New data labeling requirements for annual reports – Corporate / Commercial law

United States: New data labeling requirements for annual reports

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The United States Securities and Exchange Commission (SEC) adopted the final rule changes on December 2, 2021 to implement the requirements of the Holding Foreign Companies Accountable Act of 2020. Although for the foreseeable future, the majority of new rules should not affect SEC filers with operations based in China or Hong Kong, all SEC filers who file annual reports on Form 10-K, 20-F or 40-F should be informed new requirements that are not included in the forms themselves.

Specifically, a reporter filing an annual report for a period ended after December 15, 2021 who files financial statements using Inline XBRL, must tag three additional data elements:

  • the auditor (s) who issued the opinion on the financial statements in the annual report;
  • the location from which the auditor’s report was issued; and
  • the Public Company Accounting Oversight Board (PCAOB) identification number (s) of the audit firm (s) or branch (s) that provided the opinion.

As noted above, this new requirement is not found in the annual report forms themselves. Instead, the SEC adopted an amendment to Rule 405 of the ST Regulation, effective January 10, 2022. The new paragraph of Rule 405 directs the reader to the Document and Information Entity (DEI) Taxonomy of SEC in the EDGAR Filer Manual, Volume II: EDGAR Filing, which contains these new data elements in section 6.5.54. While the SEC adoption release states that the location of information in the annual report is “at the discretion of the registrant,” the EDGAR Filer Manual provides that the data “should be labeled where it normally appears, at side of the opinion of listeners “.

The two most obvious places to provide this information would be on the auditor’s signature page in their report, which already includes the auditor’s name and location, or in new items added to Forms 10-K, 20-F and 40-F to require disclosure of foreign jurisdictions that prevent inspection of the PCAOB (Articles 9C, 16I and B (18), respectively). Note, however, that in order to appear on the signature page of the audit report, the auditor, not the company, will need to provide the revised disclosure.

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