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From a focus on climate change to a push for diverse corporate boards, ESG matters – those related to environmental, social and corporate governance – have become the focus of corporations and investors alike.  Regarding ESG-related disclosure standards in particular, investors and corporations are both anxious to adopt and challenged to choose a standard that is both comprehensive and relevant to the respective company or industry.

Though the CDP (formerly the Carbon Disclosure Project), Climate Disclosure Standards Board (CDSB), Global Reporting Initiative (GRI), International Integrated Reporting Council (IIRC) and Sustainability Accounting Standards Board (SASB) have gained a great amount of attention and influence in recent years, they often appear to be multiple attempts toward the shared goal of integrated and comprehensive sustainability reporting.  Investors and corporations alike have called for simplifying corporate reporting in this space.

In September 2020, all five of these framework and standard-setting institutions issued a joint statement reflecting a vision to develop a comprehensive global corporate reporting system for sustainability disclosure.  While that statement did not specify the precise form of such collaboration and did not include a specific timeframe, a recent announcement brought this vision one step closer to actualization.

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Continue Reading One Step Closer Toward Consolidating Corporate Sustainability Reporting Standards

Register NowJoin our corporate and securities attorneys for our 2nd Annual Corporate & Securities Counsel Public Company Forum. This virtual program will feature timely and practical guidance on the latest developments in corporate and securities matters impacting public company in-house counsel.

Panels will include speakers from AutoZone, BNY Mellon, Brown-Forman, Farmer Brothers…

Bass, Berry & Sims invites you to join us for our 2nd Annual Corporate & Securities Counsel Public Company Forum.

Although we are unable to meet in-person due to ongoing concerns resulting from the COVID-19 pandemic, we are excited to host this year’s forum virtually.

This complimentary program will feature timely and practical guidance on the latest developments in corporate and securities matters impacting public company in-house counsel.

Panel and breakout discussion topics will include:

  • Financial reporting and disclosure considerations.
  • Insights from public company general counsel.
  • 2021 proxy season developments.
  • Restaurant & hospitality industry trends.
  • ESG considerations.

We are also pleased to welcome Myron T. Steele, former Chief Justice of the Delaware Supreme Court, as a featured speaker. Bass, Berry & Sims partner Leigh Walton will lead a fireside chat with former Chief Justice Steele about recent areas of focus for the Delaware judiciary, including COVID-19 related emergency orders, directors’ considerations for multiple stakeholder interests when discharging fiduciary duties, and corporate governance around ESG and diversity. Their discussion will also review the impact of federal elections on corporate law.

The program will take place on December 8, 2020, from 1:00-4:00PM CT and is intended for in-house counsel, public company finance and SEC reporting personnel, compliance officers, and other interested professionals.

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Continue Reading [REGISTER NOW] Corporate & Securities Counsel Public Company Forum | December 8, 2020

Over the past eight months of this pandemic, we have all seen the rise of e-commerce as a vital necessity for most companies.  For many companies, e-commerce has significantly outperformed their existing sales channels and consumers have now become acclimated to a seamless “omnichannel” shopping experience where they can purchase online and wait for delivery or pick-up curbside or in the store. A recent WSJ article proclaims that the embrace of digital commerce is here to stay even after the pandemic.

In light of the surge in e-commerce activity, it makes sense that many companies are separately calling out their e-commerce sales and growth performance in their quarterly earnings calls, SEC filings and investor presentations.

Disaggregated Revenue Disclosure Requirement

As companies continue to focus on their sales channel disclosures, one potential sleeper issue could be the new revenue recognition standard’s requirement on disclosure of disaggregated revenues.  Under ASC 606-10-50-5, a public company must “disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.”

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Continue Reading How a Surge in E-Commerce Sales Could Impact Financial Reporting; A Look at ASC 606 and Disaggregated Revenue

As we have previously discussed, on August 26, the Securities and Exchange Commission (SEC) voted to adopt amendments to modernize the description of business (Item 101), legal proceedings (Item 103), and risk factor (Item 105) disclosures that registrants are required to make according to Regulation S-K. For a summary of the rules and practical takeaways, see our prior blog post here. The new rules will be effective on November 9, 2020. The amendments, particularly the revisions to Item 101 (description of business), reflect the SEC’s continued movement to a principles-based, registrant-specific approach to disclosure.

As stated in the SEC’s economic analysis in its adopting release, prescriptive requirements employ bright-line, quantitative or other thresholds to identify when disclosure is required or require registrants to disclose the same types of information. Principles-based requirements, on the other hand, provide registrants with the flexibility to determine (1) whether certain information is material, and (2) how to disclose such information.

As registrants transition to a more principles-based disclosure regime under new Item 101, it will be interesting to see how disclosures change, if at all. However, a recent SEC comment letter exchange may reveal one example of how companies that were previously required to include sensitive disclosures as a result of the prescriptive requirements (e.g., the names of material customers), might now be able to modify their disclosures in order to remove these sensitive areas, to the extent they deem such information immaterial to investors.

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Continue Reading Recent SEC Comment Letter Reveals the Difference Between Prescriptive-Based and Principles-Based Rules

Subscribers to our blog know that we monitor EDGAR for new SEC comment letters and enjoy bringing attention to the more interesting ones.  In today’s blog post, we bring you three new SEC comment letter exchanges.

  • In the first, the SEC asks the registrant for more information related to a COVID-19-related adjustment in its non-GAAP financial measure.
  • The second involves the SEC questioning, and eventually disagreeing with, the registrant’s materiality analysis under Staff Accounting Bulletin No. 99 (SAB 99).
  • The third letter involves an offering document produced by South Korea.

SEC Staff Wants More Information about a COVID-19 Adjustment in Non-GAAP Net Income

We’ve previously blogged about COVID-19-related adjustments in connection with the presentation of non-GAAP financial measures, including the difficulty that some public companies may have in reasonably quantifying the extent to which incremental expenses were driven by the COVID-19 pandemic as opposed to other factors.…
Continue Reading Recent SEC Comment Letters of Interest Regarding COVID-19 Adjustments, SAB 99 and South Korea

On August 26, the SEC voted to adopt amendments to modernize the description of business (Item 101), legal proceedings (Item 103), and risk factor disclosures (Item 105) that registrants are required to make pursuant to Regulation S-K.  The amendments reflect the SEC’s continued movement to a principles-based, registrant-specific approach to disclosure.

As detailed below, some of the changes are rather significant, particularly the changes to the business disclosures and the requirement to have a new risk factor summary section of no more than two pages if the risk factors exceed 15 pages.  As a result, we expect most companies will need to make revisions and updates to their existing disclosures, specifically in connection with their Annual Report on Form 10-K where Items 101 and 105 of S-K are triggered. The rules are effective 30 days after their publication in the Federal Register.

The following table briefly summarizes the final amendments.  We have presented some practical takeaways following the table.

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Continue Reading Practical Takeaways on SEC Amended Disclosure Requirements for Business Description, Legal Proceedings and Risk Factors under Regulation S-K

Following up on our prior blog post regarding first quarter COVID-19 risk factor disclosure considerations and our prior blog post regarding second quarter COVID-19 risk factor disclosure considerations, we surveyed the risk factor disclosures of 75 calendar year-end NYSE- and Nasdaq-listed companies included in Quarterly Reports on Form 10-Q (Form 10-Qs) filed for the first and second quarters of 2020.

Risk Factor Survey Results

Of the companies surveyed, we found that 96%, or 72 of the companies surveyed, included standalone risk factors related to COVID-19 (the average number of COVID-19 risk factors was approximately 1.16). None of the companies surveyed included an additional standalone COVID-19 risk factor in the second quarter Form 10-Q that was not in the first quarter Form 10-Q.  Approximately 63%, or 47 of the companies surveyed, updated their COVID-19 risk factor disclosure from their first quarter 2020 Form 10-Q in their second quarter 2020 Form 10-Q.

The three companies that did not include a standalone COVID-19 risk factor disclosure during their first or second quarter 2020 Form 10-Q did include language indicating that COVID-19 could exacerbate or heighten the risk factors that were previously included in their 2019 Annual Report on Form 10-K. A small portion of the companies we surveyed repeated the risk factor disclosure from their first quarter Form 10-Q verbatim in their second quarter Form 10-Q. However, most of the companies that did not update their first quarter Form 10-Q COVID-19 risk factor disclosure in their second quarter Form 10-Q incorporated their first quarter Form 10-Q risk factor disclosure by reference.

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Continue Reading Updated Risk Factors in Response to COVID-19

In a first-quarter (for calendar year-end companies) SEC disclosure landscape dominated by COVID-19 considerations, almost all public companies included a new risk factor addressing COVID-19 in their first quarter Form 10-Q. Public companies are now considering potential risk factor disclosure in their Form 10-Q related to COVID-19 (see our prior blog post regarding first quarter COVID-19 risk factor disclosure considerations).

With respect to assessing whether to include potential COVID-19 risk factor disclosure in upcoming Form 10-Qs, as a starting point, Part II, Item 1A of Form 10-Q requires that public companies “set forth any material changes from risk factors as previously disclosed in the registrant’s Form 10-K” (emphasis added).

This language from Form 10-Q, on its face, would appear to require public companies to continue to disclose risk factors included in a prior Form 10-Q in any subsequent Form 10-Qs filed before the next Form 10-K in light of the statement about including material changes from the prior Form 10-K (compare the 2005 adopting release of the SEC promulgating this Form 10-Q risk factor requirement, which stated that the Form 10-Q should disclose risk factors “to reflect material changes from risks factors as previously disclosed in Exchange Act reports” (emphasis added).

While practice has not been uniform regarding whether public companies repeat risk factors included in a prior Form 10-Q in subsequent Form 10-Qs, there is a good argument based on the text of Form 10-Q as cited above that public companies should continue to repeat (with updated language, as applicable) risk factors included in a prior Form 10-Q in subsequent Form 10-Qs through the filing of the next Form 10-K (assuming that the risk remains applicable).

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Continue Reading Approaching COVID-19 Risk Factor Disclosure in Upcoming Quarterly Reports on Form 10-Q

Earlier this year, the Securities and Exchange Commission (SEC) issued interpretive guidance, effective February 25, 2020, regarding the disclosure of key performance indicators and metrics (KPIs) in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), which we discussed in a previous blog post.

This guidance may not have been at the forefront of disclosure matters under consideration for many companies during the first quarter 2020 reporting cycle given the disclosure and other challenges resulting from the COVID-19 pandemic at that time.

Reminders for Public Companies

With the passage of time and a greater sense of clarity on COVID-19 disclosure matters, some companies may use the second quarter 2020 financial reporting cycle as an opportunity to revisit, review and, to the extent necessary, revise their KPI disclosure to ensure alignment with SEC’s interpretative guidance issued during the first quarter 2020. As companies do so, they should ensure that KPIs and other operating metrics disclosed in the MD&A are appropriately considered. For example, to the extent a company identifies an operating metric as a KPI, the company should ensure that its disclosure aligns with the SEC’s interpretive guidance, which may include current and prior-year period comparative disclosure and analysis of factors contributing to year-over-year changes, to the extent material.

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Continue Reading Second Quarter Form 10-Q Disclosure Reminder: SEC Guidance on Key Performance Indicators