Regulation S-X is a prescribed regulation in the United States of America that lays out the specific form and content of financial reports, specifically the financial statements of public companies.[1] 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, Securities Exchange Act of 1934, Public Utility Holding Company Act of 1935, Investment Company Act of 1940, Investment Advisers Act of 1940, and Energy Policy and Conservation Act of 1975".
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, which lays out reporting requirements for various SEC filings and registrations used by public companies. Regulation S-X profoundly affects internal and external accountants and auditors, 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.
Regulation S-X and the Financial Reporting Releases (Staff Accounting Bulletins) set forth the form and content of and requirements for financial statements required to be filed as a part of (a) registration statements under the Securities Act of 1933 and (b) registration statements under section 12,[2] annual or other reports under sections 13[3] and 15(d)[4] 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.
Regulation S-X generally implicitly discusses US Generally Accepted Accounting Principles (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[5] related to the rules and regulations on the use of non-GAAP financial measures.[6]
Regulation S-X was devised by the SEC staff with copious input from accounting-related entities. Major entities involved in its maintenance include:
Because Regulation S-X is large and its impact on financial report is so pervasive, it is important to have a consistent terminology 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, 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 to Rule 13a-15(f). As the failure to have such controls or properly implement them or use/provide their disclosure may come with penalties 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 (Rules 2-01 to 2-07)http://taft.law.uc.edu/CCL/regS-X/art2.html
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,
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:
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 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 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
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 (Rules 3-01 to 3-20)http://taft.law.uc.edu/CCL/regS-X/art3.html
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.
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.
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.
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 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 (Rules 3A-01 to 3A-05)http://taft.law.uc.edu/CCL/regS-X/art3A.html
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 4-01 to 4-10)http://taft.law.uc.edu/CCL/regS-X/art4.html
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.
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. [Reserved]
11. Related party transactions which affect the financial statements.
12. [Reserved.]
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 of FAS 109 Summary- Accounting for Income Taxes, a 116-page document.
Commercial and Industrial Companies (Rules 5-01 to 5-04) http://taft.law.uc.edu/CCL/regS-X/art5.html
"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.
Registered Investment Companies (Rules 6-01 to 6-10) http://taft.law.uc.edu/CCL/regS-X/art6.html
Investment companies, mainly mutual funds, 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 (Rules 6A-01 to 6A-05) http://taft.law.uc.edu/CCL/regS-X/art6A.html
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 (Rules 7-01 to 7-05) http://taft.law.uc.edu/CCL/regS-X/art7.html
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 (Rules 8-01 to 8-08)http://taft.law.uc.edu/CCL/regS-X/art8.html
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 (Rules 9-01 to 9-06) http://taft.law.uc.edu/CCL/regS-X/art9.html
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 -- [Reserved]
Interim Financial Statements (Rule 10-1)http://taft.law.uc.edu/CCL/regS-X/art10.html
Rule 10-01—Interim Financial Statements
Pro-Forma Financial Information (Rules 11-01 to 11-03)http://taft.law.uc.edu/CCL/regS-X/art11.html
Form and Content of Schedules (Rules 12-01 to 12-09) http://taft.law.uc.edu/CCL/regS-X/art12.html
GENERAL
FOR MANAGEMENT INVESTMENT COMPANIES
FOR FACE AMOUNT CERTIFICATE INVESTMENT COMPANIES
FOR CERTAIN REAL ESTATE COMPANIES
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 see 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.
| Year | Date | Official title | |
|---|---|---|---|
| 1940 | Regulation S-X: form and content of financial statements (1940) full-text | ||
| 1941 | February 1 | Regulation S-X: form and content of financial statements as amended to and including February 1, 1941 full-text | |
| 1941 | June 20 | Regulation S-X: form and content of financial statements as amended to and including June 20, 1941 full-text | |
| 1942 | May 15 | Regulation S-X: form and content of financial statements as amended to and including May 15, 1942 full-text | |
| 1946 | April 1 | Regulation S-X: form and content of financial statements as amended to and including April 1, 1946 full-text | |
| 1947 | April 1 | Regulation S-X: form and content of financial statements as amended to and including April 1, 1947 full-text | |
| 1951 | March 12 | Regulation S-X: form and content of financial statements as amended to and including March 12, 1951 full-text | |
| 1953 | November 3 | Regulation S-X: form and content of financial statements as amended to and including November 3, 1953 full-text | |
| 1955 | January 10 | Regulation S-X: form and content of financial statements as amended to and including January 10, 1955, Reprinted November 1, 1956 full-text | |
| 1958 | August 20 | Regulation S-X: form and content of financial statements as in effect August 20, 1958 full-text | |
| 1961 | February 15 | Regulation S-X: form and content of financial statements as in effect February 15, 1961 full-text | |
| 1962 | July 15 | Regulation S-X: form and content of financial statements as in effect July 15, 1962 full-text | |
| 1964 | October 15 | Regulation S-X: form and content of financial statements as amended October 15, 1964 full-text | |
| 1966 | August 1 | Regulation S-X: form and content of financial statements as in effect August 1, 1966 full-text | |
| 1968 | September 1 | Regulation S-X: form and content of financial statements as in effect September 1, 1968 full-text | |
| 1970 | October 14 | Regulation S-X: form and content of financial statements as in effect October 14, 1970 full-text |
Financial Reporting Releases: Financial Reporting Releases or FRRs are releases designed to communicate the SEC's positions on accounting principles and auditing practices.[12] [13] [14]