SEC Staff Updates the Financial Reporting Manual and Issues Compliance and Disclosure Interpretations

The staff of the SEC’s Division of Corporation Finance (the Division) published an update to the Division’s Financial Reporting Manual (FRM)¹ in January. The inside cover of the FRM lists a summary of the paragraphs that were updated. The updates² include:

• A new phone number for contacting the Division’s Office of the Chief Accountant to discuss questions about financial statement waiver requests pursuant to Rule 3-13 of Regulation S-X and a link to the new online submission form for the requests;
• Conforming changes related to the March 2020 amendments to Rules 3-10 and 3-16 of Regulation S-X that address the financial disclosure requirements about guarantors and issuers of guaranteed securities and affiliates whose securities collateralize a registrant’s securities;
• Guidance related to the implementation of Accounting Standards Update 2018-12, Financial Services – Insurance: Target Improvements to the Accounting for Long-Duration Contracts, when a new or amended Form S-3 is filed in the year of adoption; and
• The removal of outdated information, such as the adoption of ASC 606.

The Division also released new Compliance and Disclosure Interpretations (C&DIs) related to the SEC’s new rules requiring the recovery of erroneously awarded compensation:

• Questions 121H.01, 104.19, 110.09, and 112.04 clarify that the SEC does not expect compliance with the disclosure requirements related to the recovery of erroneously awarded compensation, including populating the new checkboxes on the cover of Forms 10-K, 20-F, and 40-F, until issuers are required to have a recovery policy under the applicable exchange listing standards.³  Accordingly, registrants need not evaluate the new checkboxes in connection with upcoming filings even though they will appear on the cover page of these reports.
• Questions 121H.02, 121H.03, 110.08, and 112.03 provide guidance on which persons are considered named executive officers and require individualized disclosure pursuant to new Item 6.F of Form 20-F and Item B.(19) of Form 40-F.
• Question 121H.04 clarifies that the recovery of erroneously awarded compensation is intended to apply broadly to a registrant’s incentive-based compensation.

¹ The FRM is an internal SEC staff reference document that provides general guidance covering several SEC reporting topics. While the FRM is not authoritative, it is often a helpful source of guidance for evaluating SEC reporting issues.

² The updates do not include conforming changes for the S-X Rule 3-05 or Article 11 amendments that became effective in 2021. Accordingly, those who refer to the FRM for guidance on reporting matters should reference it with caution, as portions related to the reporting for significant acquisitions and pro forma financial statements are outdated.

³ While the SEC’s rules are effective, the listing standards are not required to be effective until November 28, 2023, and registrants will have 60 days thereafter to adopt recovery policies that comply with the standards.