equity compensation plans where equity securities are authorized for issuance.183 This information is currently required in Part III of Form 10–K, Item 11 of Form S–1, Item 9 of Form 10, and Item 10 of Schedule 14A.184 In 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (‘‘SFAS No. 123R’’), which resulted in disclosures that overlap with Item 201(d).185 Regulation S–K incrementally requires: (1) For options, warrants, or rights assumed in a business combination, disclosure of the number of securities to be issued upon exercise and the weighted-average exercise price,186 and (2) disclosure of any formula for calculating the number of securities available for issuance under the plan.187 Item 201(d) further provides instructions about the aggregation of equity compensation plan disclosures. Although these requirements are not explicitly contained in U.S. GAAP, the Commission stated in the Proposing Release that it believes the U.S. GAAP requirement to provide disclosures to enable investors to understand the nature and terms of equity compensation arrangements and the potential effects of those arrangements on shareholders 188 would result in reasonably similar disclosures. Regulation S–K also incrementally requires disaggregation of information between equity compensation plans approved by security holders and those not approved by security holders. The Commission adopted these requirements in 2001 189 before the major national securities exchanges required listed issuers to have, with limited exceptions, shareholder approved plans.190 Because the 183 See Item 201(d) of Regulation S–K. 1 of Schedule 14C [17 CFR 240.14c–101] also requires inclusion of the information that would have been provided in a Schedule 14A if proxies were being solicited even though consents are not being solicited by the information statement. 185 See ASC 718–10–50–1 to 4. Additionally, ASC 505–50–50–1 requires similar disclosure when share based payments are made to non-employees. 186 See Instruction 5 to Item 201(d). 187 See Instruction 8 to Item 201(d). 188 ASC 718–10–50–1a. 189 See Disclosure of Equity Compensation Plan Information, Release No. 33–8048 (Dec. 21, 2001) [67 FR 232 (Jan. 2, 2002)]. 190 For example, the New York Stock Exchange (‘‘NYSE’’) listing standard does not require shareholder approval of employment inducement awards, certain grants, plans, and amendments in the context of mergers and acquisitions, and certain other specific types of plans. See Self-Regulatory 184 Item PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 50163 exchanges 191 on which the majority of domestic issuers, representing substantially all domestic issuer market capitalization, are listed now have such requirements, the Commission stated in the Proposing Release that it believed disaggregation of the disclosures about the plans in this manner is no longer useful to investors.192 Based on the foregoing, the Commission proposed to delete Item 201(d) and the references to it in Part III of Form 10–K and Item 10(c) of Schedule 14A. These proposed amendments would not affect the disclosures related to new plans or modifications of existing plans subject to shareholder action.193 Because disclosures required by Item 201(d) are located with related information about the issuer’s common equity and related stockholder matters, while the corresponding disclosures are in the notes to the financial statements, the proposed amendments give rise to Disclosure Location—Prominence Considerations. In particular, as a result of the proposed amendments, Item 201(d) disclosures would no longer be provided in Schedule 14A 194 alongside information on equity compensation plans subject to security holder action. Instead, investors would obtain that information from the notes to the financial statements in the separate Organizations; New York Stock Exchange, Inc. and National Association of Securities Dealers, Inc.; Order Approving NYSE and Nasdaq Proposed Rule Changes and Nasdaq Amendment No. 1 and Notice of Filing and Order Granting Accelerated Approval to NYSE Amendments No. 1 and 2 and Nasdaq Amendments No. 2 and 3 Thereto Relating to Equity Compensation Plans, Release No. 34–48108 (June 30, 2003) [68 FR 39995 (Jul. 3, 2003)]. See also New York Stock Exchange, Listed Company Manual § 303A.08; Nasdaq Listing Rule 5635(c) and IM– 5635–1; American Stock Exchange Rulemaking Re: Shareholder Approval of Stock Option Plans and Other Equity Compensation Arrangements, Release No. 34–48610 (Oct. 9, 2003) [68 FR 59650 (Oct. 16, 2003)]; and NYSE MKT Company Guide § 711. 191 These exchanges are the NYSE, NYSE MKT, and Nasdaq. 192 One commenter on the Disclosure Effectiveness Initiative recommended that Item 201(d)(3), which requires the material features of non-shareholder approved equity compensation plans, be deleted, noting that such plans are either not material or covered by other disclosure requirements. See letter from Disclosure Effectiveness Working Group of the Federal Regulation of Securities Committee and the Law & Accounting Committee of the American Bar Association (‘‘ABA Committee’’) (Mar. 6, 2015), available at https://www.sec.gov/comments/ disclosure-effectiveness/disclosureeffectiveness. shtml. 193 See Items 10(a), 10(b), and the Instructions to 10(c) of Schedule 14A. 194 The proposed amendment to delete the Item 201(d) requirements from Schedule 14A would result in such information being omitted from information statements filed on Schedule 14C disclosing adoption of an equity compensation plan when shareholder consents are not being solicited. E:\FR\FM\04OCR2.SGM 04OCR2 50164 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Form 10–K filing. With the proposed amendments, issuers may also be less willing to voluntarily supplement the required disclosures in the notes to the financial statements with forwardlooking information because note disclosures are not subject to the safe harbor under the PSLRA. (2) Comments on Proposed Amendments Some commenters 195 supported the proposed amendments, but a number of commenters 196 opposed eliminating certain Item 201(d) disclosure requirements. Some commenters expressed concern that the proposed amendments would eliminate the requirement to disclose the number of shares available for future issuance,197 which they stated is material to shareholders.198 Other commenters 199 opposed deleting the requirement to disclose the formula for calculating the number of securities available for issuance under the equity compensation plan.200 These commenters indicated that such disclosure is not likely to occur without further clarification of how the general disclosure principle in U.S. GAAP applies to the calculation, and recommended we refer this item to the FASB for potential incorporation into U.S. GAAP. Additionally, some commenters opposed the deletion of the disaggregation disclosure requirement.201 daltland on DSKBBV9HB2PROD with RULES2 (3) Final Amendments After further consideration, we are retaining the equity compensation plans disclosure requirements and are referring them to the FASB for potential incorporation into U.S. GAAP. We recognize the concerns expressed by commenters that U.S. GAAP does not explicitly require certain information, such as the formula for calculating the number of securities available for issuance under the plan. This information may be material to investors in making informed decisions about the scope of an issuer’s equity compensation program and the potential dilutive effect, both economically and in voting power, of awards authorized for issuance under all equity compensation plans. 195 See letters from E&Y; FedEx Corporation (Nov. 2, 2016) (‘‘FedEx’’); Grant; and KPMG. 196 See, e.g. letters from AFL–CIO and AFR; CalSTRS; CalPERS; CAQ; and Public Citizen. 197 See Instruction 5 of Item 201(d) of Regulation S–K. 198 See, e.g. letter from AFL–CIO and AFR. 199 See letters from CAQ; Deloitte; and PwC. 200 See Instruction 8 of Item 201(d) of Regulation S–K. 201 See letters from As You Sow, et al. and Public Citizen. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 f. Ratio of Earnings to Fixed Charges (1) Proposed Amendments Regulation S–K requires issuers that register debt securities to disclose the historical and pro forma ratios of earnings to fixed charges.202 Regulation S–K also requires issuers that register preference equity securities to disclose the historical and pro forma ratio of combined fixed charges and preference dividends to earnings (collectively, ‘‘ratio of earnings to fixed charges’’).203 Regulation S–K further requires the filing of an exhibit setting forth the computation of any ratio of earnings to fixed charges.204 Similarly, Instruction 7 to ‘‘Instructions as to Exhibits’’ of Form 20–F requires foreign private issuers to disclose how any ratio of earnings to fixed charges presented in the filing was calculated. U.S. GAAP and IFRS require disclosure of many of the components commonly used in this ratio (e.g., income, interest expense, lease expense), as well as information from which other ratios that convey reasonably similar information about an issuer’s ability to meet its financial obligations may be computed. A variety of analytical tools are available today to investors that may accomplish a similar objective as the ratio of earnings to fixed charges. This ratio measures the issuer’s ability to service fixed financing expenses— specifically, interest expense, including management’s approximation of the portion of lease expense that represents interest expense, and preference dividend requirements—from earnings. Other ratios that accomplish similar objectives include other variations of the ratio of earnings to fixed charges,205 the interest coverage ratio,206 and the debt-service coverage ratio,207 which can be calculated based on information readily available in the financial statements. Certain components commonly used in the ratio of earnings to fixed charges, such as the portion of 202 See Item 503(d) and Item 1010(a)(3) of Regulation M–A. These requirements only apply to non-SRCs. See Item 503(e) and Item 601(c) of Regulation S–K. 203 Id. 204 Item 601(b)(12). 205 Other variations of the ratio of earnings to fixed charges include alternative earnings measures such as earnings before interest and taxes and alternative fixed charges measures such as total lease payments and one-third of lease payments (to approximate the interest component in lease payments). 206 The interest coverage ratio is often calculated as earnings before interest and taxes divided by interest payments. 207 The debt-service coverage ratio is often calculated as operating income divided by total debt service. PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 lease expense that represents interest 208 and the amortization of capitalized interest, are not readily available elsewhere. Despite this, the requirement to disclose the ratio of earnings to fixed charges, as opposed to the various components (e.g., income, interest expense, lease expense) of this ratio that investors may use as desired, may place undue emphasis on this particular measure. Moreover, while debt agreements may contain fixed charge coverage covenants,209 debt investors often negotiate contractual agreements with issuers to obtain financial information to meet their needs,210 which may be more relevant and useful than a 208 In January 2016, the IASB issued IFRS 16, Leases, which is effective on January 1, 2019, with early application permitted in certain circumstances. Under IFRS 16, interest expense will be recognized for all leases with a term of more than 12 months, unless the underlying asset is of low value. In February 2016, the FASB issued ASU No. 2016–02, Leases (Topic 842) (‘‘ASU No. 2016–02’’), which is effective for fiscal years beginning after December 15, 2018, with early application permitted. Under ASU No. 2016–02, leases with a term of more than 12 months will be classified into one of two types, with one type requiring recognition of an interest expense component (a finance lease) and the other type requiring recognition of lease expense without separate recognition of interest expense (an operating lease). Like IFRS 16, interest expense will not be recognized on leases with a term less than 12 months. Interested parties may still need to estimate the portion of lease expense that is viewed to represent interest for operating leases in order to determine the components of the ratio of earnings to fixed charges, which will be facilitated by disclosure of the weighted-average discount rate for operating leases required by ASU No. 2016–02. 209 See Gerald T. Nowak P.C., Negotiating the High-Yield Indenture, (Feb. 17, 2009), available at https://www.pli.edu/emktg/toolbox/HighYield_ Indenture13.pdf (noting that a typical high-yield credit agreement might require the debtor to maintain a certain level of revenue or a certain ratio of earnings to fixed charges). See also Li, Ningzhoung, Performance Measures in EarningsBased Financial Covenants in Debt Contracts, LONDON BUS. SCH. (2011) available at https:// www.olin.wustl.edu/docs/Faculty/Performance_ measures_in_earnings_based_financial_ covenants.pdf (noting that fixed charge coverage covenants are common in loan documents). 210 One commenter on the Disclosure Effectiveness Initiative stated: ‘‘Many of [the financial metrics debt investors use to evaluate an issuer’s financial position and liquidity] are reflected in the measures of performance or liquidity that are defined in the issuers’ debt instruments. For investors in such instruments, a metric that is tied to a contractually defined covenant test is more useful than the SEC-mandated disclosure. Importantly, our experience is that market participants in unregistered debt offerings— initial purchasers as well as institutional investors—do not generally request or require that the SEC-prescribed ratio of earnings to fixed charges be included in the offering document; instead, issuers disclose one or more interest coverage ratios or similar financial metrics that are calculated with reference to the instruments governing the securities being offered.’’ See letter from ABA Committee (Mar. 6, 2015), available at https:// www.sec.gov/comments/disclosure-effectiveness/ disclosureeffectiveness-32.pdf. E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations prescribed disclosure of a ratio of earnings to fixed charges. Companies are also required to discuss the material impacts of these covenants to the extent that they are reasonably likely to limit the company’s ability to undertake additional financing or are reasonably likely to be breached.211 Based on these considerations, the Commission proposed to remove the requirement to disclose the ratio of earning to fixed charges by deleting Item 503(d) and Item 601(b)(12).212 The Commission also proposed to delete Instruction 7 to ‘‘Instructions as to Exhibits’’ of Form 20–F. commenters indicated that, in its experience, the ratio of earnings to fixed charges is generally not used by investors or other users of financial statements, and debt covenant financial requirements may already be disclosed where material 214 and vary significantly from company to company.215 Another commenter, while supportive of the proposed amendments, recommended that the Commission obtain feedback from investors about the continued utility of the pro forma ratio disclosure, as information on a pro forma basis may not be as readily available.216 (2) Comments on Proposed Amendments Commenters were supportive of the proposed amendments.213 One of these (3) Final Amendments commenter suggested that pro forma information may be less readily available, we note that information about the offering’s effect on fixed charges, such as the interest rate, maturities, and amount of proceeds used to discharge indebtedness, is currently required by Item 504 of Regulation S–K.217 g. Other (1) Proposed Amendments The table below describes each of the remaining disclosure requirements that are overlapping with U.S. GAAP and the proposed amendments.218 We are adopting the amendments as proposed, including the elimination of the pro forma ratio. Although one Topic Commission disclosure requirement(s) Proposed amendments REIT Disclosures—Undistributed Gains or Losses on the Sale of Properties. Rule 3–15(a)(2) of Regulation S–X ....... Consolidation—Difference in Fiscal Periods. Rule 3A–02(b)(1) of Regulation S–X ..... Consolidation—Changes in Fiscal Periods. Final sentence of Rule 3A–03(b) of Regulation S–X. Distributable Earnings for Registered Investment Companies. Rule 6–04.17 of Regulation S–X ........... Delete as U.S. GAAP 219 also sets forth presentation of components of stockholders’ equity and the incremental requirement to separately present undistributed gain/loss on the sale of properties on a book basis is not useful to investors because of the unique tax status of REITs.220 Delete as U.S. GAAP 221 requires similar presentations. The incremental requirements in Rule 3A–02(b)(1) (1) to disclose the subsidiary’s fiscal year closing date and (2) an explanation of the necessity for using different closing dates are no longer useful to investors because U.S. GAAP’s requirements to recognize by disclosure or otherwise the effect of intervening events that materially affect the financial position or results of operations eliminates the effect of differences in the fiscal periods of the issuer and its subsidiaries. Delete the final sentence of this requirement as U.S. GAAP 222 provides similar, but more specific, requirements, which limit potential changes, provide for more consistency in issuer financial statements and result in better financial reporting. Amend to require presentation of the total, rather than the components, of distributable earnings on the balance sheet. U.S. GAAP 223 requires similar presentation and the incremental requirement to separately present three components of distributable earnings on a book basis is not useful to investors because they do not provide insight into the tax implications of distributions.224 Delete the requirement for parenthetical disclosure of undistributed net investment income on the statement of changes in net assets on a book basis, as it does not provide insight into the tax implications of distributions. Delete as U.S. GAAP 225 does not limit its disclosure to certain assumptions, and therefore, it may elicit more disclosure. Delete the requirement for disclosure of the date of any material accounting change, as U.S. GAAP 226 requires disclosure of the accounting change in the period of the change. Rule 6–09.7 of Regulation S–X ............. Insurance Companies—Liability Assumptions. Interim Financial Statements—Changes in Accounting Principles. Rule 7–03(a)(13)(b) of Regulation S–X Rule 8–03(b)(5) and Rule 10–01(b)(6) of Regulation S–X. (2) Comments on Proposed Amendments Commenters supported these proposed amendments.227 In addition, 211 See 2003 MD&A Release. Commission additionally proposed conforming revisions to Item 503(e), Item 601(c), the Exhibit Table in Item 601, Item 1010(a)(3), Item 1010(b)(2), Item 1010(c)(4), Item 3 of Form S–1, Item 3 of Form S–3, Item 3 of Form S–4, Item 3 of Form S–11, Item 3 of Form F–1, Item 3 of Form F– 3, and Item 3 of Form F–4. 213 See, e.g. letters from CAQ; CGCIV; National Association of Real Estate Investments Trusts (Oct. 28, 2016) (‘‘NAREIT’’); and Shearman and USCC. 214 For example, the 2003 MD&A release (https:// www.sec.gov/rules/interp/33-8350.htm) states that if covenants limit, or are reasonably likely to limit, a company’s ability to undertake financing to a material extent, the company is required to discuss the covenants in question and the consequences of the limitation to the company’s financial condition and operating performance. 215 See letter from FedEx. 212 The daltland on DSKBBV9HB2PROD with RULES2 50165 VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 216 See letter from Deloitte. 504 of Regulation S–K requires disclosure of the principal purposes for which the net proceeds to the registrant from the securities to be offered are intended to be used and the approximate amount intended to be used for each such purpose. In addition, Instruction 4 of Item 504 of Regulation S–K requires disclosure of the interest rate and maturity of such indebtedness, if any material part of the proceeds is to be used to discharge indebtedness. 218 These proposed amendments are discussed in further detail in Section III.C of the Proposing Release. 219 See, e.g., ASC 505–10–45. 220 As described in the Proposing Release, REITs are not subject to entity-level taxation on the amounts distributed to their investors. Rather, their investors are liable for taxes on these distributions, depending on the character of the dividends (i.e., 217 Item PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 commenters identified another overlapping requirement in Regulation ordinary income, capital gains, or return of capital) the REIT distributes to them. Because the amount of undistributed gains or losses required by Rule 3– 15(a)(2) of Regulation S–X is not presented on a tax basis, this disclosure does not provide investors with insight into the tax implications of the REIT’s distributions. 221 See ASC 810–10–45–12. 222 See ASC 810–10–45–13. 223 See ASC 946–20–50–11. 224 Similar to REITs, registered investment companies are generally structured such that they are not subject to entity-level taxation on the amounts distributed to their investors. 225 See ASC 944–40–50. 226 See ASC 250–10–50–1 and ASC 270–10–50– 1g. 227 See, e.g. letters from CAQ and NAREIT. E:\FR\FM\04OCR2.SGM 04OCR2 50166 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations S–X for Registered Investment Companies.228 The commenters noted that Rule 6–09.3 of Regulation S–X requires separate disclosure of distributions paid to shareholders from (a) Investment income—net; (b) realized gain from investment transactions—net; and (c) other sources, while U.S. GAAP requires distributions paid to be disclosed as a single line item.229 These commenters recommended amending Regulation S–X to align it with the requirements in U.S. GAAP. as a 2. Other Overlapping Disclosure Requirements The Proposing Release also identified overlapping Commission disclosure requirements. These disclosure requirements and the related proposed amendments are described in the table below.230 Proposed amendments Rule 3–15(b) of Regulation S–X ... Delete, as Regulation S–K 231 requires similar disclosures and the incremental requirement to disclose assumptions in making or not making federal income tax provisions is encompassed by the disclosures provided to comply with Regulation S–K.232 Delete requirement to disclose the frequency and amount of cash dividends declared, as amended Rule 3–04 of Regulation S–X 233 will require disclosure of the amount of dividends in interim periods, similar to Item 201(c)(1). In addition, the frequency of dividends will be evident from this disclosure. Delete, as this disclosure does not provide additional value to investors because those participating in the competitive bid would directly receive the invitation and all other investors would have access to the registration statement covering the securities offered at competitive bidding, as well as the results of the competitive bidding and the terms of reoffering. Dividends ......................................... Item 201(c)(1) of Regulation S–K Invitations for Competitive Bids ...... Item 601(b)(26) of Regulation S– K 234. (1) Proposed Amendments Regulation S–X 236 and U.S. GAAP 237 both require supplemental pro forma information about business combinations in the notes to interim financial statements. These disclosure requirements differ in two ways: (1) Scope and (2) the line items required to be disclosed. Notwithstanding these differences, the Proposing Release noted that U.S. GAAP and Item 9.01 of Form 8–K 238 result in disclosures reasonably similar to the corresponding requirements in Regulation S–X. Regulation S–X requires disclosure of pro forma information for ‘‘significant’’ business combinations for SRCs and Regulation A issuers in a Tier 2 offering that report under U.S. GAAP and ‘‘material’’ business combinations for non-SRCs. U.S. GAAP, on the other hand, does not qualify the size of the business combinations to which pro forma information requirements apply. Accordingly, the requirements in U.S. GAAP apply to the same or a greater number of business combinations and, thus, subsume the scope of the corresponding requirements in Regulation S–X. With respect to the line items required to be disclosed, Regulation S– X requires disclosure of pro forma revenue, net income, net income attributable to the issuer, and net income per share. Regulation S–X also requires SRCs and Regulation A issuers in a Tier 2 offering that report under U.S. GAAP to disclose pro forma income from continuing operations. U.S. GAAP only requires disclosure of pro forma revenue and earnings. This difference resulted from changes to U.S. GAAP, in part to converge with IFRS, in 2007.239 As a result of these changes, issuers are required to disclose more pro forma information about business combinations in interim periods than in annual periods,240 even though Regulation S–X generally imposes fewer obligations with regard to interim 228 See letters from E&Y and Investment Company Institute (Nov. 2, 2016). 229 See ASC 946–20–50–8. 230 These proposed amendments are discussed in further detail in Section III.C of the Proposing Release. 231 Items 101(a)(1), 503(c), and 303(a)(3)(ii) of Regulation S–K. 232 For REITs, the primary assumption in making or not making federal income tax provisions is the issuer’s continued REIT status and its consideration of the risks affecting its continued REIT status. Therefore, the Regulation S–K requirement to disclose significant risk factors and a description of known uncertainties that are reasonably expected to have a material effect on income elicit this information. In addition, issuers often repeat or expand on the Regulation S–X disclosures in their risk factor disclosures. 233 In this release, we are adopting amendments to Rule 8–03 and Rule 10–01 of Regulation S–X to mandate that Rule 3–04 be applied to interim periods. See Section V.B.2 below. 234 The Commission also proposed to delete its accompanying reference in the Exhibit Table within Item 601. 235 See, e.g. letters from CAQ; KPMG; and PwC. 236 See Rule 8–03(b)(4) and Rule 10–01(b)(4) of Regulation S–X. Rule 8–03(b)(4) specifically applies to SRCs and Regulation A issuers in a Tier 2 offering that report under U.S. GAAP, while 10– 01(b)(4) applies to non-SRCs. 237 See ASC 270–10–50–7, which refers to ASC 805–10–50–2h.3 for purposes of interim disclosures. 238 17 CFR 249.308. 239 For additional discussion of this difference, see Section III.C.9 of the Proposing Release, supra note 1, at 51621. 240 See ASC 805–10–50–2h.3. Commenters supported the proposed amendments.235 We are adopting all of the amendments described in the table above as proposed because investors will continue to receive similar information under other Commission disclosure requirements. 3. Overlapping Disclosure Requirements With Both U.S. GAAP and Other Commission Disclosure Requirements The Proposing Release identified several Commission disclosure requirements that overlap with both U.S. GAAP and other Commission disclosure requirements. a. Interim Financial Statements—Pro Forma Business Combination Information daltland on DSKBBV9HB2PROD with RULES2 requirement to separately present certain components is not useful to investors because of the unique tax status of registered investment companies. Commission disclosure requirement(s) Topic REIT Disclosures—Status REIT. (3) Final Amendments We are adopting all of the amendments described in the table above as proposed. We are also amending Rule 6–09.3 of Regulation S– X, as suggested by commenters and similar to the amendments to Rule 6.04– 17, to require presentation of the total, rather than the components, of distributions to shareholders, except for tax return of capital distributions. U.S. GAAP requires similar presentation of information as the Regulation S–X requirements, and the incremental VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations financial statements.241 Moreover, Rule 8–03(b)(4) requires SRCs and Regulation A issuers in a Tier 2 offering that report under U.S. GAAP to present more line items than the corresponding requirement in Rule 10–01(b)(4) for nonSRCs, even though Commission disclosure requirements, as a general matter, provide certain accommodations for SRCs 242 and Regulation A issuers. In proposing these amendments, the Commission noted that Item 9.01 of Form 8–K mitigates at least in part the absence of a U.S. GAAP requirement to present pro forma earnings per share, as it requires SRCs and non-SRCs to file pro forma financial information for significant acquisitions, including earnings per share, through the issuer’s most recently filed balance sheet.243 We note, however, this pro forma financial information would not cover the same periods as the pro forma information required under Rule 8–03(b)(4) and Rule 10–01(b)(4) for SRCs and non-SRCs, and Form 8–K does not apply to Regulation A issuers.244 Based on the foregoing, the Commission proposed to eliminate the requirements for pro forma financial information in interim filings for business combinations in Rule 8– 03(b)(4) and Rule 10–01(b)(4). (2) Comments on Proposed Amendments daltland on DSKBBV9HB2PROD with RULES2 241 For example, Article 8 and Article 10 of Regulation S–X permit the presentation of condensed financial statements, do not require audits of interim financial statements, allow issuers to assume that a user has read the preceding year’s audited financial statements, permit omission of details of accounts that have not changed significantly since the audited balance sheet date, and permit omission of the disclosures required by Rule 4–08 of Regulation S–X. 242 For example, SRCs are required to present two, rather than three, years of financial statements and are not required to present selected financial data in accordance with Item 301 of Regulation S– K [17 CFR 229.301]. 243 Rule 11–01(a) and Rule 11–02(b)(7) of Regulation S–X. [17 CFR 210.11–01(a)]. 244 For example, for a significant acquisition that occurs on September 1, 2015, the Form 8–K would contain pro forma financial information for the year ended December 31, 2014 and the six months ended June 30, 2015 and 2014. Under Rule 8–03(b)(4) and Rule 10–01(b)(4), however, the Form 10–Q for the nine months ended September 30, 2015 would be required to include pro forma disclosures for the nine months ended September 30, 2015 and 2014. 245 See letters from CAQ; Deloitte; E&Y; Grant; KPMG, and PwC. 22:38 Oct 03, 2018 (3) Final Amendments We are deleting the requirement for pro forma financial information in interim filings for business combinations in Rule 8–03(b)(4) and Rule 10–01(b)(4) as proposed. We continue to believe that U.S. GAAP, and Item 9.01 of Form 8–K for SRCs and non-SRCs, result in reasonably similar disclosures as the corresponding requirements we are deleting. We also believe the elimination of these requirements will not result in less frequent financial reporting about mergers and their impact on issuers because U.S. GAAP will continue to require disclosure of such activities in interim periods as well as year-end.249 b. Interim Financial Statements— Dispositions by SRCs and Tier 2 Regulation A Issuers (1) Proposed Amendments Several commenters supported the proposal to eliminate pro forma business combination financial information in interim filings.245 However, other commenters opposed eliminating these requirements, expressing concern over the level of disclosure about merger and acquisition VerDate Sep<11>2014 activities.246 One commenter stated that frequent financial reporting about mergers, such as pro forma results on an interim basis, results in the issuer more timely identifying and disclosing problems related to a merger.247 Another commenter recommended the disclosure requirements be improved rather than deleted because they provide a window into merger and acquisition activities.248 Jkt 247001 For significant dispositions, Regulation S–X requires SRCs and Regulation A issuers in a Tier 2 offering that report under U.S. GAAP to disclose in the notes to the financial statements pro forma information. The pro forma disclosure requirements for dispositions for these issuers are the same as described above for significant business combinations.250 There are two types of dispositions: (1) Those that meet the definition of discontinued operations and (2) all others (hereafter referred to as ‘‘other dispositions’’). U.S. GAAP requires that the effects of discontinued operations be isolated and separately presented on the income statement on a retrospective basis,251 thereby obviating the need for pro forma information for discontinued 246 See letters from As You Sow, et al. and Zevin. letter from Public Citizen. 248 See letter from Zevin. 249 See ASC 270–10–50, which requires disclosure of unusual and infrequent items and references business combinations. 250 See Rule 8–03(b)(4) of Regulation S–X, which requires pro forma revenue, income from continuing operations, net income, net income attributable to the issuer, and net income per share for all interim periods presented, as though the disposition occurred at the beginning of the periods. 251 See ASC 205–20–45. 247 See PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 50167 operations in the notes to the financial statements. For other dispositions, we believe the disclosures required by U.S. GAAP generally result in reasonably similar disclosures as the pro forma disclosures mandated by Rule 8–03(b)(4). Specifically, U.S. GAAP requires disclosure of pre-tax profit and pre-tax profit attributable to the parent for individually significant dispositions for all interim periods presented.252 However, U.S. GAAP does not contain an equivalent to the requirement in Rule 8–03(b)(4) to disclose pro forma revenues as if the other disposal occurred at the beginning of the periods presented. The Proposing Release noted that Item 9.01(b) of Form 8–K may help mitigate any loss of information about pro forma revenues, as it requires SRCs to file within four business days after a significant disposition, pro forma financial information pursuant to Rule 8–05 of Regulation S–X, including revenue, income from continuing operations, and income per share, through the most recently filed balance sheet date. This pro forma financial information would not cover the same periods as the separate results required under Rule 8–03(b)(4) and is not applicable to Regulation A issuers.253 In addition, Rule 8–03(b)(4) requires SRCs and Regulation A issuers in a Tier 2 offering that report under U.S. GAAP to disclose more information about dispositions in interim periods than in annual periods,254 even though Regulation S–X, as noted above, generally imposes fewer obligations with regard to interim financial statements. Moreover, Rule 8–03(b)(4) requires SRCs and Regulation A issuers in a Tier 2 offering that report under U.S. GAAP to disclose more extensive information about other dispositions than is required of non-SRCs,255 even though Commission disclosure requirements, as a general matter, provide certain scaled disclosure accommodations for SRCs.256 252 See ASC 270–10–50–7, which refers to ASC 360–10–50–3A for purposes of interim disclosures. 253 For example, for a significant disposal that occurs on August 3, 2017, the Form 8–K filed by August 7, 2017, would contain pro forma financial information for the year ended December 31, 2016 and the three months ended March 31, 2017 and 2016, as if the disposal had occurred on January 1, 2016. In contrast, Rule 8–03(b)(4) would require pro forma disclosures in the September 30, 2017 interim financial statements, filed on Form 10–Q by November 16, 2017, for the nine months ended September 30, 2017 and 2016, as if the disposal had occurred at the beginning of each period presented. 254 See ASC 360–10–50–3A. 255 See Rule 10–01(b)(5) of Regulation S–X. 256 See supra note 234. E:\FR\FM\04OCR2.SGM 04OCR2 50168 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Accordingly, the Commission proposed to delete the pro forma disclosure requirements in Rule 8– 03(b)(4). (2) Comments on Proposed Amendments Commenters 257 indicated that the requirement in Item 9.01 of Form 8– K 258 to provide pro forma financial information pursuant to Rule 8–05 does not sufficiently substitute for the pro forma disclosure requirement for significant dispositions in Rule 8– 03(b)(4) for SRCs because Item 9.01 of Form 8–K only refers to significant acquisitions and does not reference dispositions. Several of these commenters were nevertheless supportive of the proposed deletion because, in their observation, a number of issuers provide pro forma information for significant dispositions under Item 9.01 of Form 8–K despite there not being an explicit requirement.259 Some commenters recommended that the Commission amend Article 8 to encompass significant dispositions.260 (3) Final Amendments After further consideration, we are retaining the pro forma disposition disclosure requirement in Rule 8– 03(b)(4). We believe the views expressed by commenters about Item 9.01(b) of Form 8–K and its reference to the pro forma requirements for significant acquisitions in Article 8 of Regulation S–X 261 warrant additional analysis and consideration. c. Segments (1) Proposed Amendments daltland on DSKBBV9HB2PROD with RULES2 Item 101(b) of Regulation S–K requires disclosure of segment financial information, restatement of prior periods when reportable segments change, and discussion of interim segment performance that may not be indicative of current or future operations. U.S. GAAP 262 and Item 303(b) of Regulation S–K 263 require 257 See letters from BDO USA LLP (November 1, 2016) (‘‘BDO’’); CAQ; Deloitte; E&Y; and PwC. 258 Item 9.01(b)(1) of Form 8–K states, ‘‘For any transaction required to be described in answer to Item 2.01 of this form, furnish any pro forma financial information that would be required pursuant to Article 11 of Regulation S–X [17 CFR 210] or Rule 8–05 of Regulation S–X [17 CFR 210.8– 05] for smaller reporting companies.’’ 259 See letters from BDO; CAQ; Deloitte; E&Y; Grant; KPMG; and PwC. 260 See letters from BDO; CAQ; Deloitte; E&Y; and PwC. 261 Rule 8–05 of Regulation S–X. 262 See ASC 280–10–50–22, ASC 280–10–50–34, and ASC 280–10–50–35. 263 Specifically, Instruction 4 of Item 303(b) of Regulation S–K, which addresses interim periods, VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 similar disclosures. Moreover, Item 101(b) explicitly permits issuers to cross-reference between the notes to the financial statements and the description of business to avoid duplicative disclosures about segments. The Commission, therefore, proposed to delete Item 101(b). Regulation A issuers are similarly required to cross-reference to their segment disclosures under U.S. GAAP or IFRS.264 The Commission, therefore, also proposed to delete Item 7(b) of Form 1–A. Because the disclosure required by Item 101(b) of Regulation S–K and Item 7(b) of Form 1–A (or the cross-reference to the notes to the financial statements) are located in the business description section of the filing, while the corresponding U.S. GAAP disclosures are in the notes to the financial statements, the Commission noted in the Proposing Release that the proposed elimination gives rise to Disclosure Location—Prominence Considerations. (2) Comments on Proposed Amendments Most commenters supported the proposed amendments.265 One of these commenters 266 observed that another disclosure requirement,267 which requires segment disclosures for each year an audited financial statement is provided, also overlaps with U.S. GAAP.268 One commenter opposed the proposed amendments, stating that the segment disclosures in Item 101(b) of Regulation S–K, 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.269 requires that the registrant’s discussion of material changes in results of operations shall identify any significant elements of the registrant’s income or loss from continuing operations which do not arise from or are not necessarily representative of the registrant’s ongoing business. The introductory paragraph to Item 303(b) also states that the interim discussion and analysis shall include a discussion of material changes in those items specifically listed in paragraph (a) of the Item. Since paragraph (a) indicates that, where in a registrant’s judgment a discussion of segment information or of other subdivisions of the registrant’s business would be appropriate to an understanding of such business, the discussion shall focus on each relevant, reportable segment or other subdivision of the business and on the registrant as a whole, the requirement in Item 101(b)(2) of Regulation S–K is duplicative of Item 303 requirements. 264 See Item 7(b) of Form 1–A. 265 See letters from CAQ; Deloitte; E&Y; Grant; KPMG; and PwC. 266 See letter from Deloitte. 267 See Rule 3–03(e) of Regulation S–X. 268 See ASC 280–10–50–20. 269 See letter from CalSTRS. PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 (3) Final Amendments We are eliminating the requirements in Item 101(b) of Regulation S–K and Item 7(b) of Form 1–A as proposed. While this will remove the requirement to provide financial information about segments in the business description section, these disclosures will continue to be available in the notes to the financial statements. Accordingly, we do not believe eliminating the requirement will affect the assessment and understanding of a company’s ability to create long-term value for shareholders. Additionally, we are eliminating Rule 3–03(e) of Regulation S–X, as suggested by a commenter, because it is also redundant with U.S. GAAP.270 Further, U.S. GAAP requirements are broader than Rule 3– 03(e) because U.S. GAAP requires segment disclosures for all periods for which a statement of income is provided, including unaudited interim periods, while Rule 3–03(e) requires the disclosure for each year for which an audited statement of income is provided. d. Geographic Areas (1) Proposed Amendments Regulation S–K 271 requires disclosure of financial information by geographic area. U.S. GAAP requires similar disclosures.272 Item 101(d)(2) explicitly permits issuers to cross-reference between the notes to the financial statements and the description of business to avoid duplicative disclosures about geographic areas. The Commission, therefore, proposed to delete Item 101(d)(1) and Item 101(d)(2). Further, Item 101(d)(3) of Regulation S–K requires disclosures of any risks associated with an issuer’s foreign operations and any segment’s dependence on foreign operations. The Proposing Release stated that Item 101(d)(3) requires disclosures that appear to be largely encompassed by the disclosures that result from compliance with other parts of Regulation S–K. For example, Item 503(c) of Regulation S–K requires disclosure of significant risk factors. In addition, Item 303(a) of Regulation S–K requires disclosure of trends and uncertainties by segment, if appropriate to an understanding of the issuer as a whole, which would include disclosure of a segment’s dependence on foreign operations. The Commission, therefore, proposed to delete Item 101(d)(3). 270 See ASC 280–10–50–20 101(d)(1) and 101(d)(2). 272 See ASC 280–10–50–41. 271 Items E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations e. Seasonality Proposing Release stated that interim seasonality disclosures required under U.S. GAAP seem more useful to investors than annual seasonality disclosures. Item 101(c)(1)(v), unlike U.S. GAAP, incrementally requires seasonality disclosure at the segment level, to the extent material to an understanding of the business as a whole. Item 303(b) of Regulation S–K requires disclosure of results of operations, liquidity, and capital resources in interim periods at the segment level, when appropriate to an understanding of the business.280 Accordingly, the Proposing Release stated that Item 303(b), in conjunction with U.S. GAAP, would seem to result in reasonably similar disclosures as Item 101(c)(1)(v) about the effects of seasonality on an issuer’s financial statements at the segment level, if material and appropriate to an understanding of the business. The Commission therefore proposed to delete Item 101(c)(1)(iv). Because the disclosures required by Item 101(c)(1)(v) are located in the business description section, while the corresponding disclosures required by Item 303(b) and U.S. GAAP are in MD&A and the notes to the financial statements, the proposed amendment gives rise to Disclosure Location—Prominence Considerations. The Commission also proposed to delete Instruction 5 to Item 303(b) of Regulation S–K because it requires disclosures that convey reasonably similar information to the disclosures that result from compliance with U.S. GAAP.281 The proposed deletion of Instruction 5 to Item 303(b) gives rise to Disclosure Location—Prominence Considerations because U.S. GAAP requires seasonality disclosures in the financial statements, whereas Instruction 5 requires disclosure in MD&A. (1) Proposed Amendments Regulation S–K 278 and U.S. GAAP 279 both require disclosures about seasonality in interim periods. Item 101(c)(1)(v) of Regulation S–K requires annual seasonality disclosure. Seasonality, by definition, relates to variations within annual periods, so the effects of seasonality are not evident in annual financial statements. The (2) Comments on Proposed Amendments Most commenters supported the proposed amendments.282 Some of these commenters also provided their views on the Disclosure Location Considerations.283 For example, one commenter, who supported both proposed amendments, indicated that U.S. GAAP requires disclosure about (2) Comments on Proposed Amendments Most commenters 273 were supportive of the proposed amendment, while a few commenters 274 opposed it. One commenter stated that the geographic area 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.275 Another commenter expressed concern that the Commission is proposing to reduce information about the geographic segments of a business when geographic factors are growing in importance (i.e., foreign tax consideration).276 This commenter further suggested that the Commission should simultaneously add explicit references to geographic factors in the required discussions of business risk and trends, if Items 101(d)(l)–(3) are eliminated. (3) Final Amendments We are eliminating the requirements in Item 101(d) as proposed. We believe that U.S. GAAP requires reasonably similar disclosures and note that Item 101(d)(2) explicitly permits issuers to cross-reference between the notes to the financial statements and the description of business to avoid duplicative disclosures about geographic areas. Further, we are amending, as proposed, Item 303(a) of Regulation S–K to add an explicit reference to ‘‘geographic areas.’’ 277 We believe this requirement, along with the disclosures required under Item 503(c) of Regulation S–K, will provide the disclosure necessary to understand the risks associated with geographic factors and to assess a company’s ability to create long-term value for shareholders. daltland on DSKBBV9HB2PROD with RULES2 273 See letters from CAQ; Deloitte; E&Y; Grant; KPMG; and PwC. 274 See letters from Bean; and CalSTRS. 275 See letter from CalSTRS. 276 See letter from Bean. 277 See discussion in Section III.C.3 below. 278 Instruction 5 to Item 303(b) of Regulation S– K requires a discussion of any seasonal aspects of an issuer’s business where the effect is material. 279 See ASC 270–10–45–11. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 seasonality when the interim financial statements reflect material seasonal variations, but it does not require disclosure when an issuer expects interim financial results to become seasonal or an issuer expects the seasonal financial results to change significantly in the future.284 Another commenter recommended that the Commission consider feedback from preparers and users about the potential for registrants to reduce any voluntary information about seasonality that may currently be provided that is subject to the safe harbor provisions of the PSLRA.285 One commenter opposed the proposed amendments 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.286 (3) Final Amendments We are adopting as proposed the elimination of Instruction 5 to Item 303(b). We continue to believe that U.S. GAAP in combination with the remainder of Item 303 requires disclosures in interim reports that convey reasonably similar information to the disclosures required by Instruction 5 to Item 303(b). We also believe that, even without this instruction, the requirements in Item 303 elicit disclosure of forward-looking information in interim reports to the extent that the effects of seasonality may become material.287 However, we are retaining the seasonality disclosure requirements in annual reports in Item 101(c)(1)(v), due to a concern about potential loss of information in the fourth quarter about the extent to which the business of an issuer or its segment(s) is or may be seasonal because U.S. GAAP may not elicit this disclosure.288 f. Other The table below describes each of the remaining disclosure requirements that are overlapping with both U.S. GAAP and other Commission disclosure requirements. The related proposed amendments to delete those overlapping 284 See 280 Specifically, Item 303(b) requires discussion of material changes in the items listed in Item 303(a). Item 303(a) requires discussion at the reportable segment level when appropriate to an understanding of the business. 281 See ASC 270–10–45–11. See also Item 101(c)(1)(v) of Regulation S–K. 282 See letters from CAQ; CGCIV; Deloitte; E&Y; Grant; KPMG; PwC; and USCC. 283 See letters from CAQ and KPMG. PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 50169 letter from CAQ. letter from KPMG. 286 See letter from CalSTRS. 287 See 2003 MD&A Release. 288 ASC 270–10–45–11 states that entities should consider supplementing interim reports with information for 12-month periods ended at the interim date to avoid the possibility that interim results with material seasonal variations may be taken as fairly indicative of the estimated results for a full fiscal year. 285 See E:\FR\FM\04OCR2.SGM 04OCR2 50170 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Commission disclosure requirements are also discussed below.289 Topic Commission requirement Proposed amendments Insurance Companies—Reinsurance Transactions. Rule 7–03(a)(13)(c) of Regulation S–X. Interim Financial Statements—Material Events Subsequent to the End of the Most Recent Fiscal Year. Rule 8–03(b)(2) and Rule 10– 01(a)(5) of Regulation S–X. Delete, as this provision requires disclosures that are encompassed by the disclosures that result from compliance with U.S. GAAP 290 and Regulation S–K.291 Delete the requirements to disclose material events subsequent to the end of the most recent fiscal year, as they require disclosures that are encompassed by the disclosures that result from compliance with U.S. GAAP 292 and Regulation S–K,293 in combination. Commenters generally supported the proposed amendments,294 and no commenter specifically opposed the amendments. Accordingly, we are adopting all of the amendments described in the table above as proposed. C. Overlapping Requirements— Proposed Integrations In the proposing release, the Commission discussed disclosure requirements that overlap with, but require information incremental to, other Commission disclosure requirements. In these cases, the Commission proposed to integrate the overlapping Commission disclosure requirements. 1. Foreign Currency Restrictions daltland on DSKBBV9HB2PROD with RULES2 a. Proposed Amendments If consolidation of foreign subsidiaries is deemed appropriate notwithstanding the presence of foreign currency exchange restrictions, Rule 3A–02(d) of Regulation S–X requires disclosure of the effect of foreign subsidiaries’ currency exchange restrictions upon the consolidated financial position and operating results of the issuer and its subsidiaries. To streamline Commission disclosure requirements, the Commission proposed to relocate this requirement to Rule 3–20(b) of Regulation S–X, which addresses other currency considerations. Rule 3–20(b), however, applies only to foreign private issuers, whereas Rule 3A–02(d) applies to all issuers. To prevent any loss of disclosure from the relocation of Rule 3A–02(d) to Rule 3– 289 These proposed amendments are discussed in further detail in Section III.C. of the Proposing Release. 290 See ASC 944–20–50–3 and ASC 944–20–50– 4. 291 See Item 303(a)(3)(i) of Regulation S–K. 292 See ASC 270–10–50–1 and 7. 293 See Item 303(b) of Regulation S–K (or Item 9 of Form 1–A and Item 1 of Form 1–SA for Regulation A issuers). 294 See letters from CAQ; Deloitte; E&Y; Grant; KPMG; and PwC. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 20(b), the Commission proposed to delete the reference to foreign private issuers in the title of Rule 3–20,295 which would broaden the scope of Rule 3–20(b) and Rule 3–20(e) to all issuers.296 Rule 3–20(b) also sets forth requirements for foreign private issuers if their reporting currency is not the U.S. dollar. Despite the proposed expansion of the scope of Rule 3–20(b) discussed above, the Commission stated in the Proposing Release that it did not intend to expand the instances in which a reporting currency other than the U.S. dollar would be permitted. The Commission therefore proposed amendments to Rule 3–20(a) to specify that domestic issuers and foreign issuers who do not meet the foreign private issuer definition 297 must present their financial statements in U.S. dollars. statement footnotes to Item 303 of Regulation S–K.300 Commenters were generally supportive of the proposed amendments except for the proposed amendment to Rule 3–20(a).298 Some commenters recommended that the Commission consider providing all registrants the same flexibility in selecting their reporting currency as foreign private issuers or allowing domestic issuers to report using the currency of the country in which they have substantially all of their operations.299 Additionally, one of these commenters recommended further revisions to reorganize Rule 3–20 of Regulation S–X and to move the disclosure requirements for currency exchange restrictions from the financial c. Final Amendments We are adopting the amendments to delete the reference to foreign private issuers in the title of Rule 3–20 and relocate the requirements of Rule 3A– 02(d) to Rule 3–20(b) as proposed. We are also adopting the amendment to require a non-foreign private issuer to present its financial statements in U.S. dollars. This amendment is not intended to change current disclosure practices. Domestic issuers and foreign issuers that do not meet the foreign private issuer definition may continue to request to present financial statements in a currency other than U.S. dollars in appropriate circumstances.301 In addition, while we acknowledge commenters’ recommendation that we consider providing all registrants the flexibility to select their reporting currency; we are not adopting that suggestion at this time. We believe more information is needed to determine whether any unintended consequences could result, and thus believe such a change is beyond the scope of this rulemaking. In a technical change for clarification, we also are replacing the word ‘‘selected’’, in the phrase ‘‘currency selected for reporting purposes,’’ with ‘‘used’’ in Rule 3–20(d) because nonforeign private issuers are not permitted to ‘‘select’’ their reporting currency. 2. Restrictions on Dividends and Related Items Commission requirements mandate disclosure about restrictions on the 295 Foreign private issuers would continue to apply Rule 3–20 pursuant to General Instruction B(d) of Form 20–F. 296 The remaining paragraphs in Rule 3–20 specify the rule’s scope, so amending the title to Rule 3–20 would have no effect on the application of these paragraphs. 297 See supra note 19. 298 See letters from CAQ; Deloitte; E&Y; Grant; KPMG; and PwC. 299 See letters from CAQ; E&Y; PwC; and Sullivan & Cromwell LLP (Aug. 2, 2017). 300 See letter from E&Y. We considered the recommendation to reorganize Rule 3–20 of Regulation S–X and move certain disclosure requirements to Item 303 of Regulation S–K but are not adopting the recommended amendments as they could have implications that go beyond the scope of this rulemaking and would merit further consideration. 301 The staff has not objected to domestic issuers and foreign issuers who do not meet the foreign private issuer definition from using a different reporting currency in situations where the issuer had few or no assets and operations in the U.S., substantially all the operations were conducted in a single functional currency other than the U.S. dollar, and the reporting currency selected was the same as the functional currency. b. Comments on Proposed Amendments PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations payment of dividends and related items in a number of locations. The table Issuer type Domestic Issuers. Foreign Private Issuers. the proposed amendment, and reason for it.302 Commission disclosure requirement Proposed amendments Item 201(c)(1) of Regulation S–K requires disclosure of restrictions (including restrictions on the ability of issuer’s subsidiaries to transfer funds to it in the form of cash dividends, loans or advances) that currently or are likely to materially limit the issuer’s ability to pay dividends on its common equity.303 Rule 4–08(d)(2) of Regulation S–X requires disclosure of any restriction upon retained earnings that arises from the fact that upon involuntary liquidation the aggregate preferences of the preferred shares exceed the par or stated value of such shares. Rule 4–08(e) of Regulation S–X requires disclosure related to the most significant restrictions of the issuer’s payment of dividends. Rule 4–08(e)(3) requires, where restricted net assets, as defined by the rule, exceed 25 percent of consolidated net assets, a description of: (1) The restrictions on the ability of subsidiaries to transfer funds to the issuer, and (2) the amount of restricted net assets. Rule 5–04, Rule 7–05, and Rule 9–06 of Regulation S–X refer to the definition of restricted net assets in Rule 4– 08(e)(3) in determining when condensed financial information of the issuer (‘‘parent only financial information’’) is required to be disclosed.306 Item 10.F of Form 20–F requires disclosure of any dividend restrictions. Instruction to Item 14.B of Form 20–F requires disclosure of any limitations on the payment of dividends. Consolidate these disclosure requirements into a single requirement in revised Rule 4–08(e)(3).304 Revise to require the dividend restrictions and related disclosures in subparagraphs (i) and (ii) when material, rather than when restricted net assets exceed the 25 percent threshold.305 Move definition of restricted net assets in Rule 4–08(e)(3) to Rule 1–02 307 and make corresponding changes to the cross reference in Rules 5–04, 7–04, and 9–06. Delete both requirements to disclose dividend restrictions because: (1) Foreign private issuers are already required to disclose dividend restrictions in the notes to the financial statements 308 and (2) Item 5.B.1(b) of Form 20–F requires disclosure of restrictions on a subsidiary’s ability to transfer funds to the parent in the form of dividends, loans, or advances.309 as part of the segment discussion or has a choice to discuss its operations on a segment or geographical basis.312 We are adopting the amendment substantially as proposed. As suggested by commenters, we are clarifying that geographic areas are an example of a subdivision of a business that is required to be discussed when management believes such discussion would be appropriate to an understanding of the business and that discussion of geographic areas is not required in all circumstances. Item 101(d)(4) of Regulation S–K requires, when interim financial statements are presented, a discussion of the facts that indicate the three-year financial data for geographic performance may not be indicative of current or future operations. This requirement is similar to requirements in Instruction 3 to Item 303(a) and Instruction 4 to Item 303(b) to identify elements of income which are not necessarily indicative of the issuer’s ongoing business, except that there is no explicit reference to ‘‘geographic areas’’ in either requirement. To streamline the requirements in Regulation S–K, the Commission proposed to revise Item 303 to add an explicit reference to ‘‘geographic areas’’ and delete Item 101(d)(4). Commenters were generally supportive of the proposed amendments.311 Some commenters recommended clarification of the proposed revision to Item 303, noting that it is not clear whether an issuer must discuss the geographic information 302 These proposed amendments are discussed in further detail in Section III.D.2 of the Proposing Release. 303 In lieu of disclosure, Item 201(c)(1) permits a cross-reference to this information in the disclosures required by Item 303 of Regulation S– K and Regulation S–X. 304 This amendment gives rise to Bright Line Disclosure Threshold Considerations. See also Section III.B.2 of the Proposing Release, supra note 1, at 51616. 305 This amendment gives rise to Bright Line Disclosure Threshold Considerations and Disclosure Location—Financial Statement Considerations discussed in Section I.E above (See also Section III.B.2 of the Proposing Release, supra note 1, at 51616). 306 We did not propose and are not changing the requirements in Rules 5–04, 7–05, and 9–06 for parent only financial information. 307 The definitions of terms used in Regulation S– X are located in Rule 1–02 of Regulation S–X. 308 Foreign private issuers that report under U.S. GAAP or Another Comprehensive Body of Accounting Principles with a reconciliation to U.S. GAAP must comply with Rule 4–08(e). Foreign private issuers that report under IFRS must comply with paragraph 79(a)(v) of IAS 1, Presentation of Financial Statements, which requires disclosure of restrictions on the distribution of dividends and the repayment of capital for each class of share capital. 309 Although this requirement is similar to Rule 4–08(e), which creates some duplication for foreign private issuers that report under U.S. GAAP or Another Comprehensive Body of Accounting Principles with a reconciliation to U.S. GAAP, the Commission did not propose its deletion because IFRS does not contain an equivalent requirement for foreign private issuers that report under IFRS. 310 See, e.g. letters from CAQ; Deloitte; E&Y; and PwC. 311 See, e.g. letter from CAQ; Deloitte; and PwC. 312 See letters from CAQ; E&Y; and PwC. Commenters generally supported the proposed amendments, 310 and no commenter specifically opposed the amendments. Accordingly, we are adopting all of the amendments described in the table above as proposed. The amendments simplify our disclosure requirements by integrating overlapping Commission disclosure requirements into existing disclosure requirements where the incremental information is reasonably similar. 3. Geographic Areas daltland on DSKBBV9HB2PROD with RULES2 below describes each of the disclosure requirements related to this mandate, 50171 VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 D. Overlapping Requirements—FASB Referrals In the proposing release, the Commission discussed Commission disclosure requirements that overlap with, but require information E:\FR\FM\04OCR2.SGM 04OCR2 50172 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations incremental to, U.S. GAAP and solicited comments to determine whether to retain, modify, eliminate, or refer them to the FASB for potential incorporation into U.S. GAAP. For the reasons discussed below, we have determined to refer the incremental Commission disclosure requirements described in this section to the FASB for its consideration of whether to incorporate such disclosure requirements into U.S. GAAP as part of its normal standardsetting process. The discussion in this section, as well as Sections I.C., II.B., and III.B., constitute our referral to the FASB. 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. Additionally, the disclosure requirements described below in Section III.D.3 and certain Topics in Section III.D.5 313 currently allow for scaled disclosure by SRCs and issuers relying on Regulation A or Regulation Crowdfunding. Depending on how these disclosures are incorporated, if at all, into U.S. GAAP, U.S. GAAP may not permit these issuers to scale such disclosures. 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. In the meantime, we are retaining the disclosure requirements discussed in this section. 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. 1. Discount on Shares Regulation S–X 314 and U.S. GAAP 315 both set forth requirements about the presentation of items in the equity section of the financial statements. However, Regulation S–X incrementally requires discounts on shares to be presented separately as a deduction from the applicable accounts. Discounts on shares may arise, for example, from daltland on DSKBBV9HB2PROD with RULES2 313 Applicable Topics in Section III.D.5. are Interim Financial Statements—Computation of Earnings Per Share, Interim Financial Statements— Retroactive Prior Period Adjustments, Interim Financial Statements—Common Control Transactions, and Oil and Gas Producing Activities. 314 See Rule 4–07 of Regulation S–X. Pursuant to Rule 4–02 of Regulation S–X [17 CFR 210.4–02], this separate presentation is only required if material. 315 See ASC 505–10–45. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 stock issuance costs, which are recognized as a reduction in equity.316 In the Proposing Release, the Commission solicited comments to determine whether to retain, modify, eliminate, or refer this disclosure requirement to the FASB for potential incorporation into U.S. GAAP. Some commenters recommended that the Commission eliminate the disclosure requirement in Regulation S– X, for the following reasons: (1) Stock issuance costs recorded within equity do not amortize, and therefore, the commenters did not see the ongoing relevance of the disclosure; (2) in the period of issuance, such costs are already required to be presented separately in the financing section of the statement of cash flows; and (3) other discounts to par or stated value are likely captured by other disclosure requirements.317 Other commenters recommended that the Commission refer the incremental disclosure requirement to the FASB for potential incorporation into U.S. GAAP.318 There are various types of transactions that could result in discount on shares. Commenters supporting elimination of the Regulation S–X requirement indicated that U.S. GAAP overlaps with Rule 4– 07 with respect to stock issuance costs but did not state whether U.S. GAAP overlaps with respect to other transactions that result in discount on shares. Based on these considerations, we are retaining the disclosure requirements in Rule 4–07 and are referring them to the FASB for potential incorporation into U.S. GAAP. 2. Income Tax Disclosures 319 Regulation S–X 320 and U.S. GAAP 321 both require disclosures about income taxes in the notes to the financial statements.322 However, Rule 4–08(h) includes certain incremental requirements, some of which give rise to Bright Line Disclosure Threshold Considerations. Specifically, although U.S. GAAP and Regulation S–X both require disclosure of the components of income tax 316 See SAB Topic 5:A, Expenses of Offering. letters from CAQ; Deloitte; and PwC. 318 See letters from E&Y; Grant; Institute of Management Accountants (Oct. 28, 2016) (‘‘IMA’’); and KPMG. 319 See related discussion in Sections II.B.2 and IV.B.1. See also Sections II.B.4 and IV.B.2 of the Proposing Release, supra note 1, at 51613 and supra note 1 at 51635, respectively. 320 See Rule 4–08(h) of Regulation S–X. 321 See ASC 740–10–50. 322 The FASB has an income tax disclosure project underway regarding income tax disclosures. See https://www.fasb.org/jsp/FASB/FASBContent_C/ ProjectUpdatePage&cid=1176164227426. 317 See PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 expense, Rule 4–08(h) incrementally: (1) Requires disclosure of the amount of domestic and foreign pre-tax income and income tax expense, (2) requires disaggregation of the foreign component of pre-tax income and income tax expense with the domestic component if it exceeds five percent of the respective total, and (3) defines ‘‘foreign’’ for purposes of this disclosure. In addition, although U.S. GAAP and Regulation S–X both require a reconciliation of the domestic federal statutory tax rate to the effective tax rate, Rule 4–08(h) incrementally: (1) Requires disaggregation of reconciling items if they individually exceed five percent of the amount computed by multiplying pre-tax income by the applicable statutory income tax rate, (2) clarifies the statutory tax rate to use in the income tax rate reconciliation for foreign issuers, and (3) requires, when the statutory tax rate used differs from the U.S. federal corporate income tax rate, disclosure of the basis for using that rate. In the Proposing Release, the Commission solicited comments to determine whether to retain, modify, eliminate, or refer these disclosure requirements to the FASB for potential incorporation into U.S. GAAP. Several commenters recommended elimination of the Commission disclosure requirements, if the FASB adopts its proposed income tax standard.323 Some of these commenters further indicated that, if the proposed income tax standard is not adopted, the Commission should consider comments received by the FASB to determine whether further amendment should be made to Rule 4–08(h).324 Some commenters recommended retaining both requirements under Rule 4–08(h) and U.S. GAAP, as they believe investors need more detailed disclosure of corporate income tax liabilities.325 Only one commenter recommended that the Commission refer this issue to the FASB for potential incorporation into U.S.GAAP.326 Additionally, a number of commenters recommended that the Commission require disclosure of certain information, such as profit or loss before taxes and effective tax rate, 323 See, e.g. letters from BDO; CAQ; E&Y; Grant; and KPMG. The proposed Accounting Standards Update, Income Taxes (Topic 740): Disclosure Framework—Changes to the Disclosure Requirements for Income Taxes was issued on July 26, 2016. For a status of the project see, https:// www.fasb.org/jsp/FASB/FASBContent_C/Project UpdateExpandPage&cid=1176170683850#. 324 See letters from CAQ; E&Y; KPMG; and PwC. 325 See letters from AFL–CIO and AFR; and Rutkowski. 326 See letter from IMA. E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations daltland on DSKBBV9HB2PROD with RULES2 on a country-by-country basis.327 Some of these commenters indicated that this transparency would help investors assess the risks that could arise from operating in multiple jurisdictions 328 as well as the likelihood of repatriation of foreign earnings.329 Some of the commenters who recommended the country-by-country disclosure also recommended requiring the disclosure of the aggregate amount corporations would owe in U.S. taxes should they repatriate their offshore earnings.330 In contrast, one commenter indicated that further disaggregating foreign amounts by foreign jurisdiction would not provide useful information as such disaggregation would neither reflect exposure to future foreign tax nor shed light on future potential repatriation.331 This commenter further recommended that the current five percent thresholds for the effective rate reconciliation be revisited, as they can result in an unnecessarily large number of line items when pre-tax income is relatively small. After considering the comments, we are retaining the income tax disclosure requirements in Rule 4–08(h). While we acknowledge the suggestions made by commenters related to additional income tax disclosures, these are beyond the scope of this rulemaking. There also have been significant changes to the tax law that may affect the accounting and disclosure requirements for income taxes.332 We are referring these disclosure requirements to the FASB for potential incorporation into U.S. GAAP. The FASB is currently reviewing its disclosure requirements for income taxes and discussing the financial reporting effects of recent changes in tax law.333 327 See, e.g. letters from AFL–CIO and AFR; Americans for Tax Fairness (Nov. 2, 2016) (‘‘ATF’’); American Sustainable Business Council, Citizens for Tax Justice, FACT Coalition, Fair Share, Global Financial Integrity and Main Street Alliance (July 21, 2016); Main Street Alliance (Oct. 25, 2016); and Oxfam America (Nov. 2, 2016). 328 See, e.g. letter from Jeffery L. Hoopes (Oct. 3, 2016). 329 See, e.g. letter from Bean. 330 See, e.g. letters from ATF and Citizens for Tax Justice (Oct. 3, 2016). 331 See letter from IMA. 332 See Tax Cuts and Jobs Act Public Law 115– 97, 131 Stat. 2054 (2017) 333 See FASB’s Technical Agenda and Notice of Open Meetings on their website related to its Disclosure Framework project, which includes disclosures of income taxes. https://fasb.org/jsp/ FASB/FASBContent_C/ProjectUpdatePage& cid=1176163077030 VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 3. Major Customers Regulation S–K 334 and U.S. GAAP 335 both require disclosures about major customers. However, Regulation S–K is more expansive in its requirements and differs from U.S. GAAP in two ways: (1) The threshold for disclosure and (2) the requirement to disclose a customer’s name in certain instances. We note that because disclosures required by Regulation S–K, unlike those required by U.S. GAAP, may be provided outside of the audited financial statements, these differences give rise to Disclosure Location—Financial Disclosure Considerations. These differences also give rise to Bright Line Disclosure Threshold Considerations. First, Item 101(c)(1)(vii) of Regulation S–K requires disclosure if loss of a customer, or a few customers, would have a material adverse effect on a segment. This threshold differs from U.S. GAAP in that it is qualitative and focuses on the impact on a segment. In contrast, U.S. GAAP requires disclosure of each customer that comprises 10 percent or more of total revenue. Although the requirements for SRCs in Item 101(h)(4)(vi) are more similar to U.S. GAAP in that they do not prescribe a segment focus, they also differ from U.S. GAAP in that they do not set forth a 10 percent bright line test for disclosure. Second, Item 101(c)(1)(vii) requires disclosure of the name of any customer that represents 10 percent or more of the issuer’s revenues and whose loss would have a material adverse effect on the issuer.336 In 1999, the Commission considered deleting this requirement to conform to U.S. GAAP. However, the Commission determined to retain this requirement, as it continued to believe that the identity of major customers is material information to investors and that the disclosure allows a reader to better assess risks associated with a particular customer, as well as material concentrations of revenues related to that customer.337 Because U.S. GAAP historically has scaled disclosure requirements only by public business entities versus other entities, and not by issuer status, incorporation of these requirements into U.S. GAAP could result in the application to SRCs of the disclosure threshold and the requirement to name a customer in certain instances. 334 See Item101(c)(1)(vii) and Item 101(h)(4)(vi) of Regulation S–K. Item 101(c)(1)(vii) applies to nonSRCs and Item 101(h)(4)(vi) applies to SRCs. 335 See ASC 280–10–50–42. 336 Item 101(h)(4)(vi) of Regulation S–K does not require disclosure of the name of major customers. 337 See Segment Reporting, Release No. 33–7620, (Jan. 5, 1999) [64 FR 1728 (Jan. 12, 1999)]. PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 50173 Several commenters supported the Commission eliminating this disclosure requirement because it is substantially similar to the corresponding U.S. GAAP requirements, which they believe sufficiently highlight customer concentrations.338 A few commenters further suggested that the disclosure of major customers could be harmful because of the competitively sensitive nature of this information.339 The remaining commenters supported referring the requirement to the FASB for potential incorporation into U.S. GAAP.340 One of these commenters also recommended the FASB consider whether the disclosure objective in U.S. GAAP should be clarified.341 Another commenter recommended a principlesbased approach rather than a bright line disclosure threshold for the requirement to disclose customer names, as this threshold may not be material to some registrants.342 One commenter recommended retaining the requirement, asserting that the identity of major customers is material information to investors and it allows a reader to better assess risks associated with a particular customer, as well as material concentrations of revenues related to that customer.343 We are retaining this disclosure requirement and are referring it to the FASB for potential incorporation into U.S. GAAP. We believe the objective of the U.S. GAAP disclosure requirement is similar to the Commission disclosure requirement; however, U.S. GAAP does not require disclosure of a major customer’s name. 4. Legal Proceedings U.S. GAAP requires disclosure of certain loss contingencies.344 17 CFR 229.103 (‘‘Item 103’’ of Regulation S–K) requires disclosure of certain legal proceedings, which are one type of loss contingency. Item 103 does not require disclosure of certain matters that do not exceed 10 percent of the issuer’s consolidated current assets, while U.S. GAAP provides a more general materiality threshold.345 In practice, to comply with Regulation S–K, issuers commonly repeat some or all of the disclosures provided in the notes to the financial statements under U.S. GAAP 338 See letters from CAQ; E&Y; EEI and AGA; KPMG; and PwC. 339 See letters from E&Y and EEI and AGA. 340 See letters from Davis; Deloitte; Grant; and IMA. 341 See letter from Deloitte. 342 See letter from Davis. 343 See letter from Bean. 344 See ASC 450. 345 See also Section III.E.15 of the Proposing Release, supra note 1, at 51616. E:\FR\FM\04OCR2.SGM 04OCR2 50174 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations or include a cross-reference to those disclosures. As further described in Section III.E.15 of the Proposing Release, although Item 103 and U.S. GAAP have overlapping requirements, they differ in certain respects. Incorporation of Item 103 requirements into U.S. GAAP would have implications for investors, issuers, and other stakeholders. In the Proposing Release, the Commission described in detail (a) the differences between Item 103 and U.S. GAAP; (b) the potential consequences of incorporating the Item 103 requirements into U.S. GAAP; and (c) other considerations related to Item 103. The Commission solicited comment about whether to retain, modify, eliminate, or refer the disclosure requirements to the FASB. Many commenters opposed the integration of Item 103 and U.S. GAAP.346 A number of commenters 347 stated that the objectives 348 of Item 103 and U.S. GAAP differ, and some of these commenters 349 indicated that a better articulation of the objectives may be warranted. Many commenters 350 also indicated that, if the Commission chooses to move forward with the integration, the American Bar Association policy statement regarding lawyers’ responses to auditors’ requests for information and Public Company Accounting Oversight Board (‘‘PCAOB’’) auditing standards should be revisited as they both incorporate the U.S. GAAP disclosure requirements.351 On a similar note, some commenters 352 indicated that integration would also expand audit and interim review requirements, Some commenters indicated that the existing disclosure requirements in both Item 103 and U.S. GAAP do not provide sufficient information for investors to understand the nature, potential magnitude, and timing of any loss contingencies relating to legal proceedings, and recommended specific changes to the requirements.360 Some of their recommendations include greater use of bright line disclosure thresholds and preserving Item 103’s disclosure requirements for low-probability but high magnitude liabilities.361 Additionally, several commenters 362 expressed concerns with the bright line disclosure threshold for certain matters imposed by the existing requirements in Item 103, stating that some of the disclosures based on the threshold may not be material. In response to the concerns expressed by commenters, we are retaining the disclosure requirements in Item 103 without amendment. In addition, we are not referring these disclosure requirements to the FASB for potential incorporation into U.S. GAAP at this time. In light of the various views expressed by commenters, we believe further consideration is warranted with respect to the implications of potential changes to these requirements. 5. Other The table below describes the remaining overlapping requirements discussed in the proposing release as well as the incremental differences between these requirements.363 Commission disclosure requirement Description of requirement REIT—Tax Status of Distributions. Rule 3–15(c) of Regulation S–X. Consolidation ....................... Rule 3A–03(b) of Regulation S–X. Both Regulation S–X and U.S. GAAP 364 require disclosure of an issuer’s tax status. Regulation S–X requires additional footnote disclosures, including distributions per unit, for example as ordinary income, capital gain, or return of capital. Regulation S–X and U.S. GAAP 365 both set forth disclosure requirements about consolidation matters. Regulation S–X incrementally requires disclosure of material changes in the entities included in or excluded from the consolidated financial statements. Topic daltland on DSKBBV9HB2PROD with RULES2 as well as XBRL tagging requirements, which would be burdensome and costly to issuers. These commenters further expressed concern that the integration could lead to increased disclosure of immaterial items and may eliminate the safe-harbor protections currently afforded to forward-looking statements related to legal proceedings under Regulation S–K. Some commenters recommended the deletion of Item 103 altogether or at minimum some of the disclosure requirements contained therein.353 For example, one of these commenters stated that U.S. GAAP, together with Items 303 and 503(c) of Regulation S–K, elicits the appropriate level of disclosure of material legal proceedings to inform investment and voting decisions of a reasonable investor.354 Another commenter recommended the deletion of the requirement to disclose proceedings known to be contemplated but which are not probable of being asserted because this does not provide useful information to investors.355 The commenters 356 who supported the integration of Item 103 into U.S. GAAP noted the repetition that is currently present in many filings.357 However, one of these commenters recommended the Commission consider undertaking outreach with preparers, users, and other regulators and develop disclosure objectives for the incremental disclosures.358 Other commenters also recommended that the Commission conduct more analysis and outreach in this area, particularly with the accounting and legal professions.359 346 See, e.g. letters from CAQ; CGCIV; Davis; FedEx; Shearman; and USCC. 347 See, e.g. letters from CAQ; and NAREIT. 348 Item 103 is intended to provide a description of material pending legal proceedings, while U.S. GAAP is designed to provide information consistent with the accounting model for loss contingencies. 349 See, e.g. letters from CAQ and Davis. 350 See, e.g. letters from CAQ; Davis; and Shearman. 351 See AS 2505C: Exhibit II—American Bar Association Statement of Policy Regarding Lawyers’ Responses to Auditors’ Requests for Information available at https://pcaobus.org/Standards/ Auditing/Pages/AS2505.aspx. 352 See letters from CGCIV; Davis; FedEx; NAREIT; Shearman; and USCC. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 353 See letters from Davis; EEI and AGA; and Grant. 354 See letter from Davis. 355 See letter from EEI and AGA. 356 See letters from Grant; and IMA. 357 While it did not support the integration of all requirements, the letter from EEI and AGA recommended that the following disclosures be integrated: (1) Proceedings involving capital expenditure or deferred charges; and (2) material bankruptcy, receivership, or similar proceedings. 358 See letter from Grant. 359 See letters from CGCIV; and USCC. 360 See letters from AFL–CIO and AFR; CII; and Rutkowski. PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 361 The letter from EEI and AGA recommended that low probability but high magnitude proceedings disclosures should follow the requirements under U.S. GAAP concerning the likelihood of loss. The commenter indicated that providing this information is not helpful to investors, if the likelihood of loss is remote, and having a separate rule that requires disclosure of potential losses beyond those that are considered ‘‘reasonably possible’’ would create additional burdens for issuers and auditors. 362 See letters from CGCIV; Clearing House; Davis; EEI and AGA; NAREIT; Shearman; and USCC. 363 These proposed amendments are discussed in further detail in Section III.E. of the Proposing Release. E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Topic Commission disclosure requirement Description of requirement Assets Subject to Lien ......... Rule 4–08(b) of Regulation S–X. Obligations—Defaults Not Cured. Rule 4–08(c) of Regulation S–X. Obligations—Waived Defaults. Rule 4–08(c) of Regulation S–X. Obligations—Changes in Obligations. Rule 4–08(f) of Regulation S–X. Obligations—Amounts and Terms of Financing Arrangements. Rule 5–02.19(b), Rule 5– 02.22(b), Rule 6– 04.13(b), Rule 7– 03.16(b), Rule 7– 03.16(c), Rule 9– 03.13(a), and Rule 9– 03.16 of Regulation S–X. Rule 4–08(d)(1) of Regulation S–X. Regulation S–X and U.S. GAAP 366 both require disclosure of assets subject to lien and the obligation collateralized for the most recent audited balance sheet being filed. U.S. GAAP disclosure requirements only apply to certain financial assets (e.g., repurchase agreements or securities lending transactions), whereas Regulation S–X applies to all assets. Regulation S–X and U.S. GAAP 367 both require disclosure of information related to covenant violations. Regulation S–X requires disclosure of the facts and amounts related to defaults, while U.S. GAAP sets forth classification requirements for obligations for which there has been a covenant violation, with limited disclosure requirements. Regulation S–X and U.S. GAAP 368 both require disclosure of information related to waived defaults. Regulation S–X requires disclosure of the amount of the obligation and the period of the waiver, while U.S. GAAP sets forth requirements for when to present debt subject to a covenant violation as a current liability. Regulation S–X and U.S. GAAP 369 both require disclosure of issuances of debt subsequent to the balance sheet date. However, Regulation S–X incrementally requires disclosure of significant changes in the authorized amounts of debt subsequent to the latest balance sheet date. Regulation S–X and U.S. GAAP 370 both require disclosures of an issuer’s financing arrangements. Regulation S–X incrementally requires disclosure of specific information related to the financing arrangement. Preferred Shares .................. Related Parties .................... Rule 4–08(k)(1) of Regulation S–X. Repurchase and Reverse Purchase Agreements. Rule 4–08(m) of Regulation S–X. Interim Financial Statements—Computation of Earnings Per Share. Rule 10–01(b)(2) of Regulation S–X, and Item 601(b)(11) of Regulation S–K. Rule 8–03(b)(5) and Rule 10–01(b)(7) of Regulation S–X. Interim Financial Statements—Retroactive Prior Period Adjustments. Interim Financial Statements—Common Control Transactions. Rule 10–01(b)(3) of Regulation S–X. Products and Services ......... Item 101(c)(1)(i) of Regulation S–K. Oil and Gas Producing Activities. Item 302(b) of Regulation S–X. Some commenters recommended that the Commission eliminate some of these 364 See ASC 740–10–50–16. 365 See ASC 810–10–50. 366 See ASC 860–30–50–1A and ASC 860–30–50– daltland on DSKBBV9HB2PROD with RULES2 50175 7. 367 See ASC 470–10–45–1 and ASC 470–10–45– 11. See also ASC 470–10–50–2, which requires disclosure of the circumstances surrounding a covenant violation in certain situations, but not the amount of the obligation. 368 See ASC 470–10–45–1 and ASC 470–10–45– 11. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 369 See Regulation S–X and U.S. GAAP 371 both require disclosure about preferred share preferences in involuntary liquidation. However, Regulation S–X requires disclosure in more circumstances than U.S. GAAP. Regulation S–X and U.S. GAAP 372 both require the amount of related party transactions to be disclosed in the financial statements. Regulation S–X incrementally requires that these amounts be presented on the face of the financial statements, if material. Regulation S–X and U.S. GAAP 373 both set forth presentation and disclosure requirements for repurchase and reverse repurchase agreements in the financial statements. However, Regulation S–X provides additional requirements.374 Commission disclosure requirements and U.S. GAAP 375 both require disclosure in the notes to the financial statements of the computation of earnings per share. However, U.S. GAAP does not specifically require disclosure of the computation in interim financial statements. Regulation S–X and U.S. GAAP 376 both require certain disclosures of the effects of changes in accounting principles, correction of an error, and changes in reporting entities. However, Regulation S–X incrementally requires disclosures in the interim period of change, and for non-SRCs, incrementally requires disclosure of the effect on retained earnings. Regulation S–X and U.S. GAAP 377 both set forth accounting and disclosure requirements for combinations of entities under common control. However, Regulation S–X incrementally requires non-SRCs to disclose the separate results of the combined entities for periods prior to the combination. Regulation S–K and U.S. GAAP 378 both require disclosure of the amount of revenue from products and services. Regulation S–K only requires this disclosure if a certain threshold is met, while U.S. GAAP includes a practicability exception. Regulation S–K and U.S. GAAP 379 both require issuers engaged in oil and gas producing activities to disclose information about those activities in the notes to the financial statements. Regulation S–K incrementally requires that the U.S. GAAP disclosures must be provided for each period presented. ASC 855–10–50–2 and ASC 855–10–55– 2a. 370 See ASC 470–10–50. ASC 505–10–50–4. 372 See ASC 850–10–50–1. 373 See ASC 860–30–45–2 and ASC 860–30–50. 374 Rule 4–08(m) of Regulation S–X requires the following incremental disclosures when a specified bright line threshold is met: (1) The liabilities associated with repurchase agreements that are separately presented on the balance sheet to include accrued interest payable, (2) disclosure of the interest rates associated with certain repurchase liabilities, (3) information about counterparties and agreements with them, where there is a 371 See PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 disclosure requirements because the required disclosures are available concentration of counterparties, (4) separate presentation on the balance sheet of the carrying amount of reverse repurchase agreements, and (5) disclosure of the nature of any provisions to ensure that the market value of the underlying assets remains sufficient to protect the issuer in the event of counterparty default. 375 See ASC 260–10–50–1. 376 See ASC 250–10–50–1 and 250–10–50–6 to 8. 377 See ASC 805–50–45–1 to 5. 378 See ASC 280–10–50–40. 379 See ASC 932–235–50. E:\FR\FM\04OCR2.SGM 04OCR2 50176 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations elsewhere.380 For example, one commenter recommended the deletion of the requirement related to tax status of distributions per unit 381 because this information is available to shareholders in Internal Revenue Service (IRS) Form 1099.382 Some commenters recommended eliminating the consolidation disclosure requirements in Rule 3A–03(b) because they overlap with U.S. GAAP 383 disclosure requirements.384 One commenter recommended deletion of the repurchase and reverse repurchase agreement disclosure requirements because they provide reasonably similar information as the corresponding U.S. GAAP requirements.385 This commenter recommended that the only repurchase and reverse repurchase agreement disclosure requirement that the Commission should refer to the FASB for potential incorporation into U.S. GAAP is the requirement to disclose the repurchase liability and the interest rate(s) thereon.386 Another commenter recommended eliminating certain interim financial statement information due to overlapping U.S. GAAP disclosure requirements.387 Some commenters also suggested eliminating the products and services disclosure requirement 388 because U.S. GAAP 389 requires substantially similar disclosures.390 These commenters observed that while U.S. GAAP provides an impracticability exception, that exception is used infrequently and, when it is relied upon, the issuer will have the same practicability issue with providing the products and services disclosures under Regulation S–K. A few commenters observed that U.S. GAAP oil and gas producing disclosures are generally interpreted to apply to Topic daltland on DSKBBV9HB2PROD with RULES2 Stale Transition Dates. control because these disclosures could be useful to investors on both an interim and annual basis and ensure the disclosure objectives and requirements are clear; 398 and • Work together to further reduce redundancies between Commission disclosure requirements and U.S. GAAP, such as the oil and gas disclosures in 17 CFR 229.1200 (‘‘Item 1200’’ of Regulation S–K) and those in U.S. GAAP 399 industry standards.400 We are retaining these requirements and referring all of the disclosure requirements described in the table above to the FASB for potential incorporation into U.S. GAAP. IV. Outdated Requirements A. Background The Commission proposed to amend certain requirements that have become outdated as a result of the passage of time or changes in the regulatory, business, or technological environments. These amendments were intended to simplify issuer compliance efforts. Further, to reduce any loss of information or increased burdens for investors, the Commission also proposed to require additional disclosure of information that is expected to be readily available to issuers. B. Disclosure Requirements Outdated Due to Passage of Time In the Proposing Release, the Commission noted that some of its disclosure requirements have become obsolete due to passage of time. The table below describes each outdated requirement and what the Commission proposed to eliminate.401 Commission disclosure requirement(s) Proposed amendment(s) Rule 4–01(a)(3) and Note 6 to Rule 8– 01 of Regulation S–X; Forms S–3, F– 1, F–3, F–4, and 20–F; and Exchange Act Rule 13a–10(g)(3), 15d– 2, and 15d–10(g)(3). Delete references to transition dates given the passage of these transition dates. 380 See, e.g. letters from CAQ; Deloitte; E&Y; KPMG; and PwC. 381 Rule 3–15(c). 382 See letter from NAREIT. The other Rule 3–15 amendments described in Section III.B rely on this disclosure requirement that is incremental to U.S. GAAP. 383 See ASC 805; 810–10–50; and ASC 205–10– 45. 384 See letters from CAQ; E&Y; Grant; and PwC. 385 See letter from KPMG. 386 See discussion in Section III.B.1.a below. See also Section III.C.3 of the Proposing Release, supra note 1, at 51618. VerDate Sep<11>2014 each period presented.391 For this reason, one commenter recommended deletion of Item 302(b) of Regulation S–K.392 Most commenters, however, including some who recommended eliminating certain disclosure requirements, supported the Commission retaining most or all of these disclosure requirements and referring them to the FASB for potential incorporation into U.S. GAAP.393 One commenter specifically requested the Commission retain the disclosure requirements for repurchase and reverse repurchase agreements as they are complex financial instruments that can impact the financing and liquidity of financial institutions and other businesses.394 Commenters had the following additional recommendations for both the Commission and the FASB as it relates to the potential incorporation of the Commission’s disclosure requirements into U.S. GAAP: • Revisit the bright line disclosure thresholds in the requirements (e.g., the 10% threshold in Rule 4–08(m)) and whether U.S. GAAP should require similar bright line disclosure thresholds; 395 • Clarify the concept of ‘‘authorization of debt’’ in Rule 4–08(f); 396 • Coordinate to provide enhanced disclosures for significant accounting policies that provide a more comprehensive discussion of critical accounting estimates, including more robust information about underlying assumptions that are highly judgmental, as well as their propensity to change; 397 • Consider the timing of the disclosure requirements related to combinations of entities under common 22:38 Oct 03, 2018 Jkt 247001 387 See E&Y letter. This commenter recommended that we delete Rule 10–01(b)(2) of Regulation S–X and Item 601(b) of Regulation S–K because these overlap with ASC 260–10–50–1. In addition, the commenter recommended we delete all requirements related to changes in reporting entities in Rule 10–01(b)(7) and Rule 8–03(b)(5) and ask that the FASB reconsider the disclosure requirements in ASC 250–10–50–6. 388 Item 101(c)(1)(i) of Regulation S–K. 389 See ASC 280 390 See letters from CAQ; EEI and AGA; E&Y; Grant; KPMG; and PwC. 391 See letters from CAQ; E&Y; and PwC. PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 392 See letter from E&Y. letters from CAQ; Deloitte; E&Y; IMA; KPMG; and PwC. 394 See letter from Bean. 395 See letters from Clearing House and EEI and AGA. 396 See letters from CAQ and Grant. 397 See letters from CGCIV and FedEx. 398 See letters from CAQ; E&Y; and PwC. 399 ASC 932 400 See letters from CAQ; Deloitte; E&Y; and PwC. 401 These proposed amendments are discussed in further detail in Section IV.B of the Proposing Release. 393 See E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Topic Income Tax Disclosures. Commission disclosure requirement(s) Proposed amendment(s) Rule 4–08(h)(1)(ii), the parenthetical at the end of Rule 4–08(h)(1), part of the introductory sentence of Rule 4– 08(h)(2), and all of Rule 4–08(h)(3) of Regulation S–X. Delete the instructions to the rule that relate to adoption of ASC 740—Income Taxes because all issuers are now required to apply it. Commenters supported the proposed amendments to delete the requirements above, which have become outdated.402 We are adopting both of the amendments described in the table above as proposed. C. Disclosure Requirements Outdated due to Changes in the Regulatory, Business, or Technological Environment In the Proposing Release, the Commission staff noted that some of its disclosure requirements have become obsolete as the regulatory, business, or technological environments have changed over time. For example, some of the Commission’s disclosure requirements are no longer relevant, or some information required to be disclosed is no longer readily available or can be derived from alternative sources. Below we discuss these outdated requirements and the related proposed amendments. 1. Market Price Disclosure daltland on DSKBBV9HB2PROD with RULES2 a. Proposed Amendments Item 201(a)(1) of Regulation S–K requires issuers to disclose the following: • The principal U.S. market(s) where its common equity is traded. Foreign issuers must also disclose the principal established foreign public trading market, if applicable. Where applicable, issuers must disclose that there is no established public trading market for their common equity.403 • If the principal U.S. market is an exchange, the high and low sale prices for their common equity for each quarter within the two most recent fiscal years and subsequent interim period.404 • If the principal U.S. market is not an exchange, the high and low bid quotations for the same periods as above. Where applicable, issuers must identify the source of the quotations and include appropriate qualifying language.405 402 See letters from CAQ; Deloitte; E&Y; Grant; PwC; and R.G. Associates. 403 Item 201(a)(1)(i) of Regulation S–K 404 Item 201(a)(1)(ii) of Regulation S–K. 405 Item 201(a)(1)(iii) of Regulation S–K. This provision requires qualification where the over-thecounter quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. Reference to quotations must be VerDate Sep<11>2014 50177 22:38 Oct 03, 2018 Jkt 247001 • Foreign issuers that identify a principal established foreign trading market for common equity are also required to provide market price disclosure comparable to that of a domestic issuer. If the primary U.S. market for the foreign issuer trades using American Depositary Receipts (‘‘ADRs’’), then foreign issuers must disclose prices based on the ADRs.406 • When Item 201(a)(1) disclosure is included in a Securities Act registration statement or an Exchange Act proxy or information statement, the price for their common equity as of the latest practicable date.407 Today, the daily market prices of most publicly traded common equity securities, including those quoted on an automated quotation system, are readily available free on numerous websites, including the exchanges’ or quotation systems’ websites.408 On these websites, investors can view daily closing prices, up to the previous day, and intra-day quotes, which would be more up-to-date than the prices required by Item 201(a)(1)(v) of Regulation S–K. Additionally, many of these websites allow users to download the daily historical data over customized time horizons. These features result in more robust information than the disclosure required by Item 201(a)(1) of Regulation S–K. As a result, the Commission proposed the following amendments to Item 201(a)(1) of Regulation S–K: • Issuers with one or more classes of common equity would be required to disclose the principal U.S. market(s) where each class is traded and the trading symbol(s) used by the market(s) for each class of common equity. Foreign issuers also would be required to identify the principal established qualified by appropriate explanation where there is an absence of an established public trading market. 406 Item 201(a)(1)(iv) of Regulation S–K. 407 Item 201(a)(1)(v) of Regulation S–K. The Commission has required this or similar pricing disclosure since the 1960s. See Guides for Preparation and Filing of Registration Statements, Release No. 33–4936 (Dec. 9, 1968) [33 FR 18617 (Dec. 17, 1968)]. 408 See, e.g., www.finance.yahoo.com; www.google.com/finance; www.bloomberg.com; www.nyse.com; www.nasdaq.com; www.londonstockexchange.com; deutscheboerse.com; www.otcbb.com; and www.otcmarkets.com. PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 foreign public trading market, if any, and the trading symbol(s), for each class of their common equity. • Issuers with common equity that is not traded on an exchange would be required to indicate, as applicable, that any over-the-counter quotations in such trading systems reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions. • Issuers with no class of common equity traded in an established public trading market would be required to state that fact and disclose the range of high and low bid information, if applicable, for each quarter over the last two fiscal years and any subsequent interim period.409 Also, such issuers would be required to disclose the source and explain the nature of such quotations. As proposed to be amended, Item 201(a)(1) would eliminate the detailed disclosure requirement of sale or bid prices for most issuers whose common equity is traded in an established public trading market and replace it with disclosure of the trading symbol.410 The proposed amendments would also align Item 201(a)(1) with Item 501(b)(4) of Regulation S–K.411 409 Item 201(a)(1)(i) currently notes that the existence of limited or sporadic quotations should not, by itself, be deemed to constitute an established public trading market. 410 Form N–2, which is used for registration of closed-end management investment companies, includes disclosure requirements relating to sales prices and bid information that are similar to those in Item 201(a)(1) of Regulation S–K. Item 1, Instruction 1 and Item 8.5(b) of Form N–2. In addition to these requirements, Form N–2 requires disclosure of information relating to net asset value and discount or premium to net asset value. Item 8.5(b), Instructions 4 and 5 and Item 8.5(c) through (e) of Form N–2. Disclosure of sales prices and bid information is needed in registration statements on Form N–2 so that the required premium/discount disclosure can be fully understood. Accordingly, the Commission did not propose to change the requirements in Form N–2 relating to sales prices and bid information. 411 17 CFR 229.501(b)(4). Item 501(b)(4) of Regulation S–K requires prospectus cover page disclosure of the trading symbol(s) and market(s) for securities being offered and registered on a Securities Act registration statement. The proposed amendments to Item 201(a)(1) are also consistent with those proposed to Item 501(b)(4) and the cover pages of Forms 10–K, 20–F, 40–F, 10–Q, and 8–K in a separate rulemaking. See FAST Act Modernization and Simplification of Regulation E:\FR\FM\04OCR2.SGM Continued 04OCR2 50178 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Foreign private issuers that file Form 20–F are subject to disclosure requirements similar to those included in Item 201(a)(1) of Regulation S–K. Item 9.A.4 of Form 20–F requires the following price history of the stock to be offered or listed for both the U.S. market and the principal trading market outside the United States, as applicable: • The annual high and low market prices for the last five full financial years; • Quarterly high and low market prices for the last two full financial years and any subsequent period; and • Monthly high and low market prices for the last six months. For preemptive share issuances, the issuer must disclose the market prices for the first trading day in the most recent six months, the last trading day before the announcement of the offering, and for the latest practicable date. If an issuer’s securities are ‘‘not regularly traded in an organized market,’’ the issuer must discuss any lack of liquidity. The Commission also proposed to amend Item 9.A.4 of Form 20–F to be consistent with the proposals related to Item 201(a)(1) of Regulation S–K. Specifically, the Commission proposed to amend Item 9.A.4 to require disclosure of the U.S. and principal market(s) where the issuer’s common equity trades and the trading symbol(s) assigned to the issuer’s common equity that is traded in the U.S. market and principal market. For issuers whose common equity is not traded in any established public trading market, disclosure of that fact would still be required. b. Comments on Proposed Amendments Commenters generally supported the proposed amendments.412 In the Proposing Release the Commission asked if investors and issuers understood the term ‘‘established public trading market’’ and whether further guidance is needed to determine what constitutes ‘‘limited or sporadic quotations.’’ 413 One commenter recommended that the Commission clarify and define these terms without suggesting specific changes.414 Another commenter recommended that the Commission require disclosure of trading symbol(s) for primary markets where all issued ‘‘instruments’’ are traded, and define clear standards for the ticker notation so that all filers use the same notation.415 This commenter also recommended disclosure of the security identifier (CUSIP) in addition to the trading symbol and the ADR ratio,416 as applicable. c. Final Amendments To help investors locate listed securities and current trading prices, we are adopting the amendment to Item 201(a)(1) of Regulation S–K and Item 2. Other The table below describes each of the remaining disclosure requirements that have become obsolete as the regulatory, business, or technological environments changed over time, and the related proposed amendments.418 Topic Commission disclosure requirement(s) Proposed amendments Available Information—Public Reference Room. Item 101(e)(2) and Item 101(h)(5)(iii) of Regulation S–K; Forms S–1, S–3, S–4, S–11, F– 1, F–3, and F–4; Item 1118(b) of Regulation AB; and Forms SF–1, SF–3, N–1A, N–2, N–3, N–5, N–6, and N–8B–2. Delete the requirements to identify the Public Reference Room and disclose its physical address and phone number. The Commission’s Public Reference Room is rarely used by the public to obtain or review issuer filings, as paper filings are now only permitted (and sometimes required) in very limited circumstances.419 Also delete the instruction in certain N Forms on how to send a written request by mail to the SEC’s Public Reference Room to obtain certain hard copy information. Retain the requirement to disclose the Commission’s Internet address and a statement that electronic SEC filings are available there. However, delete the qualifier ‘‘if you are an electronic filer’’ because all but a limited number of issuers are now required to file electronically.420 Also expand this requirement to Forms 20–F and F–1 in order to align the requirements for foreign private issuers with domestic issuers. Require all issuers to disclose their Internet addresses (or, in the case of asset-backed issuers, the address of the specified transaction party), if they have one. Many non-accelerated filers already disclose their Internet addresses 421 and the Commission has provided guidance about the liability framework for certain types of disclosures on company websites. Further, we believe that such a requirement would help ensure that investors are aware of an additional resource for information about issuers. Item 101(e)(2) of Regulation S–K; and Forms S–1, S–3, S–4, S– 11, F–1, F–3, F–4, 20–F, SF–1, SF–3, and N–4. Available Information—Issuer Internet Address. daltland on DSKBBV9HB2PROD with RULES2 9.A.4 of Form 20–F substantially as proposed, with minor modifications. First, we are removing the term ‘‘established’’ from ‘‘principal established foreign public trading market’’ in Item 201(a)(1) to be consistent with the scope of disclosure required for domestic issuers in the U.S. market and for foreign private issuers in Item 9.A.4. Second, we are retaining the clarification currently in Item 9.A.4 that ‘‘principal market’’ means ‘‘outside the host market’’ as this language was inadvertently proposed for elimination. Finally, we are adding the term ‘‘principal’’ in front of ‘‘host market’’ in the amended first sentence of Item 9.A.4. to be consistent with Item 201, which requires disclosure of ‘‘principal United States market(s).’’ 417 In addition, while we acknowledge the commenter’s recommendations that we also require disclosure of trading symbol(s) for all issued ‘‘instruments,’’ as well as CUSIP and ADR ratio when applicable, we are not adopting that suggestion as it is beyond the scope of this rulemaking. Items 101(e) and 101(h)(5) of Regulation S–K; and Forms S– 3, S–4, F–1, F–3, F–4, 20–F, SF–1, and SF–3. S–K, Release No. 33–10425 (Oct. 10, 2017) [82 FR 50988 (Nov. 2, 2017)]. 412 See letters from E&Y; EEI and AGA; FedEx; KPMG; R.G. Associates; and XBRL US, Inc. (Oct. 3, 2016) (‘‘XBRL’’). 413 See Section IV.B.4 of the Proposing Release, supra note 1, at 51638. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 414 See letter from E&Y. letter from XBRL. 416 ADR ratio is the number of foreign shares represented by one ADR. 417 ‘‘Host country,’’ as defined in General Instruction F. of Form 20–F, means the United 415 See PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 States and its territories, as the term is used in Form 20–F. 418 These proposed amendments are discussed in further detail in Section IV.B of the Proposing Release. E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Topic Commission disclosure requirement(s) Proposed amendments Exchange Rate data ....................... Item 3.A.3 of Form 20–F ............... Foreign Private Issuer Initial Public Offering—Age of Financial Statements. Instruction 2 to Item 8.A.4 of Form 20–F. Delete the requirement for foreign private issuers to provide exchange rate data when financial statements are prepared in a currency other than the U.S. dollar. Exchange rate information is readily available free on a number of websites.422 Remove the reference to a waiver and clarify the facts and circumstances when foreign private issuers may comply with the aging requirement to include audited financial statements in an initial public offering that are not older than 15 months compared to the 12 months aging requirement. Commenters supported the proposed amendments and agreed with the reasons provided in the Proposing Release.423 We are adopting all of the amendments described in the table above as proposed, which will remove obsolete disclosure requirements and reduce issuers’ compliance burdens. V. Superseded Requirements A. Background As accounting, auditing, and disclosure requirements have changed over time, inconsistencies have arisen between the newer requirements and existing Commission disclosure requirements. The Commission proposed amendments to update Commission disclosure requirements to reflect more recently updated U.S. GAAP requirements or more recently updated Commission disclosure requirements. B. Disclosure Requirements Superseded by U.S. GAAP The Commission staff has observed in its filing reviews that, in practice, issuers are able to successfully navigate inconsistencies between newer accounting and disclosure requirements daltland on DSKBBV9HB2PROD with RULES2 50179 and existing Commission disclosure requirements by complying with the requirement that was updated more recently. This is particularly the case with respect to changes in U.S. GAAP requirements, as the Commission has designated the FASB as the privatesector accounting standard setter.424 However, the Commission sought to simplify compliance efforts by proposing changes to several disclosure requirements that the Commission believed were superseded by U.S. GAAP.425 1. Gains or Loss on Sale of Properties by REITS Regulation S–X requires REITs to present separately all gains and losses on the sale of properties outside of continuing operations in the income statement.426 U.S. GAAP, however, restricts that presentation to gains and losses on disposals that meet the definition of discontinued operations.427 As a result, the Commission proposed to eliminate Rule 3–15(a)(1) of Regulation S–X. Commenters were supportive of the proposed amendment.428 We are adopting the elimination of Rule 3– 15(a)(1) of Regulation S–X as proposed. We believe this amendment will simplify compliance for issuers by eliminating the disclosure requirement in Rule 3–15(a)(1) of Regulation S–X that conflicts with the requirement in U.S. GAAP. 2. Consolidation a. Proposed Amendments The Commission provided guidance on the presentation of consolidated and combined financial statements when it first issued Regulation S–X in 1940.429 Since that time, certain U.S. GAAP consolidation requirements have changed significantly, creating inconsistencies between Regulation S–X and U.S. GAAP.430 For instance, Article 3A of Regulation S–X, Consolidated and Combined Financial Statements, includes several inconsistencies with U.S. GAAP related to difference in fiscal periods, the Bank Holding Company Act of 1956 (‘‘BHC Act’’), and intercompany transactions. The table below describes each requirement related to consolidation that the Commission proposed to eliminate and the reason for its proposed elimination.431 Topic Commission disclosure requirement(s) Proposed amendments Consolidation—Difference in Fiscal Periods. Rule 3A–02(b) 432 and Rule 3A– 02(b)(2) 433 of Regulation S–X. Consolidation—Bank Holding Company Act of 1956. Rule 3A–02(c) of Regulation S– X 435. Delete the requirements because U.S. GAAP 434 requires consolidation despite different fiscal periods and the fiscal periods of combined entities must differ by less than three months. Delete the requirement because U.S. GAAP 436 does not provide an exception to consolidation for subsidiaries of issuers subject to the BHC Act in relation to a divestiture. 419 See Rules 14 [17 CFR 232.14], 101 [17 CFR 232.101], and 102 [17 CFR 232.102] of Regulation S–T. 420 See Rules 100 [17 CFR 232.100] and 101 [17 CFR 232.101] of Regulation S–T. 421 Existing rules only require the disclosure by accelerated and large accelerated filers. 422 See note [451]. 423 See letters from E&Y; KPMG; and R.G. Associates. 424 See Section I.C.I of the Proposing Release, supra note 1, at 51611. 425 Some of the proposed amendments to eliminate superseded Commission disclosure requirements apply both to issuers that report under VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 U.S. GAAP and IFRS. We do not expect the amendments to conform these requirements to U.S. GAAP to cause confusion for issuers that report under IFRS because U.S. GAAP and IFRS are substantially converged for these topics. 426 Rule 3–15(a)(1) of Regulation S–X. 427 ASC 205–20–45–1B. 428 See letters from CAQ; Deloitte; E&Y; Grant; KPMG; NAREIT; PwC; and R.G. Associates. 429 See Adoption of Regulation S–X, (March 6, 1940) [5 FR 954 (Mar. 6, 1940)]. 430 For example, Accounting Research Bulletin (‘‘ARB’’) No. 51, Consolidated Financial Statements (‘‘ARB No. 51’’), was issued in 1959. Since then, the FASB has issued additional guidance, including but PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 not limited to SFAS No. 94, Consolidation of All Majority-Owned Subsidiaries—an amendment of ARB No. 51, with related amendments of APB Opinion No. 18 and ARB No. 43, Chapter 12; FASB Interpretation No. 46, Consolidation of Variable Interest Entities—an interpretation of ARB No. 51; FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities— an interpretation of ARB No. 51; SFAS No. 167, Amendments to FASB Interpretation No. 46(R); and ASU No. 2015–02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. 431 These proposed amendments are discussed in further detail in Section V.B.4. of the Proposing Release. E:\FR\FM\04OCR2.SGM 04OCR2 50180 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Commission disclosure requirement(s) Proposed amendments Consolidation—Intercompany Transactions Generally. Rule 3A–04 of Regulation S–X 437 Consolidation—Intercompany Transactions in Separate Financial Statements. Rule 4–08(k)(2) of Regulation S– X 439. Dividends Per Share in Interim Financial Statements. Rule 8–03(a)(2) and Rule 10– 01(b)(2) of Regulation S–X 442. Delete the requirement because U.S. GAAP 438 requires the elimination of intercompany transactions from consolidated financial statements. Delete the requirement to disclose, in separate financial statements of a subset of a consolidated group,440 the intercompany transactions which are eliminated or not eliminated, because U.S. GAAP 441 prohibits elimination of these transactions in the separate financial statements. Delete the requirements to present dividends per share on the face of the income statement for interim periods because U.S. GAAP 443 (1) prohibits this disclosure on the face of the financial statements and (2) instead permits it in the notes to the financial statements. Extend the annual disclosure requirement of changes in stockholders’ equity and the amount of dividends per share for each class of shares to interim periods445 Topic Rule 3–04 of Regulation S–X 444 .. daltland on DSKBBV9HB2PROD with RULES2 b. Comments on Proposed Amendments Commenters were generally supportive of the proposed 432 Regulation S–X prohibits the consolidation of an entity if its fiscal period differs substantially, for example by more than 93 days, from that of the issuer. 433 Regulation S–X permits the combination of entities under common control even if their fiscal periods differ by more than 93 days, but requires the recasting of the latest fiscal year to within 93 days and disclosure of amounts excluded or included more than once as a result of the recasting. 434 ASC 810–10–15–11. 435 Regulation S–X prohibits consolidation of subsidiaries of issuers subject to the BHC Act when a divestiture has been made or it is substantially likely that the divestiture will be necessary in order to comply with provisions of the BHC Act. 436 ASC 810–10–15–10a. See also paragraph C2.a of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (August 2001), which eliminated the pre-existing exception from consolidation for subsidiaries under temporary control under ARB No. 51. 437 If an issuer does not eliminate intercompany transactions from its financial statements, Regulation S–X requires it to explain why and how the transactions are treated. 438 See ASC 323–10–35–5a and ASC 810–10–45– 1. 439 When separate financial statements of a subset of a consolidated group, such as a parent, subsidiaries, or investees, are presented, Regulation S–X contemplates the elimination of some transactions between the subset of the consolidated group presented in the separate financial statements and other entities in the consolidated group. 440 A subset of a consolidated group that may present separate financial statements includes financial statements of the registrant, certain investees, or subsidiaries. 441 ASC 810–10–45–1. 442 Regulation S–X requires, for interim periods, the presentation of dividends per share on the face of the income statement. Rule 8–03(a)(2) specifically applies to SRCs and Regulation A issuers in a Tier 2 offering that report under U.S. GAAP, while Rule 10–01(b)(2) applies to non-SRCs. 443 See ASC 260–10–45–5. 444 Rule 3–04 of Regulation S–X allows annual disclosures of changes in stockholders’ equity, including dividends per share amounts, to be provided in a note to the financial statements or in a separate financial statement. 445 The option to present dividend per share disclosures in a separate financial statement does not comply with U.S. GAAP, which prohibits this VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 amendments.446 Some commenters asked for clarification on whether the amendment to extend the changes in stockholders’ equity and noncontrolling interests disclosure requirement to interim periods would be presented only for the year-to-date period, or for quarterly period(s) as well.447 One commenter supported the proposed elimination of Rule 8–03(a)(2) and Rule 10–01(b)(2) in Regulation S–X, per share presentation on the face of financial statements. However, the Commission saw benefits in continuing to provide (and extending to interim periods) an option to present dividends per share on the face of the statement of stockholders’ equity, if an issuer elects to present changes in stockholders’ equity in a separate financial statement, irrespective of the prohibition under U.S. GAAP. The Commission believed that the presentation of dividends per share alongside disclosure of changes in stockholders’ equity facilitates investor understanding of stockholders’ equity, as dividends are distributed from stockholders’ equity. In addition, the proposed amendments address the more significant issue in Regulation S–X associated with the requirement to present interim dividends per share on the income statement, which is unrelated to dividends, a component of stockholders’ equity. For Regulation A issuers, the Commission proposed amendments directly to Forms 1–A and 1–SA to require interim disclosures of changes in stockholders’ equity and dividends per share amounts to address the inconsistency described above with U.S. GAAP, rather than to refer to Rule 3–04. The proposed amendments to Form 1–A would apply to all Regulation A issuers and the proposed amendments to Form 1–SA would apply to all Regulation A issuers in a Tier 2 offering, even though Rule 8–03(a)(2) only applies to Regulation A issuers in a Tier 2 offering that report under U.S. GAAP. However, the Commission did not expect any increased burdens for Regulation A issuers in a Tier 2 offering that report under IFRS, as such issuers are already required to present a condensed statement of changes in equity and dividend amounts either in the aggregate or per share, pursuant to paragraphs 8 and 16A(f), respectively, of IAS 34, Interim Financial Reporting. The Commission expected the burdens for Regulation A issuers in a Tier 1 offering that report under U.S. GAAP on Form 1–A to be minimal, as the required information already would be available from the preparation of the interim financial statements. 446 See letters from CAQ; Deloitte; E&Y; Grant; KPMG; PwC; and R.G. Associates. 447 See letters from CAQ and PwC. PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 but questioned whether the extension of the disclosure requirement in Rule 3–04 of Regulation S–X to interim periods was necessary or efficient.448 As an alternative, the commenter recommended amending Regulation S–X to move the dividend per share disclosure requirements from the face of the financial statements to the notes to the financial statements, which would eliminate the conflict with U.S. GAAP. One commenter observed the need to update Rule 6–03(c)(1)(i) of Regulation S–X, which also has been superseded by U.S. GAAP.449 The commenter noted the Commission disclosure requirement permits the consolidation of the financial statements of registered investment companies and business development companies only with the financial statements of subsidiaries which are investment companies, whereas U.S. GAAP also permits consolidation when an investment company holds a controlling financial interest in an operating entity that provides services to the investment company.450 c. Final Amendments We are adopting the amendments as proposed with one minor change. As suggested by commenters, the final amendments clarify that Rule 3–04 of Regulation S–X requires both the yearto-date information and subtotals for each interim period. The extension of the disclosure requirement in Rule 3–04 of Regulation S–X may create some additional burden for issuers, including Regulation A issuers, because it will require disclosure of dividends per share for each class of shares, rather than only for common stock, and disclosure of changes in stockholders’ equity in 448 See letter from E&Y. letter from E&Y. 450 ASC 946–810–45. 449 See E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations interim periods.451 However, as noted in the Proposing Release, we expect this burden will be minimal, as the required information is already available from the preparation of other aspects of the interim financial information such as the balance sheet and earnings per share.452 The amended rule will require companies to provide information on the dividends issued and the relationship the dividends have to stockholders’ equity in one place, which may help investors understand some of the strategic decisions made by management, such as dividend payout versus share buyback. In response to a commenter’s suggestion, we are deleting the requirements for consolidation by investment companies in Regulation S–X 453 because it conflicts with U.S. GAAP. The U.S. GAAP requirement is broader and additionally requires consolidated financial statements when a reporting entity has a controlling financial interest in another entity. 3. Development Stage Companies daltland on DSKBBV9HB2PROD with RULES2 U.S. GAAP previously required presentation of cumulative financial information from inception and related disclosures for development stage companies.454 Regulation S–X requires the U.S. GAAP disclosures for development stage companies in interim periods.455 In June 2014, the FASB eliminated the U.S. GAAP disclosure requirements for development stage companies.456 Accordingly, the Commission proposed to eliminate the superseded U.S. GAAP disclosure requirement for development stage 451 ASC 505–10–50–2 requires disclosure of changes in the separate accounts comprising stockholders’ equity (e.g., common stock, additional paid-in capital, retained earnings) during at least the most recent annual fiscal period and any subsequent interim period presented. The proposed amendments would require disclosure of changes in stockholders’ equity for each period presented, which would include comparative periods. 452 Some registrants already include the disclosure required by Rule 3–04 in the Form 10–Q. U.S. GAAP also requires disclosure of significant changes in financial position, like stockholders’ equity, in interim reporting. ASC 270–10–50. 453 Rule 6–03(c)(1)(i) of Regulation S–X. 454 FASB ASC Topic 915, Development Stage Entities. 455 See Rule 8–03(b)(6) and Rule 10–01(a)(7) of Regulations S–X. Rule 8–03(b)(6) specifically applies to SRCs and Regulation A issuers in a Tier 2 offering that report under U.S. GAAP, while Rule 10–01(a)(7) applies to non-SRCs. 456 ASU No. 2014–10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities guidance in Topic 810, Consolidation. After public comment, the FASB determined that the disclosure provided ‘‘information that had limited relevance.’’ VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 companies in Rule 8–03(b)(6) and Rule 10–01(a)(7). Commenters supported our proposal to eliminate these requirements.457 Some of these commenters also recommended deleting the definition of development stage company in in Rule 1–02(h) of Regulation S–X.458 We are adopting the amendments as proposed. We are not deleting the definition of development stage company in Rule 1–02(h) of Regulation S–X as it is used in other Commission requirements (e.g., Rule 251(b)(3) of Regulation A and Rule 419(a)(2)(i) of Regulation C). As a result, we believe the definition in Rule 1–02(h) of Regulation S–X continues to be useful when applying these other Commission requirements. a. Proposed Amendments 17 CFR 210.7–02(b) (‘‘Rule 7–02(b)’’ of Regulation S–X) permits mutual life insurance companies and their whollyowned stock insurance company subsidiaries to prepare financial statements in accordance with statutory accounting requirements. In the proposing release, the Commission proposed to eliminate this rule, as the Commission did not believe that issuers under the Securities Act or the Exchange Act currently rely on Rule 7– 02(b) of Regulation S–X as a basis to report under statutory accounting requirements.459 The Commission also proposed two other amendments related to Insurance Companies and Regulation S–X. The first amendment relates to the separate presentation on the balance sheet of an 457 See letters from CAQ; Deloitte; E&Y; Grant; KPMG; PwC; and R.G. Associates. 458 See letters from CAQ; Deloitte; Grant; and PwC. The definition of development stage entities under U.S. GAAP was the same as development stage companies under Regulation S–X. 459 Some insurance companies sponsoring variable annuity contracts for registration on Forms N–3 and N–4 under the Investment Company Act and the Securities Act and some insurance companies offering variable life insurance contracts for registration on Form N–6 under the Investment Company Act and Securities Act prepare financial statements under statutory accounting requirements. These companies are permitted to do so in certain circumstances by the applicable form requirements. Specifically, each of these forms requires financial statements of the insurance company and states that if the insurance company would not have to prepare financial statements in accordance with U.S. GAAP except for use in the registration statement being filed or other specified registration statements used for variable insurance contracts, then its financial statements may be prepared in accordance with statutory accounting requirements. See Form N–3, Item 28(b), Instruction 1; Form N–4, Item 23(b), Instruction 1; and Form N–6, Item 24(b), Instruction 1. The proposed elimination of Rule 7–02(b) would not change these forms. Frm 00035 Fmt 4701 Sfmt 4700 asset called ‘‘reinsurance recoverable on paid losses.’’ 460 The Commission proposed to delete the reference to ‘‘paid losses’’ in this line item because U.S. GAAP was revised in 1992 to allow reinsurance recoverable receivables on paid and unpaid losses to be presented together.461 The second amendment relates to the definition of ‘‘Separate Account Assets’’ that are presented separately as a summary total on the balance sheet.462 U.S. GAAP defines differently separate account assets that are required to be reported as a summary total.463 Thus, the Commission proposed to replace the reference to variable annuities, pension funds, and similar activities in Rule 7– 03(a)(11) with a reference to U.S. GAAP. b. Comments on Proposed Amendments 4. Insurance Companies PO 00000 50181 Many commenters supported all three proposals.464 However, some commenters opposed the elimination of the ability of mutual life insurance companies to utilize statutory accounting principles for registration of insurance products under the Securities Act.465 These commenters stated that the preparation of U.S. GAAP financial statements would impose significant financial and administrative burdens on mutual life insurers. These commenters indicated that if the amendments to Rule 7–02(b) were adopted, a mutual insurance company issuing a general account insurance product would have to comply with the requirement to provide U.S. GAAP financial statements in Form S–1 or S–3, and as a result, mutual life insurance companies that do not already prepare U.S. GAAP financial statements may limit their offerings of general account insurance products. One commenter suggested that the Commission should expand Rule 7– 02(b) to allow its application to all insurance companies that do not otherwise prepare U.S. GAAP financial statements.466 Other commenters advised that elimination of the rule should involve a full analysis of the 460 See Rule 7–03(a)(6) of Regulation S–X. 1992 the FASB issued SFAS No. 113, which established that reinsurance receivables on unpaid losses are also assets and may be presented together or separately with other reinsurance receivables. See paragraphs 74 to 76 in SFAS No. 113 and paragraph 76 was codified in ASC 944–20–50–5. 462 See Rule 7–03(a)(11) of Regulation S–X. 463 See ASC 944–80–25–1 to 5. 464 See letters from CAQ; Deloitte; E&Y; Grant; KPMG; PwC; and R.G. Associates. 465 See letters from American Council of Life Insurers (Oct. 21, 2016) (‘‘ACLI’’); Committee of Annuity Insurers (Oct. 11, 2016); and Northwestern Mutual Life Insurance Company (Nov. 1, 2016) (‘‘Northwestern Mutual’’). 466 See letter from Committee of Annuity Insurers. 461 In E:\FR\FM\04OCR2.SGM 04OCR2 50182 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations potential costs and benefits.467 These commenters also outlined the relevance of financial statements prepared under statutory accounting principles for general account insurance products. c. Final Amendments After further consideration and in light of the concerns expressed by commenters, we are not adopting the proposed amendment to eliminate Rule 7–02(b). We are adopting the amendments to Rule 7–03(a)(6) and 7– 03(a)(11) as proposed to simplify compliance for issuers by removing the elements of those rules that conflict with U.S. GAAP. 5. Extraordinary Items a. Proposed Amendments Various Commission disclosure requirements and forms refer to extraordinary items. In January 2015, the FASB eliminated extraordinary items from U.S. GAAP.468 To update Commission disclosure requirements, the Commission proposed to delete references to extraordinary items in our rules and forms.469 The Commission proposed to delete the requirement in Item 302(a)(1) of Regulation S–K to disclose ‘‘income (loss) before extraordinary items and cumulative effect of a change in accounting’’ in supplemental quarterly financial information, and in its place, require disclosure of ‘‘Income (loss).’’ The Commission also proposed amendments to the investment company registration forms (Form N–1A, Form N–3, Form N– 4, and Form N–6) to replace the outdated reference to the U.S. GAAP definition of extraordinary items with a definition of extraordinary expenses 470 The Proposing Release indicated that the proposed amendments were not intended to change the content required to be presented in these forms.471 b. Comments on Proposed Amendments While commenters 472 generally supported the proposed amendments, some commenters 473 recommended requiring disclosure of ‘‘income (loss) from continuing operations’’ and ‘‘net income (loss)’’ where the existing rule previously required ‘‘income (loss) before extraordinary items and cumulative effect of a change in accounting principle.’’ This recommendation was based on a view that: (1) It was unclear what income statement line ‘‘income (loss)’’ referred to; and (2) the alternative formulation would highlight the effects of discontinued operations. Additionally, these commenters recommended that the Commission reconsider the per share financial metrics required to be disclosed in interim periods, such as the disclosure requirement in Item 302(a)(1) of Regulation S–K,474 and make the c. Final Amendments We are adopting the amendments as proposed, eliminating all references to extraordinary items and adding a definition of extraordinary expenses within certain N-Forms. We are also making several revisions recommended by commenters related to Item 302(a)(1). Specifically, we are replacing the proposed reference to ‘‘income (loss)’’ with ‘‘income (loss) from continuing operations’’ and the reference to ‘‘per share data based upon such income’’ with ‘‘per share data based upon income (loss) from continuing operations’’ 476 and ‘‘per share data based upon net income (loss).’’ These additional changes should help to simplify the resulting disclosure and reduce any confusion for issuers. 6. Other The table below describes each of the remaining disclosure requirements that are superseded by U.S. GAAP and the related proposed amendments.477 Topic Commission disclosure requirement(s) Proposed amendments Statement of Cash Flows .......... Rule 3–02 of Regulation S–X ....................................................... Amend to replace the reference to ‘‘changes in financial position’’ in the title with ‘‘cash flows’’ because similar amendments to various rules and forms were made in 1992.478 Delete reference to when a business combination should be assumed to have occurred in pro forma financial information because U.S. GAAP 479 requires reflection of the business combination at the beginning of the preceding fiscal year. Consolidation—Interim Financial Rule 8–03(b)(4) and Rule 10–01(b)(4) of Regulation S–X ........... Statements—Pro Forma Business Combination Information. daltland on DSKBBV9HB2PROD with RULES2 metrics consistent with measures that are presented on the face of the interim income statements. One commenter expressly supported the proposed amendments to retain the historical U.S. GAAP definition of ‘‘extraordinary expenses’’ in certain investment company registration forms.475 467 See letters from ACLI and Northwestern Mutual. 468 See ASU No. 2015–01, Income Statement— Extraordinary and Unusual Items (Subtopic 225– 20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. Previously, ASC 225–20–45–2 defined ‘‘extraordinary items’’ as an event or transaction that is unusual in nature and infrequent in occurrence, and ASC 225–20–45–3 required separate presentation of the effect of the extraordinary item on the income statement. 469 The proposed amendments apply to the following rules: Rule 1–02(w)(3), Rule 1– 02(bb)(1)(ii), Rule 3–01(c)(2), Rule 3–01(c)(3), Rule 3–15(a)(1), Rule 3A–02(b)(2), Rule 5–03(b), Rule 7– 04, Rule 8–03(a)(2), Rule 8–04(b)(3), Rule 9–04, Rule 10–01(b)(4), Rule 11–02(b)(7), and Instruction 1 to Rule 11–02; Item 10(b)(2), Item 302(a)(1), and Item 302(a)(3) of Regulation S–K; Securities Act Rule 405, Exchange Act Rule 3a51–1(a)(2)(i)(A)(3); Exchange Act Rule 12b–2; Exchange Act Rule 13a– 10(b); and Exchange Act 15d–10(b). The proposed amendments also apply to Form X–17A–5. Rule 3a51–1 of the Exchange Act contains a net income measure that is used in evaluating whether VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 certain equity securities are penny stocks, which currently excludes ‘‘extraordinary and nonrecurring items’’ from the net income calculation. As a result of the proposed amendment, the reference to ‘‘extraordinary items’’ would be deleted, but the exclusion of non-recurring items from net income would remain. The deletion of the ‘‘extraordinary items’’ reference from net income calculations under Rule 3a51–1 is not intended to affect the application of the rule, as we believe that non-recurring items encompass items that would have been ‘‘extraordinary items’’ previously. Thus, the calculation of net income for purposes of Rule 3a51–1 should not change. 470 The proposed definition is consistent with the historical U.S. GAAP definition of ‘‘extraordinary items.’’ 471 While the FASB has eliminated the concept of extraordinary items from U.S. GAAP for general purpose financial reporting, the concept of extraordinary expenses is still relevant for investment companies, particularly in disclosure of expense ratios in registration statements. Certain investment company registration forms eliminate extraordinary expenses from expense ratios in the fee table in order to disclose to investors the PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 ongoing level of expense that can be expected. The proposed amendment did not seek to change the requirement that extraordinary expenses be excluded in the fee table and included in footnote disclosure reflecting extraordinary expenses if they would have a material effect. See Section V.B.11 of the Proposing Release. 472 See letters from CAQ: Deloitte; E&Y; Grant; KPMG; PwC; and R.G. Associates. 473 See letters from CAQ, E&Y, and PwC. 474 Item 302(a)(1) of Regulation S–K requires per share data based upon the income (loss) before extraordinary items and cumulative effect of a change in accounting. 475 See letter from ICI. 476 See ASC 260–10–45–2. 477 These proposed amendments are discussed in further detail in Section V.B. of the Proposing Release. 478 See Amendments to Rules and Forms, Release No. 33–6958A, (Oct. 1, 1992) [57 FR 45287 (Oct. 1, 1992)]. 479 See ASC 270–10–50–7, which refers to ASC 805–10–50–2h.3 for purposes of interim disclosures. E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Topic Commission disclosure requirement(s) Proposed amendments Bank Holding Companies—Net Presentation. Rule 9–03.3 of Regulation S–X .................................................... Bank Holding Companies— Goodwill. Rule 9–03.10(1) S–X. Discontinued Operations ........... Instruction 1 to Rule 11–02(b) of Regulation S–X; and Item 302(a)(3) of Regulation S–K. Pooling-of-Interests .................... Rule 11–02(c)(2)(ii) of Regulation S–X; Rule 405 of Regulation C; Item 4A(b)(1)(iii) of Form F–1; Instruction 1 to paragraphs (e) and (f) of Item 3 of Form F–4; Item 10(c)(3) of Form F–4; Introduction to Item 12 of Form F–4; and Item 12(b)(2)(iv) of Form F–4. Rule 1–02, Rule 3–02, Rule 3–03, Rule 3–04, Rule 3–05, Rule 3–12, Rule 3–14, Rule 3–17, Rule 4–08, Rule 4–10, Rule 5– 02, Rule 5–03, Rule 5–04, Rule 6–07, Rule 6A–04, Rule 6A– 05, Rule 7–03, Rule 7–04, Rule 7–05, Rule 8–02, Rule 8–03, Rule 8–05, Rule 8–06, Rule 9–03, Rule 9–04, Rule 9–05, Rule 9–06, Rule 10–01, Rule 11–02, Rule 11–03, Rule 12– 16, Rule 12–17, Rule 12–18, Rule 12–28, and Rule 12–29 of Regulation S–X; Item 10, Item 302, and Item 303 of Regulation S–K; Item 1010 of Regulation M–A; Securities Act Rule 158; Exchange Act Rule 15c3–1g, 17a–5, 17a–12, 17g–3, and 17h–1T; Forms 1–A , 1–K, 1–SA, 20–F, 11–K, and X– 17A–5.484 Rule 5–03, Rule 7–04, and Rule 9–04 of Regulation S–X.486 Delete requirement for federal funds sold and securities purchased under resale agreements or similar arrangements to be presented on the balance sheet gross of federal funds purchased and securities sold under agreements to repurchase because U.S. GAAP 480 permits net presentation under certain conditions. Delete the parenthetical reference to net of amortization in Rule 9–03.10(1) and delete the reference to goodwill amortization in Rule 9–04.14(c) because U.S. GAAP 481 prohibits amortization of goodwill. Replace the reference to ‘‘segments’’ with ‘‘discontinued operations’’ because the definition of ‘‘discontinued operations’’ under U.S. GAAP 482 has changed and no longer incorporates the term ‘‘segment.’’ Delete references to ‘‘pooling-of-interests’’ and replace them with references to ‘‘combinations of entities under common control’’ because similar amendments were made in 2009.483 Statement of Comprehensive Income. and Rule 9–04.14(c) of Regulation Rule 5–02.30(a) and Rule 7–03(a)(23)(a) of Regulation S–X; and Form X–17–A–5. Cumulative Effect of Changes in Accounting Principles. Rule 1–02, Rule 3–01, Rule 3–15, Rule 5–03, Rule 7–04, Rule 8–03, Rule 8–04, Rule 9–04, Rule 10–01, Rule 11–02, and Instruction 1 to Rule 11–02 of Regulation S–X; Item 302 of Regulation S–K; Securities Act Rule 405; Exchange Act Rule 12b–2, Rule 13a–10(b), and Rule 15d–10(b); and Form X– 17A–5. Commenters supported the proposed amendments.488 We are adopting all of daltland on DSKBBV9HB2PROD with RULES2 50183 480 See ASC 210–20–45. Where amounts are presented net, ASC 210–20–50–3(a) requires disclosure in the notes to the financial statements of the gross amounts. 481 See SFAS No. 142, Goodwill and Other Intangible Assets. 482 See ASC 205. 483 See Technical Amendment to Rules, Forms, Schedules, and Codification of Financial Reporting Policies, Release No. 33–9026, (Apr. 15, 2009) [74 FR 18612 (April 23, 2009)]. 484 See Rule 1–02, Rule 3–02, Rule 3–03, Rule 3– 04, Rule 3–05, Rule 3–12, Rule 3–14, Rule 3–17, Rule 4–08, Rule 4–10, Rule 5–02, Rule 5–04, Rule 6–07, Rule 6A–04, Rule 6A–05, Rule 7–03, Rule 7– 05, Rule 8–02, Rule 8–03, Rule 8–05, Rule 8–06, Rule 9–03, Rule 9–05, Rule 9–06, Rule 10–01, Rule 11–02, Rule 11–03, Rule 12–16, Rule 12–17, Rule 12–18, Rule 12–28, and Rule 12–29 of Regulation S–X; Item 10, Item 302, and Item 303 of Regulation S–K; Item 1010 of Regulation M–A; Securities Act Rule 158; Exchange Act Rule 15c3–1g; Exchange Act Rule 17a–5; Exchange Act Rule 17a–12; Exchange Act Rule 17g–3; Exchange Act Rule 17h– 1T; Form 1–A; Form 1–K; Form 1–SA; Form 20–F; Form 11–K; and Form X–17A–5. 485 See ASU No. 2011–05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The statement of comprehensive income may be presented as either: (1) A single statement of comprehensive income or (2) two separate but VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 Replace (or, in some cases, supplement) the existing references to ‘‘income statement’’ and variations thereof with ‘‘statement of comprehensive income’’ because the FASB has replaced the income statement with the statement of comprehensive income.485 Also amend to clarify the two presentation options for the statement by defining the term ‘‘statement of comprehensive income’’ in Regulation S–X. Amend to add line items to present comprehensive income and related items in the statement of comprehensive income. Amend to include accumulated other comprehensive income in its list of balance sheet line items. Also delete the reference in Rule 7–03(a)(23)(a) to unrealized appreciation or depreciation of equity securities, as it is a component of accumulated other comprehensive income required to be presented separately under U.S. GAAP. Delete references to cumulative effect of a change in accounting principle because the FASB has eliminated the requirement to report cumulative effect of a change in accounting principle in the income statement.487 the amendments described in the table above as proposed. by other Commission disclosure requirements. C. Disclosure Requirements Superseded by Other Commission Requirements 1. Auditing Standards Commission disclosure requirements have also changed over time, which has resulted in inconsistencies within our disclosure requirements. The Proposing Release identified disclosure requirements that have been superseded Section 103(a) of the Sarbanes-Oxley Act authorized the PCAOB to establish auditing and related professional practice standards used by registered public accounting firms when conducting audits of issuers.489 Prior to the creation of the PCAOB, public accounting firms conducted audits of issuers pursuant to Generally Accepted Auditing Standards (‘‘GAAS’’) 490 and many Commission rules continue to refer to those standards. In addition, Section 10A of the Exchange Act also refers to GAAS in its requirements for consecutive statements, composed of the income statement and a separate statement, which begins with net income and separately presents the components of other comprehensive income, a total of other comprehensive income, and a total of comprehensive income. Items of other comprehensive income include, for example: foreign currency translation adjustments, certain unrealized holding gains and losses, and gains or losses associated with pension or other postretirement benefits (that are not recognized immediately as a component of net periodic benefit cost). See ASC 220–10–45–10A for additional items. 486 See Rule 5–03, Rule 7–04, and Rule 9–04. 487 See SFAS No. 154, Accounting Changes and Error Corrections. This is now reflected in ASC 250, Accounting Changes and Error Corrections. 488 See letters from CAQ; Deloitte; E&Y; Grant; KPMG; PwC; and R.G. Associates. PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 a. Proposed Amendments 489 Public Law 107–204, 116 Stat. 745 (2002). Pursuant to Section 2(a)(7) of the Sarbanes-Oxley Act, an issuer is defined as an issuer with securities registered under Section 12 of the Exchange Act or required to file reports under Section 15(d) of the Exchange Act. 15 U.S.C. 7201(a)(7). 490 These standards are currently promulgated by the American Institute of Certified Public Accountants. E:\FR\FM\04OCR2.SGM 04OCR2 50184 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations audits. The standards of the PCAOB are different from GAAS. In 2004, the Commission published interpretive guidance explaining that references to GAAS in Commission rules and staff guidance, as they relate this interpretation in the future.492 The table below describes each of the disclosure requirements that the Commission proposed to amend as part of the codification.493 Commission disclosure requirement(s) Proposed amendments Rule 1–02(d) of Regulation S–X ..... Amend to refer to ‘‘the standards of the Public Company Accounting Oversight Board (United States) (‘‘PCAOB’’)’’ as it relates to the audit of issuers and to note that, for different types of non-issuers, the Commission requires PCAOB auditing standards or GAAS or permits the use of either. Amend to replace the references to GAAS with ‘‘the standards of the Public Company Accounting Oversight Board (United States) (‘‘PCAOB’’)’’. Replace the term ‘‘examination’’ with ‘‘audit conducted.’’ Rule 436(d)(4) of Regulation C and General Instruction G(f)(1) of Form 20–F. Instruction 2 to Item 8.A.2 of Form 20–F. Rule 2–01(f)(7)(ii)(B) of Regulation S–X. Rules 2–02(b)(1), 8–03, and 10–01 of Regulation S–X. Rules 10A–1(b)(3) and 13b2– 2(b)(2) of the Exchange Act. Instruction E(c)(3) of Form 20–F .... daltland on DSKBBV9HB2PROD with RULES2 to issuers, should be understood to mean the standards of the PCAOB plus any applicable rules of the Commission.491 Further, the Commission stated its intent to codify Amend to state that financial statements of entities other than the issuer must be audited in accordance with ‘‘the standards of the Public Company Accounting Oversight Board (United States) (‘‘PCAOB’’).’’ Amend to make language consistent with current auditing standards. Amend to refer to ‘‘applicable professional standards’’ instead of GAAS. Amend to replace the references to GAAS with ‘‘the standards of the Public Company Accounting Oversight Board (United States) (‘‘PCAOB’’).’’ Amend to replace the reference to U.S. standards for auditor independence with ‘‘qualified and independent in accordance with Article 2 of Regulation S–X.’’ b. Comments on Proposed Amendments c. Final Amendments Commenters generally supported these proposed amendments.494 Some commenters 495 also recommended that the Commission clarify when a review of interim financial information in accordance with PCAOB standards is not required under Rules 10–01 or 8–03 of Regulation S–X. Further, one of these commenters requested that we adopt a rule that explains which professional standards apply to every circumstance where financial statements are filed with the Commission.496 We are adopting all of the amendments described in the table above as proposed. We are also eliminating the reference to U.S. standards for auditor independence from Instruction 2 to Item 8.A.2 of Form 20–F to be consistent with the amendments to Instruction E(c)(3) of Form 20–F. We believe the reference to ‘‘applicable professional standards’’ in Rules 10–01 and 8–03 does not create significant confusion and therefore we are not adopting any amendments to clarify the application of these rules as suggested by commenters. Further, we are not adopting a rule that explains which professional standards apply to every circumstance where financial statements are filed with the Commission because that is beyond the scope of this rulemaking. 2. Other The table below describes each of the remaining superseded disclosure requirements that the Commission proposed to amend.497 Topic Commission disclosure requirement(s) Proposed amendments Published Report Regarding Matters Submitted to Vote of Security Holders. Delete requirement in light of changes made in 2009 to disclose shareholder voting results in Forms 10–K and 10–Q and Item 5.07 of Form 8–K.498 Selected Financial Data for Foreign Private Issuers that Report under IFRS. Item 601(b)(22) of Regulation S–K (including accompanying inclusion in the Exhibit Table within Item 601); Item 5 of Form 10–D. General Instruction G(c) and Instruction 2 to Item 3.A of Form 20–F. Canadian Regulation A Issuers ...... Forms 1–A and 1–SA .................... 491 See Commission Guidance Regarding the Public Company Accounting Oversight Board’s Auditing and Related Professional Practice Standard No. 1, Release No. 34–49708 (May 14, 2004) [69 FR 29064 (May 20, 2004)]. Subsequently, Section 982 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the ‘‘Dodd-Frank Act’’) amended the Sarbanes-Oxley Act to establish VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 Amend (1) General Instruction G(c) to delete the requirement to present selected financial data in accordance with U.S. GAAP, and (2) Instruction 2 to Item 3.A to explicitly state that selected financial data is required only for the periods for which the issuer has prepared financial statements in accordance with IFRS because of inconsistencies in the Form 20–F created by 2005 499 and 2007 500 amendments related to foreign private issuers that report under IFRS. Amend references to Regulation S–X in Forms 1–A and 1–SA to apply only to Regulation A issuers that report under U.S. GAAP as Regulation A permits Canadian issuers to report under IFRS. the PCAOB’s authority to oversee the independent public accountants that audit registered brokers and dealers. See Public Law 111–203, 124 Stat. 1376 (2010). 492 Id. 493 These proposed amendments are discussed in further detail in Section V.B.1. of the Proposing Release. PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 494 See letters from CAQ; Deloitte; E&Y; Grant; KPMG; PwC; and R.G. Associates. 495 See letters from CAQ; and KPMG. 496 See letter from KPMG. 497 These proposed amendments are discussed in further detail in Section V.B. of the Proposing Release. E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Commenters supported the proposed amendments,501 and no commenter specifically opposed the amendment. Accordingly, we are adopting all of the amendments described in the table above as proposed. D. Non-Existent or Incorrect References and Typographical Errors Various Commission disclosure requirements contain incorrect references or references to rules that no Commission disclosure requirement(s) longer exist. The table below describes each of the disclosure requirements that contain these references and the related proposed amendments.502 Proposed amendments Rule 5–02 of Regulation S–X, Balance sheets. Rule 5–02.22(a) of Regulation S–X, Bonds, mortgages and other long-term debt, including capitalized leases. Rule 7–04.9 of Regulation S–X, Income tax expense. Rule 9–03.7(e)(3) of Regulation S– X, Loans. Item 512(a)(4) of Regulation S–K, Undertakings. Instruction J(1)(e) to Form 10–K .... Instruction J(1)(f) to Form 10–K ..... Paragraph (c)(1)(i) of Part F/S of Form 1–A. Forms F–1, F–3, F–4, F–6, F–7, F– 8, F–10, F–80, 20–F, and 40–F. Delete reference to Rule 4–05 of Regulation S–X, which no longer exists. Delete reference to Rule 4–06 of Regulation S–X, which no longer exists. Replace reference to Rule 4–08(g) of Regulation S–X that relates to investments accounted for under the equity method of accounting with Rule 4–08(h) that addresses income tax expense. Delete reference to Rule 4–08(L)(3) of Regulation S–X, which no longer exists. Replace reference to Rule 3–19 of Regulation S–X, which no longer exists, with Item 8.A of Form 20–F, similar to changes made in 1999.503 Clarify that General Instruction J(1)(e) is reserved because it is currently blank. Conform description in Instruction J(1)(f) to the title of Item 5 of Form 10–K: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Delete reference to ‘‘interim’’ financial statements because this paragraph addresses the age of both interim and annual financial statements. Replace references to the Commission’s telephone numbers and offices with the correct references. Commenters supported the amendments to correct these references and errors,504 and no commenter specifically opposed the amendments. Accordingly, we are adopting all of the amendments described in the table above as proposed. Subsequent to the Proposing Release, we identified additional incorrect references or references to rules that no longer exist that also need to be updated, as well as typographical errors. We are amending our rules to address these incorrect references and errors in this release. We describe those amendments in the table below. Commission disclosure requirement(s) Technical amendments Rule 1–02(w) of Regulation S–X, Significant Subsidiary ......................... Replace the term ‘‘submitted’’ with ‘‘substituted’’ which was inadvertently changed in a prior technical amendment.505 Replace reference to Rule 0–05, which does not exist, with reference to Rule 9–05 of Regulation S–X, which provides disclosure requirements concerning foreign activities. Replace superseded references to Rule 6–21 of Regulation S–X with correct references to Rule 6–03 and superseded reference to Rule 6–21(f) with Rule 6–03(d).506 Replace superseded references to Rule 6–22 of Regulation S–X with correct references to Rule 6–06.507 Replace superseded references to Rule 6–23(a) of Regulation S–X with correct references to Rule 6–07(1).508 Replace reference to National Association of Securities Dealers with successor entity, the Financial Industry Regulatory Authority (‘‘FINRA’’). In addition, replace reference to Rules of Fair Practice with FINRA rules.509 Replace outdated reference to the title of General Instruction B.2 of Form S–3. Remove Instruction 3 which relates to a superseded transaction requirement.510 Replace reference to the definition of a ‘‘significant subsidiary’’ in Rule 1–02(v) of Regulation S–X with correct reference to Rule 1–02(w).512 Revise the definition of ‘‘significant subsidiary’’ to correct for inadvertent omissions of changes to the definition and conform to the updated definition in Rule 1–02(w) of Regulation S–X.513 Rule 9–03(12)(a) of Regulation S–X, Deposits ........................................ Rules 12–21 to 24 of Regulation S–X, For Face-Amount Certificate Investment Companies. Rules 12–22 to 24 and 12–27 of Regulation S–X, For Face-Amount Certificate Investment Companies. Footnote 6 of Rule 12–22 of Regulation S–X, For Face-Amount Certificate Investment Companies. Item 508(e) of Regulation S–K ................................................................. General Instruction I.C.2 and I.D.1.(c)(iv) of Form S–3 ........................... Instruction 3 of the Instructions to the Signatures of Form S–3 .............. Item 17(c)(2)(v) and (vi) of Form 20–F 511 ............................................... Rule 405, Definition of Terms, Significant Subsidiary .............................. daltland on DSKBBV9HB2PROD with RULES2 50185 498 See Proxy Disclosure Enhancements, Release No. 33–9089, (Dec. 16, 2009) [74 FR 68334 (Dec. 23, 2009)]. In addition, the Form 8–K containing the voting results must be filed within four business days after the meeting at which the votes took place. 499 See First-Time Application of International Financial Reporting Standards, Release No. 33– 8567 (Apr. 12, 2005) [70 FR 20674 (Apr. 20, 2005)]. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 500 See Acceptance From Foreign Private Issuers of Financial Statements Prepared in Accordance With International Financial Reporting Standards Without Reconciliation to U.S. GAAP, Release No. 33–8879, (Dec. 21, 2007) [73 FR 986 (Jan. 4, 2008)] and Instruction 2 to Item 3.A of Form 20–F. 501 See letters from CAQ; Deloitte; E&Y; Grant; KPMG; PwC; and R.G. Associates. PO 00000 Frm 00039 Fmt 4701 Sfmt 4700 502 These proposed amendments are discussed in further detail in Section V.B.16. of the Proposing Release. 503 See International Disclosure Standards, Release No. 33–7745 (Sept. 28, 1999) [64 FR 53900 (Oct. 5, 1999)]. 504 See letters from CAQ; Deloitte; E&Y; Grant; KPMG; PwC; and R.G. Associates. E:\FR\FM\04OCR2.SGM 04OCR2 50186 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Commission disclosure requirement(s) Technical amendments Rule 12b–2, Definitions, Significant Subsidiary ....................................... Revise the definition of ‘‘significant subsidiary’’ to correct for inadvertent omissions of changes to the definition and conform to the updated definition in Rule 1–02(w) of Regulation S–X.514 Revise Rules 3–04, 12g–3(a)(2), 12g–3(b)(2), and 12g–3(c)(2) for punctuation errors. Rule 12g–3, Registration of securities of successor issuers under section 12(b) or 12(g) of the Securities Exchange Act of 1934 and Rule 3–04 of Regulation S–X. Rule 3–04, Rule 4–08(m)(2)(ii), Rule 5–03(b)(1), Rule 7–03(13)(a)(2), Rule 6–09(4)(b), Rule 9–03(10)(3), Rule 9–03(10)(4)(a), Rule 10– 01(b)(7), and Rule 12–24 of Regulation S–X. Item 406(d) and Item 601(b)(14) of Regulation S–K ............................... Form 10, Subpart C of Forms, Securities Exchange Act of 1934 ........... daltland on DSKBBV9HB2PROD with RULES2 VI. Other Matters If any of the provisions of these rules, or the application of these provisions to 505 See 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)]. 506 In 1982, the Commission replaced all prior Article 6 provisions, including the ones referenced here, with revised Rules 6–01 through 6–10 of Regulation S–X. However, the Commission did not also update the references to Article 6 rules in Article 12 of Regulation S–X. See Financial Statement Requirements for Registered Investment Companies, Release 33–6442 (Dec. 21, 1982) [47 FR 56835 (Dec. 21, 1982] (‘‘1982 Investment Company Release’’). Reference to Rule 6–21(f) of Regulation S–X is made in Footnote 4 of both Rule 12–21 and Rule 12–22, and Footnote 5 of Rule 12–24. Reference to Rule 6–21 of Regulation S–X is made in Footnote 9 of Rule 12–23. 507 See 1982 Investment Company Release. 508 See 1982 Investment Company Release. 509 The Commission approved the creation of Financial Industry Regulatory Authority (‘‘FINRA’’) through the consolidation of the member firm regulatory functions of the NASD and NYSE Regulation, Inc., a wholly-owned subsidiary of New York Stock Exchange LLC in 2007. See Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Approving Proposed Rule Change to Amend the ByLaws of NASD to Implement Governance and Related Changes to Accommodate the Consolidation of the Member Firm Regulatory Functions of NASD and NYSE Regulation, Inc., Release No. 34–56145 (Jul. 26, 2007) [72 FR 42169 (Aug. 1, 2007]; File No. SR–NASD–2007–023 (July 26, 2007). 510 Instruction 3 of Form S–3 refers to eligibility based on the assignment of a securities rating pursuant to Transaction Requirement B.5. of Form S–3. The Transaction Requirements of Form S–3 no longer relate to securities ratings. See Asset-Backed Securities Disclosure and Registration, Release No. 33–9638 (Sept. 4, 2014) [79 FR 57184 (Sept. 24, 2014)]. 511 Items 17(c)(2)(v) and (vi) include requirements for financial statements on a basis of accounting other than U.S. GAAP that are furnished pursuant to Rule 3–05 or 3–09 of Regulation S–X. 512 Rule 1–02(v) defines the term ‘‘share,’’ while Rule 1–02(w) defines ‘‘significant subsidiary.’’ 513 The definition of ‘‘significant subsidiary’’ in Rule 1–02(w) of Regulation S–X, Securities Act Rule 405 and Exchange Act Rule 12b–2 are generally intended to be conformed to each other. See, e.g., Technical Amendments to Rules and Forms, Release No. 33–6584 (Jun. 6, 1985) [50 FR 25214 (Jun. 18, 1985)]. Two releases inadvertently changed the definitions of ‘‘significant subsidiary’’ in some, but not all of these three rules, resulting VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 Correct typographical errors. Replace superseded references to Item 10 of Form 8–K with correct references to Item 5.05 of Form 8–K.515 Remove outdated reference to Form 10–SB in Form 10 heading. any person or circumstance, is held to be invalid, such invalidity shall not affect other provisions or application of such provisions to other persons or circumstances that can be given effect without the invalid provision or application. VII. Economic Analysis 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. GAAP, IFRS, or changes in the information environment. These amendments are the result of the staff’s ongoing evaluation of our disclosure requirements 516 and also are part of our efforts to implement Title LXXII, Section 72002(2) of the FAST Act. We are sensitive to the costs and benefits of the amendments. In this section, we examine the current baseline, which consists of both the regulatory framework of disclosure requirements in existence today and the current use of such disclosure by investors and other users, and discuss the potential benefits and costs of the in a lack of conformity. See Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance with International Financial Reporting Standards Without Reconciliation to U.S. GAAP, Release No. 33–8879 (Dec. 21, 2007) [73 FR 986 (Jan. 4, 2008)], and Technical Amendments to Rules, Forms, Schedules, and Codification of Financial Reporting Policies, Release No. 33–9026 (Apr. 15, 2009) [77 FR 18612 (Apr. 23, 2009)]. Computational Note 3 to the definition of ‘‘significant subsidiary’’ is only in Rule 1–02(w) of Regulation S–X. See Financial Statements and Regulation S–X; Technical Amendments to Rules and Forms, Release No. 33– 6612 (Nov. 21, 1985) [50 FR 49529 (Dec. 3, 1985)]. Computational Note 3 relates solely to issues applicable to Regulation S–X and the use of Rule 1–02(w) therein and is not relevant to the uses of the definition in Rule 405 and Rule 12b–2. We are therefore not including Computational Note 3 in Rule 405 and Rule 12b–2. 514 See supra note 513. 515 See Additional Form 8–K Disclosure Requirements and Acceleration of Filing Date, Release No. 33–8400 (Mar. 16, 2004) [69 FR 15594 (Mar. 25, 2004)]. 516 See supra note 12. PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 amendments, relative to this baseline, and their potential effects on efficiency, competition, and capital formation.517 The Proposing Release requested comment on all aspects of the economic effects of the proposed amendments, including the costs and benefits and possible alternatives to the proposed amendments. The Commission also solicited comment in the Proposing Release on whether the proposed amendments, if adopted, would promote efficiency, competition, or capital formation, or have an impact or burden on competition. We received a number of comments addressing the potential economic impacts of the proposed amendments, which we discuss below. A. Baseline and Affected Parties Our baseline includes the current disclosure requirements in Regulation S–K, Regulation S–X, and other Commission rules and forms promulgated under the Securities Act, the Exchange Act, and the Investment Company Act. The parties affected by the amendments include investors and other users, auditors, and issuers. Additionally, entities other than issuers may be affected (e.g., significant acquirees for which financial statements are required under Rule 3–05 of Regulation S–X, significant equity method investees for which financial statements are required under Rule 3–09 517 Section 2(b) of the Securities Act [15 U.S.C. 77b(b)], Section 3(f) of the Exchange Act [17 U.S.C. 78c(f)], and Section 2(c) of the Investment Company Act [15 U.S.C. 80a–2(c), and 15 U.S.C. 80b–2(c)] require the Commission, when engaging in rulemaking where it is required to consider or determine whether an action is necessary or appropriate in the public interest, to consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation. Further, Section 23(a)(2) of the Exchange Act [17 U.S.C. 78w(a)(2)] requires the Commission, when making rules under the Exchange Act, to consider the impact that the rules would have on competition, and prohibits the Commission from adopting any rule that would impose a burden on competition not necessary or appropriate in furtherance of the Exchange Act. E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations daltland on DSKBBV9HB2PROD with RULES2 of Regulation S–X, broker-dealers, and NRSROs). The amendments affect both domestic issuers and foreign private issuers.518 We estimate that approximately 7,570 issuers that file on domestic forms 519 and 745 foreign private issuers that file on F-forms will be affected by the amendments. Among the issuers that file on domestic forms, 25.6% are large accelerated filers, 18.6% are accelerated filers, 19.3% are non-accelerated filers, and 36.2% are SRCs. About 23.7% of issuers that file on domestic forms are EGCs.520 Among the foreign private issuers that file on F-forms, 40.4% are large accelerated filers, 22.6% are accelerated filers, and 37.0% are nonaccelerated filers.521 About 19.8% of foreign private issuers that file on Forms 20–F and 40–F are EGCs. With respect to foreign private issuer accounting standards, approximately 38.5% of foreign private issuers report under U.S. GAAP, 60.5% report under IFRS, and approximately 1% report under Another Comprehensive Body of Accounting Principles with a reconciliation to U.S. GAAP. Certain amendments also affect requirements applicable to: • Fewer than 600 asset-backed issuing entities.522 518 The number of domestic and foreign private issuers affected by the proposals is estimated as the number of unique companies, identified by Central Index Key (CIK), that filed Forms 10–K, Form 10– Q, Form 20–F, and Form 40–F or an amendment thereto with the Commission during calendar year 2017. The estimates for the percentages of SRCs, accelerated filers, large accelerated filers, and nonaccelerated filers are based on information from Form 10–K, Form 20–F, and Form 40–F. The estimates for the percentages of foreign private issuers’ basis of accounting used to prepare the financial statements are calculated from the information in Forms 20–F and 40–F. These estimates do not include issuers that filed only initial registration statements during calendar year 2017, which will also be affected by the amendments. 519 This number includes fewer than 25 foreign issuers that file on domestic forms, approximately 100 business development companies, and a portion of the approximately 12,000 investment advisers. 520 Staff determined whether a registrant claimed EGC status by parsing several types of filings (e.g., Forms S–1, S–1/A, 10–K, 10–Q, 8–K, 20–F/40–F, and 6–K) filed by that registrant, with supplemental data drawn from Ives Group Audit Analytics. 521 Approximately 15.9% of foreign private issuers that file on F-forms are Canadian issuers that file on Form 40–F under the multijurisdictional disclosure system. Form 40–F does not require disclosure of large accelerated, accelerated, or nonaccelerated filer status. Accordingly, these amounts exclude foreign private issuers that file on Form 40– F. 522 The number of asset-backed issuers is based on the number of unique companies with the SIC code of 6189 that filed Forms 10–K during calendar year 2017. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 • Issuers that rely on Regulation A exemptions.523 • Approximately 4,100 investment companies, including approximately 100 business development companies, and the portion of the approximately 12,600 investment advisers to which Regulation S–X and Regulation S–K apply.524 • Up to approximately 3,883 registered broker-dealers.525 • 10 NRSROs. This release also considers certain Commission disclosure requirements that overlap with, but require information incremental to, U.S. GAAP and refers some of these incremental requirements to the FASB for potential incorporation into U.S. GAAP. While a referral alone has no effect on issuers, any changes to U.S. GAAP that may result from such a referral would potentially affect all entities that report under U.S. GAAP, including SRCs and issuers relying on Regulation A or Regulation Crowdfunding, as well as entities that are outside the scope of our regulatory authority. B. Anticipated Benefits and Costs In this section, we discuss the anticipated economic benefits and costs of the amendments in each category of redundant, duplicative, overlapping, outdated, and superseded disclosure requirements. 523 Between June 19, 2015 and December 31, 2017, approximately 182 Regulation A offerings have been qualified. Among these qualified offerings, 57 offerings are Tier I and 125 offerings are Tier II. Over the same time period, approximately 262 Regulation A offering statements have been filed. Among these filed offerings, 94 offerings are Tier I and 168 offerings are Tier II. Withdrawals and post-qualification amendments are excluded. There are annual and semi-annual reporting requirements for Tier II offerings. 524 The number of registered investment companies, excluding business development companies, is estimated from the number of registered active investment companies in EDGAR as of the end of December 2017. The number of business development companies is based on the number of unique companies that filed Forms 10– K and Forms 10–Q whose reporting periods end in the last quarter of 2017, adjusted by the number of active business development companies that did not submit such filings and late filers. The number of investment advisers is based on data from Investment Adviser Registration Depository (IARD). 525 The amendments to Exchange Act Rules 17a– 5, 17a–12, and 17h–1T, and Part III of Form X–17A– 5 collectively affect approximately 3,883 brokerdealers who must file periodic reports with the Commission. The amendments to Part II of Form X– 17A–5 affect up to approximately 467 brokerdealers, based on the number of broker-dealers who filed Part II as of December 31, 2017. The amendments to Part IIA of Form X–17A–5 affect approximately 3,413 broker-dealers, based on the number of broker-dealers who filed Part IIA as of December 31, 2017. The amendments to Part IIB of Form X–17A–5 affect approximately three brokerdealers, based on the number of broker-dealers who filed Part IIB as of March 31, 2018. PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 50187 1. Redundant or Duplicative Requirements We are eliminating certain Commission disclosure requirements that require substantially the same disclosures as U.S. GAAP, IFRS, or other Commission disclosure requirements. In response to commenters’ suggestions, we are retaining some of the disclosure requirements that we proposed to modify or eliminate on the basis that they required redundant or duplicative disclosure and referring one of these disclosure requirements to the FASB for potential incorporation into U.S. GAAP. Elimination of Commission disclosure requirements that are redundant or duplicative with U.S. GAAP, IFRS, or other Commission disclosure requirements simplifies issuer compliance efforts by reducing the number of rules to consider. To the extent that the redundant or duplicative requirements result in substantially the same disclosures, elimination of these requirements also potentially benefits investors and other users. Academic research suggests that duplication is associated with less efficient price discovery 526 and that individuals invest more in firms with more concise financial disclosures.527 Thus, to the extent that the amendments alleviate duplication and do not affect the completeness of financial disclosures,528 they could result in improved price discovery, enhance the allocative efficiency of the market, and facilitate capital formation. The potential adverse effects of the amendments on investors and other users are likely to be limited as these parties would continue to receive substantially the same information from issuers. However, potential costs to investors may arise if U.S. GAAP were to change in such a way that information previously required by Commission disclosure requirements is no longer provided under U.S. GAAP. The potential for such changes may be mitigated by the FASB’s transparent, public standard-setting process and the Commission’s oversight of the FASB and the ability of the Commission to require such information through 526 See A. Cazier and R. Pfeiffer, Say Again? Assessing Redundancy in 10–K Disclosures, Journal of Financial Reporting, 2(1), 2017 at 107–131. 527 See A. Lawrence, Individual Investors and Financial Disclosure, Journal of Accounting and Economics 56, 2013 at 13–147. 528 Recent academic research has suggested that more complete financial disclosures benefit investors and firms. See, e.g., C. Leuz and P. Wysocki, The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research. Journal of Accounting Research 54.2, 2016 at 525–622. E:\FR\FM\04OCR2.SGM 04OCR2 50188 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations rulemaking.529 In addition, issuers remain liable for their disclosures, including the omission of any information required to make the disclosures not misleading. 2. Overlapping Requirements The Proposing Release identified Commission disclosure requirements that are related to, but not the same as, U.S. GAAP, IFRS, or other Commission disclosure requirements. For certain of these overlapping requirements, we are: (a) Deleting the overlapping Commission disclosure requirements or (b) integrating them with other related Commission disclosure requirements. For certain other overlapping requirements, we are retaining the requirements and referring them to the FASB for potential incorporation into U.S. GAAP. We discuss below the economic effects of the amendments in this category and provide examples of requirements affected by the amendments. First, some changes may give rise to Disclosure Location Considerations. Where we proposed to relocate existing disclosure from outside the financial statements to within the financial statements, a number of commenters expressed reservations about the relocation because it would create additional audit requirements for issuers.530 Issuers may incur additional costs to comply with these audit and/or interim review and ICFR requirements, to the extent the relocation results in additional information included in the financial statements. A few commenters stated that investors would benefit from the annual audit and interim review of the disclosure.531 Investors and other users may consider the information more reliable because of the audit and/ or interim review requirements.532 The relocation of existing disclosures may affect the extent of information that investors receive. Since the PSLRA does not provide a safe harbor for forwardlooking information located within the financial statements, issuers may be less likely to voluntarily supplement those disclosures with forward-looking information in the financial statements as compared with disclosures made outside the audited financial statements. 529 See discussion in Section I.D. e.g., letters from CGCIV; EEI and AGA; and USCC. 531 See letters from CII and Ohio CPAs. 532 In contrast, there are a few amendments that relocate disclosure from inside the financial statements to outside the financial statements. In this case, the potential economic effects would be opposite to the effects discussed above, reducing costs for issuers, but potentially decreasing benefits to users of the information to the extent that the information is considered less reliable. daltland on DSKBBV9HB2PROD with RULES2 530 See VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 A number of commenters expressed concern regarding liability issues for preparers that would arise from the loss of safe harbor provisions.533 However, issuers retain the option of providing forward-looking information outside the financial statements and may be required to disclose the information in certain circumstances.534 The relocation of existing disclosures from outside the financial statements to within the financial statements will also subject the disclosures to XBRL tagging requirements. Commenters expressed concern about XBRL tagging requirements because of additional administrative burdens and potential costs on issuers to comply with these requirements.535 A few commenters believed that XBRL tagging requirements would be of benefit to investors.536 Investors and other users may benefit from more readily-available information in structured formats because of the increased use of electronic data analysis and search tools. In general, we believe the costs of applying XBRL data tagging to additional information likely would be relatively low, as issuers already have implemented software enabled processes and controls to structure previously mandated disclosures.537 Furthermore, the relocation of existing disclosures, for example, from outside the financial statements to within the financial statements or from the face of the financial statements to the notes to the financial statements, 533 See e.g., letters from CAQ; CalPERS; Crowe; Davis; E&Y; FEI; PwC; and R&G Associates. 534 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]. For example, Item 303 of Regulation S–K requires disclosure of other information when an issuer believes it to be necessary to an understanding of its financial condition, changes in financial condition, and results of operations. 535 See e.g., letters from CGCIV; EEI and AGA; and USCC. 536 See letters from CII and Ohio CPAs. 537 According to a recently released AICPA and XBRL US survey, the total cost of XBRL preparation among small companies in 2017 averaged $5,476 per year. See Research shows XBRL filing costs are lower than expected, AICPA, https://www.aicpa. org/InterestAreas/FRC/AccountingFinancial Reporting/XBRL/DownloadableDocuments/ XBRL%20Costs%20for%20Small%20 Companies.pdf. The incremental costs of tagging additional information under the amendments would be much lower and depend on the mix of incremental disclosures (e.g., narrative and numeric). The tagging cost associated with narrative disclosures would be minimal since these disclosures are tagged at the block text level and registrants already block tag other narrative disclosures in their filings. Numeric disclosures would need to be individually tagged, and therefore, any incremental costs would be directly associated with the volume of incremental numeric disclosures. PO 00000 Frm 00042 Fmt 4701 Sfmt 4700 may also affect the prominence of the disclosures. Some academic research provides indirect evidence that users may treat information differently depending on the location of the disclosure. For instance, research shows a weaker relation between equity prices and disclosed items in the notes to the financial statements versus recognized items on the face of the financial statements.538 Additionally, experimental research on laboratory participants shows that positioning proforma (non-GAAP) earnings earlier than U.S. GAAP earnings in an earnings announcement influences a nonprofessional investor’s judgment.539 Other research on the effect of disclosure location shows recognized and disclosed items are treated equivalently by investors.540 538 See, e.g., R. M. Harper Jr., W. G. Mister, and J. R. Strawser, The Impact of New Pension Disclosure Rules on Perceptions of Debt, Journal of Accounting Research 25, 1987 at 327 (showing that financial statement users do not treat pension information included in a note to the financial statements as they would a balance sheet liability); C. Viger, R. Belzile, and A. A. Anandarajan, Disclosure versus Recognition of Stock Option Compensation: Effect on the Credit Decisions of Loan Officers, Behavioral Research in Accounting 20, 2008 at 93–113 (showing that loan officers are more affected by the same earnings recognized in the income statement than disclosed in the notes to the financial statements); M. Mu¨ller, E.J. Riedl, and T. Sellhorn, Recognition versus Disclosure of Fair Values, The Accounting Review 90, 2015 at 2411– 2447 (showing a lower association between equity prices and disclosed investment property fair values relative to recognized investment property fair values and finding that reduced information processing costs and higher readability mitigates the discount applied to disclosed fair values); D. Aboody, Recognition versus Disclosure in the Oil and Gas Industry, Journal of Accounting Research 34, 1996, at 21–32 (using the disclosure requirements for oil and gas companies, which requires the firm-specific effect of a macroeconomic event to be recognized in the financial statements for firms adopting the full cost method, but only requires disclosure in the notes to the financial statements for firms following the successful efforts method, to show that the effect of note disclosure on price differs from the effect of recognition on price); and H. Espahbodi, P. Espahbodi, Z. Rezaee, and H. Tehranian, Stock Price Reaction and Value Relevance of Recognition versus Disclosure: The Case of Stock-Based Compensation, Journal of Accounting and Economics 33 (3), 2002 at 343–373 (examining the equity price reaction to the announcements related to accounting for stockbased compensation to assess the value relevance of recognition on the face of the financial statements versus disclosure in the notes to the financial statements and concluding that recognition and disclosure are not substitutes). 539 See, e.g. W. B. Elliot, Are Investors Influenced by Pro Forma Emphasis and Reconciliations in Earnings Announcements? The Accounting Review 81 (1), 2006 at 113–133. 540 P. Y. Davis-Friday, L. B. Folami, C. S. Liu, and H. F. Mittelstaedt, The Value Relevance of Financial Statement Recognition vs. Disclosure: Evidence from SFAS No. 106, The Accounting Review. 74 (4), 1999 at 403–423 (testing whether market agents treat disclosed and recognized amounts equivalently by examining firms’ obligations for postretirement benefits other than E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Commenters that provided feedback on relocation prominence considerations indicated that physical location of the disclosure is less relevant in today’s environment, given the use of electronic data analysis and search tools.541 Second, besides the Disclosure Location Considerations discussed above, some deletions may change the mix of information available to investors. An example of this is the revision to require dividend restriction and related disclosures when material, rather than using the bright line of when restricted net assets exceed a 25 percent threshold.542 Bright line thresholds set forth explicit quantitative criteria for disclosure and may result in more or less detail than a materiality standard. Several commenters were supportive of a more principles-based disclosure framework.543 These commenters stated that materiality is a better disclosure standard because certain of the existing thresholds result in disclosure that in their view is immaterial to investors and costly to provide. Other commenters opposed the amendment, indicating that removing bright line thresholds may result in the elimination of disclosure relevant to investors or diminish comparability.544 The economic effect of replacing a bright line threshold with a disclosure standard based on materiality depends on the preferences of investors and other users. The bright line threshold may be easier to apply and could enhance the comparability and verifiability of information; however, a materiality standard may permit more tailored information to be presented and potentially avoid certain distortions that can arise from the use of a bright line threshold. daltland on DSKBBV9HB2PROD with RULES2 a. Deletion of Commission Disclosure Requirements We are eliminating certain Commission disclosure requirements that we have determined: (1) Require disclosures that convey reasonably similar information to or are pensions before and after formal recognition). This research focuses on a sample of 229 firms that elected disclosure of the postretirement benefit liability in the year(s) prior to adoption of SFAS 106. The authors find that both post-retirement benefit liabilities disclosed prior to adoption of SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other than Pensions, and those recognized subsequent to adoption significantly contribute to explaining stock prices, thus suggesting that market agents treat disclosed and recognized amounts equivalently. 541 See, e.g. letters from CAQ; Deloitte; and EY. 542 Rule 4–08(e)(3) of Regulation S–X. 543 See, e.g. letters from CAQ; CGCIV; Clearing House; Davis; FEI; and USCC. 544 See, e.g. letters from CalPERS; Public Citizen; and R.G. Associates. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 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 or Commission disclosure requirements and are no longer useful to investors. The effects of the deletion of these overlapping disclosure requirements depend on the level of overlap between the requirements. For investors, eliminating overlapping requirements may reduce search costs and lead to more efficient information processing. This, in turn, may lead to better informed investment decisions and an increase in allocative efficiency. However, to the extent eliminating a requirement results in a loss of information incremental to the overlapping requirement, it could negatively impact investors that use the incremental information. For issuers, eliminating overlapping requirements may reduce the costs of preparation of the disclosure by reducing the need to reconcile similar requirements. Requirements that are clearer and less repetitive may additionally make the disclosure easier to prepare and result in disclosure that is more responsive and easier to understand. The examples below illustrate the potential effects of the elimination of Commission disclosure requirements on issuers, investors, and other users. An example of an overlapping disclosure requirement that we are deleting because it results in only incremental disclosure is Item 101(d)(3) of Regulation S–K, which requires risk disclosures outside the financial statements relating to geographic areas. These disclosures are largely encompassed by the disclosures that result from compliance with other parts of Regulation S–K. More specifically, Item 101(d)(3) requires disclosure of ‘‘any’’ risks associated with an issuer’s foreign operations. Item 503(c) of Regulation S–K similarly requires disclosure of ‘‘significant’’ risk factors. Item 101(d)(3) also requires disclosures of a segment’s dependence on foreign operations, which is similar to the requirement in Item 303(a) of Regulation S–K, requiring disclosure of trends and uncertainties by segment, if appropriate to an understanding of the issuer as a whole. We are also amending Item 303(a) to add an explicit reference to ‘‘geographic areas’’ to reduce the likelihood of loss of information due to the deletion of Item 101(d)(3). Since Item 101(d)(3) is more expansive than the similar requirements in other parts of Regulation S–K, the economic effects of the deletion would PO 00000 Frm 00043 Fmt 4701 Sfmt 4700 50189 depend on the nature of the incremental information required by Item 101(d)(3). Research shows that international corporate diversification may affect issuers’ stock market performance 545 and valuation.546 Therefore, some investors may want incremental information on foreign operations that is not covered by the amended Item 303(a) or the requirements of Item 503(c) to disclose ‘‘significant’’ risk factors. Deletion of Item 101(d)(3) may adversely affect this group of investors. However, if the requirements in Item 101(d)(3), such as the requirement to disclose ‘‘any’’ risk associated with foreign operations, tend to yield immaterial disclosures, deletion of Item 101(d)(3) will benefit investors by eliminating immaterial information, reducing search costs, and facilitating more efficient information processing.547 More efficient information processing could in turn result in improved price discovery and enhance the allocative efficiency of the capital markets. In addition, to the extent an issuer spends less time preparing its disclosures, investors will benefit from lower preparation costs although savings could be modest, if any.548 Another example of an overlapping disclosure requirement that involves incremental information is Item 303(b) of Regulation S–K. Instruction 5 to Item 303(b) requires seasonality disclosures outside of the financial statements in interim periods. U.S. GAAP similarly requires seasonality disclosures, but this disclosure is required in the notes to the 545 See T. Agmon and D. R. Lessard, Investor Recognition of Corporate International Diversification, Journal of Finance 32(4), 1977 at 1049–1055 (arguing that multinational firms have an advantage relative to single-country firms because of their ability to overcome the barriers to portfolio capital flows). The empirical results of the study support the notion that U.S. investors are attentive to international composition of the activities of U.S.-based corporations. 546 See V. Errunza and L. Senbet, International Corporate Diversification, Market Valuation and Size-Adjusted Evidence, Journal of Finance 34, 1984 at 727¥745 (developing a model where international corporate intermediation through direct foreign investment can undo barriers to international capital flows faced by individual investors and lead to a positive valuation effect associated with the degree of international involvement). See also R. Morck and B. Yeung, Why Investors Value Multinationality, Journal of Business, 64 (2), 1991 at 165¥187 (supporting the notion that multinational corporations have intangible assets that can be used internationally.) 547 See D. Hirshleifer and S. Teoh, Limited Attention, Information Disclosure, and Financial Reporting, Journal of Accounting and Economics 36, 2003 at 337¥386 (showing that with partially attentive investors, means of presenting information may have an impact on stock price reactions, misvaluation, long-run abnormal returns, and corporate decisions.) 548 See Section VIII.B. E:\FR\FM\04OCR2.SGM 04OCR2 daltland on DSKBBV9HB2PROD with RULES2 50190 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations interim financial statements.549 Eliminating the specific seasonality disclosure requirements in Item 303(b) may result in the removal of this information from MD&A. Investors and other users will only have this disclosure available in the notes to the financial statements, unless issuers provide it in both locations either because the issuer views the seasonality disclosure as appropriate or necessary to an understanding of its business or financial condition under Item 303(a) or the issuer provides it voluntarily. In addition, investors may receive less supplemental forward-looking information about seasonality because the PSLRA safe harbor is not available for such information when it is disclosed in the notes to the financial statements. To the extent that the seasonality disclosures in MD&A and in the financial statements are redundant, eliminating the requirements in Item 303(b) would reduce search costs and facilitate more efficient information processing. In addition, to the extent an issuer spends less time preparing its disclosures, investors will benefit from lower preparation costs although savings could be modest, if any.550 In addition to the economic effects of changing disclosure location and bright line disclosure thresholds, potential costs to investors may arise if U.S. GAAP were to change in such a way that information previously required by Commission disclosure requirements is no longer provided under U.S. GAAP. As noted above, the potential for such changes may be mitigated by the FASB’s transparent, public standard-setting process and the Commission’s oversight of the FASB. consider and the extent of disclosures that need to be provided. Integration of these requirements should also facilitate more efficient information processing by investors. One example to illustrate the potential effects of the integration of Commission disclosure requirements is Item 101(d)(4) of Regulation S–K. Item 101(d)(4) requires, when interim financial statements are presented, a discussion of the facts that indicate that the three-year financial data for geographic performance may not be indicative of current or future operations. This requirement is similar to requirements in Instruction 3 to Item 303(a) of Regulation S–K and Instruction 4 to Item 303(b) of Regulation S–K to identify elements of income which are not necessarily indicative of the issuer’s ongoing business, except that there is no explicit reference to ‘‘geographic areas’’ in the Item 303 instructions. To integrate the requirements into one location in Regulation S–K, we are eliminating Item 101(d)(4) and amending Item 303(a) to explicitly refer to ‘‘geographic areas’’ and clarify that the geographic discussion is required when management believes such discussion would be appropriate to an understanding of the business. A number of commenters supported the proposed amendment.551 As noted above, integration of these requirements should facilitate more efficient information processing by investors. However, some investors may be adversely affected if they prefer geographic performance information to be presented with other business description disclosures. b. Integration of Commission Disclosure Requirements We are amending and integrating certain Commission disclosure requirements that overlap with, but require information incremental to, other Commission disclosure requirements. In addition to the economic effects of changing disclosure location and bright line disclosure thresholds, integration of overlapping Commission disclosure requirements simplifies issuer compliance efforts by reducing the number of rules to c. FASB Referral of Commission Disclosure Requirements We are referring certain Commission disclosure requirements that overlap with, but require information incremental to, U.S. GAAP requirements to the FASB for potential incorporation into U.S. GAAP. While the referral alone has no direct impact on investors and issuers, any future FASB standardsetting activities, as well as any Commission rulemaking that may result from such a referral, could potentially affect investors, issuers, auditors, other users of financial statements, as well as other entities that report under U.S. GAAP. Any potential effects of standard-setting activities arising out of these referrals could be considered and taken into account by the Commission, and could be addressed through 549 ASC 270–10–45–11 states: Revenues of certain entities are subject to material seasonal variations. To avoid the possibility that interim results with material seasonal variations may be taken as fairly indicative of the estimated results for a full fiscal year, such entities are required to disclose the seasonal nature of their activities, and should consider supplementing their interim reports with information for 12-month periods ended at the interim date for the current and preceding years. 550 See Section VIII.B. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 551 See, e.g., letters from CAQ; Deloitte; E&Y; Grant; KPMG; and PwC. PO 00000 Frm 00044 Fmt 4701 Sfmt 4700 Commission rulemaking. Additionally, the potential effects may be mitigated by the FASB’s transparent, public standard-setting process and the Commission’s oversight of the FASB. 3. Outdated Requirements We are eliminating certain outdated Commission disclosure requirements that have become obsolete as a result of the passage of time or changes in the regulatory, business, or technological environment. Elimination of outdated disclosure requirements should simplify issuer compliance efforts by reducing the number of rules to consider and the extent of disclosures that need to be provided. In some cases, the amendments require additional disclosure of information to avoid any loss of information or decrease the burden for investors to retrieve such information from other sources. Such information is expected to be readily available at minimal to no cost to issuers. The effect of these amendments on investors depends on the use of the information. If investors do not use the deleted information to make investment and voting decisions, these amendments may have little to no effect on investors, or the amendments may have a positive effect on investors since elimination of such disclosures may reduce search costs and facilitate more efficient information processing. This, in turn, could enhance the allocative efficiency of the market and facilitate capital formation. If the information is used by investors but can be retrieved from alternative sources with little or no cost to investors (e.g., share prices),552 the effects of these amendments on investors should be minimal. In other cases where the information is less readily available from alternative sources (e.g., average exchange rates for each of the five most recent financial years and any subsequent interim period),553 these amendments may make it more burdensome for investors and other users to access the information, with a potentially adverse effect on the cost of capital of issuers. We do not expect these potential adverse effects to be significant as the amendments delete only requirements that call for information that is either no longer relevant or is readily available or can be derived from alternative sources, and which may, in fact, be more robust than the information currently required to be disclosed. As noted above, some amendments require disclosure of additional information (e.g., the issuer’s 552 Item 553 Item E:\FR\FM\04OCR2.SGM 201(a)(1) of Regulation S–K. 3.A.3 of Form 20–F. 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations internet address, if available) to mitigate any loss of information or decrease the burden for investors. One example of an outdated disclosure requirement is Item 201(a)(1) of Regulation S–K. Item 201(a)(1) requires the disclosure of historical market price information. We are substituting this disclosure with disclosure of the issuer’s ticker symbol, which can be used to obtain current and historical information on stock price, among other information. This additional disclosure may help reduce any loss of information as well as facilitate access to additional information while imposing minimal or no cost on issuers and saving them the expense of disclosing information that is readily available in more up-to-date form from alternative sources. Commenters were generally supportive of this initiative to delete outdated requirements,554 and specifically supported removing historical price information, noting that stock price information is readily available on commercial websites on a more current basis than what is required by existing disclosure requirements.555 daltland on DSKBBV9HB2PROD with RULES2 4. Superseded Requirements We are amending certain Commission disclosure requirements to address inconsistencies that have arisen between existing Commission disclosure requirements and newer requirements, recent legislation, or more recently updated U.S. GAAP requirements. Eliminating or amending superseded Commission disclosure requirements may simplify issuer compliance efforts by resolving some confusion for issuers. Where there are superseded requirements, issuers may need to expend time and resources seeking advice from outside professionals or guidance from Commission staff as to compliance with such requirements. To the extent that, in practice, many issuers already comply with the more recently adopted requirements, we expect these benefits to be modest. In addition, investors may benefit from the reduction in the variation of disclosure practices that could result from confusion about the superseded requirements among issuers. One example of superseded disclosure is the requirement to report the cumulative effect of a change in accounting principle in the income statement, which the FASB eliminated 554 See e.g., letters from CAQ; EEI and AGA; FedEx; R.G. Associates; and XBRL US. 555 See letters from E&Y; EEI and AGA; FedEx; and KPMG. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 from U.S. GAAP in 2005.556 Instead, U.S. GAAP now requires the cumulative effect of retrospectively-applied changes in accounting principle to be reflected in the opening balance of retained earnings for the earliest period presented. The Commission disclosure requirements, by contrast, continue to refer to a line on the income statement for a cumulative effect of a change in accounting principle. Eliminating references to the cumulative effect of a change in accounting principle in the income statement in the Commission disclosure requirements resolves this contradiction and removes any resulting issuer confusion. As another example, Rule 10–01(b)(2) of Regulation S–X requires, for interim periods, the presentation of dividends per share applicable to common stock on the face of the income statement. These rules are inconsistent with U.S. GAAP, which prohibits presentation of dividends per share on the face of the income statement. We are deleting Rule 10–01(b)(2) to conform to U.S. GAAP and simplify issuer compliance efforts. In connection with this amendment and to avoid any loss of disclosure, we are extending the annual disclosure requirement of changes in stockholders’ equity in Rule 3–04 of Regulation S–X to interim periods, which also requires disclosure of the amount of dividends per share for each class of shares, rather than only for common stock. As suggested by a few commenters, the final amendments clarify that Rule 3–04 requires both the year-to-date information and subtotals for each interim period.557 Investors and other users may benefit from the additional information on dividends per share for each class of shares for interim periods. For example shareholders may use dividends to value an issuer.558 Information about dividends also can be material for debtholders.559 In addition, 556 See SFAS No. 154, Accounting Changes and Error Corrections. This is now reflected in ASC 250, Accounting Changes and Error Corrections. 557 See letters from CAQ and PwC. 558 See M. Miller and F. Modigliani, Dividend Policy, Growth, and the Valuation of Shares, Journal of Business 34 (4), 1961 at 411–433 (providing an early theory of the effects of dividend policy on share price). See also, F. Black, The Dividend Puzzle, The Journal of Portfolio Management 2(2), 1976 at 5–8 (discussing reasons why firms pay dividends). 559 See P. Healy and K. Palepu, Effectiveness of Accounting-Based Dividend Covenants, Journal of Accounting and Economics 12, 1990 at 97–123 (examining the effectiveness of dividend covenants in mitigating conflicts of interests between stockholders and bondholders). See also, H. Fan and S. Sundaresan, Debt Valuation, Renegotiation, and Optimal Dividend Policy, Review of Financial Studies 13 (4), 2000 at 1057–1099 (developing a theoretical framework for optimal dividend policy and capital structure). PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 50191 there may also be different dividend preferences based on an investor’s characteristics.560 These amendments may give rise to Disclosure Location Considerations, in that issuers will now disclose dividends either in the changes in stockholders’ equity statement or the notes to the financial statements to comply with Regulation S–X instead of on the face of the income statement.561 Disclosing information on dividends issued and the relationship it has to stockholders’ equity in one location may help investors understand some of the strategic decisions made by management, such as dividend payout versus share buyback. The extension of the disclosure requirement in Rule 3–04 of Regulation S–X may create some additional burden for issuers, including Regulation A issuers,562 because it requires disclosure of dividends per share for each class of shares, rather than only for common stock, and disclosure of changes in stockholders’ equity in interim periods. However, such costs should be limited to the extent that the required information is already available from the preparation of other aspects of the interim financial statements. Disclosure of this additional information may also lead to additional costs for issuers to comply with ICFR, audit, and XBRL tagging requirements, as applicable. In the Proposing Release, we requested comments about other disclosure requirements that meet the criteria in any of the four sections of the release. Based on commenter responses and further internal review, we identified additional disclosure requirements that contained typographical errors, incorrect references, or references to rules that no longer exist. As a result, we are adopting additional conforming amendments, the majority of which are in the superseded category. These technical and conforming amendments should lower disclosure costs for issuers. C. Anticipated Effects on Efficiency, Competition, and Capital Formation The rules may improve capital allocation efficiency by enabling 560 See R. Pettit, Taxes, Transactions Costs and the Clientele Effect of Dividends, Journal of Financial Economics 5 (3), 1977 at 419–436 (showing that individuals’ preferences for dividends are influenced by their age and their tax rates on dividends and capital gains). 561 ASC 260–10–45–5 requires disclosure of dividends per share in the notes to the financial statements. 562 The amendments to require interim disclosure of changes in stockholders’ equity and dividends per share amounts are being made directly to Forms 1–A and 1–SA for Regulation A issuers. E:\FR\FM\04OCR2.SGM 04OCR2 50192 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations daltland on DSKBBV9HB2PROD with RULES2 investors to make more efficient investment decisions. For example, the rules may reduce search costs for investors by eliminating information that is redundant, duplicative, overlapping, outdated, or superseded. Given that investors may have limited attention and limited information processing capabilities, elimination of such information may facilitate more efficient investment decision-making. In addition, elimination of these disclosure requirements may reduce issuer compliance costs and encourage capital formation. The reduction in compliance costs might be particularly beneficial for smaller and younger issuers that are resource constrained. A more efficient and less costly disclosure environment may make the public capital markets more competitive relative to private capital market alternatives and may additionally make the U.S. capital markets more competitive relative to markets in other countries. Although it is difficult to quantify these effects, to the extent that they are present, they may result in more public capital market investment opportunities for investors. Eliminating information could result in increased information asymmetries between issuers and investors. Such asymmetries may increase the cost of capital, reduce capital formation, and hamper efficient allocation of capital across companies. To the extent that certain disclosure is no longer required, issuers for which this disclosure would be unfavorable may be less likely to disclose such information voluntarily. Even if other issuers do disclose such information voluntarily, it will be difficult to estimate the relative quality of issuers without every issuer’s disclosure. This will make it more difficult for higher quality issuers to distinguish their quality with respect to this metric even with voluntary disclosures. Such negative effects might be more pronounced among smaller and younger issuers that suffer more from information asymmetries. Overall, though, to the extent that we eliminate disclosure that we consider redundant, duplicative, overlapping, outdated, or superseded, we do not think these effects are likely to be significant. D. Alternatives We considered reasonable alternatives to the amendments. For redundant, duplicative, outdated, or superseded disclosure requirements being eliminated, we considered the alternative of retaining these requirements. However, as a general matter, given the nature of these requirements, we believe retaining the VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 requirements could result in inefficiencies for investors, issuers, and others. For certain of the disclosure requirements that we proposed to modify or delete, where commenters indicated that the requirements may provide beneficial incremental disclosures for investors and other users, we are retaining the requirements and also are referring some of them to the FASB for potential incorporation into U.S. GAAP. For overlapping disclosure requirements, we solicited comments in the Proposing Release on certain requirements to determine whether to retain, modify, eliminate, or refer them to the FASB for potential incorporation into U.S. GAAP. After further consideration based on our review of the issues and consideration of the comments received, we are retaining all of the requirements discussed in Section III.D and referring all except one to the FASB for potential incorporation. As an alternative to retaining these requirements, we could eliminate the Commission requirements and refer them to the FASB. This would deprive investors of any incremental disclosures elicited by the Commission requirements pending the FASB’s deliberations. If the disclosure requirements are ultimately added to U.S. GAAP, some information would be relocated from outside the financial statements to within the financial statements, giving rise to Disclosure Location Considerations, potentially impacting issuers, investors, and other users.563 Another alternative to retaining these requirements is to simply eliminate the Commission requirements and forgo disclosure of the incremental information without FASB referral. Although such an alternative would simplify issuer compliance efforts, it also may result in less informed investment decisions and diminished investor protections. VIII. Paperwork Reduction Act A. Background Certain provisions of our rules and forms that would be affected by the final amendments contain ‘‘collection of information’’ requirements within the meaning of the Paperwork Reduction Act of 1995 (‘‘PRA’’).564 The Commission published a notice requesting comment on the collection of information requirements in the Proposing Release and has submitted 563 Any future consideration of amendments to these disclosures requirements will take into account the outcome of standard-setting activities undertaken by the FASB. 564 44 U.S.C. 3501 et seq. PO 00000 Frm 00046 Fmt 4701 Sfmt 4700 these requirements to the Office of Management and Budget (‘‘OMB’’) for review in accordance with the PRA.565 The titles for the affected collections of information are: Title Regulation S–X 566 ................. Regulation S–K ....................... Rule 405 of Regulation C ....... Rule 436 of Regulation C ....... Form S–1 ................................ Form S–3 ................................ Form S–11 .............................. Form S–4 ................................ Form F–1 ................................ Form F–3 ................................ Form F–4 ................................ Form F–6 ................................ Form F–7 ................................ Form F–8 ................................ Form F–10 .............................. Form F–80 .............................. Form SF–1 .............................. Form SF–3 .............................. Form 1–A ................................ Form 1–K ................................ Form 1–SA ............................. Exchange Act Rule 10A–1 ..... Exchange Act Rule 12b-2 ...... Schedule 14A ......................... Schedule 14C ......................... Exchange Act Rule 15c3–1g .. Exchange Act Rule 17a–5 and Form X–17A–5 .................... Exchange Act Rule 17a–12 .... Exchange Act Rule 17h–1T ... Form 10 .................................. Form 20–F .............................. Form 40–F .............................. Form 10–Q ............................. Form 10–K .............................. Form 11–K .............................. Form 10–D .............................. Form N–5 ................................ Form N–1A ............................. Form N–2 ................................ Form N–3 ................................ Form N–4 ................................ Form N–6 ................................ Form N–8B–2 ......................... OMB Control No. 3235–0009 3235–0071 3235–0074 3235–0074 3235–0065 3235–0073 3235–0067 3235–0324 3235–0258 3235–0256 3235–0325 3235–0292 3235–0383 3235–0378 3235–0380 3235–0404 3235–0707 3235–0690 3235–0286 3235–0720 3235–0721 3235–0468 3235–0062 3235–0059 3235–0057 3235–0200 3235–0123 3235–0498 3235–0410 3235–0064 3235–0288 3235–0381 3235–0070 3235–0063 3235–0082 3235–0604 3235–0169 3235–0307 3235–0026 3235–0316 3235–0318 3235–0503 3235–0186 The majority of these regulations, schedules, and forms were adopted under the Securities Act, the Exchange Act, and/or the Investment Company Act and set forth the disclosure requirements for registration statements, periodic reports, and proxy and information statements filed by issuers to help investors make informed investment and voting decisions. 565 44 U.S.C. 3507(d) and 5 CFR 1320.11. paperwork burdens from Regulation S–X and Regulation S–K are imposed through the forms that are subject to the disclosure requirements in both regulations and are reflected in the analysis of these forms. To avoid a Paperwork Reduction Act inventory reflecting duplicative burdens, for administrative convenience we estimate the burden imposed by Regulation S–X and Regulation S–K to be a total of one hour for each regulation. 566 The E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Certain other forms and reports are filed by broker-dealers, entities regulated by the Investment Company Act and the Investment Advisers Act, and NRSROs in connection with the Commission’s oversight of such entities. These amendments are the result of the staff’s ongoing evaluation of our disclosure requirements 567 and also are part of our efforts to implement Title LXXII, Section 72002(2) of the FAST Act. The hours and costs associated with preparing, filing, and sending the schedules and forms constitute reporting and cost burdens imposed by each collection of information. An agency may not conduct or sponsor, and a person is not required to comply with, a collection of information unless it displays a currently valid OMB control number. Compliance with the information collections is mandatory. Responses to the information collections are not kept confidential, and there is no mandatory retention period for the information disclosed. daltland on DSKBBV9HB2PROD with RULES2 B. Summary of the Final Amendments As described in more detail above, 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. GAAP, IFRS, or changes in the information environment. By eliminating the redundancy, duplication, and overlap in current Commission disclosure requirements, we are enabling respondents to consider fewer rules and requirements in their compliance efforts even as they are preparing a substantially similar level of disclosures. As such, except for the amendment to eliminate the requirement to disclose the ratio of earnings to fixed charges, which may result in a modest decrease in the paperwork burden, we believe that the amendments to eliminate these redundant, duplicative, and overlapping Commission requirements would marginally reduce, if at all, respondents’ overall paperwork burden. Similarly, we expect that the amendments to eliminate outdated requirements would marginally reduce the paperwork burden on respondents by eliminating any efforts that were undertaken to prepare these disclosures. 567 See supra note 12. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 With the exception of the amendments to require the disclosure of an issuer’s website address and the ticker symbol of their common equity that is publicly traded, which will slightly increase the paperwork burden, the remaining amendments related to outdated requirements would have no change or only a modest reduction in the paperwork burden when respondents are providing information in response to Forms 10, 10–K, 20–F, S–1, and F–1. Finally, we believe that the amendments to update superseded Commission disclosure requirements would marginally reduce, if at all, respondents’ paperwork burden, except for the extension of the application of Rule 3–04 of Regulation S–X to interim period disclosures,568 which we estimate will modestly increase the paperwork burden. While the amendments eliminate any existing confusion related to contradictory and inconsistent requirements, in many instances, we believe respondents are currently not providing information in response to the requirements that we are deleting. Instead, we believe respondents provide information in response to U.S. GAAP or other Commission disclosure requirements that have been updated more recently, rather than the superseded requirement covered by the amendments. As a result, we do not believe the majority of these amendments would result in a change to respondents’ overall paperwork burden. In light of the foregoing, our estimates for the paperwork burden for a number of the collections of information have not changed. The tables below therefore do not reflect any change in the paperwork burden for the following collections of information: Rules 405 and 436 of Regulation C and Forms F– 6, F–7, F–8, F–10, F–80, 1–K under the Securities Act; Exchange Rules 10A–1, 12b–2, 15c3–1g, 17a–5, 17h–1T and Forms 40–F, 11–K, 10–D, X–17A–5 under the Exchange Act; Forms N–5, N– 1A, N–2, N–3, N–4, N–6, N–8B–2 under the Investment Company Act; and Schedules 14A and 14C under the Exchange Act. C. Summary of Comment Letters and Revisions to Proposals In the Proposing Release, we requested comment on our PRA burden 568 The extension of Rule 3–04 of Regulation S– X addresses both overlapping and superseded disclosure issues and is discussed in both Sections III.C.16 and V.B.5 above. PO 00000 Frm 00047 Fmt 4701 Sfmt 4700 50193 hour and cost estimates and the analysis used to derive such estimates. We did not receive any comments that addressed our PRA analysis of the proposed amendments. We did make some changes to the proposed amendments as a result of comments received, but we do not expect any of those changes to affect the compliance burdens of the existing collections of information, and therefore we are not revising our PRA burden hour and cost estimates as a result of these changes. D. Burden and Cost Estimates As noted above, we do not believe that the overwhelming majority of the amendments will result in a change to respondents’ overall paperwork burden. In this subsection we discuss the few amendments that will result in a change to respondents’ overall paperwork burden. 1. Forms 10, 10–K, 10–Q, 20–F, and 1– SA We anticipate that the amendments to eliminate the requirement to disclose the market prices for an issuer’s common equity for the two most recent fiscal years will modestly reduce affected issuers’ current paperwork burdens. We estimate that issuers currently expend an average of two hours internally preparing the market price disclosure for inclusion in their Forms 10–K and 20–F. As such, we estimate that affected issuers would experience a two hour reduction in their annual paperwork burden.569 We also estimate that there are 8,862 annual responses made in connection with Forms 10–K and 20–F. The table below illustrates the overall impact on respondents filing Forms 10–K and 20– F as a result of these amendments. 569 In the Proposing Release we included estimates for the minimal paperwork burden increase associated with the proposed amendments to require disclosure of an issuer’s ticker symbol and internet address. Upon further consideration, we are not making a separate burden adjustment for these two amendments. We believe the burdens for these amendments will be mostly incurred upon initial disclosure and not in subsequent periods. In addition, any increases in burden associated with the disclosure of the ticker symbol and internet address would be fully offset by the reduction in burden associated with the elimination of two years’ worth of market price disclosure. Accordingly, we believe the two-hour reduction in burden hours associated with the elimination of the market price disclosure requirement will encompass the combined effect of these related changes. E:\FR\FM\04OCR2.SGM 04OCR2 50194 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations TABLE 1 Number of responses Reduction in incremental burden hours/form Total incremental burden hours reduction Internal company time reduction (A) (B) (C) = (A) * (B) (D) = (C) Form 10–K ............................................................................................... Form 20–F ............................................................................................... The amendments will extend to interim periods the requirements under Rule 3–04 of Regulation S–X to disclose changes in stockholders’ equity and dividends per share for each class of shares, rather than only for common stock. Prior to these amendments, these disclosures were not required for interim periods. While this creates a 8,137 725 (2) (2) new disclosure requirement for respondents, the information being required is generally readily available from respondents’ preparation of other aspects of the interim financial statements. As a result, we estimate that this amendment will increase the average paperwork burdens by 0.5 hours each time such disclosure is required.570 (16,274) (1,450) (16,274) (1,450) We also estimate that there are 23,159 annual responses in connection with Forms 10, 10–Q, and 1–SA. The table below illustrates the overall impact on respondents filing Forms 10, 10–Q, and 1–SA as a result of the proposed application of Rule 3–04 to interim period disclosures.571 TABLE 2 Number of responses Increase in incremental burden hours/form Total incremental burden hours increase Internal company time increase (A) (B) (C) = (A) * (B) (D) = (C) Form 10 ................................................................................................... Form 10–Q ............................................................................................... Form 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 We anticipate that the amendments to eliminate the market prices disclosure will have the same paperwork burden 216 22,907 36 0.5 0.5 0.5 reduction for Forms S–1, S–4, S–11, F–1, and F–4 as for Forms 10–K and 20– F.572 As such, we estimate that there will be a corresponding reduction in the burden estimate for these forms.573 We estimate that there are approximately 108 11,453.5 18 108 11,453.5 18 1,618 annual responses made in connection with the referenced forms. The table below illustrates the overall impact on respondents filing the referenced forms as a result of these amendments. TABLE 3 daltland on DSKBBV9HB2PROD with RULES2 Form Form Form Form Form Number of responses Reduction in incremental burden hours/form Total incremental burden hours reduction Internal company time reduction (A) (B) (C) = (A) * (B) (D) = (C) S–1 ................................................................................................. S–4 ................................................................................................. S–11 ............................................................................................... F–1 ................................................................................................. F–4 ................................................................................................. 901 551 64 63 39 (2) (2) (2) (2) (2) (1,802) (1,102) (128) (126) (78) (1,802) (1,102) (128) (126) (78) The amendments to extend Rule 3–04 of Regulation S–X to interim periods will also impact the paperwork burdens of registration statements filed on Forms 1–A, S–1, S–4, S–11, F–1, and F–4 because such forms require interim period financial disclosures, when applicable.574 We believe that the 570 As Form 10–Q is filed for the first three quarters of an issuer’s fiscal year, the annual burden increase is estimated to be 1.5 hours annually. As such, there is no increase to the paperwork burdens associated with preparing annual reports filed on Forms 10–K or 20–F. However, for registration statements filed on Form 10s and 20–F, to the extent that interim period disclosures are made, the issuer would experience an increase in paperwork burden. 571 While this amendment will not impact foreign private issuers that file a Form 20–F as an annual report, it may impact those that file the form to register a class of securities when they would be required to provide interim period disclosures. However, the staff has observed that this occurs so infrequently that we estimate no change in the burden estimate for Form 20–F. 572 The information subject to the amendments discussed in this paragraph is incorporated by reference into Forms S–3 and F–3 and not provided in direct response to a form item requirement. As such, the amendments do not affect the paperwork burdens associated with Forms S–3 and F–3. 573 See supra note 570. 574 Filers of the referenced forms may have to provide interim period financial disclosures in order to comply with Rule 3–12 of Regulation S– X. While the timing of the effectiveness of the registration statement or qualification of the offering VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 PO 00000 Frm 00048 Fmt 4701 Sfmt 4700 E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations estimated burden increase of 0.5 hours discussed above similarly applies to the referenced registration statements. We estimate that there are approximately Form Form Form Form Form Form daltland on DSKBBV9HB2PROD with RULES2 referenced forms as a result of these amendments. Number of responses Increase in incremental burden hours/form Total incremental burden hours increase Internal company time increase (A) (B) (C) = (A) * (B) (D) = (C) S–1 ................................................................................................. S–4 ................................................................................................. S–11 ............................................................................................... F–1 ................................................................................................. F–4 ................................................................................................. 1–A ................................................................................................. The amendment to eliminate the requirements to disclose the ratio of earnings to fixed charges, when an issuer registers debt securities, and the ratio of combined fixed charges and preference dividends to earnings, when an issuer registers preference securities, will reduce the current paperwork burden for issuers registering such securities on Forms S–1, S–3, S–4, S–11, Form Form Form Form Form Form Form 1,730 annual responses made in connection with the referenced forms. The table below illustrates the overall impact on respondents filing the 901 551 64 63 39 112 0.5 0.5 0.5 0.5 0.5 0.5 F–1, F–3 and F–4. Depending on the size and complexity of the issuer, the paperwork burden associated with preparing this information for inclusion in the aforementioned registration statements can vary greatly. We estimate that issuers expend an average of four hours preparing this disclosure for inclusion in their registration statements. For the purposes of this Internal company time reduction (A) 575 (B) (C) = (A) * (B) (D) = (C) 450 800 300 32 32 78 30 This Final Regulatory Flexibility Analysis (‘‘FRFA’’) has been prepared in accordance with the Regulatory Flexibility Act (‘‘RFA’’).576 This FRFA relates to final amendments that will eliminate certain Commission disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other Commission disclosure requirements, U.S. GAAP, IFRS, or changes in the information environment. These amendments are the result of the staff’s ongoing evaluation of our disclosure requirements 577 and also are part of our A. Need for, and Objectives of, the Amendments statement may not trigger the requirement for interim period financial disclosure, we have used the full population of responses for our estimate to be conservative. 575 The portion of registration statements filed on each referenced form that actually registers debt or preference securities varies from year to year. As a result, the numbers in this column are based on The main purpose of the amendments is to update and simplify the Commission’s current disclosure requirements. Specifically, the amendments will: • Eliminate certain Commission disclosure requirements that are redundant or duplicative of requirements in U.S. GAAP, IFRS, or other Commission disclosure requirements. • Streamline certain overlapping Commission disclosure requirements by deleting or integrating provisions that PO 00000 Frm 00049 Fmt 4701 analysis, we assume that the ratio is prepared internally, and we have estimated that there are approximately 1,722 annual responses made in connection with the referenced forms. Based on this average, the table below illustrates the overall impact on respondents filing the referenced forms as a result of the amendments. Total incremental burden hours reduction efforts to implement Title LXXII, Section 72002(2) of the FAST Act. Jkt 247001 450.5 275.5 32 31.5 19.5 56 Reduction in incremental burden hours/form IX. Final Regulatory Flexibility Act Analysis 22:38 Oct 03, 2018 450.5 275.5 32 31.5 19.5 56 Number of responses S–1 ................................................................................................. S–3 ................................................................................................. S–4 ................................................................................................. S–11 ............................................................................................... F–1 ................................................................................................. F–3 ................................................................................................. F–4 ................................................................................................. VerDate Sep<11>2014 50195 Sfmt 4700 (4) (4) (4) (4) (4) (4) (4) (1,800) (3,200) (1,200) (128) (128) (312) (120) (1,800) (3,200) (1,200) (128) (128) (312) (120) address disclosure topics covered elsewhere in our rules or regulations. • Revise certain Commission disclosure requirements that are outdated. • Revise certain superseded Commission disclosure requirements to update and conform these provisions with recent legislation, more recently updated Commission disclosure requirements, or more recently updated U.S. GAAP requirements. The need for, and objectives of, the final amendments are discussed in more detail throughout this release, particularly in Section I, above. staff estimates using data samples obtained from EDGAR. 576 5 U.S.C. 601 et seq. 577 See supra note 12. E:\FR\FM\04OCR2.SGM 04OCR2 50196 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations B. Significant Issues Raised by Public Comments In the Proposing Release we requested comment on any aspect of the Initial Regulatory Flexibility Analysis (‘‘IRFA’’), including the number of small entities that would be affected by the proposed amendments, the nature of the impact, how to quantify the number of small entities that would be affected, and how to quantify the impact of the proposed amendments. We did not receive comments specifically addressing the IRFA or the proposed amendments’ impact on small entities. C. Small Entities Subject to the Amendments The amendments will affect some small entities that file registration statements under the Securities Act, the Exchange Act, and the Investment Company Act and periodic reports, proxy and information statements, or other reports under the Exchange Act and the Investment Company Act. In addition, the amendments will affect some small entities that are not reporting companies and that issue securities under Regulation A exemption. The RFA defines ‘‘small entity’’ to mean ‘‘small business,’’ ‘‘small organization,’’ or ‘‘small governmental jurisdiction.’’ 578 For purposes of the RFA, under 17 CFR 230.157 (‘‘Securities Act Rule 157’’), an issuer, other than an investment company, is a ‘‘small business’’ or ‘‘small organization’’ if it had total assets of $5 million or less on the last day of its most recent fiscal year and is engaged or proposing to engage in an offering of securities not exceeding $5 million. Under 17 CFR 240.0–10(a) (‘‘Exchange Act Rule 0–10(a)’’), an issuer, other than an investment company, is a ‘‘small business’’ or ‘‘small organization’’ if it had total assets of $5 million or less on the last day of its most recent fiscal year. In total, we estimate that there are approximately 1,233 issuers, other than investment companies, that may be considered small entities and will be subject to the amendments.579 578 5 U.S.C. 601(6). estimate includes 1,163 reporting companies and 70 Regulation A issuers estimated to be small entities (1,233 = 1,163 + 70). The reporting company small entity estimate is based on staff analysis of XBRL data submitted by filers, other than co-registrants, with EDGAR filings of Forms 10–K, 20–F, and 40–F and amendments filed during the calendar year 2017. The Regulation A small entity estimate is based on staff analysis of Form 1–A data from EDGAR filings of Forms 1–A qualified during the calendar year 2017, excluding issuers in subsequently withdrawn offerings and issuers that became reporting companies during the calendar year 2017. daltland on DSKBBV9HB2PROD with RULES2 579 This VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 An investment company, including a business development company, is considered to be a ‘‘small business,’’ for the purposes of the RFA, if it, together with other investment companies in the same group of related investment companies, has net assets of $50 million or less as of the end of its most recent fiscal year.580 We estimate that there are approximately 112 investment companies, including 18 business development companies, that will be subject to the amendments that may be considered small entities.581 For the purposes of the RFA, an investment adviser generally is a small entity if it: (1) Has assets under management having a total value of less than $25 million; (2) did not have total assets of $5 million or more on the last day of the most recent fiscal year; and (3) does not control, is not controlled by, and is not under common control with another investment adviser that has assets under management of $25 million or more, or any person (other than a natural person) that had total assets of $5 million or more on the last day of its most recent fiscal year.582 We estimate that there are approximately 447 investment advisers that will be subject to the amendments that may be considered small entities.583 For the purposes of the RFA, a brokerdealer is considered to be a ‘‘small business’’ if its total capital (net worth plus subordinated liabilities) is less than $500,000 on the date in the prior fiscal year as of which its audited financial statements were prepared pursuant to Rule 17a–5(d) under the Exchange Act,584 or, if not required to file such statements, a broker-dealer with total capital (net worth plus subordinated liabilities) of less than $500,000 on the last day of the preceding fiscal year (or in the time that it has been in business, if shorter); and that is not affiliated with any person (other than a natural person) that is not a small business or small organization.585 We estimate there are approximately 1,042 broker-dealers that may be considered small entities. Of 580 See 17 CFR 270.0–10(a). estimate of small investment companies is derived from an analysis of data obtained from Morningstar Direct as well as data reported on Forms N–SAR filed with the Commission for the period ending December 31, 2017. The number of small business development companies is derived from data obtained from Forms 10–K and Forms 10–Q for reporting periods ended in the last quarter of 2017, adjusted by the number of active business development companies that do not submit such filings and late filers. 582 See 17 CFR 275.0–7. 583 The estimate is based on SEC-registered investment adviser responses to Items 5.F. and 12 of Form ADV. 584 See 17 CFR 240.17a–5(d). 585 See 17 CFR 240.0–10(c). 581 The PO 00000 Frm 00050 Fmt 4701 Sfmt 4700 these, nine were Part II filers and 1,033 were Part IIA filers.586 The Commission has previously stated, and we continue to believe, that an NRSRO with total assets of $5 million or less would qualify as a ‘‘small’’ entity for purposes of the RFA.587 Currently, there are 10 NRSROs and, based on their most recently filed annual reports pursuant to Rule 17g–3, two NRSROs are small entities under the above definition and will be subject to the amendments. D. Projected Reporting, Recordkeeping, and Other Compliance Requirements As noted above, the final amendments update and simplify the Commission’s disclosure requirements and do not impose any significant new disclosure obligations. While there are no particular professional skills that are required to comply with the amendments, the professional skills necessary for complying with an issuer’s disclosure obligations as a whole may include legal, accounting, or information technology skills. As adopted, the amendments address requirements that have become redundant, duplicative, overlapping, outdated, or superseded in light of other Commission disclosure requirements, U.S. GAAP, IFRS, or changes in the information environment. We expect these amendments to reduce slightly the existing reporting, recordkeeping, and other compliance burdens for all issuers, including small entities. The amendments are discussed in detail in Sections II, III, IV, and V, above. We discuss the economic impact, including the estimated compliance costs and burdens, of the amendments in Section VII (Economic Analysis) and Section VIII (Paperwork Reduction Act) above. E. Agency Action To Minimize Effect on Small Entities The Regulatory Flexibility Act directs us to consider alternatives that would accomplish our stated objectives, while minimizing any significant adverse impact on small entities. In connection with the final amendments, we considered the following alternatives: (1) Establishing different compliance or 586 This estimate is based on the FOCUS Reports, or ‘‘Financial and Operational Combined Uniform Single’’ Reports, which broker-dealers are generally required to file with the Commission and/or SROs pursuant to Exchange Act Rule 17a–5. The estimate is based on the FOCUS Reports data as of December 31, 2017. The information on Part IIB and Part III filers are not available from this data source. 587 See, e.g., Final Rules: Nationally Recognized Statistical Rating Organizations, Release No. 34– 72936 (Aug. 27, 2014) [79 FR 55077 (Sep. 15, 2014)]. E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations reporting requirements or timetables that take into account the resources available to small entities; (2) clarifying, consolidating, or simplifying compliance and reporting requirements for small entities; (3) using performance rather than design standards; and (4) exempting small entities from coverage of all or part of the proposed amendments. With respect to clarification, consolidation, and simplification of compliance and reporting requirements for small entities, the amendments do not impose any significant new disclosure obligations, and they reduce other disclosure obligations. As noted above, the amendments address certain of our disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other Commission disclosure requirements, U.S. GAAP, IFRS, or changes in the information environment. The amendments will clarify, consolidate, and simplify compliance for all issuers, including small entities. For similar reasons, we do not believe it is necessary, and indeed would be contrary to the stated objectives of the amendments, to establish different compliance or reporting requirements or timetables or to exempt small entities from all or part of the amendments.588 The Commission’s existing disclosure requirements provide for scaled disclosure requirements and other accommodations for SRCs and EGCs, and the amendments would not alter these existing accommodations. Finally, with respect to use of performance rather than design standards, the amendments to eliminate certain prescriptive Commission rules that call for information that overlaps with information required by U.S. GAAP or revise certain prescriptive rules to streamline our disclosure requirements may result in issuers, including small entities, being provided with additional flexibility when preparing their disclosures. For instance, existing Rule 4–08(e)(3) requires disclosure of dividend restrictions and related disclosures when restricted net assets exceed 25 daltland on DSKBBV9HB2PROD with RULES2 588 The amendment discussed in Section V.B.2 that extends the disclosure requirement in Rule 3– 04 of Regulation S–X to interim periods will apply to all issuers, including small entities. As the required information would be readily available from the preparation of the interim financial statements, the Commission expects the additional burdens to be limited. The new disclosure would better facilitate investor understanding of stockholders’ equity, as dividends are distributed from stockholders’ equity. As such, we do not believe it is necessary to scale this specific amendment for small entities. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 percent. As amended, the rule will require such disclosure when it is material and not based on a bright line threshold. While not all amendments use performance standards, many would have a similar effect—namely, to provide issuers, including small entities, with additional flexibility to present more tailored disclosures without meaningfully reducing the total mix of information provided to investors. X. Statutory Authority The amendments contained in this document are being adopted under the authority set forth in Sections 7, 10, 19(a), and 28 of the Securities Act, Sections 3(b), 12, 13, 15, 23(a), and 36 of the Exchange Act, Sections 8, 24(a), 24(g), 30, and 38 of the Investment Company Act, and Title LXXII, Section 72002(2) of the FAST Act. Text of the Final Amendments List of Subjects 17 CFR Part 210 Accountants, Accounting, Banks, Banking, Employee benefit plans, Holding companies, Insurance companies, Investment companies, Oil and gas exploration, Reporting and recordkeeping requirements, Securities, Utilities. 17 CFR Part 229 Reporting and recordkeeping requirements, Securities. 17 CFR Part 230 Investment companies, Reporting and recordkeeping requirements, Securities. 17 CFR Part 239 Reporting and recordkeeping requirements, Securities. 17 CFR Part 240 Brokers, Fraud, Reporting and recordkeeping requirements, Securities. 17 CFR Part 249 Brokers, Reporting and recordkeeping requirements, Securities. 17 CFR Part 274 Investment companies, Reporting and recordkeeping requirements, Securities. For the reasons stated in the preamble, the Commission is amending Title 17, Chapter II, of the Code of the Federal Regulations as follows: PO 00000 Frm 00051 Fmt 4701 Sfmt 4700 50197 PART 210—FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934, INVESTMENT COMPANY ACT OF 1940, INVESTMENT ADVISERS ACT OF 1940, AND ENERGY POLICY AND CONSERVATION ACT OF 1975 1. The authority citation for part 210 continues to read as follows: ■ Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z–2, 77z–3, 77aa(25), 77aa(26), 77nn(25), 77nn(26), 78c, 78j–1, 78l, 78m, 78n, 78o(d), 78q, 78u–5, 78w, 78ll, 78mm, 80a–8, 80a–20, 80a–29, 80a–30, 80a–31, 80a– 37(a), 80b–3, 80b–11, 7202 and 7262, and sec. 102(c), Pub L. 112–106, 126 Stat. 310 (2012), unless otherwise noted. 2. Amend § 210.1–02 by: a. Revising paragraphs (d) and (w)(3); b. Redesignating the Computational note as Computational note 1 to paragraph (w)(3); ■ c. Revising paragraph 2 of the newly redesignated Computational note 1 to paragraph (w)(3); ■ d. Revising paragraph (bb)(1)(ii); and ■ e. Adding paragraphs (cc) and (dd). The revisions and additions read as follows: ■ ■ ■ § 210.1–02 Definitions of terms used in Regulation S–X (17 CFR part 210). * * * * * (d) Audit (or examination). The term audit (or examination), when used in regard to financial statements of issuers as defined by Section 2(a)(7) of the Sarbanes-Oxley Act of 2002, means an examination of the financial statements by an independent accountant in accordance with the standards of the Public Company Accounting Oversight Board (United States) (‘‘PCAOB’’) for the purpose of expressing an opinion thereon. When used in regard to financial statements of entities that are not issuers as defined by Section 2(a)(7) of the Sarbanes-Oxley Act of 2002, the term means an examination of the financial statements by an independent accountant in accordance with either the standards of the PCAOB or U.S. generally accepted auditing standards (‘‘U.S. GAAS’’) as specified or permitted in the regulations and forms applicable to those entities for the purpose of expressing an opinion thereon. The standards of the PCAOB and U.S. GAAS may be modified or supplemented by the Commission. * * * * * (w) * * * (3) The registrant’s and its other subsidiaries’ equity in the income from continuing operations before income taxes of the subsidiary exclusive of amounts attributable to any E:\FR\FM\04OCR2.SGM 04OCR2 50198 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations noncontrolling interests exceeds 10 percent of such income of the registrant and its subsidiaries consolidated for the most recently completed fiscal year. Note to paragraph (w): * * * Computational note 1 to paragraph (w)(3): * * * daltland on DSKBBV9HB2PROD with RULES2 * * * * * 2. If income of the registrant and its subsidiaries consolidated exclusive of amounts attributable to any noncontrolling interests for the most recent fiscal year is at least 10 percent lower than the average of the income for the last five fiscal years, such average income should be substituted for purposes of the computation. Any loss years should be omitted for purposes of computing average income. * * * * * (bb) * * * (1) * * * (ii) Net sales or gross revenues, gross profit (or, alternatively, costs and expenses applicable to net sales or gross revenues), income or loss from continuing operations, net income or loss, and net income or loss attributable to the entity (for specialized industries, other information may be substituted for sales and related costs and expenses if necessary for a more meaningful presentation); and * * * * * (cc) Statement(s) of comprehensive income. The term statement(s) of comprehensive income means a financial statement that includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income comprises all components of net income and all components of other comprehensive income. The statement of comprehensive income may be presented either in a single continuous financial statement or in two separate but consecutive financial statements. A statement(s) of operations or variations thereof may be used in place of a statement(s) of comprehensive income if there was no other comprehensive income during the period(s). (dd) Restricted net assets. The term restricted net assets shall mean that amount of the registrant’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the consent of a third party (i.e., lender, regulatory agency, foreign government, etc.). Not all limitations on VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 transferability of assets are considered to be restrictions for purposes of this rule, which considers only specific third party restrictions on the ability of subsidiaries to transfer funds outside of the entity. For example, the presence of subsidiary debt which is secured by certain of the subsidiary’s assets does not constitute a restriction under this rule. However, if there are any loan provisions prohibiting dividend payments, loans or advances to the parent by a subsidiary, these are considered restrictions for purposes of computing restricted net assets. When a loan agreement requires that a subsidiary maintain certain working capital, net tangible asset, or net asset levels, or where formal compensating arrangements exist, there is considered to be a restriction under the rule because the lender’s intent is normally to preclude the transfer by dividend or otherwise of funds to the parent company. Similarly, a provision which requires that a subsidiary reinvest all of its earnings is a restriction, since this precludes loans, advances or dividends in the amount of such undistributed earnings by the entity. Where restrictions on the amount of funds which may be loaned or advanced differ from the amount restricted as to transfer in the form of cash dividends, the amount least restrictive to the subsidiary shall be used. Redeemable preferred stocks (§ 210.5–02.27) and noncontrolling interests shall be deducted in computing net assets for purposes of this test. 3. Amend § 210.2–01 by revising paragraph (f)(7)(ii)(B) to read as follows: ■ § 210.2–01 Qualifications of accountants. * * * * * (f) * * * (7) * * * (ii) * * * (B) The partner conducting a quality review under applicable professional standards and any applicable rules of the Commission to evaluate the significant judgments and the related conclusions reached in forming the overall conclusion on the audit or review engagement (‘‘Engagement Quality Reviewer’’ or ‘‘Engagement Quality Control Reviewer’’); * * * * * 4. Amend § 210.2–02 by revising paragraph (b)(1) to read as follows: ■ § 210.2–02 Accountants’ reports and attestation reports. * PO 00000 * * (b) * * * Frm 00052 * Fmt 4701 * Sfmt 4700 (1) Shall state the applicable professional standards under which the audit was conducted; and * * * * * ■ 5. Amend § 210.3–01 by revising paragraphs (c)(2) and (3) to read as follows: § 210.3–01 Consolidated balance sheets. * * * * * (c) * * * (2) For the most recent fiscal year for which audited financial statements are not yet available the registrant reasonably and in good faith expects to report income attributable to the registrant, after taxes; and (3) For at least one of the two fiscal years immediately preceding the most recent fiscal year the registrant reported income attributable to the registrant, after taxes. * * * * * ■ 6. Amend § 210.3–02 by revising the section heading and paragraphs (a) and (b) to read as follows: § 210.3–02 Consolidated statements of comprehensive income and cash flows. (a) There shall be filed, for the registrant and its subsidiaries consolidated and for its predecessors, audited statements of comprehensive income and cash flows for each of the three fiscal years preceding the date of the most recent audited balance sheet being filed or such shorter period as the registrant (including predecessors) has been in existence. A registrant that is an emerging growth company, as defined in § 230.405 of this chapter (Rule 405 of the Securities Act) or § 240.12b–2 of this chapter (Rule 12b–2 of the Exchange Act), may, in a Securities Act registration statement for the initial public offering of the emerging growth company’s equity securities, provide audited statements of comprehensive income and cash flows for each of the two fiscal years preceding the date of the most recent audited balance sheet (or such shorter period as the registrant has been in existence). (b) In addition, for any interim period between the latest audited balance sheet and the date of the most recent interim balance sheet being filed, and for the corresponding period of the preceding fiscal year, statements of comprehensive income and cash flows shall be provided. Such interim financial statements may be unaudited and need not be presented in greater detail than is required by § 210.10–01. * * * * * ■ 7. Amend § 210.3–03 by ■ a. Revising the section heading and paragraphs (b) and (d); and E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations ■ b. Removing paragraph (e). The revisions read as follows: § 210.3–03 Instructions to statement of comprehensive income requirements. * * * * * (b) If the registrant is engaged primarily— (1) In the generation, transmission or distribution of electricity, the manufacture, mixing, transmission or distribution of gas, the supplying or distribution of water, or the furnishing of telephone or telegraph service; or (2) In holding securities of companies engaged in such businesses, it may at its option include statements of comprehensive income and cash flows (which may be unaudited) for the twelve-month period ending on the date of the most recent balance sheet being filed, in lieu of the statements of comprehensive income and cash flows for the interim periods specified. * * * * * (d) Any unaudited interim financial statements furnished shall reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. A statement to that effect shall be included. If all such adjustments are of a normal recurring nature, a statement to that effect shall be made; otherwise, there shall be furnished information describing in appropriate detail the nature and amount of any adjustments other than normal recurring adjustments entering into the determination of the results shown. ■ 8. Revise § 210.3–04 to read as follows: daltland on DSKBBV9HB2PROD with RULES2 § 210.3–04 Changes in stockholders’ equity and noncontrolling interests. An analysis of the changes in each caption of stockholders’ equity and noncontrolling interests presented in the balance sheets shall be given in a note or separate statement. This analysis shall be presented in the form of a reconciliation of the beginning balance to the ending balance for each period for which a statement of comprehensive income is required to be filed with all significant reconciling items described by appropriate captions with contributions from and distributions to owners shown separately. Also, state separately the adjustments to the balance at the beginning of the earliest period presented for items which were retroactively applied to periods prior to that period. With respect to any dividends, state the amount per share and in the aggregate for each class of shares. Provide a separate schedule in the notes to the financial statements that VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 shows the effects of any changes in the registrant’s ownership interest in a subsidiary on the equity attributable to the registrant. ■ 9. Amend § 210.3–05 by revising paragraph (b)(4)(iii) to read as follows: § 210.3–05 Financial statements of businesses acquired or to be acquired. * * * * * (b) * * * (4) * * * (iii) Separate financial statements of the acquired business need not be presented once the operating results of the acquired business have been reflected in the audited consolidated financial statements of the registrant for a complete fiscal year unless such financial statements have not been previously filed or unless the acquired business is of such significance to the registrant that omission of such financial statements would materially impair an investor’s ability to understand the historical financial results of the registrant. For example, if, at the date of acquisition, the acquired business met at least one of the conditions in the definition of significant subsidiary in § 210.1–02 at the 80 percent level, the statements of comprehensive income of the acquired business should normally continue to be furnished for such periods prior to the purchase as may be necessary when added to the time for which audited statements of comprehensive income after the purchase are filed to cover the equivalent of the period specified in § 210.3–02. * * * * * ■ 10. Amend § 210.3–12 by revising paragraph (a) to read as follows: § 210.3–12 Age of financial statements at effective date of registration statement or at mailing date of proxy statement. (a) If the financial statements in a filing are as of a date the number of days specified in paragraph (g) of this section or more before the date the filing is expected to become effective, or proposed mailing date in the case of a proxy statement, the financial statements shall be updated, except as specified in the following paragraphs, with a balance sheet as of an interim date within the number of days specified in paragraph (g) of this section and with statements of comprehensive income and cash flows for the interim period between the end of the most recent fiscal year and the date of the interim balance sheet provided and for the corresponding period of the preceding fiscal year. Such interim financial statements may be unaudited and need not be presented in greater PO 00000 Frm 00053 Fmt 4701 Sfmt 4700 50199 detail than is required by § 210.10–01. Notwithstanding the above requirements, the most recent interim financial statements shall be at least as current as the most recent financial statements filed with the Commission on Form 10–Q. * * * * * ■ 11. Amend § 210.3–14 by: ■ a. Revising paragraph (a) introductory text; and ■ b. Redesignating the Note following paragraph (a)(1)(iii) as Note 1 to paragraph (a)(1). The revision reads as follows: § 210.3–14 Special instructions for real estate operations to be acquired. (a) If, during the period for which statements of comprehensive income are required, the registrant has acquired one or more properties which in the aggregate are significant, or since the date of the latest balance sheet required has acquired or proposes to acquire one or more properties which in the aggregate are significant, the following shall be furnished with respect to such properties: * * * * * § 210.3–15 [Amended] 12. Amend § 210.3–15 by removing and reserving paragraphs (a) and (b). ■ 13. Amend § 210.3–17 by revising paragraph (a) to read as follows: ■ § 210.3–17 persons. Financial statements of natural (a) In lieu of the financial statements otherwise required, a natural person may file an unaudited balance sheet as of a date within 90 days of date of filing and unaudited statements of comprehensive income for each of the three most recent fiscal years. * * * * * ■ 14. Amend § 210.3–20 by: ■ a. Revising the section heading; ■ b. Redesignating paragraph (a) as paragraph (a)(1); ■ c. Adding paragraph (a)(2); ■ d. Redesignating paragraph (b) as paragraph (b)(1) and adding paragraph (b)(2); and ■ e. Revising paragraph (d). The additions and revisions read as follows: § 210.3–20 Currency for financial statements. (a)(1) * * * (2) An issuer that is not a foreign private issuer shall present its financial statements in U.S. dollars. (b)(1) * * * (2) If there are material exchange restrictions or controls relating to the E:\FR\FM\04OCR2.SGM 04OCR2 50200 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations currency of a subsidiary’s domicile, the currency held by a subsidiary, or the currency in which a subsidiary will pay dividends or transfer funds to the issuer or other subsidiaries, prominent disclosure of this fact shall be made in the financial statements. * * * * * (d) Notwithstanding the currency used for reporting purposes, the issuer shall measure separately its own transactions, and those of each of its material operations (e.g., branches, divisions, subsidiaries, joint ventures, and similar entities) that is included in the issuer’s consolidated financial statements and not located in a hyperinflationary environment, using the particular currency of the primary economic environment in which the issuer or the operation conducts its business. Assets and liabilities so determined shall be translated into the reporting currency at the exchange rate at the balance sheet date; all revenues, expenses, gains, and losses shall be translated at the exchange rate existing at the time of the transaction or, if appropriate, a weighted average of the exchange rates during the period; and all translation effects of exchange rate changes shall be included as a separate component (‘‘cumulative translation adjustment’’) of shareholder’s equity. For purposes of this paragraph, the currency of an operation’s primary economic environment is normally the currency in which cash is primarily generated and expended; a hyperinflationary environment is one that has cumulative inflation of approximately 100% or more over the most recent three year period. Departures from the methodology presented in this paragraph shall be quantified pursuant to Item 17(c)(2) of Form 20–F (§ 249.220f of this chapter). § 210.3A–01 [Removed and Reserved] 15. Remove and reserve § 210.3A–01. 16. Revise § 210.3A–02 to read as follows: ■ ■ daltland on DSKBBV9HB2PROD with RULES2 § 210.3A–02 Consolidated financial statements of the registrant and its subsidiaries. In deciding upon consolidation policy, the registrant must consider what financial presentation is most meaningful in the circumstances and should follow in the consolidated financial statements principles of inclusion or exclusion which will clearly exhibit the financial position and results of operations of the registrant. There is a presumption that consolidated financial statements are more meaningful than separate financial statements and that they are usually VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 necessary for a fair presentation when one entity directly or indirectly has a controlling financial interest in another entity. Other particular facts and circumstances may require combined financial statements, an equity method of accounting, or valuation allowances in order to achieve a fair presentation. (a) Majority ownership: Among the factors that the registrant should consider in determining the most meaningful presentation is majority ownership. Generally, registrants shall consolidate entities that are majority owned and shall not consolidate entities that are not majority owned. The determination of majority ownership requires a careful analysis of the facts and circumstances of a particular relationship among entities. In rare situations, consolidation of a majority owned subsidiary may not result in a fair presentation, because the registrant, in substance, does not have a controlling financial interest (for example, when the subsidiary is in legal reorganization or in bankruptcy). In other situations, consolidation of an entity, notwithstanding the lack of technical majority ownership, is necessary to present fairly the financial position and results of operations of the registrant, because of the existence of a parent-subsidiary relationship by means other than record ownership of voting stock. (b) [Reserved]. ■ 17. Amend § 210.3A–03 by removing and reserving paragraph (a) and revising paragraph (b). The revision reads as follows: § 210.3A–03 Statement as to principles of consolidation or combination followed. * * * * * (b) As to each consolidated financial statement and as to each combined financial statement, if there has been a change in the persons included or excluded in the corresponding statement for the preceding fiscal period filed with the Commission that has a material effect on the financial statements, the persons included and the persons excluded shall be disclosed. § 210.3A–04 ■ [Removed and Reserved] 18. Remove and reserve § 210.3A–04. § 210.4–01 [Amended] 19. Amend § 210.4–01 by removing paragraph (a)(3). ■ 20. Amend § 210.4–08 by: ■ a. Revising the introductory text; ■ b. Removing and reserving paragraph (a); ■ c. Redesignating paragraph (d)(1) as paragraph (d) and removing paragraph (d)(2); ■ PO 00000 Frm 00054 Fmt 4701 Sfmt 4700 d. Revising paragraphs (e)(1) and (e)(3) introductory text; ■ e. Revising paragraphs (f) and (h)(1) introductory text; ■ f. Redesignating the Note following paragraph (h)(1) as Note 1 to paragraph (h)(1); ■ g. Revising paragraph (h)(2); ■ h. Removing paragraph (h)(3); ■ i. Removing and reserving paragraph (i); ■ j. Revising paragraph (k); and ■ k. Revising paragraphs (m)(2)(ii) and (n). The revisions read as follows: ■ § 210.4–08 General notes to financial statements. If applicable to the person for which the financial statements are filed, the following shall be set forth on the face of the appropriate statement or in appropriately captioned notes. The information shall be provided for each statement required to be filed, except that the information required by paragraphs (b), (c), (d), (e), and (f) of this section shall be provided as of the most recent audited balance sheet being filed and for paragraph (j) of this section as specified therein. When specific statements are presented separately, the pertinent notes shall accompany such statements unless cross-referencing is appropriate. * * * * * (e) * * * (1) Describe the most significant restrictions on the payment of dividends by the registrant, indicating their sources, their pertinent provisions, and the amount of retained earnings or net income restricted or free of restrictions. * * * * * (3) The disclosures in paragraphs (e)(3)(i) and (ii) of this section shall be provided when material. * * * * * (f) Significant changes in bonds, mortgages and similar debt. Any significant changes in the authorized amounts of bonds, mortgages and similar debt since the date of the latest balance sheet being filed for a particular person or group shall be stated. * * * * * (h) Income tax expense. (1) Disclosure shall be made in the statement of comprehensive income or a note thereto, of the components of income (loss) before income tax expense (benefit) as either domestic or foreign. * * * * * (2) In the reconciliation between the amount of reported total income tax expense (benefit) and the amount computed by multiplying the income (loss) before tax by the applicable E:\FR\FM\04OCR2.SGM 04OCR2 daltland on DSKBBV9HB2PROD with RULES2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations statutory Federal income tax rate, if no individual reconciling item amounts to more than five percent of the amount computed by multiplying the income before tax by the applicable statutory Federal income tax rate, and the total difference to be reconciled is less than five percent of such computed amount, no reconciliation need be provided unless it would be significant in appraising the trend of earnings. Reconciling items that are individually less than five percent of the computed amount may be aggregated in the reconciliation. Where the reporting person is a foreign entity, the income tax rate in that person’s country of domicile should normally be used in making the above computation, but different rates should not be used for subsidiaries or other segments of a reporting entity. When the rate used by a reporting person is other than the United States Federal corporate income tax rate, the rate used and the basis for using such rate shall be disclosed. * * * * * (k) Related party transactions that affect the financial statements. (1) Amounts of related party transactions should be stated on the face of the balance sheet, statement of comprehensive income, or statement of cash flows. (2) In cases where separate financial statements are presented for the registrant, certain investees, or subsidiaries, any intercompany profits or losses resulting from transactions with related parties and the effects thereof shall be disclosed. * * * * * (m) * * * (2) Reverse repurchase agreements (assets purchased under agreements to resell). (i) If, as of the most recent balance sheet date, the aggregate carrying amount of ‘‘reverse repurchase agreements’’ (securities or other assets purchased under agreements to resell) exceeds 10% of total assets: (A) Disclose separately such amount in the balance sheet; and (B) Disclose in an appropriately captioned footnote: (1) The registrant’s policy with regard to taking possession of securities or other assets purchased under agreements to resell; and (2) Whether or not there are any provisions to ensure that the market value of the underlying assets remains sufficient to protect the registrant in the event of default by the counterparty and if so, the nature of those provisions. (ii) If, as of the most recent balance sheet date, the amount at risk under reverse repurchase agreements with any VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 individual counterparty or group of related counterparties exceeds 10% of stockholders’ equity (or in the case of investment companies, net asset value), disclose the name of each such counterparty or group of related counterparties, the amount at risk with each, and the weighted average maturity of the reverse repurchase agreements with each. The amount at risk under reverse repurchase agreements is defined as the excess of the carrying amount of the reverse repurchase agreements over the market value of assets delivered pursuant to the agreements by the counterparty to the registrant (or to a third party agent that has affirmatively agreed to act on behalf of the registrant) and not returned to the counterparty, except in exchange for their approximate market value in a separate transaction. (n) Accounting policies for certain derivative instruments. Disclosures regarding accounting policies shall include, to the extent material, where in the statement of cash flows derivative financial instruments, and their related gains and losses, as defined by U.S. generally accepted accounting principles, are reported. ■ 21. Amend § 210.4–10 by revising paragraph (c)(7)(i) to read as follows: § 210.4–10 Financial accounting and reporting for oil and gas producing activities pursuant to the Federal securities laws and the Energy Policy and Conservation Act of 1975. * * * * * (c) * * * (7) * * * (i) For each cost center for each year that a statement of comprehensive income is required, disclose the total amount of amortization expense (per equivalent physical unit of production if amortization is computed on the basis of physical units or per dollar of gross revenue from production if amortization is computed on the basis of gross revenue). * * * * * ■ 22. Amend § 210.5–02 by: ■ a. Removing ‘‘[See § 210.4–05]’’ immediately below the undesignated heading ‘‘Current Assets, when appropriate’’ and immediately above paragraph 1; ■ b. Revising paragraphs 6.(a)(2) and (3); ■ c. Revising the undesignated heading immediately above paragraph 19; ■ d. Revising paragraphs 22.(a) introductory text, 27.(c)(3), 28, and 29; and ■ e. Revising paragraph 30.(a). The revisions read as follows: PO 00000 Frm 00055 Fmt 4701 Sfmt 4700 § 210.5–02 50201 Balance sheets. * * * * * 6. * * * (a) * * * (2) inventoried costs relating to longterm contracts or programs (see paragraph (d) of this section); (3) work in process; * * * * * Current Liabilities, When Appropriate 19. * * * * * * * 22. * * * (a) State separately, in the balance sheet or in a note thereto, each issue or type of obligation and such information as will indicate: * * * * * 27. * * * (c) * * * (3) the changes in each issue for each period for which a statement of comprehensive income is required to be filed. (See also § 210.4–08(d).) * * * * * 28. Preferred stocks which are not redeemable or are redeemable solely at the option of the issuer. State on the face of the balance sheet, or if more than one issue is outstanding state in a note, the title of each issue and the dollar amount thereof. Show also the dollar amount of any shares subscribed but unissued, and show the deduction of subscriptions receivable therefrom. State on the face of the balance sheet or in a note, for each issue, the number of shares authorized and the number of shares issued or outstanding, as appropriate (see § 210.4–07). Show in a note or separate statement the changes in each class of preferred shares reported under this caption for each period for which a statement of comprehensive income is required to be filed. (See also § 210.4– 08(d).) * * * * * 29. Common stocks. For each class of common shares state, on the face of the balance sheet, the number of shares issued or outstanding, as appropriate (see § 210.4–07), and the dollar amount thereof. If convertible, this fact should be indicated on the face of the balance sheet. For each class of common shares state, on the face of the balance sheet or in a note, the title of the issue, the number of shares authorized, and, if convertible, the basis of conversion (see also § 210.4–08(d)). Show also the dollar amount of any common shares subscribed but unissued, and show the deduction of subscriptions receivable therefrom. Show in a note or statement the changes in each class of common shares for each period for which a * E:\FR\FM\04OCR2.SGM 04OCR2 50202 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations statement of comprehensive income is required to be filed. * * * * * 30. Other stockholders’ equity. (a) Separate captions shall be shown for (1) additional paid-in capital, (2) other additional capital, (3) retained earnings, (i) appropriated and (ii) unappropriated (See § 210.4–08(e)), and (4) accumulated other comprehensive income. Note 1 to paragraph 30.(a). Additional paid-in capital and other additional capital may be combined with the stock caption to which it applies, if appropriate. * * * * * 23. Amend § 210.5–03 by: a. Revising the section heading and paragraphs (a), (b)1, 7, and 9; ■ b. Removing and reserving paragraphs (b)15, 16, and 17; ■ c. Redesignating paragraph (b)21 as (b)25; and ■ d. Adding new paragraph (b)21 and paragraphs (b)22, 23, and 24. The revisions and additions read as follows: ■ ■ daltland on DSKBBV9HB2PROD with RULES2 § 210.5–03 income. Statements of comprehensive (a) The purpose of this rule is to indicate the various line items which, if applicable, and except as otherwise permitted by the Commission, should appear on the face of the statements of comprehensive income filed for the persons to whom this article pertains (see § 210.4–01(a)). (b) * * * 1. Net sales and gross revenues. State separately: (a) Net sales of tangible products (gross sales less discounts, returns and allowances), (b) operating revenues of public utilities or others; (c) income from rentals; (d) revenues from services; and (e) other revenues. Amounts earned from transactions with related parties shall be disclosed as required under § 210.4–08(k). A public utility company using a uniform system of accounts or a form for annual report prescribed by federal or state authorities, or a similar system or report, shall follow the general segregation of operating revenues and operating expenses reported under § 210.5–03.2 prescribed by such system or report. If the total of sales and revenues reported under this caption includes excise taxes in an amount equal to 1 percent or more of such total, the amount of such excise taxes shall be shown on the face of the statement parenthetically or otherwise. * * * * * 7. Non-operating income. State separately in the statement of comprehensive income or in a note VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 thereto amounts earned from (a) dividends, (b) interest on securities, (c) profits on securities (net of losses), and (d) miscellaneous other income. Amounts earned from transactions in securities of related parties shall be disclosed as required under § 210.4– 08(k). Material amounts included under miscellaneous other income shall be separately stated in the statement of comprehensive income or in a note thereto, indicating clearly the nature of the transactions out of which the items arose. * * * * * 9. Non-operating expenses. State separately in the statement of comprehensive income or in a note thereto amounts of (a) losses on securities (net of profits) and (b) miscellaneous income deductions. Material amounts included under miscellaneous income deductions shall be separately stated in the statement of comprehensive income or in a note thereto, indicating clearly the nature of the transactions out of which the items arose. * * * * * 21. Other comprehensive income. State separately the components of and the total for other comprehensive income. Present the components either net of related tax effects or before related tax effects with one amount shown for the aggregate income tax expense or benefit. State the amount of income tax expense or benefit allocated to each component, including reclassification adjustments, in the statement of comprehensive income or in a note. 22. Comprehensive income. 23. Comprehensive income attributable to the noncontrolling interest. 24. Comprehensive income attributable to the controlling interest. 25. Earnings per share data. ■ 24. Amend § 210.5–04 by revising paragraph (a)(2); and Schedule I to read as follows: § 210.5–04 What schedules are to be filed. (a) * * * (2) Schedule II of this section shall be filed for each period for which an audited statement of comprehensive income is required to be filed for each person or group. * * * * * Schedule I—Condensed financial information of registrant. The schedule prescribed by § 210.12–04 shall be filed when the restricted net assets (§ 210.1.02(dd)) of consolidated subsidiaries exceed 25 percent of PO 00000 Frm 00056 Fmt 4701 Sfmt 4700 consolidated net assets as of the end of the most recently completed fiscal year. * * * * * ■ 25. Amend § 210.6–03 by revising paragraph (c)(1) introductory text and removing and reserving paragraph (c)(1)(i). The revision reads as follows: § 210.6–03 Special rules of general application to registered investment companies and business development companies. * * * * * (c) * * * (1) Consolidated and combined statements filed for registered investment companies and business development companies shall be prepared in accordance with §§ 210.3A– 02 and 210.3A–03 (Article 3A), except that: * * * * * ■ 26. Amend § 210.6–04 by revising the paragraph 17 heading, its introductory text, and paragraph 17.(a) to read as follows: § 210.6–04 Balance sheets. * * * * * 17. Total distributable earnings (loss). Disclose total distributable earnings (loss), which generally comprise: (a) Accumulated undistributed investment income-net, * * * * * ■ 27. Amend § 210.6–07 by revising the introductory text to read as follows: § 210.6–07 Statements of operations. Statements of operations, or statements of comprehensive income, where applicable, filed by registered investment companies, other than issuers of face-amount certificates, subject to the special provisions of § 210.6–08, and business development companies, shall comply with the following provisions: * * * * * ■ 28. Amend § 210.6–09 by revising paragraphs 3, 4.(b), and 7 to read as follows: § 210.6–09 assets. Statements of changes in net * * * * * 3. Distributions to shareholders. State total distributions to shareholders which generally come from: (a) Investment income-net; (b) realized gain from investment transactions-net; and (c) other sources, except tax return of capital distributions, which shall be disclosed separately. 4. * * * (b) Disclose in the body of the statements or in the notes, for each class E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations of the person’s shares, the number and value of shares issued in reinvestment of dividends as well as the number and dollar amounts received for shares sold and paid for shares redeemed. * * * * * 7. Net assets at the end of the period. ■ 29. Amend § 210.6A–04 by revising the section heading and introductory text to read as follows: § 210.6A–04 Statements of comprehensive income and changes in plan equity. Statements of comprehensive income and changes in plan equity filed under this rule shall comply with the following provisions: * * * * * ■ 30. Amend § 210.6A–05 by revising paragraph (a) introductory text and Schedule III to read as follows: daltland on DSKBBV9HB2PROD with RULES2 § 210.6A–05 filed. What schedules are to be (a) Schedule I of this section shall be filed as of the most recent audited statement of financial condition and any subsequent unaudited statement of financial condition being filed. Schedule II of this section shall be filed as of the date of each statement of financial condition being filed. Schedule III of this section shall be filed for each period for which a statement of comprehensive income and changes in plan equity is filed. All schedules shall be audited if the related statements are audited. * * * * * Schedule III—Allocation of plan income and changes in plan equity to investment programs. If the plan provides for separate investment programs with separate funds, and if the allocation of income and changes in plan equity to the several funds is not shown in the statement of comprehensive income and changes in plan equity in columnar form or by the submission of separate statements for each fund, a schedule shall be submitted showing the allocation of each caption of each statement of comprehensive income and changes in plan equity filed to the applicable fund. * * * * * ■ 31. Amend § 210.7–03 by: ■ a. Revising paragraphs (a)6, (a)11, and (a)13.(a)(2); and ■ b. Removing and reserving paragraph (a)13.(b); ■ c. Removing paragraph (a)13.(c); and ■ d. Revising paragraphs (a)23.(a)(3) and (a)23.(c)(2). The revisions read as follows: § 210.7–03 Balance sheets. (a) * * * VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 6. Reinsurance recoverable. * * * * 11. Separate account assets. Include under this caption the portion of separate account-assets representing contract holder funds required to be reported in an insurance entity’s financial statements as a summary total. An equivalent summary total for the related liability shall be included under caption 18. * * * * * 13. * * * (a) * * * (2) unearned premiums and (3) * * * * * * * * 23. * * * (a) * * * (3) accumulated other comprehensive income, * * * * * (c) * * * (2) property and liability insurance legal entities: The amount of statutory stockholders’ equity as of the date of each balance sheet presented and the amount of statutory net income or loss for each period for which a statement of comprehensive income is presented. * * * * * ■ 32. Amend § 210.7–04 by: ■ a. Revising the section heading; ■ b. Revising the introductory text; ■ c. Revising paragraph 3.(b); ■ d. Removing and reserving paragraph 3.(c); ■ e. Revising paragraphs 3.(d), 7, and 9; ■ f. Removing and reserving paragraphs 13, 14, and 15; ■ g. Redesignating paragraph 19 as paragraph 23; and ■ h. Adding new paragraph 19 and paragraphs 20, 21, and 22. The revisions and additions read as follows: * § 210.7–04 income. Statements of comprehensive The purpose of this section is to indicate the various items which, if applicable, should appear on the face of the statements of comprehensive income and in the notes thereto filed for persons to whom this article pertains. (See § 210.4–01(a).) * * * * * 3. * * * (b) Indicate in a footnote the registrant’s policy with respect to whether investment income and realized gains and losses allocable to policyholders and separate accounts are included in the investment income and realized gain and loss amounts reported in the statement of comprehensive income. If the statement of comprehensive income includes PO 00000 Frm 00057 Fmt 4701 Sfmt 4700 50203 investment income and realized gains and losses allocable to policyholders and separate accounts, indicate the amounts of such allocable investment income and realized gains and losses and the manner in which the insurance enterprise’s obligation with respect to allocation of such investment income and realized gains and losses is otherwise accounted for in the financial statements. * * * * * (d) For each period for which a statement of comprehensive income is filed, include in a note an analysis of realized and unrealized investment gains and losses on fixed maturities and equity securities. For each period, state separately for fixed maturities [see § 210.7–03.1(a)] and for equity securities [see § 210.7–03.1(b)] the following amounts: * * * * * 7. Underwriting, acquisition and insurance expenses. State separately in the statement of comprehensive income or in a note thereto (a) the amount included in this caption representing deferred policy acquisition costs amortized to income during the period, and (b) the amount of other operating expenses. State separately in the statement of comprehensive income any material amount included in all other operating expenses. * * * * * 9. Income tax expense. Include under this caption only taxes based on income (See § 210.4–08(h).) * * * * * 19. Other comprehensive income. State separately the components of and the total for other comprehensive income. Present the components either net of related tax effects or before related tax effects with one amount shown for the aggregate income tax expense or benefit. State the amount of income tax expense or benefit allocated to each component, including reclassification adjustments, in the statement of comprehensive income or in a note. 20. Comprehensive income. 21. Comprehensive income attributable to the noncontrolling interest. 22. Comprehensive income attributable to the controlling interest. 23. Earnings per share data. ■ 33. Amend § 210.7–05 by revising paragraph (a)(2) and Schedules II and III to read as follows: § 210.7–05 What schedules are to be filed. (a) * * * (2) The schedules specified in this section as Schedule IV and V shall be E:\FR\FM\04OCR2.SGM 04OCR2 50204 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations filed for each period for which an audited statement of comprehensive income is required to be filed for each person or group. * * * * * Schedule II—Condensed financial information of registrant. The schedule prescribed by § 210.12–04 shall be filed when the restricted net assets (§ 210.1.02(dd)) of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. Schedule III—Supplementary insurance information. The schedule prescribed by § 210.12–16 shall be filed giving segment detail in support of various balance sheet and statement of comprehensive income captions. The required balance sheet information shall be presented as of the date of each audited balance sheet filed, and the statement of comprehensive income information shall be presented for each period for which an audited statement of comprehensive income is required to be filed, for each person or group. * * * * * ■ 34. Amend § 210.8–01 by revising paragraph a. of Note 2 to § 210.8 and removing Note 6 to § 210.8. The revision reads as follows: § 210.8–01 Preliminary Notes to Article 8. * * * * * Note 2 to § 210.8. * * * a. The report and qualifications of the independent accountant shall comply with the requirements of §§ 210.2–01 through 210.2–07 (Article 2 of this part); and * * * * * 35. Revise § 210.8–02 to read as follows: ■ daltland on DSKBBV9HB2PROD with RULES2 § 210.8–02 Annual financial statements. Smaller reporting companies shall file an audited balance sheet as of the end of each of the most recent two fiscal years, or as of a date within 135 days if the issuer has existed for a period of less than one fiscal year, and audited statements of comprehensive income, cash flows and changes in stockholders’ equity for each of the two fiscal years preceding the date of the most recent audited balance sheet (or such shorter period as the registrant has been in business). ■ 36. Amend § 210.8–03 by: ■ a. Revising the introductory text; ■ b. Revising paragraph (a)(2); ■ c. Adding paragraph (a)(5); ■ d. Removing and reserving paragraph (b)(2); ■ e. Revising paragraphs (b)(4) and (5); ■ f. Removing paragraph (b)(6); and ■ g. Revising Instruction 1 to § 210.8– 03. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 The revisions and addition read as follows: § 210.8–03 Interim financial statements. Interim financial statements may be unaudited; however, before filing, interim financial statements included in quarterly reports on Form 10–Q (§ 249.308(a) of this chapter) must be reviewed by an independent public accountant using applicable professional standards and procedures for conducting such reviews, as may be modified or supplemented by the Commission. If, in any filing, the issuer states that interim financial statements have been reviewed by an independent public accountant, a report of the accountant on the review must be filed with the interim financial statements. Interim financial statements shall include a balance sheet as of the end of the issuer’s most recent fiscal quarter, a balance sheet as of the end of the preceding fiscal year, and statements of comprehensive income and statements of cash flows for the interim period up to the date of such balance sheet and the comparable period of the preceding fiscal year. (a) * * * (2) Statements of comprehensive income (or the statement of net income if comprehensive income is presented in two separate but consecutive financial statements) should include net sales or gross revenue, each cost and expense category presented in the annual financial statements that exceeds 20% of sales or gross revenues, provision for income taxes, and discontinued operations. (Financial institutions should substitute net interest income for sales for purposes of determining items to be disclosed.) * * * * * (5) Provide the information required by § 210.3–04 for the current and comparative year-to-date periods, with subtotals for each interim period. (b) * * * (4) Significant dispositions. If a significant disposition has occurred during the most recent interim period and the transaction required the filing of a Form 8–K (§ 249.308 of this chapter), pro forma data must be presented that reflects revenue, income from continuing operations, net income, net income attributable to the registrant and income per share for the current interim period and the corresponding interim period of the preceding fiscal year. (5) Material accounting changes. The registrant’s independent accountant must provide a letter in the first Form 10–Q (§ 249.308a of this chapter) filed after the change indicating whether or not the change is to a preferable method. PO 00000 Frm 00058 Fmt 4701 Sfmt 4700 Disclosure must be provided of any retroactive change to prior period financial statements, including the effect of any such change on income and income per share. Instruction 1 to § 210.8–03. Where §§ 210.8–01 through 210.8–08 (Article 8 of this part) are applicable to a Form 10– Q (§ 249.308a of this chapter) and the interim period is more than one quarter, statements of comprehensive income must also be provided for the most recent interim quarter and the comparable quarter of the preceding fiscal year. * * * * * ■ 37. Amend § 210.8–04 by revising paragraph (b)(3) to read as follows: § 210.8–04 Financial statements of businesses acquired or to be acquired. * * * * * (b) * * * (3) Compare the smaller reporting company’s equity in the income from continuing operations before income taxes of the acquiree exclusive of amounts attributable to any noncontrolling interests to such consolidated income of the smaller reporting company for the most recently completed fiscal year. * * * * * ■ 38. Amend § 210.8–05 by revising paragraphs (b)(1) and (2) to read as follows: § 210.8–05 Pro forma financial information. * * * * * (b) * * * (1) If the transaction was consummated during the most recent fiscal year or subsequent interim period, pro forma statements of comprehensive income reflecting the combined operations of the entities for the latest fiscal year and interim period, if any; or (2) If consummation of the transaction has occurred or is probable after the date of the most recent balance sheet required by § 210.8–02 or § 210.8–03, a pro forma balance sheet giving effect to the combination as of the date of the most recent balance sheet. For a purchase, pro forma statements of comprehensive income reflecting the combined operations of the entities for the latest fiscal year and interim period, if any, are required. ■ 39. Amend § 210.8–06 by revising the introductory text to read as follows: § 210.8–06 Real estate operations acquired or to be acquired. If, during the period for which statements of comprehensive income are required, the smaller reporting company has acquired one or more properties that E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations in the aggregate are significant, or since the date of the latest balance sheet required by § 210.8–02 or § 210.8–03, has acquired or proposes to acquire one or more properties that in the aggregate are significant, the following shall be furnished with respect to such properties: * * * * * ■ 40. Amend § 210.9–03 by: ■ a. Revising paragraph 3; ■ b. Removing paragraph 6.(a) and removing and reserving paragraph 7.(d); and ■ c. Revising paragraphs 7.(e)(3), 10, and 12.(a). The revisions read as follows: foreign banking offices must be presented if the disclosure provided by § 210.9–05 is required. * * * * * ■ 41. Amend § 210.9–04 by: ■ a. Revising the section heading and introductory text; ■ b. Revising paragraph 13.(h); ■ c. Removing and reserving paragraphs 14.(c), 17, 18, and 19; ■ d. Redesignating paragraph 23 as paragraph 27; and ■ e. Adding new paragraph 23 and paragraphs 24, 25, and 26. The revisions and additions read as follows: § 210.9–03 § 210.9–04 income. Balance sheets. daltland on DSKBBV9HB2PROD with RULES2 * * * * * 3. Federal funds sold and securities purchased under resale agreements or similar arrangements. * * * * * 7. * * * (e) * * * (3) Notwithstanding the aggregate disclosure called for by paragraph (e)(1) of this section, if any loans were not made in the ordinary course of business during any period for which a statement of comprehensive income is required to be filed, provide an appropriate description of each such loan. * * * * * 10. Other assets. Disclose separately on the balance sheet or in a note thereto any of the following assets or any other asset the amount of which exceeds thirty percent of stockholders equity. The remaining assets may be shown as one amount. (1) Goodwill. (2) Other intangible assets (net of amortization). (3) Investments in and indebtedness of affiliates and other persons. (4) Other real estate. (a) Disclose in a note the basis at which other real estate is carried. A reduction to fair market value from the carrying value of the related loan at the time of acquisition shall be accounted for as a loan loss. Any allowance for losses on other real estate which has been established subsequent to acquisition should be deducted from other real estate. For each period for which a statement of comprehensive income is required, disclosures should be made in a note as to the changes in the allowances, including balance at beginning and end of period, provision charged to income, and losses charged to the allowance. * * * * * 12. * * * (a) The amount of noninterest bearing deposits and interest bearing deposits in VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 Statements of comprehensive The purpose of this section is to indicate the various items which, if applicable, should appear on the face of the statement of comprehensive income or in the notes thereto. * * * * * 13. * * * (h) Investment securities gains or losses. Related income taxes shall be disclosed. * * * * * 23. Other comprehensive income. State separately the components of and the total for other comprehensive income. Present the components either net of related tax effects or before related tax effects with one amount shown for the aggregate income tax expense or benefit. State the amount of income tax expense or benefit allocated to each component, including reclassification adjustments, in the statement of comprehensive income or in a note. 24. Comprehensive income. 25. Comprehensive income attributable to the noncontrolling interest. 26. Comprehensive income attributable to the controlling interest. * * * * * ■ 42. Amend § 210.9–05 by revising paragraph (b)(2) to read as follows: § 210.9–05 Foreign activities. * * * * * (b) * * * (2) For each period for which a statement of comprehensive income is filed, state the amount of revenue, income (loss) before taxes, and net income (loss) associated with foreign activities. Disclose significant estimates and assumptions (including those related to the cost of capital) used in allocating revenue and expenses to foreign activities; describe the nature and effects of any changes in such estimates and assumptions which have PO 00000 Frm 00059 Fmt 4701 Sfmt 4700 50205 a significant impact on interperiod comparability. * * * * * ■ 43. Revise § 210.9–06 to read as follows: § 210.9–06 Condensed financial information of registrant. The information prescribed by § 210.12–04 shall be presented in a note to the financial statements when the restricted net assets (§ 210.1–02(dd)) of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. The investment in and indebtedness of and to bank subsidiaries shall be stated separately in the condensed balance sheet from amounts for other subsidiaries; the amount of cash dividends paid to the registrant for each of the last three years by bank subsidiaries shall be stated separately in the condensed statement of comprehensive income from amounts for other subsidiaries. ■ 44. Amend § 210.10–01 by: ■ a. Revising paragraphs (a)(3), (5), and (7); ■ b. Revising paragraphs (b)(1) through (3); ■ c. Removing and reserving paragraphs (b)(4) and (5); and ■ d. Revising paragraphs (b)(6) through (8), (c)(2) and (4), and (d). The revisions read as follows: § 210.10–01 Interim financial statements. (a) * * * (3) Interim statements of comprehensive income shall also include major captions prescribed by the applicable sections of part 210 of this chapter (Regulation S–X). When any major statement of comprehensive income (or statement of net income if comprehensive income is presented in two separate but consecutive financial statements) caption is less than 15% of average net income for the most recent three fiscal years and the amount in the caption has not increased or decreased by more than 20% as compared to the corresponding interim period of the preceding fiscal year, the caption may be combined with others. In calculating average net income, loss years should be excluded. If losses were incurred in each of the most recent three years, the average loss shall be used for purposes of this test. Notwithstanding these tests, § 210.4–02 applies and de minimis amounts therefore need not be shown separately, except that registrants reporting under § 210.9 shall show investment securities gains or losses separately regardless of size. * * * * * E:\FR\FM\04OCR2.SGM 04OCR2 daltland on DSKBBV9HB2PROD with RULES2 50206 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations (5) The interim financial information shall include disclosures either on the face of the financial statements or in accompanying footnotes sufficient so as to make the interim information presented not misleading. Registrants may presume that users of the interim financial information have read or have access to the audited financial statements for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. Accordingly, footnote disclosure which would substantially duplicate the disclosure contained in the most recent annual report to security holders or latest audited financial statements, such as a statement of significant accounting policies and practices, details of accounts which have not changed significantly in amount or composition since the end of the most recently completed fiscal year, and detailed disclosures prescribed by § 210.4–08 may be omitted. * * * * * (7) Provide the information required by § 210.3–04 for the current and comparative year-to-date periods, with subtotals for each interim period. (b) * * * (1) Summarized statement of comprehensive income information shall be given separately as to each subsidiary not consolidated or 50 percent or less owned persons or as to each group of such subsidiaries or fifty percent or less owned persons for which separate individual or group statements would otherwise be required for annual periods. Such summarized information, however, need not be furnished for any such unconsolidated subsidiary or person which would not be required pursuant to § 240.13a–13 or § 240.15d– 13 of this chapter to file quarterly financial information with the Commission if it were a registrant. (2) The basis of the earnings per share computation shall be stated together with the number of shares used in the computation. (3) If, during the most recent interim period presented, the registrant or any of its consolidated subsidiaries entered into a combination between entities under common control, supplemental disclosure of the separate results of the combined entities for periods prior to the combination shall be given, with appropriate explanations. * * * * * (6) For filings on Form 10–Q (§ 249.308(a) of this chapter), a letter from the registrant’s independent accountant shall be filed as an exhibit (in accordance with the provisions of 17 VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 CFR 229.601 (Item 601 of Regulation S– K)) in the first Form 10–Q after the date of an accounting change indicating whether or not the change is to an alternative principle which, in the accountant’s judgment, is preferable under the circumstances; except that no letter from the accountant need be filed when the change is made in response to a standard adopted by the Financial Accounting Standards Board that requires such change. (7) Any material retroactive prior period adjustment made during any period covered by the interim financial statements shall be disclosed, together with the effect thereof upon net income—total and per share—of any prior period included and upon the balance of retained earnings. If results of operations for any period presented have been adjusted retroactively by such an item subsequent to the initial reporting of such period, similar disclosure of the effect of the change shall be made. (8) Any unaudited interim financial statements furnished shall reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. A statement to that effect shall be included. If all such adjustments are of a normal recurring nature, a statement to that effect shall be made; otherwise, there shall be furnished information describing in appropriate detail the nature and amount of any adjustments other than normal recurring adjustments entering into the determination of the results shown. (c) * * * (2) Interim statements of comprehensive income shall be provided for the most recent fiscal quarter, for the period between the end of the preceding fiscal year and the end of the most recent fiscal quarter, and for the corresponding periods of the preceding fiscal year. Such statements may also be presented for the cumulative twelve month period ended during the most recent fiscal quarter and for the corresponding preceding period. * * * * * (4) Registrants engaged in seasonal production and sale of a single-crop agricultural commodity may provide interim statements of comprehensive income and cash flows for the twelve month period ended during the most recent fiscal quarter and for the corresponding preceding period in lieu of the year-to-date statements specified in paragraphs (c)(2) and (3) of this section. (d) Interim review by independent public accountant. Prior to filing, PO 00000 Frm 00060 Fmt 4701 Sfmt 4700 interim financial statements included in quarterly reports on Form 10–Q (17 CFR 249.308(a)) must be reviewed by an independent public accountant using applicable professional standards and procedures for conducting such reviews, as may be modified or supplemented by the Commission. If, in any filing, the company states that interim financial statements have been reviewed by an independent public accountant, a report of the accountant on the review must be filed with the interim financial statements. * * * * * ■ 45. Amend § 210.11–02 by: ■ a. Revising paragraphs (b)(1) and (3) and (b)(5) through (7); ■ b. Redesignating the Instructions following paragraph (b)(8) consecutively as Instruction 1 to paragraph (b), Instruction 2 to paragraph (b), Instruction 3 to paragraph (b), Instruction 4 to paragraph (b), Instruction 5 to paragraph (b), Instruction 6 to paragraph (b), and Instruction 7 to paragraph (b); ■ c. Revising newly redesignated Instruction 1 to paragraph (b), Instruction 2 to paragraph (b), Instruction 5 to paragraph (b), and Instruction 7 to paragraph (b); and ■ d. Revising paragraphs (c)(2) through (4). The revisions read as follows: § 210.11–02 Preparation requirements. * * * * * (b) * * * (1) Pro forma financial information shall consist of a pro forma condensed balance sheet, pro forma condensed statements of comprehensive income, and accompanying explanatory notes. In certain circumstances (i.e., where a limited number of pro forma adjustments are required and those adjustments are easily understood), a narrative description of the pro forma effects of the transaction may be furnished in lieu of the statements described herein. * * * * * (3) The pro forma condensed financial information need only include major captions (i.e., the numbered captions) prescribed by the applicable sections of part 210 of this chapter (Regulation S– X). Where any major balance sheet caption is less than 10 percent of total assets, the caption may be combined with others. When any major statement of comprehensive income caption is less than 15 percent of average net income attributable to the registrant for the most recent three fiscal years, the caption may be combined with others. In calculating average net income E:\FR\FM\04OCR2.SGM 04OCR2 daltland on DSKBBV9HB2PROD with RULES2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations attributable to the registrant, loss years should be excluded unless losses were incurred in each of the most recent three years, in which case the average loss shall be used for purposes of this test. Notwithstanding these tests, de minimis amounts need not be shown separately. * * * * * (5) The pro forma condensed statement of comprehensive income shall disclose income (loss) from continuing operations before nonrecurring charges or credits directly attributable to the transaction. Material nonrecurring charges or credits and related tax effects which result directly from the transaction and which will be included in the income of the registrant within the 12 months succeeding the transaction shall be disclosed separately. It should be clearly indicated that such charges or credits were not considered in the pro forma condensed statement of comprehensive income. If the transaction for which pro forma financial information is presented relates to the disposition of a business, the pro forma results should give effect to the disposition and be presented under an appropriate caption. (6) Pro forma adjustments related to the pro forma condensed statement of comprehensive income shall be computed assuming the transaction was consummated at the beginning of the fiscal year presented and shall include adjustments which give effect to events that are directly attributable to the transaction, expected to have a continuing impact on the registrant, and factually supportable. Pro forma adjustments related to the pro forma condensed balance sheet shall be computed assuming the transaction was consummated at the end of the most recent period for which a balance sheet is required by § 210.3–01 and shall include adjustments which give effect to events that are directly attributable to the transaction and factually supportable regardless of whether they have a continuing impact or are nonrecurring. All adjustments should be referenced to notes which clearly explain the assumptions involved. (7) Historical primary and fully diluted per share data based on continuing operations (or net income if the registrant does not report discontinued operations) for the registrant, and primary and fully diluted pro forma per share data based on continuing operations before nonrecurring charges or credits directly attributable to the transaction shall be presented on the face of the pro forma condensed statement of comprehensive income together with the number of VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 shares used to compute such per share data. For transactions involving the issuance of securities, the number of shares used in the calculation of the pro forma per share data should be based on the weighted average number of shares outstanding during the period adjusted to give effect to shares subsequently issued or assumed to be issued had the particular transaction or event taken place at the beginning of the period presented. If a convertible security is being issued in the transaction, consideration should be given to the possible dilution of the pro forma per share data. (8) * * * Instruction 1 to paragraph (b). The historical statement of comprehensive income used in the pro forma financial information shall not report discontinued operations. If the historical statement of comprehensive income includes such items, only the portion of the statement of comprehensive income through ‘‘income from continuing operations’’ (or the appropriate modification thereof) should be used in preparing pro forma results. Instruction 2 to paragraph (b). For a business combination, pro forma adjustments for the statement of comprehensive income shall include amortization, depreciation and other adjustments based on the allocated purchase price of net assets acquired. In some transactions, such as in financial institution acquisitions, the purchase adjustments may include significant discounts of the historical cost of the acquired assets to their fair value at the acquisition date. When such adjustments will result in a significant effect on earnings (losses) in periods immediately subsequent to the acquisition which will be progressively eliminated over a relatively short period, the effect of the purchase adjustments on reported results of operations for each of the next five years should be disclosed in a note. * * * * * Instruction 5 to paragraph (b). Adjustments to reflect the acquisition of real estate operations or properties for the pro forma statement of comprehensive income shall include a depreciation charge based on the new accounting basis for the assets, interest financing on any additional or refinanced debt, and other appropriate adjustments that can be factually supported. See also Instruction 4 to this paragraph (b). * * * * * Instruction 7 to paragraph (b). Tax effects, if any, of pro forma adjustments PO 00000 Frm 00061 Fmt 4701 Sfmt 4700 50207 normally should be calculated at the statutory rate in effect during the periods for which pro forma condensed statements of comprehensive income are presented and should be reflected as a separate pro forma adjustment. (c) * * * (2)(i) Pro forma condensed statements of comprehensive income shall be filed for only the most recent fiscal year and for the period from the most recent fiscal year end to the most recent interim date for which a balance sheet is required. A pro forma condensed statement of comprehensive income may be filed for the corresponding interim period of the preceding fiscal year. A pro forma condensed statement of comprehensive income shall not be filed when the historical statement of comprehensive income reflects the transaction for the entire period. (ii) For combinations between entities under common control, the pro forma statements of comprehensive income (which are in effect a restatement of the historical statements of comprehensive income as if the combination had been consummated) shall be filed for all periods for which historical statements of comprehensive income of the registrant are required. (3) Pro forma condensed statements of comprehensive income shall be presented using the registrant’s fiscal year end. If the most recent fiscal year end of any other entity involved in the transaction differs from the registrant’s most recent fiscal year end by more than 93 days, the other entity’s statement of comprehensive income shall be brought up to within 93 days of the registrant’s most recent fiscal year end, if practicable. This updating could be accomplished by adding subsequent interim period results to the most recent fiscal year-end information and deducting the comparable preceding year interim period results. Disclosure shall be made of the periods combined and of the sales or revenues and income for any periods which were excluded from or included more than once in the condensed pro forma statements of comprehensive income (e.g., an interim period that is included both as part of the fiscal year and the subsequent interim period). For investment companies subject to §§ 210.6–01 through 210.6–10, the periods covered by the pro forma statements must be the same. (4) Whenever unusual events enter into the determination of the results shown for the most recently completed fiscal year, the effect of such unusual events should be disclosed and consideration should be given to presenting a pro forma condensed E:\FR\FM\04OCR2.SGM 04OCR2 50208 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations statement of comprehensive income for the most recent twelve-month period in addition to those required in paragraph (c)(2)(i) of this section if the most recent twelve-month period is more representative of normal operations. ■ 46. Amend § 210.11–03 by revising paragraphs (a) introductory text and (a)(2) to read as follows: § 210.11–03 forecast. Presentation of financial (a) A financial forecast may be filed in lieu of the pro forma condensed statements of comprehensive income required by § 210.11–02(b)(1). * * * * * (2) The forecasted statement of comprehensive income shall be presented in the same degree of detail as the pro forma condensed statement of comprehensive income required by § 210.11–02(b)(3). * * * * * ■ 47. Amend § 210.12–16 by revising footnotes 4 and 5 to read as follows: § 210.12–16 Supplementary insurance information. * * * * * total of columns I and J should agree with the amount shown for statement of comprehensive income caption 7. 5 Totals should agree with the indicated balance sheet and statement of comprehensive income caption amounts, where a caption number is shown. 48. Amend § 210.12–17 by revising footnote 2 to read as follows: ■ * * Reinsurance. * * * 2 This Column represents the total of column B less column C plus column D. The total premiums in this column should represent the amount of premium revenue on the statement of comprehensive income (or statement of net income if comprehensive income is presented in two separate but consecutive financial statements). * * * * § 210.12–18 Supplemental information (for property-casualty insurance underwriters). * * * * * 1 Information included in audited financial statements, including other schedules, need not be repeated in this schedule. Columns B, C, D, and E are as of the balance sheet dates, columns F, G, H, I, J, and K are for the same periods for which statements of comprehensive income are presented in the registrant’s audited consolidated financial statements. * * * * * 50. Amend § 210.12–21 by revising footnote 4 to read as follows: ■ § 210.12–21 Investments in securities of unaffiliated issuers. * * * * * 4 If any investments have been written down or reserved against by such companies pursuant to § 210.6–03(d), indicate each such item by means of an appropriate symbol and explain in a footnote. * (b) If any investments have been written down or reserved against by such companies pursuant to § 210.6–03(d), indicate each such item by means of an appropriate symbol and explain in a footnote. * * § 210.12–22 Investments in and advances to affiliates and income thereon. * * * * * 4* * * * * * * * * * * * any item of mortgage loans on real estate investments has been written down or reserved against pursuant to § 210.6–03 describe the item and explain the basis for the write-down or reserve. * * * * * 12 Summarize the aggregate amounts for each column applicable to § 210.6–06(1) and 6–06(5)(a). 53. Amend § 210.12–24 by revising the column headings to the first table and by revising footnotes 5 and 8 to read as follows: ■ § 210.12–24 income.1 * * * * 9 If Part 1—Real estate owned at end of period * Real estate owned and rental * * * Part 2—Rental income Column A— List classification of property as indicated below 2 3 Column B— Amount of incumbrances Column C— Initial cost to company Column D— Cost of improvements, etc. Column E— Amount at which carried at close of period 4 5 6 7 Column F— Reserve for depreciation Column G— Rents due and accrued at end of period Column H— Total rental income applicable to period Column I— Expended for interest, taxes, repairs and expenses Column J— Net income applicable to period * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 1 All * money columns shall be totaled. * * * * 54. Amend § 210.12–27 by revising footnote 3 to read as follows: ■ 5 If daltland on DSKBBV9HB2PROD with RULES2 * § 210.12–23 Mortgage loans on real estate and interest earned on mortgages.1 * * (a) The required information is to be given as to all investments in affiliates as of the close of the period. See §§ 210.6–06(1), 210.6–06(5)(b), 210.6–06(8)(a)(2), and 210.6– 06(8)(a)(3). List each issue and group separately (1) investments in majority-owned subsidiaries, segregating subsidiaries consolidated; (2) other controlled companies; and (3) other affiliates. Give totals for each group. If operations of any controlled companies are different in character from those of the registrant, group such affiliates within divisions (1) and (2) by type of activities. * * 52. Amend § 210.12–23 by revising footnotes 9 and 12 to read as follows: 1* * * in column E(1) as to each issue held at close of period, the dividends or interest included in caption 1 of the profit and loss or income statement. In addition, show as the final item in column E(1) the aggregate dividends and interest included in the profit and loss or income statement in respect of investments in affiliates not held at the close of the period. The total of this column should agree with the amounts shown under such caption. Include in column E(2) all other dividends and interest. Explain briefly in an appropriate footnote the treatment accorded each item. Identify by an appropriate symbol all non-cash dividends and explain the circumstances in a footnote. See §§ 210.6–06(3)(a)(2), 210.6–03(g), and 210.6–07(1). ■ * * 6 Show * * * * 51. Amend § 210.12–22 by revising footnotes 1(a), 4(b), and 6 to read as follows: ■ 4 The § 210.12–17 49. Amend § 210.12–18 by revising footnote 1 to read as follows: ■ any item of real estate investments has been written down or reserved against pursuant to § 210.6–03(d), describe the item and explain the basis for the write-down or reserve. § 210.12–27 * * * * * * 8 Summarize the aggregate amounts for each column applicable to § 210.6–06(1) and 6–06(5)(a). VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 * * 1 All Qualified assets on deposit.1 * * * money columns shall be totaled. * * * * 3 Total of column F shall agree with note required by § 210.6–06(4) as to total amount of qualified Assets on Deposit. PO 00000 Frm 00062 Fmt 4701 Sfmt 4700 55. Amend § 210.12–28 by revising the heading in Column I of the table to read ‘‘Life on which depreciation in latest statements of comprehensive income is computed’’ and by revising the first sentence of footnote 4. The revision reads as follows: ■ E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations § 210.12–28 Real estate and accumulated depreciation.1 * * 1 All * * * * money columns shall be totaled. * * * * 4 In a note to this schedule, furnish a reconciliation, in the following form, of the total amount at which real estate was carried at the beginning of each period for which statements of comprehensive income are required, with the total amount shown in column E: * * * * * 56. Amend § 210.12–29 by revising footnote 6 introductory text to read as follows: ■ § 210.12–29 estate.1 * * 1 All * Mortgage loans on real * * * money columns shall be totaled. * * * * 6 In a note to this schedule, furnish a reconciliation, in the following form, of the carrying amount of mortgage loans at the beginning of each period for which statements of comprehensive income are required, with the total amount shown in column G: * * * * * PART 229—STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND CONSERVATION ACT OF 1975— REGULATION S–K 57. The authority citation for part 229 continues to read as follows: ■ Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z–2, 77z–3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78j–3, 78l, 78m, 78n, 78n–1, 78o, 78u-5, 78w, 78ll, 78 mm, 80a–8, 80a–9, 80a–20, 80a–29, 80a–30, 80a– 31(c), 80a–37, 80a–38(a), 80a–39, 80b–11 and 7201 et seq.; 18 U.S.C. 1350; sec. 953(b), Pub. L. 111–203, 124 Stat. 1904 (2010); and sec. 102(c), Pub. L. 112–106, 126 Stat. 310 (2012). 58. Amend § 229.10 by revising paragraphs (b)(2) and (e)(2)(i) to read as follows: ■ § 229.10 (Item 10) General. daltland on DSKBBV9HB2PROD with RULES2 * * * * * (b) * * * (2) Format for projections. In determining the appropriate format for projections included in Commission filings, consideration must be given to, among other things, the financial items to be projected, the period to be covered, and the manner of presentation to be used. Although traditionally projections have been given for three financial items generally considered to be of primary importance to investors (revenues, net income (loss) and VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 earnings (loss) per share), projection information need not necessarily be limited to these three items. However, management should take care to assure that the choice of items projected is not susceptible of misleading inferences through selective projection of only favorable items. Revenues, net income (loss) and earnings (loss) per share usually are presented together in order to avoid any misleading inferences that may arise when the individual items reflect contradictory trends. There may be instances, however, when it is appropriate to present earnings (loss) from continuing operations in addition to or in lieu of net income (loss). It generally would be misleading to present sales or revenue projections without one of the foregoing measures of income. The period that appropriately may be covered by a projection depends to a large extent on the particular circumstances of the company involved. For certain companies in certain industries, a projection covering a two or three year period may be entirely reasonable. Other companies may not have a reasonable basis for projections beyond the current year. Accordingly, management should select the period most appropriate in the circumstances. In addition, management, in making a projection, should disclose what, in its opinion, is the most probable specific amount or the most reasonable range for each financial item projected based on the selected assumptions. Ranges, however, should not be so wide as to make the disclosures meaningless. Moreover, several projections based on varying assumptions may be judged by management to be more meaningful than a single number or range and would be permitted. * * * * * (e) * * * (2) * * * (i) Excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of comprehensive income, balance sheet or statement of cash flows (or equivalent statements) of the issuer; or * * * * * ■ 59. Amend § 229.101 by: ■ a. Removing and reserving paragraphs (b), (c)(1)(xi), and (d); ■ b. Revising paragraphs (e) introductory text and (e)(2) and (3); ■ c. Removing and reserving paragraph (h)(4)(x); and ■ d. Revising paragraph (h)(5)(iii). The revisions read as follows: PO 00000 Frm 00063 Fmt 4701 Sfmt 4700 50209 § 229.101 (Item 101) Description of business. * * * * * (e) Available information. Disclose the information in paragraphs (e)(1), (e)(2) and (e)(3) of this section in any registration statement you file under the Securities Act (15 U.S.C. 77a et seq.), and disclose the information in paragraph (e)(3) of this section in your annual report on Form 10–K (§ 249.310 of this chapter). Further disclose the information in paragraph (e)(4) of this section if you are an accelerated filer or a large accelerated filer (as defined in § 240.12b–2 of this chapter) filing an annual report on Form 10–K (§ 249.310 of this chapter): * * * * * (2) State that the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and state the address of that site (https://www.sec.gov). (3) Disclose your internet address, if you have one. * * * * * (h) * * * (5) * * * (iii) State that the Commission maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission and state the address of that site (https://www.sec.gov). Disclose your internet address, if available. * * * * * ■ 60. Amend § 229.201 by: ■ a. Revising paragraph (a)(1); ■ b. Removing and reserving paragraphs (a)(2)(i) and (c)(1); ■ c. Removing the text and reserving Instruction 1 to the Instructions to Item 201; ■ d. Redesignating Instructions 1 through 5 to Item 201 consecutively as Instruction 1 to Item 201, Instruction 2 to Item 201, Instruction 3 to Item 201, Instruction 4 to Item 201 and Instruction 5 to Item 201; and ■ e. Revising newly redesignated Instruction 2 to Item 201. The revisions read as follows: § 229.201 (Item 201) Market price of and dividends on the registrant’s common equity and related stockholder matters. (a) * * * (1)(i) Identify the principal United States market(s) and the corresponding trading symbol(s) for each class of the registrant’s common equity. In the case of foreign registrants, also identify the principal foreign public trading market(s), if any, and the corresponding E:\FR\FM\04OCR2.SGM 04OCR2 50210 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations trading symbol(s) for each class of the registrant’s common equity. (ii) If the principal United States market for such common equity is not an exchange, indicate, as applicable, that any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. (iii) Where there is no established public trading market for a class of common equity, furnish a statement to that effect and, if applicable, state the range of high and low bid information for each full quarterly period within the two most recent fiscal years and any subsequent interim period for which financial statements are included, or are required to be included by 17 CFR 210.3–01 through 210.3–20 (Article 3 of Regulation S–X), indicating the source of such quotations. Reference to quotations shall be qualified by appropriate explanation. For purposes of this Item the existence of limited or sporadic quotations should not of itself be deemed to constitute an ‘‘established public trading market.’’ * * * * * Instruction 1 to Item 201. [Reserved] Instruction 2 to Item 201. Bid information reported pursuant to this Item shall be adjusted to give retroactive effect to material changes resulting from stock dividends, stock splits and reverse stock splits. * * * * * ■ 61. Amend § 229.302 by: ■ a. Revising paragraphs (a)(1) and (3); ■ b. Redesignating the Instructions to paragraph (b) consecutively as Instruction 1 to paragraph (b), Instruction 2 to paragraph (b), and Instruction 3 to paragraph (b); and ■ c. Revising paragraphs (a) and (c) of newly redesignated Instruction 1 to paragraph (b). The revisions read as follows: daltland on DSKBBV9HB2PROD with RULES2 § 229.302 (Item 302) Supplementary financial information. (a) * * * (1) Disclosure shall be made of net sales, gross profit (net sales less costs and expenses associated directly with or allocated to products sold or services rendered), income (loss) from continuing operations, per share data based upon income (loss) from continuing operations, net income (loss), per share data based upon net income (loss) and net income (loss) attributable to the registrant, for each full quarter within the two most recent fiscal years and any subsequent interim period for which financial statements are included or are required to be VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 included by 17 CFR 210.3–01 through 210.3–20 (Article 3 of Regulation S–X). * * * * * (3) Describe the effect of any discontinued operations and unusual or infrequently occurring items recognized in each full quarter within the two most recent fiscal years and any subsequent interim period for which financial statements are included or are required to be included by 17 CFR 210.3–01 through 210.3–20 (Article 3 of Regulation S–X), as well as the aggregate effect and the nature of year-end or other adjustments which are material to the results of that quarter. * * * * * (b) * * * Instruction 1 to paragraph (b). (a) FASB ASC Subtopic 932–235 disclosures that relate to annual periods shall be presented for each annual period for which a statement of comprehensive income (as defined in § 210.1–02 of Regulation S–X) is required, * * * * * (c) FASB ASC Subtopic 932–235 disclosures required as of the beginning of an annual period shall be presented as of the beginning of each annual period for which a statement of comprehensive income (as defined in § 210.1–02 of Regulation S–X) is required. * * * * * ■ 62. Amend § 229.303 by: ■ a. Revising the paragraphs (a) introductory text and (b)(2); ■ b. Redesignating paragraphs 1 through 7 of the Instructions to paragraph (b) of Item 303 as Instruction 1 to paragraph (b), Instruction 2 to paragraph (b), Instruction 3 to paragraph (b), Instruction 4 to paragraph (b), Instruction 5 to paragraph (b), Instruction 6 to paragraph (b), and Instruction 7 to paragraph (b), consecutively. ■ c. Removing and reserving newly redesignated Instruction 5 to paragraph (b); and ■ d. Adding an Instruction 8 to paragraph (b). The revisions and addition read as follows: § 229.303 (Item 303) Management’s discussion and analysis of financial condition and results of operations. (a) Full fiscal years. Discuss registrant’s financial condition, changes in financial condition and results of operations. The discussion shall provide information as specified in paragraphs (a)(1) through (5) of this Item and also shall provide such other information that the registrant believes to be PO 00000 Frm 00064 Fmt 4701 Sfmt 4700 necessary to an understanding of its financial condition, changes in financial condition and results of operations. Discussions of liquidity and capital resources may be combined whenever the two topics are interrelated. Where in the registrant’s judgment a discussion of segment information and/or of other subdivisions (e.g., geographic areas) of the registrant’s business would be appropriate to an understanding of such business, the discussion shall focus on each relevant, reportable segment and/ or other subdivision of the business and on the registrant as a whole. * * * * * (b) * * * (2) Material changes in results of operations. Discuss any material changes in the registrant’s results of operations with respect to the most recent fiscal year-to-date period for which a statement of comprehensive income (or statement of operations if comprehensive income is presented in two separate but consecutive financial statements or if no other comprehensive income) is provided and the corresponding year-to-date period of the preceding fiscal year. If the registrant is required to or has elected to provide a statement of comprehensive income (or statement of operations if comprehensive income is presented in two separate but consecutive financial statements or if no other comprehensive income) for the most recent fiscal quarter, such discussion also shall cover material changes with respect to that fiscal quarter and the corresponding fiscal quarter in the preceding fiscal year. In addition, if the registrant has elected to provide a statement of comprehensive income (or statement of operations if comprehensive income is presented in two separate but consecutive financial statements or if no other comprehensive income) for the twelve-month period ended as of the date of the most recent interim balance sheet provided, the discussion also shall cover material changes with respect to that twelve-month period and the twelve-month period ended as of the corresponding interim balance sheet date of the preceding fiscal year. Notwithstanding the above, if for purposes of a registration statement a registrant subject to § 210.3–03(b) of Regulation S–X of this chapter provides a statement of comprehensive income (or statement of operations if comprehensive income is presented in two separate but consecutive financial statements or if no other comprehensive income) for the twelve-month period ended as of the date of the most recent interim balance sheet provided in lieu E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations of the interim statements of comprehensive income (or statement of operations if comprehensive income is presented in two separate but consecutive financial statements or if no other comprehensive income) otherwise required, the discussion of material changes in that twelve-month period will be in respect to the preceding fiscal year rather than the corresponding preceding period. * * * * * Instruction 8 to paragraph (b). The term statement of comprehensive income shall mean a statement of comprehensive income as defined in § 210.1–02 of Regulation S–X of this chapter. * * * * * ■ 63. Amend § 229.406 by revising paragraph (d) to read as follows: § 229.406 (Item 406) Code of ethics. * * * * * (d) If the registrant intends to satisfy the disclosure requirement under Item 5.05 of Form 8–K regarding an amendment to, or a waiver from, a provision of its code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and that relates to any element of the code of ethics definition enumerated in paragraph (b) of this Item by posting such information on its internet website, disclose the registrant’s internet address and such intention. * * * * * ■ 64. Amend § 229.503 by: ■ a. Revising the section heading; ■ b. Removing paragraph (d) and the instructions to paragraph (d); and ■ c. Removing paragraph (e). The revision reads as follows: § 229.503 (Item 503) Prospectus summary and risk factors. * * * * * ■ 65. Amend § 229.504 by revising Instruction 3 to the Instructions to Item 504 to read as follows: § 229.504 (Item 504) Use of proceeds. daltland on DSKBBV9HB2PROD with RULES2 * * * * * Instructions to Item 504: * * * ■ 3. If any material amounts of other funds are necessary to accomplish the specified purposes for which the proceeds are to be obtained, state the amounts of such other funds needed for each such specified purpose and the sources thereof. * * * * * VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 66. Amend § 229.508 by revising paragraph (e) introductory text to read as follows: ■ § 229.508 (Item 508) Plan of distribution. * * * * * (e) Underwriter’s compensation. Provide a table that sets out the nature of the compensation and the amount of discounts and commissions to be paid to the underwriter for each security and in total. The table must show the separate amounts to be paid by the company and the selling shareholders. In addition, include in the table all other items considered by the Financial Industry Regulatory Authority (‘‘FINRA’’) to be underwriting compensation for purposes of FINRA rules. * * * * * ■ 67. Amend § 229.512 by revising paragraph (a)(4) to read as follows: § 229.512 (Item 512) Undertakings. * * * * * (a) * * * (4) If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A of Form 20–F (§ 249.220f of this chapter) at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act (15 U.S.C. 77j(a)(3)) need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F–3 (§ 239.33 of this chapter), a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Item 8.A of Form 20–F if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F–3. * * * * * ■ 68. Amend § 229.601 by: ■ a. Removing and reserving entries (11) and (12) from the exhibit table in paragraph (a); ■ b. In entry (13) in the exhibit table in paragraph (a), adding an X in the column labelled ‘‘10–Q’’; PO 00000 Frm 00065 Fmt 4701 Sfmt 4700 50211 c. Removing and reserving entries (19), (22), and (26) from the exhibit table in paragraph (a); ■ d. Removing and reserving paragraphs (b)(11) and (12); ■ e. Revising paragraph (b)(14); ■ f. Removing and reserving paragraphs (b)(19), (22), and (26); and ■ g. Removing paragraph (c). The revision reads as follows: ■ § 229.601 (Item 601) Exhibits. * * * * * (b) * * * (14) Code of ethics. Any code of ethics, or amendment thereto, that is the subject of the disclosure required by § 229.406 (Item 406 of Regulation S–K) or Item 5.05 of Form 8–K (§ 249.308 of this chapter), to the extent that the registrant intends to satisfy the Item 406 or Item 5.05 requirements through filing of an exhibit. * * * * * ■ 69. Amend § 229.1010 by: ■ a. Revising paragraph (a)(2); ■ b. Removing and reserving paragraph (a)(3); ■ c. Revising paragraph (b)(2); and ■ d. Removing and reserving paragraph (c)(4). The revisions read as follows: § 229.1010 (Item 1010) Financial statements. (a) * * * (2) Unaudited balance sheets, comparative year-to-date statements of comprehensive income (as defined in § 210.1–02 of Regulation S–X of this chapter) and related earnings per share data and statements of cash flows required to be included in the company’s most recent quarterly report filed under the Exchange Act; and * * * * * (b) * * * (2) The company’s statement of comprehensive income and earnings per share for the most recent fiscal year and the latest interim period provided under paragraph (a)(2) of this section; and * * * * * ■ 70. Amend § 229.1118 by revising paragraph (b)(2) to read as follows: § 229.1118 (Item 1118) Reports and additional information. * * * * * (b) * * * (2) State that the Commission maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission and state the address of that site (https://www.sec.gov). * * * * * E:\FR\FM\04OCR2.SGM 04OCR2 50212 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations PART 230—GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933 71. The authority citation for part 230 continues to read in part as follows: ■ Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o–7 note, 78t, 78w, 78ll(d), 78mm, 80a–8, 80a–24, 80a– 28, 80a–29, 80a–30, and 80a–37, and Pub. L. 112–106, sec. 201(a), sec. 401, 126 Stat. 313 (2012), unless otherwise noted. * * * * * 72. Amend § 230.158 by: a. Revising paragraph (a)(1) introductory text; and ■ b. Designating as Note 1 to paragraph (a) the undesignated text between paragraphs (a)(2)(ii) and (b) and revising it. The revisions read as follows: ■ ■ § 230.158 Definitions of certain terms in the last paragraph of section 11(a). (a) * * * (1) There is included the information required for statements of comprehensive income (as defined in § 210.1–02 of Regulation S–X of this chapter) contained either: * * * * * Note 1 to paragraph (a). A subsidiary issuing debt securities guaranteed by its parent will be deemed to have met the requirements of this paragraph (a) if the parent’s statements of comprehensive income (as defined in § 210.1–02 of Regulation S–X) satisfy the criteria of this paragraph and information respecting the subsidiary is included to the same extent as was presented in the registration statement. An ‘‘earning statement’’ not meeting the requirements of this paragraph (a) may otherwise be sufficient for purposes of the last paragraph of section 11(a) of the Act. * * * * * 73. Amend § 230.405, in the definition of ‘‘Significant subsidiary’’ by: ■ a. Revising paragraphs (1) and (3); ■ b. Adding a Note 1 following paragraph (3) before the Computational note; ■ c. Redesignating the Computational note as Computational note 1 to paragraph (3) and revising it. The revisions and addition read as follows: ■ § 230.405 Definitions of terms. daltland on DSKBBV9HB2PROD with RULES2 * * * * * Significant subsidiary. * * * (1) The registrant’s and its other subsidiaries’ investments in and advances to the subsidiary exceed 10 percent of the total assets of the registrant and its subsidiaries consolidated as of the end of the most recently completed fiscal year (for a VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 proposed combination between entities under common control, this condition is also met when the number of common shares exchanged or to be exchanged by the registrant exceeds 10 percent of its total common shares outstanding at the date the combination is initiated); or * * * * * (3) The registrant’s and its other subsidiaries’ equity in the income from continuing operations before income taxes of the subsidiary exclusive of amounts attributable to any noncontrolling interests exceeds 10 percent of such income of the registrant and its subsidiaries consolidated for the most recently completed fiscal year. Note 1: A registrant that files its financial statements in accordance with or provides a reconciliation to U.S. Generally Accepted Accounting Principles shall make the prescribed tests using amounts determined under U.S. Generally Accepted Accounting Principles. A foreign private issuer that files its financial statements in accordance with IFRS as issued by the IASB shall make the prescribed tests using amounts determined under IFRS as issued by the IASB. Computational note 1 to paragraph (3): For purposes of making the prescribed income test the following guidance should be applied: 1. When a loss exclusive of amounts attributable to any noncontrolling interests has been incurred by either the parent and its subsidiaries consolidated or the tested subsidiary, but not both, the equity in the income or loss of the tested subsidiary exclusive of amounts attributable to any noncontrolling interests should be excluded from such income of the registrant and its subsidiaries consolidated for purposes of the computation. 2. If income of the registrant and its subsidiaries consolidated exclusive of amounts attributable to any noncontrolling interests for the most recent fiscal year is at least 10 percent lower than the average of the income for the last five fiscal years, such average income should be substituted for purposes of the computation. Any loss years should be omitted for purposes of computing average income. * * * * * 74. Amend § 230.436 by revising paragraph (d)(4) to read as follows: ■ § 230.436 cases. Consents required in special * * * * * (d) * * * (4) A statement that a review of interim financial information is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States) (‘‘PCAOB’’), the objective of which is an expression of an opinion regarding the financial statements taken PO 00000 Frm 00066 Fmt 4701 Sfmt 4700 as a whole, and, accordingly, no such opinion is expressed; and * * * * * PART 239—FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933 75. The authority citation for part 239 continues to read in part as follows: ■ Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z–2, 77z–3, 77sss, 78c, 78l, 78m, 78n, 78o(d), 78o–7 note, 78u–5, 78w(a), 78ll, 78mm, 80a–2(a), 80a–3, 80a–8, 80a–9, 80a– 10, 80a–13, 80a–24, 80a–26, 80a–29, 80a–30, and 80a–37; and sec. 107, Pub. L. 112–106, 126 Stat. 312, unless otherwise noted. * * * * * 76. Amend Form S–1 (referenced in § 239.11) by revising the heading of Item 3 and revising Item 12.(c)(2)(ii) to read as follows: ■ Note: The text of Form S–1 does not, and this amendment will not, appear in the Code of Federal Regulations. FORM S–1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 * * * * * PART I—INFORMATION REQUIRED IN PROSPECTUS * * * * * Item 3. Summary Information and Risk Factors. * * * * * Item 12. Incorporation of Certain Information by Reference. * * * * * (c) * * * (2) * * * (ii) State that the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and state the address of that site (https://www.sec.gov). * * * * * ■ 77. Amend Form S–3 (referenced in § 239.13) by: ■ a. Revising General Instruction I.B.2; ■ b. Revising General Instruction I.C.2 and I.D.1.(c)(iv) to remove the text, ‘‘(Primary Offerings of Non-Convertible Investment Grade Securities)’’ and add, in its place, the words ‘‘(Primary Offerings of Non-Convertible Securities Other than Common Equity)’’; ■ c. Revising the heading of Item 3; ■ d. Revising Item 12.(c)(2)(ii); and ■ e. Removing Instruction 3 to the Instructions to Signatures. The revisions read as follows: Note: The text of Form S–3 does not, and this amendment will not, appear in the Code of Federal Regulations. E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations FORM S–3 PART I FORM S–4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 INFORMATION REQUIRED IN PROSPECTUS REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 * * * * * * * I. Eligibility Requirements for Use of Form S–3 * * * * * * * * Item 3. Summary Information and Risk Factors. GENERAL INSTRUCTIONS * * * * * Item 12. Incorporation of Certain Information by Reference. * B. Transaction Requirements. * * * * 2. Primary Offerings of NonConvertible Securities Other than Common Equity. Non-convertible securities, other than common equity, to be offered for cash by or on behalf of a registrant, provided the registrant: (i) Has issued (as of a date within 60 days prior to the filing of the registration statement) at least $1 billion in nonconvertible securities, other than common equity, in primary offerings for cash, not exchange, registered under the Securities Act, over the prior three years; or (ii) has outstanding (as of a date within 60 days prior to the filing of the registration statement) at least $750 million of non-convertible securities, other than common equity, issued in primary offerings for cash, not exchange, registered under the Securities Act; or (iii) is a wholly-owned subsidiary of a well-known seasoned issuer (as defined in 17 CFR 230.405); or (iv) is a majority-owned operating partnership of a real estate investment trust that qualifies as a well-known seasoned issuer (as defined in 17 CFR 230.405). * * * * * * * * * (c) * * * (2) * * * (ii) State that the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and state the address of that site (https://www.sec.gov). Disclose your internet address, if available. * * * * * 78. Amend Form S–11 (referenced in § 239.18) by revising the heading of Item 3 and revising Item 29.(b)(2)(ii) to read as follows: ■ Note: The text of Form S–11 does not, and this amendment will not, appear in the Code of Federal Regulations. FORM S–11 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES * * * * * PART I. INFORMATION REQUIRED IN PROSPECTUS * * * * * Item 3. Summary Information and Risk Factors. C. Majority-Owned Subsidiaries. * * * * 2. the parent of the registrantsubsidiary meets the Registrant Requirements and the conditions of Transaction Requirements B.2. (Primary Offerings of Non-Convertible Securities Other than Common Equity) are met; * * * * * Item 29. Incorporation of Certain Information by Reference. D. Automatic Shelf Offerings by WellKnown Seasoned Issuers. * * * daltland on DSKBBV9HB2PROD with RULES2 50213 1. * * * (c) * * * (iv) Securities of a majority-owned subsidiary that meet the conditions of Transaction Requirement I.B.2. of this Form (Primary Offerings of NonConvertible Securities Other than Common Equity). * * * * * VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 * * * * * * * * * (b) * * * (2) * * * (ii) State that the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and state the address of that site (https://www.sec.gov). * * * * * ■ 79. Amend Form S–4 (referenced in § 239.25) by revising the heading of Item 3 and revising Items 11.(c)(2) and 13.(d)(2) to read as follows: Note: The text of Form S–4 does not, and this amendment will not, appear in the Code of Federal Regulations. PO 00000 Frm 00067 Fmt 4701 Sfmt 4700 * * * * PART I INFORMATION REQUIRED IN THE PROSPECTUS * * * * * Item 3. Risk Factors and Other Information. * * * * * Item 11. Incorporation of Certain Information by Reference. * * * * * (c) * * * (2) State that the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and state the address of that site (https://www.sec.gov). Disclose your internet address, if available. * * * * * Item 13. Incorporation of Certain Information by Reference. * * * * * (d) * * * (2) State that the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and state the address of that site (https://www.sec.gov). Disclose your internet address, if available. * * * * * ■ 80. Amend Form F–1 (referenced in § 239.31) by: ■ a. Revising General Instruction II.C; ■ b. Revising the heading of Item 3; ■ c. Revising Item 4.b; ■ d. Removing and reserving Item 4.c; ■ e. Revising Item 4.d; ■ f. Adding Item 4.e; ■ g. Removing Instruction 2 to Item 4; ■ h. Revising Item 4A.(b)1.iii.; ■ i. Revising the Instruction to Item 4A; and ■ j. Revising Item 5.(b)2.ii. The revisions and addition read as follows: Note: The text of Form F–1 does not, and this amendment will not, appear in the Code of Federal Regulations. FORM F–1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 * * * * * GENERAL INSTRUCTIONS * E:\FR\FM\04OCR2.SGM * * 04OCR2 * * 50214 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations II. Application of General Rules and Regulations * * * * * C. A registrant must file the Form F– 1 registration statement in electronic format via the Commission’s Electronic Data Gathering and Retrieval System (EDGAR) in accordance with the EDGAR rules set forth in Regulation S– T (17 CFR part 232), except that a registrant that has obtained a hardship exception under Regulation S–T Rule 201 or 202 (17 CFR 232.201 or 232.202) may file the registration statement in paper. For assistance with EDGAR questions, call the Filer Support Office at (202) 551–8900. * * * * * PART I—INFORMATION REQUIRED IN PROSPECTUS * * * * * Item 3. Summary Information and Risk Factors. * * * * * Item 4. Information with Respect to the Registrant and the Offering. * * * * * b. Information required by Item 18 of Form 20–F (Schedules required under Regulation S–X shall be filed as ‘‘Financial Statement Schedules Pursuant to Item 8, Exhibit and Financial Statement Schedules, of this Form), as well as any information required by Rule 3–05 and Article 11 of Regulation S–X (part 210 of this chapter). * * * * * d. Information required by Item 16F of Form 20–F. e. State that the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and state the address of that site (https://www.sec.gov). Disclose your internet address, if available. Item 4A. Material Changes. daltland on DSKBBV9HB2PROD with RULES2 * * * * * (b) 1. * * * iii. Restated financial statements where a combination of entities under common control has been consummated subsequent to the most recent fiscal year and the transferred businesses, considered in the aggregate, are significant under Rule 11–01(b) (§ 210.11–01(b) of this chapter); or * * * * * Instruction. Financial statements or information required to be furnished by VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 this Item shall be reconciled pursuant to Item 18 of Form 20–F. * * * * * Item 5. Incorporation of Certain Information by Reference. * * * * * (b) * * * 2. * * * ii. State that the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and state the address of that site (https://www.sec.gov). * * * * * ■ 81. Amend Form F–3 (referenced in § 239.33) by: ■ a. Revising General Instructions I.B.2, I.B.3, I.B.4 and II.D; ■ b. Revising the heading of Item 3; ■ c. Revising Item 5 Instructions 1 and 2; and ■ d. Revising Item 6.(e)(2). The revisions read as follows: Note: The text of Form F–3 does not, and this amendment will not, appear in the Code of Federal Regulations. FORM F–3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 * * * * * GENERAL INSTRUCTIONS I. Eligibility Requirements for Use of Form F–3 * * * * * B. Transaction Requirements * * * * * 2. Primary Offerings of NonConvertible Securities Other than Common Equity. Non-convertible securities, other than common equity, to be offered for cash by or on behalf of a registrant, provided the registrant: (i) Has issued (as of a date within 60 days prior to the filing of the registration statement) at least $1 billion in nonconvertible securities, other than common equity, in primary offerings for cash, not exchange, registered under the Securities Act, over the prior three years; or (ii) has outstanding (as of a date within 60 days prior to the filing of the registration statement) at least $750 million of non-convertible securities, other than common equity, issued in primary offerings for cash, not exchange, registered under the Securities Act; or (iii) is a wholly-owned subsidiary of a well-known seasoned issuer (as defined in 17 CFR 230.405); or (iv) is a majority-owned operating partnership of a real estate investment PO 00000 Frm 00068 Fmt 4701 Sfmt 4700 trust that qualifies as a well-known seasoned issuer (as defined in 17 CFR 230.405). * * * * * 3. Transactions Involving Secondary Offerings. Outstanding securities to be offered for the account of any person other than the issuer, including securities acquired by standby underwriters in connection with the call or redemption by the issuer of warrants or a class of convertible securities. The financial statements included in this registration statement must comply with Item 18 of Form 20–F. In addition, Form F–3 may be used by affiliates to register securities for resale pursuant to the conditions specified in General Instruction C to Form S–8 (§ 239.16b of this chapter). In the case of such securities, the financial statements included in this registration statement must comply with Item 18 of Form 20– F (§ 249.220f of this chapter). 4. Rights Offerings, Dividend or Interest Reinvestment Plans, and Conversions or Warrants. Securities to be offered: (a) Upon the exercise of outstanding rights granted by the issuer of the securities to be offered, if such rights are granted pro rata to all existing security holders of the class of securities to which the rights attach; or (b) pursuant to a dividend or interest reinvestment plan; or (c) upon the conversion of outstanding convertible securities or upon the exercise of outstanding transferable warrants issued by the issuer of the securities to be offered, or by an affiliate of such issuer. The financial statements included in this registration statement must comply with Item 18 of Form 20–F. The registration of securities to be offered or sold in a standby underwriting in the United States or similar arrangement is not permitted pursuant to this paragraph. See paragraphs B.1., B.2., and B.3. of this Instruction. * * * * * II. Application of General Rules and Regulations * * * * * D. A registrant must file the Form F– 3 registration statement in electronic format via the Commission’s Electronic Data Gathering and Retrieval System (EDGAR) in accordance with the EDGAR rules set forth in Regulation S– T (17 CFR part 232), except that a registrant that has obtained a hardship exception under Regulation S–T Rule 201 or 202 (17 CFR 232.201 or 232.202) may file the registration statement in paper. For assistance with EDGAR E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations questions, call the Filer Support Office at (202) 551–8900. * * * * * FORM F–4 PART I—INFORMATION REQUIRED IN PROSPECTUS * * * * * * Item 3. Summary Information and Risk Factors. * * * * * * * * * Instructions 1. Financial statements or information required to be furnished by this Item shall be reconciled pursuant to Item 18 of Form 20–F. 2. Material changes to be disclosed pursuant to Item 5(a) include changes in and disagreements with registrant’s certifying accountant. Disclosure pursuant to Item 16F of Form 20–F should be provided as of the date of the registration statement or prospectus. Item 6. Incorporation of Certain Information by Reference. daltland on DSKBBV9HB2PROD with RULES2 * * * * (e) * * * (2) state that the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and state the address of that site (https://www.sec.gov). Disclose your internet address, if available. * * * * * ■ 82. Amend Form F–4 (referenced in § 239.34) by: ■ a. Revising General Instruction D.4; ■ b. Revising the heading of Item 3; ■ c. Revising Instruction 1 of the instructions to paragraphs (e) and (f) of Item 3; ■ d. Revising Item 10.(c)(3); ■ e. Revising paragraph 1 of the Instructions between Items 11(a) and (b); ■ f. Revising Item 11.(c)(2); ■ g. Revising the introductory text of Items 12 and 12.(b)(2) ■ h. Revising Items 12.(b)(2)(iv) and 12.(b)(3)(vii) and (ix); ■ i. Revising paragraph 1 of the Instructions between Items 13.(b) and (c); ■ j. Revising Item 13.(c)(2); and ■ k. Revising Items 14.(h) and 14.(j). The revisions read as follows: Note: The text of Form F–4 does not, and this amendment will not, appear in the Code of Federal Regulations. 22:38 Oct 03, 2018 * * * GENERAL INSTRUCTIONS * * * * * D. Application of General Rules and Regulations. Jkt 247001 * * * * 4. A registrant must file the Form F– 4 registration statement in electronic format via the Commission’s Electronic Data Gathering and Retrieval System (EDGAR) in accordance with the EDGAR rules set forth in Regulation S– T (17 CFR part 232), except that a registrant that has obtained a hardship exception under Regulation S–T Rule 201 or 202 (17 CFR 232.201 or 232.202) may file the registration statement in paper. For assistance with EDGAR questions, call the Filer Support Office at (202) 551–8900. * * * * * PART I * VerDate Sep<11>2014 * * Item 5. Material Changes. * REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 INFORMATION REQUIRED IN THE PROSPECTUS * * * * * Item 3. Risk Factors and Other Information. * * * * * Instructions to paragraphs (e) and (f). 1. For a business combination accounted for as a purchase, the financial information required by paragraphs (e) and (f) shall be presented only for the most recent fiscal year and interim period. For a combination of entities under common control, the financial information required by paragraphs (e) and (f) (except for information with regard to book value) shall be presented for the most recent three fiscal years and interim period. For a combination of entities under common control, information with regard to book value shall be presented as of the end of the most recent fiscal year and interim period. Equivalent pro forma per share amounts shall be calculated by multiplying the pro forma income (loss) per share before nonrecurring charges or credits directly attributable to the transaction, pro forma book value per share, and the pro forma dividends per share of the registrant by the exchange ratio so that the per share amounts are equated to the respective values for one share of the company being acquired. * * * * * PO 00000 Frm 00069 Fmt 4701 Sfmt 4700 50215 Item 10. Information With Respect to F– 3 Companies. * * * * * (c) * * * (3) Restated financial statements prepared in accordance with or, if prepared using a basis of accounting other than IFRS as issued by the IASB, reconciled to U.S. GAAP and Regulation S–X where one or more business combinations accounted for as combinations of entities under common control have been consummated subsequent to the most recent fiscal year and the transferred businesses, considered in the aggregate, are significant pursuant to Rule 11–01(b) of Regulation S–X (§ 210.11–01(b) of this chapter); or * * * * * Item 11. Incorporation of Certain Information by Reference. * * * (a) * * * * * Instructions 1. All annual reports or registration statements incorporated by reference pursuant to Item 11 of this Form shall contain financial statements that comply with Item 18 of Form 20–F. * * * * * (c) * * * (2) state that the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and state the address of that site (https://www.sec.gov). Disclose your internet address, if available. * * * * * Item 12. Information with Respect to F– 3 Registrants. If the registrant meets the requirements for use of Form F–3 or Form S–3 and elects to comply with this Item, furnish the information required by either paragraph (a) or (b) of this Item. However, the registrant shall not provide prospectus information in the manner allowed by paragraph (a) of this Item if the financial statements incorporated by reference pursuant to Item 13 reflect: (1) Restated financial statements prepared in accordance with or reconciled to U.S. GAAP and Regulation S–X if there has been a change in accounting principles or a correction of an error where such a change or correction requires a material retroactive statement of financial statements; (2) restated financial statements prepared in accordance with or reconciled to U.S. GAAP and Regulation S–X where a combination of E:\FR\FM\04OCR2.SGM 04OCR2 50216 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations entities under common control has been consummated subsequent to the most recent fiscal year and the transferred businesses, considered in the aggregate, are significant pursuant to Rule 11– 01(b) of Regulation S–X; or (3) any financial information required because of a material disposition of assets outside of the normal course of business. * * * * * (b) * * * (2) Include financial statements and information as required by Item 18 of Form 20–F. In addition, provide: * * * (iv) Restated financial statements prepared in accordance with or, if prepared using a basis of accounting other than IFRS as issued by the IASB, reconciled to U.S. GAAP and Regulation S–X where a combination of entities under common control has been consummated subsequent to the most recent fiscal year and the transferred businesses, considered in the aggregate, are significant pursuant to Rule 11– 01(b) of Regulation S–X; and * * * * * (3) * * * (vii) Financial statements required by Item 18 of Form 20–F, and financial information required by Rule 3–05 and Article 11 of Regulation S–X with respect to transactions other than that pursuant to which the securities being registered are to be issued; * * * * * (ix) Item 16F of Form 20–F, change in registrant’s certifying accountant. Item 13. Incorporation of Certain Information by Reference. * * * (b) * * * * * daltland on DSKBBV9HB2PROD with RULES2 Instructions 1. All annual reports incorporated by reference pursuant to Item 13 of this Form shall contain financial statements that comply with Item 18 of Form 20– F. * * * * * (c) * * * (2) state that the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and state the address of that site (https://www.sec.gov). Disclose your internet address, if available. 3–05 and Article 11 of Regulation S–X with respect to transactions other than that pursuant to which the securities being registered are to be issued. (Schedules required by Regulation S–X shall be filed as ‘‘Financial Statement Schedules’’ pursuant to Item 21 of this Form.); * * * * * (j) Item 16F of Form 20–F, change in registrant’s certifying accountant. * * * * * ■ 83. Amend Form F–6 (referenced in § 239.36) by revising the first paragraph of General Instruction III.C to read as follows: ■ Note: The text of Form F–6 does not, and this amendment will not, appear in the Code of Federal Regulations. REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FORM F–6 GENERAL INSTRUCTIONS REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FOR DEPOSITARY SHARES EVIDENCED BY AMERICAN DEPOSITARY RECEIPTS * * * * * * GENERAL INSTRUCTIONS * * * * * III. Application of General Rules and Regulations * * * * * C. You must file the Form F–6 registration statement in electronic format via the Commission’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system in accordance with the EDGAR rules set forth in Regulation S– T (17 CFR part 232). For assistance with EDGAR questions, call the Filer Support Office at (202) 551–8900. * * * * * ■ 84. Amend Form F–7 (referenced in § 239.37) by revising the first paragraph of General Instruction II.C to read as follows: Note: The text of Form F–7 does not, and this amendment will not, appear in the Code of Federal Regulations. REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 * * * * GENERAL INSTRUCTIONS * * * * * Item 14. Information With Respect to Registrants Other Than F–3 Registrants. II. Application of General Rules and Regulations * * * * * * (h) Financial statements required by Item 18 of Form 20–F. In addition, financial information required by Rule VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 * * * * C. A registrant must file the registration statement in electronic format via the Commission’s Electronic PO 00000 85. Amend Form F–8 (referenced in § 239.38) by revising the first paragraph of General Instruction IV.C to read as follows: Note: The text of Form F–8 does not, and this amendment will not, appear in the Code of Federal Regulations. FORM F–8 * Frm 00070 Fmt 4701 Sfmt 4700 * * * * * * * * IV. Application of General Rules and Regulations * * * * * C. A registrant must file the registration statement in electronic format via the Commission’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system in accordance with the EDGAR rules set forth in Regulation S– T (17 CFR part 232). For assistance with EDGAR questions, call the Filer Support Office at (202) 551–8900. * * * * * 86. Amend Form F–10 (referenced in § 239.40) by revising the first paragraph of General Instruction II.D to read as follows: ■ Note: The text of Form F–10 does not, and this amendment will not, appear in the Code of Federal Regulations. FORM F–10 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 * * * * * GENERAL INSTRUCTIONS * FORM F–7 * Data Gathering, Analysis, and Retrieval (EDGAR) system in accordance with the EDGAR rules set forth in Regulation S– T (17 CFR part 232). For assistance with EDGAR questions, call the Filer Support Office at (202) 551–8900. * * * * * * * * * II. Application of General Rules and Regulations * * * * * D. A registrant must file the registration statement in electronic format via the Commission’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system in accordance with the EDGAR rules set forth in Regulation S– T (17 CFR part 232). For assistance with EDGAR questions, call the Filer Support Office at (202) 551–8900. * * * * * E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations 87. Amend Form F–80 (referenced in § 239.41) by revising the first paragraph of General Instruction IV.C to read as follows: ■ Note: The text of Form F–80 does not, and this amendment will not, appear in the Code of Federal Regulations. REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 * * * * GENERAL INSTRUCTIONS * * * * * IV. Application of General Rules and Regulations * * * * * C. A registrant must file the registration statement in electronic format via the Commission’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system in accordance with the EDGAR rules set forth in Regulation S– T (17 CFR part 232). For assistance with EDGAR questions, call the Filer Support Office at (202) 551–8900. * * * * * 88. Amend Form SF–1 (referenced in § 239.44) by revising Item 10.(b)(2)(ii) to read as follows: ■ Note: The text of Form SF–1 does not, and this amendment will not, appear in the Code of Federal Regulations. FORM SF–1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 daltland on DSKBBV9HB2PROD with RULES2 * * * VerDate Sep<11>2014 INFORMATION REQUIRED IN PROSPECTUS * * * * * Item 10. Incorporation of Certain Information by Reference. * FORM F–80 * PART I * * * * * (b)(2) * * * (ii) State that the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and state the address of that site (https://www.sec.gov). Disclose your internet address (or address of the specified transaction party where such information is posted), if available. * * * * * ■ 89. Amend Form SF–3 (referenced in § 239.45) by revising Item 10.(e)(2)(ii) to read as follows: Note: The text of Form SF–3 does not, and this amendment will not, appear in the Code of Federal Regulations. Jkt 247001 Note: The text of Form 1–A does not, and this amendment will not, appear in the Code of Federal Regulations. FORM 1–A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 REGULATION A OFFERING STATEMENT UNDER THE SECURITIES ACT OF 1933 * * * * PART I * INFORMATION REQUIRED IN PROSPECTUS PART I—NOTIFICATION * * * * * * PO 00000 * * (e)(1) * * * (2) * * * Frm 00071 * Fmt 4701 * * * * * * * * * * * * * * Financial Statements * * * * BILLING CODE 8011–01–P Sfmt 4700 * ITEM 1. Issuer Information Item 10. Incorporation of Certain Information by Reference. * 22:38 Oct 03, 2018 (ii) State that the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and state the address of that site (https://www.sec.gov). Disclose your internet address (or address of the specified transaction party where such information is posted), if available. * * * * * ■ 90. Amend Form 1–A (referenced in § 239.90) by: ■ a. Revising the section entitled ‘‘Financial Statements’’ in Item 1 of Part I; ■ b. Removing and reserving Items 7.(a)(1)(iii) and 7.(b) of Part II; ■ c. Revising paragraph (3) of the Instruction to Item 9.(a) of Part II; and ■ d. Revising paragraphs (b)(4) and (5) and paragraph (c)(1)(i) of Part F/S of Part II. The revisions read as follows: FORM SF–3 * 50217 E:\FR\FM\04OCR2.SGM 04OCR2 * 50218 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations [If "Other" is selected, display the following options in the Financial Statements table:] Balance Sheet Information Cash and Cash Equivalents: Investment Securities: Accounts and Notes Receivable: Property, Plant and Equipment (PP&E): Total Assets: Accounts Payable and Accrued Liabilities: Long Term Debt: Total Liabilities: Total Stockholders' Equity: Total Liabilities and Equity: Statement of Comprehensive Income Information Total Revenues: Costs and Expenses Applicable to Revenues: Depreciation and Amortization: Net Income: Earnings Per Share- Basic: Earnings Per Share - Diluted: [If "Banking" is selected, display the following options in the Financial Statements table:] Balance Sheet Information Cash and Cash Equivalents: Investment Securities: Loans: Property and Equipment: Total Assets: Accounts Payable and Accrued Liabilities: Deposits: Long Term Debt: Total Liabilities: Total Stockholders' Equity: VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 PO 00000 Frm 00072 Fmt 4701 Sfmt 4725 E:\FR\FM\04OCR2.SGM 04OCR2 ER04OC18.000</GPH> daltland on DSKBBV9HB2PROD with RULES2 Total Liabilities and Equity: Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations 50219 Statement of Comprehensive Income Information Total Interest Income: Total Interest Expense: Depreciation and Amortization: Net Income: Earnings Per Share- Basic: Earnings Per Share - Diluted: [If "Insurance" is selected, display the following options in the Financial Statements table:] Balance Sheet Information Cash and Cash Equivalents: Total Investments: Accounts and Notes Receivable: Property and Equipment: Total Assets: Accounts Payable and Accrued Liabilities: Policy Liabilities and Accruals: Long Term Debt: Total Liabilities: Total Stockholders' Equity: Total Liabilities and Equity: Statement of Comprehensive Income Information Total Revenues: Costs and Expenses Applicable to Revenues: Depreciation and Amortization: Net Income: Earnings Per Share- Basic: Earnings Per Share - Diluted: [End of section that varies based on the selection of Industry Group] Name of Auditor (if any): _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ * * * * * PART II—INFORMATION REQUIRED IN OFFERING CIRCULAR * * * VerDate Sep<11>2014 * Item 9. Management’s Discussion and Analysis of Financial Condition and Results of Operations * * 22:38 Oct 03, 2018 Jkt 247001 PO 00000 * * (a) * * * Frm 00073 * Fmt 4701 * Sfmt 4700 Instruction to Item 9(a) * * * * * (3) When interim period financial statements are included, discuss any material changes in financial condition from the end of the preceding fiscal year to the date of the most recent interim E:\FR\FM\04OCR2.SGM 04OCR2 ER04OC18.001</GPH> daltland on DSKBBV9HB2PROD with RULES2 BILLING CODE 8011–01–C 50220 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations balance sheet provided. Discuss any material changes in the issuer’s results of operations with respect to the most recent fiscal year-to-date period for which a statement of comprehensive income (or statement of net income if comprehensive income is presented in two separate but consecutive financial statements or if no other comprehensive income) is provided and the corresponding year-to-date period of the preceding fiscal year. * * * * * Part F/S * * * * * (b) Financial Statements for Tier 1 Offerings daltland on DSKBBV9HB2PROD with RULES2 * * * * * (4) Statements of comprehensive income, cash flows, and changes in stockholders’ equity. File consolidated statements of comprehensive income (either in a single continuous financial statement or in two separate but consecutive financial statements; or a statement of net income if there was no other comprehensive income), cash flows, and changes in stockholders’ equity for each of the two fiscal years preceding the date of the most recent balance sheet being filed or such shorter period as the issuer has been in existence. (5) Interim financial statements. (i) If a consolidated interim balance sheet is required by (b)(3) of Part F/S, consolidated interim statements of comprehensive income (either in a single continuous financial statement or in two separate but consecutive financial statements; or a statement of net income if there was no other comprehensive income) and cash flows shall be provided and must cover at least the first six months of the issuer’s fiscal year and the corresponding period of the preceding fiscal year. An analysis of the changes in each caption of stockholders’ equity presented in the balance sheets must be provided in a note or separate statement. This analysis shall be presented in the form of a reconciliation of the beginning balance to the ending balance for each period for which a statement of comprehensive income is required to be filed with all significant reconciling items described by appropriate captions with contributions from and distributions to owners shown separately. Dividends per share for each class of shares shall also be provided. (ii) Interim financial statements of issuers that report under U.S. GAAP may be condensed as described in Rule 8–03(a) of Regulation S–X. VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 (iii) The interim statements of comprehensive income for all issuers must be accompanied by a statement that in the opinion of management all adjustments necessary in order to make the interim financial statements not misleading have been included. * * * * * Note: The text of Form 1–SA does not, and this amendment will not, appear in the Code of Federal Regulations. (c) Financial Statement Requirements for Tier 2 Offerings (1) * * * (i) Issuers that report under U.S. GAAP and, when applicable, other entities for which financial statements are required, must comply with Article 8 of Regulation S–X, as if they were conducting a registered offering on Form S–1, except the age of financial statements may follow paragraphs (b)(3)–(4) of this Part F/S. * * * * * ■ 91. Amend Form 1–K (referenced in § 239.91) by revising Item 7.(e) of Part II to read as follows: [ ] SPECIAL FINANCIAL REPORT PURSUANT TO REGULATION A Note: The text of Form 1–K does not, and this amendment will not, appear in the Code of Federal Regulations. FORM 1–K * * * * * PART II INFORMATION TO BE INCLUDED IN REPORT * * * * * Item 7. Financial Statements * * * * * (e) Statements of comprehensive income, cash flows, and changes in stockholders’ equity. File audited consolidated statements of comprehensive income (either in a single continuous financial statement or in two separate but consecutive financial statements; or a statement of net income if there was no other comprehensive income), cash flows, and changes in stockholders’ equity for each of the two fiscal years preceding the date of the most recent balance sheet being filed or such shorter period as the issuer has been in existence. * * * * * ■ 92. Amend Form 1–SA (referenced in § 239.92) by: ■ a. Revising the third paragraph of the undesignated introductory text of Item 3; ■ b. Revising Item 3.(b); ■ c. Redesignating current Items 3.(d) and (e) as 3.(e) and (f), respectively; ■ d. Adding new Item 3.(d); and ■ e. Revising newly redesignated Item 3.(e). The revisions and addition read as follows: PO 00000 Frm 00074 Fmt 4701 Sfmt 4700 FORM 1–SA [ ] SEMIANNUAL REPORT PURSUANT TO REGULATION A or * * * * * INFORMATION TO BE INCLUDED IN REPORT * * * * * Item 3. Financial Statements * * * * * The financial statements included pursuant to this item may be condensed, unaudited, and are not required to be reviewed. For additional guidance on presentation of the financial statements, issuers that report under U.S. GAAP should refer to Rule 8–03(a) of Regulation S–X. The financial statements for all issuers must include the following: * * * * * (b) Interim consolidated statements of comprehensive income (either in a single continuous financial statement or in two separate but consecutive financial statements; or a statement of net income if there was no other comprehensive income) must be provided for the six month interim period covered by this report and for the corresponding period of the preceding fiscal year. Statements of comprehensive income must be accompanied by a statement that in the opinion of management all adjustments necessary in order to make the interim financial statements not misleading have been included. * * * * * (d) An analysis of the changes in each caption of stockholders’ equity presented in the balance sheets must be provided in a note or separate statement. This analysis shall be presented in the form of a reconciliation of the beginning balance to the ending balance for each period for which a statement of comprehensive income is required to be filed with all significant reconciling items described by appropriate captions with contributions from and distributions to owners shown separately. Dividends per share for each class of shares shall also be presented. (e) Footnote and other disclosures should be provided as needed for fair presentation and to ensure that the financial statements are not misleading. Issuers that report under U.S. GAAP E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations should refer to Rule 8–03(b) of Regulation S–X for examples of disclosures that may be needed. (f) Financial Statements of Guarantors and Issuers of Guaranteed Securities. * * * * * * * * PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934 93. The authority citation for part 240 continues to read in part as follows: ■ Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f, 78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m, 78n, 78n–1, 78o, 78o–4, 78o-10, 78p, 78q, 78q–1, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 80a–20, 80a–23, 80a–29, 80a–37, 80b–3, 80b– 4, 80b–11, 7201 et seq.; and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; and Pub. L. 111–203, 939A, 124 Stat. 1887 (2010); and secs. 503 and 602, Pub. L. 112–106, 126 Stat. 326 (2012), unless otherwise noted. * * * * * 94. Amend § 240.3a51–1 by revising paragraph (a)(2)(i)(A)(3) to read as follows: ■ § 240.3a51–1 Definition of ‘‘penny stock’’. * * * * * (a) * * * (2) * * * (i) * * * (A) * * * (3) Net income of $750,000 (excluding non-recurring items) in the most recently completed fiscal year or in two of the last three most recently completed fiscal years; * * * * * ■ 95. Amend § 240.10A–1 by revising paragraph (b)(3) to read as follows: § 240.10A–1 Notice to the Commission Pursuant to Section 10A of the Act. daltland on DSKBBV9HB2PROD with RULES2 * * * * * (b) * * * (3) Submission of the report (or documentation) by the independent accountant as described in paragraphs (b)(1) and (2) of this section shall not replace, or otherwise satisfy the need for, the newly engaged and former accountants’ letters under §§ 229.304(a)(2)(D) and 229.304(a)(3) of this chapter (Items 304(a)(2)(D) and 304(a)(3) of Regulation S–K, respectively) and shall not limit, reduce, or affect in any way the independent accountant’s obligations to comply fully with all other legal and professional responsibilities, including, without limitation, those under the standards of the Public Company Accounting Oversight Board (United States) VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 (‘‘PCAOB’’) and the rules or interpretations of the Commission that modify or supplement those auditing standards. * * * * * ■ 96. Amend § 240.12b–2 in the definition of ‘‘Significant subsidiary’’ by: ■ a. Revising paragraph (3); ■ b. Adding a Note 1 following paragraph (3) before the Computational note; and ■ c. Redesignating the Computational note as Computational note 1 to paragraph (3). The revision and addition read as follows: § 240.12b-2 Definitions. * * * * * Significant subsidiary. * * * (3) The registrant’s and its other subsidiaries’ equity in the income from continuing operations before income taxes of the subsidiary exclusive of amounts attributable to any noncontrolling interests exceeds 10 percent of such income of the registrant and its subsidiaries consolidated for the most recently completed fiscal year. Note 1: A registrant that files its financial statements in accordance with or provides a reconciliation to U.S. Generally Accepted Accounting Principles shall make the prescribed tests using amounts determined under U.S. Generally Accepted Accounting Principles. A foreign private issuer that files its financial statements in accordance with IFRS as issued by the IASB shall make the prescribed tests using amounts determined under IFRS as issued by the IASB. * * * * * 97. Amend § 240.12g–3 by revising paragraphs (a)(2), (b)(2), and (c)(2) to read as follows: ■ § 240.12g-3 Registration of securities of successor issuers under section 12(b) or 12(g). (a) * * * (2) All securities of such class are held of record by fewer than 300 persons, or 1,200 persons in the case of a bank; a savings and loan holding company, as such term is defined in section 10 of the Home Owners’ Loan Act (12 U.S.C. 1461); or a bank holding company, as such term is defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841); or * * * * * (b) * * * (2) All securities of such class are held of record by fewer than 300 persons, or 1,200 persons in the case of a bank; a savings and loan holding company, as such term is defined in section 10 of the Home Owners’ Loan Act (12 U.S.C. 1461); or a bank holding PO 00000 Frm 00075 Fmt 4701 Sfmt 4700 50221 company, as such term is defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841); or * * * * * (c) * * * (2) All securities of such class are held of record by fewer than 300 persons, or 1,200 persons in the case of a bank; a savings and loan holding company, as such term is defined in section 10 of the Home Owners’ Loan Act (12 U.S.C. 1461); or a bank holding company, as such term is defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841); or * * * * * ■ 98. Amend § 240.13a–10 by revising paragraphs (b) and (g)(3) to read as follows: § 240.13a–10 * Transition reports. * * * * (b) The report pursuant to this section shall be filed for the transition period not more than the number of days specified in paragraph (j) of this section after either the close of the transition period or the date of the determination to change the fiscal closing date, whichever is later. The report shall be filed on the form appropriate for annual reports of the issuer, shall cover the period from the close of the last fiscal year end and shall indicate clearly the period covered. The financial statements for the transition period filed therewith shall be audited. Financial statements, which may be unaudited, shall be filed for the comparable period of the prior year, or a footnote, which may be unaudited, shall state for the comparable period of the prior year, revenues, gross profits, income taxes, income or loss from continuing operations and net income or loss. The effects of any discontinued operations as classified under the provisions of generally accepted accounting principles also shall be shown, if applicable. Per share data based upon such income or loss and net income or loss shall be presented in conformity with applicable accounting standards. Where called for by the time span to be covered, the comparable period financial statements or footnote shall be included in subsequent filings. * * * * * (g) * * * (3) The report for the transition period shall be filed on Form 20–F (§ 249.220f of this chapter) responding to all items to which such issuer is required to respond when Form 20–F is used as an annual report. The financial statements for the transition period filed therewith shall be audited. The report shall be filed within four months after either the E:\FR\FM\04OCR2.SGM 04OCR2 50222 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations close of the transition period or the date on which the issuer made the determination to change the fiscal closing date, whichever is later. * * * * * ■ 99. Amend § 240.13b2–2 by revising paragraphs (b)(2)(i) and (ii) to read as follows: § 240.13b2–2 Representations and conduct in connection with the preparation of required reports and documents. * * * * * (b) * * * (2) * * * (i) To issue or reissue a report on an issuer’s financial statements that is not warranted in the circumstances (due to material violations of generally accepted accounting principles, the standards of the PCAOB, or other professional or regulatory standards); (ii) Not to perform audit, review or other procedures required by the standards of the PCAOB or other professional standards; * * * * * ■ 100. Amend § 240.15c3–1g by revising paragraphs (b)(1)(i)(A), (b)(1)(ii)(A) and (E), and (b)(2)(i)(A) and (D) to read as follows: § 240.15c3–1g Conditions for ultimate holding companies of certain brokers or dealers (Appendix G to 17 CFR 240.15c3–1). daltland on DSKBBV9HB2PROD with RULES2 * * * * * (b) * * * (1) * * * (i) * * * (A) A consolidated balance sheet and income statement (including notes to the financial statements) for the ultimate holding company and statements of allowable capital and allowances for market, credit, and operational risk computed pursuant to paragraph (a) of this appendix G, except that the consolidated balance sheet and income statement for the first month of the fiscal year may be filed at a later time to which the Commission agrees (when reviewing the affiliated broker’s or dealer’s application under § 240.15c3– 1e(a)). A statement of comprehensive income (as defined in § 210.1–02 of Regulation S–X of this chapter) shall be included in place of an income statement, if required by the applicable generally accepted accounting principles. * * * * * (ii) * * * (A) Consolidating balance sheets and income statements for the ultimate holding company. The consolidating balance sheet must provide information regarding each material affiliate of the ultimate holding company in a separate VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 column, but may aggregate information regarding members of the affiliate group that are not material affiliates into one column. Statements of comprehensive income (as defined in § 210.1–02 of Regulation S–X) shall be included in place of an income statement, if required by the applicable generally accepted accounting principles; * * * * * (E) For a quarter-end that coincides with the ultimate holding company’s fiscal year-end, the ultimate holding company need not include consolidated and consolidating balance sheets and income statements (or statements of comprehensive income, as applicable) in its quarterly reports. The consolidating balance sheet and income statement (or statement of comprehensive income, as applicable) for the quarter-end that coincides with the fiscal year-end may be filed at a later time to which the Commission agrees (when reviewing the affiliated broker’s or dealer’s application under § 240.15c3–1e(a)); * * * * * (2) * * * (i) * * * (A) Consolidated (including notes to the financial statements) and consolidating balance sheets and income statements for the ultimate holding company. Statements of comprehensive income (as defined in § 210.1–02 of Regulation S–X) shall be included in place of income statements, if required by the applicable generally accepted accounting principles; * * * * * (D) For a quarter-end that coincides with the ultimate holding company’s fiscal year-end, the ultimate holding company need not include consolidated and consolidating balance sheets and income statements (or statements of comprehensive income, as applicable) in its quarterly reports. The consolidating balance sheet and income statement (or statement of comprehensive income, as applicable) for the quarter-end that coincides with the fiscal year-end may be filed at a later time to which the Commission agrees (when reviewing the affiliated broker’s or dealer’s application under § 240.15c3–1e(a)). * * * * * ■ 101. Amend § 240.15d–2 by revising paragraph (a) to read as follows: § 240.15d–2 Special financial report. (a) If the registration statement under the Securities Act of 1933 did not contain certified financial statements for the registrant’s last full fiscal year (or for the life of the registrant if less than a full PO 00000 Frm 00076 Fmt 4701 Sfmt 4700 fiscal year) preceding the fiscal year in which the registration statement became effective, the registrant shall, within 90 days after the effective date of the registration statement, file a special report furnishing certified financial statements for such last full fiscal year or other period, as the case may be, meeting the requirements of the form appropriate for annual reports of the registrant. If the registrant is a foreign private issuer as defined in § 230.405 of this chapter, then the special financial report shall be filed on the appropriate form for annual reports of the registrant and shall be filed by the later of 90 days after the date on which the registration statement became effective, or four months following the end of the registrant’s latest full fiscal year. * * * * * ■ 102. Amend § 240.15d–10 by revising paragraphs (b) and (g)(3) to read as follows: § 240.15d–10 * Transition reports. * * * * (b) The report pursuant to this section shall be filed for the transition period not more than the number of days specified in paragraph (j) of this section after either the close of the transition period or the date of the determination to change the fiscal closing date, whichever is later. The report shall be filed on the form appropriate for annual reports of the issuer, shall cover the period from the close of the last fiscal year end and shall indicate clearly the period covered. The financial statements for the transition period filed therewith shall be audited. Financial statements, which may be unaudited, shall be filed for the comparable period of the prior year, or a footnote, which may be unaudited, shall state for the comparable period of the prior year, revenues, gross profits, income taxes, income or loss from continuing operations and net income or loss. The effects of any discontinued operations as classified under the provisions of generally accepted accounting principles also shall be shown, if applicable. Per share data based upon such income or loss and net income or loss shall be presented in conformity with applicable accounting standards. Where called for by the time span to be covered, the comparable period financial statements or footnote shall be included in subsequent filings. * * * * * (g) * * * (3) The report for the transition period shall be filed on Form 20–F (§ 249.220f of this chapter) responding to all items to which such issuer is required to E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations respond when Form 20–F is used as an annual report. The financial statements for the transition period filed therewith shall be audited. The report shall be filed within four months after either the close of the transition period or the date on which the issuer made the determination to change the fiscal closing date, whichever is later. * * * * * ■ 103. Amend § 240.17a–5 by adding Note 1 to paragraph (d)(2)(i) to read as follows: (a) * * * (1) * * * (v) * * * Note 1 to paragraph (a)(1)(v). Statements of comprehensive income (as defined in § 210.1–02 of Regulation S–X of this chapter) must be included in place of income statements, if required by the applicable generally accepted accounting principles. * * * * * § 240.17a–5 Reports to be made by certain brokers and dealers. PART 249—FORMS, SECURITIES EXCHANGE ACT OF 1934 * ■ * * (d) * * * (2) * * * (i) * * * * * 107. The authority citation for part 249 continues to read in part as follows: Note 1 to paragraph (d)(2)(i). If there is other comprehensive income in the period(s) presented, the financial report must contain a Statement of Comprehensive Income (as defined in § 210.1–02 of Regulation S–X of this chapter) in place of a Statement of Income. * * * * 104. Amend § 240.17a–12 by adding Note 1 to paragraph (b)(2) to read as follows: ■ * * (b) * * * (2) * * * * * * * * 109. Amend Form 20–F (referenced in § 249.220f) by: ■ a. Revising General Instructions A.(b), D.(a), E.(c), G.(c) and G.(f)(1); ■ b. Removing Item 3.A.3; ■ c. Revising Instruction 2. of the Instructions to Item 3.A; ■ d. Adding Item 4.A.8; ■ e. Revising Item 5.C; ■ f. Revising Item 8.A.1.(b) and Item 8.A.5; ■ g. Revising Instruction 2 of the Instructions to Items 8.A.2 and 8.A.4; ■ h. Revising Item 9.A.4; ■ i. Revising Item 10.F; ■ j. Removing and reserving Instruction 1 to General Instructions to Items 11(a), 11(b), 11(c), 11(d), and 11(e); ■ k. Revising Instruction 1 of the Instructions to Item 12; ■ l. Removing Instruction to Item 14.B; ■ m. Removing Item 15T; ■ n. Removing and reserving Instruction 1 to Instructions to Item 16F; ■ o. Revising Instruction to Item 16G; ■ p. Revising Items 17(c)(2)(v) and (vi); ■ q. Removing and reserving Instruction 3 to Item 17; ■ r. Removing Special Instruction for Certain European Issuers to Item 17; ■ s. Revising Instruction 1 to Instruction to Item 18; ■ t. Removing Special Instruction for Certain European Issuers to Item 18; and ■ * * * * * 105. Amend § 240.17g–3 by revising paragraph (a)(1)(i) to read as follows: ■ § 240.17g–3 Annual financial and other reports to be filed or furnished by nationally recognized statistical rating organizations. (a) * * * (1) * * * (i) Include a balance sheet, an income statement (or a statement of comprehensive income, as defined in § 210.1–02 of Regulation S–X of this chapter, if required by the applicable generally accepted accounting principles noted in paragraph (a)(1)(ii) of this section) and statement of cash flows, and a statement of changes in ownership equity; * * * * * ■ 106. Amend § 240.17h–1T by adding Note 1 to Paragraph (a)(1)(v) to read as follows: 22:38 Oct 03, 2018 * * * * 108. Amend § 249.210 by revising the section heading to read as follows: * * Note 1 to paragraph (b)(2). If there is other comprehensive income in the period(s) presented, the financial report must contain a Statement of Comprehensive Income (as defined in § 210.1–02 of Regulation S–X of this chapter) in place of a Statement of Income. VerDate Sep<11>2014 * § 229.210 Form 10, general form for registration of securities pursuant to section 12(b) or (g) of the Securities Exchange Act of 1934. § 240.17a–12 Reports to be made by certain OTC derivatives dealers. * Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 5461 et seq.; 18 U.S.C. 1350; Sec. 953(b), Pub. L. 111–203, 124 Stat. 1904; Sec. 102(a)(3), Pub. L. 112–106, 126 Stat. 309 (2012); Sec. 107, Pub. L. 112–106, 126 Stat. 313 (2012), and Sec. 72001, Pub. L. 114–94, 129 Stat. 1312 (2015), unless otherwise noted. ■ * daltland on DSKBBV9HB2PROD with RULES2 § 240.17h–1T Risk assessment recordkeeping requirements for associated persons of brokers and dealers. Jkt 247001 PO 00000 Frm 00077 Fmt 4701 Sfmt 4700 50223 u. Removing and reserving Instructions 6 and 7 of the Instructions as to Exhibits. The revisions read as follows: ■ Note: The text of Form 20–F does not, and this amendment will not, appear in the Code of Federal Regulations. FORM 20–F b REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR b ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 * * * * * GENERAL INSTRUCTIONS A. Who May Use Form 20–F and When It Must be Filed. * * * * * (b) A foreign private issuer must file its annual report on this Form within four months after the end of the fiscal year covered by the report. * * * * * D. How to File Registration Statements and Reports on this Form. (a) You must file the Form 20–F registration statement or annual report in electronic format via our Electronic Data Gathering and Retrieval System (EDGAR) in accordance with the EDGAR rules set forth in Regulation S– T (17 CFR part 232). The Form 20–F registration statement or annual report must be in the English language as required by Regulation S–T Rule 306 (17 CFR 232.306). You must provide the signatures required for the Form 20–F registration statement or annual report in accordance with Regulation S–T Rule 302 (17 CFR 232.302). If you have EDGAR questions, call the Filer Support Office at (202) 551–8900. * * * * * E. Which Items to Respond to in Registration Statements and Annual Reports. * * * * * (c) Financial Statements. (1) An Exchange Act registration statement or annual report filed on this Form must contain the financial statements and related information specified in Item 18 of this Form. Note that Items 17 and 18 may require you to file the financial statements of other entities in certain circumstances. These circumstances are described in Regulation S–X. (2) The issuer’s financial statements must be audited in accordance with the standards of the Public Company E:\FR\FM\04OCR2.SGM 04OCR2 50224 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations Accounting Oversight Board (United States) (‘‘PCAOB’’), and the auditor must be qualified and independent in accordance with Article 2 of Regulation S–X. The financial statements of entities other than the issuer must be audited in accordance with applicable professional standards. If you have any questions about these requirements, contact the Office of Chief Accountant in the Division of Corporation Finance at (202) 551–3400. * * * * * G. First-Time Application of International Financial Reporting Standards. * * * * * (c) Selected Financial Data. The selected historical financial data required pursuant to Item 3.A shall be based on financial statements prepared in accordance with IFRS and shall be presented for the two most recent financial years. * * * * * (f) Financial Information. (1) General. With respect to the financial information of the issuer required by Item 8.A, all instructions contained in Item 8, including the instruction requiring audits in accordance with the standards of the PCAOB, shall apply. * * * * * PART I * * * * * Item 3. Key Information * * * * * Instructions to Item 3.A: daltland on DSKBBV9HB2PROD with RULES2 * * * * * 2. You may present the selected financial data on the basis of the accounting principles used in your primary financial statements. If you use a basis of accounting other than IFRS as issued by the IASB, however, you also must include in this summary any reconciliations of the data to U.S. generally accepted accounting principles and Regulation S–X, pursuant to Item 17 or 18 of this Form. For financial statements prepared using a basis of accounting other than IFRS as issued by the IASB, you only have to provide selected financial data on a basis reconciled to U.S. generally accepted accounting principles for (i) those periods for which you were required to reconcile the primary annual financial statements in a filing under the Securities Act or the Exchange Act, and (ii) any interim periods. An issuer that adopted IFRS as issued by the IASB during the past three VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 years is only required to provide selected financial data for the periods that it prepared financial statements in accordance with IFRS as issued by the IASB. * * * * * Item 4. Information on the Company * * * * * A. * * * 8. State that the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and state the address of that site (https://www.sec.gov). Disclose your internet address, if available. * * * * * Item 5. Operating and Financial Review and Prospects * * * * * C. Research and development, patents and licenses, etc. Provide a description of the company’s research and development policies for the last three years. * * * * * Item 8. Financial Information * * * * * A. * * * 1. * * * (b) statement of comprehensive income (either in a single continuous financial statement or in two separate but consecutive financial statements; or a statement of net income if there was no other comprehensive income); * * * * * 5. If the document is dated more than nine months after the end of the last audited financial year, it should contain consolidated interim financial statements, which may be unaudited (in which case that fact should be stated), covering at least the first six months of the financial year. The interim financial statements should include a balance sheet, statement of comprehensive income (either in a single continuous financial statement or in two separate but consecutive financial statements; or a statement of net income if there was no other comprehensive income), cash flow statement, and a statement showing either (i) changes in equity other than those arising from capital transactions with owners and distributions to owners, or (ii) all changes in equity (including a subtotal of all non-owner items recognized directly in equity). Each of these statements may be in condensed form as long as it contains the major line items from the latest audited financial statements and includes the major PO 00000 Frm 00078 Fmt 4701 Sfmt 4700 components of assets, liabilities and equity (in the case of the balance sheet); income and expenses (in the case of the statement of comprehensive income) and the major subtotals of cash flows (in the case of the cash flow statement). The interim financial statements should include comparative statements for the same period in the prior financial year, except that the requirement for comparative balance sheet information may be satisfied by presenting the year end balance sheet. If not included in the primary financial statements, a note should be provided analyzing the changes in each caption of shareholders’ equity presented in the balance sheet. The interim financial statements should include selected note disclosures that will provide an explanation of events and changes that are significant to an understanding of the changes in financial position and performance of the enterprise since the last annual reporting date. If, at the date of the document, the company has published interim financial information that covers a more current period than those otherwise required by this standard, the more current interim financial information must be included in the document. Companies are encouraged, but not required, to have any interim financial statements in the document reviewed by an independent auditor. If such a review has been performed and is referred to in the document, a copy of the auditor’s interim review report must be provided in the document. * * * * * Instructions to Item 8.A.2: * * * * * 2. The financial statements of the issuer must be audited in accordance with the standards of the PCAOB and the auditor must comply with the Commission standards for auditor independence. Refer to Article 2 of Regulation S–X, which contains requirements for qualifications and reports of accountants. * * * * * Instructions to Item 8.A.4: * * * * * 2. The additional requirement that financial statements be no older than 12 months at the date of filing applies only in those limited cases where a nonpublic company is registering its initial public offering of securities. A company may comply with only the 15month requirement in this item if the company is able to represent that it is not required to comply with the 12month requirement in any other jurisdiction outside the United States E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations and that complying with the 12-month requirement is impracticable or involves undue hardship. File this representation as an exhibit to the registration statement. * * * * * Item 9. The Offer and Listing. * * * * * A. * * * 4. Identify the principal host market(s) and principal market(s) outside the principal host market and corresponding trading symbol(s) for those markets for each class of the registrant’s common equity. If significant trading suspensions occurred in the prior three years, they shall be disclosed. If the securities are not regularly traded in an organized market, information shall be given about any lack of liquidity. * * * * * Item 10. Additional Information. * * * * * F. Dividends and paying agents. Disclose the date on which the entitlement to dividends arises, if known, and any procedures for nonresident holders to claim dividends. Identify the financial organizations which, at the time of admission of shares to official listing, are the paying agents of the company in the countries where admission has taken place or is expected to take place. * * * * * Item 11. Quantitative and Qualitative Disclosure About Market Risk. * * * * * Item 12. Description of Securities Other than Equity Securities. * * * * * Instructions to Item 12: 1. Except for Item 12.D.3. and Item 12.D.4, you do not need to provide the information called for by this Item if you are using this form as an annual report. * * * * * Item 16F. Change in Registrant’s Certifying Accountant. Item 17. Financial Statements. * OR * * * * (c) * * * (2) * * * (v) Issuers that prepare financial statements on a basis of accounting other than U.S. generally accepted accounting principles that are furnished for a business acquired or to be acquired pursuant to § 210.3–05 of this chapter may omit the disclosures specified by paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this Item if the conditions specified in the definition of a significant subsidiary in § 210.1–02(w) of this chapter do not exceed 30 percent. Issuers that prepare financial statements using IFRS as issued by the IASB that are furnished pursuant to § 210.3–05 may omit the disclosures specified by paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this Item regardless of the size of the business acquired or to be acquired. (vi) Issuers that prepare financial statements on a basis of accounting other than U.S. generally accepted accounting principles that are furnished for a less-than-majority-owned investee pursuant to § 210.3–09 of this chapter may omit the disclosures specified by paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this Item if the first and third conditions specified in the definition of a significant subsidiary in § 210.1–02(w) of this chapter do not exceed 30 percent. Issuers that prepare financial statements using IFRS as issued by the IASB that are furnished pursuant to § 210.3–09 may omit the disclosures specified by paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this Item regardless of the size of the investee. * * * * * Item 18. Financial Statements. * * * * * Instructions to Item 18: Item 16G. Corporate Governance. * ■ * * * * * * * * Instructions to Item 16G: Item 16G only applies to annual reports, and not to registration statements on Form 20–F. Registrants should provide a brief and general VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 FORM 40–F b REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 1. All of the instructions to Item 17 also apply to this Item. * * * * * * daltland on DSKBBV9HB2PROD with RULES2 discussion, rather than a detailed, itemby-item analysis. * * * * * 50225 110. Amend Form 40–F (referenced in § 249.240f) by revising the first paragraph of General Instruction D.(7) to read as follows: Note: The text of Form 40–F does not, and this amendment will not, appear in the Code of Federal Regulations. PO 00000 Frm 00079 Fmt 4701 Sfmt 4700 b ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 * * * * * GENERAL INSTRUCTIONS * * * * * D. Application of General Rules and Regulations * * * * * (7) A filer must file the Form 40–F registration statement or annual report in electronic format via the Commission’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system in accordance with the EDGAR rules set forth in Regulation S– T (17 CFR part 232). For assistance with EDGAR questions, call the Filer Support Office at (202) 551–8900. * * * * * 111. Amend Form 10–K (referenced in § 249.310) by: ■ a. Removing and reserving paragraph J.(1)(e) of the General Instructions; and ■ b. Revising paragraph J.(1)(f) of the General Instructions. The revisions read as follows: ■ Note: The text of Form 10–K does not, and this amendment will not, appear in the Code of Federal Regulations. FORM 10–K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 GENERAL INSTRUCTIONS * * * * * J. * * * (1) * * * (f) Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities; * * * * * 112. Amend Form 11–K (referenced in § 249.311) by revising paragraph 2 of Required Information to read as follows: ■ Note: The text of Form 11–K does not, and this amendment will not, appear in the Code of Federal Regulations. E:\FR\FM\04OCR2.SGM 04OCR2 50226 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations FORM 11–K FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 * * * * * * * * 2. An audited statement of comprehensive income (either in a single continuous financial statement or in two separate but consecutive financial statements; or a statement of net income if there was no other comprehensive income) and changes in plan equity for each of the latest three daltland on DSKBBV9HB2PROD with RULES2 * 22:38 Oct 03, 2018 Form 10–D (referenced in § 249.312) [Amended] 113. Amend Form 10–D (referenced in § 249.312) by removing and reserving Item 5. ■ * REQUIRED INFORMATION VerDate Sep<11>2014 fiscal years of the plan (or such lesser period as the plan has been in existence). * * * * * Jkt 247001 Note: The text of Form 10–D does not, and this amendment will not, appear in the Code of Federal Regulations. 114. Amend the Form X–17A–5 Part II (FOCUS Report) (referenced in § 249.617) by: ■ a. Revising under the heading ‘‘Statement of Financial Condition’’ paragraph 29 by redesignating current ■ PO 00000 Frm 00080 Fmt 4701 Sfmt 4700 paragraphs 29.E and F as paragraphs 29.F and G, respectively and adding a new paragraph 29.E; and ■ b. Revising the heading ‘‘Statement of Income (Loss)’’ and under that heading, revising the subheading ‘‘Net Income’’, removing and reserving paragraphs 32, 32.a and 33, revising paragraph 34, redesignating current paragraph 35 as paragraph 37, adding new paragraph 35 and paragraphs 35.a and 36, and revising newly redesignated paragraph 37. The revisions and additions read as follows: Note: The text of Form X–17A–5 Part II does not, and this amendment will not, appear in the Code of Federal Regulations. E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations 50227 FORM X-17A-5 FOCUS REPORT (Financial and Operational Combined Uniform Single Report) PART II ITI] * * * * * STATEMENT OF FINANCIAL CONDITION * * * * * 29. * * * E. Accumulated other comprehensive income [@!] F. Total [rn5] ( G. Less capital stock in treasury )117961 * * * * * STATEMENT OF INCOME (LOSS) or STATEMENT OF COMPREHENSIVE INCOME (as defined in §210.1-02 of Regulation S-X), as applicable * * * * * NET INCOME/COMPREHENSIVE INCOME * * * * * $_ _ ~ 34. Net income (loss) after Federal income taxes 35. Other comprehensive income (loss) _ _ _ @2261 _ _ @ill] a. After Federal income taxes of $_ _ @2281 36. Comprehensive income (loss) 37. Income (current month only) before provision for Federal income taxes 115. Amend the Form X–17A–5 Part II (FOCUS Report) (referenced in § 249.617) General Instructions by: ■ a. Revising the heading ‘‘Statement of Income (Loss)’’ and removing from ■ VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 under that heading the subheadings ‘‘Extraordinary Items’’ and ‘‘Effect of Changes in Accounting Principles’’ and their related text; and PO 00000 Frm 00081 Fmt 4701 Sfmt 4700 $ _ _ [ill] b. Revising under the heading ‘‘Statement of Changes in Ownership Equity (Sole Proprietorship, Partnership or Corporation)’’ the text related to the ■ E:\FR\FM\04OCR2.SGM 04OCR2 ER04OC18.002</GPH> daltland on DSKBBV9HB2PROD with RULES2 MONTHLY INCOME 50228 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations subheading ‘‘Net Income (Loss) For Period’’. The revisions read as follows: required to report comprehensive income. * * * * * Note: The text of Form X–17A–5 Part II does not, and this amendment will not, appear in the Code of Federal Regulations. STATEMENT OF CHANGES IN OWNERSHIP EQUITY (SOLE PROPRIETORSHIP, PARTNERSHIP OR CORPORATION) FORM X–17A–5 PART II * (FOCUS Report) GENERAL INSTRUCTIONS * * * * * STATEMENT OF INCOME (LOSS) or STATEMENT OF COMPREHENSIVE INCOME (as defined in § 210.1–02 of Regulation S–X), as applicable daltland on DSKBBV9HB2PROD with RULES2 If there are no items of other comprehensive income in the period presented, the broker or dealer is not VerDate Sep<11>2014 22:38 Oct 03, 2018 * * * * Net Income (Loss) for Period Jkt 247001 Report the amount of net income (loss) for the period reported on the Statement of Income (Loss) or Statement of Comprehensive Income, as applicable. * * * * * ■ 116. Amend the Form X–17A–5 Part IIA (FOCUS Report) (referenced in § 249.617) by: ■ a. Revising under the heading ‘‘Statement of Financial Condition for PO 00000 Frm 00082 Fmt 4701 Sfmt 4700 Noncarrying, Nonclearing and Certain other Brokers or Dealers’’ paragraph 23 by redesignating current paragraphs 23.E and F as paragraphs 23.F and G, respectively and adding a new paragraph 23.E; and ■ b. Revising the heading ‘‘Statement of Income (Loss)’’ and under that heading, revising the subheading ‘‘Net Income’’, removing and reserving paragraphs 20, 20.a and 21, revising paragraph 22, redesignating current paragraph 23 as paragraph 25, adding new paragraph 23 and paragraphs 23.a and 24, and revising newly redesignated paragraph 25. The revisions and additions read as follows: Note: The text of Form X–17A–5 Part IIA does not, and this amendment will not, appear in the Code of Federal Regulations. BILLING CODE 8011–01–P E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations 50229 FORM X-17A-5 FOCUS REPORT (Financial and Operational Combined Uniform Single Report) PART IIAB] * * * * * STATEMENT OF FINANCIAL CONDITION FOR NONCARRYING, NONCLEARING AND CERTAIN OTHER BROKERS OR DEALERS * * * 23. * * * * * E. Accumulated other comprehensive income [7971 F. Total [7951 G. Less capital stock in treasury * * * * T16 ( )117961 * STATEMENT OF INCOME (LOSS) or STATEMENT OF COMPREHENSIVE INCOME (as defined in §210.1-02 of Regulation S-X), as applicable * * * * * NET INCOME/COMPREHENSIVE INCOME * * * * * $_ _ ~ 22. Net income (loss) after Federal income taxes ___ § 23. Other comprehensive income (loss) _ _ Hill] a. After Federal income taxes of $_ _ @2281 MONTHLY INCOME 25. Income (current month only) before provision for Federal income taxes VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 PO 00000 Frm 00083 Fmt 4701 Sfmt 4700 E:\FR\FM\04OCR2.SGM 04OCR2 $_ _ [ill] ER04OC18.003</GPH> daltland on DSKBBV9HB2PROD with RULES2 24. Comprehensive income (loss) 50230 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations BILLING CODE 8011–01–C 117. Amend the Form X–17A–5 Part IIA (FOCUS Report) (referenced in § 249.617) General Instructions by: ■ a. Revising the heading ‘‘Statement of Income (Loss)’’ and removing from under that heading paragraphs 20 and 21; and ■ b. Revising under the heading ‘‘Statement of Changes in Ownership Equity (Sole Proprietorship, Partnership or Corporation)’’ the text related to the subheading ‘‘Net Income (Loss) For Period’’. The revisions read as follows: ■ Note: The text of Form X–17A–5 Part IIA does not, and this amendment will not, appear in the Code of Federal Regulations. (FOCUS Report) GENERAL INSTRUCTIONS daltland on DSKBBV9HB2PROD with RULES2 * * VerDate Sep<11>2014 * * 22:38 Oct 03, 2018 (as defined in § 210.1–02 of Regulation S–X), as applicable If there are no items of other comprehensive income in the period presented, the broker or dealer is not required to report comprehensive income. * * * * * STATEMENT OF CHANGES IN OWNERSHIP EQUITY (SOLE PROPRIETORSHIP, PARTNERSHIP OR CORPORATION) * * * * * Net Income (Loss) for Period Report the amount of net income (loss) for the period reported on the Statement of Income (Loss) or Statement of Comprehensive Income, as applicable. * * * * * FORM X–17A–5 PART IIA * STATEMENT OF INCOME (LOSS) or STATEMENT OF COMPREHENSIVE INCOME Jkt 247001 PO 00000 Frm 00084 Fmt 4701 Sfmt 4700 118. Amend the Form X–17A–5 Part IIB (FOCUS Report) (referenced in § 249.617) by: ■ a. Revising under the heading ‘‘Statement of Financial Condition for OTC Derivatives Dealers’’ paragraph 28 by redesignating current paragraphs 28.E and F as paragraphs 28.F and G, respectively and adding a new paragraph 28.E; and ■ b. Revising the heading ‘‘Statement of Income (Loss)’’ and under that heading, revising the subheading ‘‘Net Income’’, removing and reserving paragraphs 29, 29.a and 30, revising paragraph 31, redesignating current paragraph 32 as paragraph 34. adding new paragraph 32 and paragraphs 32.a and 33, and revising newly redesignated paragraph 34. The revisions and additions read as follows: ■ Note: The text of Form X–17A–5 Part IIB does not, and this amendment will not, appear in the Code of Federal Regulations. BILLING CODE 8011–01–P E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations 50231 FORM X-17A-5 FOCUS REPORT (Financial and Operational Combined Uniform Single Report) PART liB 1!1] * * * * * STATEMENT OF FINANCIAL CONDITION FOR OTC DERIVATIVES DEALERS * * * * 28. * * * * E. Accumulated other comprehensive income [@!] F. Total 1@5] )1179~ G. Less capital stock in treasury * * * * * STATEMENT OF INCOME (LOSS) or STATEMENT OF COMPREHENSIVE INCOME (as defined in §210.1-02 of Regulation S-X), as applicable * * * * * NET INCOME/COMPREHENSIVE INCOME * * * * * $_ _ ~ 31. Net income (loss) after Federal income taxes ___ § 32. Other comprehensive income (loss) A. After Federal income taxes of _ _ Hill] $_ _ @2281 33. Comprehensive income (loss) 34. Income (current month only) before provision for Federal income taxes BILLING CODE 8011–01–C 119. Amend the Form X–17A–5 Part III (FOCUS Report) (referenced in § 249.617) by revising under the heading ■ VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 ‘‘Oath or Affirmation’’ checkbox (c) to read as follows: PO 00000 Frm 00085 Fmt 4701 Sfmt 4700 $_ _ [ill] Note: The text of Form X–17A–5 Part III does not, and this amendment will not, appear in the Code of Federal Regulations. E:\FR\FM\04OCR2.SGM 04OCR2 ER04OC18.004</GPH> daltland on DSKBBV9HB2PROD with RULES2 MONTHLY INCOME 50232 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations ANNUAL AUDITED REPORT FORM X–17A–5 PART III * * * * * OATH OR AFFIRMATION * * * * * b (c) Statement of Income (Loss) or, if there is other comprehensive income in the period(s) presented, a Statement of Comprehensive Income (as defined in § 210.1–02 of Regulation S–X). * * * * * PART 274—FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940 120. The authority citation for part 274 continues to read in part as follows: ■ Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b),78l, 78m, 78n, 78o(d), 80a–8, 80a– 24, 80a–26, 80a–29, and Pub. L. 111–203, sec. 939A, 124 Stat. 1376 (2010), unless otherwise noted. * * * * * ■ 121. Amend Form N–5 (referenced in §§ 239.24 and 274.5) by revising Item 3(i) to read as follows: Note: The text of Form N–5 does not, and this amendment will not, appear in the Code of Federal Regulations. REGISTRATION STATEMENT OF SMALL BUSINESS INVESTMENT COMPANY UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940 * * * * * PART I. INFORMATION REQUIRED IN REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 * * * * * Item 3. Policies with Respect to Security Investments. daltland on DSKBBV9HB2PROD with RULES2 * * * * * (i) Whether the registrant and its investment adviser and principal underwriter have adopted codes of ethics under Rule l 7j–1 of the Investment Company Act of 1940 [17 CFR 270.17j–1] and whether these codes of ethics permit personnel subject to the codes to invest in securities, including securities that may be purchased or held by the registrant. Also explain that these codes of ethics are available on the EDGAR Database on the Commission’s internet site at https://www.sec.gov, and that copies of these codes of ethics may be obtained, after paying a duplicating fee, by electronic request at the VerDate Sep<11>2014 Note: The text of Form N–1A does not, and this amendment will not, appear in the Code of Federal Regulations. FORM N–1A * * * * * b REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 * * * * * * * * PART A—INFORMATION REQUIRED IN PROSPECTUS * * * * * Item 1. Front and Back Cover Pages 22:38 Oct 03, 2018 Jkt 247001 * * * * (b) * * * (3) State that reports and other information about the Fund are available on the EDGAR Database on the Commission’s internet site at https:// www.sec.gov, and that copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following Email address: publicinfo@sec.gov. * * * * * Item 3. Risk/Return Summary: Fee Table * * * * * Instructions * * * * * 3. * * * (c) * * * (ii) ‘‘Other Expenses’’ do not include extraordinary expenses.— ‘‘Extraordinary expenses’’ refers to expenses that are distinguished by their unusual nature and by the infrequency of occurrence. Unusual nature means the expense has a high degree of abnormality and is clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the fund, taking into account the environment in which the fund operates. Infrequency of occurrence PO 00000 Frm 00086 Fmt 4701 * * b REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 * means the expense is not reasonably expected to recur in the foreseeable future, taking into consideration the environment in which the fund operates. The environment of a fund includes such factors as the characteristics of the industry or industries in which it operates, the geographical location of its operations, and the nature and extent of governmental regulation. If extraordinary expenses were incurred that materially affected the Fund’s ‘‘Other Expenses,’’ disclose in a footnote to the table what ‘‘Other Expenses’’ would have been had the extraordinary expenses been included. * * * * * Item 27. Financial Statements * FORM N–5 * following Email address: publicinfo@ sec.gov. * * * * * ■ 122. Amend Form N–1A (referenced in §§ 239.15A and 274.11A) by: ■ a. Revising Item 1.(b)(3); ■ b. Revising Instruction 3.(c)(ii) to Item 3 and Instruction 2.(a)(ii) to Item 27.(d)(1); and ■ c. Removing Item 27.(d)(3)(iii) and redesignating current Item 27.(d)(3)(iv) as Item 27.(d)(3)(iii). The revisions read as follows: Sfmt 4700 * * (d) * * * (1) * * * * * Instructions * * * * * 2. * * * (a) * * * (ii) For purposes of this Item 27(d)(1), ‘‘Other Expenses’’ include extraordinary expenses. ‘‘Extraordinary expenses’’ refers to expenses that are distinguished by their unusual nature and by the infrequency of occurrence. Unusual nature means the expense has a high degree of abnormality and is clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the fund, taking into account the environment in which the fund operates. Infrequency of occurrence means the expense is not reasonably expected to recur in the foreseeable future, taking into consideration the environment in which the fund operates. The environment of a fund includes such factors as the characteristics of the industry or industries in which it operates, the geographical location of its operations, and the nature and extent of governmental regulation. If extraordinary expenses were incurred that materially affected the Fund’s ‘‘Other Expenses,’’ the Fund may disclose in a footnote to the Example what ‘‘actual expenses’’ would have been had the extraordinary expenses not been included. * * * * * (3). Statement Regarding Availability of Quarterly Portfolio Schedule. A statement that: (i) The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N–Q; (ii) the Fund’s Forms N–Q are available on the Commission’s E:\FR\FM\04OCR2.SGM 04OCR2 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations website at https://www.sec.gov; and (iii) if the Fund makes the information on Form N–Q available to shareholders on its website or upon request, a description of how the information may be obtained from the Fund. * * * * * ■ 123. Amend Form N–2 (referenced in §§ 239.14 and 274.11a–1) by revising Item 18.15 and revising Instruction 6.b to Item 24 to read as follows: Note: The text of Form N–2 does not, and this amendment will not, appear in the Code of Federal Regulations. FORM N–2 * * * * * b REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Note: The text of Form N–3 does not, and this amendment will not, appear in the Code of Federal Regulations. * FORM N–3 * * * * b REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 * * * * * * * * * * * * * * * 15. Codes of Ethics: Provide a brief statement disclosing whether the Registrant and its investment adviser and principal underwriter have adopted codes of ethics under Rule 17j–1 of the 1940 Act [17 CFR 270.17j–1] and whether these codes of ethics permit personnel subject to the codes to invest in securities, including securities that may be purchased or held by the Registrant. Also explain in the statement that these codes of ethics are available on the EDGAR Database on the Commission’s internet site at https:// www.sec.gov, and that copies of these codes of ethics may be obtained, after paying a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov. * * * * * Item 24. Financial Statements * * * * Instructions * * * * * 6. * * * b. a statement that: (i) The Registrant files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N–Q; (ii) the Registrant’s Forms N–Q are available on the Commission’s website at https:// VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 * * * * b REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 * * * * b REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 * Item 18. Management. * * * PART B—INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION daltland on DSKBBV9HB2PROD with RULES2 www.sec.gov; and (iii) if the Registrant makes the information on Form N–Q available to shareholders on its website or upon request, a description of how the information may be obtained from the Registrant. * * * * * ■ 124. Amend Form N–3 (referenced in §§ 239.17a and 274.11b) by: ■ a. Revising Instruction 4.(c)(i) to Item 3.(a); ■ b. Revising Item 20.(m); and ■ c. Removing Instruction 6.(ii)(C) to Item 28.(a) and redesignating current Instruction 6.(ii)(D) to Item 28.(a) as Instruction 6.(ii)(C) to Item 28.(a). The revisions read as follows: * * * * PART A—INFORMATION REQUIRED IN A PROSPECTUS * * * * * Item 3. Synopsis or Highlights * * * * * Instructions * * * * * 4. * * * (c) * * * (i) ‘‘Other Expenses’’ do not include extraordinary expenses. ‘‘Extraordinary expenses’’ refers to expenses that are distinguished by their unusual nature and by the infrequency of occurrence. Unusual nature means the expense has a high degree of abnormality and is clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the fund, taking into account the environment in which the fund operates. Infrequency of occurrence means the expense is not reasonably expected to recur in the foreseeable future, taking into consideration the environment in which the fund operates. The environment of a fund includes such factors as the characteristics of the industry or industries in which it operates, the geographical location of its operations, and the nature and extent of governmental regulation. If extraordinary expenses were incurred that materially affected the Registrant’s PO 00000 Frm 00087 Fmt 4701 Sfmt 4700 50233 ‘‘Other Expenses,’’ the Registrant should disclose in the narrative following the table what the ‘‘Other Expenses’’ would have been had extraordinary expenses been included. * * * * * Item 20. Management * * * * * (m) Provide a brief statement disclosing whether the Registrant and its investment adviser and principal underwriter have adopted codes of ethics under Rule 17j–1 of the 1940 Act [17 CFR 270.17j–1] and whether these codes of ethics permit personnel subject to the codes to invest in securities, including securities that may be purchased or held by the Registrant. Also explain in the statement that these codes of ethics are available on the EDGAR Database on the Commission’s internet site at https://www.sec.gov, and that copies of these codes of ethics may be obtained, after paying a duplicating fee, by electronic request at the following Email address: publicinfo@ sec.gov. * * * * * Item 28. Financial Statements (a) * * * Instructions (6) * * * (ii) a statement that: (A) the Registrant files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N–Q; (B) the Registrant’s Forms N–Q are available on the Commission’s website at https:// www.sec.gov; and (C) if the Registrant makes the information on Form N–Q available to contractowners on its website or upon request, a description of how the information may be obtained from the Registrant; * * * * * ■ 125. Amend Form N–4 (referenced in §§ 239.17b and 274.11c) by revising Item 1.(a)(v) and revising Instruction 17.(b) to Item 3(a) to read as follows: Note: The text of Form N–4 does not, and this amendment will not, appear in the Code of Federal Regulations. FORM N–4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 * * * * * REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 * E:\FR\FM\04OCR2.SGM * * 04OCR2 * * 50234 Federal Register / Vol. 83, No. 193 / Thursday, October 4, 2018 / Rules and Regulations INFORMATION REQUIRED IN A PROSPECTUS * * * * * Item 1. Cover Page (a) * * * (v) a statement or statements that: (A) The prospectus sets forth the information about the Registrant that a prospective investor ought to know before investing; (B) the prospectus should be kept for future reference; (C) additional information about the Registrant has been filed with the Commission and is available upon written or oral request without charge (This statement should explain how to obtain the Statement of Additional Information, whether any of it has been incorporated by reference into the prospectus, and where the table of contents of the Statement of Additional Information appears in the prospectus. If the Registrant intends to disseminate its prospectus electronically, also include the information that the Commission maintains a website (https:// www.sec.gov) that contains the Statement of Additional Information, material incorporated by reference, and other information regarding registrants that file electronically with the Commission.); * * * * * Item 3. Synopsis * * * * * Instructions daltland on DSKBBV9HB2PROD with RULES2 * * * * * 17. * * * (b) ‘‘Total Annual [Portfolio Company] Operating Expenses’’ do not include extraordinary expenses. ‘‘Extraordinary expenses’’ refers to expenses that are distinguished by their unusual nature and by the infrequency of occurrence. Unusual nature means the expense has a high degree of abnormality and is clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the fund, taking into account the environment in which the fund operates. Infrequency of occurrence means the expense is not reasonably expected to recur in the foreseeable future, taking into consideration the environment in which the fund operates. The environment of a fund includes such factors as the characteristics of the industry or industries in which it operates, the geographical location of its operations, and the nature and extent of VerDate Sep<11>2014 22:38 Oct 03, 2018 Jkt 247001 governmental regulation. If extraordinary expenses were incurred by any portfolio company that would, if included, materially affect the minimum or maximum amounts shown in the table, disclose in a footnote to the table what the minimum and maximum ‘‘Total Annual [Portfolio Company] Operating Expenses’’ would have been had the extraordinary expenses been included. * * * * * ■ 126. Amend Form N–6 (referenced in §§ 239.17c and 274.11d) by revising Item 1.(b)(3) and Instruction 4.(c) to Item 3 to read as follows: Note: The text of Form N–6 does not, and this amendment will not, appear in the Code of Federal Regulations. FORM N–6 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 b * * * * * REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 b * * * * * * * Note: The text of Form N–8B–2 does not, and this amendment will not, appear in the Code of Federal Regulations. FORM N–8B–2 * PART A: INFORMATION REQUIRED IN A PROSPECTUS * expected to recur in the foreseeable future, taking into consideration the environment in which the fund operates. The environment of a fund includes such factors as the characteristics of the industry or industries in which it operates, the geographical location of its operations, and the nature and extent of governmental regulation. If extraordinary expenses were incurred by any Portfolio Company that would, if included, materially affect the minimum or maximum amounts shown in the table, disclose in a footnote to the table what the minimum and maximum ‘‘Total Annual [Portfolio Company] Operating Expenses’’ would have been had the extraordinary expenses been included. * * * * * ■ 127. Amend Form N–8B–2 (referenced in § 274.12) by revising Item 52.(e) to read as follows: * REGISTRATION STATEMENT OF UNIT INVESTMENT TRUSTS WHICH ARE CURRENTLY ISSUING SECURITIES Item 1. Front and Back Cover Pages * * VII * * * * (b) * * * (3) State that reports and other information about the Registrant are available on the Commission’s internet site at https://www.sec.gov. * * * * * Item 3. Risk/Benefit Summary: Fee Table * * * * * Instructions. * * * * * 4. * * * (c) ‘‘Total Annual [Portfolio Company] Operating Expenses’’ do not include extraordinary expenses. ‘‘Extraordinary expenses’’ refers to expenses that are distinguished by their unusual nature and by the infrequency of occurrence. Unusual nature means the expense has a high degree of abnormality and is clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the fund, taking into account the environment in which the fund operates. Infrequency of occurrence means the expense is not reasonably PO 00000 Frm 00088 Fmt 4701 Sfmt 9990 * * * * POLICY OF REGISTRANT 52. * * * (e) Provide a brief statement disclosing whether the trust and its principal underwriter have adopted codes of ethics under rule 17j–l of the Act [17 CFR 270.l7j–l] and whether these codes of ethics permit personnel subject to the codes to invest in securities, including securities that may be purchased or held by the trust. Also explain that these codes of ethics are available on the EDGAR Database on the Commission’s internet site at https:// www.sec.gov, and that copies of these codes of ethics may be obtained, after paying a duplicating fee, by electronic request at the following Email address: publicinfo@sec.gov. * * * * * By the Commission. Dated: August 17, 2018. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–18142 Filed 10–3–18; 8:45 am] BILLING CODE 8011–01–P E:\FR\FM\04OCR2.SGM 04OCR2

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 83, Number 193 (Thursday, October 4, 2018)]
[Rules and Regulations]
[Pages 50148-50234]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18142]

[[Page 50147]]

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

[[Page 50148]]

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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 (202) 551-3400, Division of Corporation Finance; Alison
Staloch, Chief Accountant, at (202) 551-6918, Division of Investment
Management; Tim White, Senior Special Counsel, at (202) 551-5777,
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:

----------------------------------------------------------------------------------------------------------------
Commission reference CFR citation (17 CFR)
----------------------------------------------------------------------------------------------------------------
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.

[[Page 50149]]

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.

[[Page 50150]]

Form N-4................................................. Sec. 239.17b and 274.11c.
Form N-6................................................. Sec. 239.17c and 274.11d.
----------------------------------------------------------------------------------------------------------------

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

[[Page 50151]]

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.
---------------------------------------------------------------------------

Amendments involving Regulation S-K relate to domestic
issuers \21\ and foreign private issuers that elect to file on forms
used by domestic issuers.
---------------------------------------------------------------------------

\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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

\24\ For example, these forms include Forms F-1, F-3, F-4, and
20-F.
---------------------------------------------------------------------------

Some of the amendments also affect asset-backed issuers.\25\
---------------------------------------------------------------------------

\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\
---------------------------------------------------------------------------

\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.
---------------------------------------------------------------------------

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

[[Page 50152]]

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.
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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.
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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-

[[Page 50153]]

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 https://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1351027215692. See also pages 2 and 5 of the FASB
Rules of Procedures, available at https://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.
---------------------------------------------------------------------------

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)].
---------------------------------------------------------------------------

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.
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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 https://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
https://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

[[Page 50154]]

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.
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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: https://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: https://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: https://fasb.org/jsp/FASB/FASBContent_C/ProjectUpdatePage&cid=1176164227056.
See also Minutes from FASB Board Meeting (May 29, 2014),
available at: https://www.fasb.org/jsp/FASB/FASBContent_C/ProjectUpdatePage&cid=1176164227056.
\66\ See Minutes from FASB Board Meeting (May 29, 2014),
available at: https://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: https://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

[[Page 50155]]

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\
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\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

[[Page 50156]]

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.

[[Page 50157]]

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.
------------------------------------------------------------------------

[[Page 50158]]

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.
------------------------------------------------------------------------

[[Page 50159]]

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.

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

[[Page 50160]]

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: https://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.
---------------------------------------------------------------------------

\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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

\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'').
---------------------------------------------------------------------------

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

[[Page 50161]]

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.
---------------------------------------------------------------------------

\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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

\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

[[Page 50162]]

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

[[Page 50163]]

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
cases, would elicit information for a broader array of potentially
dilutive arrangements. For example, disclosure of the existence of
contingently issuable shares is not an explicit requirement in Item
201(a)(2)(i), though it is explicitly contemplated by the U.S. GAAP
requirement.\182\
---------------------------------------------------------------------------

\182\ See ASC 260-10-50.
---------------------------------------------------------------------------

e. Equity Compensation Plans
(1) Proposed Amendments
Regulation S-K prescribes the form and content for the disclosure
of existing equity compensation plans where equity securities are
authorized for issuance.\183\ This information is currently required in
Part III of Form 10-K, Item 11 of Form S-1, Item 9 of Form 10, and Item
10 of Schedule 14A.\184\ In 2004, the FASB issued SFAS No. 123 (revised
2004), Share-Based Payment (``SFAS No. 123R''), which resulted in
disclosures that overlap with Item 201(d).\185\
---------------------------------------------------------------------------

\183\ See Item 201(d) of Regulation S-K.
\184\ Item 1 of Schedule 14C [17 CFR 240.14c-101] also requires
inclusion of the information that would have been provided in a
Schedule 14A if proxies were being solicited even though consents
are not being solicited by the information statement.
\185\ See ASC 718-10-50-1 to 4. Additionally, ASC 505-50-50-1
requires similar disclosure when share based payments are made to
non-employees.
---------------------------------------------------------------------------

Regulation S-K incrementally requires: (1) For options, warrants,
or rights assumed in a business combination, disclosure of the number
of securities to be issued upon exercise and the weighted-average
exercise price,\186\ and (2) disclosure of any formula for calculating
the number of securities available for issuance under the plan.\187\
Item 201(d) further provides instructions about the aggregation of
equity compensation plan disclosures. Although these requirements are
not explicitly contained in U.S. GAAP, the Commission stated in the
Proposing Release that it believes the U.S. GAAP requirement to provide
disclosures to enable investors to understand the nature and terms of
equity compensation arrangements and the potential effects of those
arrangements on shareholders \188\ would result in reasonably similar
disclosures.
---------------------------------------------------------------------------

\186\ See Instruction 5 to Item 201(d).
\187\ See Instruction 8 to Item 201(d).
\188\ ASC 718-10-50-1a.
---------------------------------------------------------------------------

Regulation S-K also incrementally requires disaggregation of
information between equity compensation plans approved by security
holders and those not approved by security holders. The Commission
adopted these requirements in 2001 \189\ before the major national
securities exchanges required listed issuers to have, with limited
exceptions, shareholder approved plans.\190\ Because the exchanges
\191\ on which the majority of domestic issuers, representing
substantially all domestic issuer market capitalization, are listed now
have such requirements, the Commission stated in the Proposing Release
that it believed disaggregation of the disclosures about the plans in
this manner is no longer useful to investors.\192\
---------------------------------------------------------------------------

\189\ See Disclosure of Equity Compensation Plan Information,
Release No. 33-8048 (Dec. 21, 2001) [67 FR 232 (Jan. 2, 2002)].
\190\ For example, the New York Stock Exchange (``NYSE'')
listing standard does not require shareholder approval of employment
inducement awards, certain grants, plans, and amendments in the
context of mergers and acquisitions, and certain other specific
types of plans. See Self-Regulatory Organizations; New York Stock
Exchange, Inc. and National Association of Securities Dealers, Inc.;
Order Approving NYSE and Nasdaq Proposed Rule Changes and Nasdaq
Amendment No. 1 and Notice of Filing and Order Granting Accelerated
Approval to NYSE Amendments No. 1 and 2 and Nasdaq Amendments No. 2
and 3 Thereto Relating to Equity Compensation Plans, Release No. 34-
48108 (June 30, 2003) [68 FR 39995 (Jul. 3, 2003)]. See also New
York Stock Exchange, Listed Company Manual Sec. 303A.08; Nasdaq
Listing Rule 5635(c) and IM-5635-1; American Stock Exchange
Rulemaking Re: Shareholder Approval of Stock Option Plans and Other
Equity Compensation Arrangements, Release No. 34-48610 (Oct. 9,
2003) [68 FR 59650 (Oct. 16, 2003)]; and NYSE MKT Company Guide
Sec. 711.
\191\ These exchanges are the NYSE, NYSE MKT, and Nasdaq.
\192\ One commenter on the Disclosure Effectiveness Initiative
recommended that Item 201(d)(3), which requires the material
features of non-shareholder approved equity compensation plans, be
deleted, noting that such plans are either not material or covered
by other disclosure requirements. See letter from Disclosure
Effectiveness Working Group of the Federal Regulation of Securities
Committee and the Law & Accounting Committee of the American Bar
Association (``ABA Committee'') (Mar. 6, 2015), available at https://www.sec.gov/comments/disclosure-effectiveness/disclosureeffectiveness.shtml.
---------------------------------------------------------------------------

Based on the foregoing, the Commission proposed to delete Item
201(d) and the references to it in Part III of Form 10-K and Item 10(c)
of Schedule 14A. These proposed amendments would not affect the
disclosures related to new plans or modifications of existing plans
subject to shareholder action.\193\ Because disclosures required by
Item 201(d) are located with related information about the issuer's
common equity and related stockholder matters, while the corresponding
disclosures are in the notes to the financial statements, the proposed
amendments give rise to Disclosure Location--Prominence Considerations.
In particular, as a result of the proposed amendments, Item 201(d)
disclosures would no longer be provided in Schedule 14A \194\ alongside
information on equity compensation plans subject to security holder
action. Instead, investors would obtain that information from the notes
to the financial statements in the separate

[[Page 50164]]

Form 10-K filing. With the proposed amendments, issuers may also 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.
---------------------------------------------------------------------------

\193\ See Items 10(a), 10(b), and the Instructions to 10(c) of
Schedule 14A.
\194\ The proposed amendment to delete the Item 201(d)
requirements from Schedule 14A would result in such information
being omitted from information statements filed on Schedule 14C
disclosing adoption of an equity compensation plan when shareholder
consents are not being solicited.
---------------------------------------------------------------------------

(2) Comments on Proposed Amendments
Some commenters \195\ supported the proposed amendments, but a
number of commenters \196\ opposed eliminating certain Item 201(d)
disclosure requirements. Some commenters expressed concern that the
proposed amendments would eliminate the requirement to disclose the
number of shares available for future issuance,\197\ which they stated
is material to shareholders.\198\ Other commenters \199\ opposed
deleting the requirement to disclose the formula for calculating the
number of securities available for issuance under the equity
compensation plan.\200\ These commenters indicated that such disclosure
is not likely to occur without further clarification of how the general
disclosure principle in U.S. GAAP applies to the calculation, and
recommended we refer this item to the FASB for potential incorporation
into U.S. GAAP. Additionally, some commenters opposed the deletion of
the disaggregation disclosure requirement.\201\
---------------------------------------------------------------------------

\195\ See letters from E&Y; FedEx Corporation (Nov. 2, 2016)
(``FedEx''); Grant; and KPMG.
\196\ See, e.g. letters from AFL-CIO and AFR; CalSTRS; CalPERS;
CAQ; and Public Citizen.
\197\ See Instruction 5 of Item 201(d) of Regulation S-K.
\198\ See, e.g. letter from AFL-CIO and AFR.
\199\ See letters from CAQ; Deloitte; and PwC.
\200\ See Instruction 8 of Item 201(d) of Regulation S-K.
\201\ See letters from As You Sow, et al. and Public Citizen.
---------------------------------------------------------------------------

(3) Final Amendments
After further consideration, we are retaining the equity
compensation plans disclosure requirements and are referring them to
the FASB for potential incorporation into U.S. GAAP. We recognize the
concerns expressed by commenters that U.S. GAAP does not explicitly
require certain information, such as the formula for calculating the
number of securities available for issuance under the plan. This
information may be material to investors in making informed decisions
about the scope of an issuer's equity compensation program and the
potential dilutive effect, both economically and in voting power, of
awards authorized for issuance under all equity compensation plans.
f. Ratio of Earnings to Fixed Charges
(1) Proposed Amendments
Regulation S-K requires issuers that register debt securities to
disclose the historical and pro forma ratios of earnings to fixed
charges.\202\ Regulation S-K also requires issuers that register
preference equity securities to disclose the historical and pro forma
ratio of combined fixed charges and preference dividends to earnings
(collectively, ``ratio of earnings to fixed charges'').\203\ Regulation
S-K further requires the filing of an exhibit setting forth the
computation of any ratio of earnings to fixed charges.\204\ Similarly,
Instruction 7 to ``Instructions as to Exhibits'' of Form 20-F requires
foreign private issuers to disclose how any ratio of earnings to fixed
charges presented in the filing was calculated. U.S. GAAP and IFRS
require disclosure of many of the components commonly used in this
ratio (e.g., income, interest expense, lease expense), as well as
information from which other ratios that convey reasonably similar
information about an issuer's ability to meet its financial obligations
may be computed.
---------------------------------------------------------------------------

\202\ See Item 503(d) and Item 1010(a)(3) of Regulation M-A.
These requirements only apply to non-SRCs. See Item 503(e) and Item
601(c) of Regulation S-K.
\203\ Id.
\204\ Item 601(b)(12).
---------------------------------------------------------------------------

A variety of analytical tools are available today to investors that
may accomplish a similar objective as the ratio of earnings to fixed
charges. This ratio measures the issuer's ability to service fixed
financing expenses--specifically, interest expense, including
management's approximation of the portion of lease expense that
represents interest expense, and preference dividend requirements--from
earnings. Other ratios that accomplish similar objectives include other
variations of the ratio of earnings to fixed charges,\205\ the interest
coverage ratio,\206\ and the debt-service coverage ratio,\207\ which
can be calculated based on information readily available in the
financial statements. Certain components commonly used in the ratio of
earnings to fixed charges, such as the portion of lease expense that
represents interest \208\ and the amortization of capitalized interest,
are not readily available elsewhere. Despite this, the requirement to
disclose the ratio of earnings to fixed charges, as opposed to the
various components (e.g., income, interest expense, lease expense) of
this ratio that investors may use as desired, may place undue emphasis
on this particular measure.
---------------------------------------------------------------------------

\205\ Other variations of the ratio of earnings to fixed charges
include alternative earnings measures such as earnings before
interest and taxes and alternative fixed charges measures such as
total lease payments and one-third of lease payments (to approximate
the interest component in lease payments).
\206\ The interest coverage ratio is often calculated as
earnings before interest and taxes divided by interest payments.
\207\ The debt-service coverage ratio is often calculated as
operating income divided by total debt service.
\208\ In January 2016, the IASB issued IFRS 16, Leases, which is
effective on January 1, 2019, with early application permitted in
certain circumstances. Under IFRS 16, interest expense will be
recognized for all leases with a term of more than 12 months, unless
the underlying asset is of low value. In February 2016, the FASB
issued ASU No. 2016-02, Leases (Topic 842) (``ASU No. 2016-02''),
which is effective for fiscal years beginning after December 15,
2018, with early application permitted. Under ASU No. 2016-02,
leases with a term of more than 12 months will be classified into
one of two types, with one type requiring recognition of an interest
expense component (a finance lease) and the other type requiring
recognition of lease expense without separate recognition of
interest expense (an operating lease). Like IFRS 16, interest
expense will not be recognized on leases with a term less than 12
months. Interested parties may still need to estimate the portion of
lease expense that is viewed to represent interest for operating
leases in order to determine the components of the ratio of earnings
to fixed charges, which will be facilitated by disclosure of the
weighted-average discount rate for operating leases required by ASU
No. 2016-02.
---------------------------------------------------------------------------

Moreover, while debt agreements may contain fixed charge coverage
covenants,\209\ debt investors often negotiate contractual agreements
with issuers to obtain financial information to meet their needs,\210\
which may be more relevant and useful than a

[[Page 50165]]

prescribed disclosure of a ratio of earnings to fixed charges.
Companies are also required to discuss the material impacts of these
covenants to the extent that they are reasonably likely to limit the
company's ability to undertake additional financing or are reasonably
likely to be breached.\211\
---------------------------------------------------------------------------

\209\ See Gerald T. Nowak P.C., Negotiating the High-Yield
Indenture, (Feb. 17, 2009), available at https://www.pli.edu/emktg/toolbox/HighYield_Indenture13.pdf (noting that a typical high-yield
credit agreement might require the debtor to maintain a certain
level of revenue or a certain ratio of earnings to fixed charges).
See also Li, Ningzhoung, Performance Measures in Earnings-Based
Financial Covenants in Debt Contracts, LONDON BUS. SCH. (2011)
available at https://www.olin.wustl.edu/docs/Faculty/Performance_measures_in_earnings_based_financial_covenants.pdf
(noting that fixed charge coverage covenants are common in loan
documents).
\210\ One commenter on the Disclosure Effectiveness Initiative
stated: ``Many of [the financial metrics debt investors use to
evaluate an issuer's financial position and liquidity] are reflected
in the measures of performance or liquidity that are defined in the
issuers' debt instruments. For investors in such instruments, a
metric that is tied to a contractually defined covenant test is more
useful than the SEC-mandated disclosure. Importantly, our experience
is that market participants in unregistered debt offerings--initial
purchasers as well as institutional investors--do not generally
request or require that the SEC-prescribed ratio of earnings to
fixed charges be included in the offering document; instead, issuers
disclose one or more interest coverage ratios or similar financial
metrics that are calculated with reference to the instruments
governing the securities being offered.'' See letter from ABA
Committee (Mar. 6, 2015), available at https://www.sec.gov/comments/disclosure-effectiveness/disclosureeffectiveness-32.pdf.
\211\ See 2003 MD&A Release.
---------------------------------------------------------------------------

Based on these considerations, the Commission proposed to remove
the requirement to disclose the ratio of earning to fixed charges by
deleting Item 503(d) and Item 601(b)(12).\212\ The Commission also
proposed to delete Instruction 7 to ``Instructions as to Exhibits'' of
Form 20-F.
---------------------------------------------------------------------------

\212\ The Commission additionally proposed conforming revisions
to Item 503(e), Item 601(c), the Exhibit Table in Item 601, Item
1010(a)(3), Item 1010(b)(2), Item 1010(c)(4), Item 3 of Form S-1,
Item 3 of Form S-3, Item 3 of Form S-4, Item 3 of Form S-11, Item 3
of Form F-1, Item 3 of Form F-3, and Item 3 of Form F-4.
---------------------------------------------------------------------------

(2) Comments on Proposed Amendments
Commenters were supportive of the proposed amendments.\213\ One of
these commenters indicated that, in its experience, the ratio of
earnings to fixed charges is generally not used by investors or other
users of financial statements, and debt covenant financial requirements
may already be disclosed where material \214\ and vary significantly
from company to company.\215\ Another commenter, while supportive of
the proposed amendments, recommended that the Commission obtain
feedback from investors about the continued utility of the pro forma
ratio disclosure, as information on a pro forma basis may not be as
readily available.\216\
---------------------------------------------------------------------------

\213\ See, e.g. letters from CAQ; CGCIV; National Association of
Real Estate Investments Trusts (Oct. 28, 2016) (``NAREIT''); and
Shearman and USCC.
\214\ For example, the 2003 MD&A release (https://www.sec.gov/rules/interp/33-8350.htm) states that if covenants limit, or are
reasonably likely to limit, a company's ability to undertake
financing to a material extent, the company is required to discuss
the covenants in question and the consequences of the limitation to
the company's financial condition and operating performance.
\215\ See letter from FedEx.
\216\ See letter from Deloitte.
---------------------------------------------------------------------------

(3) Final Amendments
We are adopting the amendments as proposed, including the
elimination of the pro forma ratio. Although one commenter suggested
that pro forma information may be less readily available, we note that
information about the offering's effect on fixed charges, such as the
interest rate, maturities, and amount of proceeds used to discharge
indebtedness, is currently required by Item 504 of Regulation S-K.\217\
---------------------------------------------------------------------------

\217\ Item 504 of Regulation S-K requires disclosure of the
principal purposes for which the net proceeds to the registrant from
the securities to be offered are intended to be used and the
approximate amount intended to be used for each such purpose. In
addition, Instruction 4 of Item 504 of Regulation S-K requires
disclosure of the interest rate and maturity of such indebtedness,
if any material part of the proceeds is to be used to discharge
indebtedness.
---------------------------------------------------------------------------

g. Other
(1) Proposed Amendments
The table below describes each of the remaining disclosure
requirements that are overlapping with U.S. GAAP and the proposed
amendments.\218\
---------------------------------------------------------------------------

\218\ These proposed amendments are discussed in further detail
in Section III.C of the Proposing Release.
\219\ See, e.g., ASC 505-10-45.
\220\ As described in the Proposing Release, REITs are not
subject to entity-level taxation on the amounts distributed to their
investors. Rather, their investors are liable for taxes on these
distributions, depending on the character of the dividends (i.e.,
ordinary income, capital gains, or return of capital) the REIT
distributes to them. Because the amount of undistributed gains or
losses required by Rule 3-15(a)(2) of Regulation S-X is not
presented on a tax basis, this disclosure does not provide investors
with insight into the tax implications of the REIT's distributions.
\221\ See ASC 810-10-45-12.
\222\ See ASC 810-10-45-13.
\223\ See ASC 946-20-50-11.
\224\ Similar to REITs, registered investment companies are
generally structured such that they are not subject to entity-level
taxation on the amounts distributed to their investors.
\225\ See ASC 944-40-50.
\226\ See ASC 250-10-50-1 and ASC 270-10-50-1g.

------------------------------------------------------------------------
Commission
Topic disclosure Proposed amendments
requirement(s)
------------------------------------------------------------------------
REIT Disclosures-- Rule 3-15(a)(2) Delete as U.S. GAAP
Undistributed Gains or Losses of Regulation S- \219\ also sets
on the Sale of Properties. X. forth presentation
of components of
stockholders' equity
and the incremental
requirement to
separately present
undistributed gain/
loss on the sale of
properties on a book
basis is not useful
to investors because
of the unique tax
status of
REITs.\220\
Consolidation--Difference in Rule 3A-02(b)(1) Delete as U.S. GAAP
Fiscal Periods. of Regulation S- \221\ requires
X. similar
presentations. The
incremental
requirements in Rule
3A-02(b)(1) (1) to
disclose the
subsidiary's fiscal
year closing date
and (2) an
explanation of the
necessity for using
different closing
dates are no longer
useful to investors
because U.S. GAAP's
requirements to
recognize by
disclosure or
otherwise the effect
of intervening
events that
materially affect
the financial
position or results
of operations
eliminates the
effect of
differences in the
fiscal periods of
the issuer and its
subsidiaries.
Consolidation--Changes in Final sentence of Delete the final
Fiscal Periods. Rule 3A-03(b) of sentence of this
Regulation S-X. requirement as U.S.
GAAP \222\ provides
similar, but more
specific,
requirements, which
limit potential
changes, provide for
more consistency in
issuer financial
statements and
result in better
financial reporting.
Distributable Earnings for Rule 6-04.17 of Amend to require
Registered Investment Regulation S-X. presentation of the
Companies. total, rather than
the components, of
distributable
earnings on the
balance sheet. U.S.
GAAP \223\ requires
similar presentation
and the incremental
requirement to
separately present
three components of
distributable
earnings on a book
basis is not useful
to investors because
they do not provide
insight into the tax
implications of
distributions.\224\
Rule 6-09.7 of Delete the
Regulation S-X. requirement for
parenthetical
disclosure of
undistributed net
investment income on
the statement of
changes in net
assets on a book
basis, as it does
not provide insight
into the tax
implications of
distributions.
Insurance Companies--Liability Rule 7- Delete as U.S. GAAP
Assumptions. 03(a)(13)(b) of \225\ does not limit
Regulation S-X. its disclosure to
certain assumptions,
and therefore, it
may elicit more
disclosure.
Interim Financial Statements-- Rule 8-03(b)(5) Delete the
Changes in Accounting and Rule 10- requirement for
Principles. 01(b)(6) of disclosure of the
Regulation S-X. date of any material
accounting change,
as U.S. GAAP \226\
requires disclosure
of the accounting
change in the period
of the change.
------------------------------------------------------------------------

(2) Comments on Proposed Amendments

Commenters supported these proposed amendments.\227\ In addition,
commenters identified another overlapping requirement in Regulation

[[Page 50166]]

S-X for Registered Investment Companies.\228\ The commenters noted that
Rule 6-09.3 of Regulation S-X requires separate disclosure of
distributions paid to shareholders from (a) Investment income--net; (b)
realized gain from investment transactions--net; and (c) other sources,
while U.S. GAAP requires distributions paid to be disclosed as a single
line item.\229\ These commenters recommended amending Regulation S-X to
align it with the requirements in U.S. GAAP.
---------------------------------------------------------------------------

\227\ See, e.g. letters from CAQ and NAREIT.
\228\ See letters from E&Y and Investment Company Institute
(Nov. 2, 2016).
\229\ See ASC 946-20-50-8.
---------------------------------------------------------------------------

(3) Final Amendments
We are adopting all of the amendments described in the table above
as proposed. We are also amending Rule 6-09.3 of Regulation S-X, as
suggested by commenters and similar to the amendments to Rule 6.04-17,
to require presentation of the total, rather than the components, of
distributions to shareholders, except for tax return of capital
distributions. U.S. GAAP requires similar presentation of information
as the Regulation S-X requirements, and the incremental requirement to
separately present certain components is not useful to investors
because of the unique tax status of registered investment companies.
2. Other Overlapping Disclosure Requirements
The Proposing Release also identified overlapping Commission
disclosure requirements. These disclosure requirements and the related
proposed amendments are described in the table below.\230\
---------------------------------------------------------------------------

\230\ These proposed amendments are discussed in further detail
in Section III.C of the Proposing Release.

Commenters supported the proposed amendments.\235\ We are adopting
all of the amendments described in the table above as proposed because
investors will continue to receive similar information under other
Commission disclosure requirements.
---------------------------------------------------------------------------

\231\ Items 101(a)(1), 503(c), and 303(a)(3)(ii) of Regulation
S-K.
\232\ For REITs, the primary assumption in making or not making
federal income tax provisions is the issuer's continued REIT status
and its consideration of the risks affecting its continued REIT
status. Therefore, the Regulation S-K requirement to disclose
significant risk factors and a description of known uncertainties
that are reasonably expected to have a material effect on income
elicit this information. In addition, issuers often repeat or expand
on the Regulation S-X disclosures in their risk factor disclosures.
\233\ In this release, we are adopting amendments to Rule 8-03
and Rule 10-01 of Regulation S-X to mandate that Rule 3-04 be
applied to interim periods. See Section V.B.2 below.
\234\ The Commission also proposed to delete its accompanying
reference in the Exhibit Table within Item 601.
\235\ See, e.g. letters from CAQ; KPMG; and PwC.
---------------------------------------------------------------------------

3. Overlapping Disclosure Requirements With Both U.S. GAAP and Other
Commission Disclosure Requirements
The Proposing Release identified several Commission disclosure
requirements that overlap with both U.S. GAAP and other Commission
disclosure requirements.
a. Interim Financial Statements--Pro Forma Business Combination
Information
(1) Proposed Amendments
Regulation S-X \236\ and U.S. GAAP \237\ both require supplemental
pro forma information about business combinations in the notes to
interim financial statements. These disclosure requirements differ in
two ways: (1) Scope and (2) the line items required to be disclosed.
Notwithstanding these differences, the Proposing Release noted that
U.S. GAAP and Item 9.01 of Form 8-K \238\ result in disclosures
reasonably similar to the corresponding requirements in Regulation S-X.
---------------------------------------------------------------------------

\236\ See Rule 8-03(b)(4) and Rule 10-01(b)(4) of Regulation S-
X. Rule 8-03(b)(4) specifically applies to SRCs and Regulation A
issuers in a Tier 2 offering that report under U.S. GAAP, while 10-
01(b)(4) applies to non-SRCs.
\237\ See ASC 270-10-50-7, which refers to ASC 805-10-50-2h.3
for purposes of interim disclosures.
\238\ 17 CFR 249.308.
---------------------------------------------------------------------------

Regulation S-X requires disclosure of pro forma information for
``significant'' business combinations for SRCs and Regulation A issuers
in a Tier 2 offering that report under U.S. GAAP and ``material''
business combinations for non-SRCs. U.S. GAAP, on the other hand, does
not qualify the size of the business combinations to which pro forma
information requirements apply. Accordingly, the requirements in U.S.
GAAP apply to the same or a greater number of business combinations
and, thus, subsume the scope of the corresponding requirements in
Regulation S-X.
With respect to the line items required to be disclosed, Regulation
S-X requires disclosure of pro forma revenue, net income, net income
attributable to the issuer, and net income per share. Regulation S-X
also requires SRCs and Regulation A issuers in a Tier 2 offering that
report under U.S. GAAP to disclose pro forma income from continuing
operations. U.S. GAAP only requires disclosure of pro forma revenue and
earnings. This difference resulted from changes to U.S. GAAP, in part
to converge with IFRS, in 2007.\239\
---------------------------------------------------------------------------

\239\ For additional discussion of this difference, see Section
III.C.9 of the Proposing Release, supra note 1, at 51621.
---------------------------------------------------------------------------

As a result of these changes, issuers are required to disclose more
pro forma information about business combinations in interim periods
than in annual periods,\240\ even though Regulation S-X generally
imposes fewer obligations with regard to interim

[[Page 50167]]

financial statements.\241\ Moreover, Rule 8-03(b)(4) requires SRCs and
Regulation A issuers in a Tier 2 offering that report under U.S. GAAP
to present more line items than the corresponding requirement in Rule
10-01(b)(4) for non-SRCs, even though Commission disclosure
requirements, as a general matter, provide certain accommodations for
SRCs \242\ and Regulation A issuers.
---------------------------------------------------------------------------

\240\ See ASC 805-10-50-2h.3.
\241\ For example, Article 8 and Article 10 of Regulation S-X
permit the presentation of condensed financial statements, do not
require audits of interim financial statements, allow issuers to
assume that a user has read the preceding year's audited financial
statements, permit omission of details of accounts that have not
changed significantly since the audited balance sheet date, and
permit omission of the disclosures required by Rule 4-08 of
Regulation S-X.
\242\ For example, SRCs are required to present two, rather than
three, years of financial statements and are not required to present
selected financial data in accordance with Item 301 of Regulation S-
K [17 CFR 229.301].
---------------------------------------------------------------------------

In proposing these amendments, the Commission noted that Item 9.01
of Form 8-K mitigates at least in part the absence of a U.S. GAAP
requirement to present pro forma earnings per share, as it requires
SRCs and non-SRCs to file pro forma financial information for
significant acquisitions, including earnings per share, through the
issuer's most recently filed balance sheet.\243\ We note, however, this
pro forma financial information would not cover the same periods as the
pro forma information required under Rule 8-03(b)(4) and Rule 10-
01(b)(4) for SRCs and non-SRCs, and Form 8-K does not apply to
Regulation A issuers.\244\
---------------------------------------------------------------------------

\243\ Rule 11-01(a) and Rule 11-02(b)(7) of Regulation S-X. [17
CFR 210.11-01(a)].
\244\ For example, for a significant acquisition that occurs on
September 1, 2015, the Form 8-K would contain pro forma financial
information for the year ended December 31, 2014 and the six months
ended June 30, 2015 and 2014. Under Rule 8-03(b)(4) and Rule 10-
01(b)(4), however, the Form 10-Q for the nine months ended September
30, 2015 would be required to include pro forma disclosures for the
nine months ended September 30, 2015 and 2014.
---------------------------------------------------------------------------

Based on the foregoing, the Commission proposed to eliminate the
requirements for pro forma financial information in interim filings for
business combinations in Rule 8-03(b)(4) and Rule 10-01(b)(4).
(2) Comments on Proposed Amendments
Several commenters supported the proposal to eliminate pro forma
business combination financial information in interim filings.\245\
However, other commenters opposed eliminating these requirements,
expressing concern over the level of disclosure about merger and
acquisition activities.\246\ One commenter stated that frequent
financial reporting about mergers, such as pro forma results on an
interim basis, results in the issuer more timely identifying and
disclosing problems related to a merger.\247\ Another commenter
recommended the disclosure requirements be improved rather than deleted
because they provide a window into merger and acquisition
activities.\248\
---------------------------------------------------------------------------

\245\ See letters from CAQ; Deloitte; E&Y; Grant; KPMG, and PwC.
\246\ See letters from As You Sow, et al. and Zevin.
\247\ See letter from Public Citizen.
\248\ See letter from Zevin.
---------------------------------------------------------------------------

(3) Final Amendments
We are deleting the requirement for pro forma financial information
in interim filings for business combinations in Rule 8-03(b)(4) and
Rule 10-01(b)(4) as proposed. We continue to believe that U.S. GAAP,
and Item 9.01 of Form 8-K for SRCs and non-SRCs, result in reasonably
similar disclosures as the corresponding requirements we are deleting.
We also believe the elimination of these requirements will not result
in less frequent financial reporting about mergers and their impact on
issuers because U.S. GAAP will continue to require disclosure of such
activities in interim periods as well as year-end.\249\
---------------------------------------------------------------------------

\249\ See ASC 270-10-50, which requires disclosure of unusual
and infrequent items and references business combinations.
---------------------------------------------------------------------------

b. Interim Financial Statements--Dispositions by SRCs and Tier 2
Regulation A Issuers
(1) Proposed Amendments
For significant dispositions, Regulation S-X requires SRCs and
Regulation A issuers in a Tier 2 offering that report under U.S. GAAP
to disclose in the notes to the financial statements pro forma
information. The pro forma disclosure requirements for dispositions for
these issuers are the same as described above for significant business
combinations.\250\
---------------------------------------------------------------------------

\250\ See Rule 8-03(b)(4) of Regulation S-X, which requires pro
forma revenue, income from continuing operations, net income, net
income attributable to the issuer, and net income per share for all
interim periods presented, as though the disposition occurred at the
beginning of the periods.
---------------------------------------------------------------------------

There are two types of dispositions: (1) Those that meet the
definition of discontinued operations and (2) all others (hereafter
referred to as ``other dispositions''). U.S. GAAP requires that the
effects of discontinued operations be isolated and separately presented
on the income statement on a retrospective basis,\251\ thereby
obviating the need for pro forma information for discontinued
operations in the notes to the financial statements.
---------------------------------------------------------------------------

\251\ See ASC 205-20-45.
---------------------------------------------------------------------------

For other dispositions, we believe the disclosures required by U.S.
GAAP generally result in reasonably similar disclosures as the pro
forma disclosures mandated by Rule 8-03(b)(4). Specifically, U.S. GAAP
requires disclosure of pre-tax profit and pre-tax profit attributable
to the parent for individually significant dispositions for all interim
periods presented.\252\ However, U.S. GAAP does not contain an
equivalent to the requirement in Rule 8-03(b)(4) to disclose pro forma
revenues as if the other disposal occurred at the beginning of the
periods presented.
---------------------------------------------------------------------------

\252\ See ASC 270-10-50-7, which refers to ASC 360-10-50-3A for
purposes of interim disclosures.
---------------------------------------------------------------------------

The Proposing Release noted that Item 9.01(b) of Form 8-K may help
mitigate any loss of information about pro forma revenues, as it
requires SRCs to file within four business days after a significant
disposition, pro forma financial information pursuant to Rule 8-05 of
Regulation S-X, including revenue, income from continuing operations,
and income per share, through the most recently filed balance sheet
date. This pro forma financial information would not cover the same
periods as the separate results required under Rule 8-03(b)(4) and is
not applicable to Regulation A issuers.\253\
---------------------------------------------------------------------------

\253\ For example, for a significant disposal that occurs on
August 3, 2017, the Form 8-K filed by August 7, 2017, would contain
pro forma financial information for the year ended December 31, 2016
and the three months ended March 31, 2017 and 2016, as if the
disposal had occurred on January 1, 2016. In contrast, Rule 8-
03(b)(4) would require pro forma disclosures in the September 30,
2017 interim financial statements, filed on Form 10-Q by November
16, 2017, for the nine months ended September 30, 2017 and 2016, as
if the disposal had occurred at the beginning of each period
presented.
---------------------------------------------------------------------------

In addition, Rule 8-03(b)(4) requires SRCs and Regulation A issuers
in a Tier 2 offering that report under U.S. GAAP to disclose more
information about dispositions in interim periods than in annual
periods,\254\ even though Regulation S-X, as noted above, generally
imposes fewer obligations with regard to interim financial statements.
Moreover, Rule 8-03(b)(4) requires SRCs and Regulation A issuers in a
Tier 2 offering that report under U.S. GAAP to disclose more extensive
information about other dispositions than is required of non-SRCs,\255\
even though Commission disclosure requirements, as a general matter,
provide certain scaled disclosure accommodations for SRCs.\256\
---------------------------------------------------------------------------

\254\ See ASC 360-10-50-3A.
\255\ See Rule 10-01(b)(5) of Regulation S-X.
\256\ See supra note 234.

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[[Page 50168]]

Accordingly, the Commission proposed to delete the pro forma
disclosure requirements in Rule 8-03(b)(4).
(2) Comments on Proposed Amendments
Commenters \257\ indicated that the requirement in Item 9.01 of
Form 8-K \258\ to provide pro forma financial information pursuant to
Rule 8-05 does not sufficiently substitute for the pro forma disclosure
requirement for significant dispositions in Rule 8-03(b)(4) for SRCs
because Item 9.01 of Form 8-K only refers to significant acquisitions
and does not reference dispositions. Several of these commenters were
nevertheless supportive of the proposed deletion because, in their
observation, a number of issuers provide pro forma information for
significant dispositions under Item 9.01 of Form 8-K despite there not
being an explicit requirement.\259\ Some commenters recommended that
the Commission amend Article 8 to encompass significant
dispositions.\260\
---------------------------------------------------------------------------

\257\ See letters from BDO USA LLP (November 1, 2016) (``BDO'');
CAQ; Deloitte; E&Y; and PwC.
\258\ Item 9.01(b)(1) of Form 8-K states, ``For any transaction
required to be described in answer to Item 2.01 of this form,
furnish any pro forma financial information that would be required
pursuant to Article 11 of Regulation S-X [17 CFR 210] or Rule 8-05
of Regulation S-X [17 CFR 210.8-05] for smaller reporting
companies.''
\259\ See letters from BDO; CAQ; Deloitte; E&Y; Grant; KPMG; and
PwC.
\260\ See letters from BDO; CAQ; Deloitte; E&Y; and PwC.
---------------------------------------------------------------------------

(3) Final Amendments
After further consideration, we are retaining the pro forma
disposition disclosure requirement in Rule 8-03(b)(4). We believe the
views expressed by commenters about Item 9.01(b) of Form 8-K and its
reference to the pro forma requirements for significant acquisitions in
Article 8 of Regulation S-X \261\ warrant additional analysis and
consideration.
---------------------------------------------------------------------------

\261\ Rule 8-05 of Regulation S-X.
---------------------------------------------------------------------------

c. Segments
(1) Proposed Amendments
Item 101(b) of Regulation S-K requires disclosure of segment
financial information, restatement of prior periods when reportable
segments change, and discussion of interim segment performance that may
not be indicative of current or future operations. U.S. GAAP \262\ and
Item 303(b) of Regulation S-K \263\ require similar disclosures.
Moreover, Item 101(b) explicitly permits issuers to cross-reference
between the notes to the financial statements and the description of
business to avoid duplicative disclosures about segments. The
Commission, therefore, proposed to delete Item 101(b).
---------------------------------------------------------------------------

\262\ See ASC 280-10-50-22, ASC 280-10-50-34, and ASC 280-10-50-
35.
\263\ Specifically, Instruction 4 of Item 303(b) of Regulation
S-K, which addresses interim periods, requires that the registrant's
discussion of material changes in results of operations shall
identify any significant elements of the registrant's income or loss
from continuing operations which do not arise from or are not
necessarily representative of the registrant's ongoing business. The
introductory paragraph to Item 303(b) also states that the interim
discussion and analysis shall include a discussion of material
changes in those items specifically listed in paragraph (a) of the
Item. Since paragraph (a) indicates that, where in a registrant's
judgment a discussion of segment information or of other
subdivisions of the registrant's business would be appropriate to an
understanding of such business, the discussion shall focus on each
relevant, reportable segment or other subdivision of the business
and on the registrant as a whole, the requirement in Item 101(b)(2)
of Regulation S-K is duplicative of Item 303 requirements.
---------------------------------------------------------------------------

Regulation A issuers are similarly required to cross-reference to
their segment disclosures under U.S. GAAP or IFRS.\264\ The Commission,
therefore, also proposed to delete Item 7(b) of Form 1-A.
---------------------------------------------------------------------------

\264\ See Item 7(b) of Form 1-A.
---------------------------------------------------------------------------

Because the disclosure required by Item 101(b) of Regulation S-K
and Item 7(b) of Form 1-A (or the cross-reference to the notes to the
financial statements) are located in the business description section
of the filing, while the corresponding U.S. GAAP disclosures are in the
notes to the financial statements, the Commission noted in the
Proposing Release that the proposed elimination gives rise to
Disclosure Location--Prominence Considerations.
(2) Comments on Proposed Amendments
Most commenters supported the proposed amendments.\265\ One of
these commenters \266\ observed that another disclosure
requirement,\267\ which requires segment disclosures for each year an
audited financial statement is provided, also overlaps with U.S.
GAAP.\268\ One commenter opposed the proposed amendments, stating that
the segment disclosures in Item 101(b) of Regulation S-K, 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.\269\
---------------------------------------------------------------------------

\265\ See letters from CAQ; Deloitte; E&Y; Grant; KPMG; and PwC.
\266\ See letter from Deloitte.
\267\ See Rule 3-03(e) of Regulation S-X.
\268\ See ASC 280-10-50-20.
\269\ See letter from CalSTRS.
---------------------------------------------------------------------------

(3) Final Amendments
We are eliminating the requirements in Item 101(b) of Regulation S-
K and Item 7(b) of Form 1-A as proposed. While this will remove the
requirement to provide financial information about segments in the
business description section, these disclosures will continue to be
available in the notes to the financial statements. Accordingly, we do
not believe eliminating the requirement will affect the assessment and
understanding of a company's ability to create long-term value for
shareholders. Additionally, we are eliminating Rule 3-03(e) of
Regulation S-X, as suggested by a commenter, because it is also
redundant with U.S. GAAP.\270\ Further, U.S. GAAP requirements are
broader than Rule 3-03(e) because U.S. GAAP requires segment
disclosures for all periods for which a statement of income is
provided, including unaudited interim periods, while Rule 3-03(e)
requires the disclosure for each year for which an audited statement of
income is provided.
---------------------------------------------------------------------------

\270\ See ASC 280-10-50-20
---------------------------------------------------------------------------

d. Geographic Areas
(1) Proposed Amendments
Regulation S-K \271\ requires disclosure of financial information
by geographic area. U.S. GAAP requires similar disclosures.\272\ Item
101(d)(2) explicitly permits issuers to cross-reference between the
notes to the financial statements and the description of business to
avoid duplicative disclosures about geographic areas. The Commission,
therefore, proposed to delete Item 101(d)(1) and Item 101(d)(2).
---------------------------------------------------------------------------

\271\ Items 101(d)(1) and 101(d)(2).
\272\ See ASC 280-10-50-41.
---------------------------------------------------------------------------

Further, Item 101(d)(3) of Regulation S-K requires disclosures of
any risks associated with an issuer's foreign operations and any
segment's dependence on foreign operations. The Proposing Release
stated that Item 101(d)(3) requires disclosures that appear to be
largely encompassed by the disclosures that result from compliance with
other parts of Regulation S-K. For example, Item 503(c) of Regulation
S-K requires disclosure of significant risk factors.
In addition, Item 303(a) of Regulation S-K requires disclosure of
trends and uncertainties by segment, if appropriate to an understanding
of the issuer as a whole, which would include disclosure of a segment's
dependence on foreign operations. The Commission, therefore, proposed
to delete Item 101(d)(3).

[[Page 50169]]

(2) Comments on Proposed Amendments
Most commenters \273\ were supportive of the proposed amendment,
while a few commenters \274\ opposed it. One commenter stated that the
geographic area 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.\275\ Another
commenter expressed concern that the Commission is proposing to reduce
information about the geographic segments of a business when geographic
factors are growing in importance (i.e., foreign tax
consideration).\276\ This commenter further suggested that the
Commission should simultaneously add explicit references to geographic
factors in the required discussions of business risk and trends, if
Items 101(d)(l)-(3) are eliminated.
---------------------------------------------------------------------------

\273\ See letters from CAQ; Deloitte; E&Y; Grant; KPMG; and PwC.
\274\ See letters from Bean; and CalSTRS.
\275\ See letter from CalSTRS.
\276\ See letter from Bean.
---------------------------------------------------------------------------

(3) Final Amendments
We are eliminating the requirements in Item 101(d) as proposed. We
believe that U.S. GAAP requires reasonably similar disclosures and note
that Item 101(d)(2) explicitly permits issuers to cross-reference
between the notes to the financial statements and the description of
business to avoid duplicative disclosures about geographic areas.
Further, we are amending, as proposed, Item 303(a) of Regulation S-K to
add an explicit reference to ``geographic areas.'' \277\ We believe
this requirement, along with the disclosures required under Item 503(c)
of Regulation S-K, will provide the disclosure necessary to understand
the risks associated with geographic factors and to assess a company's
ability to create long-term value for shareholders.
---------------------------------------------------------------------------

\277\ See discussion in Section III.C.3 below.
---------------------------------------------------------------------------

e. Seasonality
(1) Proposed Amendments
Regulation S-K \278\ and U.S. GAAP \279\ both require disclosures
about seasonality in interim periods. Item 101(c)(1)(v) of Regulation
S-K requires annual seasonality disclosure. Seasonality, by definition,
relates to variations within annual periods, so the effects of
seasonality are not evident in annual financial statements. The
Proposing Release stated that interim seasonality disclosures required
under U.S. GAAP seem more useful to investors than annual seasonality
disclosures.
---------------------------------------------------------------------------

\278\ Instruction 5 to Item 303(b) of Regulation S-K requires a
discussion of any seasonal aspects of an issuer's business where the
effect is material.
\279\ See ASC 270-10-45-11.
---------------------------------------------------------------------------

Item 101(c)(1)(v), unlike U.S. GAAP, incrementally requires
seasonality disclosure at the segment level, to the extent material to
an understanding of the business as a whole. Item 303(b) of Regulation
S-K requires disclosure of results of operations, liquidity, and
capital resources in interim periods at the segment level, when
appropriate to an understanding of the business.\280\ Accordingly, the
Proposing Release stated that Item 303(b), in conjunction with U.S.
GAAP, would seem to result in reasonably similar disclosures as Item
101(c)(1)(v) about the effects of seasonality on an issuer's financial
statements at the segment level, if material and appropriate to an
understanding of the business. The Commission therefore proposed to
delete Item 101(c)(1)(iv). Because the disclosures required by Item
101(c)(1)(v) are located in the business description section, while the
corresponding disclosures required by Item 303(b) and U.S. GAAP are in
MD&A and the notes to the financial statements, the proposed amendment
gives rise to Disclosure Location--Prominence Considerations.
---------------------------------------------------------------------------

\280\ Specifically, Item 303(b) requires discussion of material
changes in the items listed in Item 303(a). Item 303(a) requires
discussion at the reportable segment level when appropriate to an
understanding of the business.
---------------------------------------------------------------------------

The Commission also proposed to delete Instruction 5 to Item 303(b)
of Regulation S-K because it requires disclosures that convey
reasonably similar information to the disclosures that result from
compliance with U.S. GAAP.\281\ The proposed deletion of Instruction 5
to Item 303(b) gives rise to Disclosure Location--Prominence
Considerations because U.S. GAAP requires seasonality disclosures in
the financial statements, whereas Instruction 5 requires disclosure in
MD&A.
---------------------------------------------------------------------------

\281\ See ASC 270-10-45-11. See also Item 101(c)(1)(v) of
Regulation S-K.
---------------------------------------------------------------------------

(2) Comments on Proposed Amendments
Most commenters supported the proposed amendments.\282\ Some of
these commenters also provided their views on the Disclosure Location
Considerations.\283\ For example, one commenter, who supported both
proposed amendments, indicated that U.S. GAAP requires disclosure about
seasonality when the interim financial statements reflect material
seasonal variations, but it does not require disclosure when an issuer
expects interim financial results to become seasonal or an issuer
expects the seasonal financial results to change significantly in the
future.\284\ Another commenter recommended that the Commission consider
feedback from preparers and users about the potential for registrants
to reduce any voluntary information about seasonality that may
currently be provided that is subject to the safe harbor provisions of
the PSLRA.\285\
---------------------------------------------------------------------------

\282\ See letters from CAQ; CGCIV; Deloitte; E&Y; Grant; KPMG;
PwC; and USCC.
\283\ See letters from CAQ and KPMG.
\284\ See letter from CAQ.
\285\ See letter from KPMG.
---------------------------------------------------------------------------

One commenter opposed the proposed amendments 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.\286\
---------------------------------------------------------------------------

\286\ See letter from CalSTRS.
---------------------------------------------------------------------------

(3) Final Amendments
We are adopting as proposed the elimination of Instruction 5 to
Item 303(b). We continue to believe that U.S. GAAP in combination with
the remainder of Item 303 requires disclosures in interim reports that
convey reasonably similar information to the disclosures required by
Instruction 5 to Item 303(b). We also believe that, even without this
instruction, the requirements in Item 303 elicit disclosure of forward-
looking information in interim reports to the extent that the effects
of seasonality may become material.\287\ However, we are retaining the
seasonality disclosure requirements in annual reports in Item
101(c)(1)(v), due to a concern about potential loss of information in
the fourth quarter about the extent to which the business of an issuer
or its segment(s) is or may be seasonal because U.S. GAAP may not
elicit this disclosure.\288\
---------------------------------------------------------------------------

\287\ See 2003 MD&A Release.
\288\ ASC 270-10-45-11 states that entities should consider
supplementing interim reports with information for 12-month periods
ended at the interim date to avoid the possibility that interim
results with material seasonal variations may be taken as fairly
indicative of the estimated results for a full fiscal year.
---------------------------------------------------------------------------

f. Other
The table below describes each of the remaining disclosure
requirements that are overlapping with both U.S. GAAP and other
Commission disclosure requirements. The related proposed amendments to
delete those overlapping

[[Page 50170]]

Commission disclosure requirements are also discussed below.\289\
---------------------------------------------------------------------------

\289\ These proposed amendments are discussed in further detail
in Section III.C. of the Proposing Release.

------------------------------------------------------------------------
Commission
Topic requirement Proposed amendments
------------------------------------------------------------------------
Insurance Companies-- Rule 7- Delete, as this
Reinsurance Transactions. 03(a)(13)(c) of provision requires
Regulation S-X. disclosures that are
encompassed by the
disclosures that
result from
compliance with U.S.
GAAP \290\ and
Regulation S-K.\291\
Interim Financial Statements-- Rule 8-03(b)(2) Delete the
Material Events Subsequent to and Rule 10- requirements to
the End of the Most Recent 01(a)(5) of disclose material
Fiscal Year. Regulation S-X. events subsequent to
the end of the most
recent fiscal year,
as they require
disclosures that are
encompassed by the
disclosures that
result from
compliance with U.S.
GAAP \292\ and
Regulation S-K,\293\
in combination.
------------------------------------------------------------------------

Commenters generally supported the proposed amendments,\294\ and no
commenter specifically opposed the amendments. Accordingly, we are
adopting all of the amendments described in the table above as
proposed.
---------------------------------------------------------------------------

\290\ See ASC 944-20-50-3 and ASC 944-20-50-4.
\291\ See Item 303(a)(3)(i) of Regulation S-K.
\292\ See ASC 270-10-50-1 and 7.
\293\ See Item 303(b) of Regulation S-K (or Item 9 of Form 1-A
and Item 1 of Form 1-SA for Regulation A issuers).
\294\ See letters from CAQ; Deloitte; E&Y; Grant; KPMG; and PwC.
---------------------------------------------------------------------------

C. Overlapping Requirements--Proposed Integrations

In the proposing release, the Commission discussed disclosure
requirements that overlap with, but require information incremental to,
other Commission disclosure requirements. In these cases, the
Commission proposed to integrate the overlapping Commission disclosure
requirements.
1. Foreign Currency Restrictions
a. Proposed Amendments
If consolidation of foreign subsidiaries is deemed appropriate
notwithstanding the presence of foreign currency exchange restrictions,
Rule 3A-02(d) of Regulation S-X requires disclosure of the effect of
foreign subsidiaries' currency exchange restrictions upon the
consolidated financial position and operating results of the issuer and
its subsidiaries. To streamline Commission disclosure requirements, the
Commission proposed to relocate this requirement to Rule 3-20(b) of
Regulation S-X, which addresses other currency considerations.
Rule 3-20(b), however, applies only to foreign private issuers,
whereas Rule 3A-02(d) applies to all issuers. To prevent any loss of
disclosure from the relocation of Rule 3A-02(d) to Rule 3-20(b), the
Commission proposed to delete the reference to foreign private issuers
in the title of Rule 3-20,\295\ which would broaden the scope of Rule
3-20(b) and Rule 3-20(e) to all issuers.\296\ Rule 3-20(b) also sets
forth requirements for foreign private issuers if their reporting
currency is not the U.S. dollar. Despite the proposed expansion of the
scope of Rule 3-20(b) discussed above, the Commission stated in the
Proposing Release that it did not intend to expand the instances in
which a reporting currency other than the U.S. dollar would be
permitted. The Commission therefore proposed amendments to Rule 3-20(a)
to specify that domestic issuers and foreign issuers who do not meet
the foreign private issuer definition \297\ must present their
financial statements in U.S. dollars.
---------------------------------------------------------------------------

\295\ Foreign private issuers would continue to apply Rule 3-20
pursuant to General Instruction B(d) of Form 20-F.
\296\ The remaining paragraphs in Rule 3-20 specify the rule's
scope, so amending the title to Rule 3-20 would have no effect on
the application of these paragraphs.
\297\ See supra note 19.
---------------------------------------------------------------------------

b. Comments on Proposed Amendments
Commenters were generally supportive of the proposed amendments
except for the proposed amendment to Rule 3-20(a).\298\ Some commenters
recommended that the Commission consider providing all registrants the
same flexibility in selecting their reporting currency as foreign
private issuers or allowing domestic issuers to report using the
currency of the country in which they have substantially all of their
operations.\299\ Additionally, one of these commenters recommended
further revisions to reorganize Rule 3-20 of Regulation S-X and to move
the disclosure requirements for currency exchange restrictions from the
financial statement footnotes to Item 303 of Regulation S-K.\300\
---------------------------------------------------------------------------

\298\ See letters from CAQ; Deloitte; E&Y; Grant; KPMG; and PwC.
\299\ See letters from CAQ; E&Y; PwC; and Sullivan & Cromwell
LLP (Aug. 2, 2017).
\300\ See letter from E&Y. We considered the recommendation to
reorganize Rule 3-20 of Regulation S-X and move certain disclosure
requirements to Item 303 of Regulation S-K but are not adopting the
recommended amendments as they could have implications that go
beyond the scope of this rulemaking and would merit further
consideration.
---------------------------------------------------------------------------

c. Final Amendments
We are adopting the amendments to delete the reference to foreign
private issuers in the title of Rule 3-20 and relocate the requirements
of Rule 3A-02(d) to Rule 3-20(b) as proposed. We are also adopting the
amendment to require a non-foreign private issuer to present its
financial statements in U.S. dollars. This amendment is not intended to
change current disclosure practices. Domestic issuers and foreign
issuers that do not meet the foreign private issuer definition may
continue to request to present financial statements in a currency other
than U.S. dollars in appropriate circumstances.\301\
---------------------------------------------------------------------------

\301\ The staff has not objected to domestic issuers and foreign
issuers who do not meet the foreign private issuer definition from
using a different reporting currency in situations where the issuer
had few or no assets and operations in the U.S., substantially all
the operations were conducted in a single functional currency other
than the U.S. dollar, and the reporting currency selected was the
same as the functional currency.
---------------------------------------------------------------------------

In addition, while we acknowledge commenters' recommendation that
we consider providing all registrants the flexibility to select their
reporting currency; we are not adopting that suggestion at this time.
We believe more information is needed to determine whether any
unintended consequences could result, and thus believe such a change is
beyond the scope of this rulemaking.
In a technical change for clarification, we also are replacing the
word ``selected'', in the phrase ``currency selected for reporting
purposes,'' with ``used'' in Rule 3-20(d) because non-foreign private
issuers are not permitted to ``select'' their reporting currency.
2. Restrictions on Dividends and Related Items

Commission requirements mandate disclosure about restrictions on
the

[[Page 50171]]

payment of dividends and related items in a number of locations. The
table below describes each of the disclosure requirements related to
this mandate, the proposed amendment, and reason for it.\302\
---------------------------------------------------------------------------

\302\ These proposed amendments are discussed in further detail
in Section III.D.2 of the Proposing Release.
\303\ In lieu of disclosure, Item 201(c)(1) permits a cross-
reference to this information in the disclosures required by Item
303 of Regulation S-K and Regulation S-X.
\304\ This amendment gives rise to Bright Line Disclosure
Threshold Considerations. See also Section III.B.2 of the Proposing
Release, supra note 1, at 51616.
\305\ This amendment gives rise to Bright Line Disclosure
Threshold Considerations and Disclosure Location--Financial
Statement Considerations discussed in Section I.E above (See also
Section III.B.2 of the Proposing Release, supra note 1, at 51616).
\306\ We did not propose and are not changing the requirements
in Rules 5-04, 7-05, and 9-06 for parent only financial information.
\307\ The definitions of terms used in Regulation S-X are
located in Rule 1-02 of Regulation S-X.
\308\ Foreign private issuers that report under U.S. GAAP or
Another Comprehensive Body of Accounting Principles with a
reconciliation to U.S. GAAP must comply with Rule 4-08(e). Foreign
private issuers that report under IFRS must comply with paragraph
79(a)(v) of IAS 1, Presentation of Financial Statements, which
requires disclosure of restrictions on the distribution of dividends
and the repayment of capital for each class of share capital.
\309\ Although this requirement is similar to Rule 4-08(e),
which creates some duplication for foreign private issuers that
report under U.S. GAAP or Another Comprehensive Body of Accounting
Principles with a reconciliation to U.S. GAAP, the Commission did
not propose its deletion because IFRS does not contain an equivalent
requirement for foreign private issuers that report under IFRS.

------------------------------------------------------------------------
Commission
Issuer type disclosure Proposed amendments
requirement
------------------------------------------------------------------------
Domestic Issuers............ Item 201(c)(1) of Consolidate these
Regulation S-K disclosure
requires disclosure requirements into a
of restrictions single requirement
(including in revised Rule 4-
restrictions on the 08(e)(3).\304\
ability of issuer's
subsidiaries to
transfer funds to
it in the form of
cash dividends,
loans or advances)
that currently or
are likely to
materially limit
the issuer's
ability to pay
dividends on its
common equity.\303\
Rule 4-08(d)(2) of
Regulation S-X
requires disclosure
of any restriction
upon retained
earnings that
arises from the
fact that upon
involuntary
liquidation the
aggregate
preferences of the
preferred shares
exceed the par or
stated value of
such shares.
Rule 4-08(e) of Revise to require
Regulation S-X the dividend
requires disclosure restrictions and
related to the most related disclosures
significant in subparagraphs
restrictions of the (i) and (ii) when
issuer's payment of material, rather
dividends. Rule 4- than when
08(e)(3) requires, restricted net
where restricted assets exceed the
net assets, as 25 percent
defined by the threshold.\305\
rule, exceed 25
percent of
consolidated net
assets, a
description of: (1)
The restrictions on
the ability of
subsidiaries to
transfer funds to
the issuer, and (2)
the amount of
restricted net
assets.
Rule 5-04, Rule 7- Move definition of
05, and Rule 9-06 restricted net
of Regulation S-X assets in Rule 4-
refer to the 08(e)(3) to Rule 1-
definition of 02 \307\ and make
restricted net corresponding
assets in Rule 4- changes to the
08(e)(3) in cross reference in
determining when Rules 5-04, 7-04,
condensed financial and 9-06.
information of the
issuer (``parent
only financial
information'') is
required to be
disclosed.\306\
Foreign Private Issuers..... Item 10.F of Form 20- Delete both
F requires requirements to
disclosure of any disclose dividend
dividend restrictions
restrictions. because: (1)
Instruction to Item Foreign private
14.B of Form 20-F issuers are already
requires disclosure required to
of any limitations disclose dividend
on the payment of restrictions in the
dividends. notes to the
financial
statements \308\
and (2) Item
5.B.1(b) of Form 20-
F requires
disclosure of
restrictions on a
subsidiary's
ability to transfer
funds to the parent
in the form of
dividends, loans,
or advances.\309\
------------------------------------------------------------------------

Commenters generally supported the proposed amendments, \310\ and
no commenter specifically opposed the amendments. Accordingly, we are
adopting all of the amendments described in the table above as
proposed. The amendments simplify our disclosure requirements by
integrating overlapping Commission disclosure requirements into
existing disclosure requirements where the incremental information is
reasonably similar.
---------------------------------------------------------------------------

\310\ See, e.g. letters from CAQ; Deloitte; E&Y; and PwC.
---------------------------------------------------------------------------

3. Geographic Areas
Item 101(d)(4) of Regulation S-K requires, when interim financial
statements are presented, a discussion of the facts that indicate the
three-year financial data for geographic performance may not be
indicative of current or future operations. This requirement is similar
to requirements in Instruction 3 to Item 303(a) and Instruction 4 to
Item 303(b) to identify elements of income which are not necessarily
indicative of the issuer's ongoing business, except that there is no
explicit reference to ``geographic areas'' in either requirement. To
streamline the requirements in Regulation S-K, the Commission proposed
to revise Item 303 to add an explicit reference to ``geographic areas''
and delete Item 101(d)(4).
Commenters were generally supportive of the proposed
amendments.\311\ Some commenters recommended clarification of the
proposed revision to Item 303, noting that it is not clear whether an
issuer must discuss the geographic information as part of the segment
discussion or has a choice to discuss its operations on a segment or
geographical basis.\312\
---------------------------------------------------------------------------

\311\ See, e.g. letter from CAQ; Deloitte; and PwC.
\312\ See letters from CAQ; E&Y; and PwC.
---------------------------------------------------------------------------

We are adopting the amendment substantially as proposed. As
suggested by commenters, we are clarifying that geographic areas are an
example of a subdivision of a business that is required to be discussed
when management believes such discussion would be appropriate to an
understanding of the business and that discussion of geographic areas
is not required in all circumstances.

D. Overlapping Requirements--FASB Referrals

In the proposing release, the Commission discussed Commission
disclosure requirements that overlap with, but require information

[[Page 50172]]

incremental to, U.S. GAAP and solicited comments to determine whether
to retain, modify, eliminate, or refer them to the FASB for potential
incorporation into U.S. GAAP. For the reasons discussed below, we have
determined to refer the incremental Commission disclosure requirements
described in this section to the FASB for its consideration of whether
to incorporate such disclosure requirements into U.S. GAAP as part of
its normal standard-setting process. The discussion in this section, as
well as Sections I.C., II.B., and III.B., constitute our referral to
the FASB.
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. Additionally, the disclosure
requirements described below in Section III.D.3 and certain Topics in
Section III.D.5 \313\ currently allow for scaled disclosure by SRCs and
issuers relying on Regulation A or Regulation Crowdfunding. Depending
on how these disclosures are incorporated, if at all, into U.S. GAAP,
U.S. GAAP may not permit these issuers to scale such disclosures.
---------------------------------------------------------------------------

\313\ Applicable Topics in Section III.D.5. are Interim
Financial Statements--Computation of Earnings Per Share, Interim
Financial Statements--Retroactive Prior Period Adjustments, Interim
Financial Statements--Common Control Transactions, and Oil and Gas
Producing Activities.
---------------------------------------------------------------------------

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. In the meantime, we
are retaining the disclosure requirements discussed in this section.
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.
1. Discount on Shares
Regulation S-X \314\ and U.S. GAAP \315\ both set forth
requirements about the presentation of items in the equity section of
the financial statements. However, Regulation S-X incrementally
requires discounts on shares to be presented separately as a deduction
from the applicable accounts. Discounts on shares may arise, for
example, from stock issuance costs, which are recognized as a reduction
in equity.\316\ In the Proposing Release, the Commission solicited
comments to determine whether to retain, modify, eliminate, or refer
this disclosure requirement to the FASB for potential incorporation
into U.S. GAAP.
---------------------------------------------------------------------------

\314\ See Rule 4-07 of Regulation S-X. Pursuant to Rule 4-02 of
Regulation S-X [17 CFR 210.4-02], this separate presentation is only
required if material.
\315\ See ASC 505-10-45.
\316\ See SAB Topic 5:A, Expenses of Offering.
---------------------------------------------------------------------------

Some commenters recommended that the Commission eliminate the
disclosure requirement in Regulation S-X, for the following reasons:
(1) Stock issuance costs recorded within equity do not amortize, and
therefore, the commenters did not see the ongoing relevance of the
disclosure; (2) in the period of issuance, such costs are already
required to be presented separately in the financing section of the
statement of cash flows; and (3) other discounts to par or stated value
are likely captured by other disclosure requirements.\317\ Other
commenters recommended that the Commission refer the incremental
disclosure requirement to the FASB for potential incorporation into
U.S. GAAP.\318\
---------------------------------------------------------------------------

\317\ See letters from CAQ; Deloitte; and PwC.
\318\ See letters from E&Y; Grant; Institute of Management
Accountants (Oct. 28, 2016) (``IMA''); and KPMG.
---------------------------------------------------------------------------

There are various types of transactions that could result in
discount on shares. Commenters supporting elimination of the Regulation
S-X requirement indicated that U.S. GAAP overlaps with Rule 4-07 with
respect to stock issuance costs but did not state whether U.S. GAAP
overlaps with respect to other transactions that result in discount on
shares. Based on these considerations, we are retaining the disclosure
requirements in Rule 4-07 and are referring them to the FASB for
potential incorporation into U.S. GAAP.
2. Income Tax Disclosures \319\
---------------------------------------------------------------------------

\319\ See related discussion in Sections II.B.2 and IV.B.1. See
also Sections II.B.4 and IV.B.2 of the Proposing Release, supra note
1, at 51613 and supra note 1 at 51635, respectively.
---------------------------------------------------------------------------

Regulation S-X \320\ and U.S. GAAP \321\ both require disclosures
about income taxes in the notes to the financial statements.\322\
However, Rule 4-08(h) includes certain incremental requirements, some
of which give rise to Bright Line Disclosure Threshold Considerations.
---------------------------------------------------------------------------

\320\ See Rule 4-08(h) of Regulation S-X.
\321\ See ASC 740-10-50.
\322\ The FASB has an income tax disclosure project underway
regarding income tax disclosures. See https://www.fasb.org/jsp/FASB/FASBContent_C/ProjectUpdatePage&cid=1176164227426.
---------------------------------------------------------------------------

Specifically, although U.S. GAAP and Regulation S-X both require
disclosure of the components of income tax expense, Rule 4-08(h)
incrementally: (1) Requires disclosure of the amount of domestic and
foreign pre-tax income and income tax expense, (2) requires
disaggregation of the foreign component of pre-tax income and income
tax expense with the domestic component if it exceeds five percent of
the respective total, and (3) defines ``foreign'' for purposes of this
disclosure.
In addition, although U.S. GAAP and Regulation S-X both require a
reconciliation of the domestic federal statutory tax rate to the
effective tax rate, Rule 4-08(h) incrementally: (1) Requires
disaggregation of reconciling items if they individually exceed five
percent of the amount computed by multiplying pre-tax income by the
applicable statutory income tax rate, (2) clarifies the statutory tax
rate to use in the income tax rate reconciliation for foreign issuers,
and (3) requires, when the statutory tax rate used differs from the
U.S. federal corporate income tax rate, disclosure of the basis for
using that rate.
In the Proposing Release, the Commission solicited comments to
determine whether to retain, modify, eliminate, or refer these
disclosure requirements to the FASB for potential incorporation into
U.S. GAAP.
Several commenters recommended elimination of the Commission
disclosure requirements, if the FASB adopts its proposed income tax
standard.\323\ Some of these commenters further indicated that, if the
proposed income tax standard is not adopted, the Commission should
consider comments received by the FASB to determine whether further
amendment should be made to Rule 4-08(h).\324\ Some commenters
recommended retaining both requirements under Rule 4-08(h) and U.S.
GAAP, as they believe investors need more detailed disclosure of
corporate income tax liabilities.\325\ Only one commenter recommended
that the Commission refer this issue to the FASB for potential
incorporation into U.S.GAAP.\326\
---------------------------------------------------------------------------

\323\ See, e.g. letters from BDO; CAQ; E&Y; Grant; and KPMG. The
proposed Accounting Standards Update, Income Taxes (Topic 740):
Disclosure Framework--Changes to the Disclosure Requirements for
Income Taxes was issued on July 26, 2016. For a status of the
project see, https://www.fasb.org/jsp/FASB/FASBContent_C/ProjectUpdateExpandPage&cid=1176170683850#.
\324\ See letters from CAQ; E&Y; KPMG; and PwC.
\325\ See letters from AFL-CIO and AFR; and Rutkowski.
\326\ See letter from IMA.
---------------------------------------------------------------------------

Additionally, a number of commenters recommended that the
Commission require disclosure of certain information, such as profit or
loss before taxes and effective tax rate,

[[Page 50173]]

on a country-by-country basis.\327\ Some of these commenters indicated
that this transparency would help investors assess the risks that could
arise from operating in multiple jurisdictions \328\ as well as the
likelihood of repatriation of foreign earnings.\329\ Some of the
commenters who recommended the country-by-country disclosure also
recommended requiring the disclosure of the aggregate amount
corporations would owe in U.S. taxes should they repatriate their
offshore earnings.\330\ In contrast, one commenter indicated that
further disaggregating foreign amounts by foreign jurisdiction would
not provide useful information as such disaggregation would neither
reflect exposure to future foreign tax nor shed light on future
potential repatriation.\331\ This commenter further recommended that
the current five percent thresholds for the effective rate
reconciliation be revisited, as they can result in an unnecessarily
large number of line items when pre-tax income is relatively small.
---------------------------------------------------------------------------

\327\ See, e.g. letters from AFL-CIO and AFR; Americans for Tax
Fairness (Nov. 2, 2016) (``ATF''); American Sustainable Business
Council, Citizens for Tax Justice, FACT Coalition, Fair Share,
Global Financial Integrity and Main Street Alliance (July 21, 2016);
Main Street Alliance (Oct. 25, 2016); and Oxfam America (Nov. 2,
2016).
\328\ See, e.g. letter from Jeffery L. Hoopes (Oct. 3, 2016).
\329\ See, e.g. letter from Bean.
\330\ See, e.g. letters from ATF and Citizens for Tax Justice
(Oct. 3, 2016).
\331\ See letter from IMA.
---------------------------------------------------------------------------

After considering the comments, we are retaining the income tax
disclosure requirements in Rule 4-08(h). While we acknowledge the
suggestions made by commenters related to additional income tax
disclosures, these are beyond the scope of this rulemaking. There also
have been significant changes to the tax law that may affect the
accounting and disclosure requirements for income taxes.\332\ We are
referring these disclosure requirements to the FASB for potential
incorporation into U.S. GAAP. The FASB is currently reviewing its
disclosure requirements for income taxes and discussing the financial
reporting effects of recent changes in tax law.\333\
---------------------------------------------------------------------------

\332\ See Tax Cuts and Jobs Act Public Law 115-97, 131 Stat.
2054 (2017)
\333\ See FASB's Technical Agenda and Notice of Open Meetings on
their website related to its Disclosure Framework project, which
includes disclosures of income taxes. https://fasb.org/jsp/FASB/FASBContent_C/ProjectUpdatePage&cid=1176163077030
---------------------------------------------------------------------------

3. Major Customers
Regulation S-K \334\ and U.S. GAAP \335\ both require disclosures
about major customers. However, Regulation S-K is more expansive in its
requirements and differs from U.S. GAAP in two ways: (1) The threshold
for disclosure and (2) the requirement to disclose a customer's name in
certain instances. We note that because disclosures required by
Regulation S-K, unlike those required by U.S. GAAP, may be provided
outside of the audited financial statements, these differences give
rise to Disclosure Location--Financial Disclosure Considerations. These
differences also give rise to Bright Line Disclosure Threshold
Considerations.
---------------------------------------------------------------------------

\334\ See Item101(c)(1)(vii) and Item 101(h)(4)(vi) of
Regulation S-K. Item 101(c)(1)(vii) applies to non-SRCs and Item
101(h)(4)(vi) applies to SRCs.
\335\ See ASC 280-10-50-42.
---------------------------------------------------------------------------

First, Item 101(c)(1)(vii) of Regulation S-K requires disclosure if
loss of a customer, or a few customers, would have a material adverse
effect on a segment. This threshold differs from U.S. GAAP in that it
is qualitative and focuses on the impact on a segment. In contrast,
U.S. GAAP requires disclosure of each customer that comprises 10
percent or more of total revenue. Although the requirements for SRCs in
Item 101(h)(4)(vi) are more similar to U.S. GAAP in that they do not
prescribe a segment focus, they also differ from U.S. GAAP in that they
do not set forth a 10 percent bright line test for disclosure.
Second, Item 101(c)(1)(vii) requires disclosure of the name of any
customer that represents 10 percent or more of the issuer's revenues
and whose loss would have a material adverse effect on the issuer.\336\
In 1999, the Commission considered deleting this requirement to conform
to U.S. GAAP. However, the Commission determined to retain this
requirement, as it continued to believe that the identity of major
customers is material information to investors and that the disclosure
allows a reader to better assess risks associated with a particular
customer, as well as material concentrations of revenues related to
that customer.\337\
---------------------------------------------------------------------------

\336\ Item 101(h)(4)(vi) of Regulation S-K does not require
disclosure of the name of major customers.
\337\ See Segment Reporting, Release No. 33-7620, (Jan. 5, 1999)
[64 FR 1728 (Jan. 12, 1999)].
---------------------------------------------------------------------------

Because U.S. GAAP historically has scaled disclosure requirements
only by public business entities versus other entities, and not by
issuer status, incorporation of these requirements into U.S. GAAP could
result in the application to SRCs of the disclosure threshold and the
requirement to name a customer in certain instances.
Several commenters supported the Commission eliminating this
disclosure requirement because it is substantially similar to the
corresponding U.S. GAAP requirements, which they believe sufficiently
highlight customer concentrations.\338\ A few commenters further
suggested that the disclosure of major customers could be harmful
because of the competitively sensitive nature of this information.\339\
The remaining commenters supported referring the requirement to the
FASB for potential incorporation into U.S. GAAP.\340\ One of these
commenters also recommended the FASB consider whether the disclosure
objective in U.S. GAAP should be clarified.\341\ Another commenter
recommended a principles-based approach rather than a bright line
disclosure threshold for the requirement to disclose customer names, as
this threshold may not be material to some registrants.\342\ One
commenter recommended retaining the requirement, asserting that the
identity of major customers is material information to investors and it
allows a reader to better assess risks associated with a particular
customer, as well as material concentrations of revenues related to
that customer.\343\
---------------------------------------------------------------------------

\338\ See letters from CAQ; E&Y; EEI and AGA; KPMG; and PwC.
\339\ See letters from E&Y and EEI and AGA.
\340\ See letters from Davis; Deloitte; Grant; and IMA.
\341\ See letter from Deloitte.
\342\ See letter from Davis.
\343\ See letter from Bean.
---------------------------------------------------------------------------

We are retaining this disclosure requirement and are referring it
to the FASB for potential incorporation into U.S. GAAP. We believe the
objective of the U.S. GAAP disclosure requirement is similar to the
Commission disclosure requirement; however, U.S. GAAP does not require
disclosure of a major customer's name.
4. Legal Proceedings
U.S. GAAP requires disclosure of certain loss contingencies.\344\
17 CFR 229.103 (``Item 103'' of Regulation S-K) requires disclosure of
certain legal proceedings, which are one type of loss contingency. Item
103 does not require disclosure of certain matters that do not exceed
10 percent of the issuer's consolidated current assets, while U.S. GAAP
provides a more general materiality threshold.\345\ In practice, to
comply with Regulation S-K, issuers commonly repeat some or all of the
disclosures provided in the notes to the financial statements under
U.S. GAAP

[[Page 50174]]

or include a cross-reference to those disclosures.
---------------------------------------------------------------------------

\344\ See ASC 450.
\345\ See also Section III.E.15 of the Proposing Release, supra
note 1, at 51616.
---------------------------------------------------------------------------

As further described in Section III.E.15 of the Proposing Release,
although Item 103 and U.S. GAAP have overlapping requirements, they
differ in certain respects. Incorporation of Item 103 requirements into
U.S. GAAP would have implications for investors, issuers, and other
stakeholders. In the Proposing Release, the Commission described in
detail (a) the differences between Item 103 and U.S. GAAP; (b) the
potential consequences of incorporating the Item 103 requirements into
U.S. GAAP; and (c) other considerations related to Item 103. The
Commission solicited comment about whether to retain, modify,
eliminate, or refer the disclosure requirements to the FASB.
Many commenters opposed the integration of Item 103 and U.S.
GAAP.\346\ A number of commenters \347\ stated that the objectives
\348\ of Item 103 and U.S. GAAP differ, and some of these commenters
\349\ indicated that a better articulation of the objectives may be
warranted. Many commenters \350\ also indicated that, if the Commission
chooses to move forward with the integration, the American Bar
Association policy statement regarding lawyers' responses to auditors'
requests for information and Public Company Accounting Oversight Board
(``PCAOB'') auditing standards should be revisited as they both
incorporate the U.S. GAAP disclosure requirements.\351\ On a similar
note, some commenters \352\ indicated that integration would also
expand audit and interim review requirements, as well as XBRL tagging
requirements, which would be burdensome and costly to issuers. These
commenters further expressed concern that the integration could lead to
increased disclosure of immaterial items and may eliminate the safe-
harbor protections currently afforded to forward-looking statements
related to legal proceedings under Regulation S-K.
---------------------------------------------------------------------------

\346\ See, e.g. letters from CAQ; CGCIV; Davis; FedEx; Shearman;
and USCC.
\347\ See, e.g. letters from CAQ; and NAREIT.
\348\ Item 103 is intended to provide a description of material
pending legal proceedings, while U.S. GAAP is designed to provide
information consistent with the accounting model for loss
contingencies.
\349\ See, e.g. letters from CAQ and Davis.
\350\ See, e.g. letters from CAQ; Davis; and Shearman.
\351\ See AS 2505C: Exhibit II--American Bar Association
Statement of Policy Regarding Lawyers' Responses to Auditors'
Requests for Information available at https://pcaobus.org/Standards/Auditing/Pages/AS2505.aspx.
\352\ See letters from CGCIV; Davis; FedEx; NAREIT; Shearman;
and USCC.
---------------------------------------------------------------------------

Some commenters recommended the deletion of Item 103 altogether or
at minimum some of the disclosure requirements contained therein.\353\
For example, one of these commenters stated that U.S. GAAP, together
with Items 303 and 503(c) of Regulation S-K, elicits the appropriate
level of disclosure of material legal proceedings to inform investment
and voting decisions of a reasonable investor.\354\ Another commenter
recommended the deletion of the requirement to disclose proceedings
known to be contemplated but which are not probable of being asserted
because this does not provide useful information to investors.\355\
---------------------------------------------------------------------------

\353\ See letters from Davis; EEI and AGA; and Grant.
\354\ See letter from Davis.
\355\ See letter from EEI and AGA.
---------------------------------------------------------------------------

The commenters \356\ who supported the integration of Item 103 into
U.S. GAAP noted the repetition that is currently present in many
filings.\357\ However, one of these commenters recommended the
Commission consider undertaking outreach with preparers, users, and
other regulators and develop disclosure objectives for the incremental
disclosures.\358\ Other commenters also recommended that the Commission
conduct more analysis and outreach in this area, particularly with the
accounting and legal professions.\359\
---------------------------------------------------------------------------

\356\ See letters from Grant; and IMA.
\357\ While it did not support the integration of all
requirements, the letter from EEI and AGA recommended that the
following disclosures be integrated: (1) Proceedings involving
capital expenditure or deferred charges; and (2) material
bankruptcy, receivership, or similar proceedings.
\358\ See letter from Grant.
\359\ See letters from CGCIV; and USCC.
---------------------------------------------------------------------------

Some commenters indicated that the existing disclosure requirements
in both Item 103 and U.S. GAAP do not provide sufficient information
for investors to understand the nature, potential magnitude, and timing
of any loss contingencies relating to legal proceedings, and
recommended specific changes to the requirements.\360\ Some of their
recommendations include greater use of bright line disclosure
thresholds and preserving Item 103's disclosure requirements for low-
probability but high magnitude liabilities.\361\
---------------------------------------------------------------------------

\360\ See letters from AFL-CIO and AFR; CII; and Rutkowski.
\361\ The letter from EEI and AGA recommended that low
probability but high magnitude proceedings disclosures should follow
the requirements under U.S. GAAP concerning the likelihood of loss.
The commenter indicated that providing this information is not
helpful to investors, if the likelihood of loss is remote, and
having a separate rule that requires disclosure of potential losses
beyond those that are considered ``reasonably possible'' would
create additional burdens for issuers and auditors.
---------------------------------------------------------------------------

Additionally, several commenters \362\ expressed concerns with the
bright line disclosure threshold for certain matters imposed by the
existing requirements in Item 103, stating that some of the disclosures
based on the threshold may not be material.
---------------------------------------------------------------------------

\362\ See letters from CGCIV; Clearing House; Davis; EEI and
AGA; NAREIT; Shearman; and USCC.
---------------------------------------------------------------------------

In response to the concerns expressed by commenters, we are
retaining the disclosure requirements in Item 103 without amendment. In
addition, we are not referring these disclosure requirements to the
FASB for potential incorporation into U.S. GAAP at this time. In light
of the various views expressed by commenters, we believe further
consideration is warranted with respect to the implications of
potential changes to these requirements.
5. Other
The table below describes the remaining overlapping requirements
discussed in the proposing release as well as the incremental
differences between these requirements.\363\
---------------------------------------------------------------------------

\363\ These proposed amendments are discussed in further detail
in Section III.E. of the Proposing Release.

----------------------------------------------------------------------------------------------------------------
Commission disclosure
Topic requirement Description of requirement
----------------------------------------------------------------------------------------------------------------
REIT--Tax Status of Distributions....... Rule 3-15(c) of Regulation Both Regulation S-X and U.S. GAAP \364\
S-X. require disclosure of an issuer's tax
status. Regulation S-X requires
additional footnote disclosures,
including distributions per unit, for
example as ordinary income, capital
gain, or return of capital.
Consolidation........................... Rule 3A-03(b) of Regulation Regulation S-X and U.S. GAAP \365\ both
S-X. set forth disclosure requirements about
consolidation matters. Regulation S-X
incrementally requires disclosure of
material changes in the entities
included in or excluded from the
consolidated financial statements.

[[Page 50175]]

Assets Subject to Lien.................. Rule 4-08(b) of Regulation Regulation S-X and U.S. GAAP \366\ both
S-X. require disclosure of assets subject to
lien and the obligation collateralized
for the most recent audited balance
sheet being filed. U.S. GAAP disclosure
requirements only apply to certain
financial assets (e.g., repurchase
agreements or securities lending
transactions), whereas Regulation S-X
applies to all assets.
Obligations--Defaults Not Cured......... Rule 4-08(c) of Regulation Regulation S-X and U.S. GAAP \367\ both
S-X. require disclosure of information
related to covenant violations.
Regulation S-X requires disclosure of
the facts and amounts related to
defaults, while U.S. GAAP sets forth
classification requirements for
obligations for which there has been a
covenant violation, with limited
disclosure requirements.
Obligations--Waived Defaults............ Rule 4-08(c) of Regulation Regulation S-X and U.S. GAAP \368\ both
S-X. require disclosure of information
related to waived defaults. Regulation S-
X requires disclosure of the amount of
the obligation and the period of the
waiver, while U.S. GAAP sets forth
requirements for when to present debt
subject to a covenant violation as a
current liability.
Obligations--Changes in Obligations..... Rule 4-08(f) of Regulation Regulation S-X and U.S. GAAP \369\ both
S-X. require disclosure of issuances of debt
subsequent to the balance sheet date.
However, Regulation S-X incrementally
requires disclosure of significant
changes in the authorized amounts of
debt subsequent to the latest balance
sheet date.
Obligations--Amounts and Terms of Rule 5-02.19(b), Rule 5- Regulation S-X and U.S. GAAP \370\ both
Financing Arrangements. 02.22(b), Rule 6-04.13(b), require disclosures of an issuer's
Rule 7-03.16(b), Rule 7- financing arrangements. Regulation S-X
03.16(c), Rule 9-03.13(a), incrementally requires disclosure of
and Rule 9-03.16 of specific information related to the
Regulation S-X. financing arrangement.
Preferred Shares........................ Rule 4-08(d)(1) of Regulation S-X and U.S. GAAP \371\ both
Regulation S-X. require disclosure about preferred share
preferences in involuntary liquidation.
However, Regulation S-X requires
disclosure in more circumstances than
U.S. GAAP.
Related Parties......................... Rule 4-08(k)(1) of Regulation S-X and U.S. GAAP \372\ both
Regulation S-X. require the amount of related party
transactions to be disclosed in the
financial statements. Regulation S-X
incrementally requires that these
amounts be presented on the face of the
financial statements, if material.
Repurchase and Reverse Purchase Rule 4-08(m) of Regulation Regulation S-X and U.S. GAAP \373\ both
Agreements. S-X. set forth presentation and disclosure
requirements for repurchase and reverse
repurchase agreements in the financial
statements. However, Regulation S-X
provides additional requirements.\374\
Interim Financial Statements-- Rule 10-01(b)(2) of Commission disclosure requirements and
Computation of Earnings Per Share. Regulation S-X, and Item U.S. GAAP \375\ both require disclosure
601(b)(11) of Regulation S- in the notes to the financial statements
K. of the computation of earnings per
share. However, U.S. GAAP does not
specifically require disclosure of the
computation in interim financial
statements.
Interim Financial Statements-- Rule 8-03(b)(5) and Rule 10- Regulation S-X and U.S. GAAP \376\ both
Retroactive Prior Period Adjustments. 01(b)(7) of Regulation S-X. require certain disclosures of the
effects of changes in accounting
principles, correction of an error, and
changes in reporting entities. However,
Regulation S-X incrementally requires
disclosures in the interim period of
change, and for non-SRCs, incrementally
requires disclosure of the effect on
retained earnings.
Interim Financial Statements--Common Rule 10-01(b)(3) of Regulation S-X and U.S. GAAP \377\ both
Control Transactions. Regulation S-X. set forth accounting and disclosure
requirements for combinations of
entities under common control. However,
Regulation S-X incrementally requires
non-SRCs to disclose the separate
results of the combined entities for
periods prior to the combination.
Products and Services................... Item 101(c)(1)(i) of Regulation S-K and U.S. GAAP \378\ both
Regulation S-K. require disclosure of the amount of
revenue from products and services.
Regulation S-K only requires this
disclosure if a certain threshold is
met, while U.S. GAAP includes a
practicability exception.
Oil and Gas Producing Activities........ Item 302(b) of Regulation S- Regulation S-K and U.S. GAAP \379\ both
X. require issuers engaged in oil and gas
producing activities to disclose
information about those activities in
the notes to the financial statements.
Regulation S-K incrementally requires
that the U.S. GAAP disclosures must be
provided for each period presented.
----------------------------------------------------------------------------------------------------------------

Some commenters recommended that the Commission eliminate some of
these disclosure requirements because the required disclosures are
available

[[Page 50176]]

elsewhere.\380\ For example, one commenter recommended the deletion of
the requirement related to tax status of distributions per unit \381\
because this information is available to shareholders in Internal
Revenue Service (IRS) Form 1099.\382\ Some commenters recommended
eliminating the consolidation disclosure requirements in Rule 3A-03(b)
because they overlap with U.S. GAAP \383\ disclosure requirements.\384\
One commenter recommended deletion of the repurchase and reverse
repurchase agreement disclosure requirements because they provide
reasonably similar information as the corresponding U.S. GAAP
requirements.\385\ This commenter recommended that the only repurchase
and reverse repurchase agreement disclosure requirement that the
Commission should refer to the FASB for potential incorporation into
U.S. GAAP is the requirement to disclose the repurchase liability and
the interest rate(s) thereon.\386\ Another commenter recommended
eliminating certain interim financial statement information due to
overlapping U.S. GAAP disclosure requirements.\387\ Some commenters
also suggested eliminating the products and services disclosure
requirement \388\ because U.S. GAAP \389\ requires substantially
similar disclosures.\390\ These commenters observed that while U.S.
GAAP provides an impracticability exception, that exception is used
infrequently and, when it is relied upon, the issuer will have the same
practicability issue with providing the products and services
disclosures under Regulation S-K. A few commenters observed that U.S.
GAAP oil and gas producing disclosures are generally interpreted to
apply to each period presented.\391\ For this reason, one commenter
recommended deletion of Item 302(b) of Regulation S-K.\392\
---------------------------------------------------------------------------

\364\ See ASC 740-10-50-16.
\365\ See ASC 810-10-50.
\366\ See ASC 860-30-50-1A and ASC 860-30-50-7.
\367\ See ASC 470-10-45-1 and ASC 470-10-45-11. See also ASC
470-10-50-2, which requires disclosure of the circumstances
surrounding a covenant violation in certain situations, but not the
amount of the obligation.
\368\ See ASC 470-10-45-1 and ASC 470-10-45-11.
\369\ See ASC 855-10-50-2 and ASC 855-10-55-2a.
\370\ See ASC 470-10-50.
\371\ See ASC 505-10-50-4.
\372\ See ASC 850-10-50-1.
\373\ See ASC 860-30-45-2 and ASC 860-30-50.
\374\ Rule 4-08(m) of Regulation S-X requires the following
incremental disclosures when a specified bright line threshold is
met: (1) The liabilities associated with repurchase agreements that
are separately presented on the balance sheet to include accrued
interest payable, (2) disclosure of the interest rates associated
with certain repurchase liabilities, (3) information about
counterparties and agreements with them, where there is a
concentration of counterparties, (4) separate presentation on the
balance sheet of the carrying amount of reverse repurchase
agreements, and (5) disclosure of the nature of any provisions to
ensure that the market value of the underlying assets remains
sufficient to protect the issuer in the event of counterparty
default.
\375\ See ASC 260-10-50-1.
\376\ See ASC 250-10-50-1 and 250-10-50-6 to 8.
\377\ See ASC 805-50-45-1 to 5.
\378\ See ASC 280-10-50-40.
\379\ See ASC 932-235-50.
\380\ See, e.g. letters from CAQ; Deloitte; E&Y; KPMG; and PwC.
\381\ Rule 3-15(c).
\382\ See letter from NAREIT. The other Rule 3-15 amendments
described in Section III.B rely on this disclosure requirement that
is incremental to U.S. GAAP.
\383\ See ASC 805; 810-10-50; and ASC 205-10-45.
\384\ See letters from CAQ; E&Y; Grant; and PwC.
\385\ See letter from KPMG.
\386\ See discussion in Section III.B.1.a below. See also
Section III.C.3 of the Proposing Release, supra note 1, at 51618.
\387\ See E&Y letter. This commenter recommended that we delete
Rule 10-01(b)(2) of Regulation S-X and Item 601(b) of Regulation S-K
because these overlap with ASC 260-10-50-1. In addition, the
commenter recommended we delete all requirements related to changes
in reporting entities in Rule 10-01(b)(7) and Rule 8-03(b)(5) and
ask that the FASB reconsider the disclosure requirements in ASC 250-
10-50-6.
\388\ Item 101(c)(1)(i) of Regulation S-K.
\389\ See ASC 280
\390\ See letters from CAQ; EEI and AGA; E&Y; Grant; KPMG; and
PwC.
\391\ See letters from CAQ; E&Y; and PwC.
\392\ See letter from E&Y.
---------------------------------------------------------------------------

Most commenters, however, including some who recommended
eliminating certain disclosure requirements, supported the Commission
retaining most or all of these disclosure requirements and referring
them to the FASB for potential incorporation into U.S. GAAP.\393\ One
commenter specifically requested the Commission retain the disclosure
requirements for repurchase and reverse repurchase agreements as they
are complex financial instruments that can impact the financing and
liquidity of financial institutions and other businesses.\394\
---------------------------------------------------------------------------

\393\ See letters from CAQ; Deloitte; E&Y; IMA; KPMG; and PwC.
\394\ See letter from Bean.
---------------------------------------------------------------------------

Commenters had the following additional recommendations for both
the Commission and the FASB as it relates to the potential
incorporation of the Commission's disclosure requirements into U.S.
GAAP:
Revisit the bright line disclosure thresholds in the
requirements (e.g., the 10% threshold in Rule 4-08(m)) and whether U.S.
GAAP should require similar bright line disclosure thresholds; \395\
---------------------------------------------------------------------------

\395\ See letters from Clearing House and EEI and AGA.
---------------------------------------------------------------------------

Clarify the concept of ``authorization of debt'' in Rule
4-08(f); \396\
---------------------------------------------------------------------------

\396\ See letters from CAQ and Grant.
---------------------------------------------------------------------------

Coordinate to provide enhanced disclosures for significant
accounting policies that provide a more comprehensive discussion of
critical accounting estimates, including more robust information about
underlying assumptions that are highly judgmental, as well as their
propensity to change; \397\
---------------------------------------------------------------------------

\397\ See letters from CGCIV and FedEx.
---------------------------------------------------------------------------

Consider the timing of the disclosure requirements related
to combinations of entities under common control because these
disclosures could be useful to investors on both an interim and annual
basis and ensure the disclosure objectives and requirements are clear;
\398\ and
---------------------------------------------------------------------------

\398\ See letters from CAQ; E&Y; and PwC.
---------------------------------------------------------------------------

Work together to further reduce redundancies between
Commission disclosure requirements and U.S. GAAP, such as the oil and
gas disclosures in 17 CFR 229.1200 (``Item 1200'' of Regulation S-K)
and those in U.S. GAAP \399\ industry standards.\400\
---------------------------------------------------------------------------

\399\ ASC 932
\400\ See letters from CAQ; Deloitte; E&Y; and PwC.
---------------------------------------------------------------------------

We are retaining these requirements and referring all of the
disclosure requirements described in the table above to the FASB for
potential incorporation into U.S. GAAP.

IV. Outdated Requirements

A. Background

The Commission proposed to amend certain requirements that have
become outdated as a result of the passage of time or changes in the
regulatory, business, or technological environments. These amendments
were intended to simplify issuer compliance efforts. Further, to reduce
any loss of information or increased burdens for investors, the
Commission also proposed to require additional disclosure of
information that is expected to be readily available to issuers.

B. Disclosure Requirements Outdated Due to Passage of Time

In the Proposing Release, the Commission noted that some of its
disclosure requirements have become obsolete due to passage of time.
The table below describes each outdated requirement and what the
Commission proposed to eliminate.\401\
---------------------------------------------------------------------------

\401\ These proposed amendments are discussed in further detail
in Section IV.B of the Proposing Release.

------------------------------------------------------------------------
Commission
Topic disclosure Proposed amendment(s)
requirement(s)
------------------------------------------------------------------------
Stale Transition Dates........ Rule 4-01(a)(3) Delete references to
and Note 6 to transition dates
Rule 8-01 of given the passage of
Regulation S-X; these transition
Forms S-3, F-1, dates.
F-3, F-4, and 20-
F; and Exchange
Act Rule 13a-
10(g)(3), 15d-2,
and 15d-10(g)(3).

[[Page 50177]]

Income Tax Disclosures........ Rule 4- Delete the
08(h)(1)(ii), instructions to the
the rule that relate to
parenthetical at adoption of ASC 740--
the end of Rule Income Taxes because
4-08(h)(1), part all issuers are now
of the required to apply
introductory it.
sentence of Rule
4-08(h)(2), and
all of Rule 4-
08(h)(3) of
Regulation S-X.
------------------------------------------------------------------------

Commenters supported the proposed amendments to delete the
requirements above, which have become outdated.\402\ We are adopting
both of the amendments described in the table above as proposed.
---------------------------------------------------------------------------

\402\ See letters from CAQ; Deloitte; E&Y; Grant; PwC; and R.G.
Associates.
---------------------------------------------------------------------------

C. Disclosure Requirements Outdated due to Changes in the Regulatory,
Business, or Technological Environment

In the Proposing Release, the Commission staff noted that some of
its disclosure requirements have become obsolete as the regulatory,
business, or technological environments have changed over time. For
example, some of the Commission's disclosure requirements are no longer
relevant, or some information required to be disclosed is no longer
readily available or can be derived from alternative sources. Below we
discuss these outdated requirements and the related proposed
amendments.
1. Market Price Disclosure
a. Proposed Amendments
Item 201(a)(1) of Regulation S-K requires issuers to disclose the
following:
The principal U.S. market(s) where its common equity is
traded. Foreign issuers must also disclose the principal established
foreign public trading market, if applicable. Where applicable, issuers
must disclose that there is no established public trading market for
their common equity.\403\
---------------------------------------------------------------------------

\403\ Item 201(a)(1)(i) of Regulation S-K
---------------------------------------------------------------------------

If the principal U.S. market is an exchange, the high and
low sale prices for their common equity for each quarter within the two
most recent fiscal years and subsequent interim period.\404\
---------------------------------------------------------------------------

\404\ Item 201(a)(1)(ii) of Regulation S-K.
---------------------------------------------------------------------------

If the principal U.S. market is not an exchange, the high
and low bid quotations for the same periods as above. Where applicable,
issuers must identify the source of the quotations and include
appropriate qualifying language.\405\
---------------------------------------------------------------------------

\405\ Item 201(a)(1)(iii) of Regulation S-K. This provision
requires qualification where the over-the-counter quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions. Reference to
quotations must be qualified by appropriate explanation where there
is an absence of an established public trading market.
---------------------------------------------------------------------------

Foreign issuers that identify a principal established
foreign trading market for common equity are also required to provide
market price disclosure comparable to that of a domestic issuer. If the
primary U.S. market for the foreign issuer trades using American
Depositary Receipts (``ADRs''), then foreign issuers must disclose
prices based on the ADRs.\406\
---------------------------------------------------------------------------

\406\ Item 201(a)(1)(iv) of Regulation S-K.
---------------------------------------------------------------------------

When Item 201(a)(1) disclosure is included in a Securities
Act registration statement or an Exchange Act proxy or information
statement, the price for their common equity as of the latest
practicable date.\407\
---------------------------------------------------------------------------

\407\ Item 201(a)(1)(v) of Regulation S-K. The Commission has
required this or similar pricing disclosure since the 1960s. See
Guides for Preparation and Filing of Registration Statements,
Release No. 33-4936 (Dec. 9, 1968) [33 FR 18617 (Dec. 17, 1968)].
---------------------------------------------------------------------------

Today, the daily market prices of most publicly traded common
equity securities, including those quoted on an automated quotation
system, are readily available free on numerous websites, including the
exchanges' or quotation systems' websites.\408\ On these websites,
investors can view daily closing prices, up to the previous day, and
intra-day quotes, which would be more up-to-date than the prices
required by Item 201(a)(1)(v) of Regulation S-K. Additionally, many of
these websites allow users to download the daily historical data over
customized time horizons. These features result in more robust
information than the disclosure required by Item 201(a)(1) of
Regulation S-K.
---------------------------------------------------------------------------

\408\ See, e.g., www.finance.yahoo.com; www.google.com/finance;
www.bloomberg.com; www.nyse.com; www.nasdaq.com;
www.londonstockexchange.com; deutsche-boerse.com; www.otcbb.com; and
www.otcmarkets.com.
---------------------------------------------------------------------------

As a result, the Commission proposed the following amendments to
Item 201(a)(1) of Regulation S-K:
Issuers with one or more classes of common equity would be
required to disclose the principal U.S. market(s) where each class is
traded and the trading symbol(s) used by the market(s) for each class
of common equity. Foreign issuers also would be required to identify
the principal established foreign public trading market, if any, and
the trading symbol(s), for each class of their common equity.
Issuers with common equity that is not traded on an
exchange would be required to indicate, as applicable, that any over-
the-counter quotations in such trading systems reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
Issuers with no class of common equity traded in an
established public trading market would be required to state that fact
and disclose the range of high and low bid information, if applicable,
for each quarter over the last two fiscal years and any subsequent
interim period.\409\ Also, such issuers would be required to disclose
the source and explain the nature of such quotations.
---------------------------------------------------------------------------

\409\ Item 201(a)(1)(i) currently notes that the existence of
limited or sporadic quotations should not, by itself, be deemed to
constitute an established public trading market.
---------------------------------------------------------------------------

As proposed to be amended, Item 201(a)(1) would eliminate the
detailed disclosure requirement of sale or bid prices for most issuers
whose common equity is traded in an established public trading market
and replace it with disclosure of the trading symbol.\410\ The proposed
amendments would also align Item 201(a)(1) with Item 501(b)(4) of
Regulation S-K.\411\
---------------------------------------------------------------------------

\410\ Form N-2, which is used for registration of closed-end
management investment companies, includes disclosure requirements
relating to sales prices and bid information that are similar to
those in Item 201(a)(1) of Regulation S-K. Item 1, Instruction 1 and
Item 8.5(b) of Form N-2. In addition to these requirements, Form N-2
requires disclosure of information relating to net asset value and
discount or premium to net asset value. Item 8.5(b), Instructions 4
and 5 and Item 8.5(c) through (e) of Form N-2. Disclosure of sales
prices and bid information is needed in registration statements on
Form N-2 so that the required premium/discount disclosure can be
fully understood. Accordingly, the Commission did not propose to
change the requirements in Form N-2 relating to sales prices and bid
information.
\411\ 17 CFR 229.501(b)(4). Item 501(b)(4) of Regulation S-K
requires prospectus cover page disclosure of the trading symbol(s)
and market(s) for securities being offered and registered on a
Securities Act registration statement. The proposed amendments to
Item 201(a)(1) are also consistent with those proposed to Item
501(b)(4) and the cover pages of Forms 10-K, 20-F, 40-F, 10-Q, and
8-K in a separate rulemaking. See FAST Act Modernization and
Simplification of Regulation S-K, Release No. 33-10425 (Oct. 10,
2017) [82 FR 50988 (Nov. 2, 2017)].

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

[[Page 50178]]

Foreign private issuers that file Form 20-F are subject to
disclosure requirements similar to those included in Item 201(a)(1) of
Regulation S-K. Item 9.A.4 of Form 20-F requires the following price
history of the stock to be offered or listed for both the U.S. market
and the principal trading market outside the United States, as
applicable:
The annual high and low market prices for the last five
full financial years;
Quarterly high and low market prices for the last two full
financial years and any subsequent period; and
Monthly high and low market prices for the last six
months.
For preemptive share issuances, the issuer must disclose the market
prices for the first trading day in the most recent six months, the
last trading day before the announcement of the offering, and for the
latest practicable date. If an issuer's securities are ``not regularly
traded in an organized market,'' the issuer must discuss any lack of
liquidity.
The Commission also proposed to amend Item 9.A.4 of Form 20-F to be
consistent with the proposals related to Item 201(a)(1) of Regulation
S-K. Specifically, the Commission proposed to amend Item 9.A.4 to
require disclosure of the U.S. and principal market(s) where the
issuer's common equity trades and the trading symbol(s) assigned to the
issuer's common equity that is traded in the U.S. market and principal
market. For issuers whose common equity is not traded in any
established public trading market, disclosure of that fact would still
be required.
b. Comments on Proposed Amendments
Commenters generally supported the proposed amendments.\412\ In the
Proposing Release the Commission asked if investors and issuers
understood the term ``established public trading market'' and whether
further guidance is needed to determine what constitutes ``limited or
sporadic quotations.'' \413\ One commenter recommended that the
Commission clarify and define these terms without suggesting specific
changes.\414\ Another commenter recommended that the Commission require
disclosure of trading symbol(s) for primary markets where all issued
``instruments'' are traded, and define clear standards for the ticker
notation so that all filers use the same notation.\415\ This commenter
also recommended disclosure of the security identifier (CUSIP) in
addition to the trading symbol and the ADR ratio,\416\ as applicable.
---------------------------------------------------------------------------

\412\ See letters from E&Y; EEI and AGA; FedEx; KPMG; R.G.
Associates; and XBRL US, Inc. (Oct. 3, 2016) (``XBRL'').
\413\ See Section IV.B.4 of the Proposing Release, supra note 1,
at 51638.
\414\ See letter from E&Y.
\415\ See letter from XBRL.
\416\ ADR ratio is the number of foreign shares represented by
one ADR.
---------------------------------------------------------------------------

c. Final Amendments
To help investors locate listed securities and current trading
prices, we are adopting the amendment to Item 201(a)(1) of Regulation
S-K and Item 9.A.4 of Form 20-F substantially as proposed, with minor
modifications. First, we are removing the term ``established'' from
``principal established foreign public trading market'' in Item
201(a)(1) to be consistent with the scope of disclosure required for
domestic issuers in the U.S. market and for foreign private issuers in
Item 9.A.4. Second, we are retaining the clarification currently in
Item 9.A.4 that ``principal market'' means ``outside the host market''
as this language was inadvertently proposed for elimination. Finally,
we are adding the term ``principal'' in front of ``host market'' in the
amended first sentence of Item 9.A.4. to be consistent with Item 201,
which requires disclosure of ``principal United States market(s).''
\417\
---------------------------------------------------------------------------

\417\ ``Host country,'' as defined in General Instruction F. of
Form 20-F, means the United States and its territories, as the term
is used in Form 20-F.
---------------------------------------------------------------------------

In addition, while we acknowledge the commenter's recommendations
that we also require disclosure of trading symbol(s) for all issued
``instruments,'' as well as CUSIP and ADR ratio when applicable, we are
not adopting that suggestion as it is beyond the scope of this
rulemaking.
2. Other
The table below describes each of the remaining disclosure
requirements that have become obsolete as the regulatory, business, or
technological environments changed over time, and the related proposed
amendments.\418\
---------------------------------------------------------------------------

\418\ These proposed amendments are discussed in further detail
in Section IV.B of the Proposing Release.

------------------------------------------------------------------------
Commission
Topic disclosure Proposed amendments
requirement(s)
------------------------------------------------------------------------
Available Information--Public Item 101(e)(2) Delete the
Reference Room. and Item requirements to
101(h)(5)(iii) identify the Public
of Regulation S- Reference Room and
K; Forms S-1, S- disclose its
3, S-4, S-11, F- physical address and
1, F-3, and F-4; phone number. The
Item 1118(b) of Commission's Public
Regulation AB; Reference Room is
and Forms SF-1, rarely used by the
SF-3, N-1A, N-2, public to obtain or
N-3, N-5, N-6, review issuer
and N-8B-2. filings, as paper
filings are now only
permitted (and
sometimes required)
in very limited
circumstances.\419\
Also delete the
instruction in
certain N Forms on
how to send a
written request by
mail to the SEC's
Public Reference
Room to obtain
certain hard copy
information.
Item 101(e)(2) of Retain the
Regulation S-K; requirement to
and Forms S-1, S- disclose the
3, S-4, S-11, F- Commission's
1, F-3, F-4, 20- Internet address and
F, SF-1, SF-3, a statement that
and N-4. electronic SEC
filings are
available there.
However, delete the
qualifier ``if you
are an electronic
filer'' because all
but a limited number
of issuers are now
required to file
electronically.\420\
Also expand this
requirement to Forms
20-F and F-1 in
order to align the
requirements for
foreign private
issuers with
domestic issuers.
Available Information--Issuer Items 101(e) and Require all issuers
Internet Address. 101(h)(5) of to disclose their
Regulation S-K; Internet addresses
and Forms S-3, S- (or, in the case of
4, F-1, F-3, F- asset-backed
4, 20-F, SF-1, issuers, the address
and SF-3. of the specified
transaction party),
if they have one.
Many non-accelerated
filers already
disclose their
Internet addresses
\421\ and the
Commission has
provided guidance
about the liability
framework for
certain types of
disclosures on
company websites.
Further, we believe
that such a
requirement would
help ensure that
investors are aware
of an additional
resource for
information about
issuers.

[[Page 50179]]

Exchange Rate data............ Item 3.A.3 of Delete the
Form 20-F. requirement for
foreign private
issuers to provide
exchange rate data
when financial
statements are
prepared in a
currency other than
the U.S. dollar.
Exchange rate
information is
readily available
free on a number of
websites.\422\
Foreign Private Issuer Initial Instruction 2 to Remove the reference
Public Offering--Age of Item 8.A.4 of to a waiver and
Financial Statements. Form 20-F. clarify the facts
and circumstances
when foreign private
issuers may comply
with the aging
requirement to
include audited
financial statements
in an initial public
offering that are
not older than 15
months compared to
the 12 months aging
requirement.
------------------------------------------------------------------------

Commenters supported the proposed amendments and agreed with the
reasons provided in the Proposing Release.\423\ We are adopting all of
the amendments described in the table above as proposed, which will
remove obsolete disclosure requirements and reduce issuers' compliance
burdens.
---------------------------------------------------------------------------

\419\ See Rules 14 [17 CFR 232.14], 101 [17 CFR 232.101], and
102 [17 CFR 232.102] of Regulation S-T.
\420\ See Rules 100 [17 CFR 232.100] and 101 [17 CFR 232.101] of
Regulation S-T.
\421\ Existing rules only require the disclosure by accelerated
and large accelerated filers.
\422\ See note [451].
\423\ See letters from E&Y; KPMG; and R.G. Associates.
---------------------------------------------------------------------------

V. Superseded Requirements

A. Background

As accounting, auditing, and disclosure requirements have changed
over time, inconsistencies have arisen between the newer requirements
and existing Commission disclosure requirements. The Commission
proposed amendments to update Commission disclosure requirements to
reflect more recently updated U.S. GAAP requirements or more recently
updated Commission disclosure requirements.

B. Disclosure Requirements Superseded by U.S. GAAP

The Commission staff has observed in its filing reviews that, in
practice, issuers are able to successfully navigate inconsistencies
between newer accounting and disclosure requirements and existing
Commission disclosure requirements by complying with the requirement
that was updated more recently. This is particularly the case with
respect to changes in U.S. GAAP requirements, as the Commission has
designated the FASB as the private-sector accounting standard
setter.\424\ However, the Commission sought to simplify compliance
efforts by proposing changes to several disclosure requirements that
the Commission believed were superseded by U.S. GAAP.\425\
---------------------------------------------------------------------------

\424\ See Section I.C.I of the Proposing Release, supra note 1,
at 51611.
\425\ Some of the proposed amendments to eliminate superseded
Commission disclosure requirements apply both to issuers that report
under U.S. GAAP and IFRS. We do not expect the amendments to conform
these requirements to U.S. GAAP to cause confusion for issuers that
report under IFRS because U.S. GAAP and IFRS are substantially
converged for these topics.
---------------------------------------------------------------------------

1. Gains or Loss on Sale of Properties by REITS
Regulation S-X requires REITs to present separately all gains and
losses on the sale of properties outside of continuing operations in
the income statement.\426\ U.S. GAAP, however, restricts that
presentation to gains and losses on disposals that meet the definition
of discontinued operations.\427\ As a result, the Commission proposed
to eliminate Rule 3-15(a)(1) of Regulation S-X.
---------------------------------------------------------------------------

\426\ Rule 3-15(a)(1) of Regulation S-X.
\427\ ASC 205-20-45-1B.
---------------------------------------------------------------------------

Commenters were supportive of the proposed amendment.\428\ We are
adopting the elimination of Rule 3-15(a)(1) of Regulation S-X as
proposed. We believe this amendment will simplify compliance for
issuers by eliminating the disclosure requirement in Rule 3-15(a)(1) of
Regulation S-X that conflicts with the requirement in U.S. GAAP.
---------------------------------------------------------------------------

\428\ See letters from CAQ; Deloitte; E&Y; Grant; KPMG; NAREIT;
PwC; and R.G. Associates.
---------------------------------------------------------------------------

2. Consolidation
a. Proposed Amendments
The Commission provided guidance on the presentation of
consolidated and combined financial statements when it first issued
Regulation S-X in 1940.\429\ Since that time, certain U.S. GAAP
consolidation requirements have changed significantly, creating
inconsistencies between Regulation S-X and U.S. GAAP.\430\ For
instance, Article 3A of Regulation S-X, Consolidated and Combined
Financial Statements, includes several inconsistencies with U.S. GAAP
related to difference in fiscal periods, the Bank Holding Company Act
of 1956 (``BHC Act''), and intercompany transactions. The table below
describes each requirement related to consolidation that the Commission
proposed to eliminate and the reason for its proposed elimination.\431\
---------------------------------------------------------------------------

\429\ See Adoption of Regulation S-X, (March 6, 1940) [5 FR 954
(Mar. 6, 1940)].
\430\ For example, Accounting Research Bulletin (``ARB'') No.
51, Consolidated Financial Statements (``ARB No. 51''), was issued
in 1959. Since then, the FASB has issued additional guidance,
including but not limited to SFAS No. 94, Consolidation of All
Majority-Owned Subsidiaries--an amendment of ARB No. 51, with
related amendments of APB Opinion No. 18 and ARB No. 43, Chapter 12;
FASB Interpretation No. 46, Consolidation of Variable Interest
Entities--an interpretation of ARB No. 51; FASB Interpretation No.
46 (revised December 2003), Consolidation of Variable Interest
Entities--an interpretation of ARB No. 51; SFAS No. 167, Amendments
to FASB Interpretation No. 46(R); and ASU No. 2015-02, Consolidation
(Topic 810): Amendments to the Consolidation Analysis.
\431\ These proposed amendments are discussed in further detail
in Section V.B.4. of the Proposing Release.

------------------------------------------------------------------------
Commission
Topic disclosure Proposed amendments
requirement(s)
------------------------------------------------------------------------
Consolidation--Difference in Rule 3A-02(b) Delete the
Fiscal Periods. \432\ and Rule requirements because
3A-02(b)(2) U.S. GAAP \434\
\433\ of requires
Regulation S-X. consolidation
despite different
fiscal periods and
the fiscal periods
of combined entities
must differ by less
than three months.
Consolidation--Bank Holding Rule 3A-02(c) of Delete the
Company Act of 1956. Regulation S-X requirement because
\435\. U.S. GAAP \436\ does
not provide an
exception to
consolidation for
subsidiaries of
issuers subject to
the BHC Act in
relation to a
divestiture.

[[Page 50180]]

Consolidation--Intercompany Rule 3A-04 of Delete the
Transactions Generally. Regulation S-X requirement because
\437\. U.S. GAAP \438\
requires the
elimination of
intercompany
transactions from
consolidated
financial
statements.
Consolidation--Intercompany Rule 4-08(k)(2) Delete the
Transactions in Separate of Regulation S- requirement to
Financial Statements. X \439\. disclose, in
separate financial
statements of a
subset of a
consolidated
group,\440\ the
intercompany
transactions which
are eliminated or
not eliminated,
because U.S. GAAP
\441\ prohibits
elimination of these
transactions in the
separate financial
statements.
Dividends Per Share in Interim Rule 8-03(a)(2) Delete the
Financial Statements. and Rule 10- requirements to
01(b)(2) of present dividends
Regulation S-X per share on the
\442\. face of the income
statement for
interim periods
because U.S. GAAP
\443\ (1) prohibits
this disclosure on
the face of the
financial statements
and (2) instead
permits it in the
notes to the
financial
statements.
Rule 3-04 of Extend the annual
Regulation S-X disclosure
\444\. requirement of
changes in
stockholders' equity
and the amount of
dividends per share
for each class of
shares to interim
periods\445\
------------------------------------------------------------------------

b. Comments on Proposed Amendments
---------------------------------------------------------------------------

\432\ Regulation S-X prohibits the consolidation of an entity if
its fiscal period differs substantially, for example by more than 93
days, from that of the issuer.
\433\ Regulation S-X permits the combination of entities under
common control even if their fiscal periods differ by more than 93
days, but requires the recasting of the latest fiscal year to within
93 days and disclosure of amounts excluded or included more than
once as a result of the recasting.
\434\ ASC 810-10-15-11.
\435\ Regulation S-X prohibits consolidation of subsidiaries of
issuers subject to the BHC Act when a divestiture has been made or
it is substantially likely that the divestiture will be necessary in
order to comply with provisions of the BHC Act.
\436\ ASC 810-10-15-10a. See also paragraph C2.a of SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets
(August 2001), which eliminated the pre-existing exception from
consolidation for subsidiaries under temporary control under ARB No.
51.
\437\ If an issuer does not eliminate intercompany transactions
from its financial statements, Regulation S-X requires it to explain
why and how the transactions are treated.
\438\ See ASC 323-10-35-5a and ASC 810-10-45-1.
\439\ When separate financial statements of a subset of a
consolidated group, such as a parent, subsidiaries, or investees,
are presented, Regulation S-X contemplates the elimination of some
transactions between the subset of the consolidated group presented
in the separate financial statements and other entities in the
consolidated group.
\440\ A subset of a consolidated group that may present separate
financial statements includes financial statements of the
registrant, certain investees, or subsidiaries.
\441\ ASC 810-10-45-1.
\442\ Regulation S-X requires, for interim periods, the
presentation of dividends per share on the face of the income
statement. Rule 8-03(a)(2) specifically applies to SRCs and
Regulation A issuers in a Tier 2 offering that report under U.S.
GAAP, while Rule 10-01(b)(2) applies to non-SRCs.
\443\ See ASC 260-10-45-5.
\444\ Rule 3-04 of Regulation S-X allows annual disclosures of
changes in stockholders' equity, including dividends per share
amounts, to be provided in a note to the financial statements or in
a separate financial statement.
\445\ The option to present dividend per share disclosures in a
separate financial statement does not comply with U.S. GAAP, which
prohibits this per share presentation on the face of financial
statements. However, the Commission saw benefits in continuing to
provide (and extending to interim periods) an option to present
dividends per share on the face of the statement of stockholders'
equity, if an issuer elects to present changes in stockholders'
equity in a separate financial statement, irrespective of the
prohibition under U.S. GAAP. The Commission believed that the
presentation of dividends per share alongside disclosure of changes
in stockholders' equity facilitates investor understanding of
stockholders' equity, as dividends are distributed from
stockholders' equity. In addition, the proposed amendments address
the more significant issue in Regulation S-X associated with the
requirement to present interim dividends per share on the income
statement, which is unrelated to dividends, a component of
stockholders' equity.
For Regulation A issuers, the Commission proposed amendments
directly to Forms 1-A and 1-SA to require interim disclosures of
changes in stockholders' equity and dividends per share amounts to
address the inconsistency described above with U.S. GAAP, rather
than to refer to Rule 3-04. The proposed amendments to Form 1-A
would apply to all Regulation A issuers and the proposed amendments
to Form 1-SA would apply to all Regulation A issuers in a Tier 2
offering, even though Rule 8-03(a)(2) only applies to Regulation A
issuers in a Tier 2 offering that report under U.S. GAAP. However,
the Commission did not expect any increased burdens for Regulation A
issuers in a Tier 2 offering that report under IFRS, as such issuers
are already required to present a condensed statement of changes in
equity and dividend amounts either in the aggregate or per share,
pursuant to paragraphs 8 and 16A(f), respectively, of IAS 34,
Interim Financial Reporting. The Commission expected the burdens for
Regulation A issuers in a Tier 1 offering that report under U.S.
GAAP on Form 1-A to be minimal, as the required information already
would be available from the preparation of the interim financial
statements.
---------------------------------------------------------------------------

Commenters were generally supportive of the proposed
amendments.\446\ Some commenters asked for clarification on whether the
amendment to extend the changes in stockholders' equity and non-
controlling interests disclosure requirement to interim periods would
be presented only for the year-to-date period, or for quarterly
period(s) as well.\447\ One commenter supported the proposed
elimination of Rule 8-03(a)(2) and Rule 10-01(b)(2) in Regulation S-X,
but questioned whether the extension of the disclosure requirement in
Rule 3-04 of Regulation S-X to interim periods was necessary or
efficient.\448\ As an alternative, the commenter recommended amending
Regulation S-X to move the dividend per share disclosure requirements
from the face of the financial statements to the notes to the financial
statements, which would eliminate the conflict with U.S. GAAP.
---------------------------------------------------------------------------

\446\ See letters from CAQ; Deloitte; E&Y; Grant; KPMG; PwC; and
R.G. Associates.
\447\ See letters from CAQ and PwC.
\448\ See letter from E&Y.
---------------------------------------------------------------------------

One commenter observed the need to update Rule 6-03(c)(1)(i) of
Regulation S-X, which also has been superseded by U.S. GAAP.\449\ The
commenter noted the Commission disclosure requirement permits the
consolidation of the financial statements of registered investment
companies and business development companies only with the financial
statements of subsidiaries which are investment companies, whereas U.S.
GAAP also permits consolidation when an investment company holds a
controlling financial interest in an operating entity that provides
services to the investment company.\450\
---------------------------------------------------------------------------

\449\ See letter from E&Y.
\450\ ASC 946-810-45.
---------------------------------------------------------------------------

c. Final Amendments
We are adopting the amendments as proposed with one minor change.
As suggested by commenters, the final amendments clarify that Rule 3-04
of Regulation S-X requires both the year-to-date information and
subtotals for each interim period.
The extension of the disclosure requirement in Rule 3-04 of
Regulation S-X may create some additional burden for issuers, including
Regulation A issuers, because it will require disclosure of dividends
per share for each class of shares, rather than only for common stock,
and disclosure of changes in stockholders' equity in

[[Page 50181]]

interim periods.\451\ However, as noted in the Proposing Release, we
expect this burden will be minimal, as the required information is
already available from the preparation of other aspects of the interim
financial information such as the balance sheet and earnings per
share.\452\ The amended rule will require companies to provide
information on the dividends issued and the relationship the dividends
have to stockholders' equity in one place, which may help investors
understand some of the strategic decisions made by management, such as
dividend payout versus share buyback.
---------------------------------------------------------------------------

\451\ ASC 505-10-50-2 requires disclosure of changes in the
separate accounts comprising stockholders' equity (e.g., common
stock, additional paid-in capital, retained earnings) during at
least the most recent annual fiscal period and any subsequent
interim period presented. The proposed amendments would require
disclosure of changes in stockholders' equity for each period
presented, which would include comparative periods.
\452\ Some registrants already include the disclosure required
by Rule 3-04 in the Form 10-Q. U.S. GAAP also requires disclosure of
significant changes in financial position, like stockholders'
equity, in interim reporting. ASC 270-10-50.
---------------------------------------------------------------------------

In response to a commenter's suggestion, we are deleting the
requirements for consolidation by investment companies in Regulation S-
X \453\ because it conflicts with U.S. GAAP. The U.S. GAAP requirement
is broader and additionally requires consolidated financial statements
when a reporting entity has a controlling financial interest in another
entity.
---------------------------------------------------------------------------

\453\ Rule 6-03(c)(1)(i) of Regulation S-X.
---------------------------------------------------------------------------

3. Development Stage Companies
U.S. GAAP previously required presentation of cumulative financial
information from inception and related disclosures for development
stage companies.\454\ Regulation S-X requires the U.S. GAAP disclosures
for development stage companies in interim periods.\455\ In June 2014,
the FASB eliminated the U.S. GAAP disclosure requirements for
development stage companies.\456\ Accordingly, the Commission proposed
to eliminate the superseded U.S. GAAP disclosure requirement for
development stage companies in Rule 8-03(b)(6) and Rule 10-01(a)(7).
---------------------------------------------------------------------------

\454\ FASB ASC Topic 915, Development Stage Entities.
\455\ See Rule 8-03(b)(6) and Rule 10-01(a)(7) of Regulations S-
X. Rule 8-03(b)(6) specifically applies to SRCs and Regulation A
issuers in a Tier 2 offering that report under U.S. GAAP, while Rule
10-01(a)(7) applies to non-SRCs.
\456\ ASU No. 2014-10, Development Stage Entities (Topic 915):
Elimination of Certain Financial Reporting Requirements, Including
an Amendment to Variable Interest Entities guidance in Topic 810,
Consolidation. After public comment, the FASB determined that the
disclosure provided ``information that had limited relevance.''
---------------------------------------------------------------------------

Commenters supported our proposal to eliminate these
requirements.\457\ Some of these commenters also recommended deleting
the definition of development stage company in in Rule 1-02(h) of
Regulation S-X.\458\
---------------------------------------------------------------------------

\457\ See letters from CAQ; Deloitte; E&Y; Grant; KPMG; PwC; and
R.G. Associates.
\458\ See letters from CAQ; Deloitte; Grant; and PwC. The
definition of development stage entities under U.S. GAAP was the
same as development stage companies under Regulation S-X.
---------------------------------------------------------------------------

We are adopting the amendments as proposed. We are not deleting the
definition of development stage company in Rule 1-02(h) of Regulation
S-X as it is used in other Commission requirements (e.g., Rule
251(b)(3) of Regulation A and Rule 419(a)(2)(i) of Regulation C). As a
result, we believe the definition in Rule 1-02(h) of Regulation S-X
continues to be useful when applying these other Commission
requirements.
4. Insurance Companies
a. Proposed Amendments
17 CFR 210.7-02(b) (``Rule 7-02(b)'' of Regulation S-X) permits
mutual life insurance companies and their wholly-owned stock insurance
company subsidiaries to prepare financial statements in accordance with
statutory accounting requirements. In the proposing release, the
Commission proposed to eliminate this rule, as the Commission did not
believe that issuers under the Securities Act or the Exchange Act
currently rely on Rule 7-02(b) of Regulation S-X as a basis to report
under statutory accounting requirements.\459\
---------------------------------------------------------------------------

\459\ Some insurance companies sponsoring variable annuity
contracts for registration on Forms N-3 and N-4 under the Investment
Company Act and the Securities Act and some insurance companies
offering variable life insurance contracts for registration on Form
N-6 under the Investment Company Act and Securities Act prepare
financial statements under statutory accounting requirements. These
companies are permitted to do so in certain circumstances by the
applicable form requirements. Specifically, each of these forms
requires financial statements of the insurance company and states
that if the insurance company would not have to prepare financial
statements in accordance with U.S. GAAP except for use in the
registration statement being filed or other specified registration
statements used for variable insurance contracts, then its financial
statements may be prepared in accordance with statutory accounting
requirements. See Form N-3, Item 28(b), Instruction 1; Form N-4,
Item 23(b), Instruction 1; and Form N-6, Item 24(b), Instruction 1.
The proposed elimination of Rule 7-02(b) would not change these
forms.
---------------------------------------------------------------------------

The Commission also proposed two other amendments related to
Insurance Companies and Regulation S-X. The first amendment relates to
the separate presentation on the balance sheet of an asset called
``reinsurance recoverable on paid losses.'' \460\ The Commission
proposed to delete the reference to ``paid losses'' in this line item
because U.S. GAAP was revised in 1992 to allow reinsurance recoverable
receivables on paid and unpaid losses to be presented together.\461\
The second amendment relates to the definition of ``Separate Account
Assets'' that are presented separately as a summary total on the
balance sheet.\462\ U.S. GAAP defines differently separate account
assets that are required to be reported as a summary total.\463\ Thus,
the Commission proposed to replace the reference to variable annuities,
pension funds, and similar activities in Rule 7-03(a)(11) with a
reference to U.S. GAAP.
---------------------------------------------------------------------------

\460\ See Rule 7-03(a)(6) of Regulation S-X.
\461\ In 1992 the FASB issued SFAS No. 113, which established
that reinsurance receivables on unpaid losses are also assets and
may be presented together or separately with other reinsurance
receivables. See paragraphs 74 to 76 in SFAS No. 113 and paragraph
76 was codified in ASC 944-20-50-5.
\462\ See Rule 7-03(a)(11) of Regulation S-X.
\463\ See ASC 944-80-25-1 to 5.
---------------------------------------------------------------------------

b. Comments on Proposed Amendments
Many commenters supported all three proposals.\464\ However, some
commenters opposed the elimination of the ability of mutual life
insurance companies to utilize statutory accounting principles for
registration of insurance products under the Securities Act.\465\ These
commenters stated that the preparation of U.S. GAAP financial
statements would impose significant financial and administrative
burdens on mutual life insurers. These commenters indicated that if the
amendments to Rule 7-02(b) were adopted, a mutual insurance company
issuing a general account insurance product would have to comply with
the requirement to provide U.S. GAAP financial statements in Form S-1
or S-3, and as a result, mutual life insurance companies that do not
already prepare U.S. GAAP financial statements may limit their
offerings of general account insurance products. One commenter
suggested that the Commission should expand Rule 7-02(b) to allow its
application to all insurance companies that do not otherwise prepare
U.S. GAAP financial statements.\466\ Other commenters advised that
elimination of the rule should involve a full analysis of the

[[Page 50182]]

potential costs and benefits.\467\ These commenters also outlined the
relevance of financial statements prepared under statutory accounting
principles for general account insurance products.
---------------------------------------------------------------------------

\464\ See letters from CAQ; Deloitte; E&Y; Grant; KPMG; PwC; and
R.G. Associates.
\465\ See letters from American Council of Life Insurers (Oct.
21, 2016) (``ACLI''); Committee of Annuity Insurers (Oct. 11, 2016);
and Northwestern Mutual Life Insurance Company (Nov. 1, 2016)
(``Northwestern Mutual'').
\466\ See letter from Committee of Annuity Insurers.
\467\ See letters from ACLI and Northwestern Mutual.
---------------------------------------------------------------------------

c. Final Amendments
After further consideration and in light of the concerns expressed
by commenters, we are not adopting the proposed amendment to eliminate
Rule 7-02(b). We are adopting the amendments to Rule 7-03(a)(6) and 7-
03(a)(11) as proposed to simplify compliance for issuers by removing
the elements of those rules that conflict with U.S. GAAP.
5. Extraordinary Items
a. Proposed Amendments
Various Commission disclosure requirements and forms refer to
extraordinary items. In January 2015, the FASB eliminated extraordinary
items from U.S. GAAP.\468\ To update Commission disclosure
requirements, the Commission proposed to delete references to
extraordinary items in our rules and forms.\469\ The Commission
proposed to delete the requirement in Item 302(a)(1) of Regulation S-K
to disclose ``income (loss) before extraordinary items and cumulative
effect of a change in accounting'' in supplemental quarterly financial
information, and in its place, require disclosure of ``Income (loss).''
The Commission also proposed amendments to the investment company
registration forms (Form N-1A, Form N-3, Form N-4, and Form N-6) to
replace the outdated reference to the U.S. GAAP definition of
extraordinary items with a definition of extraordinary expenses \470\
The Proposing Release indicated that the proposed amendments were not
intended to change the content required to be presented in these
forms.\471\
---------------------------------------------------------------------------

\468\ See ASU No. 2015-01, Income Statement--Extraordinary and
Unusual Items (Subtopic 225-20): Simplifying Income Statement
Presentation by Eliminating the Concept of Extraordinary Items.
Previously, ASC 225-20-45-2 defined ``extraordinary items'' as an
event or transaction that is unusual in nature and infrequent in
occurrence, and ASC 225-20-45-3 required separate presentation of
the effect of the extraordinary item on the income statement.
\469\ The proposed amendments apply to the following rules: Rule
1-02(w)(3), Rule 1-02(bb)(1)(ii), Rule 3-01(c)(2), Rule 3-01(c)(3),
Rule 3-15(a)(1), Rule 3A-02(b)(2), Rule 5-03(b), Rule 7-04, Rule 8-
03(a)(2), Rule 8-04(b)(3), Rule 9-04, Rule 10-01(b)(4), Rule 11-
02(b)(7), and Instruction 1 to Rule 11-02; Item 10(b)(2), Item
302(a)(1), and Item 302(a)(3) of Regulation S-K; Securities Act Rule
405, Exchange Act Rule 3a51-1(a)(2)(i)(A)(3); Exchange Act Rule 12b-
2; Exchange Act Rule 13a-10(b); and Exchange Act 15d-10(b). The
proposed amendments also apply to Form X-17A-5.
Rule 3a51-1 of the Exchange Act contains a net income measure
that is used in evaluating whether certain equity securities are
penny stocks, which currently excludes ``extraordinary and non-
recurring items'' from the net income calculation. As a result of
the proposed amendment, the reference to ``extraordinary items''
would be deleted, but the exclusion of non-recurring items from net
income would remain. The deletion of the ``extraordinary items''
reference from net income calculations under Rule 3a51-1 is not
intended to affect the application of the rule, as we believe that
non-recurring items encompass items that would have been
``extraordinary items'' previously. Thus, the calculation of net
income for purposes of Rule 3a51-1 should not change.
\470\ The proposed definition is consistent with the historical
U.S. GAAP definition of ``extraordinary items.''
\471\ While the FASB has eliminated the concept of extraordinary
items from U.S. GAAP for general purpose financial reporting, the
concept of extraordinary expenses is still relevant for investment
companies, particularly in disclosure of expense ratios in
registration statements. Certain investment company registration
forms eliminate extraordinary expenses from expense ratios in the
fee table in order to disclose to investors the ongoing level of
expense that can be expected. The proposed amendment did not seek to
change the requirement that extraordinary expenses be excluded in
the fee table and included in footnote disclosure reflecting
extraordinary expenses if they would have a material effect. See
Section V.B.11 of the Proposing Release.
---------------------------------------------------------------------------

b. Comments on Proposed Amendments
While commenters \472\ generally supported the proposed amendments,
some commenters \473\ recommended requiring disclosure of ``income
(loss) from continuing operations'' and ``net income (loss)'' where the
existing rule previously required ``income (loss) before extraordinary
items and cumulative effect of a change in accounting principle.'' This
recommendation was based on a view that: (1) It was unclear what income
statement line ``income (loss)'' referred to; and (2) the alternative
formulation would highlight the effects of discontinued operations.
Additionally, these commenters recommended that the Commission
reconsider the per share financial metrics required to be disclosed in
interim periods, such as the disclosure requirement in Item 302(a)(1)
of Regulation S-K,\474\ and make the metrics consistent with measures
that are presented on the face of the interim income statements. One
commenter expressly supported the proposed amendments to retain the
historical U.S. GAAP definition of ``extraordinary expenses'' in
certain investment company registration forms.\475\
---------------------------------------------------------------------------

\472\ See letters from CAQ: Deloitte; E&Y; Grant; KPMG; PwC; and
R.G. Associates.
\473\ See letters from CAQ, E&Y, and PwC.
\474\ Item 302(a)(1) of Regulation S-K requires per share data
based upon the income (loss) before extraordinary items and
cumulative effect of a change in accounting.
\475\ See letter from ICI.
---------------------------------------------------------------------------

c. Final Amendments
We are adopting the amendments as proposed, eliminating all
references to extraordinary items and adding a definition of
extraordinary expenses within certain N-Forms. We are also making
several revisions recommended by commenters related to Item 302(a)(1).
Specifically, we are replacing the proposed reference to ``income
(loss)'' with ``income (loss) from continuing operations'' and the
reference to ``per share data based upon such income'' with ``per share
data based upon income (loss) from continuing operations'' \476\ and
``per share data based upon net income (loss).'' These additional
changes should help to simplify the resulting disclosure and reduce any
confusion for issuers.
---------------------------------------------------------------------------

\476\ See ASC 260-10-45-2.
---------------------------------------------------------------------------

6. Other
The table below describes each of the remaining disclosure
requirements that are superseded by U.S. GAAP and the related proposed
amendments.\477\
---------------------------------------------------------------------------

\477\ These proposed amendments are discussed in further detail
in Section V.B. of the Proposing Release.
\478\ See Amendments to Rules and Forms, Release No. 33-6958A,
(Oct. 1, 1992) [57 FR 45287 (Oct. 1, 1992)].
\479\ See ASC 270-10-50-7, which refers to ASC 805-10-50-2h.3
for purposes of interim disclosures.

------------------------------------------------------------------------
Commission
Topic disclosure Proposed amendments
requirement(s)
------------------------------------------------------------------------
Statement of Cash Flows..... Rule 3-02 of Amend to replace the
Regulation S-X. reference to
``changes in
financial
position'' in the
title with ``cash
flows'' because
similar amendments
to various rules
and forms were made
in 1992.\478\
Consolidation--Interim Rule 8-03(b)(4) and Delete reference to
Financial Statements--Pro Rule 10-01(b)(4) of when a business
Forma Business Combination Regulation S-X. combination should
Information. be assumed to have
occurred in pro
forma financial
information because
U.S. GAAP \479\
requires reflection
of the business
combination at the
beginning of the
preceding fiscal
year.

[[Page 50183]]

Bank Holding Companies--Net Rule 9-03.3 of Delete requirement
Presentation. Regulation S-X. for federal funds
sold and securities
purchased under
resale agreements
or similar
arrangements to be
presented on the
balance sheet gross
of federal funds
purchased and
securities sold
under agreements to
repurchase because
U.S. GAAP \480\
permits net
presentation under
certain conditions.
Bank Holding Companies-- Rule 9-03.10(1) and Delete the
Goodwill. Rule 9-04.14(c) of parenthetical
Regulation S-X. reference to net of
amortization in
Rule 9-03.10(1) and
delete the
reference to
goodwill
amortization in
Rule 9-04.14(c)
because U.S. GAAP
\481\ prohibits
amortization of
goodwill.
Discontinued Operations..... Instruction 1 to Replace the
Rule 11-02(b) of reference to
Regulation S-X; and ``segments'' with
Item 302(a)(3) of ``discontinued
Regulation S-K. operations''
because the
definition of
``discontinued
operations'' under
U.S. GAAP \482\ has
changed and no
longer incorporates
the term
``segment.''
Pooling-of-Interests........ Rule 11-02(c)(2)(ii) Delete references to
of Regulation S-X; ``pooling-of-
Rule 405 of interests'' and
Regulation C; Item replace them with
4A(b)(1)(iii) of references to
Form F-1; ``combinations of
Instruction 1 to entities under
paragraphs (e) and common control''
(f) of Item 3 of because similar
Form F-4; Item amendments were
10(c)(3) of Form F- made in 2009.\483\
4; Introduction to
Item 12 of Form F-
4; and Item
12(b)(2)(iv) of
Form F-4.
Statement of Comprehensive Rule 1-02, Rule 3- Replace (or, in some
Income. 02, Rule 3-03, Rule cases, supplement)
3-04, Rule 3-05, the existing
Rule 3-12, Rule 3- references to
14, Rule 3-17, Rule ``income
4-08, Rule 4-10, statement'' and
Rule 5-02, Rule 5- variations thereof
03, Rule 5-04, Rule with ``statement of
6-07, Rule 6A-04, comprehensive
Rule 6A-05, Rule 7- income'' because
03, Rule 7-04, Rule the FASB has
7-05, Rule 8-02, replaced the income
Rule 8-03, Rule 8- statement with the
05, Rule 8-06, Rule statement of
9-03, Rule 9-04, comprehensive
Rule 9-05, Rule 9- income.\485\ Also
06, Rule 10-01, amend to clarify
Rule 11-02, Rule 11- the two
03, Rule 12-16, presentation
Rule 12-17, Rule 12- options for the
18, Rule 12-28, and statement by
Rule 12-29 of defining the term
Regulation S-X; ``statement of
Item 10, Item 302, comprehensive
and Item 303 of income'' in
Regulation S-K; Regulation S-X.
Item 1010 of
Regulation M-A;
Securities Act Rule
158; Exchange Act
Rule 15c3-1g, 17a-
5, 17a-12, 17g-3,
and 17h-1T; Forms 1-
A , 1-K, 1-SA, 20-
F, 11-K, and X-17A-
5.\484\
Rule 5-03, Rule 7- Amend to add line
04, and Rule 9-04 items to present
of Regulation S- comprehensive
X.\486\ income and related
items in the
statement of
comprehensive
income.
Rule 5-02.30(a) and Amend to include
Rule 7-03(a)(23)(a) accumulated other
of Regulation S-X; comprehensive
and Form X-17-A-5. income in its list
of balance sheet
line items. Also
delete the
reference in Rule 7-
03(a)(23)(a) to
unrealized
appreciation or
depreciation of
equity securities,
as it is a
component of
accumulated other
comprehensive
income required to
be presented
separately under
U.S. GAAP.
Cumulative Effect of Changes Rule 1-02, Rule 3- Delete references to
in Accounting Principles. 01, Rule 3-15, Rule cumulative effect
5-03, Rule 7-04, of a change in
Rule 8-03, Rule 8- accounting
04, Rule 9-04, Rule principle because
10-01, Rule 11-02, the FASB has
and Instruction 1 eliminated the
to Rule 11-02 of requirement to
Regulation S-X; report cumulative
Item 302 of effect of a change
Regulation S-K; in accounting
Securities Act Rule principle in the
405; Exchange Act income
Rule 12b-2, Rule statement.\487\
13a-10(b), and Rule
15d-10(b); and Form
X-17A-5.
------------------------------------------------------------------------

Commenters supported the proposed amendments.\488\ We are adopting
all of the amendments described in the table above as proposed.
---------------------------------------------------------------------------

\480\ See ASC 210-20-45. Where amounts are presented net, ASC
210-20-50-3(a) requires disclosure in the notes to the financial
statements of the gross amounts.
\481\ See SFAS No. 142, Goodwill and Other Intangible Assets.
\482\ See ASC 205.
\483\ See Technical Amendment to Rules, Forms, Schedules, and
Codification of Financial Reporting Policies, Release No. 33-9026,
(Apr. 15, 2009) [74 FR 18612 (April 23, 2009)].
\484\ See Rule 1-02, Rule 3-02, Rule 3-03, Rule 3-04, Rule 3-05,
Rule 3-12, Rule 3-14, Rule 3-17, Rule 4-08, Rule 4-10, Rule 5-02,
Rule 5-04, Rule 6-07, Rule 6A-04, Rule 6A-05, Rule 7-03, Rule 7-05,
Rule 8-02, Rule 8-03, Rule 8-05, Rule 8-06, Rule 9-03, Rule 9-05,
Rule 9-06, Rule 10-01, Rule 11-02, Rule 11-03, Rule 12-16, Rule 12-
17, Rule 12-18, Rule 12-28, and Rule 12-29 of Regulation S-X; Item
10, Item 302, and Item 303 of Regulation S-K; Item 1010 of
Regulation M-A; Securities Act Rule 158; Exchange Act Rule 15c3-1g;
Exchange Act Rule 17a-5; Exchange Act Rule 17a-12; Exchange Act Rule
17g-3; Exchange Act Rule 17h-1T; Form 1-A; Form 1-K; Form 1-SA; Form
20-F; Form 11-K; and Form X-17A-5.
\485\ See ASU No. 2011-05, Comprehensive Income (Topic 220):
Presentation of Comprehensive Income. The statement of comprehensive
income may be presented as either: (1) A single statement of
comprehensive income or (2) two separate but consecutive statements,
composed of the income statement and a separate statement, which
begins with net income and separately presents the components of
other comprehensive income, a total of other comprehensive income,
and a total of comprehensive income.
Items of other comprehensive income include, for example:
foreign currency translation adjustments, certain unrealized holding
gains and losses, and gains or losses associated with pension or
other postretirement benefits (that are not recognized immediately
as a component of net periodic benefit cost). See ASC 220-10-45-10A
for additional items.
\486\ See Rule 5-03, Rule 7-04, and Rule 9-04.
\487\ See SFAS No. 154, Accounting Changes and Error
Corrections. This is now reflected in ASC 250, Accounting Changes
and Error Corrections.
\488\ See letters from CAQ; Deloitte; E&Y; Grant; KPMG; PwC; and
R.G. Associates.
---------------------------------------------------------------------------

C. Disclosure Requirements Superseded by Other Commission Requirements

Commission disclosure requirements have also changed over time,
which has resulted in inconsistencies within our disclosure
requirements. The Proposing Release identified disclosure requirements
that have been superseded by other Commission disclosure requirements.
1. Auditing Standards
a. Proposed Amendments
Section 103(a) of the Sarbanes-Oxley Act authorized the PCAOB to
establish auditing and related professional practice standards used by
registered public accounting firms when conducting audits of
issuers.\489\ Prior to the creation of the PCAOB, public accounting
firms conducted audits of issuers pursuant to Generally Accepted
Auditing Standards (``GAAS'') \490\ and many Commission rules continue
to refer to those standards. In addition, Section 10A of the Exchange
Act also refers to GAAS in its requirements for

[[Page 50184]]

audits. The standards of the PCAOB are different from GAAS.
---------------------------------------------------------------------------

\489\ Public Law 107-204, 116 Stat. 745 (2002). Pursuant to
Section 2(a)(7) of the Sarbanes-Oxley Act, an issuer is defined as
an issuer with securities registered under Section 12 of the
Exchange Act or required to file reports under Section 15(d) of the
Exchange Act. 15 U.S.C. 7201(a)(7).
\490\ These standards are currently promulgated by the American
Institute of Certified Public Accountants.
---------------------------------------------------------------------------

In 2004, the Commission published interpretive guidance explaining
that references to GAAS in Commission rules and staff guidance, as they
relate to issuers, should be understood to mean the standards of the
PCAOB plus any applicable rules of the Commission.\491\ Further, the
Commission stated its intent to codify this interpretation in the
future.\492\ The table below describes each of the disclosure
requirements that the Commission proposed to amend as part of the
codification.\493\
---------------------------------------------------------------------------

\491\ See Commission Guidance Regarding the Public Company
Accounting Oversight Board's Auditing and Related Professional
Practice Standard No. 1, Release No. 34-49708 (May 14, 2004) [69 FR
29064 (May 20, 2004)]. Subsequently, Section 982 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank
Act'') amended the Sarbanes-Oxley Act to establish the PCAOB's
authority to oversee the independent public accountants that audit
registered brokers and dealers. See Public Law 111-203, 124 Stat.
1376 (2010).
\492\ Id.
\493\ These proposed amendments are discussed in further detail
in Section V.B.1. of the Proposing Release.

------------------------------------------------------------------------
Commission disclosure
requirement(s) Proposed amendments
------------------------------------------------------------------------
Rule 1-02(d) of Regulation S-X.... Amend to refer to ``the standards of
the Public Company Accounting
Oversight Board (United States)
(``PCAOB'')'' as it relates to the
audit of issuers and to note that,
for different types of non-issuers,
the Commission requires PCAOB
auditing standards or GAAS or
permits the use of either.
Rule 436(d)(4) of Regulation C and Amend to replace the references to
General Instruction G(f)(1) of GAAS with ``the standards of the
Form 20-F. Public Company Accounting Oversight
Board (United States)
(``PCAOB'')''. Replace the term
``examination'' with ``audit
conducted.''
Instruction 2 to Item 8.A.2 of Amend to state that financial
Form 20-F. statements of entities other than
the issuer must be audited in
accordance with ``the standards of
the Public Company Accounting
Oversight Board (United States)
(``PCAOB'').''
Rule 2-01(f)(7)(ii)(B) of Amend to make language consistent
Regulation S-X. with current auditing standards.
Rules 2-02(b)(1), 8-03, and 10-01 Amend to refer to ``applicable
of Regulation S-X. professional standards'' instead of
GAAS.
Rules 10A-1(b)(3) and 13b2-2(b)(2) Amend to replace the references to
of the Exchange Act. GAAS with ``the standards of the
Public Company Accounting Oversight
Board (United States)
(``PCAOB'').''
Instruction E(c)(3) of Form 20-F.. Amend to replace the reference to
U.S. standards for auditor
independence with ``qualified and
independent in accordance with
Article 2 of Regulation S-X.''
------------------------------------------------------------------------

b. Comments on Proposed Amendments
Commenters generally supported these proposed amendments.\494\ Some
commenters \495\ also recommended that the Commission clarify when a
review of interim financial information in accordance with PCAOB
standards is not required under Rules 10-01 or 8-03 of Regulation S-X.
Further, one of these commenters requested that we adopt a rule that
explains which professional standards apply to every circumstance where
financial statements are filed with the Commission.\496\
---------------------------------------------------------------------------

\494\ See letters from CAQ; Deloitte; E&Y; Grant; KPMG; PwC; and
R.G. Associates.
\495\ See letters from CAQ; and KPMG.
\496\ See letter from KPMG.
---------------------------------------------------------------------------

c. Final Amendments
We are adopting all of the amendments described in the table above
as proposed. We are also eliminating the reference to U.S. standards
for auditor independence from Instruction 2 to Item 8.A.2 of Form 20-F
to be consistent with the amendments to Instruction E(c)(3) of Form 20-
F. We believe the reference to ``applicable professional standards'' in
Rules 10-01 and 8-03 does not create significant confusion and
therefore we are not adopting any amendments to clarify the application
of these rules as suggested by commenters. Further, we are not adopting
a rule that explains which professional standards apply to every
circumstance where financial statements are filed with the Commission
because that is beyond the scope of this rulemaking.
2. Other
The table below describes each of the remaining superseded
disclosure requirements that the Commission proposed to amend.\497\
---------------------------------------------------------------------------

\497\ These proposed amendments are discussed in further detail
in Section V.B. of the Proposing Release.

[[Page 50185]]

Commenters supported the proposed amendments,\501\ and no commenter
specifically opposed the amendment. Accordingly, we are adopting all of
the amendments described in the table above as proposed.
---------------------------------------------------------------------------

\498\ See Proxy Disclosure Enhancements, Release No. 33-9089,
(Dec. 16, 2009) [74 FR 68334 (Dec. 23, 2009)]. In addition, the Form
8-K containing the voting results must be filed within four business
days after the meeting at which the votes took place.
\499\ See First-Time Application of International Financial
Reporting Standards, Release No. 33-8567 (Apr. 12, 2005) [70 FR
20674 (Apr. 20, 2005)].
\500\ See Acceptance From Foreign Private Issuers of Financial
Statements Prepared in Accordance With International Financial
Reporting Standards Without Reconciliation to U.S. GAAP, Release No.
33-8879, (Dec. 21, 2007) [73 FR 986 (Jan. 4, 2008)] and Instruction
2 to Item 3.A of Form 20-F.
\501\ See letters from CAQ; Deloitte; E&Y; Grant; KPMG; PwC; and
R.G. Associates.
---------------------------------------------------------------------------

D. Non-Existent or Incorrect References and Typographical Errors

Various Commission disclosure requirements contain incorrect
references or references to rules that no longer exist. The table below
describes each of the disclosure requirements that contain these
references and the related proposed amendments.\502\
---------------------------------------------------------------------------

\502\ These proposed amendments are discussed in further detail
in Section V.B.16. of the Proposing Release.

------------------------------------------------------------------------
Commission disclosure
requirement(s) Proposed amendments
------------------------------------------------------------------------
Rule 5-02 of Regulation S-X, Delete reference to Rule 4-05 of
Balance sheets. Regulation S-X, which no longer
exists.
Rule 5-02.22(a) of Regulation S-X, Delete reference to Rule 4-06 of
Bonds, mortgages and other long- Regulation S-X, which no longer
term debt, including capitalized exists.
leases.
Rule 7-04.9 of Regulation S-X, Replace reference to Rule 4-08(g) of
Income tax expense. Regulation S-X that relates to
investments accounted for under the
equity method of accounting with
Rule 4-08(h) that addresses income
tax expense.
Rule 9-03.7(e)(3) of Regulation S- Delete reference to Rule 4-08(L)(3)
X, Loans. of Regulation S-X, which no longer
exists.
Item 512(a)(4) of Regulation S-K, Replace reference to Rule 3-19 of
Undertakings. Regulation S-X, which no longer
exists, with Item 8.A of Form 20-F,
similar to changes made in
1999.\503\
Instruction J(1)(e) to Form 10-K.. Clarify that General Instruction
J(1)(e) is reserved because it is
currently blank.
Instruction J(1)(f) to Form 10-K.. Conform description in Instruction
J(1)(f) to the title of Item 5 of
Form 10-K: Market for Registrant's
Common Equity, Related Stockholder
Matters and Issuer Purchases of
Equity Securities.
Paragraph (c)(1)(i) of Part F/S of Delete reference to ``interim''
Form 1-A. financial statements because this
paragraph addresses the age of both
interim and annual financial
statements.
Forms F-1, F-3, F-4, F-6, F-7, F- Replace references to the
8, F-10, F-80, 20-F, and 40-F. Commission's telephone numbers and
offices with the correct
references.
------------------------------------------------------------------------

Commenters supported the amendments to correct these references and
errors,\504\ and no commenter specifically opposed the amendments.
Accordingly, we are adopting all of the amendments described in the
table above as proposed.
---------------------------------------------------------------------------

\503\ See International Disclosure Standards, Release No. 33-
7745 (Sept. 28, 1999) [64 FR 53900 (Oct. 5, 1999)].
\504\ See letters from CAQ; Deloitte; E&Y; Grant; KPMG; PwC; and
R.G. Associates.
---------------------------------------------------------------------------

Subsequent to the Proposing Release, we identified additional
incorrect references or references to rules that no longer exist that
also need to be updated, as well as typographical errors. We are
amending our rules to address these incorrect references and errors in
this release. We describe those amendments in the table below.

------------------------------------------------------------------------
Commission disclosure requirement(s) Technical amendments
------------------------------------------------------------------------
Rule 1-02(w) of Regulation S-X, Replace the term ``submitted''
Significant Subsidiary. with ``substituted'' which was
inadvertently changed in a
prior technical
amendment.\505\
Rule 9-03(12)(a) of Regulation S-X, Replace reference to Rule 0-05,
Deposits. which does not exist, with
reference to Rule 9-05 of
Regulation S-X, which provides
disclosure requirements
concerning foreign activities.
Rules 12-21 to 24 of Regulation S-X, Replace superseded references
For Face-Amount Certificate Investment to Rule 6-21 of Regulation S-X
Companies. with correct references to
Rule 6-03 and superseded
reference to Rule 6-21(f) with
Rule 6-03(d).\506\
Rules 12-22 to 24 and 12-27 of Replace superseded references
Regulation S-X, For Face-Amount to Rule 6-22 of Regulation S-X
Certificate Investment Companies. with correct references to
Rule 6-06.\507\
Footnote 6 of Rule 12-22 of Regulation Replace superseded references
S-X, For Face-Amount Certificate to Rule 6-23(a) of Regulation
Investment Companies. S-X with correct references to
Rule 6-07(1).\508\
Item 508(e) of Regulation S-K.......... Replace reference to National
Association of Securities
Dealers with successor entity,
the Financial Industry
Regulatory Authority
(``FINRA''). In addition,
replace reference to Rules of
Fair Practice with FINRA
rules.\509\
General Instruction I.C.2 and Replace outdated reference to
I.D.1.(c)(iv) of Form S-3. the title of General
Instruction B.2 of Form S-3.
Instruction 3 of the Instructions to Remove Instruction 3 which
the Signatures of Form S-3. relates to a superseded
transaction requirement.\510\
Item 17(c)(2)(v) and (vi) of Form 20-F Replace reference to the
\511\. definition of a ``significant
subsidiary'' in Rule 1-02(v)
of Regulation S-X with correct
reference to Rule 1-
02(w).\512\
Rule 405, Definition of Terms, Revise the definition of
Significant Subsidiary. ``significant subsidiary'' to
correct for inadvertent
omissions of changes to the
definition and conform to the
updated definition in Rule 1-
02(w) of Regulation S-X.\513\

[[Page 50186]]

Rule 12b-2, Definitions, Significant Revise the definition of
Subsidiary. ``significant subsidiary'' to
correct for inadvertent
omissions of changes to the
definition and conform to the
updated definition in Rule 1-
02(w) of Regulation S-X.\514\
Rule 12g-3, Registration of securities Revise Rules 3-04, 12g-3(a)(2),
of successor issuers under section 12g-3(b)(2), and 12g-3(c)(2)
12(b) or 12(g) of the Securities for punctuation errors.
Exchange Act of 1934 and Rule 3-04 of
Regulation S-X.
Rule 3-04, Rule 4-08(m)(2)(ii), Rule 5- Correct typographical errors.
03(b)(1), Rule 7-03(13)(a)(2), Rule 6-
09(4)(b), Rule 9-03(10)(3), Rule 9-
03(10)(4)(a), Rule 10-01(b)(7), and
Rule 12-24 of Regulation S-X.
Item 406(d) and Item 601(b)(14) of Replace superseded references
Regulation S-K. to Item 10 of Form 8-K with
correct references to Item
5.05 of Form 8-K.\515\
Form 10, Subpart C of Forms, Securities Remove outdated reference to
Exchange Act of 1934. Form 10-SB in Form 10 heading.
------------------------------------------------------------------------

VI. Other Matters
---------------------------------------------------------------------------

\505\ See 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)].
\506\ In 1982, the Commission replaced all prior Article 6
provisions, including the ones referenced here, with revised Rules
6-01 through 6-10 of Regulation S-X. However, the Commission did not
also update the references to Article 6 rules in Article 12 of
Regulation S-X. See Financial Statement Requirements for Registered
Investment Companies, Release 33-6442 (Dec. 21, 1982) [47 FR 56835
(Dec. 21, 1982] (``1982 Investment Company Release'').
Reference to Rule 6-21(f) of Regulation S-X is made in Footnote
4 of both Rule 12-21 and Rule 12-22, and Footnote 5 of Rule 12-24.
Reference to Rule 6-21 of Regulation S-X is made in Footnote 9 of
Rule 12-23.
\507\ See 1982 Investment Company Release.
\508\ See 1982 Investment Company Release.
\509\ The Commission approved the creation of Financial Industry
Regulatory Authority (``FINRA'') through the consolidation of the
member firm regulatory functions of the NASD and NYSE Regulation,
Inc., a wholly-owned subsidiary of New York Stock Exchange LLC in
2007.
See Self-Regulatory Organizations; National Association of
Securities Dealers, Inc.; Order Approving Proposed Rule Change to
Amend the By-Laws of NASD to Implement Governance and Related
Changes to Accommodate the Consolidation of the Member Firm
Regulatory Functions of NASD and NYSE Regulation, Inc., Release No.
34-56145 (Jul. 26, 2007) [72 FR 42169 (Aug. 1, 2007]; File No. SR-
NASD-2007-023 (July 26, 2007).
\510\ Instruction 3 of Form S-3 refers to eligibility based on
the assignment of a securities rating pursuant to Transaction
Requirement B.5. of Form S-3. The Transaction Requirements of Form
S-3 no longer relate to securities ratings. See Asset-Backed
Securities Disclosure and Registration, Release No. 33-9638 (Sept.
4, 2014) [79 FR 57184 (Sept. 24, 2014)].
\511\ Items 17(c)(2)(v) and (vi) include requirements for
financial statements on a basis of accounting other than U.S. GAAP
that are furnished pursuant to Rule 3-05 or 3-09 of Regulation S-X.
\512\ Rule 1-02(v) defines the term ``share,'' while Rule 1-
02(w) defines ``significant subsidiary.''
\513\ The definition of ``significant subsidiary'' in Rule 1-
02(w) of Regulation S-X, Securities Act Rule 405 and Exchange Act
Rule 12b-2 are generally intended to be conformed to each other.
See, e.g., Technical Amendments to Rules and Forms, Release No. 33-
6584 (Jun. 6, 1985) [50 FR 25214 (Jun. 18, 1985)]. Two releases
inadvertently changed the definitions of ``significant subsidiary''
in some, but not all of these three rules, resulting in a lack of
conformity. See Acceptance from Foreign Private Issuers of Financial
Statements Prepared in Accordance with International Financial
Reporting Standards Without Reconciliation to U.S. GAAP, Release No.
33-8879 (Dec. 21, 2007) [73 FR 986 (Jan. 4, 2008)], and Technical
Amendments to Rules, Forms, Schedules, and Codification of Financial
Reporting Policies, Release No. 33-9026 (Apr. 15, 2009) [77 FR 18612
(Apr. 23, 2009)]. Computational Note 3 to the definition of
``significant subsidiary'' is only in Rule 1-02(w) of Regulation S-
X. See Financial Statements and Regulation S-X; Technical Amendments
to Rules and Forms, Release No. 33-6612 (Nov. 21, 1985) [50 FR 49529
(Dec. 3, 1985)]. Computational Note 3 relates solely to issues
applicable to Regulation S-X and the use of Rule 1-02(w) therein and
is not relevant to the uses of the definition in Rule 405 and Rule
12b-2. We are therefore not including Computational Note 3 in Rule
405 and Rule 12b-2.
\514\ See supra note 513.
\515\ See Additional Form 8-K Disclosure Requirements and
Acceleration of Filing Date, Release No. 33-8400 (Mar. 16, 2004) [69
FR 15594 (Mar. 25, 2004)].
---------------------------------------------------------------------------

If any of the provisions of these rules, or the application of
these provisions to any person or circumstance, is held to be invalid,
such invalidity shall not affect other provisions or application of
such provisions to other persons or circumstances that can be given
effect without the invalid provision or application.

VII. Economic Analysis

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. GAAP, IFRS, or changes in the information
environment. These amendments are the result of the staff's ongoing
evaluation of our disclosure requirements \516\ and also are part of
our efforts to implement Title LXXII, Section 72002(2) of the FAST Act.
---------------------------------------------------------------------------

\516\ See supra note 12.
---------------------------------------------------------------------------

We are sensitive to the costs and benefits of the amendments. In
this section, we examine the current baseline, which consists of both
the regulatory framework of disclosure requirements in existence today
and the current use of such disclosure by investors and other users,
and discuss the potential benefits and costs of the amendments,
relative to this baseline, and their potential effects on efficiency,
competition, and capital formation.\517\
---------------------------------------------------------------------------

\517\ Section 2(b) of the Securities Act [15 U.S.C. 77b(b)],
Section 3(f) of the Exchange Act [17 U.S.C. 78c(f)], and Section
2(c) of the Investment Company Act [15 U.S.C. 80a-2(c), and 15
U.S.C. 80b-2(c)] require the Commission, when engaging in rulemaking
where it is required to consider or determine whether an action is
necessary or appropriate in the public interest, to consider, in
addition to the protection of investors, whether the action will
promote efficiency, competition, and capital formation. Further,
Section 23(a)(2) of the Exchange Act [17 U.S.C. 78w(a)(2)] requires
the Commission, when making rules under the Exchange Act, to
consider the impact that the rules would have on competition, and
prohibits the Commission from adopting any rule that would impose a
burden on competition not necessary or appropriate in furtherance of
the Exchange Act.
---------------------------------------------------------------------------

The Proposing Release requested comment on all aspects of the
economic effects of the proposed amendments, including the costs and
benefits and possible alternatives to the proposed amendments. The
Commission also solicited comment in the Proposing Release on whether
the proposed amendments, if adopted, would promote efficiency,
competition, or capital formation, or have an impact or burden on
competition. We received a number of comments addressing the potential
economic impacts of the proposed amendments, which we discuss below.

A. Baseline and Affected Parties

Our baseline includes the current disclosure requirements in
Regulation S-K, Regulation S-X, and other Commission rules and forms
promulgated under the Securities Act, the Exchange Act, and the
Investment Company Act. The parties affected by the amendments include
investors and other users, auditors, and issuers. Additionally,
entities other than issuers may be affected (e.g., significant
acquirees for which financial statements are required under Rule 3-05
of Regulation S-X, significant equity method investees for which
financial statements are required under Rule 3-09

[[Page 50187]]

of Regulation S-X, broker-dealers, and NRSROs).
The amendments affect both domestic issuers and foreign private
issuers.\518\ We estimate that approximately 7,570 issuers that file on
domestic forms \519\ and 745 foreign private issuers that file on F-
forms will be affected by the amendments. Among the issuers that file
on domestic forms, 25.6% are large accelerated filers, 18.6% are
accelerated filers, 19.3% are non-accelerated filers, and 36.2% are
SRCs. About 23.7% of issuers that file on domestic forms are EGCs.\520\
Among the foreign private issuers that file on F-forms, 40.4% are large
accelerated filers, 22.6% are accelerated filers, and 37.0% are non-
accelerated filers.\521\ About 19.8% of foreign private issuers that
file on Forms 20-F and 40-F are EGCs. With respect to foreign private
issuer accounting standards, approximately 38.5% of foreign private
issuers report under U.S. GAAP, 60.5% report under IFRS, and
approximately 1% report under Another Comprehensive Body of Accounting
Principles with a reconciliation to U.S. GAAP.
---------------------------------------------------------------------------

\518\ The number of domestic and foreign private issuers
affected by the proposals is estimated as the number of unique
companies, identified by Central Index Key (CIK), that filed Forms
10-K, Form 10-Q, Form 20-F, and Form 40-F or an amendment thereto
with the Commission during calendar year 2017. The estimates for the
percentages of SRCs, accelerated filers, large accelerated filers,
and non-accelerated filers are based on information from Form 10-K,
Form 20-F, and Form 40-F. The estimates for the percentages of
foreign private issuers' basis of accounting used to prepare the
financial statements are calculated from the information in Forms
20-F and 40-F. These estimates do not include issuers that filed
only initial registration statements during calendar year 2017,
which will also be affected by the amendments.
\519\ This number includes fewer than 25 foreign issuers that
file on domestic forms, approximately 100 business development
companies, and a portion of the approximately 12,000 investment
advisers.
\520\ Staff determined whether a registrant claimed EGC status
by parsing several types of filings (e.g., Forms S-1, S-1/A, 10-K,
10-Q, 8-K, 20-F/40-F, and 6-K) filed by that registrant, with
supplemental data drawn from Ives Group Audit Analytics.
\521\ Approximately 15.9% of foreign private issuers that file
on F-forms are Canadian issuers that file on Form 40-F under the
multijurisdictional disclosure system. Form 40-F does not require
disclosure of large accelerated, accelerated, or non-accelerated
filer status. Accordingly, these amounts exclude foreign private
issuers that file on Form 40-F.
---------------------------------------------------------------------------

Certain amendments also affect requirements applicable to:
Fewer than 600 asset-backed issuing entities.\522\
---------------------------------------------------------------------------

\522\ The number of asset-backed issuers is based on the number
of unique companies with the SIC code of 6189 that filed Forms 10-K
during calendar year 2017.
---------------------------------------------------------------------------

Issuers that rely on Regulation A exemptions.\523\
---------------------------------------------------------------------------

\523\ Between June 19, 2015 and December 31, 2017, approximately
182 Regulation A offerings have been qualified. Among these
qualified offerings, 57 offerings are Tier I and 125 offerings are
Tier II. Over the same time period, approximately 262 Regulation A
offering statements have been filed. Among these filed offerings, 94
offerings are Tier I and 168 offerings are Tier II. Withdrawals and
post-qualification amendments are excluded. There are annual and
semi-annual reporting requirements for Tier II offerings.
---------------------------------------------------------------------------

Approximately 4,100 investment companies, including
approximately 100 business development companies, and the portion of
the approximately 12,600 investment advisers to which Regulation S-X
and Regulation S-K apply.\524\
---------------------------------------------------------------------------

\524\ The number of registered investment companies, excluding
business development companies, is estimated from the number of
registered active investment companies in EDGAR as of the end of
December 2017. The number of business development companies is based
on the number of unique companies that filed Forms 10-K and Forms
10-Q whose reporting periods end in the last quarter of 2017,
adjusted by the number of active business development companies that
did not submit such filings and late filers. The number of
investment advisers is based on data from Investment Adviser
Registration Depository (IARD).
---------------------------------------------------------------------------

Up to approximately 3,883 registered broker-dealers.\525\
---------------------------------------------------------------------------

\525\ The amendments to Exchange Act Rules 17a-5, 17a-12, and
17h-1T, and Part III of Form X-17A-5 collectively affect
approximately 3,883 broker-dealers who must file periodic reports
with the Commission. The amendments to Part II of Form X-17A-5
affect up to approximately 467 broker-dealers, based on the number
of broker-dealers who filed Part II as of December 31, 2017. The
amendments to Part IIA of Form X-17A-5 affect approximately 3,413
broker-dealers, based on the number of broker-dealers who filed Part
IIA as of December 31, 2017. The amendments to Part IIB of Form X-
17A-5 affect approximately three broker-dealers, based on the number
of broker-dealers who filed Part IIB as of March 31, 2018.
---------------------------------------------------------------------------

10 NRSROs.
This release also considers certain Commission disclosure
requirements that overlap with, but require information incremental to,
U.S. GAAP and refers some of these incremental requirements to the FASB
for potential incorporation into U.S. GAAP. While a referral alone has
no effect on issuers, any changes to U.S. GAAP that may result from
such a referral would potentially affect all entities that report under
U.S. GAAP, including SRCs and issuers relying on Regulation A or
Regulation Crowdfunding, as well as entities that are outside the scope
of our regulatory authority.

B. Anticipated Benefits and Costs

In this section, we discuss the anticipated economic benefits and
costs of the amendments in each category of redundant, duplicative,
overlapping, outdated, and superseded disclosure requirements.
1. Redundant or Duplicative Requirements
We are eliminating certain Commission disclosure requirements that
require substantially the same disclosures as U.S. GAAP, IFRS, or other
Commission disclosure requirements. In response to commenters'
suggestions, we are retaining some of the disclosure requirements that
we proposed to modify or eliminate on the basis that they required
redundant or duplicative disclosure and referring one of these
disclosure requirements to the FASB for potential incorporation into
U.S. GAAP.
Elimination of Commission disclosure requirements that are
redundant or duplicative with U.S. GAAP, IFRS, or other Commission
disclosure requirements simplifies issuer compliance efforts by
reducing the number of rules to consider. To the extent that the
redundant or duplicative requirements result in substantially the same
disclosures, elimination of these requirements also potentially
benefits investors and other users. Academic research suggests that
duplication is associated with less efficient price discovery \526\ and
that individuals invest more in firms with more concise financial
disclosures.\527\ Thus, to the extent that the amendments alleviate
duplication and do not affect the completeness of financial
disclosures,\528\ they could result in improved price discovery,
enhance the allocative efficiency of the market, and facilitate capital
formation.
---------------------------------------------------------------------------

\526\ See A. Cazier and R. Pfeiffer, Say Again? Assessing
Redundancy in 10-K Disclosures, Journal of Financial Reporting,
2(1), 2017 at 107-131.
\527\ See A. Lawrence, Individual Investors and Financial
Disclosure, Journal of Accounting and Economics 56, 2013 at 13-147.
\528\ Recent academic research has suggested that more complete
financial disclosures benefit investors and firms. See, e.g., C.
Leuz and P. Wysocki, The Economics of Disclosure and Financial
Reporting Regulation: Evidence and Suggestions for Future Research.
Journal of Accounting Research 54.2, 2016 at 525-622.
---------------------------------------------------------------------------

The potential adverse effects of the amendments on investors and
other users are likely to be limited as these parties would continue to
receive substantially the same information from issuers. However,
potential costs to investors may arise if U.S. GAAP were to change in
such a way that information previously required by Commission
disclosure requirements is no longer provided under U.S. GAAP. The
potential for such changes may be mitigated by the FASB's transparent,
public standard-setting process and the Commission's oversight of the
FASB and the ability of the Commission to require such information
through

[[Page 50188]]

rulemaking.\529\ In addition, issuers remain liable for their
disclosures, including the omission of any information required to make
the disclosures not misleading.
---------------------------------------------------------------------------

\529\ See discussion in Section I.D.
---------------------------------------------------------------------------

2. Overlapping Requirements
The Proposing Release identified Commission disclosure requirements
that are related to, but not the same as, U.S. GAAP, IFRS, or other
Commission disclosure requirements. For certain of these overlapping
requirements, we are: (a) Deleting the overlapping Commission
disclosure requirements or (b) integrating them with other related
Commission disclosure requirements. For certain other overlapping
requirements, we are retaining the requirements and referring them to
the FASB for potential incorporation into U.S. GAAP. We discuss below
the economic effects of the amendments in this category and provide
examples of requirements affected by the amendments.
First, some changes may give rise to Disclosure Location
Considerations. Where we proposed to relocate existing disclosure from
outside the financial statements to within the financial statements, a
number of commenters expressed reservations about the relocation
because it would create additional audit requirements for issuers.\530\
Issuers may incur additional costs to comply with these audit and/or
interim review and ICFR requirements, to the extent the relocation
results in additional information included in the financial statements.
A few commenters stated that investors would benefit from the annual
audit and interim review of the disclosure.\531\ Investors and other
users may consider the information more reliable because of the audit
and/or interim review requirements.\532\
---------------------------------------------------------------------------

\530\ See e.g., letters from CGCIV; EEI and AGA; and USCC.
\531\ See letters from CII and Ohio CPAs.
\532\ In contrast, there are a few amendments that relocate
disclosure from inside the financial statements to outside the
financial statements. In this case, the potential economic effects
would be opposite to the effects discussed above, reducing costs for
issuers, but potentially decreasing benefits to users of the
information to the extent that the information is considered less
reliable.
---------------------------------------------------------------------------

The relocation of existing disclosures may affect the extent of
information that investors receive. Since the PSLRA does not provide a
safe harbor for forward-looking information located within the
financial statements, issuers may be less likely to voluntarily
supplement those disclosures with forward-looking information in the
financial statements as compared with disclosures made outside the
audited financial statements. A number of commenters expressed concern
regarding liability issues for preparers that would arise from the loss
of safe harbor provisions.\533\ However, issuers retain the option of
providing forward-looking information outside the financial statements
and may be required to disclose the information in certain
circumstances.\534\
---------------------------------------------------------------------------

\533\ See e.g., letters from CAQ; CalPERS; Crowe; Davis; E&Y;
FEI; PwC; and R&G Associates.
\534\ 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]. For example, Item
303 of Regulation S-K requires disclosure of other information when
an issuer believes it to be necessary to an understanding of its
financial condition, changes in financial condition, and results of
operations.
---------------------------------------------------------------------------

The relocation of existing disclosures from outside the financial
statements to within the financial statements will also subject the
disclosures to XBRL tagging requirements. Commenters expressed concern
about XBRL tagging requirements because of additional administrative
burdens and potential costs on issuers to comply with these
requirements.\535\ A few commenters believed that XBRL tagging
requirements would be of benefit to investors.\536\ Investors and other
users may benefit from more readily-available information in structured
formats because of the increased use of electronic data analysis and
search tools. In general, we believe the costs of applying XBRL data
tagging to additional information likely would be relatively low, as
issuers already have implemented software enabled processes and
controls to structure previously mandated disclosures.\537\
---------------------------------------------------------------------------

\535\ See e.g., letters from CGCIV; EEI and AGA; and USCC.
\536\ See letters from CII and Ohio CPAs.
\537\ According to a recently released AICPA and XBRL US survey,
the total cost of XBRL preparation among small companies in 2017
averaged $5,476 per year. See Research shows XBRL filing costs are
lower than expected, AICPA, https://www.aicpa.org/InterestAreas/FRC/AccountingFinancialReporting/XBRL/DownloadableDocuments/XBRL%20Costs%20for%20Small%20Companies.pdf. The incremental costs of
tagging additional information under the amendments would be much
lower and depend on the mix of incremental disclosures (e.g.,
narrative and numeric). The tagging cost associated with narrative
disclosures would be minimal since these disclosures are tagged at
the block text level and registrants already block tag other
narrative disclosures in their filings. Numeric disclosures would
need to be individually tagged, and therefore, any incremental costs
would be directly associated with the volume of incremental numeric
disclosures.
---------------------------------------------------------------------------

Furthermore, the relocation of existing disclosures, for example,
from outside the financial statements to within the financial
statements or from the face of the financial statements to the notes to
the financial statements, may also affect the prominence of the
disclosures. Some academic research provides indirect evidence that
users may treat information differently depending on the location of
the disclosure. For instance, research shows a weaker relation between
equity prices and disclosed items in the notes to the financial
statements versus recognized items on the face of the financial
statements.\538\ Additionally, experimental research on laboratory
participants shows that positioning pro-forma (non-GAAP) earnings
earlier than U.S. GAAP earnings in an earnings announcement influences
a nonprofessional investor's judgment.\539\ Other research on the
effect of disclosure location shows recognized and disclosed items are
treated equivalently by investors.\540\

[[Page 50189]]

Commenters that provided feedback on relocation prominence
considerations indicated that physical location of the disclosure is
less relevant in today's environment, given the use of electronic data
analysis and search tools.\541\
---------------------------------------------------------------------------

\538\ See, e.g., R. M. Harper Jr., W. G. Mister, and J. R.
Strawser, The Impact of New Pension Disclosure Rules on Perceptions
of Debt, Journal of Accounting Research 25, 1987 at 327 (showing
that financial statement users do not treat pension information
included in a note to the financial statements as they would a
balance sheet liability); C. Viger, R. Belzile, and A. A.
Anandarajan, Disclosure versus Recognition of Stock Option
Compensation: Effect on the Credit Decisions of Loan Officers,
Behavioral Research in Accounting 20, 2008 at 93-113 (showing that
loan officers are more affected by the same earnings recognized in
the income statement than disclosed in the notes to the financial
statements); M. M[uuml]ller, E.J. Riedl, and T. Sellhorn,
Recognition versus Disclosure of Fair Values, The Accounting Review
90, 2015 at 2411-2447 (showing a lower association between equity
prices and disclosed investment property fair values relative to
recognized investment property fair values and finding that reduced
information processing costs and higher readability mitigates the
discount applied to disclosed fair values); D. Aboody, Recognition
versus Disclosure in the Oil and Gas Industry, Journal of Accounting
Research 34, 1996, at 21-32 (using the disclosure requirements for
oil and gas companies, which requires the firm-specific effect of a
macroeconomic event to be recognized in the financial statements for
firms adopting the full cost method, but only requires disclosure in
the notes to the financial statements for firms following the
successful efforts method, to show that the effect of note
disclosure on price differs from the effect of recognition on
price); and H. Espahbodi, P. Espahbodi, Z. Rezaee, and H. Tehranian,
Stock Price Reaction and Value Relevance of Recognition versus
Disclosure: The Case of Stock-Based Compensation, Journal of
Accounting and Economics 33 (3), 2002 at 343-373 (examining the
equity price reaction to the announcements related to accounting for
stock-based compensation to assess the value relevance of
recognition on the face of the financial statements versus
disclosure in the notes to the financial statements and concluding
that recognition and disclosure are not substitutes).
\539\ See, e.g. W. B. Elliot, Are Investors Influenced by Pro
Forma Emphasis and Reconciliations in Earnings Announcements? The
Accounting Review 81 (1), 2006 at 113-133.
\540\ P. Y. Davis-Friday, L. B. Folami, C. S. Liu, and H. F.
Mittelstaedt, The Value Relevance of Financial Statement Recognition
vs. Disclosure: Evidence from SFAS No. 106, The Accounting Review.
74 (4), 1999 at 403-423 (testing whether market agents treat
disclosed and recognized amounts equivalently by examining firms'
obligations for postretirement benefits other than pensions before
and after formal recognition). This research focuses on a sample of
229 firms that elected disclosure of the postretirement benefit
liability in the year(s) prior to adoption of SFAS 106. The authors
find that both post-retirement benefit liabilities disclosed prior
to adoption of SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other than Pensions, and those recognized
subsequent to adoption significantly contribute to explaining stock
prices, thus suggesting that market agents treat disclosed and
recognized amounts equivalently.
\541\ See, e.g. letters from CAQ; Deloitte; and EY.
---------------------------------------------------------------------------

Second, besides the Disclosure Location Considerations discussed
above, some deletions may change the mix of information available to
investors. An example of this is the revision to require dividend
restriction and related disclosures when material, rather than using
the bright line of when restricted net assets exceed a 25 percent
threshold.\542\ Bright line thresholds set forth explicit quantitative
criteria for disclosure and may result in more or less detail than a
materiality standard. Several commenters were supportive of a more
principles-based disclosure framework.\543\ These commenters stated
that materiality is a better disclosure standard because certain of the
existing thresholds result in disclosure that in their view is
immaterial to investors and costly to provide. Other commenters opposed
the amendment, indicating that removing bright line thresholds may
result in the elimination of disclosure relevant to investors or
diminish comparability.\544\
---------------------------------------------------------------------------

\542\ Rule 4-08(e)(3) of Regulation S-X.
\543\ See, e.g. letters from CAQ; CGCIV; Clearing House; Davis;
FEI; and USCC.
\544\ See, e.g. letters from CalPERS; Public Citizen; and R.G.
Associates.
---------------------------------------------------------------------------

The economic effect of replacing a bright line threshold with a
disclosure standard based on materiality depends on the preferences of
investors and other users. The bright line threshold may be easier to
apply and could enhance the comparability and verifiability of
information; however, a materiality standard may permit more tailored
information to be presented and potentially avoid certain distortions
that can arise from the use of a bright line threshold.
a. Deletion of Commission Disclosure Requirements
We are eliminating certain Commission disclosure requirements that
we have determined: (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 or Commission disclosure
requirements and are no longer useful to investors.
The effects of the deletion of these overlapping disclosure
requirements depend on the level of overlap between the requirements.
For investors, eliminating overlapping requirements may reduce search
costs and lead to more efficient information processing. This, in turn,
may lead to better informed investment decisions and an increase in
allocative efficiency. However, to the extent eliminating a requirement
results in a loss of information incremental to the overlapping
requirement, it could negatively impact investors that use the
incremental information. For issuers, eliminating overlapping
requirements may reduce the costs of preparation of the disclosure by
reducing the need to reconcile similar requirements. Requirements that
are clearer and less repetitive may additionally make the disclosure
easier to prepare and result in disclosure that is more responsive and
easier to understand.
The examples below illustrate the potential effects of the
elimination of Commission disclosure requirements on issuers,
investors, and other users.
An example of an overlapping disclosure requirement that we are
deleting because it results in only incremental disclosure is Item
101(d)(3) of Regulation S-K, which requires risk disclosures outside
the financial statements relating to geographic areas. These
disclosures are largely encompassed by the disclosures that result from
compliance with other parts of Regulation S-K. More specifically, Item
101(d)(3) requires disclosure of ``any'' risks associated with an
issuer's foreign operations. Item 503(c) of Regulation S-K similarly
requires disclosure of ``significant'' risk factors. Item 101(d)(3)
also requires disclosures of a segment's dependence on foreign
operations, which is similar to the requirement in Item 303(a) of
Regulation S-K, requiring disclosure of trends and uncertainties by
segment, if appropriate to an understanding of the issuer as a whole.
We are also amending Item 303(a) to add an explicit reference to
``geographic areas'' to reduce the likelihood of loss of information
due to the deletion of Item 101(d)(3).
Since Item 101(d)(3) is more expansive than the similar
requirements in other parts of Regulation S-K, the economic effects of
the deletion would depend on the nature of the incremental information
required by Item 101(d)(3). Research shows that international corporate
diversification may affect issuers' stock market performance \545\ and
valuation.\546\ Therefore, some investors may want incremental
information on foreign operations that is not covered by the amended
Item 303(a) or the requirements of Item 503(c) to disclose
``significant'' risk factors. Deletion of Item 101(d)(3) may adversely
affect this group of investors. However, if the requirements in Item
101(d)(3), such as the requirement to disclose ``any'' risk associated
with foreign operations, tend to yield immaterial disclosures, deletion
of Item 101(d)(3) will benefit investors by eliminating immaterial
information, reducing search costs, and facilitating more efficient
information processing.\547\ More efficient information processing
could in turn result in improved price discovery and enhance the
allocative efficiency of the capital markets. In addition, to the
extent an issuer spends less time preparing its disclosures, investors
will benefit from lower preparation costs although savings could be
modest, if any.\548\
---------------------------------------------------------------------------

\545\ See T. Agmon and D. R. Lessard, Investor Recognition of
Corporate International Diversification, Journal of Finance 32(4),
1977 at 1049-1055 (arguing that multinational firms have an
advantage relative to single-country firms because of their ability
to overcome the barriers to portfolio capital flows). The empirical
results of the study support the notion that U.S. investors are
attentive to international composition of the activities of U.S.-
based corporations.
\546\ See V. Errunza and L. Senbet, International Corporate
Diversification, Market Valuation and Size-Adjusted Evidence,
Journal of Finance 34, 1984 at 727-745 (developing a model where
international corporate intermediation through direct foreign
investment can undo barriers to international capital flows faced by
individual investors and lead to a positive valuation effect
associated with the degree of international involvement). See also
R. Morck and B. Yeung, Why Investors Value Multinationality, Journal
of Business, 64 (2), 1991 at 165-187 (supporting the notion that
multinational corporations have intangible assets that can be used
internationally.)
\547\ See D. Hirshleifer and S. Teoh, Limited Attention,
Information Disclosure, and Financial Reporting, Journal of
Accounting and Economics 36, 2003 at 337-386 (showing that with
partially attentive investors, means of presenting information may
have an impact on stock price reactions, mis-valuation, long-run
abnormal returns, and corporate decisions.)
\548\ See Section VIII.B.
---------------------------------------------------------------------------

Another example of an overlapping disclosure requirement that
involves incremental information is Item 303(b) of Regulation S-K.
Instruction 5 to Item 303(b) requires seasonality disclosures outside
of the financial statements in interim periods. U.S. GAAP similarly
requires seasonality disclosures, but this disclosure is required in
the notes to the

[[Page 50190]]

interim financial statements.\549\ Eliminating the specific seasonality
disclosure requirements in Item 303(b) may result in the removal of
this information from MD&A. Investors and other users will only have
this disclosure available in the notes to the financial statements,
unless issuers provide it in both locations either because the issuer
views the seasonality disclosure as appropriate or necessary to an
understanding of its business or financial condition under Item 303(a)
or the issuer provides it voluntarily. In addition, investors may
receive less supplemental forward-looking information about seasonality
because the PSLRA safe harbor is not available for such information
when it is disclosed in the notes to the financial statements. To the
extent that the seasonality disclosures in MD&A and in the financial
statements are redundant, eliminating the requirements in Item 303(b)
would reduce search costs and facilitate more efficient information
processing. In addition, to the extent an issuer spends less time
preparing its disclosures, investors will benefit from lower
preparation costs although savings could be modest, if any.\550\
---------------------------------------------------------------------------

\549\ ASC 270-10-45-11 states: Revenues of certain entities are
subject to material seasonal variations. To avoid the possibility
that interim results with material seasonal variations may be taken
as fairly indicative of the estimated results for a full fiscal
year, such entities are required to disclose the seasonal nature of
their activities, and should consider supplementing their interim
reports with information for 12-month periods ended at the interim
date for the current and preceding years.
\550\ See Section VIII.B.
---------------------------------------------------------------------------

In addition to the economic effects of changing disclosure location
and bright line disclosure thresholds, potential costs to investors may
arise if U.S. GAAP were to change in such a way that information
previously required by Commission disclosure requirements is no longer
provided under U.S. GAAP. As noted above, the potential for such
changes may be mitigated by the FASB's transparent, public standard-
setting process and the Commission's oversight of the FASB.
b. Integration of Commission Disclosure Requirements
We are amending and integrating certain Commission disclosure
requirements that overlap with, but require information incremental to,
other Commission disclosure requirements. In addition to the economic
effects of changing disclosure location and bright line disclosure
thresholds, integration of overlapping Commission disclosure
requirements simplifies issuer compliance efforts by reducing the
number of rules to consider and the extent of disclosures that need to
be provided. Integration of these requirements should also facilitate
more efficient information processing by investors.
One example to illustrate the potential effects of the integration
of Commission disclosure requirements is Item 101(d)(4) of Regulation
S-K. Item 101(d)(4) requires, when interim financial statements are
presented, a discussion of the facts that indicate that the three-year
financial data for geographic performance may not be indicative of
current or future operations. This requirement is similar to
requirements in Instruction 3 to Item 303(a) of Regulation S-K and
Instruction 4 to Item 303(b) of Regulation S-K to identify elements of
income which are not necessarily indicative of the issuer's ongoing
business, except that there is no explicit reference to ``geographic
areas'' in the Item 303 instructions. To integrate the requirements
into one location in Regulation S-K, we are eliminating Item 101(d)(4)
and amending Item 303(a) to explicitly refer to ``geographic areas''
and clarify that the geographic discussion is required when management
believes such discussion would be appropriate to an understanding of
the business. A number of commenters supported the proposed
amendment.\551\ As noted above, integration of these requirements
should facilitate more efficient information processing by investors.
However, some investors may be adversely affected if they prefer
geographic performance information to be presented with other business
description disclosures.
---------------------------------------------------------------------------

\551\ See, e.g., letters from CAQ; Deloitte; E&Y; Grant; KPMG;
and PwC.
---------------------------------------------------------------------------

c. FASB Referral of Commission Disclosure Requirements
We are referring certain Commission disclosure requirements that
overlap with, but require information incremental to, U.S. GAAP
requirements to the FASB for potential incorporation into U.S. GAAP.
While the referral alone has no direct impact on investors and issuers,
any future FASB standard-setting activities, as well as any Commission
rulemaking that may result from such a referral, could potentially
affect investors, issuers, auditors, other users of financial
statements, as well as other entities that report under U.S. GAAP. Any
potential effects of standard-setting activities arising out of these
referrals could be considered and taken into account by the Commission,
and could be addressed through Commission rulemaking. Additionally, the
potential effects may be mitigated by the FASB's transparent, public
standard-setting process and the Commission's oversight of the FASB.
3. Outdated Requirements
We are eliminating certain outdated Commission disclosure
requirements that have become obsolete as a result of the passage of
time or changes in the regulatory, business, or technological
environment. Elimination of outdated disclosure requirements should
simplify issuer compliance efforts by reducing the number of rules to
consider and the extent of disclosures that need to be provided. In
some cases, the amendments require additional disclosure of information
to avoid any loss of information or decrease the burden for investors
to retrieve such information from other sources. Such information is
expected to be readily available at minimal to no cost to issuers.
The effect of these amendments on investors depends on the use of
the information. If investors do not use the deleted information to
make investment and voting decisions, these amendments may have little
to no effect on investors, or the amendments may have a positive effect
on investors since elimination of such disclosures may reduce search
costs and facilitate more efficient information processing. This, in
turn, could enhance the allocative efficiency of the market and
facilitate capital formation. If the information is used by investors
but can be retrieved from alternative sources with little or no cost to
investors (e.g., share prices),\552\ the effects of these amendments on
investors should be minimal. In other cases where the information is
less readily available from alternative sources (e.g., average exchange
rates for each of the five most recent financial years and any
subsequent interim period),\553\ these amendments may make it more
burdensome for investors and other users to access the information,
with a potentially adverse effect on the cost of capital of issuers. We
do not expect these potential adverse effects to be significant as the
amendments delete only requirements that call for information that is
either no longer relevant or is readily available or can be derived
from alternative sources, and which may, in fact, be more robust than
the information currently required to be disclosed. As noted above,
some amendments require disclosure of additional information (e.g., the
issuer's

[[Page 50191]]

internet address, if available) to mitigate any loss of information or
decrease the burden for investors.
---------------------------------------------------------------------------

\552\ Item 201(a)(1) of Regulation S-K.
\553\ Item 3.A.3 of Form 20-F.
---------------------------------------------------------------------------

One example of an outdated disclosure requirement is Item 201(a)(1)
of Regulation S-K. Item 201(a)(1) requires the disclosure of historical
market price information. We are substituting this disclosure with
disclosure of the issuer's ticker symbol, which can be used to obtain
current and historical information on stock price, among other
information. This additional disclosure may help reduce any loss of
information as well as facilitate access to additional information
while imposing minimal or no cost on issuers and saving them the
expense of disclosing information that is readily available in more up-
to-date form from alternative sources. Commenters were generally
supportive of this initiative to delete outdated requirements,\554\ and
specifically supported removing historical price information, noting
that stock price information is readily available on commercial
websites on a more current basis than what is required by existing
disclosure requirements.\555\
---------------------------------------------------------------------------

\554\ See e.g., letters from CAQ; EEI and AGA; FedEx; R.G.
Associates; and XBRL US.
\555\ See letters from E&Y; EEI and AGA; FedEx; and KPMG.
---------------------------------------------------------------------------

4. Superseded Requirements
We are amending certain Commission disclosure requirements to
address inconsistencies that have arisen between existing Commission
disclosure requirements and newer requirements, recent legislation, or
more recently updated U.S. GAAP requirements.
Eliminating or amending superseded Commission disclosure
requirements may simplify issuer compliance efforts by resolving some
confusion for issuers. Where there are superseded requirements, issuers
may need to expend time and resources seeking advice from outside
professionals or guidance from Commission staff as to compliance with
such requirements. To the extent that, in practice, many issuers
already comply with the more recently adopted requirements, we expect
these benefits to be modest. In addition, investors may benefit from
the reduction in the variation of disclosure practices that could
result from confusion about the superseded requirements among issuers.
One example of superseded disclosure is the requirement to report
the cumulative effect of a change in accounting principle in the income
statement, which the FASB eliminated from U.S. GAAP in 2005.\556\
Instead, U.S. GAAP now requires the cumulative effect of
retrospectively-applied changes in accounting principle to be reflected
in the opening balance of retained earnings for the earliest period
presented. The Commission disclosure requirements, by contrast,
continue to refer to a line on the income statement for a cumulative
effect of a change in accounting principle. Eliminating references to
the cumulative effect of a change in accounting principle in the income
statement in the Commission disclosure requirements resolves this
contradiction and removes any resulting issuer confusion.
---------------------------------------------------------------------------

\556\ See SFAS No. 154, Accounting Changes and Error
Corrections. This is now reflected in ASC 250, Accounting Changes
and Error Corrections.
---------------------------------------------------------------------------

As another example, Rule 10-01(b)(2) of Regulation S-X requires,
for interim periods, the presentation of dividends per share applicable
to common stock on the face of the income statement. These rules are
inconsistent with U.S. GAAP, which prohibits presentation of dividends
per share on the face of the income statement. We are deleting Rule 10-
01(b)(2) to conform to U.S. GAAP and simplify issuer compliance
efforts.
In connection with this amendment and to avoid any loss of
disclosure, we are extending the annual disclosure requirement of
changes in stockholders' equity in Rule 3-04 of Regulation S-X to
interim periods, which also requires disclosure of the amount of
dividends per share for each class of shares, rather than only for
common stock. As suggested by a few commenters, the final amendments
clarify that Rule 3-04 requires both the year-to-date information and
subtotals for each interim period.\557\ Investors and other users may
benefit from the additional information on dividends per share for each
class of shares for interim periods. For example shareholders may use
dividends to value an issuer.\558\ Information about dividends also can
be material for debtholders.\559\ In addition, there may also be
different dividend preferences based on an investor's
characteristics.\560\
---------------------------------------------------------------------------

\557\ See letters from CAQ and PwC.
\558\ See M. Miller and F. Modigliani, Dividend Policy, Growth,
and the Valuation of Shares, Journal of Business 34 (4), 1961 at
411-433 (providing an early theory of the effects of dividend policy
on share price). See also, F. Black, The Dividend Puzzle, The
Journal of Portfolio Management 2(2), 1976 at 5-8 (discussing
reasons why firms pay dividends).
\559\ See P. Healy and K. Palepu, Effectiveness of Accounting-
Based Dividend Covenants, Journal of Accounting and Economics 12,
1990 at 97-123 (examining the effectiveness of dividend covenants in
mitigating conflicts of interests between stockholders and
bondholders). See also, H. Fan and S. Sundaresan, Debt Valuation,
Renegotiation, and Optimal Dividend Policy, Review of Financial
Studies 13 (4), 2000 at 1057-1099 (developing a theoretical
framework for optimal dividend policy and capital structure).
\560\ See R. Pettit, Taxes, Transactions Costs and the Clientele
Effect of Dividends, Journal of Financial Economics 5 (3), 1977 at
419-436 (showing that individuals' preferences for dividends are
influenced by their age and their tax rates on dividends and capital
gains).
---------------------------------------------------------------------------

These amendments may give rise to Disclosure Location
Considerations, in that issuers will now disclose dividends either in
the changes in stockholders' equity statement or the notes to the
financial statements to comply with Regulation S-X instead of on the
face of the income statement.\561\ Disclosing information on dividends
issued and the relationship it has to stockholders' equity in one
location may help investors understand some of the strategic decisions
made by management, such as dividend payout versus share buyback. The
extension of the disclosure requirement in Rule 3-04 of Regulation S-X
may create some additional burden for issuers, including Regulation A
issuers,\562\ because it requires disclosure of dividends per share for
each class of shares, rather than only for common stock, and disclosure
of changes in stockholders' equity in interim periods. However, such
costs should be limited to the extent that the required information is
already available from the preparation of other aspects of the interim
financial statements. Disclosure of this additional information may
also lead to additional costs for issuers to comply with ICFR, audit,
and XBRL tagging requirements, as applicable.
---------------------------------------------------------------------------

\561\ ASC 260-10-45-5 requires disclosure of dividends per share
in the notes to the financial statements.
\562\ The amendments to require interim disclosure of changes in
stockholders' equity and dividends per share amounts are being made
directly to Forms 1-A and 1-SA for Regulation A issuers.
---------------------------------------------------------------------------

In the Proposing Release, we requested comments about other
disclosure requirements that meet the criteria in any of the four
sections of the release. Based on commenter responses and further
internal review, we identified additional disclosure requirements that
contained typographical errors, incorrect references, or references to
rules that no longer exist. As a result, we are adopting additional
conforming amendments, the majority of which are in the superseded
category. These technical and conforming amendments should lower
disclosure costs for issuers.

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

The rules may improve capital allocation efficiency by enabling

[[Page 50192]]

investors to make more efficient investment decisions. For example, the
rules may reduce search costs for investors by eliminating information
that is redundant, duplicative, overlapping, outdated, or superseded.
Given that investors may have limited attention and limited information
processing capabilities, elimination of such information may facilitate
more efficient investment decision-making. In addition, elimination of
these disclosure requirements may reduce issuer compliance costs and
encourage capital formation. The reduction in compliance costs might be
particularly beneficial for smaller and younger issuers that are
resource constrained. A more efficient and less costly disclosure
environment may make the public capital markets more competitive
relative to private capital market alternatives and may additionally
make the U.S. capital markets more competitive relative to markets in
other countries. Although it is difficult to quantify these effects, to
the extent that they are present, they may result in more public
capital market investment opportunities for investors.
Eliminating information could result in increased information
asymmetries between issuers and investors. Such asymmetries may
increase the cost of capital, reduce capital formation, and hamper
efficient allocation of capital across companies. To the extent that
certain disclosure is no longer required, issuers for which this
disclosure would be unfavorable may be less likely to disclose such
information voluntarily. Even if other issuers do disclose such
information voluntarily, it will be difficult to estimate the relative
quality of issuers without every issuer's disclosure. This will make it
more difficult for higher quality issuers to distinguish their quality
with respect to this metric even with voluntary disclosures. Such
negative effects might be more pronounced among smaller and younger
issuers that suffer more from information asymmetries. Overall, though,
to the extent that we eliminate disclosure that we consider redundant,
duplicative, overlapping, outdated, or superseded, we do not think
these effects are likely to be significant.

D. Alternatives

We considered reasonable alternatives to the amendments. For
redundant, duplicative, outdated, or superseded disclosure requirements
being eliminated, we considered the alternative of retaining these
requirements. However, as a general matter, given the nature of these
requirements, we believe retaining the requirements could result in
inefficiencies for investors, issuers, and others. For certain of the
disclosure requirements that we proposed to modify or delete, where
commenters indicated that the requirements may provide beneficial
incremental disclosures for investors and other users, we are retaining
the requirements and also are referring some of them to the FASB for
potential incorporation into U.S. GAAP.
For overlapping disclosure requirements, we solicited comments in
the Proposing Release on certain requirements to determine whether to
retain, modify, eliminate, or refer them to the FASB for potential
incorporation into U.S. GAAP. After further consideration based on our
review of the issues and consideration of the comments received, we are
retaining all of the requirements discussed in Section III.D and
referring all except one to the FASB for potential incorporation.
As an alternative to retaining these requirements, we could
eliminate the Commission requirements and refer them to the FASB. This
would deprive investors of any incremental disclosures elicited by the
Commission requirements pending the FASB's deliberations. If the
disclosure requirements are ultimately added to U.S. GAAP, some
information would be relocated from outside the financial statements to
within the financial statements, giving rise to Disclosure Location
Considerations, potentially impacting issuers, investors, and other
users.\563\ Another alternative to retaining these requirements is to
simply eliminate the Commission requirements and forgo disclosure of
the incremental information without FASB referral. Although such an
alternative would simplify issuer compliance efforts, it also may
result in less informed investment decisions and diminished investor
protections.
---------------------------------------------------------------------------

\563\ Any future consideration of amendments to these
disclosures requirements will take into account the outcome of
standard-setting activities undertaken by the FASB.
---------------------------------------------------------------------------

VIII. Paperwork Reduction Act

A. Background

Certain provisions of our rules and forms that would be affected by
the final amendments contain ``collection of information'' requirements
within the meaning of the Paperwork Reduction Act of 1995
(``PRA'').\564\ The Commission published a notice requesting comment on
the collection of information requirements in the Proposing Release and
has submitted these requirements to the Office of Management and Budget
(``OMB'') for review in accordance with the PRA.\565\ The titles for
the affected collections of information are:
---------------------------------------------------------------------------

\564\ 44 U.S.C. 3501 et seq.
\565\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.

------------------------------------------------------------------------
OMB Control
Title No.
------------------------------------------------------------------------
Regulation S-X \566\...................................... 3235-0009
Regulation S-K............................................ 3235-0071
Rule 405 of Regulation C.................................. 3235-0074
Rule 436 of Regulation C.................................. 3235-0074
Form S-1.................................................. 3235-0065
Form S-3.................................................. 3235-0073
Form S-11................................................. 3235-0067
Form S-4.................................................. 3235-0324
Form F-1.................................................. 3235-0258
Form F-3.................................................. 3235-0256
Form F-4.................................................. 3235-0325
Form F-6.................................................. 3235-0292
Form F-7.................................................. 3235-0383
Form F-8.................................................. 3235-0378
Form F-10................................................. 3235-0380
Form F-80................................................. 3235-0404
Form SF-1................................................. 3235-0707
Form SF-3................................................. 3235-0690
Form 1-A.................................................. 3235-0286
Form 1-K.................................................. 3235-0720
Form 1-SA................................................. 3235-0721
Exchange Act Rule 10A-1................................... 3235-0468
Exchange Act Rule 12b-2................................... 3235-0062
Schedule 14A.............................................. 3235-0059
Schedule 14C.............................................. 3235-0057
Exchange Act Rule 15c3-1g................................. 3235-0200
Exchange Act Rule 17a-5 and Form X-17A-5.................. 3235-0123
Exchange Act Rule 17a-12.................................. 3235-0498
Exchange Act Rule 17h-1T.................................. 3235-0410
Form 10................................................... 3235-0064
Form 20-F................................................. 3235-0288
Form 40-F................................................. 3235-0381
Form 10-Q................................................. 3235-0070
Form 10-K................................................. 3235-0063
Form 11-K................................................. 3235-0082
Form 10-D................................................. 3235-0604
Form N-5.................................................. 3235-0169
Form N-1A................................................. 3235-0307
Form N-2.................................................. 3235-0026
Form N-3.................................................. 3235-0316
Form N-4.................................................. 3235-0318
Form N-6.................................................. 3235-0503
Form N-8B-2............................................... 3235-0186
------------------------------------------------------------------------

The majority of these regulations, schedules, and forms were
adopted under the Securities Act, the Exchange Act, and/or the
Investment Company Act and set forth the disclosure requirements for
registration statements, periodic reports, and proxy and information
statements filed by issuers to help investors make informed investment
and voting decisions.

[[Page 50193]]

Certain other forms and reports are filed by broker-dealers, entities
regulated by the Investment Company Act and the Investment Advisers
Act, and NRSROs in connection with the Commission's oversight of such
entities.
---------------------------------------------------------------------------

\566\ The paperwork burdens from Regulation S-X and Regulation
S-K are imposed through the forms that are subject to the disclosure
requirements in both regulations and are reflected in the analysis
of these forms. To avoid a Paperwork Reduction Act inventory
reflecting duplicative burdens, for administrative convenience we
estimate the burden imposed by Regulation S-X and Regulation S-K to
be a total of one hour for each regulation.
---------------------------------------------------------------------------

These amendments are the result of the staff's ongoing evaluation
of our disclosure requirements \567\ and also are part of our efforts
to implement Title LXXII, Section 72002(2) of the FAST Act.
---------------------------------------------------------------------------

\567\ See supra note 12.
---------------------------------------------------------------------------

The hours and costs associated with preparing, filing, and sending
the schedules and forms constitute reporting and cost burdens imposed
by each collection of information. An agency may not conduct or
sponsor, and a person is not required to comply with, a collection of
information unless it displays a currently valid OMB control number.
Compliance with the information collections is mandatory. Responses to
the information collections are not kept confidential, and there is no
mandatory retention period for the information disclosed.

B. Summary of the Final Amendments

As described in more detail above, 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. GAAP, IFRS, or changes in the
information environment.
By eliminating the redundancy, duplication, and overlap in current
Commission disclosure requirements, we are enabling respondents to
consider fewer rules and requirements in their compliance efforts even
as they are preparing a substantially similar level of disclosures. As
such, except for the amendment to eliminate the requirement to disclose
the ratio of earnings to fixed charges, which may result in a modest
decrease in the paperwork burden, we believe that the amendments to
eliminate these redundant, duplicative, and overlapping Commission
requirements would marginally reduce, if at all, respondents' overall
paperwork burden.
Similarly, we expect that the amendments to eliminate outdated
requirements would marginally reduce the paperwork burden on
respondents by eliminating any efforts that were undertaken to prepare
these disclosures. With the exception of the amendments to require the
disclosure of an issuer's website address and the ticker symbol of
their common equity that is publicly traded, which will slightly
increase the paperwork burden, the remaining amendments related to
outdated requirements would have no change or only a modest reduction
in the paperwork burden when respondents are providing information in
response to Forms 10, 10-K, 20-F, S-1, and F-1.
Finally, we believe that the amendments to update superseded
Commission disclosure requirements would marginally reduce, if at all,
respondents' paperwork burden, except for the extension of the
application of Rule 3-04 of Regulation S-X to interim period
disclosures,\568\ which we estimate will modestly increase the
paperwork burden. While the amendments eliminate any existing confusion
related to contradictory and inconsistent requirements, in many
instances, we believe respondents are currently not providing
information in response to the requirements that we are deleting.
Instead, we believe respondents provide information in response to U.S.
GAAP or other Commission disclosure requirements that have been updated
more recently, rather than the superseded requirement covered by the
amendments. As a result, we do not believe the majority of these
amendments would result in a change to respondents' overall paperwork
burden.
---------------------------------------------------------------------------

\568\ The extension of Rule 3-04 of Regulation S-X addresses
both overlapping and superseded disclosure issues and is discussed
in both Sections III.C.16 and V.B.5 above.
---------------------------------------------------------------------------

In light of the foregoing, our estimates for the paperwork burden
for a number of the collections of information have not changed. The
tables below therefore do not reflect any change in the paperwork
burden for the following collections of information: Rules 405 and 436
of Regulation C and Forms F-6, F-7, F-8, F-10, F-80, 1-K under the
Securities Act; Exchange Rules 10A-1, 12b-2, 15c3-1g, 17a-5, 17h-1T and
Forms 40-F, 11-K, 10-D, X-17A-5 under the Exchange Act; Forms N-5, N-
1A, N-2, N-3, N-4, N-6, N-8B-2 under the Investment Company Act; and
Schedules 14A and 14C under the Exchange Act.

C. Summary of Comment Letters and Revisions to Proposals

In the Proposing Release, we requested comment on our PRA burden
hour and cost estimates and the analysis used to derive such estimates.
We did not receive any comments that addressed our PRA analysis of the
proposed amendments.
We did make some changes to the proposed amendments as a result of
comments received, but we do not expect any of those changes to affect
the compliance burdens of the existing collections of information, and
therefore we are not revising our PRA burden hour and cost estimates as
a result of these changes.

D. Burden and Cost Estimates

As noted above, we do not believe that the overwhelming majority of
the amendments will result in a change to respondents' overall
paperwork burden. In this subsection we discuss the few amendments that
will result in a change to respondents' overall paperwork burden.
1. Forms 10, 10-K, 10-Q, 20-F, and 1-SA
We anticipate that the amendments to eliminate the requirement to
disclose the market prices for an issuer's common equity for the two
most recent fiscal years will modestly reduce affected issuers' current
paperwork burdens. We estimate that issuers currently expend an average
of two hours internally preparing the market price disclosure for
inclusion in their Forms 10-K and 20-F. As such, we estimate that
affected issuers would experience a two hour reduction in their annual
paperwork burden.\569\ We also estimate that there are 8,862 annual
responses made in connection with Forms 10-K and 20-F. The table below
illustrates the overall impact on respondents filing Forms 10-K and 20-
F as a result of these amendments.
---------------------------------------------------------------------------

\569\ In the Proposing Release we included estimates for the
minimal paperwork burden increase associated with the proposed
amendments to require disclosure of an issuer's ticker symbol and
internet address. Upon further consideration, we are not making a
separate burden adjustment for these two amendments. We believe the
burdens for these amendments will be mostly incurred upon initial
disclosure and not in subsequent periods. In addition, any increases
in burden associated with the disclosure of the ticker symbol and
internet address would be fully offset by the reduction in burden
associated with the elimination of two years' worth of market price
disclosure. Accordingly, we believe the two-hour reduction in burden
hours associated with the elimination of the market price disclosure
requirement will encompass the combined effect of these related
changes.

[[Page 50194]]

Table 1
----------------------------------------------------------------------------------------------------------------
Reduction in Total
Number of incremental incremental Internal
responses burden hours/ burden hours company time
form reduction reduction
(A) (B) (C) = (A) * (B) (D) = (C)
----------------------------------------------------------------------------------------------------------------
Form 10-K................................... 8,137 (2) (16,274) (16,274)
Form 20-F................................... 725 (2) (1,450) (1,450)
----------------------------------------------------------------------------------------------------------------

The amendments will extend to interim periods the requirements
under Rule 3-04 of Regulation S-X to disclose changes in stockholders'
equity and dividends per share for each class of shares, rather than
only for common stock. Prior to these amendments, these disclosures
were not required for interim periods. While this creates a new
disclosure requirement for respondents, the information being required
is generally readily available from respondents' preparation of other
aspects of the interim financial statements. As a result, we estimate
that this amendment will increase the average paperwork burdens by 0.5
hours each time such disclosure is required.\570\ We also estimate that
there are 23,159 annual responses in connection with Forms 10, 10-Q,
and 1-SA. The table below illustrates the overall impact on respondents
filing Forms 10, 10-Q, and 1-SA as a result of the proposed application
of Rule 3-04 to interim period disclosures.\571\
---------------------------------------------------------------------------

\570\ As Form 10-Q is filed for the first three quarters of an
issuer's fiscal year, the annual burden increase is estimated to be
1.5 hours annually. As such, there is no increase to the paperwork
burdens associated with preparing annual reports filed on Forms 10-K
or 20-F. However, for registration statements filed on Form 10s and
20-F, to the extent that interim period disclosures are made, the
issuer would experience an increase in paperwork burden.
\571\ While this amendment will not impact foreign private
issuers that file a Form 20-F as an annual report, it may impact
those that file the form to register a class of securities when they
would be required to provide interim period disclosures. However,
the staff has observed that this occurs so infrequently that we
estimate no change in the burden estimate for Form 20-F.

Table 2
----------------------------------------------------------------------------------------------------------------
Increase in Total
Number of incremental incremental Internal
responses burden hours/ burden hours company time
form increase increase
(A) (B) (C) = (A) * (B) (D) = (C)
----------------------------------------------------------------------------------------------------------------
Form 10..................................... 216 0.5 108 108
Form 10-Q................................... 22,907 0.5 11,453.5 11,453.5
Form 1-SA................................... 36 0.5 18 18
----------------------------------------------------------------------------------------------------------------

2. Forms S-1, S-3, S-4, S-11, SF-1, SF-3, F-1, F-3, F-4, and 1-A
We anticipate that the amendments to eliminate the market prices
disclosure will have the same paperwork burden reduction for Forms S-1,
S-4, S-11, F-1, and F-4 as for Forms 10-K and 20-F.\572\ As such, we
estimate that there will be a corresponding reduction in the burden
estimate for these forms.\573\ We estimate that there are approximately
1,618 annual responses made in connection with the referenced forms.
The table below illustrates the overall impact on respondents filing
the referenced forms as a result of these amendments.
---------------------------------------------------------------------------

\572\ The information subject to the amendments discussed in
this paragraph is incorporated by reference into Forms S-3 and F-3
and not provided in direct response to a form item requirement. As
such, the amendments do not affect the paperwork burdens associated
with Forms S-3 and F-3.
\573\ See supra note 570.

Table 3
----------------------------------------------------------------------------------------------------------------
Reduction in Total
Number of incremental incremental Internal
responses burden hours/ burden hours company time
form reduction reduction
(A) (B) (C) = (A) * (B) (D) = (C)
----------------------------------------------------------------------------------------------------------------
Form S-1.................................... 901 (2) (1,802) (1,802)
Form S-4.................................... 551 (2) (1,102) (1,102)
Form S-11................................... 64 (2) (128) (128)
Form F-1.................................... 63 (2) (126) (126)
Form F-4.................................... 39 (2) (78) (78)
----------------------------------------------------------------------------------------------------------------

The amendments to extend Rule 3-04 of Regulation S-X to interim
periods will also impact the paperwork burdens of registration
statements filed on Forms 1-A, S-1, S-4, S-11, F-1, and F-4 because
such forms require interim period financial disclosures, when
applicable.\574\ We believe that the

[[Page 50195]]

estimated burden increase of 0.5 hours discussed above similarly
applies to the referenced registration statements. We estimate that
there are approximately 1,730 annual responses made in connection with
the referenced forms. The table below illustrates the overall impact on
respondents filing the referenced forms as a result of these
amendments.
---------------------------------------------------------------------------

\574\ Filers of the referenced forms may have to provide interim
period financial disclosures in order to comply with Rule 3-12 of
Regulation S-X. While the timing of the effectiveness of the
registration statement or qualification of the offering statement
may not trigger the requirement for interim period financial
disclosure, we have used the full population of responses for our
estimate to be conservative.

----------------------------------------------------------------------------------------------------------------
Increase in Total
Number of incremental incremental Internal
responses burden hours/ burden hours company time
form increase increase
(A) (B) (C) = (A) * (B) (D) = (C)
----------------------------------------------------------------------------------------------------------------
Form S-1.................................... 901 0.5 450.5 450.5
Form S-4.................................... 551 0.5 275.5 275.5
Form S-11................................... 64 0.5 32 32
Form F-1.................................... 63 0.5 31.5 31.5
Form F-4.................................... 39 0.5 19.5 19.5
Form 1-A.................................... 112 0.5 56 56
----------------------------------------------------------------------------------------------------------------

The amendment to eliminate the requirements to disclose the ratio
of earnings to fixed charges, when an issuer registers debt securities,
and the ratio of combined fixed charges and preference dividends to
earnings, when an issuer registers preference securities, will reduce
the current paperwork burden for issuers registering such securities on
Forms S-1, S-3, S-4, S-11, F-1, F-3 and F-4. Depending on the size and
complexity of the issuer, the paperwork burden associated with
preparing this information for inclusion in the aforementioned
registration statements can vary greatly. We estimate that issuers
expend an average of four hours preparing this disclosure for inclusion
in their registration statements. For the purposes of this analysis, we
assume that the ratio is prepared internally, and we have estimated
that there are approximately 1,722 annual responses made in connection
with the referenced forms. Based on this average, the table below
illustrates the overall impact on respondents filing the referenced
forms as a result of the amendments.

----------------------------------------------------------------------------------------------------------------
Reduction in Total
Number of incremental incremental Internal
responses burden hours/ burden hours company time
form reduction reduction
(A) \575\ (B) (C) = (A) * (B) (D) = (C)
----------------------------------------------------------------------------------------------------------------
Form S-1.................................... 450 (4) (1,800) (1,800)
Form S-3.................................... 800 (4) (3,200) (3,200)
Form S-4.................................... 300 (4) (1,200) (1,200)
Form S-11................................... 32 (4) (128) (128)
Form F-1.................................... 32 (4) (128) (128)
Form F-3.................................... 78 (4) (312) (312)
Form F-4.................................... 30 (4) (120) (120)
----------------------------------------------------------------------------------------------------------------

IX. Final Regulatory Flexibility Act Analysis

This Final Regulatory Flexibility Analysis (``FRFA'') has been
prepared in accordance with the Regulatory Flexibility Act
(``RFA'').\576\ This FRFA relates to final amendments that will
eliminate certain Commission disclosure requirements that have become
redundant, duplicative, overlapping, outdated, or superseded, in light
of other Commission disclosure requirements, U.S. GAAP, IFRS, or
changes in the information environment. These amendments are the result
of the staff's ongoing evaluation of our disclosure requirements \577\
and also are part of our efforts to implement Title LXXII, Section
72002(2) of the FAST Act.
---------------------------------------------------------------------------

\575\ The portion of registration statements filed on each
referenced form that actually registers debt or preference
securities varies from year to year. As a result, the numbers in
this column are based on staff estimates using data samples obtained
from EDGAR.
\576\ 5 U.S.C. 601 et seq.
\577\ See supra note 12.
---------------------------------------------------------------------------

A. Need for, and Objectives of, the Amendments

The main purpose of the amendments is to update and simplify the
Commission's current disclosure requirements. Specifically, the
amendments will:
Eliminate certain Commission disclosure requirements that
are redundant or duplicative of requirements in U.S. GAAP, IFRS, or
other Commission disclosure requirements.
Streamline certain overlapping Commission disclosure
requirements by deleting or integrating provisions that address
disclosure topics covered elsewhere in our rules or regulations.
Revise certain Commission disclosure requirements that are
outdated.
Revise certain superseded Commission disclosure
requirements to update and conform these provisions with recent
legislation, more recently updated Commission disclosure requirements,
or more recently updated U.S. GAAP requirements.
The need for, and objectives of, the final amendments are discussed
in more detail throughout this release, particularly in Section I,
above.

[[Page 50196]]

B. Significant Issues Raised by Public Comments

In the Proposing Release we requested comment on any aspect of the
Initial Regulatory Flexibility Analysis (``IRFA''), including the
number of small entities that would be affected by the proposed
amendments, the nature of the impact, how to quantify the number of
small entities that would be affected, and how to quantify the impact
of the proposed amendments. We did not receive comments specifically
addressing the IRFA or the proposed amendments' impact on small
entities.

C. Small Entities Subject to the Amendments

The amendments will affect some small entities that file
registration statements under the Securities Act, the Exchange Act, and
the Investment Company Act and periodic reports, proxy and information
statements, or other reports under the Exchange Act and the Investment
Company Act. In addition, the amendments will affect some small
entities that are not reporting companies and that issue securities
under Regulation A exemption. The RFA defines ``small entity'' to mean
``small business,'' ``small organization,'' or ``small governmental
jurisdiction.'' \578\
---------------------------------------------------------------------------

\578\ 5 U.S.C. 601(6).
---------------------------------------------------------------------------

For purposes of the RFA, under 17 CFR 230.157 (``Securities Act
Rule 157''), an issuer, other than an investment company, is a ``small
business'' or ``small organization'' if it had total assets of $5
million or less on the last day of its most recent fiscal year and is
engaged or proposing to engage in an offering of securities not
exceeding $5 million. Under 17 CFR 240.0-10(a) (``Exchange Act Rule 0-
10(a)''), an issuer, other than an investment company, is a ``small
business'' or ``small organization'' if it had total assets of $5
million or less on the last day of its most recent fiscal year. In
total, we estimate that there are approximately 1,233 issuers, other
than investment companies, that may be considered small entities and
will be subject to the amendments.\579\
---------------------------------------------------------------------------

\579\ This estimate includes 1,163 reporting companies and 70
Regulation A issuers estimated to be small entities (1,233 = 1,163 +
70). The reporting company small entity estimate is based on staff
analysis of XBRL data submitted by filers, other than co-
registrants, with EDGAR filings of Forms 10-K, 20-F, and 40-F and
amendments filed during the calendar year 2017. The Regulation A
small entity estimate is based on staff analysis of Form 1-A data
from EDGAR filings of Forms 1-A qualified during the calendar year
2017, excluding issuers in subsequently withdrawn offerings and
issuers that became reporting companies during the calendar year
2017.
---------------------------------------------------------------------------

An investment company, including a business development company, is
considered to be a ``small business,'' for the purposes of the RFA, if
it, together with other investment companies in the same group of
related investment companies, has net assets of $50 million or less as
of the end of its most recent fiscal year.\580\ We estimate that there
are approximately 112 investment companies, including 18 business
development companies, that will be subject to the amendments that may
be considered small entities.\581\
---------------------------------------------------------------------------

\580\ See 17 CFR 270.0-10(a).
\581\ The estimate of small investment companies is derived from
an analysis of data obtained from Morningstar Direct as well as data
reported on Forms N-SAR filed with the Commission for the period
ending December 31, 2017. The number of small business development
companies is derived from data obtained from Forms 10-K and Forms
10-Q for reporting periods ended in the last quarter of 2017,
adjusted by the number of active business development companies that
do not submit such filings and late filers.
---------------------------------------------------------------------------

For the purposes of the RFA, an investment adviser generally is a
small entity if it: (1) Has assets under management having a total
value of less than $25 million; (2) did not have total assets of $5
million or more on the last day of the most recent fiscal year; and (3)
does not control, is not controlled by, and is not under common control
with another investment adviser that has assets under management of $25
million or more, or any person (other than a natural person) that had
total assets of $5 million or more on the last day of its most recent
fiscal year.\582\ We estimate that there are approximately 447
investment advisers that will be subject to the amendments that may be
considered small entities.\583\
---------------------------------------------------------------------------

\582\ See 17 CFR 275.0-7.
\583\ The estimate is based on SEC-registered investment adviser
responses to Items 5.F. and 12 of Form ADV.
---------------------------------------------------------------------------

For the purposes of the RFA, a broker-dealer is considered to be a
``small business'' if its total capital (net worth plus subordinated
liabilities) is less than $500,000 on the date in the prior fiscal year
as of which its audited financial statements were prepared pursuant to
Rule 17a-5(d) under the Exchange Act,\584\ or, if not required to file
such statements, a broker-dealer with total capital (net worth plus
subordinated liabilities) of less than $500,000 on the last day of the
preceding fiscal year (or in the time that it has been in business, if
shorter); and that is not affiliated with any person (other than a
natural person) that is not a small business or small
organization.\585\ We estimate there are approximately 1,042 broker-
dealers that may be considered small entities. Of these, nine were Part
II filers and 1,033 were Part IIA filers.\586\
---------------------------------------------------------------------------

\584\ See 17 CFR 240.17a-5(d).
\585\ See 17 CFR 240.0-10(c).
\586\ This estimate is based on the FOCUS Reports, or
``Financial and Operational Combined Uniform Single'' Reports, which
broker-dealers are generally required to file with the Commission
and/or SROs pursuant to Exchange Act Rule 17a-5. The estimate is
based on the FOCUS Reports data as of December 31, 2017. The
information on Part IIB and Part III filers are not available from
this data source.
---------------------------------------------------------------------------

The Commission has previously stated, and we continue to believe,
that an NRSRO with total assets of $5 million or less would qualify as
a ``small'' entity for purposes of the RFA.\587\ Currently, there are
10 NRSROs and, based on their most recently filed annual reports
pursuant to Rule 17g-3, two NRSROs are small entities under the above
definition and will be subject to the amendments.
---------------------------------------------------------------------------

\587\ See, e.g., Final Rules: Nationally Recognized Statistical
Rating Organizations, Release No. 34-72936 (Aug. 27, 2014) [79 FR
55077 (Sep. 15, 2014)].
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements

As noted above, the final amendments update and simplify the
Commission's disclosure requirements and do not impose any significant
new disclosure obligations. While there are no particular professional
skills that are required to comply with the amendments, the
professional skills necessary for complying with an issuer's disclosure
obligations as a whole may include legal, accounting, or information
technology skills. As adopted, the amendments address requirements that
have become redundant, duplicative, overlapping, outdated, or
superseded in light of other Commission disclosure requirements, U.S.
GAAP, IFRS, or changes in the information environment. We expect these
amendments to reduce slightly the existing reporting, recordkeeping,
and other compliance burdens for all issuers, including small entities.
The amendments are discussed in detail in Sections II, III, IV, and
V, above. We discuss the economic impact, including the estimated
compliance costs and burdens, of the amendments in Section VII
(Economic Analysis) and Section VIII (Paperwork Reduction Act) above.

E. Agency Action To Minimize Effect on Small Entities

The Regulatory Flexibility Act directs us to consider alternatives
that would accomplish our stated objectives, while minimizing any
significant adverse impact on small entities. In connection with the
final amendments, we considered the following alternatives: (1)
Establishing different compliance or

[[Page 50197]]

reporting requirements or timetables that take into account the
resources available to small entities; (2) clarifying, consolidating,
or simplifying compliance and reporting requirements for small
entities; (3) using performance rather than design standards; and (4)
exempting small entities from coverage of all or part of the proposed
amendments.
With respect to clarification, consolidation, and simplification of
compliance and reporting requirements for small entities, the
amendments do not impose any significant new disclosure obligations,
and they reduce other disclosure obligations. As noted above, the
amendments address certain of our disclosure requirements that have
become redundant, duplicative, overlapping, outdated, or superseded, in
light of other Commission disclosure requirements, U.S. GAAP, IFRS, or
changes in the information environment. The amendments will clarify,
consolidate, and simplify compliance for all issuers, including small
entities.
For similar reasons, we do not believe it is necessary, and indeed
would be contrary to the stated objectives of the amendments, to
establish different compliance or reporting requirements or timetables
or to exempt small entities from all or part of the amendments.\588\
The Commission's existing disclosure requirements provide for scaled
disclosure requirements and other accommodations for SRCs and EGCs, and
the amendments would not alter these existing accommodations.
---------------------------------------------------------------------------

\588\ The amendment discussed in Section V.B.2 that extends the
disclosure requirement in Rule 3-04 of Regulation S-X to interim
periods will apply to all issuers, including small entities. As the
required information would be readily available from the preparation
of the interim financial statements, the Commission expects the
additional burdens to be limited. The new disclosure would better
facilitate investor understanding of stockholders' equity, as
dividends are distributed from stockholders' equity. As such, we do
not believe it is necessary to scale this specific amendment for
small entities.
---------------------------------------------------------------------------

Finally, with respect to use of performance rather than design
standards, the amendments to eliminate certain prescriptive Commission
rules that call for information that overlaps with information required
by U.S. GAAP or revise certain prescriptive rules to streamline our
disclosure requirements may result in issuers, including small
entities, being provided with additional flexibility when preparing
their disclosures. For instance, existing Rule 4-08(e)(3) requires
disclosure of dividend restrictions and related disclosures when
restricted net assets exceed 25 percent. As amended, the rule will
require such disclosure when it is material and not based on a bright
line threshold. While not all amendments use performance standards,
many would have a similar effect--namely, to provide issuers, including
small entities, with additional flexibility to present more tailored
disclosures without meaningfully reducing the total mix of information
provided to investors.

X. Statutory Authority

The amendments contained in this document are being adopted under
the authority set forth in Sections 7, 10, 19(a), and 28 of the
Securities Act, Sections 3(b), 12, 13, 15, 23(a), and 36 of the
Exchange Act, Sections 8, 24(a), 24(g), 30, and 38 of the Investment
Company Act, and Title LXXII, Section 72002(2) of the FAST Act.

Text of the Final Amendments

List of Subjects

17 CFR Part 210

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

17 CFR Part 229

Reporting and recordkeeping requirements, Securities.

17 CFR Part 230

Investment companies, Reporting and recordkeeping requirements,
Securities.

17 CFR Part 239

Reporting and recordkeeping requirements, Securities.

17 CFR Part 240

Brokers, Fraud, Reporting and recordkeeping requirements,
Securities.

17 CFR Part 249

Brokers, Reporting and recordkeeping requirements, Securities.

17 CFR Part 274

Investment companies, Reporting and recordkeeping requirements,
Securities.

For the reasons stated in the preamble, the Commission is amending
Title 17, Chapter II, of the Code of the Federal Regulations as
follows:

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

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

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

0
2. Amend Sec. 210.1-02 by:
0
a. Revising paragraphs (d) and (w)(3);
0
b. Redesignating the Computational note as Computational note 1 to
paragraph (w)(3);
0
c. Revising paragraph 2 of the newly redesignated Computational note 1
to paragraph (w)(3);
0
d. Revising paragraph (bb)(1)(ii); and
0
e. Adding paragraphs (cc) and (dd).
The revisions and additions read as follows:

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

* * * * *
(d) Audit (or examination). The term audit (or examination), when
used in regard to financial statements of issuers as defined by Section
2(a)(7) of the Sarbanes-Oxley Act of 2002, means an examination of the
financial statements by an independent accountant in accordance with
the standards of the Public Company Accounting Oversight Board (United
States) (``PCAOB'') for the purpose of expressing an opinion thereon.
When used in regard to financial statements of entities that are not
issuers as defined by Section 2(a)(7) of the Sarbanes-Oxley Act of
2002, the term means an examination of the financial statements by an
independent accountant in accordance with either the standards of the
PCAOB or U.S. generally accepted auditing standards (``U.S. GAAS'') as
specified or permitted in the regulations and forms applicable to those
entities for the purpose of expressing an opinion thereon. The
standards of the PCAOB and U.S. GAAS may be modified or supplemented by
the Commission.
* * * * *
(w) * * *
(3) The registrant's and its other subsidiaries' equity in the
income from continuing operations before income taxes of the subsidiary
exclusive of amounts attributable to any

[[Page 50198]]

noncontrolling interests exceeds 10 percent of such income of the
registrant and its subsidiaries consolidated for the most recently
completed fiscal year.

Note to paragraph (w): * * *

Computational note 1 to paragraph (w)(3): * * *

* * * * *
2. If income of the registrant and its subsidiaries consolidated
exclusive of amounts attributable to any noncontrolling interests for
the most recent fiscal year is at least 10 percent lower than the
average of the income for the last five fiscal years, such average
income should be substituted for purposes of the computation. Any loss
years should be omitted for purposes of computing average income.
* * * * *
(bb) * * *
(1) * * *
(ii) Net sales or gross revenues, gross profit (or, alternatively,
costs and expenses applicable to net sales or gross revenues), income
or loss from continuing operations, net income or loss, and net income
or loss attributable to the entity (for specialized industries, other
information may be substituted for sales and related costs and expenses
if necessary for a more meaningful presentation); and
* * * * *
(cc) Statement(s) of comprehensive income. The term statement(s) of
comprehensive income means a financial statement that includes all
changes in equity during a period except those resulting from
investments by owners and distributions to owners. Comprehensive income
comprises all components of net income and all components of other
comprehensive income. The statement of comprehensive income may be
presented either in a single continuous financial statement or in two
separate but consecutive financial statements. A statement(s) of
operations or variations thereof may be used in place of a statement(s)
of comprehensive income if there was no other comprehensive income
during the period(s).
(dd) Restricted net assets. The term restricted net assets shall
mean that amount of the registrant's proportionate share of net assets
of consolidated subsidiaries (after intercompany eliminations) which as
of the end of the most recent fiscal year may not be transferred to the
parent company by subsidiaries in the form of loans, advances or cash
dividends without the consent of a third party (i.e., lender,
regulatory agency, foreign government, etc.). Not all limitations on
transferability of assets are considered to be restrictions for
purposes of this rule, which considers only specific third party
restrictions on the ability of subsidiaries to transfer funds outside
of the entity. For example, the presence of subsidiary debt which is
secured by certain of the subsidiary's assets does not constitute a
restriction under this rule. However, if there are any loan provisions
prohibiting dividend payments, loans or advances to the parent by a
subsidiary, these are considered restrictions for purposes of computing
restricted net assets. When a loan agreement requires that a subsidiary
maintain certain working capital, net tangible asset, or net asset
levels, or where formal compensating arrangements exist, there is
considered to be a restriction under the rule because the lender's
intent is normally to preclude the transfer by dividend or otherwise of
funds to the parent company. Similarly, a provision which requires that
a subsidiary reinvest all of its earnings is a restriction, since this
precludes loans, advances or dividends in the amount of such
undistributed earnings by the entity. Where restrictions on the amount
of funds which may be loaned or advanced differ from the amount
restricted as to transfer in the form of cash dividends, the amount
least restrictive to the subsidiary shall be used. Redeemable preferred
stocks (Sec. 210.5-02.27) and noncontrolling interests shall be
deducted in computing net assets for purposes of this test.

0
3. Amend Sec. 210.2-01 by revising paragraph (f)(7)(ii)(B) to read as
follows:

Sec. 210.2-01 Qualifications of accountants.

* * * * *
(f) * * *
(7) * * *
(ii) * * *
(B) The partner conducting a quality review under applicable
professional standards and any applicable rules of the Commission to
evaluate the significant judgments and the related conclusions reached
in forming the overall conclusion on the audit or review engagement
(``Engagement Quality Reviewer'' or ``Engagement Quality Control
Reviewer'');
* * * * *

0
4. Amend Sec. 210.2-02 by revising paragraph (b)(1) to read as
follows:

Sec. 210.2-02 Accountants' reports and attestation reports.

* * * * *
(b) * * *
(1) Shall state the applicable professional standards under which
the audit was conducted; and
* * * * *

0
5. Amend Sec. 210.3-01 by revising paragraphs (c)(2) and (3) to read
as follows:

Sec. 210.3-01 Consolidated balance sheets.

* * * * *
(c) * * *
(2) For the most recent fiscal year for which audited financial
statements are not yet available the registrant reasonably and in good
faith expects to report income attributable to the registrant, after
taxes; and
(3) For at least one of the two fiscal years immediately preceding
the most recent fiscal year the registrant reported income attributable
to the registrant, after taxes.
* * * * *

0
6. Amend Sec. 210.3-02 by revising the section heading and paragraphs
(a) and (b) to read as follows:

Sec. 210.3-02 Consolidated statements of comprehensive income and
cash flows.

(a) There shall be filed, for the registrant and its subsidiaries
consolidated and for its predecessors, audited statements of
comprehensive income and cash flows for each of the three fiscal years
preceding the date of the most recent audited balance sheet being filed
or such shorter period as the registrant (including predecessors) has
been in existence. A registrant that is an emerging growth company, as
defined in Sec. 230.405 of this chapter (Rule 405 of the Securities
Act) or Sec. 240.12b-2 of this chapter (Rule 12b-2 of the Exchange
Act), may, in a Securities Act registration statement for the initial
public offering of the emerging growth company's equity securities,
provide audited statements of comprehensive income and cash flows for
each of the two fiscal years preceding the date of the most recent
audited balance sheet (or such shorter period as the registrant has
been in existence).
(b) In addition, for any interim period between the latest audited
balance sheet and the date of the most recent interim balance sheet
being filed, and for the corresponding period of the preceding fiscal
year, statements of comprehensive income and cash flows shall be
provided. Such interim financial statements may be unaudited and need
not be presented in greater detail than is required by Sec. 210.10-01.
* * * * *

0
7. Amend Sec. 210.3-03 by
0
a. Revising the section heading and paragraphs (b) and (d); and

[[Page 50199]]

0
b. Removing paragraph (e).
The revisions read as follows:

Sec. 210.3-03 Instructions to statement of comprehensive income
requirements.

* * * * *
(b) If the registrant is engaged primarily--
(1) In the generation, transmission or distribution of electricity,
the manufacture, mixing, transmission or distribution of gas, the
supplying or distribution of water, or the furnishing of telephone or
telegraph service; or
(2) In holding securities of companies engaged in such businesses,
it may at its option include statements of comprehensive income and
cash flows (which may be unaudited) for the twelve-month period ending
on the date of the most recent balance sheet being filed, in lieu of
the statements of comprehensive income and cash flows for the interim
periods specified.
* * * * *
(d) Any unaudited interim financial statements furnished shall
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods
presented. A statement to that effect shall be included. If all such
adjustments are of a normal recurring nature, a statement to that
effect shall be made; otherwise, there shall be furnished information
describing in appropriate detail the nature and amount of any
adjustments other than normal recurring adjustments entering into the
determination of the results shown.

0
8. Revise Sec. 210.3-04 to read as follows:

Sec. 210.3-04 Changes in stockholders' equity and noncontrolling
interests.

An analysis of the changes in each caption of stockholders' equity
and noncontrolling interests presented in the balance sheets shall be
given in a note or separate statement. This analysis shall be presented
in the form of a reconciliation of the beginning balance to the ending
balance for each period for which a statement of comprehensive income
is required to be filed with all significant reconciling items
described by appropriate captions with contributions from and
distributions to owners shown separately. Also, state separately the
adjustments to the balance at the beginning of the earliest period
presented for items which were retroactively applied to periods prior
to that period. With respect to any dividends, state the amount per
share and in the aggregate for each class of shares. Provide a separate
schedule in the notes to the financial statements that shows the
effects of any changes in the registrant's ownership interest in a
subsidiary on the equity attributable to the registrant.

0
9. Amend Sec. 210.3-05 by revising paragraph (b)(4)(iii) to read as
follows:

Sec. 210.3-05 Financial statements of businesses acquired or to be
acquired.

* * * * *
(b) * * *
(4) * * *
(iii) Separate financial statements of the acquired business need
not be presented once the operating results of the acquired business
have been reflected in the audited consolidated financial statements of
the registrant for a complete fiscal year unless such financial
statements have not been previously filed or unless the acquired
business is of such significance to the registrant that omission of
such financial statements would materially impair an investor's ability
to understand the historical financial results of the registrant. For
example, if, at the date of acquisition, the acquired business met at
least one of the conditions in the definition of significant subsidiary
in Sec. 210.1-02 at the 80 percent level, the statements of
comprehensive income of the acquired business should normally continue
to be furnished for such periods prior to the purchase as may be
necessary when added to the time for which audited statements of
comprehensive income after the purchase are filed to cover the
equivalent of the period specified in Sec. 210.3-02.
* * * * *

0
10. Amend Sec. 210.3-12 by revising paragraph (a) to read as follows:

Sec. 210.3-12 Age of financial statements at effective date of
registration statement or at mailing date of proxy statement.

(a) If the financial statements in a filing are as of a date the
number of days specified in paragraph (g) of this section or more
before the date the filing is expected to become effective, or proposed
mailing date in the case of a proxy statement, the financial statements
shall be updated, except as specified in the following paragraphs, with
a balance sheet as of an interim date within the number of days
specified in paragraph (g) of this section and with statements of
comprehensive income and cash flows for the interim period between the
end of the most recent fiscal year and the date of the interim balance
sheet provided and for the corresponding period of the preceding fiscal
year. Such interim financial statements may be unaudited and need not
be presented in greater detail than is required by Sec. 210.10-01.
Notwithstanding the above requirements, the most recent interim
financial statements shall be at least as current as the most recent
financial statements filed with the Commission on Form 10-Q.
* * * * *

0
11. Amend Sec. 210.3-14 by:
0
a. Revising paragraph (a) introductory text; and
0
b. Redesignating the Note following paragraph (a)(1)(iii) as Note 1 to
paragraph (a)(1).
The revision reads as follows:

Sec. 210.3-14 Special instructions for real estate operations to be
acquired.

(a) If, during the period for which statements of comprehensive
income are required, the registrant has acquired one or more properties
which in the aggregate are significant, or since the date of the latest
balance sheet required has acquired or proposes to acquire one or more
properties which in the aggregate are significant, the following shall
be furnished with respect to such properties:
* * * * *

Sec. 210.3-15 [Amended]

0
12. Amend Sec. 210.3-15 by removing and reserving paragraphs (a) and
(b).

0
13. Amend Sec. 210.3-17 by revising paragraph (a) to read as follows:

Sec. 210.3-17 Financial statements of natural persons.

(a) In lieu of the financial statements otherwise required, a
natural person may file an unaudited balance sheet as of a date within
90 days of date of filing and unaudited statements of comprehensive
income for each of the three most recent fiscal years.
* * * * *

0
14. Amend Sec. 210.3-20 by:
0
a. Revising the section heading;
0
b. Redesignating paragraph (a) as paragraph (a)(1);
0
c. Adding paragraph (a)(2);
0
d. Redesignating paragraph (b) as paragraph (b)(1) and adding paragraph
(b)(2); and
0
e. Revising paragraph (d).
The additions and revisions read as follows:

Sec. 210.3-20 Currency for financial statements.

(a)(1) * * *
(2) An issuer that is not a foreign private issuer shall present
its financial statements in U.S. dollars.
(b)(1) * * *
(2) If there are material exchange restrictions or controls
relating to the

[[Page 50200]]

currency of a subsidiary's domicile, the currency held by a subsidiary,
or the currency in which a subsidiary will pay dividends or transfer
funds to the issuer or other subsidiaries, prominent disclosure of this
fact shall be made in the financial statements.
* * * * *
(d) Notwithstanding the currency used for reporting purposes, the
issuer shall measure separately its own transactions, and those of each
of its material operations (e.g., branches, divisions, subsidiaries,
joint ventures, and similar entities) that is included in the issuer's
consolidated financial statements and not located in a
hyperinflationary environment, using the particular currency of the
primary economic environment in which the issuer or the operation
conducts its business. Assets and liabilities so determined shall be
translated into the reporting currency at the exchange rate at the
balance sheet date; all revenues, expenses, gains, and losses shall be
translated at the exchange rate existing at the time of the transaction
or, if appropriate, a weighted average of the exchange rates during the
period; and all translation effects of exchange rate changes shall be
included as a separate component (``cumulative translation
adjustment'') of shareholder's equity. For purposes of this paragraph,
the currency of an operation's primary economic environment is normally
the currency in which cash is primarily generated and expended; a
hyperinflationary environment is one that has cumulative inflation of
approximately 100% or more over the most recent three year period.
Departures from the methodology presented in this paragraph shall be
quantified pursuant to Item 17(c)(2) of Form 20-F (Sec. 249.220f of
this chapter).

Sec. 210.3A-01 [Removed and Reserved]

0
15. Remove and reserve Sec. 210.3A-01.

0
16. Revise Sec. 210.3A-02 to read as follows:

Sec. 210.3A-02 Consolidated financial statements of the registrant
and its subsidiaries.

In deciding upon consolidation policy, the registrant must consider
what financial presentation is most meaningful in the circumstances and
should follow in the consolidated financial statements principles of
inclusion or exclusion which will clearly exhibit the financial
position and results of operations of the registrant. There is a
presumption that consolidated financial statements are more meaningful
than separate financial statements and that they are usually necessary
for a fair presentation when one entity directly or indirectly has a
controlling financial interest in another entity. Other particular
facts and circumstances may require combined financial statements, an
equity method of accounting, or valuation allowances in order to
achieve a fair presentation.
(a) Majority ownership: Among the factors that the registrant
should consider in determining the most meaningful presentation is
majority ownership. Generally, registrants shall consolidate entities
that are majority owned and shall not consolidate entities that are not
majority owned. The determination of majority ownership requires a
careful analysis of the facts and circumstances of a particular
relationship among entities. In rare situations, consolidation of a
majority owned subsidiary may not result in a fair presentation,
because the registrant, in substance, does not have a controlling
financial interest (for example, when the subsidiary is in legal
reorganization or in bankruptcy). In other situations, consolidation of
an entity, notwithstanding the lack of technical majority ownership, is
necessary to present fairly the financial position and results of
operations of the registrant, because of the existence of a parent-
subsidiary relationship by means other than record ownership of voting
stock.
(b) [Reserved].

0
17. Amend Sec. 210.3A-03 by removing and reserving paragraph (a) and
revising paragraph (b).
The revision reads as follows:

Sec. 210.3A-03 Statement as to principles of consolidation or
combination followed.

* * * * *
(b) As to each consolidated financial statement and as to each
combined financial statement, if there has been a change in the persons
included or excluded in the corresponding statement for the preceding
fiscal period filed with the Commission that has a material effect on
the financial statements, the persons included and the persons excluded
shall be disclosed.

Sec. 210.3A-04 [Removed and Reserved]

0
18. Remove and reserve Sec. 210.3A-04.

Sec. 210.4-01 [Amended]

0
19. Amend Sec. 210.4-01 by removing paragraph (a)(3).

0
20. Amend Sec. 210.4-08 by:
0
a. Revising the introductory text;
0
b. Removing and reserving paragraph (a);
0
c. Redesignating paragraph (d)(1) as paragraph (d) and removing
paragraph (d)(2);
0
d. Revising paragraphs (e)(1) and (e)(3) introductory text;
0
e. Revising paragraphs (f) and (h)(1) introductory text;
0
f. Redesignating the Note following paragraph (h)(1) as Note 1 to
paragraph (h)(1);
0
g. Revising paragraph (h)(2);
0
h. Removing paragraph (h)(3);
0
i. Removing and reserving paragraph (i);
0
j. Revising paragraph (k); and
0
k. Revising paragraphs (m)(2)(ii) and (n).
The revisions read as follows:

Sec. 210.4-08 General notes to financial statements.

If applicable to the person for which the financial statements are
filed, the following shall be set forth on the face of the appropriate
statement or in appropriately captioned notes. The information shall be
provided for each statement required to be filed, except that the
information required by paragraphs (b), (c), (d), (e), and (f) of this
section shall be provided as of the most recent audited balance sheet
being filed and for paragraph (j) of this section as specified therein.
When specific statements are presented separately, the pertinent notes
shall accompany such statements unless cross-referencing is
appropriate.
* * * * *
(e) * * *
(1) Describe the most significant restrictions on the payment of
dividends by the registrant, indicating their sources, their pertinent
provisions, and the amount of retained earnings or net income
restricted or free of restrictions.
* * * * *
(3) The disclosures in paragraphs (e)(3)(i) and (ii) of this
section shall be provided when material.
* * * * *
(f) Significant changes in bonds, mortgages and similar debt. Any
significant changes in the authorized amounts of bonds, mortgages and
similar debt since the date of the latest balance sheet being filed for
a particular person or group shall be stated.
* * * * *
(h) Income tax expense. (1) Disclosure shall be made in the
statement of comprehensive income or a note thereto, of the components
of income (loss) before income tax expense (benefit) as either domestic
or foreign.
* * * * *
(2) In the reconciliation between the amount of reported total
income tax expense (benefit) and the amount computed by multiplying the
income (loss) before tax by the applicable

[[Page 50201]]

statutory Federal income tax rate, if no individual reconciling item
amounts to more than five percent of the amount computed by multiplying
the income before tax by the applicable statutory Federal income tax
rate, and the total difference to be reconciled is less than five
percent of such computed amount, no reconciliation need be provided
unless it would be significant in appraising the trend of earnings.
Reconciling items that are individually less than five percent of the
computed amount may be aggregated in the reconciliation. Where the
reporting person is a foreign entity, the income tax rate in that
person's country of domicile should normally be used in making the
above computation, but different rates should not be used for
subsidiaries or other segments of a reporting entity. When the rate
used by a reporting person is other than the United States Federal
corporate income tax rate, the rate used and the basis for using such
rate shall be disclosed.
* * * * *
(k) Related party transactions that affect the financial
statements. (1) Amounts of related party transactions should be stated
on the face of the balance sheet, statement of comprehensive income, or
statement of cash flows.
(2) In cases where separate financial statements are presented for
the registrant, certain investees, or subsidiaries, any intercompany
profits or losses resulting from transactions with related parties and
the effects thereof shall be disclosed.
* * * * *
(m) * * *
(2) Reverse repurchase agreements (assets purchased under
agreements to resell). (i) If, as of the most recent balance sheet
date, the aggregate carrying amount of ``reverse repurchase
agreements'' (securities or other assets purchased under agreements to
resell) exceeds 10% of total assets:
(A) Disclose separately such amount in the balance sheet; and
(B) Disclose in an appropriately captioned footnote:
(1) The registrant's policy with regard to taking possession of
securities or other assets purchased under agreements to resell; and
(2) Whether or not there are any provisions to ensure that the
market value of the underlying assets remains sufficient to protect the
registrant in the event of default by the counterparty and if so, the
nature of those provisions.
(ii) If, as of the most recent balance sheet date, the amount at
risk under reverse repurchase agreements with any individual
counterparty or group of related counterparties exceeds 10% of
stockholders' equity (or in the case of investment companies, net asset
value), disclose the name of each such counterparty or group of related
counterparties, the amount at risk with each, and the weighted average
maturity of the reverse repurchase agreements with each. The amount at
risk under reverse repurchase agreements is defined as the excess of
the carrying amount of the reverse repurchase agreements over the
market value of assets delivered pursuant to the agreements by the
counterparty to the registrant (or to a third party agent that has
affirmatively agreed to act on behalf of the registrant) and not
returned to the counterparty, except in exchange for their approximate
market value in a separate transaction.
(n) Accounting policies for certain derivative instruments.
Disclosures regarding accounting policies shall include, to the extent
material, where in the statement of cash flows derivative financial
instruments, and their related gains and losses, as defined by U.S.
generally accepted accounting principles, are reported.

0
21. Amend Sec. 210.4-10 by revising paragraph (c)(7)(i) to read as
follows:

Sec. 210.4-10 Financial accounting and reporting for oil and gas
producing activities pursuant to the Federal securities laws and the
Energy Policy and Conservation Act of 1975.

* * * * *
(c) * * *
(7) * * *
(i) For each cost center for each year that a statement of
comprehensive income is required, disclose the total amount of
amortization expense (per equivalent physical unit of production if
amortization is computed on the basis of physical units or per dollar
of gross revenue from production if amortization is computed on the
basis of gross revenue).
* * * * *

0
22. Amend Sec. 210.5-02 by:
0
a. Removing ``[See Sec. 210.4-05]'' immediately below the undesignated
heading ``Current Assets, when appropriate'' and immediately above
paragraph 1;
0
b. Revising paragraphs 6.(a)(2) and (3);
0
c. Revising the undesignated heading immediately above paragraph 19;
0
d. Revising paragraphs 22.(a) introductory text, 27.(c)(3), 28, and 29;
and
0
e. Revising paragraph 30.(a).
The revisions read as follows:

Sec. 210.5-02 Balance sheets.

* * * * *
6. * * *
(a) * * *
(2) inventoried costs relating to long-term contracts or programs
(see paragraph (d) of this section);
(3) work in process;
* * * * *

Current Liabilities, When Appropriate

19. * * *
* * * * *
22. * * *
(a) State separately, in the balance sheet or in a note thereto,
each issue or type of obligation and such information as will indicate:
* * * * *
27. * * *
(c) * * *
(3) the changes in each issue for each period for which a statement
of comprehensive income is required to be filed. (See also Sec. 210.4-
08(d).)
* * * * *
28. Preferred stocks which are not redeemable or are redeemable
solely at the option of the issuer. State on the face of the balance
sheet, or if more than one issue is outstanding state in a note, the
title of each issue and the dollar amount thereof. Show also the dollar
amount of any shares subscribed but unissued, and show the deduction of
subscriptions receivable therefrom. State on the face of the balance
sheet or in a note, for each issue, the number of shares authorized and
the number of shares issued or outstanding, as appropriate (see Sec.
210.4-07). Show in a note or separate statement the changes in each
class of preferred shares reported under this caption for each period
for which a statement of comprehensive income is required to be filed.
(See also Sec. 210.4-08(d).)
* * * * *
29. Common stocks. For each class of common shares state, on the
face of the balance sheet, the number of shares issued or outstanding,
as appropriate (see Sec. 210.4-07), and the dollar amount thereof. If
convertible, this fact should be indicated on the face of the balance
sheet. For each class of common shares state, on the face of the
balance sheet or in a note, the title of the issue, the number of
shares authorized, and, if convertible, the basis of conversion (see
also Sec. 210.4-08(d)). Show also the dollar amount of any common
shares subscribed but unissued, and show the deduction of subscriptions
receivable therefrom. Show in a note or statement the changes in each
class of common shares for each period for which a

[[Page 50202]]

statement of comprehensive income is required to be filed.
* * * * *
30. Other stockholders' equity.
(a) Separate captions shall be shown for (1) additional paid-in
capital, (2) other additional capital, (3) retained earnings, (i)
appropriated and (ii) unappropriated (See Sec. 210.4-08(e)), and (4)
accumulated other comprehensive income.

Note 1 to paragraph 30.(a). Additional paid-in capital and other
additional capital may be combined with the stock caption to which
it applies, if appropriate.

* * * * *

0
23. Amend Sec. 210.5-03 by:
0
a. Revising the section heading and paragraphs (a), (b)1, 7, and 9;
0
b. Removing and reserving paragraphs (b)15, 16, and 17;
0
c. Redesignating paragraph (b)21 as (b)25; and
0
d. Adding new paragraph (b)21 and paragraphs (b)22, 23, and 24.
The revisions and additions read as follows:

Sec. 210.5-03 Statements of comprehensive income.

(a) The purpose of this rule is to indicate the various line items
which, if applicable, and except as otherwise permitted by the
Commission, should appear on the face of the statements of
comprehensive income filed for the persons to whom this article
pertains (see Sec. 210.4-01(a)).
(b) * * *
1. Net sales and gross revenues. State separately:
(a) Net sales of tangible products (gross sales less discounts,
returns and allowances), (b) operating revenues of public utilities or
others; (c) income from rentals; (d) revenues from services; and (e)
other revenues. Amounts earned from transactions with related parties
shall be disclosed as required under Sec. 210.4-08(k). A public
utility company using a uniform system of accounts or a form for annual
report prescribed by federal or state authorities, or a similar system
or report, shall follow the general segregation of operating revenues
and operating expenses reported under Sec. 210.5-03.2 prescribed by
such system or report. If the total of sales and revenues reported
under this caption includes excise taxes in an amount equal to 1
percent or more of such total, the amount of such excise taxes shall be
shown on the face of the statement parenthetically or otherwise.
* * * * *
7. Non-operating income. State separately in the statement of
comprehensive income or in a note thereto amounts earned from (a)
dividends, (b) interest on securities, (c) profits on securities (net
of losses), and (d) miscellaneous other income. Amounts earned from
transactions in securities of related parties shall be disclosed as
required under Sec. 210.4-08(k). Material amounts included under
miscellaneous other income shall be separately stated in the statement
of comprehensive income or in a note thereto, indicating clearly the
nature of the transactions out of which the items arose.
* * * * *
9. Non-operating expenses. State separately in the statement of
comprehensive income or in a note thereto amounts of (a) losses on
securities (net of profits) and (b) miscellaneous income deductions.
Material amounts included under miscellaneous income deductions shall
be separately stated in the statement of comprehensive income or in a
note thereto, indicating clearly the nature of the transactions out of
which the items arose.
* * * * *
21. Other comprehensive income. State separately the components of
and the total for other comprehensive income. Present the components
either net of related tax effects or before related tax effects with
one amount shown for the aggregate income tax expense or benefit. State
the amount of income tax expense or benefit allocated to each
component, including reclassification adjustments, in the statement of
comprehensive income or in a note.
22. Comprehensive income.
23. Comprehensive income attributable to the noncontrolling
interest.
24. Comprehensive income attributable to the controlling interest.
25. Earnings per share data.

0
24. Amend Sec. 210.5-04 by revising paragraph (a)(2); and Schedule I
to read as follows:

Sec. 210.5-04 What schedules are to be filed.

(a) * * *
(2) Schedule II of this section shall be filed for each period for
which an audited statement of comprehensive income is required to be
filed for each person or group.
* * * * *
Schedule I--Condensed financial information of registrant. The
schedule prescribed by Sec. 210.12-04 shall be filed when the
restricted net assets (Sec. 210.1.02(dd)) of consolidated subsidiaries
exceed 25 percent of consolidated net assets as of the end of the most
recently completed fiscal year.
* * * * *

0
25. Amend Sec. 210.6-03 by revising paragraph (c)(1) introductory text
and removing and reserving paragraph (c)(1)(i).
The revision reads as follows:

Sec. 210.6-03 Special rules of general application to registered
investment companies and business development companies.

* * * * *
(c) * * *
(1) Consolidated and combined statements filed for registered
investment companies and business development companies shall be
prepared in accordance with Sec. Sec. 210.3A-02 and 210.3A-03 (Article
3A), except that:
* * * * *

0
26. Amend Sec. 210.6-04 by revising the paragraph 17 heading, its
introductory text, and paragraph 17.(a) to read as follows:

Sec. 210.6-04 Balance sheets.

* * * * *
17. Total distributable earnings (loss). Disclose total
distributable earnings (loss), which generally comprise:
(a) Accumulated undistributed investment income-net,
* * * * *

0
27. Amend Sec. 210.6-07 by revising the introductory text to read as
follows:

Sec. 210.6-07 Statements of operations.

Statements of operations, or statements of comprehensive income,
where applicable, filed by registered investment companies, other than
issuers of face-amount certificates, subject to the special provisions
of Sec. 210.6-08, and business development companies, shall comply
with the following provisions:
* * * * *

0
28. Amend Sec. 210.6-09 by revising paragraphs 3, 4.(b), and 7 to read
as follows:

Sec. 210.6-09 Statements of changes in net assets.

* * * * *
3. Distributions to shareholders. State total distributions to
shareholders which generally come from: (a) Investment income-net; (b)
realized gain from investment transactions-net; and (c) other sources,
except tax return of capital distributions, which shall be disclosed
separately.
4. * * *
(b) Disclose in the body of the statements or in the notes, for
each class

[[Page 50203]]

of the person's shares, the number and value of shares issued in
reinvestment of dividends as well as the number and dollar amounts
received for shares sold and paid for shares redeemed.
* * * * *
7. Net assets at the end of the period.

0
29. Amend Sec. 210.6A-04 by revising the section heading and
introductory text to read as follows:

Sec. 210.6A-04 Statements of comprehensive income and changes in plan
equity.

Statements of comprehensive income and changes in plan equity filed
under this rule shall comply with the following provisions:
* * * * *

0
30. Amend Sec. 210.6A-05 by revising paragraph (a) introductory text
and Schedule III to read as follows:

Sec. 210.6A-05 What schedules are to be filed.

(a) Schedule I of this section shall be filed as of the most recent
audited statement of financial condition and any subsequent unaudited
statement of financial condition being filed. Schedule II of this
section shall be filed as of the date of each statement of financial
condition being filed. Schedule III of this section shall be filed for
each period for which a statement of comprehensive income and changes
in plan equity is filed. All schedules shall be audited if the related
statements are audited.
* * * * *
Schedule III--Allocation of plan income and changes in plan equity
to investment programs. If the plan provides for separate investment
programs with separate funds, and if the allocation of income and
changes in plan equity to the several funds is not shown in the
statement of comprehensive income and changes in plan equity in
columnar form or by the submission of separate statements for each
fund, a schedule shall be submitted showing the allocation of each
caption of each statement of comprehensive income and changes in plan
equity filed to the applicable fund.
* * * * *

0
31. Amend Sec. 210.7-03 by:
0
a. Revising paragraphs (a)6, (a)11, and (a)13.(a)(2); and
0
b. Removing and reserving paragraph (a)13.(b);
0
c. Removing paragraph (a)13.(c); and
0
d. Revising paragraphs (a)23.(a)(3) and (a)23.(c)(2).
The revisions read as follows:

Sec. 210.7-03 Balance sheets.

(a) * * *
6. Reinsurance recoverable.
* * * * *
11. Separate account assets. Include under this caption the portion
of separate account-assets representing contract holder funds required
to be reported in an insurance entity's financial statements as a
summary total. An equivalent summary total for the related liability
shall be included under caption 18.
* * * * *
13. * * *
(a) * * *
(2) unearned premiums and
(3) * * *
* * * * *
23. * * *
(a) * * *
(3) accumulated other comprehensive income,
* * * * *
(c) * * *
(2) property and liability insurance legal entities: The amount of
statutory stockholders' equity as of the date of each balance sheet
presented and the amount of statutory net income or loss for each
period for which a statement of comprehensive income is presented.
* * * * *

0
32. Amend Sec. 210.7-04 by:
0
a. Revising the section heading;
0
b. Revising the introductory text;
0
c. Revising paragraph 3.(b);
0
d. Removing and reserving paragraph 3.(c);
0
e. Revising paragraphs 3.(d), 7, and 9;
0
f. Removing and reserving paragraphs 13, 14, and 15;
0
g. Redesignating paragraph 19 as paragraph 23; and
0
h. Adding new paragraph 19 and paragraphs 20, 21, and 22.
The revisions and additions read as follows:

Sec. 210.7-04 Statements of comprehensive income.

The purpose of this section is to indicate the various items which,
if applicable, should appear on the face of the statements of
comprehensive income and in the notes thereto filed for persons to whom
this article pertains. (See Sec. 210.4-01(a).)
* * * * *
3. * * *
(b) Indicate in a footnote the registrant's policy with respect to
whether investment income and realized gains and losses allocable to
policyholders and separate accounts are included in the investment
income and realized gain and loss amounts reported in the statement of
comprehensive income. If the statement of comprehensive income includes
investment income and realized gains and losses allocable to
policyholders and separate accounts, indicate the amounts of such
allocable investment income and realized gains and losses and the
manner in which the insurance enterprise's obligation with respect to
allocation of such investment income and realized gains and losses is
otherwise accounted for in the financial statements.
* * * * *
(d) For each period for which a statement of comprehensive income
is filed, include in a note an analysis of realized and unrealized
investment gains and losses on fixed maturities and equity securities.
For each period, state separately for fixed maturities [see Sec.
210.7-03.1(a)] and for equity securities [see Sec. 210.7-03.1(b)] the
following amounts:
* * * * *
7. Underwriting, acquisition and insurance expenses. State
separately in the statement of comprehensive income or in a note
thereto (a) the amount included in this caption representing deferred
policy acquisition costs amortized to income during the period, and (b)
the amount of other operating expenses. State separately in the
statement of comprehensive income any material amount included in all
other operating expenses.
* * * * *
9. Income tax expense. Include under this caption only taxes based
on income (See Sec. 210.4-08(h).)
* * * * *
19. Other comprehensive income. State separately the components of
and the total for other comprehensive income. Present the components
either net of related tax effects or before related tax effects with
one amount shown for the aggregate income tax expense or benefit. State
the amount of income tax expense or benefit allocated to each
component, including reclassification adjustments, in the statement of
comprehensive income or in a note.
20. Comprehensive income.
21. Comprehensive income attributable to the noncontrolling
interest.
22. Comprehensive income attributable to the controlling interest.
23. Earnings per share data.

0
33. Amend Sec. 210.7-05 by revising paragraph (a)(2) and Schedules II
and III to read as follows:

Sec. 210.7-05 What schedules are to be filed.

(a) * * *
(2) The schedules specified in this section as Schedule IV and V
shall be

[[Page 50204]]

filed for each period for which an audited statement of comprehensive
income is required to be filed for each person or group.
* * * * *
Schedule II--Condensed financial information of registrant. The
schedule prescribed by Sec. 210.12-04 shall be filed when the
restricted net assets (Sec. 210.1.02(dd)) of consolidated subsidiaries
exceed 25 percent of consolidated net assets as of the end of the most
recently completed fiscal year.
Schedule III--Supplementary insurance information. The schedule
prescribed by Sec. 210.12-16 shall be filed giving segment detail in
support of various balance sheet and statement of comprehensive income
captions. The required balance sheet information shall be presented as
of the date of each audited balance sheet filed, and the statement of
comprehensive income information shall be presented for each period for
which an audited statement of comprehensive income is required to be
filed, for each person or group.
* * * * *

0
34. Amend Sec. 210.8-01 by revising paragraph a. of Note 2 to Sec.
210.8 and removing Note 6 to Sec. 210.8.
The revision reads as follows:

Sec. 210.8-01 Preliminary Notes to Article 8.

* * * * *

Note 2 to Sec. 210.8. * * *
a. The report and qualifications of the independent accountant
shall comply with the requirements of Sec. Sec. 210.2-01 through
210.2-07 (Article 2 of this part); and

* * * * *

0
35. Revise Sec. 210.8-02 to read as follows:

Sec. 210.8-02 Annual financial statements.

Smaller reporting companies shall file an audited balance sheet as
of the end of each of the most recent two fiscal years, or as of a date
within 135 days if the issuer has existed for a period of less than one
fiscal year, and audited statements of comprehensive income, cash flows
and changes in stockholders' equity for each of the two fiscal years
preceding the date of the most recent audited balance sheet (or such
shorter period as the registrant has been in business).

0
36. Amend Sec. 210.8-03 by:
0
a. Revising the introductory text;
0
b. Revising paragraph (a)(2);
0
c. Adding paragraph (a)(5);
0
d. Removing and reserving paragraph (b)(2);
0
e. Revising paragraphs (b)(4) and (5);
0
f. Removing paragraph (b)(6); and
0
g. Revising Instruction 1 to Sec. 210.8-03.
The revisions and addition read as follows:

Sec. 210.8-03 Interim financial statements.

Interim financial statements may be unaudited; however, before
filing, interim financial statements included in quarterly reports on
Form 10-Q (Sec. 249.308(a) of this chapter) must be reviewed by an
independent public accountant using applicable professional standards
and procedures for conducting such reviews, as may be modified or
supplemented by the Commission. If, in any filing, the issuer states
that interim financial statements have been reviewed by an independent
public accountant, a report of the accountant on the review must be
filed with the interim financial statements. Interim financial
statements shall include a balance sheet as of the end of the issuer's
most recent fiscal quarter, a balance sheet as of the end of the
preceding fiscal year, and statements of comprehensive income and
statements of cash flows for the interim period up to the date of such
balance sheet and the comparable period of the preceding fiscal year.
(a) * * *
(2) Statements of comprehensive income (or the statement of net
income if comprehensive income is presented in two separate but
consecutive financial statements) should include net sales or gross
revenue, each cost and expense category presented in the annual
financial statements that exceeds 20% of sales or gross revenues,
provision for income taxes, and discontinued operations. (Financial
institutions should substitute net interest income for sales for
purposes of determining items to be disclosed.)
* * * * *
(5) Provide the information required by Sec. 210.3-04 for the
current and comparative year-to-date periods, with subtotals for each
interim period.
(b) * * *
(4) Significant dispositions. If a significant disposition has
occurred during the most recent interim period and the transaction
required the filing of a Form 8-K (Sec. 249.308 of this chapter), pro
forma data must be presented that reflects revenue, income from
continuing operations, net income, net income attributable to the
registrant and income per share for the current interim period and the
corresponding interim period of the preceding fiscal year.
(5) Material accounting changes. The registrant's independent
accountant must provide a letter in the first Form 10-Q (Sec. 249.308a
of this chapter) filed after the change indicating whether or not the
change is to a preferable method. Disclosure must be provided of any
retroactive change to prior period financial statements, including the
effect of any such change on income and income per share.
Instruction 1 to Sec. 210.8-03. Where Sec. Sec. 210.8-01 through
210.8-08 (Article 8 of this part) are applicable to a Form 10-Q (Sec.
249.308a of this chapter) and the interim period is more than one
quarter, statements of comprehensive income must also be provided for
the most recent interim quarter and the comparable quarter of the
preceding fiscal year.
* * * * *

0
37. Amend Sec. 210.8-04 by revising paragraph (b)(3) to read as
follows:

Sec. 210.8-04 Financial statements of businesses acquired or to be
acquired.

* * * * *
(b) * * *
(3) Compare the smaller reporting company's equity in the income
from continuing operations before income taxes of the acquiree
exclusive of amounts attributable to any noncontrolling interests to
such consolidated income of the smaller reporting company for the most
recently completed fiscal year.
* * * * *

0
38. Amend Sec. 210.8-05 by revising paragraphs (b)(1) and (2) to read
as follows:

Sec. 210.8-05 Pro forma financial information.

* * * * *
(b) * * *
(1) If the transaction was consummated during the most recent
fiscal year or subsequent interim period, pro forma statements of
comprehensive income reflecting the combined operations of the entities
for the latest fiscal year and interim period, if any; or
(2) If consummation of the transaction has occurred or is probable
after the date of the most recent balance sheet required by Sec.
210.8-02 or Sec. 210.8-03, a pro forma balance sheet giving effect to
the combination as of the date of the most recent balance sheet. For a
purchase, pro forma statements of comprehensive income reflecting the
combined operations of the entities for the latest fiscal year and
interim period, if any, are required.

0
39. Amend Sec. 210.8-06 by revising the introductory text to read as
follows:

Sec. 210.8-06 Real estate operations acquired or to be acquired.

If, during the period for which statements of comprehensive income
are required, the smaller reporting company has acquired one or more
properties that

[[Page 50205]]

in the aggregate are significant, or since the date of the latest
balance sheet required by Sec. 210.8-02 or Sec. 210.8-03, has
acquired or proposes to acquire one or more properties that in the
aggregate are significant, the following shall be furnished with
respect to such properties:
* * * * *

0
40. Amend Sec. 210.9-03 by:
0
a. Revising paragraph 3;
0
b. Removing paragraph 6.(a) and removing and reserving paragraph 7.(d);
and
0
c. Revising paragraphs 7.(e)(3), 10, and 12.(a).
The revisions read as follows:

Sec. 210.9-03 Balance sheets.

* * * * *
3. Federal funds sold and securities purchased under resale
agreements or similar arrangements.
* * * * *
7. * * *
(e) * * *
(3) Notwithstanding the aggregate disclosure called for by
paragraph (e)(1) of this section, if any loans were not made in the
ordinary course of business during any period for which a statement of
comprehensive income is required to be filed, provide an appropriate
description of each such loan.
* * * * *
10. Other assets. Disclose separately on the balance sheet or in a
note thereto any of the following assets or any other asset the amount
of which exceeds thirty percent of stockholders equity. The remaining
assets may be shown as one amount.
(1) Goodwill.
(2) Other intangible assets (net of amortization).
(3) Investments in and indebtedness of affiliates and other
persons.
(4) Other real estate.
(a) Disclose in a note the basis at which other real estate is
carried. A reduction to fair market value from the carrying value of
the related loan at the time of acquisition shall be accounted for as a
loan loss. Any allowance for losses on other real estate which has been
established subsequent to acquisition should be deducted from other
real estate. For each period for which a statement of comprehensive
income is required, disclosures should be made in a note as to the
changes in the allowances, including balance at beginning and end of
period, provision charged to income, and losses charged to the
allowance.
* * * * *
12. * * *
(a) The amount of noninterest bearing deposits and interest bearing
deposits in foreign banking offices must be presented if the disclosure
provided by Sec. 210.9-05 is required.
* * * * *

0
41. Amend Sec. 210.9-04 by:
0
a. Revising the section heading and introductory text;
0
b. Revising paragraph 13.(h);
0
c. Removing and reserving paragraphs 14.(c), 17, 18, and 19;
0
d. Redesignating paragraph 23 as paragraph 27; and
0
e. Adding new paragraph 23 and paragraphs 24, 25, and 26.
The revisions and additions read as follows:

Sec. 210.9-04 Statements of comprehensive income.

The purpose of this section is to indicate the various items which,
if applicable, should appear on the face of the statement of
comprehensive income or in the notes thereto.
* * * * *
13. * * *
(h) Investment securities gains or losses. Related income taxes
shall be disclosed.
* * * * *
23. Other comprehensive income. State separately the components of
and the total for other comprehensive income. Present the components
either net of related tax effects or before related tax effects with
one amount shown for the aggregate income tax expense or benefit. State
the amount of income tax expense or benefit allocated to each
component, including reclassification adjustments, in the statement of
comprehensive income or in a note.
24. Comprehensive income.
25. Comprehensive income attributable to the noncontrolling
interest.
26. Comprehensive income attributable to the controlling interest.
* * * * *

0
42. Amend Sec. 210.9-05 by revising paragraph (b)(2) to read as
follows:

Sec. 210.9-05 Foreign activities.

* * * * *
(b) * * *
(2) For each period for which a statement of comprehensive income
is filed, state the amount of revenue, income (loss) before taxes, and
net income (loss) associated with foreign activities. Disclose
significant estimates and assumptions (including those related to the
cost of capital) used in allocating revenue and expenses to foreign
activities; describe the nature and effects of any changes in such
estimates and assumptions which have a significant impact on
interperiod comparability.
* * * * *

0
43. Revise Sec. 210.9-06 to read as follows:

Sec. 210.9-06 Condensed financial information of registrant.

The information prescribed by Sec. 210.12-04 shall be presented in
a note to the financial statements when the restricted net assets
(Sec. 210.1-02(dd)) of consolidated subsidiaries exceed 25 percent of
consolidated net assets as of the end of the most recently completed
fiscal year. The investment in and indebtedness of and to bank
subsidiaries shall be stated separately in the condensed balance sheet
from amounts for other subsidiaries; the amount of cash dividends paid
to the registrant for each of the last three years by bank subsidiaries
shall be stated separately in the condensed statement of comprehensive
income from amounts for other subsidiaries.

0
44. Amend Sec. 210.10-01 by:
0
a. Revising paragraphs (a)(3), (5), and (7);
0
b. Revising paragraphs (b)(1) through (3);
0
c. Removing and reserving paragraphs (b)(4) and (5); and
0
d. Revising paragraphs (b)(6) through (8), (c)(2) and (4), and (d).
The revisions read as follows:

Sec. 210.10-01 Interim financial statements.

(a) * * *
(3) Interim statements of comprehensive income shall also include
major captions prescribed by the applicable sections of part 210 of
this chapter (Regulation S-X). When any major statement of
comprehensive income (or statement of net income if comprehensive
income is presented in two separate but consecutive financial
statements) caption is less than 15% of average net income for the most
recent three fiscal years and the amount in the caption has not
increased or decreased by more than 20% as compared to the
corresponding interim period of the preceding fiscal year, the caption
may be combined with others. In calculating average net income, loss
years should be excluded. If losses were incurred in each of the most
recent three years, the average loss shall be used for purposes of this
test. Notwithstanding these tests, Sec. 210.4-02 applies and de
minimis amounts therefore need not be shown separately, except that
registrants reporting under Sec. 210.9 shall show investment
securities gains or losses separately regardless of size.
* * * * *

[[Page 50206]]

(5) The interim financial information shall include disclosures
either on the face of the financial statements or in accompanying
footnotes sufficient so as to make the interim information presented
not misleading. Registrants may presume that users of the interim
financial information have read or have access to the audited financial
statements for the preceding fiscal year and that the adequacy of
additional disclosure needed for a fair presentation may be determined
in that context. Accordingly, footnote disclosure which would
substantially duplicate the disclosure contained in the most recent
annual report to security holders or latest audited financial
statements, such as a statement of significant accounting policies and
practices, details of accounts which have not changed significantly in
amount or composition since the end of the most recently completed
fiscal year, and detailed disclosures prescribed by Sec. 210.4-08 may
be omitted.
* * * * *
(7) Provide the information required by Sec. 210.3-04 for the
current and comparative year-to-date periods, with subtotals for each
interim period.
(b) * * *
(1) Summarized statement of comprehensive income information shall
be given separately as to each subsidiary not consolidated or 50
percent or less owned persons or as to each group of such subsidiaries
or fifty percent or less owned persons for which separate individual or
group statements would otherwise be required for annual periods. Such
summarized information, however, need not be furnished for any such
unconsolidated subsidiary or person which would not be required
pursuant to Sec. 240.13a-13 or Sec. 240.15d-13 of this chapter to
file quarterly financial information with the Commission if it were a
registrant.
(2) The basis of the earnings per share computation shall be stated
together with the number of shares used in the computation.
(3) If, during the most recent interim period presented, the
registrant or any of its consolidated subsidiaries entered into a
combination between entities under common control, supplemental
disclosure of the separate results of the combined entities for periods
prior to the combination shall be given, with appropriate explanations.
* * * * *
(6) For filings on Form 10-Q (Sec. 249.308(a) of this chapter), a
letter from the registrant's independent accountant shall be filed as
an exhibit (in accordance with the provisions of 17 CFR 229.601 (Item
601 of Regulation S-K)) in the first Form 10-Q after the date of an
accounting change indicating whether or not the change is to an
alternative principle which, in the accountant's judgment, is
preferable under the circumstances; except that no letter from the
accountant need be filed when the change is made in response to a
standard adopted by the Financial Accounting Standards Board that
requires such change.
(7) Any material retroactive prior period adjustment made during
any period covered by the interim financial statements shall be
disclosed, together with the effect thereof upon net income--total and
per share--of any prior period included and upon the balance of
retained earnings. If results of operations for any period presented
have been adjusted retroactively by such an item subsequent to the
initial reporting of such period, similar disclosure of the effect of
the change shall be made.
(8) Any unaudited interim financial statements furnished shall
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods
presented. A statement to that effect shall be included. If all such
adjustments are of a normal recurring nature, a statement to that
effect shall be made; otherwise, there shall be furnished information
describing in appropriate detail the nature and amount of any
adjustments other than normal recurring adjustments entering into the
determination of the results shown.
(c) * * *
(2) Interim statements of comprehensive income shall be provided
for the most recent fiscal quarter, for the period between the end of
the preceding fiscal year and the end of the most recent fiscal
quarter, and for the corresponding periods of the preceding fiscal
year. Such statements may also be presented for the cumulative twelve
month period ended during the most recent fiscal quarter and for the
corresponding preceding period.
* * * * *
(4) Registrants engaged in seasonal production and sale of a
single-crop agricultural commodity may provide interim statements of
comprehensive income and cash flows for the twelve month period ended
during the most recent fiscal quarter and for the corresponding
preceding period in lieu of the year-to-date statements specified in
paragraphs (c)(2) and (3) of this section.
(d) Interim review by independent public accountant. Prior to
filing, interim financial statements included in quarterly reports on
Form 10-Q (17 CFR 249.308(a)) must be reviewed by an independent public
accountant using applicable professional standards and procedures for
conducting such reviews, as may be modified or supplemented by the
Commission. If, in any filing, the company states that interim
financial statements have been reviewed by an independent public
accountant, a report of the accountant on the review must be filed with
the interim financial statements.
* * * * *

0
45. Amend Sec. 210.11-02 by:
0
a. Revising paragraphs (b)(1) and (3) and (b)(5) through (7);
0
b. Redesignating the Instructions following paragraph (b)(8)
consecutively as Instruction 1 to paragraph (b), Instruction 2 to
paragraph (b), Instruction 3 to paragraph (b), Instruction 4 to
paragraph (b), Instruction 5 to paragraph (b), Instruction 6 to
paragraph (b), and Instruction 7 to paragraph (b);
0
c. Revising newly redesignated Instruction 1 to paragraph (b),
Instruction 2 to paragraph (b), Instruction 5 to paragraph (b), and
Instruction 7 to paragraph (b); and
0
d. Revising paragraphs (c)(2) through (4).
The revisions read as follows:

Sec. 210.11-02 Preparation requirements.

* * * * *
(b) * * *
(1) Pro forma financial information shall consist of a pro forma
condensed balance sheet, pro forma condensed statements of
comprehensive income, and accompanying explanatory notes. In certain
circumstances (i.e., where a limited number of pro forma adjustments
are required and those adjustments are easily understood), a narrative
description of the pro forma effects of the transaction may be
furnished in lieu of the statements described herein.
* * * * *
(3) The pro forma condensed financial information need only include
major captions (i.e., the numbered captions) prescribed by the
applicable sections of part 210 of this chapter (Regulation S-X). Where
any major balance sheet caption is less than 10 percent of total
assets, the caption may be combined with others. When any major
statement of comprehensive income caption is less than 15 percent of
average net income attributable to the registrant for the most recent
three fiscal years, the caption may be combined with others. In
calculating average net income

[[Page 50207]]

attributable to the registrant, loss years should be excluded unless
losses were incurred in each of the most recent three years, in which
case the average loss shall be used for purposes of this test.
Notwithstanding these tests, de minimis amounts need not be shown
separately.
* * * * *
(5) The pro forma condensed statement of comprehensive income shall
disclose income (loss) from continuing operations before nonrecurring
charges or credits directly attributable to the transaction. Material
nonrecurring charges or credits and related tax effects which result
directly from the transaction and which will be included in the income
of the registrant within the 12 months succeeding the transaction shall
be disclosed separately. It should be clearly indicated that such
charges or credits were not considered in the pro forma condensed
statement of comprehensive income. If the transaction for which pro
forma financial information is presented relates to the disposition of
a business, the pro forma results should give effect to the disposition
and be presented under an appropriate caption.
(6) Pro forma adjustments related to the pro forma condensed
statement of comprehensive income shall be computed assuming the
transaction was consummated at the beginning of the fiscal year
presented and shall include adjustments which give effect to events
that are directly attributable to the transaction, expected to have a
continuing impact on the registrant, and factually supportable. Pro
forma adjustments related to the pro forma condensed balance sheet
shall be computed assuming the transaction was consummated at the end
of the most recent period for which a balance sheet is required by
Sec. 210.3-01 and shall include adjustments which give effect to
events that are directly attributable to the transaction and factually
supportable regardless of whether they have a continuing impact or are
nonrecurring. All adjustments should be referenced to notes which
clearly explain the assumptions involved.
(7) Historical primary and fully diluted per share data based on
continuing operations (or net income if the registrant does not report
discontinued operations) for the registrant, and primary and fully
diluted pro forma per share data based on continuing operations before
nonrecurring charges or credits directly attributable to the
transaction shall be presented on the face of the pro forma condensed
statement of comprehensive income together with the number of shares
used to compute such per share data. For transactions involving the
issuance of securities, the number of shares used in the calculation of
the pro forma per share data should be based on the weighted average
number of shares outstanding during the period adjusted to give effect
to shares subsequently issued or assumed to be issued had the
particular transaction or event taken place at the beginning of the
period presented. If a convertible security is being issued in the
transaction, consideration should be given to the possible dilution of
the pro forma per share data.
(8) * * *
Instruction 1 to paragraph (b). The historical statement of
comprehensive income used in the pro forma financial information shall
not report discontinued operations. If the historical statement of
comprehensive income includes such items, only the portion of the
statement of comprehensive income through ``income from continuing
operations'' (or the appropriate modification thereof) should be used
in preparing pro forma results.
Instruction 2 to paragraph (b). For a business combination, pro
forma adjustments for the statement of comprehensive income shall
include amortization, depreciation and other adjustments based on the
allocated purchase price of net assets acquired. In some transactions,
such as in financial institution acquisitions, the purchase adjustments
may include significant discounts of the historical cost of the
acquired assets to their fair value at the acquisition date. When such
adjustments will result in a significant effect on earnings (losses) in
periods immediately subsequent to the acquisition which will be
progressively eliminated over a relatively short period, the effect of
the purchase adjustments on reported results of operations for each of
the next five years should be disclosed in a note.
* * * * *
Instruction 5 to paragraph (b). Adjustments to reflect the
acquisition of real estate operations or properties for the pro forma
statement of comprehensive income shall include a depreciation charge
based on the new accounting basis for the assets, interest financing on
any additional or refinanced debt, and other appropriate adjustments
that can be factually supported. See also Instruction 4 to this
paragraph (b).
* * * * *
Instruction 7 to paragraph (b). Tax effects, if any, of pro forma
adjustments normally should be calculated at the statutory rate in
effect during the periods for which pro forma condensed statements of
comprehensive income are presented and should be reflected as a
separate pro forma adjustment.
(c) * * *
(2)(i) Pro forma condensed statements of comprehensive income shall
be filed for only the most recent fiscal year and for the period from
the most recent fiscal year end to the most recent interim date for
which a balance sheet is required. A pro forma condensed statement of
comprehensive income may be filed for the corresponding interim period
of the preceding fiscal year. A pro forma condensed statement of
comprehensive income shall not be filed when the historical statement
of comprehensive income reflects the transaction for the entire period.
(ii) For combinations between entities under common control, the
pro forma statements of comprehensive income (which are in effect a
restatement of the historical statements of comprehensive income as if
the combination had been consummated) shall be filed for all periods
for which historical statements of comprehensive income of the
registrant are required.
(3) Pro forma condensed statements of comprehensive income shall be
presented using the registrant's fiscal year end. If the most recent
fiscal year end of any other entity involved in the transaction differs
from the registrant's most recent fiscal year end by more than 93 days,
the other entity's statement of comprehensive income shall be brought
up to within 93 days of the registrant's most recent fiscal year end,
if practicable. This updating could be accomplished by adding
subsequent interim period results to the most recent fiscal year-end
information and deducting the comparable preceding year interim period
results. Disclosure shall be made of the periods combined and of the
sales or revenues and income for any periods which were excluded from
or included more than once in the condensed pro forma statements of
comprehensive income (e.g., an interim period that is included both as
part of the fiscal year and the subsequent interim period). For
investment companies subject to Sec. Sec. 210.6-01 through 210.6-10,
the periods covered by the pro forma statements must be the same.
(4) Whenever unusual events enter into the determination of the
results shown for the most recently completed fiscal year, the effect
of such unusual events should be disclosed and consideration should be
given to presenting a pro forma condensed

[[Page 50208]]

statement of comprehensive income for the most recent twelve-month
period in addition to those required in paragraph (c)(2)(i) of this
section if the most recent twelve-month period is more representative
of normal operations.

0
46. Amend Sec. 210.11-03 by revising paragraphs (a) introductory text
and (a)(2) to read as follows:

Sec. 210.11-03 Presentation of financial forecast.

(a) A financial forecast may be filed in lieu of the pro forma
condensed statements of comprehensive income required by Sec. 210.11-
02(b)(1).
* * * * *
(2) The forecasted statement of comprehensive income shall be
presented in the same degree of detail as the pro forma condensed
statement of comprehensive income required by Sec. 210.11-02(b)(3).
* * * * *

0
47. Amend Sec. 210.12-16 by revising footnotes 4 and 5 to read as
follows:

Sec. 210.12-16 Supplementary insurance information.

* * * * *
\4\ The total of columns I and J should agree with the amount
shown for statement of comprehensive income caption 7.
\5\ Totals should agree with the indicated balance sheet and
statement of comprehensive income caption amounts, where a caption
number is shown.

0
48. Amend Sec. 210.12-17 by revising footnote 2 to read as follows:

Sec. 210.12-17 Reinsurance.

* * * * *
\2\ This Column represents the total of column B less column C
plus column D. The total premiums in this column should represent
the amount of premium revenue on the statement of comprehensive
income (or statement of net income if comprehensive income is
presented in two separate but consecutive financial statements).
* * * * *

0
49. Amend Sec. 210.12-18 by revising footnote 1 to read as follows:

Sec. 210.12-18 Supplemental information (for property-casualty
insurance underwriters).

* * * * *
\1\ Information included in audited financial statements,
including other schedules, need not be repeated in this schedule.
Columns B, C, D, and E are as of the balance sheet dates, columns F,
G, H, I, J, and K are for the same periods for which statements of
comprehensive income are presented in the registrant's audited
consolidated financial statements.
* * * * *

0
50. Amend Sec. 210.12-21 by revising footnote 4 to read as follows:

Sec. 210.12-21 Investments in securities of unaffiliated issuers.

* * * * *
\4\ If any investments have been written down or reserved
against by such companies pursuant to Sec. 210.6-03(d), indicate
each such item by means of an appropriate symbol and explain in a
footnote.
* * * * *

0
51. Amend Sec. 210.12-22 by revising footnotes 1(a), 4(b), and 6 to
read as follows:

Sec. 210.12-22 Investments in and advances to affiliates and income
thereon.

* * * * *
\1\ * * *
(a) The required information is to be given as to all
investments in affiliates as of the close of the period. See
Sec. Sec. 210.6-06(1), 210.6-06(5)(b), 210.6-06(8)(a)(2), and
210.6-06(8)(a)(3). List each issue and group separately (1)
investments in majority-owned subsidiaries, segregating subsidiaries
consolidated; (2) other controlled companies; and (3) other
affiliates. Give totals for each group. If operations of any
controlled companies are different in character from those of the
registrant, group such affiliates within divisions (1) and (2) by
type of activities.
* * * * *
\4\ * * *
(b) If any investments have been written down or reserved
against by such companies pursuant to Sec. 210.6-03(d), indicate
each such item by means of an appropriate symbol and explain in a
footnote.
* * * * *
\6\ Show in column E(1) as to each issue held at close of
period, the dividends or interest included in caption 1 of the
profit and loss or income statement. In addition, show as the final
item in column E(1) the aggregate dividends and interest included in
the profit and loss or income statement in respect of investments in
affiliates not held at the close of the period. The total of this
column should agree with the amounts shown under such caption.
Include in column E(2) all other dividends and interest. Explain
briefly in an appropriate footnote the treatment accorded each item.
Identify by an appropriate symbol all non-cash dividends and explain
the circumstances in a footnote. See Sec. Sec. 210.6-06(3)(a)(2),
210.6-03(g), and 210.6-07(1).
* * * * *

0
52. Amend Sec. 210.12-23 by revising footnotes 9 and 12 to read as
follows:

Sec. 210.12-23 Mortgage loans on real estate and interest earned on
mortgages.\1\

* * * * *
\9\ If any item of mortgage loans on real estate investments has
been written down or reserved against pursuant to Sec. 210.6-03
describe the item and explain the basis for the write-down or
reserve.
* * * * *
\12\ Summarize the aggregate amounts for each column applicable
to Sec. 210.6-06(1) and 6-06(5)(a).

0
53. Amend Sec. 210.12-24 by revising the column headings to the first
table and by revising footnotes 5 and 8 to read as follows:

Sec. 210.12-24 Real estate owned and rental income.\1\

* * * * *

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Part 1--Real estate owned at end of period Part 2--Rental income
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Column A-- List Column E-- Amount Column I--
classification of at which carried Column F-- Column G-- Rents Column H-- Total Expended for Column J-- Net
property as Column B-- Amount Column C-- Initial Column D-- Cost of at close of Reserve for due and accrued rental income interest, taxes, income applicable
indicated below of incumbrances cost to company improvements, etc. period \4\ \5\ depreciation at end of period applicable to repairs and to period
\2\ \3\ \6\ \7\ period expenses
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ All money columns shall be totaled.

* * * * *
\5\ If any item of real estate investments has been written down
or reserved against pursuant to Sec. 210.6-03(d), describe the item
and explain the basis for the write-down or reserve.
* * * * *
\8\ Summarize the aggregate amounts for each column applicable
to Sec. 210.6-06(1) and 6-06(5)(a).

0
54. Amend Sec. 210.12-27 by revising footnote 3 to read as follows:

Sec. 210.12-27 Qualified assets on deposit.\1\

* * * * *
\1\ All money columns shall be totaled.
* * * * *
\3\ Total of column F shall agree with note required by Sec.
210.6-06(4) as to total amount of qualified Assets on Deposit.

0
55. Amend Sec. 210.12-28 by revising the heading in Column I of the
table to read ``Life on which depreciation in latest statements of
comprehensive income is computed'' and by revising the first sentence
of footnote 4.
The revision reads as follows:

[[Page 50209]]

Sec. 210.12-28 Real estate and accumulated depreciation.\1\

* * * * *
\1\ All money columns shall be totaled.
* * * * *
\4\ In a note to this schedule, furnish a reconciliation, in the
following form, of the total amount at which real estate was carried
at the beginning of each period for which statements of
comprehensive income are required, with the total amount shown in
column E:
* * * * *

0
56. Amend Sec. 210.12-29 by revising footnote 6 introductory text to
read as follows:

Sec. 210.12-29 Mortgage loans on real estate.\1\

* * * * *
\1\ All money columns shall be totaled.
* * * * *
\6\ In a note to this schedule, furnish a reconciliation, in the
following form, of the carrying amount of mortgage loans at the
beginning of each period for which statements of comprehensive
income are required, with the total amount shown in column G:
* * * * *

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

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

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

0
58. Amend Sec. 229.10 by revising paragraphs (b)(2) and (e)(2)(i) to
read as follows:

Sec. 229.10 (Item 10) General.

* * * * *
(b) * * *
(2) Format for projections. In determining the appropriate format
for projections included in Commission filings, consideration must be
given to, among other things, the financial items to be projected, the
period to be covered, and the manner of presentation to be used.
Although traditionally projections have been given for three financial
items generally considered to be of primary importance to investors
(revenues, net income (loss) and earnings (loss) per share), projection
information need not necessarily be limited to these three items.
However, management should take care to assure that the choice of items
projected is not susceptible of misleading inferences through selective
projection of only favorable items. Revenues, net income (loss) and
earnings (loss) per share usually are presented together in order to
avoid any misleading inferences that may arise when the individual
items reflect contradictory trends. There may be instances, however,
when it is appropriate to present earnings (loss) from continuing
operations in addition to or in lieu of net income (loss). It generally
would be misleading to present sales or revenue projections without one
of the foregoing measures of income. The period that appropriately may
be covered by a projection depends to a large extent on the particular
circumstances of the company involved. For certain companies in certain
industries, a projection covering a two or three year period may be
entirely reasonable. Other companies may not have a reasonable basis
for projections beyond the current year. Accordingly, management should
select the period most appropriate in the circumstances. In addition,
management, in making a projection, should disclose what, in its
opinion, is the most probable specific amount or the most reasonable
range for each financial item projected based on the selected
assumptions. Ranges, however, should not be so wide as to make the
disclosures meaningless. Moreover, several projections based on varying
assumptions may be judged by management to be more meaningful than a
single number or range and would be permitted.
* * * * *
(e) * * *
(2) * * *
(i) Excludes amounts, or is subject to adjustments that have the
effect of excluding amounts, that are included in the most directly
comparable measure calculated and presented in accordance with GAAP in
the statement of comprehensive income, balance sheet or statement of
cash flows (or equivalent statements) of the issuer; or
* * * * *

0
59. Amend Sec. 229.101 by:
0
a. Removing and reserving paragraphs (b), (c)(1)(xi), and (d);
0
b. Revising paragraphs (e) introductory text and (e)(2) and (3);
0
c. Removing and reserving paragraph (h)(4)(x); and
0
d. Revising paragraph (h)(5)(iii).
The revisions read as follows:

Sec. 229.101 (Item 101) Description of business.

* * * * *
(e) Available information. Disclose the information in paragraphs
(e)(1), (e)(2) and (e)(3) of this section in any registration statement
you file under the Securities Act (15 U.S.C. 77a et seq.), and disclose
the information in paragraph (e)(3) of this section in your annual
report on Form 10-K (Sec. 249.310 of this chapter). Further disclose
the information in paragraph (e)(4) of this section if you are an
accelerated filer or a large accelerated filer (as defined in Sec.
240.12b-2 of this chapter) filing an annual report on Form 10-K (Sec.
249.310 of this chapter):
* * * * *
(2) State that the SEC maintains an internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC and state the
address of that site (https://www.sec.gov).
(3) Disclose your internet address, if you have one.
* * * * *
(h) * * *
(5) * * *
(iii) State that the Commission maintains an internet site that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the
Commission and state the address of that site (https://www.sec.gov).
Disclose your internet address, if available.
* * * * *

0
60. Amend Sec. 229.201 by:
0
a. Revising paragraph (a)(1);
0
b. Removing and reserving paragraphs (a)(2)(i) and (c)(1);
0
c. Removing the text and reserving Instruction 1 to the Instructions to
Item 201;
0
d. Redesignating Instructions 1 through 5 to Item 201 consecutively as
Instruction 1 to Item 201, Instruction 2 to Item 201, Instruction 3 to
Item 201, Instruction 4 to Item 201 and Instruction 5 to Item 201; and
0
e. Revising newly redesignated Instruction 2 to Item 201.
The revisions read as follows:

Sec. 229.201 (Item 201) Market price of and dividends on the
registrant's common equity and related stockholder matters.

(a) * * *
(1)(i) Identify the principal United States market(s) and the
corresponding trading symbol(s) for each class of the registrant's
common equity. In the case of foreign registrants, also identify the
principal foreign public trading market(s), if any, and the
corresponding

[[Page 50210]]

trading symbol(s) for each class of the registrant's common equity.
(ii) If the principal United States market for such common equity
is not an exchange, indicate, as applicable, that any over-the-counter
market quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual
transactions.
(iii) Where there is no established public trading market for a
class of common equity, furnish a statement to that effect and, if
applicable, state the range of high and low bid information for each
full quarterly period within the two most recent fiscal years and any
subsequent interim period for which financial statements are included,
or are required to be included by 17 CFR 210.3-01 through 210.3-20
(Article 3 of Regulation S-X), indicating the source of such
quotations. Reference to quotations shall be qualified by appropriate
explanation. For purposes of this Item the existence of limited or
sporadic quotations should not of itself be deemed to constitute an
``established public trading market.''
* * * * *
Instruction 1 to Item 201. [Reserved]
Instruction 2 to Item 201. Bid information reported pursuant to
this Item shall be adjusted to give retroactive effect to material
changes resulting from stock dividends, stock splits and reverse stock
splits.
* * * * *

0
61. Amend Sec. 229.302 by:
0
a. Revising paragraphs (a)(1) and (3);
0
b. Redesignating the Instructions to paragraph (b) consecutively as
Instruction 1 to paragraph (b), Instruction 2 to paragraph (b), and
Instruction 3 to paragraph (b); and
0
c. Revising paragraphs (a) and (c) of newly redesignated Instruction 1
to paragraph (b).
The revisions read as follows:

Sec. 229.302 (Item 302) Supplementary financial information.

(a) * * *
(1) Disclosure shall be made of net sales, gross profit (net sales
less costs and expenses associated directly with or allocated to
products sold or services rendered), income (loss) from continuing
operations, per share data based upon income (loss) from continuing
operations, net income (loss), per share data based upon net income
(loss) and net income (loss) attributable to the registrant, for each
full quarter within the two most recent fiscal years and any subsequent
interim period for which financial statements are included or are
required to be included by 17 CFR 210.3-01 through 210.3-20 (Article 3
of Regulation S-X).
* * * * *
(3) Describe the effect of any discontinued operations and unusual
or infrequently occurring items recognized in each full quarter within
the two most recent fiscal years and any subsequent interim period for
which financial statements are included or are required to be included
by 17 CFR 210.3-01 through 210.3-20 (Article 3 of Regulation S-X), as
well as the aggregate effect and the nature of year-end or other
adjustments which are material to the results of that quarter.
* * * * *
(b) * * *
Instruction 1 to paragraph (b). (a) FASB ASC Subtopic 932-235
disclosures that relate to annual periods shall be presented for each
annual period for which a statement of comprehensive income (as defined
in Sec. 210.1-02 of Regulation S-X) is required,
* * * * *
(c) FASB ASC Subtopic 932-235 disclosures required as of the
beginning of an annual period shall be presented as of the beginning of
each annual period for which a statement of comprehensive income (as
defined in Sec. 210.1-02 of Regulation S-X) is required.
* * * * *

0
62. Amend Sec. 229.303 by:
0
a. Revising the paragraphs (a) introductory text and (b)(2);
0
b. Redesignating paragraphs 1 through 7 of the Instructions to
paragraph (b) of Item 303 as Instruction 1 to paragraph (b),
Instruction 2 to paragraph (b), Instruction 3 to paragraph (b),
Instruction 4 to paragraph (b), Instruction 5 to paragraph (b),
Instruction 6 to paragraph (b), and Instruction 7 to paragraph (b),
consecutively.
0
c. Removing and reserving newly redesignated Instruction 5 to paragraph
(b); and
0
d. Adding an Instruction 8 to paragraph (b).
The revisions and addition read as follows:

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

(a) Full fiscal years. Discuss registrant's financial condition,
changes in financial condition and results of operations. The
discussion shall provide information as specified in paragraphs (a)(1)
through (5) of this Item and also shall provide such other information
that the registrant believes to be necessary to an understanding of its
financial condition, changes in financial condition and results of
operations. Discussions of liquidity and capital resources may be
combined whenever the two topics are interrelated. Where in the
registrant's judgment a discussion of segment information and/or of
other subdivisions (e.g., geographic areas) of the registrant's
business would be appropriate to an understanding of such business, the
discussion shall focus on each relevant, reportable segment and/or
other subdivision of the business and on the registrant as a whole.
* * * * *
(b) * * *
(2) Material changes in results of operations. Discuss any material
changes in the registrant's results of operations with respect to the
most recent fiscal year-to-date period for which a statement of
comprehensive income (or statement of operations if comprehensive
income is presented in two separate but consecutive financial
statements or if no other comprehensive income) is provided and the
corresponding year-to-date period of the preceding fiscal year. If the
registrant is required to or has elected to provide a statement of
comprehensive income (or statement of operations if comprehensive
income is presented in two separate but consecutive financial
statements or if no other comprehensive income) for the most recent
fiscal quarter, such discussion also shall cover material changes with
respect to that fiscal quarter and the corresponding fiscal quarter in
the preceding fiscal year. In addition, if the registrant has elected
to provide a statement of comprehensive income (or statement of
operations if comprehensive income is presented in two separate but
consecutive financial statements or if no other comprehensive income)
for the twelve-month period ended as of the date of the most recent
interim balance sheet provided, the discussion also shall cover
material changes with respect to that twelve-month period and the
twelve-month period ended as of the corresponding interim balance sheet
date of the preceding fiscal year. Notwithstanding the above, if for
purposes of a registration statement a registrant subject to Sec.
210.3-03(b) of Regulation S-X of this chapter provides a statement of
comprehensive income (or statement of operations if comprehensive
income is presented in two separate but consecutive financial
statements or if no other comprehensive income) for the twelve-month
period ended as of the date of the most recent interim balance sheet
provided in lieu

[[Page 50211]]

of the interim statements of comprehensive income (or statement of
operations if comprehensive income is presented in two separate but
consecutive financial statements or if no other comprehensive income)
otherwise required, the discussion of material changes in that twelve-
month period will be in respect to the preceding fiscal year rather
than the corresponding preceding period.
* * * * *
Instruction 8 to paragraph (b). The term statement of comprehensive
income shall mean a statement of comprehensive income as defined in
Sec. 210.1-02 of Regulation S-X of this chapter.
* * * * *

0
63. Amend Sec. 229.406 by revising paragraph (d) to read as follows:

Sec. 229.406 (Item 406) Code of ethics.

* * * * *
(d) If the registrant intends to satisfy the disclosure requirement
under Item 5.05 of Form 8-K regarding an amendment to, or a waiver
from, a provision of its code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions and that relates to any element of the code of ethics
definition enumerated in paragraph (b) of this Item by posting such
information on its internet website, disclose the registrant's internet
address and such intention.
* * * * *

0
64. Amend Sec. 229.503 by:
0
a. Revising the section heading;
0
b. Removing paragraph (d) and the instructions to paragraph (d); and
0
c. Removing paragraph (e).
The revision reads as follows:

Sec. 229.503 (Item 503) Prospectus summary and risk factors.

* * * * *

0
65. Amend Sec. 229.504 by revising Instruction 3 to the Instructions
to Item 504 to read as follows:

Sec. 229.504 (Item 504) Use of proceeds.

* * * * *
Instructions to Item 504: * * *
0
3. If any material amounts of other funds are necessary to accomplish
the specified purposes for which the proceeds are to be obtained, state
the amounts of such other funds needed for each such specified purpose
and the sources thereof.
* * * * *

0
66. Amend Sec. 229.508 by revising paragraph (e) introductory text to
read as follows:

Sec. 229.508 (Item 508) Plan of distribution.

* * * * *
(e) Underwriter's compensation. Provide a table that sets out the
nature of the compensation and the amount of discounts and commissions
to be paid to the underwriter for each security and in total. The table
must show the separate amounts to be paid by the company and the
selling shareholders. In addition, include in the table all other items
considered by the Financial Industry Regulatory Authority (``FINRA'')
to be underwriting compensation for purposes of FINRA rules.
* * * * *

0
67. Amend Sec. 229.512 by revising paragraph (a)(4) to read as
follows:

Sec. 229.512 (Item 512) Undertakings.

* * * * *
(a) * * *
(4) If the registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any
financial statements required by Item 8.A of Form 20-F (Sec. 249.220f
of this chapter) at the start of any delayed offering or throughout a
continuous offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act (15 U.S.C. 77j(a)(3)) need not
be furnished, provided that the registrant includes in the prospectus,
by means of a post-effective amendment, financial statements required
pursuant to this paragraph (a)(4) and other information necessary to
ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3 (Sec.
239.33 of this chapter), a post-effective amendment need not be filed
to include financial statements and information required by Section
10(a)(3) of the Act or Item 8.A of Form 20-F if such financial
statements and information are contained in periodic reports filed with
or furnished to the Commission by the registrant pursuant to section 13
or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Form F-3.
* * * * *

0
68. Amend Sec. 229.601 by:
0
a. Removing and reserving entries (11) and (12) from the exhibit table
in paragraph (a);
0
b. In entry (13) in the exhibit table in paragraph (a), adding an X in
the column labelled ``10-Q'';
0
c. Removing and reserving entries (19), (22), and (26) from the exhibit
table in paragraph (a);
0
d. Removing and reserving paragraphs (b)(11) and (12);
0
e. Revising paragraph (b)(14);
0
f. Removing and reserving paragraphs (b)(19), (22), and (26); and
0
g. Removing paragraph (c).
The revision reads as follows:

Sec. 229.601 (Item 601) Exhibits.

* * * * *
(b) * * *
(14) Code of ethics. Any code of ethics, or amendment thereto, that
is the subject of the disclosure required by Sec. 229.406 (Item 406 of
Regulation S-K) or Item 5.05 of Form 8-K (Sec. 249.308 of this
chapter), to the extent that the registrant intends to satisfy the Item
406 or Item 5.05 requirements through filing of an exhibit.
* * * * *

0
69. Amend Sec. 229.1010 by:
0
a. Revising paragraph (a)(2);
0
b. Removing and reserving paragraph (a)(3);
0
c. Revising paragraph (b)(2); and
0
d. Removing and reserving paragraph (c)(4).
The revisions read as follows:

Sec. 229.1010 (Item 1010) Financial statements.

(a) * * *
(2) Unaudited balance sheets, comparative year-to-date statements
of comprehensive income (as defined in Sec. 210.1-02 of Regulation S-X
of this chapter) and related earnings per share data and statements of
cash flows required to be included in the company's most recent
quarterly report filed under the Exchange Act; and
* * * * *
(b) * * *
(2) The company's statement of comprehensive income and earnings
per share for the most recent fiscal year and the latest interim period
provided under paragraph (a)(2) of this section; and
* * * * *

0
70. Amend Sec. 229.1118 by revising paragraph (b)(2) to read as
follows:

Sec. 229.1118 (Item 1118) Reports and additional information.

* * * * *
(b) * * *
(2) State that the Commission maintains an internet site that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the
Commission and state the address of that site (https://www.sec.gov).
* * * * *

[[Page 50212]]

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
71. The authority citation for part 230 continues to read in part as
follows:

Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h,
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Pub. L. 112-106, sec. 201(a), sec. 401, 126
Stat. 313 (2012), unless otherwise noted.
* * * * *

0
72. Amend Sec. 230.158 by:
0
a. Revising paragraph (a)(1) introductory text; and
0
b. Designating as Note 1 to paragraph (a) the undesignated text between
paragraphs (a)(2)(ii) and (b) and revising it.
The revisions read as follows:

Sec. 230.158 Definitions of certain terms in the last paragraph of
section 11(a).

(a) * * *
(1) There is included the information required for statements of
comprehensive income (as defined in Sec. 210.1-02 of Regulation S-X of
this chapter) contained either:
* * * * *

Note 1 to paragraph (a). A subsidiary issuing debt securities
guaranteed by its parent will be deemed to have met the requirements
of this paragraph (a) if the parent's statements of comprehensive
income (as defined in Sec. 210.1-02 of Regulation S-X) satisfy the
criteria of this paragraph and information respecting the subsidiary
is included to the same extent as was presented in the registration
statement. An ``earning statement'' not meeting the requirements of
this paragraph (a) may otherwise be sufficient for purposes of the
last paragraph of section 11(a) of the Act.

* * * * *

0
73. Amend Sec. 230.405, in the definition of ``Significant
subsidiary'' by:
0
a. Revising paragraphs (1) and (3);
0
b. Adding a Note 1 following paragraph (3) before the Computational
note;
0
c. Redesignating the Computational note as Computational note 1 to
paragraph (3) and revising it.
The revisions and addition read as follows:

Sec. 230.405 Definitions of terms.

* * * * *
Significant subsidiary. * * *
(1) The registrant's and its other subsidiaries' investments in and
advances to the subsidiary exceed 10 percent of the total assets of the
registrant and its subsidiaries consolidated as of the end of the most
recently completed fiscal year (for a proposed combination between
entities under common control, this condition is also met when the
number of common shares exchanged or to be exchanged by the registrant
exceeds 10 percent of its total common shares outstanding at the date
the combination is initiated); or
* * * * *
(3) The registrant's and its other subsidiaries' equity in the
income from continuing operations before income taxes of the subsidiary
exclusive of amounts attributable to any noncontrolling interests
exceeds 10 percent of such income of the registrant and its
subsidiaries consolidated for the most recently completed fiscal year.

Note 1: A registrant that files its financial statements in
accordance with or provides a reconciliation to U.S. Generally
Accepted Accounting Principles shall make the prescribed tests using
amounts determined under U.S. Generally Accepted Accounting
Principles. A foreign private issuer that files its financial
statements in accordance with IFRS as issued by the IASB shall make
the prescribed tests using amounts determined under IFRS as issued
by the IASB.

Computational note 1 to paragraph (3): For purposes of making
the prescribed income test the following guidance should be applied:
1. When a loss exclusive of amounts attributable to any
noncontrolling interests has been incurred by either the parent and
its subsidiaries consolidated or the tested subsidiary, but not
both, the equity in the income or loss of the tested subsidiary
exclusive of amounts attributable to any noncontrolling interests
should be excluded from such income of the registrant and its
subsidiaries consolidated for purposes of the computation.
2. If income of the registrant and its subsidiaries consolidated
exclusive of amounts attributable to any noncontrolling interests
for the most recent fiscal year is at least 10 percent lower than
the average of the income for the last five fiscal years, such
average income should be substituted for purposes of the
computation. Any loss years should be omitted for purposes of
computing average income.

* * * * *

0
74. Amend Sec. 230.436 by revising paragraph (d)(4) to read as
follows:

Sec. 230.436 Consents required in special cases.

* * * * *
(d) * * *
(4) A statement that a review of interim financial information is
substantially less in scope than an audit conducted in accordance with
the standards of the Public Company Accounting Oversight Board (United
States) (``PCAOB''), the objective of which is an expression of an
opinion regarding the financial statements taken as a whole, and,
accordingly, no such opinion is expressed; and
* * * * *

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

0
75. The authority citation for part 239 continues to read in part as
follows:

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3,
77sss, 78c, 78l, 78m, 78n, 78o(d), 78o-7 note, 78u-5, 78w(a), 78ll,
78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26,
80a-29, 80a-30, and 80a-37; and sec. 107, Pub. L. 112-106, 126 Stat.
312, unless otherwise noted.
* * * * *

0
76. Amend Form S-1 (referenced in Sec. 239.11) by revising the heading
of Item 3 and revising Item 12.(c)(2)(ii) to read as follows:

Note: The text of Form S-1 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

PART I--INFORMATION REQUIRED IN PROSPECTUS

* * * * *

Item 3. Summary Information and Risk Factors.

* * * * *

Item 12. Incorporation of Certain Information by Reference.

* * * * *
(c) * * *
(2) * * *
(ii) State that the SEC maintains an internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC and state the
address of that site (https://www.sec.gov).
* * * * *

0
77. Amend Form S-3 (referenced in Sec. 239.13) by:
0
a. Revising General Instruction I.B.2;
0
b. Revising General Instruction I.C.2 and I.D.1.(c)(iv) to remove the
text, ``(Primary Offerings of Non-Convertible Investment Grade
Securities)'' and add, in its place, the words ``(Primary Offerings of
Non-Convertible Securities Other than Common Equity)'';
0
c. Revising the heading of Item 3;
0
d. Revising Item 12.(c)(2)(ii); and
0
e. Removing Instruction 3 to the Instructions to Signatures.
The revisions read as follows:

Note: The text of Form S-3 does not, and this amendment will
not, appear in the Code of Federal Regulations.

[[Page 50213]]

FORM S-3

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

GENERAL INSTRUCTIONS

I. Eligibility Requirements for Use of Form S-3

* * * * *

B. Transaction Requirements. * * *

2. Primary Offerings of Non-Convertible Securities Other than
Common Equity. Non-convertible securities, other than common equity, to
be offered for cash by or on behalf of a registrant, provided the
registrant:
(i) Has issued (as of a date within 60 days prior to the filing of
the registration statement) at least $1 billion in non-convertible
securities, other than common equity, in primary offerings for cash,
not exchange, registered under the Securities Act, over the prior three
years; or
(ii) has outstanding (as of a date within 60 days prior to the
filing of the registration statement) at least $750 million of non-
convertible securities, other than common equity, issued in primary
offerings for cash, not exchange, registered under the Securities Act;
or
(iii) is a wholly-owned subsidiary of a well-known seasoned issuer
(as defined in 17 CFR 230.405); or
(iv) is a majority-owned operating partnership of a real estate
investment trust that qualifies as a well-known seasoned issuer (as
defined in 17 CFR 230.405).
* * * * *

C. Majority-Owned Subsidiaries. * * *

2. the parent of the registrant-subsidiary meets the Registrant
Requirements and the conditions of Transaction Requirements B.2.
(Primary Offerings of Non-Convertible Securities Other than Common
Equity) are met;
* * * * *

D. Automatic Shelf Offerings by Well-Known Seasoned Issuers. * * *

1. * * *
(c) * * *
(iv) Securities of a majority-owned subsidiary that meet the
conditions of Transaction Requirement I.B.2. of this Form (Primary
Offerings of Non-Convertible Securities Other than Common Equity).
* * * * *

PART I

INFORMATION REQUIRED IN PROSPECTUS

* * * * *

Item 3. Summary Information and Risk Factors.

* * * * *

Item 12. Incorporation of Certain Information by Reference.

0
78. Amend Form S-11 (referenced in Sec. 239.18) by revising the
heading of Item 3 and revising Item 29.(b)(2)(ii) to read as follows:

Note: The text of Form S-11 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM S-11

FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF
CERTAIN REAL ESTATE COMPANIES

* * * * *
PART I. INFORMATION REQUIRED IN PROSPECTUS
* * * * *

Item 3. Summary Information and Risk Factors.

* * * * *

Item 29. Incorporation of Certain Information by Reference.

* * * * *
(b) * * *
(2) * * *
(ii) State that the SEC maintains an internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC and state the
address of that site (https://www.sec.gov).
* * * * *

0
79. Amend Form S-4 (referenced in Sec. 239.25) by revising the heading
of Item 3 and revising Items 11.(c)(2) and 13.(d)(2) to read as
follows:

Note: The text of Form S-4 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM S-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

PART I

INFORMATION REQUIRED IN THE PROSPECTUS

* * * * *

Item 3. Risk Factors and Other Information.

* * * * *

Item 11. Incorporation of Certain Information by Reference.

* * * * *
(c) * * *
(2) State that the SEC maintains an internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC and state the
address of that site (https://www.sec.gov). Disclose your internet
address, if available.
* * * * *

Item 13. Incorporation of Certain Information by Reference.

* * * * *
(d) * * *
(2) State that the SEC maintains an internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC and state the
address of that site (https://www.sec.gov). Disclose your internet
address, if available.
* * * * *

0
80. Amend Form F-1 (referenced in Sec. 239.31) by:
0
a. Revising General Instruction II.C;
0
b. Revising the heading of Item 3;
0
c. Revising Item 4.b;
0
d. Removing and reserving Item 4.c;
0
e. Revising Item 4.d;
0
f. Adding Item 4.e;
0
g. Removing Instruction 2 to Item 4;
0
h. Revising Item 4A.(b)1.iii.;
0
i. Revising the Instruction to Item 4A; and
0
j. Revising Item 5.(b)2.ii.
The revisions and addition read as follows:

Note: The text of Form F-1 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM F-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

GENERAL INSTRUCTIONS

* * * * *

[[Page 50214]]

II. Application of General Rules and Regulations

* * * * *
C. A registrant must file the Form F-1 registration statement in
electronic format via the Commission's Electronic Data Gathering and
Retrieval System (EDGAR) in accordance with the EDGAR rules set forth
in Regulation S-T (17 CFR part 232), except that a registrant that has
obtained a hardship exception under Regulation S-T Rule 201 or 202 (17
CFR 232.201 or 232.202) may file the registration statement in paper.
For assistance with EDGAR questions, call the Filer Support Office at
(202) 551-8900.
* * * * *

PART I--INFORMATION REQUIRED IN PROSPECTUS

* * * * *

Item 3. Summary Information and Risk Factors.

* * * * *

Item 4. Information with Respect to the Registrant and the Offering.

* * * * *
b. Information required by Item 18 of Form 20-F (Schedules required
under Regulation S-X shall be filed as ``Financial Statement Schedules
Pursuant to Item 8, Exhibit and Financial Statement Schedules, of this
Form), as well as any information required by Rule 3-05 and Article 11
of Regulation S-X (part 210 of this chapter).
* * * * *
d. Information required by Item 16F of Form 20-F.
e. State that the SEC maintains an internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC and state the
address of that site (https://www.sec.gov). Disclose your internet
address, if available.

Item 4A. Material Changes.

* * * * *
(b)
1. * * *
iii. Restated financial statements where a combination of entities
under common control has been consummated subsequent to the most recent
fiscal year and the transferred businesses, considered in the
aggregate, are significant under Rule 11-01(b) (Sec. 210.11-01(b) of
this chapter); or
* * * * *
Instruction. Financial statements or information required to be
furnished by this Item shall be reconciled pursuant to Item 18 of Form
20-F.
* * * * *

Item 5. Incorporation of Certain Information by Reference.

* * * * *
(b) * * *
2. * * *
ii. State that the SEC maintains an internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC and state the
address of that site (https://www.sec.gov).
* * * * *

0
81. Amend Form F-3 (referenced in Sec. 239.33) by:
0
a. Revising General Instructions I.B.2, I.B.3, I.B.4 and II.D;
0
b. Revising the heading of Item 3;
0
c. Revising Item 5 Instructions 1 and 2; and
0
d. Revising Item 6.(e)(2).
The revisions read as follows:

Note: The text of Form F-3 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM F-3

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *
GENERAL INSTRUCTIONS
I. Eligibility Requirements for Use of Form F-3
* * * * *
B. Transaction Requirements
* * * * *
2. Primary Offerings of Non-Convertible Securities Other than
Common Equity. Non-convertible securities, other than common equity, to
be offered for cash by or on behalf of a registrant, provided the
registrant:
(i) Has issued (as of a date within 60 days prior to the filing of
the registration statement) at least $1 billion in non-convertible
securities, other than common equity, in primary offerings for cash,
not exchange, registered under the Securities Act, over the prior three
years; or
(ii) has outstanding (as of a date within 60 days prior to the
filing of the registration statement) at least $750 million of non-
convertible securities, other than common equity, issued in primary
offerings for cash, not exchange, registered under the Securities Act;
or
(iii) is a wholly-owned subsidiary of a well-known seasoned issuer
(as defined in 17 CFR 230.405); or
(iv) is a majority-owned operating partnership of a real estate
investment trust that qualifies as a well-known seasoned issuer (as
defined in 17 CFR 230.405).
* * * * *
3. Transactions Involving Secondary Offerings. Outstanding
securities to be offered for the account of any person other than the
issuer, including securities acquired by standby underwriters in
connection with the call or redemption by the issuer of warrants or a
class of convertible securities. The financial statements included in
this registration statement must comply with Item 18 of Form 20-F. In
addition, Form F-3 may be used by affiliates to register securities for
resale pursuant to the conditions specified in General Instruction C to
Form S-8 (Sec. 239.16b of this chapter). In the case of such
securities, the financial statements included in this registration
statement must comply with Item 18 of Form 20-F (Sec. 249.220f of this
chapter).
4. Rights Offerings, Dividend or Interest Reinvestment Plans, and
Conversions or Warrants. Securities to be offered: (a) Upon the
exercise of outstanding rights granted by the issuer of the securities
to be offered, if such rights are granted pro rata to all existing
security holders of the class of securities to which the rights attach;
or (b) pursuant to a dividend or interest reinvestment plan; or (c)
upon the conversion of outstanding convertible securities or upon the
exercise of outstanding transferable warrants issued by the issuer of
the securities to be offered, or by an affiliate of such issuer. The
financial statements included in this registration statement must
comply with Item 18 of Form 20-F. The registration of securities to be
offered or sold in a standby underwriting in the United States or
similar arrangement is not permitted pursuant to this paragraph. See
paragraphs B.1., B.2., and B.3. of this Instruction.
* * * * *
II. Application of General Rules and Regulations
* * * * *
D. A registrant must file the Form F-3 registration statement in
electronic format via the Commission's Electronic Data Gathering and
Retrieval System (EDGAR) in accordance with the EDGAR rules set forth
in Regulation S-T (17 CFR part 232), except that a registrant that has
obtained a hardship exception under Regulation S-T Rule 201 or 202 (17
CFR 232.201 or 232.202) may file the registration statement in paper.
For assistance with EDGAR

[[Page 50215]]

questions, call the Filer Support Office at (202) 551-8900.
* * * * *
PART I--INFORMATION REQUIRED IN PROSPECTUS
* * * * *
Item 3. Summary Information and Risk Factors.
* * * * *
Item 5. Material Changes.
* * * * *
Instructions
1. Financial statements or information required to be furnished by
this Item shall be reconciled pursuant to Item 18 of Form 20-F.
2. Material changes to be disclosed pursuant to Item 5(a) include
changes in and disagreements with registrant's certifying accountant.
Disclosure pursuant to Item 16F of Form 20-F should be provided as of
the date of the registration statement or prospectus.
Item 6. Incorporation of Certain Information by Reference.
* * * * *
(e) * * *
(2) state that the SEC maintains an internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC and state the
address of that site (https://www.sec.gov). Disclose your internet
address, if available.
* * * * *

0
82. Amend Form F-4 (referenced in Sec. 239.34) by:
0
a. Revising General Instruction D.4;
0
b. Revising the heading of Item 3;
0
c. Revising Instruction 1 of the instructions to paragraphs (e) and (f)
of Item 3;
0
d. Revising Item 10.(c)(3);
0
e. Revising paragraph 1 of the Instructions between Items 11(a) and
(b);
0
f. Revising Item 11.(c)(2);
0
g. Revising the introductory text of Items 12 and 12.(b)(2)
0
h. Revising Items 12.(b)(2)(iv) and 12.(b)(3)(vii) and (ix);
0
i. Revising paragraph 1 of the Instructions between Items 13.(b) and
(c);
0
j. Revising Item 13.(c)(2); and
0
k. Revising Items 14.(h) and 14.(j).
The revisions read as follows:

Note: The text of Form F-4 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM F-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

GENERAL INSTRUCTIONS

* * * * *

D. Application of General Rules and Regulations.

* * * * *
4. A registrant must file the Form F-4 registration statement in
electronic format via the Commission's Electronic Data Gathering and
Retrieval System (EDGAR) in accordance with the EDGAR rules set forth
in Regulation S-T (17 CFR part 232), except that a registrant that has
obtained a hardship exception under Regulation S-T Rule 201 or 202 (17
CFR 232.201 or 232.202) may file the registration statement in paper.
For assistance with EDGAR questions, call the Filer Support Office at
(202) 551-8900.
* * * * *
PART I
INFORMATION REQUIRED IN THE PROSPECTUS
* * * * *

Item 3. Risk Factors and Other Information.

* * * * *

Instructions to paragraphs (e) and (f).

1. For a business combination accounted for as a purchase, the
financial information required by paragraphs (e) and (f) shall be
presented only for the most recent fiscal year and interim period. For
a combination of entities under common control, the financial
information required by paragraphs (e) and (f) (except for information
with regard to book value) shall be presented for the most recent three
fiscal years and interim period. For a combination of entities under
common control, information with regard to book value shall be
presented as of the end of the most recent fiscal year and interim
period. Equivalent pro forma per share amounts shall be calculated by
multiplying the pro forma income (loss) per share before non-recurring
charges or credits directly attributable to the transaction, pro forma
book value per share, and the pro forma dividends per share of the
registrant by the exchange ratio so that the per share amounts are
equated to the respective values for one share of the company being
acquired.
* * * * *

Item 10. Information With Respect to F-3 Companies.

* * * * *
(c) * * *
(3) Restated financial statements prepared in accordance with or,
if prepared using a basis of accounting other than IFRS as issued by
the IASB, reconciled to U.S. GAAP and Regulation S-X where one or more
business combinations accounted for as combinations of entities under
common control have been consummated subsequent to the most recent
fiscal year and the transferred businesses, considered in the
aggregate, are significant pursuant to Rule 11-01(b) of Regulation S-X
(Sec. 210.11-01(b) of this chapter); or
* * * * *

Item 11. Incorporation of Certain Information by Reference.

* * * * *
(a) * * *

Instructions

1. All annual reports or registration statements incorporated by
reference pursuant to Item 11 of this Form shall contain financial
statements that comply with Item 18 of Form 20-F.
* * * * *
(c) * * *
(2) state that the SEC maintains an internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC and state the
address of that site (https://www.sec.gov). Disclose your internet
address, if available.
* * * * *

Item 12. Information with Respect to F-3 Registrants.

If the registrant meets the requirements for use of Form F-3 or
Form S-3 and elects to comply with this Item, furnish the information
required by either paragraph (a) or (b) of this Item. However, the
registrant shall not provide prospectus information in the manner
allowed by paragraph (a) of this Item if the financial statements
incorporated by reference pursuant to Item 13 reflect: (1) Restated
financial statements prepared in accordance with or reconciled to U.S.
GAAP and Regulation S-X if there has been a change in accounting
principles or a correction of an error where such a change or
correction requires a material retroactive statement of financial
statements; (2) restated financial statements prepared in accordance
with or reconciled to U.S. GAAP and Regulation S-X where a combination
of

[[Page 50216]]

entities under common control has been consummated subsequent to the
most recent fiscal year and the transferred businesses, considered in
the aggregate, are significant pursuant to Rule 11-01(b) of Regulation
S-X; or (3) any financial information required because of a material
disposition of assets outside of the normal course of business.
* * * * *
(b) * * *
(2) Include financial statements and information as required by
Item 18 of Form 20-F. In addition, provide: * * *
(iv) Restated financial statements prepared in accordance with or,
if prepared using a basis of accounting other than IFRS as issued by
the IASB, reconciled to U.S. GAAP and Regulation S-X where a
combination of entities under common control has been consummated
subsequent to the most recent fiscal year and the transferred
businesses, considered in the aggregate, are significant pursuant to
Rule 11-01(b) of Regulation S-X; and
* * * * *
(3) * * *
(vii) Financial statements required by Item 18 of Form 20-F, and
financial information required by Rule 3-05 and Article 11 of
Regulation S-X with respect to transactions other than that pursuant to
which the securities being registered are to be issued;
* * * * *
(ix) Item 16F of Form 20-F, change in registrant's certifying
accountant.

Item 13. Incorporation of Certain Information by Reference.

* * * * *
(b) * * *

Instructions

1. All annual reports incorporated by reference pursuant to Item 13
of this Form shall contain financial statements that comply with Item
18 of Form 20-F.
* * * * *
(c) * * *
(2) state that the SEC maintains an internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC and state the
address of that site (https://www.sec.gov). Disclose your internet
address, if available.

Item 14. Information With Respect to Registrants Other Than F-3
Registrants.

* * * * *
(h) Financial statements required by Item 18 of Form 20-F. In
addition, financial information required by Rule 3-05 and Article 11 of
Regulation S-X with respect to transactions other than that pursuant to
which the securities being registered are to be issued. (Schedules
required by Regulation S-X shall be filed as ``Financial Statement
Schedules'' pursuant to Item 21 of this Form.);
* * * * *
(j) Item 16F of Form 20-F, change in registrant's certifying
accountant.
* * * * *

0
83. Amend Form F-6 (referenced in Sec. 239.36) by revising the first
paragraph of General Instruction III.C to read as follows:

Note: The text of Form F-6 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM F-6

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FOR DEPOSITARY
SHARES EVIDENCED BY AMERICAN DEPOSITARY RECEIPTS

* * * * *

GENERAL INSTRUCTIONS

* * * * *

III. Application of General Rules and Regulations

* * * * *
C. You must file the Form F-6 registration statement in electronic
format via the Commission's Electronic Data Gathering, Analysis, and
Retrieval (EDGAR) system in accordance with the EDGAR rules set forth
in Regulation S-T (17 CFR part 232). For assistance with EDGAR
questions, call the Filer Support Office at (202) 551-8900.
* * * * *

0
84. Amend Form F-7 (referenced in Sec. 239.37) by revising the first
paragraph of General Instruction II.C to read as follows:

Note: The text of Form F-7 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM F-7

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

GENERAL INSTRUCTIONS

* * * * *

II. Application of General Rules and Regulations

* * * * *
C. A registrant must file the registration statement in electronic
format via the Commission's Electronic Data Gathering, Analysis, and
Retrieval (EDGAR) system in accordance with the EDGAR rules set forth
in Regulation S-T (17 CFR part 232). For assistance with EDGAR
questions, call the Filer Support Office at (202) 551-8900.
* * * * *

0
85. Amend Form F-8 (referenced in Sec. 239.38) by revising the first
paragraph of General Instruction IV.C to read as follows:

Note: The text of Form F-8 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM F-8

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

GENERAL INSTRUCTIONS

* * * * *

IV. Application of General Rules and Regulations

0
86. Amend Form F-10 (referenced in Sec. 239.40) by revising the first
paragraph of General Instruction II.D to read as follows:

Note: The text of Form F-10 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM F-10

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

GENERAL INSTRUCTIONS

* * * * *

II. Application of General Rules and Regulations

* * * * *
D. A registrant must file the registration statement in electronic
format via the Commission's Electronic Data Gathering, Analysis, and
Retrieval (EDGAR) system in accordance with the EDGAR rules set forth
in Regulation S-T (17 CFR part 232). For assistance with EDGAR
questions, call the Filer Support Office at (202) 551-8900.
* * * * *

[[Page 50217]]

0
87. Amend Form F-80 (referenced in Sec. 239.41) by revising the first
paragraph of General Instruction IV.C to read as follows:

Note: The text of Form F-80 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM F-80

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

GENERAL INSTRUCTIONS

* * * * *

IV. Application of General Rules and Regulations

0
88. Amend Form SF-1 (referenced in Sec. 239.44) by revising Item
10.(b)(2)(ii) to read as follows:

Note: The text of Form SF-1 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM SF-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

PART I

INFORMATION REQUIRED IN PROSPECTUS

* * * * *

Item 10. Incorporation of Certain Information by Reference.

* * * * *
(b)(2) * * *
(ii) State that the SEC maintains an internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC and state the
address of that site (https://www.sec.gov). Disclose your internet
address (or address of the specified transaction party where such
information is posted), if available.
* * * * *

0
89. Amend Form SF-3 (referenced in Sec. 239.45) by revising Item
10.(e)(2)(ii) to read as follows:

Note: The text of Form SF-3 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM SF-3

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

PART I

INFORMATION REQUIRED IN PROSPECTUS

* * * * *

Item 10. Incorporation of Certain Information by Reference.

* * * * *
(e)(1) * * *
(2) * * *
(ii) State that the SEC maintains an internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC and state the
address of that site (https://www.sec.gov). Disclose your internet
address (or address of the specified transaction party where such
information is posted), if available.
* * * * *

0
90. Amend Form 1-A (referenced in Sec. 239.90) by:
0
a. Revising the section entitled ``Financial Statements'' in Item 1 of
Part I;
0
b. Removing and reserving Items 7.(a)(1)(iii) and 7.(b) of Part II;
0
c. Revising paragraph (3) of the Instruction to Item 9.(a) of Part II;
and
0
d. Revising paragraphs (b)(4) and (5) and paragraph (c)(1)(i) of Part
F/S of Part II.
The revisions read as follows:

Note: The text of Form 1-A does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM 1-A

REGULATION A OFFERING STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

PART I--NOTIFICATION

* * * * *

ITEM 1. Issuer Information

* * * * *

Financial Statements

* * * * *
BILLING CODE 8011-01-P

[[Page 50218]]

[GRAPHIC] [TIFF OMITTED] TR04OC18.000

[[Page 50219]]

[GRAPHIC] [TIFF OMITTED] TR04OC18.001

BILLING CODE 8011-01-C
* * * * *

PART II--INFORMATION REQUIRED IN OFFERING CIRCULAR

* * * * *

Item 9. Management's Discussion and Analysis of Financial Condition and
Results of Operations

* * * * *
(a) * * *

Instruction to Item 9(a)

* * * * *
(3) When interim period financial statements are included, discuss
any material changes in financial condition from the end of the
preceding fiscal year to the date of the most recent interim

[[Page 50220]]

balance sheet provided. Discuss any material changes in the issuer's
results of operations with respect to the most recent fiscal year-to-
date period for which a statement of comprehensive income (or statement
of net income if comprehensive income is presented in two separate but
consecutive financial statements or if no other comprehensive income)
is provided and the corresponding year-to-date period of the preceding
fiscal year.
* * * * *

Part F/S

* * * * *

(b) Financial Statements for Tier 1 Offerings

* * * * *
(4) Statements of comprehensive income, cash flows, and changes in
stockholders' equity. File consolidated statements of comprehensive
income (either in a single continuous financial statement or in two
separate but consecutive financial statements; or a statement of net
income if there was no other comprehensive income), cash flows, and
changes in stockholders' equity for each of the two fiscal years
preceding the date of the most recent balance sheet being filed or such
shorter period as the issuer has been in existence.
(5) Interim financial statements.
(i) If a consolidated interim balance sheet is required by (b)(3)
of Part F/S, consolidated interim statements of comprehensive income
(either in a single continuous financial statement or in two separate
but consecutive financial statements; or a statement of net income if
there was no other comprehensive income) and cash flows shall be
provided and must cover at least the first six months of the issuer's
fiscal year and the corresponding period of the preceding fiscal year.
An analysis of the changes in each caption of stockholders' equity
presented in the balance sheets must be provided in a note or separate
statement. This analysis shall be presented in the form of a
reconciliation of the beginning balance to the ending balance for each
period for which a statement of comprehensive income is required to be
filed with all significant reconciling items described by appropriate
captions with contributions from and distributions to owners shown
separately. Dividends per share for each class of shares shall also be
provided.
(ii) Interim financial statements of issuers that report under U.S.
GAAP may be condensed as described in Rule 8-03(a) of Regulation S-X.
(iii) The interim statements of comprehensive income for all
issuers must be accompanied by a statement that in the opinion of
management all adjustments necessary in order to make the interim
financial statements not misleading have been included.
* * * * *

(1) * * *
(i) Issuers that report under U.S. GAAP and, when applicable, other
entities for which financial statements are required, must comply with
Article 8 of Regulation S-X, as if they were conducting a registered
offering on Form S-1, except the age of financial statements may follow
paragraphs (b)(3)-(4) of this Part F/S.
* * * * *

0
91. Amend Form 1-K (referenced in Sec. 239.91) by revising Item 7.(e)
of Part II to read as follows:

Note: The text of Form 1-K does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM 1-K

* * * * *

PART II

INFORMATION TO BE INCLUDED IN REPORT

* * * * *

Item 7. Financial Statements

* * * * *
(e) Statements of comprehensive income, cash flows, and changes in
stockholders' equity. File audited consolidated statements of
comprehensive income (either in a single continuous financial statement
or in two separate but consecutive financial statements; or a statement
of net income if there was no other comprehensive income), cash flows,
and changes in stockholders' equity for each of the two fiscal years
preceding the date of the most recent balance sheet being filed or such
shorter period as the issuer has been in existence.
* * * * *

0
92. Amend Form 1-SA (referenced in Sec. 239.92) by:
0
a. Revising the third paragraph of the undesignated introductory text
of Item 3;
0
b. Revising Item 3.(b);
0
c. Redesignating current Items 3.(d) and (e) as 3.(e) and (f),
respectively;
0
d. Adding new Item 3.(d); and
0
e. Revising newly redesignated Item 3.(e).
The revisions and addition read as follows:

Note: The text of Form 1-SA does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM 1-SA

[ ] SEMIANNUAL REPORT PURSUANT TO REGULATION A

[ ] SPECIAL FINANCIAL REPORT PURSUANT TO REGULATION A

* * * * *

INFORMATION TO BE INCLUDED IN REPORT

* * * * *

Item 3. Financial Statements

* * * * *
The financial statements included pursuant to this item may be
condensed, unaudited, and are not required to be reviewed. For
additional guidance on presentation of the financial statements,
issuers that report under U.S. GAAP should refer to Rule 8-03(a) of
Regulation S-X. The financial statements for all issuers must include
the following:
* * * * *
(b) Interim consolidated statements of comprehensive income (either
in a single continuous financial statement or in two separate but
consecutive financial statements; or a statement of net income if there
was no other comprehensive income) must be provided for the six month
interim period covered by this report and for the corresponding period
of the preceding fiscal year. Statements of comprehensive income must
be accompanied by a statement that in the opinion of management all
adjustments necessary in order to make the interim financial statements
not misleading have been included.
* * * * *
(d) An analysis of the changes in each caption of stockholders'
equity presented in the balance sheets must be provided in a note or
separate statement. This analysis shall be presented in the form of a
reconciliation of the beginning balance to the ending balance for each
period for which a statement of comprehensive income is required to be
filed with all significant reconciling items described by appropriate
captions with contributions from and distributions to owners shown
separately. Dividends per share for each class of shares shall also be
presented.
(e) Footnote and other disclosures should be provided as needed for
fair presentation and to ensure that the financial statements are not
misleading. Issuers that report under U.S. GAAP

[[Page 50221]]

should refer to Rule 8-03(b) of Regulation S-X for examples of
disclosures that may be needed.
(f) Financial Statements of Guarantors and Issuers of Guaranteed
Securities. * * *
* * * * *

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

0
93. The authority citation for part 240 continues to read in part as
follows:

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20,
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq.; and
8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; and
Pub. L. 111-203, 939A, 124 Stat. 1887 (2010); and secs. 503 and 602,
Pub. L. 112-106, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *

0
94. Amend Sec. 240.3a51-1 by revising paragraph (a)(2)(i)(A)(3) to
read as follows:

Sec. 240.3a51-1 Definition of ``penny stock''.

* * * * *
(a) * * *
(2) * * *
(i) * * *
(A) * * *
(3) Net income of $750,000 (excluding non-recurring items) in the
most recently completed fiscal year or in two of the last three most
recently completed fiscal years;
* * * * *

0
95. Amend Sec. 240.10A-1 by revising paragraph (b)(3) to read as
follows:

Sec. 240.10A-1 Notice to the Commission Pursuant to Section 10A of
the Act.

* * * * *
(b) * * *
(3) Submission of the report (or documentation) by the independent
accountant as described in paragraphs (b)(1) and (2) of this section
shall not replace, or otherwise satisfy the need for, the newly engaged
and former accountants' letters under Sec. Sec. 229.304(a)(2)(D) and
229.304(a)(3) of this chapter (Items 304(a)(2)(D) and 304(a)(3) of
Regulation S-K, respectively) and shall not limit, reduce, or affect in
any way the independent accountant's obligations to comply fully with
all other legal and professional responsibilities, including, without
limitation, those under the standards of the Public Company Accounting
Oversight Board (United States) (``PCAOB'') and the rules or
interpretations of the Commission that modify or supplement those
auditing standards.
* * * * *

0
96. Amend Sec. 240.12b-2 in the definition of ``Significant
subsidiary'' by:
0
a. Revising paragraph (3);
0
b. Adding a Note 1 following paragraph (3) before the Computational
note; and
0
c. Redesignating the Computational note as Computational note 1 to
paragraph (3).
The revision and addition read as follows:

Sec. 240.12b-2 Definitions.

* * * * *
Significant subsidiary. * * *
(3) The registrant's and its other subsidiaries' equity in the
income from continuing operations before income taxes of the subsidiary
exclusive of amounts attributable to any noncontrolling interests
exceeds 10 percent of such income of the registrant and its
subsidiaries consolidated for the most recently completed fiscal year.

* * * * *

0
97. Amend Sec. 240.12g-3 by revising paragraphs (a)(2), (b)(2), and
(c)(2) to read as follows:

Sec. 240.12g-3 Registration of securities of successor issuers under
section 12(b) or 12(g).

(a) * * *
(2) All securities of such class are held of record by fewer than
300 persons, or 1,200 persons in the case of a bank; a savings and loan
holding company, as such term is defined in section 10 of the Home
Owners' Loan Act (12 U.S.C. 1461); or a bank holding company, as such
term is defined in section 2 of the Bank Holding Company Act of 1956
(12 U.S.C. 1841); or
* * * * *
(b) * * *
(2) All securities of such class are held of record by fewer than
300 persons, or 1,200 persons in the case of a bank; a savings and loan
holding company, as such term is defined in section 10 of the Home
Owners' Loan Act (12 U.S.C. 1461); or a bank holding company, as such
term is defined in section 2 of the Bank Holding Company Act of 1956
(12 U.S.C. 1841); or
* * * * *
(c) * * *
(2) All securities of such class are held of record by fewer than
300 persons, or 1,200 persons in the case of a bank; a savings and loan
holding company, as such term is defined in section 10 of the Home
Owners' Loan Act (12 U.S.C. 1461); or a bank holding company, as such
term is defined in section 2 of the Bank Holding Company Act of 1956
(12 U.S.C. 1841); or
* * * * *

0
98. Amend Sec. 240.13a-10 by revising paragraphs (b) and (g)(3) to
read as follows:

Sec. 240.13a-10 Transition reports.

* * * * *
(b) The report pursuant to this section shall be filed for the
transition period not more than the number of days specified in
paragraph (j) of this section after either the close of the transition
period or the date of the determination to change the fiscal closing
date, whichever is later. The report shall be filed on the form
appropriate for annual reports of the issuer, shall cover the period
from the close of the last fiscal year end and shall indicate clearly
the period covered. The financial statements for the transition period
filed therewith shall be audited. Financial statements, which may be
unaudited, shall be filed for the comparable period of the prior year,
or a footnote, which may be unaudited, shall state for the comparable
period of the prior year, revenues, gross profits, income taxes, income
or loss from continuing operations and net income or loss. The effects
of any discontinued operations as classified under the provisions of
generally accepted accounting principles also shall be shown, if
applicable. Per share data based upon such income or loss and net
income or loss shall be presented in conformity with applicable
accounting standards. Where called for by the time span to be covered,
the comparable period financial statements or footnote shall be
included in subsequent filings.
* * * * *
(g) * * *
(3) The report for the transition period shall be filed on Form 20-
F (Sec. 249.220f of this chapter) responding to all items to which
such issuer is required to respond when Form 20-F is used as an annual
report. The financial statements for the transition period filed
therewith shall be audited. The report shall be filed within four
months after either the

[[Page 50222]]

close of the transition period or the date on which the issuer made the
determination to change the fiscal closing date, whichever is later.
* * * * *

0
99. Amend Sec. 240.13b2-2 by revising paragraphs (b)(2)(i) and (ii) to
read as follows:

Sec. 240.13b2-2 Representations and conduct in connection with the
preparation of required reports and documents.

* * * * *
(b) * * *
(2) * * *
(i) To issue or reissue a report on an issuer's financial
statements that is not warranted in the circumstances (due to material
violations of generally accepted accounting principles, the standards
of the PCAOB, or other professional or regulatory standards);
(ii) Not to perform audit, review or other procedures required by
the standards of the PCAOB or other professional standards;
* * * * *

0
100. Amend Sec. 240.15c3-1g by revising paragraphs (b)(1)(i)(A),
(b)(1)(ii)(A) and (E), and (b)(2)(i)(A) and (D) to read as follows:

Sec. 240.15c3-1g Conditions for ultimate holding companies of
certain brokers or dealers (Appendix G to 17 CFR 240.15c3-1).

* * * * *
(b) * * *
(1) * * *
(i) * * *
(A) A consolidated balance sheet and income statement (including
notes to the financial statements) for the ultimate holding company and
statements of allowable capital and allowances for market, credit, and
operational risk computed pursuant to paragraph (a) of this appendix G,
except that the consolidated balance sheet and income statement for the
first month of the fiscal year may be filed at a later time to which
the Commission agrees (when reviewing the affiliated broker's or
dealer's application under Sec. 240.15c3-1e(a)). A statement of
comprehensive income (as defined in Sec. 210.1-02 of Regulation S-X of
this chapter) shall be included in place of an income statement, if
required by the applicable generally accepted accounting principles.
* * * * *
(ii) * * *
(A) Consolidating balance sheets and income statements for the
ultimate holding company. The consolidating balance sheet must provide
information regarding each material affiliate of the ultimate holding
company in a separate column, but may aggregate information regarding
members of the affiliate group that are not material affiliates into
one column. Statements of comprehensive income (as defined in Sec.
210.1-02 of Regulation S-X) shall be included in place of an income
statement, if required by the applicable generally accepted accounting
principles;
* * * * *
(E) For a quarter-end that coincides with the ultimate holding
company's fiscal year-end, the ultimate holding company need not
include consolidated and consolidating balance sheets and income
statements (or statements of comprehensive income, as applicable) in
its quarterly reports. The consolidating balance sheet and income
statement (or statement of comprehensive income, as applicable) for the
quarter-end that coincides with the fiscal year-end may be filed at a
later time to which the Commission agrees (when reviewing the
affiliated broker's or dealer's application under Sec. 240.15c3-
1e(a));
* * * * *
(2) * * *
(i) * * *
(A) Consolidated (including notes to the financial statements) and
consolidating balance sheets and income statements for the ultimate
holding company. Statements of comprehensive income (as defined in
Sec. 210.1-02 of Regulation S-X) shall be included in place of income
statements, if required by the applicable generally accepted accounting
principles;
* * * * *
(D) For a quarter-end that coincides with the ultimate holding
company's fiscal year-end, the ultimate holding company need not
include consolidated and consolidating balance sheets and income
statements (or statements of comprehensive income, as applicable) in
its quarterly reports. The consolidating balance sheet and income
statement (or statement of comprehensive income, as applicable) for the
quarter-end that coincides with the fiscal year-end may be filed at a
later time to which the Commission agrees (when reviewing the
affiliated broker's or dealer's application under Sec. 240.15c3-
1e(a)).
* * * * *

0
101. Amend Sec. 240.15d-2 by revising paragraph (a) to read as
follows:

Sec. 240.15d-2 Special financial report.

(a) If the registration statement under the Securities Act of 1933
did not contain certified financial statements for the registrant's
last full fiscal year (or for the life of the registrant if less than a
full fiscal year) preceding the fiscal year in which the registration
statement became effective, the registrant shall, within 90 days after
the effective date of the registration statement, file a special report
furnishing certified financial statements for such last full fiscal
year or other period, as the case may be, meeting the requirements of
the form appropriate for annual reports of the registrant. If the
registrant is a foreign private issuer as defined in Sec. 230.405 of
this chapter, then the special financial report shall be filed on the
appropriate form for annual reports of the registrant and shall be
filed by the later of 90 days after the date on which the registration
statement became effective, or four months following the end of the
registrant's latest full fiscal year.
* * * * *

0
102. Amend Sec. 240.15d-10 by revising paragraphs (b) and (g)(3) to
read as follows:

Sec. 240.15d-10 Transition reports.

[[Page 50223]]

respond when Form 20-F is used as an annual report. The financial
statements for the transition period filed therewith shall be audited.
The report shall be filed within four months after either the close of
the transition period or the date on which the issuer made the
determination to change the fiscal closing date, whichever is later.
* * * * *

0
103. Amend Sec. 240.17a-5 by adding Note 1 to paragraph (d)(2)(i) to
read as follows:

Sec. 240.17a-5 Reports to be made by certain brokers and dealers.

* * * * *
(d) * * *
(2) * * *
(i) * * *

Note 1 to paragraph (d)(2)(i). If there is other comprehensive
income in the period(s) presented, the financial report must contain
a Statement of Comprehensive Income (as defined in Sec. 210.1-02 of
Regulation S-X of this chapter) in place of a Statement of Income.

* * * * *

0
104. Amend Sec. 240.17a-12 by adding Note 1 to paragraph (b)(2) to
read as follows:

Sec. 240.17a-12 Reports to be made by certain OTC derivatives
dealers.

* * * * *
(b) * * *
(2) * * *

Note 1 to paragraph (b)(2). If there is other comprehensive
income in the period(s) presented, the financial report must contain
a Statement of Comprehensive Income (as defined in Sec. 210.1-02 of
Regulation S-X of this chapter) in place of a Statement of Income.

* * * * *

0
105. Amend Sec. 240.17g-3 by revising paragraph (a)(1)(i) to read as
follows:

Sec. 240.17g-3 Annual financial and other reports to be filed or
furnished by nationally recognized statistical rating organizations.

(a) * * *
(1) * * *
(i) Include a balance sheet, an income statement (or a statement of
comprehensive income, as defined in Sec. 210.1-02 of Regulation S-X of
this chapter, if required by the applicable generally accepted
accounting principles noted in paragraph (a)(1)(ii) of this section)
and statement of cash flows, and a statement of changes in ownership
equity;
* * * * *

0
106. Amend Sec. 240.17h-1T by adding Note 1 to Paragraph (a)(1)(v) to
read as follows:

Sec. 240.17h-1T Risk assessment recordkeeping requirements for
associated persons of brokers and dealers.

(a) * * *
(1) * * *
(v) * * *

Note 1 to paragraph (a)(1)(v). Statements of comprehensive
income (as defined in Sec. 210.1-02 of Regulation S-X of this
chapter) must be included in place of income statements, if required
by the applicable generally accepted accounting principles.

* * * * *

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
107. The authority citation for part 249 continues to read in part as
follows:

Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C.
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b), Pub. L. 111-203, 124
Stat. 1904; Sec. 102(a)(3), Pub. L. 112-106, 126 Stat. 309 (2012);
Sec. 107, Pub. L. 112-106, 126 Stat. 313 (2012), and Sec. 72001,
Pub. L. 114-94, 129 Stat. 1312 (2015), unless otherwise noted.
* * * * *

0
108. Amend Sec. 249.210 by revising the section heading to read as
follows:

Sec. 229.210 Form 10, general form for registration of securities
pursuant to section 12(b) or (g) of the Securities Exchange Act of
1934.

* * * * *

0
109. Amend Form 20-F (referenced in Sec. 249.220f) by:
0
a. Revising General Instructions A.(b), D.(a), E.(c), G.(c) and
G.(f)(1);
0
b. Removing Item 3.A.3;
0
c. Revising Instruction 2. of the Instructions to Item 3.A;
0
d. Adding Item 4.A.8;
0
e. Revising Item 5.C;
0
f. Revising Item 8.A.1.(b) and Item 8.A.5;
0
g. Revising Instruction 2 of the Instructions to Items 8.A.2 and 8.A.4;
0
h. Revising Item 9.A.4;
0
i. Revising Item 10.F;
0
j. Removing and reserving Instruction 1 to General Instructions to
Items 11(a), 11(b), 11(c), 11(d), and 11(e);
0
k. Revising Instruction 1 of the Instructions to Item 12;
0
l. Removing Instruction to Item 14.B;
0
m. Removing Item 15T;
0
n. Removing and reserving Instruction 1 to Instructions to Item 16F;
0
o. Revising Instruction to Item 16G;
0
p. Revising Items 17(c)(2)(v) and (vi);
0
q. Removing and reserving Instruction 3 to Item 17;
0
r. Removing Special Instruction for Certain European Issuers to Item
17;
0
s. Revising Instruction 1 to Instruction to Item 18;
0
t. Removing Special Instruction for Certain European Issuers to Item
18; and
0
u. Removing and reserving Instructions 6 and 7 of the Instructions as
to Exhibits.
The revisions read as follows:

Note: The text of Form 20-F does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM 20-F

[square] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934

[square] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

* * * * *

GENERAL INSTRUCTIONS

A. Who May Use Form 20-F and When It Must be Filed.

* * * * *
(b) A foreign private issuer must file its annual report on this
Form within four months after the end of the fiscal year covered by the
report.
* * * * *

D. How to File Registration Statements and Reports on this Form.

(a) You must file the Form 20-F registration statement or annual
report in electronic format via our Electronic Data Gathering and
Retrieval System (EDGAR) in accordance with the EDGAR rules set forth
in Regulation S-T (17 CFR part 232). The Form 20-F registration
statement or annual report must be in the English language as required
by Regulation S-T Rule 306 (17 CFR 232.306). You must provide the
signatures required for the Form 20-F registration statement or annual
report in accordance with Regulation S-T Rule 302 (17 CFR 232.302). If
you have EDGAR questions, call the Filer Support Office at (202) 551-
8900.
* * * * *

E. Which Items to Respond to in Registration Statements and Annual
Reports.

* * * * *
(c) Financial Statements. (1) An Exchange Act registration
statement or annual report filed on this Form must contain the
financial statements and related information specified in Item 18 of
this Form. Note that Items 17 and 18 may require you to file the
financial statements of other entities in certain circumstances. These
circumstances are described in Regulation S-X.
(2) The issuer's financial statements must be audited in accordance
with the standards of the Public Company

[[Page 50224]]

Accounting Oversight Board (United States) (``PCAOB''), and the auditor
must be qualified and independent in accordance with Article 2 of
Regulation S-X. The financial statements of entities other than the
issuer must be audited in accordance with applicable professional
standards. If you have any questions about these requirements, contact
the Office of Chief Accountant in the Division of Corporation Finance
at (202) 551-3400.
* * * * *

G. First-Time Application of International Financial Reporting
Standards.

* * * * *
(c) Selected Financial Data. The selected historical financial data
required pursuant to Item 3.A shall be based on financial statements
prepared in accordance with IFRS and shall be presented for the two
most recent financial years.
* * * * *
(f) Financial Information.
(1) General. With respect to the financial information of the
issuer required by Item 8.A, all instructions contained in Item 8,
including the instruction requiring audits in accordance with the
standards of the PCAOB, shall apply.
* * * * *

PART I

* * * * *

Item 3. Key Information

* * * * *

Instructions to Item 3.A:

* * * * *
2. You may present the selected financial data on the basis of the
accounting principles used in your primary financial statements. If you
use a basis of accounting other than IFRS as issued by the IASB,
however, you also must include in this summary any reconciliations of
the data to U.S. generally accepted accounting principles and
Regulation S-X, pursuant to Item 17 or 18 of this Form. For financial
statements prepared using a basis of accounting other than IFRS as
issued by the IASB, you only have to provide selected financial data on
a basis reconciled to U.S. generally accepted accounting principles for
(i) those periods for which you were required to reconcile the primary
annual financial statements in a filing under the Securities Act or the
Exchange Act, and (ii) any interim periods. An issuer that adopted IFRS
as issued by the IASB during the past three years is only required to
provide selected financial data for the periods that it prepared
financial statements in accordance with IFRS as issued by the IASB.
* * * * *

Item 4. Information on the Company

* * * * *
A. * * *
8. State that the SEC maintains an internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC and state the
address of that site (https://www.sec.gov). Disclose your internet
address, if available.
* * * * *

Item 5. Operating and Financial Review and Prospects

* * * * *
C. Research and development, patents and licenses, etc. Provide a
description of the company's research and development policies for the
last three years.
* * * * *

Item 8. Financial Information

* * * * *
A. * * *
1. * * *
(b) statement of comprehensive income (either in a single
continuous financial statement or in two separate but consecutive
financial statements; or a statement of net income if there was no
other comprehensive income);
* * * * *
5. If the document is dated more than nine months after the end of
the last audited financial year, it should contain consolidated interim
financial statements, which may be unaudited (in which case that fact
should be stated), covering at least the first six months of the
financial year. The interim financial statements should include a
balance sheet, statement of comprehensive income (either in a single
continuous financial statement or in two separate but consecutive
financial statements; or a statement of net income if there was no
other comprehensive income), cash flow statement, and a statement
showing either (i) changes in equity other than those arising from
capital transactions with owners and distributions to owners, or (ii)
all changes in equity (including a subtotal of all non-owner items
recognized directly in equity). Each of these statements may be in
condensed form as long as it contains the major line items from the
latest audited financial statements and includes the major components
of assets, liabilities and equity (in the case of the balance sheet);
income and expenses (in the case of the statement of comprehensive
income) and the major subtotals of cash flows (in the case of the cash
flow statement). The interim financial statements should include
comparative statements for the same period in the prior financial year,
except that the requirement for comparative balance sheet information
may be satisfied by presenting the year end balance sheet. If not
included in the primary financial statements, a note should be provided
analyzing the changes in each caption of shareholders' equity presented
in the balance sheet. The interim financial statements should include
selected note disclosures that will provide an explanation of events
and changes that are significant to an understanding of the changes in
financial position and performance of the enterprise since the last
annual reporting date. If, at the date of the document, the company has
published interim financial information that covers a more current
period than those otherwise required by this standard, the more current
interim financial information must be included in the document.
Companies are encouraged, but not required, to have any interim
financial statements in the document reviewed by an independent
auditor. If such a review has been performed and is referred to in the
document, a copy of the auditor's interim review report must be
provided in the document.
* * * * *

Instructions to Item 8.A.2:

* * * * *
2. The financial statements of the issuer must be audited in
accordance with the standards of the PCAOB and the auditor must comply
with the Commission standards for auditor independence. Refer to
Article 2 of Regulation S-X, which contains requirements for
qualifications and reports of accountants.
* * * * *

Instructions to Item 8.A.4:

* * * * *
2. The additional requirement that financial statements be no older
than 12 months at the date of filing applies only in those limited
cases where a nonpublic company is registering its initial public
offering of securities. A company may comply with only the 15-month
requirement in this item if the company is able to represent that it is
not required to comply with the 12-month requirement in any other
jurisdiction outside the United States

[[Page 50225]]

and that complying with the 12-month requirement is impracticable or
involves undue hardship. File this representation as an exhibit to the
registration statement.
* * * * *

Item 9. The Offer and Listing.

* * * * *
A. * * *
4. Identify the principal host market(s) and principal market(s)
outside the principal host market and corresponding trading symbol(s)
for those markets for each class of the registrant's common equity. If
significant trading suspensions occurred in the prior three years, they
shall be disclosed. If the securities are not regularly traded in an
organized market, information shall be given about any lack of
liquidity.
* * * * *

Item 10. Additional Information.

* * * * *

F. Dividends and paying agents. Disclose the date on which the
entitlement to dividends arises, if known, and any procedures for
nonresident holders to claim dividends. Identify the financial
organizations which, at the time of admission of shares to official
listing, are the paying agents of the company in the countries where
admission has taken place or is expected to take place.

* * * * *

Item 11. Quantitative and Qualitative Disclosure About Market Risk.

* * * * *

Item 12. Description of Securities Other than Equity Securities.

* * * * *

Instructions to Item 12:

1. Except for Item 12.D.3. and Item 12.D.4, you do not need to
provide the information called for by this Item if you are using this
form as an annual report.
* * * * *

Item 16F. Change in Registrant's Certifying Accountant.

* * * * *

Item 16G. Corporate Governance.

* * * * *

Instructions to Item 16G:

Item 16G only applies to annual reports, and not to registration
statements on Form 20-F. Registrants should provide a brief and general
discussion, rather than a detailed, item-by-item analysis.
* * * * *

Item 17. Financial Statements.

* * * * *
(c) * * *
(2) * * *
(v) Issuers that prepare financial statements on a basis of
accounting other than U.S. generally accepted accounting principles
that are furnished for a business acquired or to be acquired pursuant
to Sec. 210.3-05 of this chapter may omit the disclosures specified by
paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this Item if the
conditions specified in the definition of a significant subsidiary in
Sec. 210.1-02(w) of this chapter do not exceed 30 percent. Issuers
that prepare financial statements using IFRS as issued by the IASB that
are furnished pursuant to Sec. 210.3-05 may omit the disclosures
specified by paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this
Item regardless of the size of the business acquired or to be acquired.
(vi) Issuers that prepare financial statements on a basis of
accounting other than U.S. generally accepted accounting principles
that are furnished for a less-than-majority-owned investee pursuant to
Sec. 210.3-09 of this chapter may omit the disclosures specified by
paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this Item if the
first and third conditions specified in the definition of a significant
subsidiary in Sec. 210.1-02(w) of this chapter do not exceed 30
percent. Issuers that prepare financial statements using IFRS as issued
by the IASB that are furnished pursuant to Sec. 210.3-09 may omit the
disclosures specified by paragraphs (c)(2)(i), (c)(2)(ii), and
(c)(2)(iii) of this Item regardless of the size of the investee.
* * * * *

Item 18. Financial Statements.

* * * * *

Instructions to Item 18:

1. All of the instructions to Item 17 also apply to this Item.
* * * * *

0
110. Amend Form 40-F (referenced in Sec. 249.240f) by revising the
first paragraph of General Instruction D.(7) to read as follows:

Note: The text of Form 40-F does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM 40-F

[square] REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934

[square] ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

* * * * *

GENERAL INSTRUCTIONS

* * * * *

D. Application of General Rules and Regulations

* * * * *
(7) A filer must file the Form 40-F registration statement or
annual report in electronic format via the Commission's Electronic Data
Gathering, Analysis, and Retrieval (EDGAR) system in accordance with
the EDGAR rules set forth in Regulation S-T (17 CFR part 232). For
assistance with EDGAR questions, call the Filer Support Office at (202)
551-8900.
* * * * *

0
111. Amend Form 10-K (referenced in Sec. 249.310) by:
0
a. Removing and reserving paragraph J.(1)(e) of the General
Instructions; and
0
b. Revising paragraph J.(1)(f) of the General Instructions.
The revisions read as follows:

Note: The text of Form 10-K does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

GENERAL INSTRUCTIONS

* * * * *
J. * * *
(1) * * *
(f) Item 5, Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities;
* * * * *

0
112. Amend Form 11-K (referenced in Sec. 249.311) by revising
paragraph 2 of Required Information to read as follows:

Note: The text of Form 11-K does not, and this amendment will
not, appear in the Code of Federal Regulations.

[[Page 50226]]

FORM 11-K

FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS AND SIMILAR
PLANS PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

* * * * *

REQUIRED INFORMATION

* * * * *
2. An audited statement of comprehensive income (either in a single
continuous financial statement or in two separate but consecutive
financial statements; or a statement of net income if there was no
other comprehensive income) and changes in plan equity for each of the
latest three fiscal years of the plan (or such lesser period as the
plan has been in existence).
* * * * *

Form 10-D (referenced in Sec. 249.312) [Amended]

0
113. Amend Form 10-D (referenced in Sec. 249.312) by removing and
reserving Item 5.

Note: The text of Form 10-D does not, and this amendment will
not, appear in the Code of Federal Regulations.

0
114. Amend the Form X-17A-5 Part II (FOCUS Report) (referenced in Sec.
249.617) by:
0
a. Revising under the heading ``Statement of Financial Condition''
paragraph 29 by redesignating current paragraphs 29.E and F as
paragraphs 29.F and G, respectively and adding a new paragraph 29.E;
and
0
b. Revising the heading ``Statement of Income (Loss)'' and under that
heading, revising the subheading ``Net Income'', removing and reserving
paragraphs 32, 32.a and 33, revising paragraph 34, redesignating
current paragraph 35 as paragraph 37, adding new paragraph 35 and
paragraphs 35.a and 36, and revising newly redesignated paragraph 37.
The revisions and additions read as follows:

Note: The text of Form X-17A-5 Part II does not, and this
amendment will not, appear in the Code of Federal Regulations.

[[Page 50227]]

[GRAPHIC] [TIFF OMITTED] TR04OC18.002

0
115. Amend the Form X-17A-5 Part II (FOCUS Report) (referenced in Sec.
249.617) General Instructions by:
0
a. Revising the heading ``Statement of Income (Loss)'' and removing
from under that heading the subheadings ``Extraordinary Items'' and
``Effect of Changes in Accounting Principles'' and their related text;
and
0
b. Revising under the heading ``Statement of Changes in Ownership
Equity (Sole Proprietorship, Partnership or Corporation)'' the text
related to the

[[Page 50228]]

subheading ``Net Income (Loss) For Period''.
The revisions read as follows:

Note: The text of Form X-17A-5 Part II does not, and this
amendment will not, appear in the Code of Federal Regulations.

FORM X-17A-5 PART II

(FOCUS Report)

GENERAL INSTRUCTIONS

* * * * *

STATEMENT OF INCOME (LOSS) or STATEMENT OF COMPREHENSIVE INCOME

(as defined in Sec. 210.1-02 of Regulation S-X), as applicable

If there are no items of other comprehensive income in the period
presented, the broker or dealer is not required to report comprehensive
income.
* * * * *

STATEMENT OF CHANGES IN OWNERSHIP EQUITY

(SOLE PROPRIETORSHIP, PARTNERSHIP OR CORPORATION)

* * * * *

Net Income (Loss) for Period

Report the amount of net income (loss) for the period reported on
the Statement of Income (Loss) or Statement of Comprehensive Income, as
applicable.
* * * * *

0
116. Amend the Form X-17A-5 Part IIA (FOCUS Report) (referenced in
Sec. 249.617) by:
0
a. Revising under the heading ``Statement of Financial Condition for
Noncarrying, Nonclearing and Certain other Brokers or Dealers''
paragraph 23 by redesignating current paragraphs 23.E and F as
paragraphs 23.F and G, respectively and adding a new paragraph 23.E;
and
0
b. Revising the heading ``Statement of Income (Loss)'' and under that
heading, revising the subheading ``Net Income'', removing and reserving
paragraphs 20, 20.a and 21, revising paragraph 22, redesignating
current paragraph 23 as paragraph 25, adding new paragraph 23 and
paragraphs 23.a and 24, and revising newly redesignated paragraph 25.
The revisions and additions read as follows:

Note: The text of Form X-17A-5 Part IIA does not, and this
amendment will not, appear in the Code of Federal Regulations.

BILLING CODE 8011-01-P

[[Page 50229]]

[GRAPHIC] [TIFF OMITTED] TR04OC18.003

[[Page 50230]]

BILLING CODE 8011-01-C

0
117. Amend the Form X-17A-5 Part IIA (FOCUS Report) (referenced in
Sec. 249.617) General Instructions by:
0
a. Revising the heading ``Statement of Income (Loss)'' and removing
from under that heading paragraphs 20 and 21; and
0
b. Revising under the heading ``Statement of Changes in Ownership
Equity (Sole Proprietorship, Partnership or Corporation)'' the text
related to the subheading ``Net Income (Loss) For Period''.
The revisions read as follows:

Note: The text of Form X-17A-5 Part IIA does not, and this
amendment will not, appear in the Code of Federal Regulations.

FORM X-17A-5 PART IIA

(FOCUS Report)

GENERAL INSTRUCTIONS

* * * * *

STATEMENT OF INCOME (LOSS) or STATEMENT OF COMPREHENSIVE INCOME

(as defined in Sec. 210.1-02 of Regulation S-X), as applicable

If there are no items of other comprehensive income in the period
presented, the broker or dealer is not required to report comprehensive
income.
* * * * *

STATEMENT OF CHANGES IN OWNERSHIP EQUITY

(SOLE PROPRIETORSHIP, PARTNERSHIP OR CORPORATION)

* * * * *

Net Income (Loss) for Period

Report the amount of net income (loss) for the period reported on
the Statement of Income (Loss) or Statement of Comprehensive Income, as
applicable.
* * * * *

0
118. Amend the Form X-17A-5 Part IIB (FOCUS Report) (referenced in
Sec. 249.617) by:
0
a. Revising under the heading ``Statement of Financial Condition for
OTC Derivatives Dealers'' paragraph 28 by redesignating current
paragraphs 28.E and F as paragraphs 28.F and G, respectively and adding
a new paragraph 28.E; and
0
b. Revising the heading ``Statement of Income (Loss)'' and under that
heading, revising the subheading ``Net Income'', removing and reserving
paragraphs 29, 29.a and 30, revising paragraph 31, redesignating
current paragraph 32 as paragraph 34. adding new paragraph 32 and
paragraphs 32.a and 33, and revising newly redesignated paragraph 34.
The revisions and additions read as follows:

Note: The text of Form X-17A-5 Part IIB does not, and this
amendment will not, appear in the Code of Federal Regulations.

BILLING CODE 8011-01-P

[[Page 50231]]

[GRAPHIC] [TIFF OMITTED] TR04OC18.004

BILLING CODE 8011-01-C

0
119. Amend the Form X-17A-5 Part III (FOCUS Report) (referenced in
Sec. 249.617) by revising under the heading ``Oath or Affirmation''
checkbox (c) to read as follows:

Note: The text of Form X-17A-5 Part III does not, and this
amendment will not, appear in the Code of Federal Regulations.

[[Page 50232]]

ANNUAL AUDITED REPORT

FORM X-17A-5

PART III

* * * * *

OATH OR AFFIRMATION

* * * * *
[square] (c) Statement of Income (Loss) or, if there is other
comprehensive income in the period(s) presented, a Statement of
Comprehensive Income (as defined in Sec. 210.1-02 of Regulation S-X).
* * * * *

PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940

0
120. The authority citation for part 274 continues to read in part as
follows:

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b),78l, 78m,
78n, 78o(d), 80a-8, 80a-24, 80a-26, 80a-29, and Pub. L. 111-203,
sec. 939A, 124 Stat. 1376 (2010), unless otherwise noted.
* * * * *

0
121. Amend Form N-5 (referenced in Sec. Sec. 239.24 and 274.5) by
revising Item 3(i) to read as follows:

Note: The text of Form N-5 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM N-5

REGISTRATION STATEMENT OF SMALL BUSINESS INVESTMENT COMPANY UNDER THE
SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940 *

* * * * *
PART I. INFORMATION REQUIRED IN REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
* * * * *
Item 3. Policies with Respect to Security Investments.
* * * * *
(i) Whether the registrant and its investment adviser and principal
underwriter have adopted codes of ethics under Rule l 7j-1 of the
Investment Company Act of 1940 [17 CFR 270.17j-1] and whether these
codes of ethics permit personnel subject to the codes to invest in
securities, including securities that may be purchased or held by the
registrant. Also explain that these codes of ethics are available on
the EDGAR Database on the Commission's internet site at https://www.sec.gov, and that copies of these codes of ethics may be obtained,
after paying a duplicating fee, by electronic request at the following
Email address: [email protected].
* * * * *

0
122. Amend Form N-1A (referenced in Sec. Sec. 239.15A and 274.11A) by:
0
a. Revising Item 1.(b)(3);
0
b. Revising Instruction 3.(c)(ii) to Item 3 and Instruction 2.(a)(ii)
to Item 27.(d)(1); and
0
c. Removing Item 27.(d)(3)(iii) and redesignating current Item
27.(d)(3)(iv) as Item 27.(d)(3)(iii).
The revisions read as follows:

Note: The text of Form N-1A does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM N-1A

* * * * *
[square] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
* * * * *
[square] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
* * * * *

PART A--INFORMATION REQUIRED IN PROSPECTUS

* * * * *

Item 1. Front and Back Cover Pages

* * * * *
(b) * * *
(3) State that reports and other information about the Fund are
available on the EDGAR Database on the Commission's internet site at
https://www.sec.gov, and that copies of this information may be
obtained, after paying a duplicating fee, by electronic request at the
following Email address: [email protected].
* * * * *

Item 3. Risk/Return Summary: Fee Table

* * * * *

Instructions

* * * * *
3. * * *
(c) * * *
(ii) ``Other Expenses'' do not include extraordinary expenses.--
``Extraordinary expenses'' refers to expenses that are distinguished by
their unusual nature and by the infrequency of occurrence. Unusual
nature means the expense has a high degree of abnormality and is
clearly unrelated to, or only incidentally related to, the ordinary and
typical activities of the fund, taking into account the environment in
which the fund operates. Infrequency of occurrence means the expense is
not reasonably expected to recur in the foreseeable future, taking into
consideration the environment in which the fund operates. The
environment of a fund includes such factors as the characteristics of
the industry or industries in which it operates, the geographical
location of its operations, and the nature and extent of governmental
regulation. If extraordinary expenses were incurred that materially
affected the Fund's ``Other Expenses,'' disclose in a footnote to the
table what ``Other Expenses'' would have been had the extraordinary
expenses been included.
* * * * *

Item 27. Financial Statements

* * * * *
(d) * * *
(1) * * *

Instructions

* * * * *
2. * * *
(a) * * *
(ii) For purposes of this Item 27(d)(1), ``Other Expenses'' include
extraordinary expenses. ``Extraordinary expenses'' refers to expenses
that are distinguished by their unusual nature and by the infrequency
of occurrence. Unusual nature means the expense has a high degree of
abnormality and is clearly unrelated to, or only incidentally related
to, the ordinary and typical activities of the fund, taking into
account the environment in which the fund operates. Infrequency of
occurrence means the expense is not reasonably expected to recur in the
foreseeable future, taking into consideration the environment in which
the fund operates. The environment of a fund includes such factors as
the characteristics of the industry or industries in which it operates,
the geographical location of its operations, and the nature and extent
of governmental regulation. If extraordinary expenses were incurred
that materially affected the Fund's ``Other Expenses,'' the Fund may
disclose in a footnote to the Example what ``actual expenses'' would
have been had the extraordinary expenses not been included.
* * * * *
(3). Statement Regarding Availability of Quarterly Portfolio
Schedule. A statement that: (i) The Fund files its complete schedule of
portfolio holdings with the Commission for the first and third quarters
of each fiscal year on Form N-Q; (ii) the Fund's Forms N-Q are
available on the Commission's

[[Page 50233]]

website at https://www.sec.gov; and (iii) if the Fund makes the
information on Form N-Q available to shareholders on its website or
upon request, a description of how the information may be obtained from
the Fund.
* * * * *

0
123. Amend Form N-2 (referenced in Sec. Sec. 239.14 and 274.11a-1) by
revising Item 18.15 and revising Instruction 6.b to Item 24 to read as
follows:

Note: The text of Form N-2 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM N-2

* * * * *
[square] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
* * * * *
[square] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
* * * * *

PART B--INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION

* * * * *

Item 18. Management.

* * * * *
15. Codes of Ethics: Provide a brief statement disclosing whether
the Registrant and its investment adviser and principal underwriter
have adopted codes of ethics under Rule 17j-1 of the 1940 Act [17 CFR
270.17j-1] and whether these codes of ethics permit personnel subject
to the codes to invest in securities, including securities that may be
purchased or held by the Registrant. Also explain in the statement that
these codes of ethics are available on the EDGAR Database on the
Commission's internet site at https://www.sec.gov, and that copies of
these codes of ethics may be obtained, after paying a duplicating fee,
by electronic request at the following email address:
[email protected].
* * * * *

Item 24. Financial Statements

* * * * *

Instructions

* * * * *
6. * * *
b. a statement that: (i) The Registrant files its complete schedule
of portfolio holdings with the Commission for the first and third
quarters of each fiscal year on Form N-Q; (ii) the Registrant's Forms
N-Q are available on the Commission's website at https://www.sec.gov;
and (iii) if the Registrant makes the information on Form N-Q available
to shareholders on its website or upon request, a description of how
the information may be obtained from the Registrant.
* * * * *

0
124. Amend Form N-3 (referenced in Sec. Sec. 239.17a and 274.11b) by:
0
a. Revising Instruction 4.(c)(i) to Item 3.(a);
0
b. Revising Item 20.(m); and
0
c. Removing Instruction 6.(ii)(C) to Item 28.(a) and redesignating
current Instruction 6.(ii)(D) to Item 28.(a) as Instruction 6.(ii)(C)
to Item 28.(a).
The revisions read as follows:

Note: The text of Form N-3 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM N-3

* * * * *
[square] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
* * * * *
[square] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
* * * * *

PART A--INFORMATION REQUIRED IN A PROSPECTUS

* * * * *

Item 3. Synopsis or Highlights

* * * * *

Instructions

* * * * *
4. * * *
(c) * * *
(i) ``Other Expenses'' do not include extraordinary expenses.
``Extraordinary expenses'' refers to expenses that are distinguished by
their unusual nature and by the infrequency of occurrence. Unusual
nature means the expense has a high degree of abnormality and is
clearly unrelated to, or only incidentally related to, the ordinary and
typical activities of the fund, taking into account the environment in
which the fund operates. Infrequency of occurrence means the expense is
not reasonably expected to recur in the foreseeable future, taking into
consideration the environment in which the fund operates. The
environment of a fund includes such factors as the characteristics of
the industry or industries in which it operates, the geographical
location of its operations, and the nature and extent of governmental
regulation. If extraordinary expenses were incurred that materially
affected the Registrant's ``Other Expenses,'' the Registrant should
disclose in the narrative following the table what the ``Other
Expenses'' would have been had extraordinary expenses been included.
* * * * *

Item 20. Management

* * * * *
(m) Provide a brief statement disclosing whether the Registrant and
its investment adviser and principal underwriter have adopted codes of
ethics under Rule 17j-1 of the 1940 Act [17 CFR 270.17j-1] and whether
these codes of ethics permit personnel subject to the codes to invest
in securities, including securities that may be purchased or held by
the Registrant. Also explain in the statement that these codes of
ethics are available on the EDGAR Database on the Commission's internet
site at https://www.sec.gov, and that copies of these codes of ethics
may be obtained, after paying a duplicating fee, by electronic request
at the following Email address: [email protected].
* * * * *

Item 28. Financial Statements

(a) * * *

Instructions

(6) * * *
(ii) a statement that: (A) the Registrant files its complete
schedule of portfolio holdings with the Commission for the first and
third quarters of each fiscal year on Form N-Q; (B) the Registrant's
Forms N-Q are available on the Commission's website at https://www.sec.gov; and (C) if the Registrant makes the information on Form N-
Q available to contractowners on its website or upon request, a
description of how the information may be obtained from the Registrant;
* * * * *

0
125. Amend Form N-4 (referenced in Sec. Sec. 239.17b and 274.11c) by
revising Item 1.(a)(v) and revising Instruction 17.(b) to Item 3(a) to
read as follows:

Note: The text of Form N-4 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
* * * * *
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
* * * * *

[[Page 50234]]

INFORMATION REQUIRED IN A PROSPECTUS

* * * * *

Item 1. Cover Page

(a) * * *
(v) a statement or statements that: (A) The prospectus sets forth
the information about the Registrant that a prospective investor ought
to know before investing; (B) the prospectus should be kept for future
reference; (C) additional information about the Registrant has been
filed with the Commission and is available upon written or oral request
without charge (This statement should explain how to obtain the
Statement of Additional Information, whether any of it has been
incorporated by reference into the prospectus, and where the table of
contents of the Statement of Additional Information appears in the
prospectus. If the Registrant intends to disseminate its prospectus
electronically, also include the information that the Commission
maintains a website (https://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference, and other
information regarding registrants that file electronically with the
Commission.);
* * * * *

Item 3. Synopsis

* * * * *

Instructions

* * * * *
17. * * *
(b) ``Total Annual [Portfolio Company] Operating Expenses'' do not
include extraordinary expenses. ``Extraordinary expenses'' refers to
expenses that are distinguished by their unusual nature and by the
infrequency of occurrence. Unusual nature means the expense has a high
degree of abnormality and is clearly unrelated to, or only incidentally
related to, the ordinary and typical activities of the fund, taking
into account the environment in which the fund operates. Infrequency of
occurrence means the expense is not reasonably expected to recur in the
foreseeable future, taking into consideration the environment in which
the fund operates. The environment of a fund includes such factors as
the characteristics of the industry or industries in which it operates,
the geographical location of its operations, and the nature and extent
of governmental regulation. If extraordinary expenses were incurred by
any portfolio company that would, if included, materially affect the
minimum or maximum amounts shown in the table, disclose in a footnote
to the table what the minimum and maximum ``Total Annual [Portfolio
Company] Operating Expenses'' would have been had the extraordinary
expenses been included.
* * * * *

0
126. Amend Form N-6 (referenced in Sec. Sec. 239.17c and 274.11d) by
revising Item 1.(b)(3) and Instruction 4.(c) to Item 3 to read as
follows:

Note: The text of Form N-6 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM N-6

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [square]

* * * * *

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[square]

* * * * *

PART A: INFORMATION REQUIRED IN A PROSPECTUS

* * * * *

Item 1. Front and Back Cover Pages

* * * * *
(b) * * *
(3) State that reports and other information about the Registrant
are available on the Commission's internet site at https://www.sec.gov.
* * * * *

Item 3. Risk/Benefit Summary: Fee Table

* * * * *
Instructions.
* * * * *
4. * * *
(c) ``Total Annual [Portfolio Company] Operating Expenses'' do not
include extraordinary expenses. ``Extraordinary expenses'' refers to
expenses that are distinguished by their unusual nature and by the
infrequency of occurrence. Unusual nature means the expense has a high
degree of abnormality and is clearly unrelated to, or only incidentally
related to, the ordinary and typical activities of the fund, taking
into account the environment in which the fund operates. Infrequency of
occurrence means the expense is not reasonably expected to recur in the
foreseeable future, taking into consideration the environment in which
the fund operates. The environment of a fund includes such factors as
the characteristics of the industry or industries in which it operates,
the geographical location of its operations, and the nature and extent
of governmental regulation. If extraordinary expenses were incurred by
any Portfolio Company that would, if included, materially affect the
minimum or maximum amounts shown in the table, disclose in a footnote
to the table what the minimum and maximum ``Total Annual [Portfolio
Company] Operating Expenses'' would have been had the extraordinary
expenses been included.
* * * * *

0
127. Amend Form N-8B-2 (referenced in Sec. 274.12) by revising Item
52.(e) to read as follows:

Note: The text of Form N-8B-2 does not, and this amendment will
not, appear in the Code of Federal Regulations.

FORM N-8B-2

REGISTRATION STATEMENT OF UNIT INVESTMENT TRUSTS WHICH ARE CURRENTLY
ISSUING SECURITIES

* * * * *
VII
POLICY OF REGISTRANT
52. * * *
(e) Provide a brief statement disclosing whether the trust and its
principal underwriter have adopted codes of ethics under rule 17j-l of
the Act [17 CFR 270.l7j-l] and whether these codes of ethics permit
personnel subject to the codes to invest in securities, including
securities that may be purchased or held by the trust. Also explain
that these codes of ethics are available on the EDGAR Database on the
Commission's internet site at https://www.sec.gov, and that copies of
these codes of ethics may be obtained, after paying a duplicating fee,
by electronic request at the following Email address:
[email protected].
* * * * *

By the Commission.

Dated: August 17, 2018.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18142 Filed 10-3-18; 8:45 am]
BILLING CODE 8011-01-P

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