Regulation S-X is a prescribed regulation in the United States of America that lays out the specific form and content of
financial reports
Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity.
Relevant financial information is presented in a structured manner and in a form which is easy to un ...
, specifically the financial statements of public companies. It is cited as 17 C.F.R. Part 210; the name of the part is "Form and Content of and Requirements for Financial Statements,
Securities Act of 1933
The Securities Act of 1933, also known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, and the '33 Act, was enacted by the United States Congress on May 27, 1933, during the Great Depression and after ...
,
Securities Exchange Act of 1934
The Securities Exchange Act of 1934 (also called the Exchange Act, '34 Act, or 1934 Act) (, codified at et seq.) is a law governing the secondary trading of securities (stocks, bonds, and debentures) in the United States of America. A landma ...
,
Public Utility Holding Company Act of 1935
The Public Utility Holding Company Act of 1935 (PUHCA), also known as the Wheeler-Rayburn Act, was a US federal law giving the Securities and Exchange Commission authority to regulate, license, and break up electric utility holding companies. It l ...
,
Investment Company Act of 1940 The Investment Company Act of 1940 (commonly referred to as the '40 Act) is an act of Congress which regulates investment funds. It was passed as a United States Public Law () on August 22, 1940, and is codified at . Along with the Securities Exc ...
,
Investment Advisers Act of 1940 The Investment Advisers Act of 1940, codified at through , is a United States federal law that was created to monitor and regulate the activities of investment advisers (also spelled "advisors") as defined by the law. It is the primary source of r ...
, and
Energy Policy and Conservation Act of 1975
The Energy Policy and Conservation Act of 1975 (EPCA) () is a United States Act of Congress that responded to the 1973 oil crisis by creating a comprehensive approach to federal energy policy. The primary goals of EPCA are to increase energy p ...
".
Regulation S-X extends the meaning of the term 'financial statements' to include all notes to the statements and all related schedules. Regulation S-X is closely related to
Regulation S-K
Regulation S-K is a prescribed regulation under the US Securities Act of 1933 that lays out reporting requirements for various SEC filings used by public companies. Companies are also often called issuers (issuing or contemplating issuing shares) ...
, which lays out reporting requirements for various SEC filings and registrations used by public companies. Regulation S-X profoundly affects internal and external
accountants
An accountant is a practitioner of accounting or accountancy.
Accountants who have demonstrated competency through their professional associations' certification exams are certified to use titles such as Chartered Accountant, Chartered Certif ...
and
auditors
An audit is an "independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon.” Auditing ...
, and directors and officers and numerous officials, employees and contractors of publicly reporting companies, and because of the need for accurate reporting of monies and other data, any operation of a company may be affected to require ultimate
compliance with Regulation S-X and the
Sarbanes–Oxley Act
The Sarbanes–Oxley Act of 2002 is a United States federal law that mandates certain practices in financial record keeping and reporting for corporations.
The act, (), also known as the "Public Company Accounting Reform and Investor Protecti ...
.
Applicability
Regulation S-X and the Financial Reporting Releases
Staff Accounting Bulletins set forth the form and content of and requirements for
financial statements
Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity.
Relevant financial information is presented in a structured manner and in a form which is easy to un ...
required to be filed as a part of (a) registration statements under the
Securities Act of 1933
The Securities Act of 1933, also known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, and the '33 Act, was enacted by the United States Congress on May 27, 1933, during the Great Depression and after ...
and (b) registration statements under section 12, annual or other reports under sections 13 and 15(d) and proxy and information statements under section 14 of the Securities Exchange Act of 1934; except as otherwise specifically provided in the forms.
Regulation S-X is seen less frequently but is equally valid for (c) registration statements, annual reports and shareholder reports filed under the Public Utility Holding Company Act of 1935 and likewise for (d) the Investment Company Act of 1940.
Relationship to GAAP
Regulation S-X generally implicitly discusses
US Generally Accepted Accounting Principles
Generally Accepted Accounting Principles (GAAP or U.S. GAAP, pronounced like "gap") is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC) and is the default accounting standard used by companies based in the Uni ...
(GAAP). However, non-GAAP measures are sometimes used by companies to provide insight into its business. Non-GAAP financial measures are defined in Regulation G. Regulations G and Item 10e of Regulation S-K provide guidance on the use of non-GAAP measures. In May 2016 the SEC also issued additional Compliance & Disclosure Interpretations related to the rules and regulations on the use of non-GAAP financial measures.
Responsible agencies
Regulation S-X was devised by the SEC staff with copious input from accounting-related entities. Major entities involved in its maintenance include:
*
House Committee on Financial Services
The United States House Committee on Financial Services, also referred to as the House Banking Committee and previously known as the Committee on Banking and Currency, is the committee of the United States House of Representatives that oversees t ...
;
*
Financial Accounting Standards with
FASB Accounting Pronouncements;
*
Federal Accounting Standards Advisory Board
The Federal Accounting Standards Advisory Board (FASAB) is a United States federal advisory committee whose mission is to improve federal financial reporting through issuing federal financial accounting standards and providing guidance after c ...
;
*
Public Company Accounting Oversight Board
The Public Company Accounting Oversight Board (PCAOB) is a nonprofit corporation created by the Sarbanes–Oxley Act of 2002 to oversee the audits of public companies and other issuers in order to protect the interests of investors and further t ...
;
*
(AICPA) American Institute of Certified Public Accountants; and
*
(IASB) International Accounting Standards Board and IFRS pronouncements.
Application of Regulation S-X (Rules 1-01, 1-02)
Because Regulation S-X is large and its impact on financial report is so pervasive, it is important to have a consistent
terminology
Terminology is a group of specialized words and respective meanings in a particular field, and also the study of such terms and their use; the latter meaning is also known as terminology science. A ''term'' is a word, compound word, or multi-wor ...
and to get it right from the beginning so that words and phrases have the same meaning throughout. Among other terms, certain basic terms are assigned meanings. For examples: Accountant's report, Amount,
Certified
Certification is the provision by an independent body of written assurance (a certificate) that the product, service or system in question meets specific requirements. It is the formal attestation or confirmation of certain characteristics of a ...
, Control, Fiscal Year, Share, Wholly Owned Subsidiary, and so on.
A specific meaning is also given for "Summarized financial information".
A specific meaning is not given for the complex term ''Internal control over financial reporting'', but reference is made t
Rule 13a-15(f) As the failure to have such controls or properly implement them or use/provide their disclosure may come with
penalties
Penalty or The Penalty may refer to:
Sports
* Penalty (golf)
* Penalty (gridiron football)
* Penalty (ice hockey)
* Penalty (rugby)
* Penalty (rugby union)
* Penalty kick (association football)
* Penalty shoot-out (association football)
* Penalty ...
and since this phrase pervades thinking and rule-making in the securities industry, it is worth viewing this definition, a definition that requires management to be pro-active:
Qualifications and reports of accountants
Qualifications and Reports of Accountants (Rules 2-01 to 2-0
After laying out some basic and important definitions in
Rule 1-02, Regulation S-X kicks off in Rule 2-01 (Qualifications of Accountants) by considering accountants and auditors and states who is acceptable to the SEC to act as such. Accountants and auditors must be properly registered in their own jurisdiction: "The Commission will not recognize any person as a certified public accountant who is not duly registered and in good standing as such under the laws of the place of his residence or principal office."
Further, one issue that matters critically is independence of the auditor from the client company. Final Rule 33-8183, (https://www.sec.gov/rules/final/33-8183.htm, January 28, 2003) while discussing audit services, non-audit services and auditor/accountant independence,
*revised the Commission's regulations related to the non-audit services that, if provided to an audit client, would impair an accounting firm's independence;
*required that an issuer's
audit committee
An audit committee is a committee of an organisation's board of directors which is responsible for oversight of the financial reporting process, selection of the independent auditor, and receipt of audit results both internal and external.
In a U. ...
pre-approve all audit and non-audit services provided to the issuer by the auditor of an issuer's financial statements;
*prohibited certain partners on the audit engagement team from providing audit services to the issuer for more than *five or seven consecutive years, depending on the partner's involvement in the audit, except that certain small accounting firms may be exempted from this requirement;
*prohibited an accounting firm from auditing an issuer's financial statements if certain members of management of that issuer had been members of the accounting firm's audit engagement team within the one-year period preceding the commencement of audit procedures;
*require that the auditor of an issuer's financial statements report certain matters to the issuer's audit committee, including "critical" accounting policies used by the issuer; and require disclosures to investors of information related to audit and non-audit services provided by, and fees paid to, the auditor of the issuer's financial statements.
*In addition, under the final rules, an accountant would not be independent from an audit client if an audit partner received compensation based on selling engagements to that client for services other than audit, review and attest services.
To be extra clear about it, Sarbanes–Oxley lays out the nine impermissibles—that is the nine categories of prohibited non-audit services for auditors:
#
Bookkeeping
Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business and other organizations. It involves preparing source documents for all transactions, operations, and other events of a business. Tr ...
or other services related to the accounting records or financial statements of the audit client;
# Financial information
systems design
Systems design interfaces, and data for an electronic control system to satisfy specified requirements. System design could be seen as the application of system theory to product development. There is some overlap with the disciplines of system a ...
and implementation;
#
Appraisal or valuation services,
fairness opinion A fairness opinion is a professional evaluation by an investment bank or other third party as to whether the terms of a merger, acquisition, buyback, spin-off, or privatization are fair. It is rendered for a fee. They are typically issued whe ...
s, or contribution-in-kind reports;
#
Actuarial services;
#
Internal audit
Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to ...
outsourcing services;
# Management functions or human resources;
# Broker or dealer, investment adviser, or
investment banking
Investment banking pertains to certain activities of a financial services company or a corporate division that consist in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated wit ...
services;
# Legal services and expert services unrelated to the audit; and
# Any other service that the company's board determines, by regulation, is impermissible.
Here is where the SEC places the ''corporate'' onus: "The final rules recognize the critical role played by audit committees in the financial reporting process and the unique position of audit committees in assuring auditor independence "... because of "the unique ability and responsibility of the audit committee to insulate the auditor from the pressures that may be exerted by management."
The result of Final Rule 33-8183 was to add Rule 2-07 to Regulation S-X and to amend
Rule 2-01 of Regulation S-X, as well as affect several other regulations, rules and forms.
These changes were triggered mainly by the
Sarbanes–Oxley Act
The Sarbanes–Oxley Act of 2002 is a United States federal law that mandates certain practices in financial record keeping and reporting for corporations.
The act, (), also known as the "Public Company Accounting Reform and Investor Protecti ...
of 2002, enacted on July 30, 2002. Title II of the Sarbanes–Oxley Act, entitled "Auditor Independence" required the Commission to adopt, by January 26, 2003, final rules such as 33-8183.
Section 201 of Sarbanes–Oxley require that non-audit services that are not prohibited under the Sarbanes–Oxley Act and the Commission's rules be subject to pre-approval by the registrant's audit committee. These rules specify the requirements for obtaining such pre-approval from the registrant's audit committee. Section 202 of Sarbanes–Oxley requires an audit committee to pre-approve allowable non-audit services and specifies certain exceptions to the requirement to obtain pre-approval. These rules specify the requirements of the registrant's audit committee for pre-approving non-audit services by the auditor of the registrant's financial statements.
Thus it can be seen that the audit committee membership is not a reward for good behavior or a
sinecure
A sinecure ( or ; from the Latin , 'without', and , 'care') is an office, carrying a salary or otherwise generating income, that requires or involves little or no responsibility, labour, or active service. The term originated in the medieval chu ...
but rather a weighty responsibility flowing from the Sarbanes–Oxley Act, various SEC regulations, rules and Final Rules, to also discharge the responsibilities of Regulations S-X and Regulation S-K.
Qualifications and Reports of Accountants
* 210.2-01 Qualifications of accountants.
* 210.2-02 Accountants' reports and attestation reports.
* 210.2-02T Accountants' reports and attestation reports on internal control over financial reporting.
* 210.2-03 Examination of financial statements by foreign government auditors.
* 210.2-04 Examination of financial statements of persons other than the registrant.
* 210.2-05 Examination of financial statements by more than one accountant.
* 210.2-06 Retention of audit and review records.
* 210.2-07 Communication with audit committees.
After this initial section where the SEC lays out the requirements and limitations on interaction between company, management, audit committee, accountants and the auditor, Regulation S-X is then free to carry on and discuss the form and content of financial statements and financial reporting. Among other things
Rule 210.2-06 (Retention of audit and review records) imposes a period of seven years after an accountant concludes an audit or review of an issuer's financial statements, during which the accountant shall retain records relevant to the audit or review, including work-papers and other documents that form the basis of the audit or review, and memoranda, correspondence, communications, other documents, and records (including electronic records).
General instructions as to financial statements
General Instructions as to Financial Statements (Rules 3-01 to 3-2
Although referred to as "General Instructions" they are usually quite specific.
All financial statements shall be audited unless otherwise indicated.
Rules 3-01 to 3-20 specify the balance sheets and statements of income and cash flows to be included in disclosure documents when prepared in accordance with Regulation S-X.
Other portions of Regulation S-X govern the examination, form and content of such financial statements, including the basis of consolidation and the schedules to be filed.
*Rule 3-01—Consolidated Balance Sheet
Registrants must file audited balance sheets as of the end of each of the two most recent fiscal years for the registrant and its consolidated subsidiaries. Any interim balance sheet provided in accordance with the requirements of this section may be unaudited but shall be at least as current as the most recent balance sheet filed with the Commission on Form 10-Q. Where filings must be made yet year-end balance sheets are not yet available, provision is made for use of interim balance sheets, including time limits on large and accelerated filers.
*Rule 3-02—Consolidated Statements of Income and Changes in Financial Positio
Registrants must file audited statements of income and cash flows for each of the three fiscal years preceding the date of the most recent audited balance sheet for the registrant and its consolidated subsidiaries and predecessors. In addition, for any interim period between the latest audited balance sheet and the date of the most recent interim balance sheet being filed, interim statements of income and cash flows shall be provided. Such interim financial statements may be unaudited.
*Rule 3-03—Instructions to Income Statement Requirement
The instructions note that any unaudited interim financial statements furnished shall reflect all adjustments which are necessary to a fair statement of the results; and a statement to that effect shall be included. Such adjustments shall include, for example, appropriate estimated provisions for bonus and profit sharing arrangements normally determined or settled at year-end. If all such adjustments are of a normal recurring nature, a statement to that effect shall be made. Otherwise, there shall be furnished information describing in appropriate detail the nature and amount of any adjustments other than normal recurring adjustments.
Also, disclosures regarding
Market segment, segments required by generally accepted accounting principles shall be provided for each year for which an audited statement of income is provided.
Consolidated and combined financial statements
Consolidated and Combined Financial Statements (Rules 3A-01 to 3A-0
It is not a law of nature that statements of related or subsidiary entities must be consolidated, however the presumption is that unless there is a good reason not to consolidate, consolidated statements should provide a better picture of overall operations and therefore should be provided.
The degree of ownership of one entity by its parent; foreign subsidiaries; differing fiscal reporting periods - are among the factors management must consider in deciding if or to what extent to consolidate income statements. Rule 3-04 requires that inter-company items and transactions in the consolidated financial statements being filed and unrealized inter-company profits and losses shall be eliminated.
Rules of general application
Rules of General Application (Rules 4-01 to 4-1
*Rule 4-01 requires that financial statement be prepared according to US GAAP or 'translated' to US GAAP, with few exceptions.
The Rule also includes "The information required with respect to any statement shall be furnished as a minimum requirement to which shall be added such further material information as is necessary to make the required statements, in the light of the circumstances under which they are made, not misleading." No limit is specified here as to the amount of further information that might be required.
The other Rules here are of little interest with the notable exceptions of Rule 4-08 General Notes to Financial Statements and Rule 4-10 Financial Accounting and Reporting for Oil and Gas Producing Activities. Rule 4-10 must be carefully followed only by oil and gas producers and those who search for raw petroleum sources, but Rule 4-08 is of universal applicability.
*Rule 4-08 requires that the notes to financial statements (modern financial statements 'always' have notes) contain certain information and are presented in a certain way.
:1. Principles of consolidation or combination.
:2. Assets subject to lien.
:3. Defaults.
:4. Preferred shares.
:5. Restrictions which limit the payment of dividends by the registrant.
:6. Significant changes in bonds, mortgages and similar debt.
:7. Summarized financial information of subsidiaries not consolidated and 50 percent or less owned persons.
:8. Income tax expense.
:9. Warrants or rights outstanding.
:10.
eserved:11. Related party transactions which affect the financial statements.
:12.
eserved.:13. Repurchase and reverse repurchase agreements.
:14. Accounting policies for certain derivative instruments.
For example, #8 (Income Tax Expense) is only four modest paragraphs but must be complied with in the light o
FAS 109 Summary- Accounting for Income Taxes a 116-page document.
Commercial and industrial companies
Commercial and Industrial Companies (Rules 5-01 to 5-04
"Commercial and Industrial Companies" is a very general category comprising most trading or potentially tradable companies. Rule 5 applies to all entities except for those covered by Rule 6, Rule 6A, Rule 7 and Rule 9. Rule 5 'keeps everybody on the same page' by requiring the minimum acceptable disclosure for Balance Sheets and Income Statements.
*Rule 5-02 Balance Sheet
"The purpose of this rule is to indicate the various line items and certain additional disclosures which ... should appear on the face of the balance sheets or related notes ..."
*Rule 5-03 Income Statement
"The purpose of this rule is to indicate the various line items which ... should appear on the face of the income statements ..."
Registered investment companies
Registered Investment Companies (Rules 6-01 to 6-10
Investment companies, mainly
mutual funds
A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV i ...
, with any interstate presence and above a certain size, must register with the SEC under The Investment Company Act of 1940.
Investment companies are considered to be an industry with special reporting requirements, outlined in Rules 6-01 to 6-10. See also other sections such as Article 12 which addresses the schedule of investments and additional schedules required of registered investment companies.
Employee stock purchase, savings and similar plans
Employee Stock Purchase, Savings and Similar Plans (Rules 6A-01 to 6A-05
Rule 6A-01—Application of Rule 6A-01 to Rule 6A-05
Rule 6A-02—Special Rules Applicable to Employee Stock Purchase, Savings and Similar Plans
Rule 6A-03—Statements of Financial Condition
Rule 6A-04—Statements of Income and Changes in Plan Equity
Rule 6A-05—What Schedules Are to Be Filed
Insurance companies
Insurance Companies (Rules 7-01 to 7-05
Rule 7-01—Application of Rule 7-01 to Rule 7-05
Rule 7-02—General Requirement
Rule 7-03—Balance Sheets
Rule 7-04—Income Statements
Rule 7-05—What Schedules Are to Be Filed
Financial statements of smaller reporting companies
Financial Statements of
smaller reporting company, smaller reporting companies (Rules 8-01 to 8-0
Rule 8-01—Preliminary Notes to Article 8
Rule 8-02—Annual Financial Statements
Rule 8-03—Interim Financial Statements
Rule 8-04—Financial Statements of Businesses Acquired or to be Acquired
Rule 8-05—Pro Forma Financial Information
Rule 8-06—Real Estate Operations Acquired or to be Acquired
Rule 8-07—Limited Partnerships
Rule 8-08—Age of Financial Statements
Bank holding companies
Bank Holding Companies (Rules 9-01 to 9-06
Rule 9-01—Application of Rule 9-01 to Rule 9-07
Rule 9-02—General Requirement
Rule 9-03—Balance Sheets
Rule 9-04—Income Statements
Rule 9-05—Foreign Activities
Rule 9-06—Condensed Financial Information of Registrant
Rule 9-07 --
eserved
Interim financial statements
Interim Financial Statements (Rule 10-
Rule 10-01—Interim Financial Statements
Pro-forma financial information
Pro-Forma Financial Information (Rules 11-01 to 11-0
Form and content of schedules
Form and Content of Schedules (Rules 12-01 to 12-09
GENERAL
* Rule 12-01—Application of Rule 12-01 to Rule 12-29
* Rule 12-02—to Rule 12-03
eserved* Rule 12-04—Condensed Financial Information of Registrant
* Rule 12-05—to Rule 12-08
eserved* Rule 12-09—Valuation and Qualifying Accounts
* Rule 12-10—to Rule 12-11
eserved
FOR MANAGEMENT INVESTMENT COMPANIES
* Rule 12-12—Investments in Securities of Unaffiliated Issuers
* Rule 12-12A—Investments—Securities Sold Short
* Rule 12-12B—Open Option Contracts Written
* Rule 12-12C—Summary Schedule of Investments in Securities of Unaffiliated Issuers
* Rule 12-13—Investments Other than Securities
* Rule 12-14—Investments In and Advances To Affiliates
* Rule 12-15—Summary of Investments—Other than Investments in Related Parties
* Rule 12-16—Supplementary Insurance Information
* Rule 12-17—Reinsurance
* Rule 12-18—Supplemental Information (for Property-Casualty Insurance Underwriters)
FOR FACE AMOUNT CERTIFICATE INVESTMENT COMPANIES
* Rule 12-21—Investments in Securities of Unaffiliated Issuers
* Rule 12-22—Investments In and Advances To Affiliates and Income Thereon
* Rule 12-23—Mortgage Loans on Real Estate and Interest Earned on Mortgages
* Rule 12-24—Real Estate Owned and Rental Income
* Rule 12-25—Supplementary Profit and Loss Information
* Rule 12-26—Certificate Reserves
* Rule 12-27—Qualified Assets on Deposit
FOR CERTAIN REAL ESTATE COMPANIES
* Rule 12-28—Real Estate and Accumulated Depreciation
* Rule 12-29—Mortgage Loans on Real Estate
History
Regulation S-X was announced in Accounting Series Release no. 11 and first appeared in the Code of Federal Regulations in 1941. For copies of Regulation S-X as they appear in the Code from 1997 to the present se
Code of Federal Regulations (Annual Edition) The SEC has also occasionally issued Regulation as a separate publication. See the Table below for these earlier versions of the Regulation.
Definitions
Financial Reporting Releases: Financial Reporting Releases or FRRs are releases designed to communicate the SEC's positions on accounting principles and auditing practices.
Commission Guidance Regarding the Financial Accounting Standards Board's Accounting Standards Codification, page 3
/ref>
See also
* Regulation S-K
Regulation S-K is a prescribed regulation under the US Securities Act of 1933 that lays out reporting requirements for various SEC filings used by public companies. Companies are also often called issuers (issuing or contemplating issuing shares) ...
* Proxy statement
A proxy statement is a statement required of a firm when soliciting shareholder votes. This statement is filed in advance of the annual meeting. The firm needs to file a proxy statement, otherwise known as a Form DEF 14A (Definitive Proxy Statemen ...
* Generally accepted accounting principles
Publicly traded companies typically are subject to rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms operate on th ...
References
Securities Lawyers Deskbook
Form Types Used for Electronic Filing on EDGAR
*[https://books.google.com/books?id=XdBN7IRt0NcC&printsec=frontcover&dq=review+of+The+Securities+Enforcement+Manual,+Second+Edition:+Tactics+and+Strategies&source=bl&ots=6ygVSwPuAk&sig=xiMG-RL7jGHhmgxRX7zZTvFx2LI&hl=en&ei=X2SITNPAB8nMcND9uJ4I&sa=X&oi=book_result&ct=result&resnum=3&ved=0CCAQ6AEwAg#v=onepage&q&f=false The Securities Enforcement Manual, Second Edition: Tactics and Strategies]
Fundamentals of Securities Regulation, Fifth Edition
{{reflist
SEC filings
United States securities law