SEC'S Interpretive MD&A Guidance on Liquidity and Capital Resources And Proposed New Rules On Short-Term Borrowing Disclosure


The SEC has responded to concerns about balance sheet “window dressing” and other perceived liquidity disclosure problems with an interpretive release regarding MD&A liquidity and capital resources disclosure and proposed new rules that would require detailed MD&A disclosure on short-term borrowing arrangements.

New Interpretive Guidance

The SEC’s new interpretive guidance is the most recent in a series of MD&A interpretive releases.[1] Interpretive releases are designed to clarify existing rules and, while approved by the SEC Commissioners, do not go through the full rulemaking process. The MD&A section of registration statements and periodic reports is required to provide clear and understandable information about known trends, events, demands, commitments and uncertainties regarding a company's financial position, particularly where they are reasonably likely to have a current or future material impact on the company.

Liquidity Discussion

The interpretive guidance states that in preparing the liquidity discussion included in the MD&A, companies may not rely on financing structures (whether “on-balance sheet” or “off-balance sheet”) that mask their financial condition. The SEC also emphasized the need to disclose important trends and uncertainties related to liquidity, such as...

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