Approaching 2021 Form 20-F
SEC updates


It is now time for foreign private issuers (FPIs) to prepare their annual reports on Form 20-F. For companies with a calendar year-end, the Form 20-F must be filed with the US Securities and Exchange Commission (SEC) by 2 May 2022 (which is the first business day following 30 April 2022).

This article is part of a series of articles that provide an overview of recent developments, trends and topics that are relevant to FPIs preparing their 2021 Form 20-F.

Approaching 2021 Form 20-F

Many of the rule changes that are relevant to the preparation of the 2021 Form 20-F were made during 2020 and have now become mandatory for the 2021 Form 20-F. In addition, during 2021, the SEC indicated its focus on certain disclosure topics and signposted various priorities for rulemaking in 2022. Therefore, in addition to addressing currently effective rule changes, issuers should also evaluate their existing disclosures (or lack thereof) in view of SEC guidance and public statements made during 2021 in relation to areas of disclosure focus. While it is not possible to anticipate the eventual shape of any forthcoming rule changes and additional requirements, by considering their disclosures on the themes discussed in this article, issuers may be able to avoid SEC comments, improve overall disclosure and transition disclosures towards potential new requirements.

SEC updates

Amendments to modernise and enhance MD&A disclosures
In November 2020, the SEC adopted amendments to simplify, modernise and enhance disclosures in the management's discussion and analysis (MD&A) of financial condition and results of operations (also referred to as "operating and financial review and prospects") and other financial disclosures. The amendments became effective on 10 February 2021 and compliance is required beginning with the first fiscal year ended on or after 9 August 2021. Therefore, compliance with these amendments is now required for the 2021 Form 20-F for companies with a calendar year-end. Voluntary early compliance was permitted, although many issuers chose not to do that.

Some of the key changes include:

  • eliminating Item 3.A of the Form 20-F, which requires disclosure of selected financial data for the last five years;
  • revising Item 5 of the Form 20-F to specify that the discussion must include a quantitative and qualitative description of the reasons underlying material changes, including where material changes within a line item offset one another;
  • amending Item 5.A.2 of the Form 20-F to require only disclosure of hyperinflation, rather than the current standard, which requires disclosure of inflation (if material) and hyperinflation (if the currency in which the financial statements are presented is of a country that has experienced hyperinflation);
  • revising the liquidity and capital resources requirement in Item 5.B of the Form 20-F to specify that a registrant must broadly disclose material cash commitments, not just capital expenditures;
  • changing Item 5.D of the Form 20-F to require disclosure of "material trends" instead of "the most significant recent trends";
  • replacing Item 5.E of the Form 20-F, which currently requires disclosure of material off-balance sheet arrangements in a separate section, with a principles-based instruction to include a discussion of material commitments in the liquidity and capital resources discussion;
  • eliminating the requirement to include a contractual obligations table in Item 5.F of the Form 20-F, replacing it with disclosure of material cash requirements from known contractual and other obligations as part of the liquidity and capital resources discussion; and
  • a new requirement for registrants to disclose critical accounting estimates, which codifies previous SEC guidance. However, Item 303(b)(3) does not apply to companies that prepare their financial statements in accordance with the International Financial Reporting Standards (IFRS). IFRS already requires financial statements to include disclosures regarding sources of estimation uncertainty and judgements made in the process of applying accounting policies that have the most significant effect on the amounts recognised in the financial statements.

Risk factor disclosures
In August 2020, the SEC adopted amendments to modernise certain disclosure requirements in Regulation S-K. Effective from 9 November 2020, these amendments seek to simplify compliance requirements and improve the readability of disclosure documents by discouraging the inclusion of information that is not material and eliminating repetition in the disclosure. The updates address the following Regulation S-K disclosures: Item 101 (description of business), Item 103 (legal proceedings) and Item 105 (risk factor disclosure).

The final amendments to Items 101 and 103 affect only domestic companies and FPIs that have elected to file on domestic forms. In contrast, the amendments to Item 105 apply to the Form 20-F to the extent the Form 20-F disclosure is incorporated by reference into an FPI's SEC registration statement.

Among the wide array of amendments, the updates to risk factor disclosures include the following changes:

  • If the risk factor section exceeds 15 pages, registrants are required to provide a summary section of no more than two pages, consisting of a series of concise, bulleted or numbered statements that summarise the principal factors that make an investment in the company or offering speculative or risky.
  • The standard of disclosure is changed from the previous standard of disclosing "most significant" risks to disclosing "material" risk factors.
  • Risk factors are required to be organised under relevant headings (in addition to the sub-captions currently required), with any risk factors that may generally apply to an investment in securities disclosed at the end of the risk factor section under a separate heading.

Accordingly, it is recommended that companies analyse material risk factors within each category and provide the heading and a brief one-to-two-sentence summary of each applicable risk factor.

For a more complete review of these amendments, see "SEC approves final amendments modernizing disclosure requirements of Regulation S-K".

Inline XBRL
In line with the August 2019 C&DIs, which clarified the applicability of the new inline extensible business reporting language (XBRL) requirements, FPIs are required to comply with the inline XBRL requirements based on their filer status and basis of accounting:

  • For FPIs that prepare their financial statements in accordance with IFRS, the new inline XBRL requirements apply to Form 20-Fs commencing with fiscal years ending on or after 15 June 2021. Therefore, for companies with a calendar year-end, these requirements apply to the 2021 Form 20-F.
  • For FPIs that prepare their financial statements in accordance with the US generally accepted accounting principles, the new inline XBRL requirements have applied to financial statements for fiscal years ending on or after 15 June 2019.

Inline XBRL requirements mean that XBRL data is embedded directly within the annual report rather than filed as a separate exhibit. Therefore, issuers should allow sufficient time for inline XBRL data to be inserted by their electronic data gathering, analysis and retrieval (EDGAR) filing provider or software system.

Financial disclosure requirements for guaranteed or secured SEC-registered debt
On 2 March 2020, the SEC released its final amendments to the rules governing the supplemental financial information required for SEC-registered debt securities that have guarantees or that are collateralised by shares or other securities of subsidiaries or other affiliates. These amendments significantly reduce the amount of financial information required for those securities in addition to the parent company's consolidated financial statements. The amendments became effective on 4 January 2021.

These rules require issuers of SEC-registered debt securities to include certain disclosures in Exchange Act reports (including Form 20-F within Item 8, Instruction 17). These disclosure obligations apply until an issuer or guarantor no longer has Exchange Act reporting obligations with respect to the relevant securities. Unless the relevant securities are listed on a US stock exchange, if there are fewer than 300 holders of record of the relevant securities (which is often the case), then the Exchange Act reporting obligation is automatically suspended after the first annual report following the issuance of the relevant securities. This is a relaxation of the prior rules that required certain disclosures to be included until the relevant securities were no longer outstanding.

These rules also created a new Exhibit 17 requirement to Form 20-F, which requires identification of:

  • each subsidiary that is a guarantor, issuer or co-issuer of each guaranteed security that the parent company issues or guarantees; and
  • each affiliate whose security is pledged as collateral, as well as the identification of the security or securities pledged as collateral.

For a more complete review of the new rules, see "SEC Eliminates Consolidating Financial Information for SEC-Registered Debt Securities with Subsidiary Issuers or Guarantors".

For further information on this topic please contact Richard Alsop, Roberta Cherman, Marwa Elborai or Masahisa Ikeda at Shearman & Sterling by telephone (+1 212 848 4000) or email ([email protected], [email protected], [email protected] or [email protected]). The Shearman & Sterling LLP website can be accessed at