Key Considerations for the 2022 Annual Reporting Season: Form 20-F and Other FPI-Specific Considerations

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This memorandum outlines key considerations from White & Case's Public Company Advisory Group for foreign private issuers ("FPIs") during the 2022 annual reporting season.

This memo describes our key considerations for Annual Reports on Form 20-F in two parts:

(1) Eight Housekeeping Considerations for Form 20-F in 2022; and

(2) Eight Disclosure Considerations for Form 20-F in 2022.


Form 20-F: Key Housekeeping and Disclosure Considerations in 2022

I. Eight Housekeeping Considerations

The following eight housekeeping items are reminders for Form 20-Fs:

(1) Confirm Your Filing Status:

First, confirm your filing status (i.e., "large accelerated filer," "accelerated filer," "non-accelerated filer" or "emerging growth company") in order to appropriately complete your Form 20-F cover page. An FPI must indicate its filing status, which impacts (i) to the extent applicable, whether it continues to qualify an emerging growth company ("EGC") (i.e., until the first fiscal year where an issuer becomes a "large accelerated filer"), and (ii) whether it is subject to SOX 404(b) auditor attestation requirements (which apply once an issuer becomes an "accelerated filer" or a "large accelerated filer"). See the SEC's helpful compliance guide, as well as its guide for EGCs and filing status definitions.

(2) Confirm Form 20-F Cover Page Includes ICFR Language:

Make sure your Form 20-F cover page is updated to reflect last year's change by confirming the below language has been added to the cover page. Each FPI must check this Form 20-F cover page box, unless its Form 20-F does not include an independent auditor's report attesting to the effectiveness of its internal control over financial reporting, due to its status as an EGC or a non-accelerated filer.1

"Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 USC. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☐"

(3) Update Part I, Item 3.A and Items 5.E and 5.F in Body of Form 20-F and Table of Contents:

The requirement under Item 3.A of Part I of Form 20-F to provide five years of selected financial data has been removed. Remember to update Item 3.A to state "Item 3.A. [Reserved]" instead of "Item 3.A. Selected Financial Data" as was included in the prior version of the Form 20-F. This change should be made both in the table of contents and the body of the Form 20-F. Additionally, Item 5.F of Part I of Form 20-F (Contractual Obligations) has been eliminated, and Item 5.E of Part I of Form 20-F (Off-Balance Sheet Information) has been renamed "Critical Accounting Estimates." These changes should be reflected both in the table of contents and in the body of the Form 20-F. For more information, including substantive changes to these sections, see "Considerations for the Form 20-F in 2022: Mandatory Compliance with SEC's Rule Amendments to Part I of Form 20-F, Item 3.A and Item 5" below.

(4) Add New Item 16I (Disclosure Regarding Foreign Jurisdictions that Prevent Inspections) in Body of Form 20-F and Table of Contents:

New Item 16I was added to Form 20-F under the Holding Foreign Companies Accountable Act, which requires the SEC to identify each "covered issuer" that has retained a registered public accounting firm to issue an audit report where that registered public accounting firm has a branch or office that is located in a foreign jurisdiction and the Public Company Accounting Oversight Board has determined that it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction. Item 16I requires that these companies "must electronically submit to the [SEC] on a supplemental basis documentation that establishes that the registrant is not owned or controlled by a governmental entity in the foreign jurisdiction." Even companies not directly impacted by the law must include new Item 16I in their Form 20-F with the caption "Disclosure Regarding Foreign Jurisdictions that Prevent Inspections" and indicate that it is "Not applicable," where appropriate, and all companies should make sure this is added to the table of contents of their Form 20-F.

(5) Check Form 20-F Exhibit Index:

Carefully review your exhibit list and add any required exhibits, including exhibits that were filed since last year's Form 20-F, as well as the recently added registered debt exhibit, if applicable,2 and the description of securities for each class of securities registered under Section 12 of the Securities Exchange Act of 1934 exhibit. Additionally, remove outdated exhibits no longer required to be filed, such as material contracts that have been fully performed. Also, make sure that you have updated your exhibits in accordance with the changes to material exhibits summarized in our 2020 annual memo, as well as the following changes:

  • Remove Undertaking to Provide Omitted Schedules from Exhibit List: Previously, companies were only permitted to omit schedules from plans of acquisitions and material contracts if they filed a list briefly identifying the contents of all omitted schedules together with an agreement to furnish to the SEC a copy of the omitted schedules upon request. However, under the amended "Instructions as to Exhibits", this agreement is no longer specifically required, and therefore disclosure regarding such an agreement (often provided in a footnote to the exhibit list) should be removed. Nevertheless, upon request, a company must still provide a copy of any omitted schedule to the SEC or its staff.3
  • Consider Recent Changes for Confidential Treatment of Exhibits:
    • Ability to Redact Information for New Exhibits. As a reminder, companies are now permitted to omit confidential information from material contracts without having to submit a formal confidential treatment request ("CTR"), so long as the redacted information: (i) is not material; and (ii) the registrant customarily and actually treats that information as private or confidential.4 Companies should follow the procedures for redactions described in the SEC Staff guidance, which also notes that the Staff is selectively reviewing filings for compliance.5 As an alternative, companies can still use the traditional CTR process.6
    • Check for Expiring Confidential Treatment Request Orders. Prior to filing your Form 20-F, you should check if your company has any expiring confidential treatment orders on material agreements. Depending on when the order was originally issued, there are different requirements to request a renewal of the order, as explained in the SEC Staff guidance.

(6) Ensure Criteria Are Met to Enable Use of Electronic Signatures:

As a reminder, following SEC rule amendments adopted in 2020, individuals now have the option to sign an SEC filing with an electronic signature, instead of a manual, wet-ink signature.7However, before a signatory can use electronic signatures, the signatory must first take certain steps and abide by the attestation requirements described below:

  • Remember the Attestation Requirement. The signatory must first have manually signed a blanket attestation stating that the use of an electronic signature will, for all future SEC filings, constitute the legal equivalent of the individual's manual signature for authentication purposes. See Appendix A for a sample attestation. An electronic filer must retain this manually signed attestation for as long as the signatory may use an electronic signature to sign an SEC filing (and in any case, at least seven years after the date of the most recent electronically signed SEC filing) and furnish a copy of the manual signature to the SEC upon request.
  • Establish Required Signing Process. In addition, companies using electronic signatures must abide by new processes established by the SEC. In particular, the signing process for electronic signatures is now set forth in the EDGAR Filing Manual8 and requires a number of steps, including that the signatory "present a physical, logical or digital credential that authenticates the signatory's individual identity" and that the electronic signature "include a timestamp to record the date and time of the signature."9 DocuSign and other popular electronic signature software will generally satisfy these criteria.

(7) Update D&O Questionnaires, with Attention to Board Diversity and Bios:

Ahead of your Form 20-F filing, review and update your D&O questionnaires, which provide back-up and support for the disclosure to be included in your Form 20-F and your annual meeting proxy statement. In particular, if you are a Nasdaq-listed company subject to the board diversity requirements or otherwise plan to voluntarily disclose the diversity of your directors due to the policies of proxy advisers and/or institutional investors or otherwise, be sure to add in a question to elicit information on your directors' diversity characteristics and obtain their consent to disclose this information in the company's SEC filings. The new listing rules require all Nasdaq-listed companies to publicly disclose, starting in 2022, "consistent, transparent diversity statistics regarding their board of directors" using a standardized disclosure matrix template in their annual meeting proxy statements. The matrix must be included in the company's Form 20-F or on its website.10 See Appendix B for a sample question to add to your D&O Questionnaires, and Appendix C for a summary of the Nasdaq diversity disclosure requirement (including a sample of the Nasdaq-prescribed matrix), along with other key investor and proxy advisory firm policies on board diversity. It is also important to keep track of the number of boards on which each of your directors sits, bearing in mind key investor and proxy advisory firm policies on overboarding, which tend to be country/region-specific. See Appendix D for a discussion of over-boarding policies.

(8) Remember New Auditor iXBRL Tagging Requirements. New for all Form 20-Fs for periods ending on or after December 15, 2021, companies must tag in inline XBRL their auditor's: (1) name (tagging the signature on the audit report is not sufficient), (2) location (i.e., city and state, province or country) and (3) PCAOB ID number.11 Companies must provide and tag this information for all auditors who have provided opinions related to the financial statements presented in their annual report. While there are not specific rules as to where this tagging should appear in the filing, one option is to add the auditor’s name and ID number to the Index to the Financial Statements (in Item 17 or 18 as applicable) and tag those, along with the location, in the audit report. Companies should coordinate this tagging with the financial printer.


II. Eight Disclosure Considerations for the Form 20-F in 2022

Below are our eight disclosure considerations when preparing your upcoming Form 20-F in 2022.

(1) For Companies Using GAAP, Confirm Effects of SAB No. 120 for Equity Awards:

In December 2021, the SEC announced the adoption of Staff Accounting Bulletin ("SAB") No. 120 to provide guidance on how companies should recognize the cost of "spring-loaded" compensatory awards. "Spring-loaded" awardsrefer to stock options and other share based awards (including restricted stock units) granted shortly before a company announces market-moving information. If you are an FPI using GAAP, as your company's accountants close the books for 2021, confirm with them if and how they may need to consider SAB No. 120 to appropriately account for and disclose the terms of any equity awards granted in 2021. If any "spring-loaded" compensatory awards were granted during fiscal 2021, additional disclosures may be required in the Form 20-F to comply with SAB No. 120, including in the footnotes to the financial statements and MD&A (called "Part I, Item 5. Operating Results and Financial Review and Prospects—E. Critical Accounting Estimates") discussion of critical accounting estimates.

(2) Carefully Consider Climate Change and Other ESG Disclosures:

With increased focus from the SEC and investors on climate-related and other environmental, social and governance ("ESG") disclosures, companies should proactively consider discussion of these topics in their Form 20-Fs. The SEC is expected to propose mandatory climate-related disclosure requirements in 2022.

Climate Disclosures

In recent months, the SEC has significantly increased its focus on climate-related disclosures.  While proposed SEC rulemaking is still in the works, any material information related to how climate change might impact a company's business should be included in its Form 20-F. Companies should consider their existing climate-related disclosure in light of the SEC's 2010 climate change disclosure guidance, as well as recent comment letters the SEC's Division of Corporation Finance has been issuing to companies on climate change related disclosures. For a summary of recent SEC comments, see our prior client alert, "SEC Issues Sample Comment Letter as it Ramps Up Scrutiny of Climate Disclosures." In light of this increased focus, companies should proactively confirm whether additional information regarding climate change is material for their business and should consider their risk factors (Part I, Item 3.D), business description (Part I, Item 4), legal proceedings (Part II, Item 8.A.7) and MD&A (Part I, Item 5) when assessing their climate disclosures. See "Environmental" discussion in "Risk Factors: What to Include" below.

ESG Disclosure Considerations Generally

With respect to all ESG-related disclosures, including those on climate, consider the following for your Form 20-F:

  • Assess Disclosure in Sustainability Reports, on Company Websites and in Investor Presentations: Companies should assess the climate-related and other ESG information contained in their sustainability reports to determine whether any such information is material and therefore required to be included in their Form 20-F. In its above-noted sample comment letter on climate disclosures, the SEC included a comment warning companies that the SEC may ask why disclosures that are made voluntarily in sustainability reports are not also included in the company's annual reports. In public statements12, the SEC staff has acknowledged that the staff is asking registrants to "show their work" in determining why the information included in a sustainability report would not be required to be included in an SEC filing. In addition to publishing sustainability reports, companies are also increasingly disclosing emissions performance metrics, climate commitments and other ESG information on their websites and in presentations to investors, including in roadshow presentations in connection with securities offerings. Any material ESG information a company publishes or discloses outside of its SEC filings should beconsidered for inclusion in the Form 20-F. Companies should also take cautionary steps to ensure that there are no inconsistencies across their ESG disclosures.
  • Confirm Accuracy of ESG Disclosures Through Robust Disclosure Controls: Companies should take steps to ensure that ESG disclosure is subject to the same robust, traditional disclosure controls covering other information in the Form 20-F. These controls may include designating information "owners" responsible for vetting this information, confirming its accuracy and consistency across all public disclosure and having such "owners" sign sub-certifications regarding this disclosure. To the extent the company has a disclosure committee, it should consider presenting compiled ESG information to such committee and ensuring that senior management in charge of ESG matters participate in committee meetings. Informative climate and other ESG reporting can require a complex interaction of many different functions in a company, such as supply chain, production and other operations, investor relations, human resources, finance/accounting, and legal, as well as the incorporation of complex assumptions about the effect of changing climate on the business. As always, legal departments should also review drafts of ESG disclosures in the Form 20-F for litigation risks and other issues, such as potentially inaccurate and inconsistent statements or overly broad and optimistic statements that could raise liability concerns.
  • Board Oversight: Update Your Audit Committee and/or Other Board Committees: In light of heightened SEC and investor scrutiny of climate and other ESG disclosures, companies should consider providing updates to their audit committees and other board committees responsible for ESG oversight, such as a public policy or sustainability committee, on recent developments related to climate and their company's current and planned climate disclosures, as well as how assumptions about future climate change should be reflected in their financial statements and risk assessments. In addition, companies should consider presenting any human capital disclosures, to the extent included in the Form 20-F as part of general ESG disclosures, to their compensation committees prior to publication of their Form 20-F.
  • Consider Institutional Investor Positions Relevant to Your Shareholder Base: Companies should carefully consider their institutional investors' positions on climate disclosure, including their preferred disclosure frameworks, and how best to meet such demands for information. While not dispositive on the materiality of such information for a particular company, investor mandates and expectations related to climate-related and other ESG disclosures are expected to increase. For example, in a 2021 letter to CEOs, BlackRock CEO Larry Fink asked companies to disclose a "plan for how their business model will be compatible with a net zero economy" and how transition and physical climate risks, as well as risk mitigation, affect a company's business,13 and he continued to emphasize the importance of climate-related disclosures in a 2022 letter to CEOs. Items to consider for disclosure include risks related to sea level rise and extreme weather events, national emissions goals, carbon taxes, regulations and investment in alternative energy.14

(3) Mandatory Compliance with SEC's Amendments to Part I of Form 20-F, Item 3.A and Item 5

The SEC's comprehensive changes to Item 3.A and Item 5 of Part I of Form 20-F became mandatory for Form 20-Fs filed for fiscal years ending on or after August 9, 2021. Therefore, this will be the first Form 20-F in which calendar-year companies are required to comply with these rule changes, which are shown in Appendix E.15

  • Selected Financial Data Disclosure (Item 3.A). Item 3.A of Form 20-F previously required companies to furnish selected financial data in comparative tabular form for each of the last five fiscal years. The SEC's rule amendments eliminated this disclosure requirement (for more information, see "Housekeeping Items for Form 20-F in 2022: Update Part I, Item 3.A of Form 20-F"). However, in making this rule change, the SEC still encouraged companies to consider whether trend information for periods earlier than those in the financial statements may be necessary as part of MD&A's objective to "provide material information [regarding] the financial condition and results of operations." In addition, the SEC encouraged FPIs to consider whether "such tabular disclosure as part of an introductory section or overview, including to demonstrate material trends, would be appropriate."16 Therefore, companies should consider whether any of this additional trend information previously disclosed under Item 3.A is material and should be included in their MD&As this year.
  • Streamlined MD&A (Item 5): The SEC made substantial changes to the MD&A requirements under Item 5 of Form 20-F. While some companies complied early, this will be the first year for many companies to comply with the amended requirements, which include both active changes and more general implications, including reinforcements of traditional MD&A best practices:
    • Contractual Obligations Table No Longer Technically Required: The amended rules eliminate the requirement for the formulaic contractual obligations table in Item 5.F, and replace it with a more general requirement in Item 5.B to provide, in the discussion of liquidity and capital resources, an analysis of "material cash requirements from known contractual and other obligations." This analysis should specify the type of obligation and the relevant time period for the related cash requirements, to the extent material to liquidity and capital resources.
      • TAKEAWAY: Companies can remove the contractual obligations table previously in the MD&A, in Item 5.F of the Form 20-F. However, companies must confirm that their MD&A otherwise adequately addresses all known material cash requirements (i.e., capital investments, human capital, contractual obligations, and any off-balance sheet arrangements) and material trends, commitments or uncertainties reasonably likely to affect liquidity and capital resources.
  • Off-Balance Sheet Caption No Longer Required: The SEC eliminated the requirement under Item 5.E to present a separately captioned section discussing off-balance sheet arrangements and instead added a principles-based Instruction 7 regarding commitments and obligations that constitute off-balance sheet arrangements. As a result, companies should remove the separately captioned off-balance sheet arrangements section, replacing it with Critical Accounting Policies as needed, but consider whether additional disclosure is required in liquidity and capital resources.
  • Critical Accounting Policies Expressly Required (Unless Using IFRS): The SEC has clarified the requirements in Item 5.E to disclose critical accounting estimates, codifying a long-standing practice of many companies in their MD&As. The disclosure should contain "qualitative and quantitative information necessary to understand" estimation uncertainty, and explain "the impact the critical accounting estimate has had or is reasonably likely to have on financial condition," "why each critical accounting estimate is subject to uncertainty and, to the extent the information is material and reasonably available, how much each estimate and/or assumption has changed over a relevant period." This only applies for registrants not using International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). Registrants using IFRS do not need to provide this disclosure and may complete this section with "Not Applicable."17 Additionally, the SEC has clarified that this disclosure is only required "to the extent reasonably available and material."
    • TAKEAWAY: Companies not using IFRS should ensure they address critical accounting estimates in the MD&A, in Item 5.E of Form 20-F. The disclosure should discuss why such estimates are subject to uncertainty and the assumptions and estimates underlying the critical accounting estimate's calculation. Moreover, as noted in the adopting release, this disclosure "must supplement, but not duplicate, the description of accounting policies or other disclosures in the notes to the financial statements."
  • Introduction to Item 5 of Form 20-F: The SEC updated the Introduction to Item 5 to remind companies that their "discussion must include other statistical data that the company believes will enhance a reader's understanding of the company's financial condition, cash flows and other changes in financial condition, and results of operations"18 and clarified that MD&A disclosure should "focus specifically on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition." Further, the introduction reminds companies that the "[i]nformation provided also must relate to all separate segments and/or other subdivisions (e.g., geographic areas, product lines) of the company."
    • TAKEAWAY: Companies should carefully consider whether any significant trend or uncertainty that management is closely monitoring and/or has discussed with the board is appropriate for MD&A disclosure. They should also ensure their discussion provides appropriate statistical data and addresses all segments and subdivisions of the company.
  • Discussion of Drivers in Period-to-Period Changes: The SEC clarified in the Introduction to Item 5 that where there are period-to-period material changes in a line item of a company's financial statements, the "discussion must include a quantitative and qualitative description of the reasons underlying material changes, including where material changes within a line item off set one another, to the extent necessary for an understanding of the company's business as a whole." Additionally, Item 5.A.1 now requires disclosure of the extent to which any "period-to-period" material changes (the prior version did not include the "period to period" reference) in net sales or revenues stemmed from "changes in prices or to changes in the volume or amount of goods or services being sold or to the introduction of new products or services."
    • TAKEAWAY: Companies should confirm that they have provided disclosure of the underlying reasons of material changes both in quantitative and qualitative terms, including material changes in net sales or revenues.
  • Hyperinflation. The SEC updated Item 5.A.2 to provide that "[i]f the currency in which financial statements are presented is of a country that has experienced hyperinflation, disclose the existence of such inflation, a five year history of the annual rate of inflation and a discussion of the impact of hyperinflation on the company's business" [emphasis added].

(4) Pay Attention to Non-GAAP (or non-IFRS) Compliance:

Non-GAAP/non-IFRS financial measures remained the most frequent topic in SEC staff comment letters in 2021, so it is important to pay careful attention to the use and disclosure of such measures each fiscal quarter. In addition, companies should carefully review non-GAAP/non-IFRS adjustments relating to the COVID-19 pandemic to ensure compliance with applicable SEC rules. SEC guidance has emphasized the following:

  • Ensure that when a non-GAAP/non-IFRS measure is used, the comparable GAAP/IFRS measure is disclosed with equal or greater prominence, and a reconciliation of the two measures is provided. The staff's 2021 comments on non-GAAP/non-IFRS disclosures in several instances focused on "equal or greater prominence" issues, including where the staff asked companies to re-order the presentation of sections of their periodic reports in order to give greater prominence to GAAP/IFRS information19;
  • Maintain consistent treatment of items between periods, or otherwise provide adequate disclosure about the reason for any change in treatment. For example, if there is a COVID-19-related adjustment for an item during the current reporting period, and that adjustment was not made during the prior period, the company should provide sufficient disclosure regarding the change, including(i) the differences in the way the metric is calculated, (ii) the reasons for such changes, and (iii) the effects of any such change on the amounts or other information being disclosed20; and
  • To the extent a company presents a non-GAAP/non-IFRS financial measure or performance metric to adjust for or explain the impact of COVID-19, it should highlight why management finds the measure or metric useful and how it helps investors assess the impact of COVID-19 on the company's financial position and results of operations. Moreover, the Staff has reminded companies that it is not appropriate for a company to present non-GAAP/IFRS financial measures or metrics for the sole purpose of presenting a more favorable view of the company. Rather, the acceptable purpose of non-GAAP/non-IFRS measures is to share with investors "how management and the Board are analyzing the current and potential impact of COVID-19 on the company's financial condition and operating results."

(5) Confirm Risk Factor Format Continues to Meet the SEC's Previously Amended Requirements:21

Companies should ensure that their risk factor section continues to comply with the SEC's amended rules, which took effect in November 2020 and thus were already required in companies' most recent Form 20-Fs:

  • If Risk Factor Section is More Than 15 Pages, Add Summary Risk Factor Disclosure: If a company's risk factor section exceeds 15 pages, it must add a series of concise, bulleted or numbered statements that is no more than two pages summarizing the principal risk factors and place this summary at the beginning of the Form 20-F. Many companies have chosen to combine this disclosure with their forward-looking statement legends in order to avoid repetition, and companies may consider this approach so long as the legend is titled to reflect its dual purposes (i.e., "Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary").
  • Tailor Generic Risks or Add a General Risk Factor Section: For any risk factors that apply generically to any registrant or offering, the company must either (i) tailor these risk factors to emphasize the specific relationship of the risk to the company, or (ii) disclose the generic risk factors at the end of the risk factor section under the caption "General Risk Factors".
  • Organize Risk Factors Under Relevant Headings: Companies must now organize risk factors into groups of related risk factors under "relevant headings", in addition to the sub-caption previously required for each risk factor.

(6) Risk Factors: What to Include:

For upcoming Form 20-Fs, a number of recent trends and events may impact risk factor disclosures, as well as disclosures in other sections of the report. Although each company will need to assess its own material risks and tailor its risk factors to its unique circumstances, below is a list highlighting certain areas of SEC focus and key trends that a company should consider when assessing its risk factors.

Beware of Hypothetical Language: Companies should be mindful of providing thoughtful, accurate and thorough risk factor disclosure, as recent SEC enforcement actions indicate the SEC is focused on misrepresentations or omissions in connection with risk factors. In particular, the SEC has alleged that statements in a company's risk factors were materially misleading because a company stated that an event only "may" or "could" occur, when the event was no longer hypothetical at the time of the disclosure. Accordingly, a company should ensure that its risk factors accurately and fully describe the risks it faces, including risks that have already had an impact on the company, rather than describing these risks as merely hypothetical.22 Moreover, risk factor disclosure should clarify whether a potential material risk has in fact occurred to some degree (whether or not the degree of occurrence is material on its own).23

  • Human Capital Resources: The human capital management ("HCM") disclosures required in the business section of domestic issuers' Form 10-Ks are not required for FPIs, and FPIs generally are not adopting such disclosures voluntarily. However, the SEC's enactment of rules around HCM disclosure for domestic issuers, coupled with institutional investor focus on the area, indicate that this is a key area for Form 20-F readers across the board, and so it is important for FPIs to consider any appropriate risk factor disclosure on this topic subject to any limitations imposed by the laws of the foreign jurisdiction under which the registrant is organized. Companies should assess what, if any, material issues their company faces with respect to human capital resources. This could include risks related to the ability to attract and retain skilled employees, employee health and safety issues, increases in labor costs and increased employee turnover, particularly in light of the COVID-19 pandemic.
  • Environmental: Environmental issues such as climate change have been receiving increased attention, and many companies are including new risk factors on environmental topics or expanding upon existing risk factors that discuss the potential impact of climate change on their businesses. Risk factor disclosure related to environmental issues should be tailored to the company's specific circumstances and can address a number of topics, including applicable environmental regulations and the impact of climate change on a company's business, such as risks of increased costs or reduced demand for products, carbon asset risk, risks due to severe weather events and management of greenhouse gas emissions. Environmental risk factors should also address risks to companies from anticipated changes to regulations affecting their businesses. Companies should consider whether these factors present material risks for their businesses. See also "Carefully Consider and Review Climate Change and Other ESG Disclosures: Climate Disclosures" above.
  • Cybersecurity: As cybersecurity incidents and data misuse continue to proliferate, the SEC staff has been focusing on, and providing comments regarding, cybersecurity and privacy disclosures. The SEC is expected to be more aggressive in reviewing public company disclosure of cybersecurity incidents, and recently the U.S. Court of Appeals for the Ninth Circuit found that plaintiffs adequately alleged that a company intentionally made statements in its SEC reports that omitted material facts regarding cybersecurity risks. In addition, the SEC has recently filed enforcement actions against public companies related to the timing and content of cybersecurity incident disclosures.24 These follow otherhigh-profile enforcement actions for alleged inadequate or misleading disclosures,25 all of which signal the SEC's continued focus on how public companies respond to and disclose material cybersecurity incidents and risks. On January 22, 2022 Chairman Gensler26 stated that he has asked the SEC staff to make recommendations around whether and how to update companies' disclosures to investors when cyber events have occurred, among other things.
  • IP and Technology Risks: In December 2019, the SEC staff released guidance specifically calling on companies to assess risks related to the potential theft or compromise of their technology, data or intellectual property ("IP") in connection with their international operations and disclose them where material. The guidance encourages companies to consider a range of questions when assessing these risks, including whether they are operating in foreign jurisdictions where the ability to enforce rights over IP is limited as a statutory or practical matter, and whether they have controls and procedures in place to adequately protect technology and IP. The Staff also emphasized that disclosure of material risks should be specifically tailored, and that where a company's technology, data or IP is being (or previously was) materially compromised, hypothetical disclosure of potential risks is not sufficient to satisfy a company's reporting obligations. Accordingly, companies should continue to consider this evolving area of risk and evaluate its materiality on an ongoing basis.
  • Labor Shortages/Supply Chain Disruptions: Shortages of supplies or labor or shipping delays may need to be disclosed as a risk, particularly as these have become more common due to COVID-19-related impacts. Companies should assess whether they have, or may experience in the future, issues related to labor shortages or supply chain disruptions that should be disclosed as a risk factor. In addition, depending on the severity of the impact of these factors on a company's business, companies may need to consider whether such issues should also be included in their MD&A disclosures.
  • LIBOR: In light of the discontinuation of LIBOR after 2021,27 the SEC staff issued guidance in December 2021 urging companies to provide detailed and specific disclosure about their progress toward LIBOR risk identification and mitigation and the anticipated impact on the company, if material, such as: (i) quantitative disclosures to provide context for the status of the company's transition efforts and the related risks28; (ii) for companies with material risk related to outstanding debt with inadequate fallback provisions (i.e. those that do not provide a process for replacing LIBOR with an alternative reference rate, or do not otherwise address a permanent cessation of LIBOR), how much debt will be outstanding after the relevant cessation date and the steps the company is taking to address this, such as renegotiating contracts or refinancing the obligations; and (iii) to the extent that a company has or is taking steps to identify and assess LIBOR exposure and mitigate material risks or potential impacts of the transition, insight into what the company has done, what steps remain, and the timeline for further efforts. Companies typically include disclosures about the LIBOR transition as part of risk factors (Part I, Item 3.D of Form 20-F), MD&A (Part I, Item 5 of Form 20-F) and/or quantitative and qualitative disclosures about market risk (Part II, Item 11 of Form 20-F). To the extent a companyprovides LIBOR transition disclosure in response to more than one disclosure requirement within a filing, it should consider providing a cross-reference or otherwise tying the information together to provide investors with a complete picture. For further guidance on disclosure considerations, companies should continue to refer to the SEC's 2019 guidance.
  • Regulatory: Changes and potential changes in US law, regulation, policy and/or political leadership, including the regulatory agenda of the Biden administration, may necessitate modifications to risk factor disclosure for certain companies. Some examples include: current and potential changes to immigration policies, minimum wage, tariffs, taxes, environmental policies, health care and other political developments in the US.

(7) COVID-19 Disclosure in Form 20-F:

Now that we are nearly two years into the COVID-19 pandemic, disclosure regarding the impact of the pandemic on your company should be concrete and provide investors with clear information on such impact to date.29 For many companies, this may be reflected in the various waves of the pandemic, including effects from the most recent Omicron variant. Key impacts should be identified, assessed and described, including, but not limited to: information on liquidity; operational adjustments; supply chain logistics; health and safety of employees; any material changes in the company's debt, loans and credit; any material changes to equity investments; impairment of assets; rent concessions; and government assistance related to COVID-19.Companies should also carefully consider whether any significant trend or uncertainty that management is closely monitoring and/or has discussed with the board is appropriate for MD&A disclosure. See "Mandatory Compliance with SEC's Amendments to Part I of Form 20-F, Item 3.A and Item 5: Introduction to Item 5 of Form 20-F."

Companies should also ensure their risk factor disclosure related to COVID-19 is appropriately robust and specific. COVID-19 is no longer a novel consideration from a disclosure perspective, and it is therefore important for companies to discuss company-specific risks rather than general economic or societal impacts.

Finally, companies should consider the potential impacts of vaccine-mandates, and what material impacts might need to be disclosed in their MD&A, forward-looking statements, risk factors or other sections of the Form 20-F.30

(8) A Reminder for China-Based Companies to Prepare in Advance for Form 20-Fs in 2023:

Holding Foreign Companies Accountable Act (the "HFCAA"): The HFCAA, which prohibits the securities of companies from being listed on US securities exchanges if the PCAOB is not permitted to inspect the company's accounting firm for three consecutive years, was signed into law in December 2020. In December 2021, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements of the HFCAA.31 These rules take effect for Form 20-Fs filed in 2023 (rather than2022), for the fiscal year ending December 31, 2022. The rules apply to issuers that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction that the PCAOB is unable to inspect or investigate. Although the HCFAA and the SEC rules do not refer to China-based companies, their legislative and regulatory history make clear that Congress and the SEC created the rules with Chinese companies in mind. Thus, companies based in China (as well as any other SEC-identified issuers) should pay close to attention to these rules for when they become effective in 2023, to the extent that they have actually been identified by the SEC.


1 See Form 20-F.
2 Effective as of January 4, 2021, companies with registered debt securities that are guaranteed by related entities are required to file a new Exhibit 17 within Item 19 listing (i) each affiliate whose securities are pledged as collateral for the company’s debt securities; and (ii) the securities pledged.
See the adopting release for the applicable amendments, available here.
See the adopting release FN 192, available here.
4 The SEC amended the exhibit filing requirements to remove the competitive harm requirement and replace it with a standard permitting information to be redacted from material contracts if it is the type of information that the issuer both customarily and actually treats as private and confidential, and which is also not material.
5 For more information on the procedures for exhibit redactions, as well as information on Staff reviews of redacted exhibits,
see Staff guidance, available here.
See prior Staff guidance on extensions available here.
7 See the SEC’s final rule amendment on
electronic signatures here and the press release here.
8 In addition, signatories who have provided others with SEC signing authority through powers of attorney ("POA") should execute an addendum to the POA granting such electronic signature authority.
See Section 5.1.2 of the EDGAR filing manual, available here.
10 If a company provides such disclosure on its website, then the company must submit such disclosure concurrently with the filing of its annual meeting proxy statement or Form 20-F and submit a URL link to the disclosure through the Nasdaq Listing Center, within one business day after such posting.
11 See
EDGAR Filer Manual (Section 6.5.54). 
12 Remarks by Lisa Kohl, Acting Deputy Director of the Division of Corporation Finance during the 53rd Annual Institute on Securities Regulation, Practicing Law Institute, November 3 - 5, 2021,
13 Larry Fink’s letter is further discussed in our alerts,
"SEC Focuses on ESG and Climate Disclosure" and "A Survey and In-Depth Review of Sustainability Disclosures by Small- and Mid-Cap Companies."
14 See our alert,
"A Survey and In-Depth Review of Sustainability Disclosures by Small- and Mid-Cap Companies."
15 For a table summarizing the amendments,
please see page 8 of the adopting release, available here.
See adopting release here.
17 For more information,
see footnote 344 on page 91 of the adopting release.
18 For more information,
see our alert "SEC Releases New Guidance on KPIs."
19 For example, Holdings included a subsection in the forepart of the MD&A section of its 2020 10-K captioned "Non-GAAP Financial Measures." The Staff’s
comment letter asked the company to revise the table to disclose the comparable GAAP measures with greater prominence and, to avoid giving undue prominence to its non-GAAP financial measures, to move this section so that it followed the results of operations section.
20 For more information,
see our prior alert, "SEC Releases New Guidance on KPIs."
The adopting release related to these amended requirements is available here.
22 For example, in September 2019, a major pharmaceutical company agreed to pay a $30 million penalty to the SEC for using hypothetical language. After a government agency informed the company that it had misclassified its most profitable product as a generic drug, the company’s risk factor disclosures in its annual reports continued to state that a government entity "may" take a position that is contrary to that classification. The SEC concluded that using the term "may" was materially misleading because the company knew at the time that a government agency had in fact taken a contrary position. For more information,
see "Press Release 2019-194, Mylan to Pay $30 Million for Disclosure and Accounting Failure Relating to EpiPen" (Sept. 27, 2019), available here.
23 For more information,
see our prior alert, "Time to Revisit Risk Factors in Periodic Reports." While this alert related to a court ruling against a domestic issuer for failing to update risk factors between Form 10-K filings, the ruling speaks to the importance of ensuring risk factors are also updated in the Form 20-F on a yearly basis.
24 In August 2021, the SEC settled with an educational publishing and services company over its failure to adequately disclose a material cybersecurity breach and for making misleading statements in its SEC filings. Specifically the SEC found that: (i) several months after the breach, the company issued a Form 6-K that referenced a general risk of data breach/cybersecurity incident, but did not specifically reference the breach that had occurred; and (ii) the company’s press statement referred only to "unauthorized access" and "expos[ure of] data" which "may [have] include[d]" birthdates and emails, even though the company knew that significant personal data had been downloaded, and made no mention of the volume of breached data nor of the other critical vulnerabilities in the system.
In June 2021, the SEC settled with a real estate settlement services company for its alleged failure to adequately disclose a security vulnerability that could be used to compromise the company’s computer systems. In May 2019, the company was notified of a software vulnerability that exposed personal and financial data, after which it issued a statement and furnished a Form 8-K, stating it had taken "immediate action" to terminate external access to the data. However, the executives responsible for the statement and Form 8-K were not informed that the company's information security personnel had been aware of the vulnerability since January 2019 or that the company had failed to timely remediate that vulnerability inaccordance with its policies. According to the SEC, the January 2019 findings "would have been relevant to management's assessment of the company's disclosure response…and the magnitude of the resulting risk" and the company failed to maintain disclosure controls and procedures to ensure that management had all available relevant information prior to making its disclosures.
25 With respect to cybersecurity, the SEC found that Yahoo’s risk factor disclosures in its annual and quarterly reports were materially misleading in that they claimed the company only faced the "risk of potential future data breaches" that might expose the company to loss and liability "without disclosing that a massive data breach had in fact already occurred."
The SEC’s action is available here. For more information, see our prior alert, "SEC Fines Yahoo $35 Million for Failure to Timely Disclose a Cyber Breach."
Chairman Gensler remarks at the Northwestern Pritzker School of Law’s Annual Securities Regulation Institute, January 24, 2022, available here.
27 LIBOR is an indicative measure of the average interest rate at which major global banks could borrow from one another and is quoted for multiple currencies and time frames. It is used extensively in the US and globally as a "benchmark" or "reference rate" for various commercial and financial contracts.
See SEC guidance available here.
28 Such as the notional value of contracts referencing LIBOR and extending past December 31, 2021 or June 30, 2023, as applicable.
29 For more information, see our prior alerts,
"COVID-19 Legal Issues and Considerations", "SEC Takes Additional Actions Helping Public Companies Address Impact of COVID-19", "Practical Tips for Preparing Upcoming Quarterly Disclosures" and "SEC Emphasizes Importance of Robust Forward-Looking Disclosure for Q1 to Address COVID-19."
30 COVID-19 disclosures have also led to several shareholder derivative suits. According to the
Stanford Law School Securities Class Action Clearinghouse, available here, as of January 20, 2021, 21 securities class action lawsuits had been filed by shareholders accusing companies of failing to disclose or downplaying the risks related to the COVID-19 pandemic, failing to disclose or misrepresenting the extent to which it has affected the company’s operations or financial results, or making false statements about or products related to COVID-19. In addition, there has been at least one high-profile SEC administrative action against a company under Section 13(a) of the Exchange Act in which the SEC found that the company’s filings were misleading when the company disclosed that it was "operating sustainably", while the company's own internal documents at the time showed that the company was losing significant cash each week and that the company only had four months of cash remaining. See the SEC’s order against The Cheesecake Factory, available here. See the SEC’s press release, available here. Former SEC Chairman Jay Clayton noted that "it is important that issuers continue their proactive, principles-based approach to disclosure, tailoring these disclosures to the company and industry-specific effects of the pandemic on their business and operations.
31 Under the HCFAA rules, an SEC-identified issuer must submit documentation to the SEC that establishes that it is not owned or controlled by a governmental entity in the foreign jurisdiction where its public accounting firm is located. In addition, any such SEC-identified issuer that is also a "foreign issuer" as defined in Rule 3b-4 under the Exchange Act, must provide certain additional disclosures in its annual report for itself and its consolidated foreign operating entities,2022), for the fiscal year ending December 31, 2022. The rules apply to issuers that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction that the PCAOB is unable to inspect or investigate. Although the HCFAA and the SEC rules do not refer to China-based companies, their legislative and regulatory history make clear that Congress and the SEC created the rules with Chinese companies in mind. Thus, companies based in China (as well as any other SEC-identified issuers) should pay close to attention to these rules for when they become effective in 2023, to the extent that they have actually been identified by the SEC.


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