The US Securities and Exchange Commission (SEC) adopted final amendments to its rules on December 2, 2021 to implement the requirements in the Holding Foreign Companies Accountable Act of 2020. Although for the foreseeable future, the majority of the new rules are expected only to affect SEC registrants whose operations are based in China or Hong Kong, all SEC registrants that file their annual reports on Forms 10-K, 20-F, or 40-F need to be aware of new requirements that are not included in the forms themselves.
Specifically, a registrant filing an annual report for a period ended after December 15, 2021 that files financial statements using Inline XBRL, must tag three additional data elements:
- the auditor(s) who provided the opinion(s) related to the financial statements in the annual report;
- the location from where the auditor’s report was issued; and
- the Public Company Accounting Oversight Board (PCAOB) ID Number(s) of the audit firm(s) or branch(es) that provided the opinion.
As noted above, this new requirement cannot be found in the annual report forms themselves. Rather, the SEC has adopted an amendment to Rule 405 of Regulation S-T, effective January 10, 2022. The new paragraph in Rule 405 refers the reader to the SEC’s Document Entity and Information (DEI) taxonomy in the EDGAR Filer Manual, Volume II: EDGAR Filing, which contains these new data elements in Section 6.5.54. While the SEC’s adopting release states that the location of the information in the annual report is “up to the registrant,” the EDGAR Filer Manual provides that the data “should be tagged where they normally appear, adjacent to the auditors’ opinion.”
The two most obvious locations to provide this information would be on the auditor’s signature page to its report, which already includes the auditor’s name and location, or in the new items added to Forms 10-K, 20-F, and 40-F to require disclosure regarding foreign jurisdictions that prevent PCAOB inspection (Items 9C, 16I, and B(18), respectively). Note, however, that to be included on the signature page to the audit report, the auditor, and not the company, would have to provide the revised disclosure.