SEC Adopts Amendments to Modernize and Enhance Management’s Discussion and Analysis and Other Financial Disclosures

November 23, 2020 (Updated July 22, 2021)

The US Securities and Exchange Commission (SEC) announced that it voted on November 19, 2020 to adopt rules to modernize, simplify, and enhance certain financial disclosures required of public companies under Regulation S-K. The amendments are intended to eliminate duplicative disclosures and modernize and enhance Management’s Discussion and Analysis of financial condition and results of operations (MD&A) disclosures for the benefit of investors, while simplifying compliance efforts for companies. The SEC had proposed the amendments to Regulation S-K on January 30, 2020 as part of its ongoing efforts to evaluate and improve the existing overall disclosure regime.

The amendments demonstrate the SEC’s focus on a more tailored and “principles-based” approach to disclosure requirements, consistent with its recent amendments to the disclosure requirements for business, legal proceedings, and risk factor disclosures. Commissioners Allison Lee and Caroline Crenshaw dissented to the amendments, noting, among other matters, that the amendments do not address climate risk.

As described in more detail below, voluntary early compliance with the amendments is permitted, beginning 30 days after publication of the amendments in the Federal Register.  This means that for registrants with December 31 fiscal years will be able to elect to comply with the amended requirements with their upcoming annual report on Form 10-K; however, to comply voluntarily with any element of a revised S-K Item, a registrant must comply with the revised Item in its entirety.

The main revisions to the disclosure requirements consist of:

  • Eliminating Item 301 (Selected financial data), which required five years of selected financial data;
  • Replacing the current Item 302(a) (Supplementary financial information) requirement for quarterly tabular disclosure with a principles-based requirement for material retrospective changes;
  • Adding a new Item 303(a) (Objective) to convey the principal objectives of MD&A;
  • Amending current Item 303(a)(1) and (2) (amended Item 303(b)(1)) to address cash requirements, the anticipated source of funds needed to satisfy each such cash requirement, and the general purpose of such requirements;
  • Amending current Item 303(a)(3) (amended Item 303(b)(2)) to require disclosure of known events that are reasonably likely to cause a material change in the relationship between costs and revenues;
  • Adding a new Item 303(b)(3) (Critical accounting estimates) to clarify and codify existing SEC guidance on critical accounting estimates;
  • Replacing current Item 303(a)(4) (Off-balance sheet arrangements) with an instruction to discuss such obligations within the broader context of MD&A;
  • Eliminating current Item 303(a)(5) (Tabular disclosure of contractual obligations) in light of the amended disclosure requirements for liquidity and capital resources and the overlap with information required in the financial statements; and
  • Amending current Item 303(b) (Interim periods) (amended Item 303(c)) to permit registrants to compare their most recently completed quarter to either the corresponding quarter of the prior year or to the immediately preceding quarter.

Please refer to this table (also included at the end of this lawflash) for a summary outline of the new structure of Item 303 following these amendments.

Elimination of Item 301, Selected Financial Data

The amendments eliminate Item 301, which required registrants to provide five years of selected financial data. The adopting release noted that financial data for the three most recent years is already required under Item 303, while information for the earlier two years is already available in prior filings. In addition, the SEC highlighted that Item 303 already requires and will continue to require disclosure of trend data that should continue to include material trend disclosure beyond the three years prescribed in Item 303. The SEC encourages registrants to consider whether trend information for periods earlier than those addressed in MD&A may be necessary to provide material information that is relevant to an assessment of the financial condition and results of operations of the registrant.

Item 302(a), Supplementary Financial Information

The SEC has replaced the requirement to provide two years of tabular selected quarterly financial data with a principles-based requirement for material retrospective changes. Specifically, disclosure will be required when there are one or more retrospective changes that relate to the statements of comprehensive income for any of the quarters within the two most recent fiscal years and any subsequent interim period for which financial statements are required to be included, and that, individually or in the aggregate, are material. The adopting release provides a non-exhaustive list of retrospective changes that may trigger Item 302(a) disclosure, which include: correction of an error, disposition of a business that is accounted for as discontinued operations, a reorganization of entities under common control, or a change in an accounting principle.

The amendment also changes the application of Item 302(a). As revised, Item 302(a) applies beginning with the first filing on Form 10-K after the registrant’s initial registration of securities under sections 12(b) or 12(g) of the Exchange Act.

Item 303(a), Objective

New Item 303(a) states the objectives of MD&A and streamlines the 14 instructions to current Item 303(a). As amended, Item 303(a) calls for the following disclosures:

  • Material information relevant to an assessment of the financial condition and results of operations of the registrant, including an evaluation of the amounts and certainty of cash flows from operations and from outside sources
  • Material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or of future financial condition
  • The material financial and statistical data that the registrant believes will enhance a reader’s understanding of the registrant’s financial condition, cash flows and other changes in financial condition, and results of operations

The SEC emphasized that these objectives apply throughout amended Item 303 and encourages registrants to revisit these objectives as they prepare their MD&A disclosure. Specifically, the adopting release explains that a determination of whether a matter is “reasonably likely” to have a material impact on future operations is based on management’s assessment.

New Item 303(b)(1), Liquidity and Capital Resources

Under new Item 303(b)(1)(i), registrants must provide material cash requirements, including commitments for capital expenditures, the anticipated source of funds needed to satisfy such cash requirements, and the general purpose of those requirements. The principal objective of the amended requirement is to address capital expenditures that are not necessarily capital investments. The adopting release noted that this amendment does not establish a new threshold for disclosure, but instead reflects existing SEC guidance.

New Item 303(b)(2)(ii), Known Trends or Uncertainties

Under new Item 303(b)(2)(ii), registrants must disclose known events that are reasonably likely to cause a material change in the relationship between costs and revenues, such as known or reasonably likely future increases in costs of labor or materials or price increases or inventory adjustments. The adopting release explains that considering whether disclosure of a known event or uncertainty is required is a two-step process. First, registrants should consider whether a known trend, demand, commitment, event or uncertainty is likely to come to fruition. Second, registrants should assess whether such known trend, demand, commitment, event or uncertainty would reasonably be likely to have a material effect on the registrant’s future results or financial condition. If so, disclosure is required.

The adopting release underscored that the SEC is not adopting the probability/magnitude test set forth by the US Supreme Court in Basic v. Levinson[1] into MD&A. The SEC noted that the probability/magnitude test could result in disclosure of matters that are significant in potential magnitude but low in probability. Instead, the SEC believes the “reasonably likely” threshold provides registrants with “a tailored and meaningful framework from which to objectively analyze whether forward-looking information is required.”

New Item 303(b)(2)(iii), Net Sales and Revenues

Amended Item 303(b)(2)(iii) clarifies that registrants must discuss material changes in net sales or revenue, rather than only material increases as set forth in current Item 303(a)(3)(iii). The adopting release highlights that SEC guidance has long clarified that MD&A requires discussion of any material changes in net sales or revenue.

Elimination of Item 303(a)(3)(iv), Inflation and Price Changes

Item 303(a)(3)(iv) currently requires registrants to discuss the impact of inflation on their net sales, revenue, and income from continuing operations, to the extent material, over the three most recent fiscal years (or, if shorter, the length of time the registrant has been in business). Under Instruction 9 to Item 303(a), registrants can also elect to disclose supplementary information on the effects of changing prices, either combined with Item 303(a) disclosure or separately with an appropriate cross reference.

The amendments eliminate any explicit requirement to discuss inflation and changing prices, although registrants still will need to consider any material impact of these factors. In the proposing release, the SEC noted that calling out inflation and changing prices specifically could “give undue attention to this topic,” and that Item 303 already requires disclosure of known trends or uncertainties—including inflation and/or changing prices—that could materially impact a registrant’s business. Also, as amended, Item 303 requires that registrants discuss the reasons for any material changes to financial statement line items on a period-over-period basis, which could drive the need to discuss inflation and changing prices.

New Instruction 8 to Item 303(b), Off-Balance Sheet Arrangements

The amendments eliminate the requirement to provide off-balance sheet arrangement disclosures under current Item 303(a)(4) in favor of a new instruction that aims to have registrants incorporate disclosure of off-balance sheet arrangements within the overall MD&A. Under the new instruction, registrants will be required to discuss commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have, or are reasonably likely to have, a material current or future impact on financial condition, revenues or expenses, results of operations, liquidity, cash requirements, or capital resources even where the arrangement does not result in an obligation being reported in the registrant’s balance sheets.

Elimination of Item 303(a)(5), Contractual Obligations, and Amendments to Item 303(b), Liquidity and Capital Resources

Registrants will no longer be required to disclose their known contractual obligations in a table. Instead, under Item 303(b), as amended, registrants must specifically discuss material cash requirements from known contractual and other obligations in a principles-based approach to their liquidity and capital resources disclosures. In adopting this change, the SEC acknowledged that many registrants consider the preparation of this table to be burdensome, and noted that the information provided by this table will remain available to investors in the financial statements and woven into the overall liquidity and capital resources discussion presented in MD&A.

In the adopting release, the SEC noted that amendments to Item 303(b) will focus on material liquidity and capital resources requirements and specify that registrants should consider material cash needs resulting from known contractual and other obligations as part of this disclosure. Item 303(b) will, accordingly, be amended as follows.

  • As amended, Item 303(b)(1) provides overall parameters for liquidity and capital resources disclosures, and incorporates portions of current Instruction 5 to Item 303(a).[2]
  • The amendments codify prior SEC guidance specifying what is meant by short- and long-term liquidity and capital resources and require a discussion of liquidity and capital resources on both a short- and long-term basis. “Short-term” refers to needs up to 12 months, while “long-term” means anything beyond 12 months.
  • As amended and discussed above, Item 303(b)(1) will require registrants to consider material cash requirements from known contractual and other obligations, with disclosures to specify the type of obligation and the applicable time period for the cash requirement.
  • New Instruction 3 to Item 303(b) provides that Item 303(b) disclosure “should be in a format that facilitates easy understanding and that supplements, and does not duplicate, disclosure already provided in the filing.”
  • New Instruction 4 to Item 303(b) indicates that the discussion of material cash requirements from known contractual obligations may include lease obligations, purchase obligations, or other liabilities that are reflected on the balance sheet.

Instruction 4 to Item 303(a), Material Changes in Line Items

Instruction 4 to Item 303(a) currently requires disclosure of the “causes for” material year-over-year changes in one or more line items. This concept will now be incorporated in new Item 303(b), which will include language clarifying that a registrant should disclose within MD&A the “reasons underlying”—rather than the “causes for”—any material changes to one or more line items on a period-to-period basis, including in situations where material changes within a line item offset each other. With this amendment, the SEC intends to foster a “more meaningful discussion of the underlying reasons that may be contributing to material changes in line items.”

Item 303(c), Interim Periods

The SEC is amending Item 303(c), which currently is Item 303(b), to give registrants more flexibility in the interim periods compared. Item 303(c), as amended, also will eliminate certain instructions and provide cross-references to similar instructions to Item 303(b), with the goal of decreasing the burden on registrants. As amended, registrants will be allowed to compare their most recently completed quarter to either the corresponding quarter of the prior year or the immediately preceding quarter. If a registrant chooses to discuss changes from the immediately preceding quarter, it must provide summary financial information for that quarter or, alternatively, identify the prior EDGAR filing that includes such information. To the extent that a registrant changes its elected comparison (i.e., moving from a quarter-to-preceding quarter comparison to a year-over-year comparison) in a subsequent Form 10-Q, it must explain the reason for the change and present both comparisons in the filing where the change is announced. Amended Item 303(c)(2)(i) will continue to require registrants to discuss any material changes in their results of operations between the most recent year-to- date interim period(s) and the corresponding period(s) of the preceding fiscal year for which statements of comprehensive income are provided. Amended Item 303(c) also will continue to require an interim discussion and analysis of the material changes in items that are specified in the full fiscal year requirements under amended Item 303(b).

In the adopting release, the SEC noted that this change will help registrants provide disclosure that is more meaningful to their particular business cycles.

New Item 303(b)(3), Critical Accounting Estimates

While disclosure of critical accounting estimates is not currently mandated by Item 303, the SEC previously has provided guidance (in the 2003 MD&A Interpretive Release) that registrants should consider whether accounting estimates and judgments could materially impact reported financial information. New Item 303(b)(3) codifies this prior guidance, and will explicitly require registrants to disclose critical accounting estimates.

The proposing release set the following parameters around this new requirement:

  • “Critical accounting estimates” was defined as “those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the registrant’s financial condition or results of operations.”
  • Registrants would be required to disclose for each critical accounting estimate, to the extent material, why the estimate is subject to uncertainty, how much each estimate has changed during the reporting period, and the sensitivity of the reported amounts to the methods, assumptions, and estimates underlying the estimate’s calculation.
  • Registrants should provide quantitative and qualitative information to the extent quantitative information “is reasonably available” and would be material to investors.

The SEC adopted new Item 303(b)(3) substantially as proposed, with the following significant exceptions:

  • Registrants may apply the “material and reasonably available” qualifier to all of the disclosure called for under the Item, not just to quantitative information.
  • Registrants may address the requirement to disclose how much the estimate has changed during the reporting period by discussing changes in the assumptions during the relevant period.
  • The disclosure of changes to the estimate or assumption, as applicable, will cover a “relevant period,” not a “reporting period,” in order to give registrants flexibility to determine the period necessary to describe such material changes.

Conforming Amendments

The adopting release also includes conforming amendments to the financial disclosure requirements for foreign private issuers, including to Forms 20-F and 40-F, in line with the above changes.

Effectiveness and Compliance Deadline

The amendments became effective February 10, 2021. Registrants are required to comply with the rule beginning with the first fiscal year ending on or after August 9, 2021. For calendar year-end companies, this would be the Form 10-K, 20-F, or 40-F for the year ended December 31, 2021. Registrants will be required to comply with the amendments in a registration statement and prospectus that on its initial filing date is required to contain financial statements for a period on or after the mandatory compliance date.

In addition, registrants may comply with the amendments any time after the effective date, so long as they provide disclosure responsive to an amended item in its entirety. For example, companies may stop providing selected financial data disclosure pursuant to prior Item 301 immediately upon the effective date. As another example, if a company voluntarily provides disclosure pursuant to one of the new requirements under Item 303, such as a discussion of cash requirements under new Item 303(b)(1), then the company must provide disclosure complying with each of the requirements of Item 303. In practice, since the vast majority of the new disclosure requirements are located under amended Item 303, early compliance with nearly any of the amendments will require registrants to comply with the rest of the requirements under that Item. Further, once a registrant voluntarily complies with the new amendments before the mandatory compliance date, the registrant must provide such disclosure in any applicable flings going forward.

Summary of Changes to Regulation S-K Item 303

Current Requirement

Amended Requirement


Item 303(a), Objective

Item 303(a), Full fiscal years

Item 303(b), Full fiscal years

Item 303(a)(1), Liquidity

Item 303(a)(2), Capital resources

Item 303(b)(1), Liquidity and Capital Resources

  • (i)Liquidity
  • (ii)Capital Resources

Item 303(a)(3), Results of operations

  • (i)Unusual or infrequent events
  • (ii)Known trends or uncertainties
  • (iii)Material increases
  • (iv)Inflation and changing prices

Item 303(b)(2), Results of operations

  • (i)Unusual or infrequent events
  • (ii)Known trends or uncertainties
  • (iii)Material changes

Item 303(a)(4), Off-balance sheet arrangements (and related instructions)

Replaced with Instruction 8 to Item 303(b)

Item 303(a)(5), Tabular disclosure of contractual obligations

Eliminated, with some content incorporated into Item 303(b)(1) and Instruction 4 to Item 303(b))

2003 MD&A Interpretative Release, Critical accounting estimates

Item 303(b)(3), Critical accounting estimates

Instruction 1 to Item 303(a)

Instruction 1 to Item 303(b)

Instruction 2 to Item 303(a)

Eliminated, with content incorporated into Item 303(a), Objective

Instruction 3 to Item 303(a)

Eliminated, with content incorporated into Item 303(a), Objective

Instruction 4 to Item 303(a)

Instruction 2 to Item 303(b); some content incorporated into Item 303(b)


Instruction 3 to Item 303(b)

Instruction 5 to Item 303(a)

Instruction 4 to Item 303(b); some content incorporated into Item 303(b)(1)

Instruction 6 to Item 303(a)

Instruction 5 to Item 303(b)

Instruction 7 to Item 303(a)

Instruction 6 to Item 303(b)

Instructions 8 and 9 to Item 303(a)


Instruction 10 to Item 303(a)

Instruction 7 to Item 303(b)

Instruction 11 to Item 303(a)

Instruction 9 to Item 303(b)

Instruction 12 to Item 303(a)

Instruction 10 to Item 303(b)

Instructions 13 and 14 to Item 303(a)


Item 303(b), Interim periods

  1. Material changes in financial condition
  2. Material changes in results of operations

Item 303(c), Interim periods

  1. Material changes in financial condition
  2. Material changes in results of operations
  • (i)Material changes in results of operations (year-to-date)
  • (ii)Material changes in results of operations (quarter comparisons)

Instruction 1 to Item 303(b)

Instruction 1 to Item 303(c)

Instructions 2 and 3 to Item 303(b)


Instruction 4 to Item 303(b)

Instruction 2 to Item 303(c)

Instructions 5, 6, 7 to Item 303(b)


Instruction 8 to Item 303(b)

Instruction 11 to Item 303(b)

Item 303(c), Safe harbor


Item 303(d), Smaller reporting companies



If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Laurie Cerveny
Michael Conza
Bryan Keighery
Carl Valenstein
Julio Vega

Torsten Schwarze

Hong Kong
June Chan
Eli Gao
Louise Liu
Edwin Luk
Billy Wong

Timothy J. Corbett
Iain Wright

Carter Brod

New York
Thomas P. Giblin, Jr.
Howard A. Kenny
Christina Melendi
Kimberly M. Reisler

Palo Alto
Albert Lung

Justin W. Chairman
James W. McKenzie
Joanne R. Soslow

Celia Soehner

David C. Schwartz

Bernard Lui*
Joo Khin Ng

[1] 485 U.S. 224 (1988).

[2] Current Instruction 5 to Item 303(a), and Item 303(b)(1), as amended, define “liquidity” as “the ability to generate adequate amounts of cash to meet the enterprise’s needs for cash.”