SEC expects increased MD&A disclosure on emerging risks

Mark Shannon, Steven King
| 2/8/2023
SEC expects increased MD&A disclosure on emerging risks

The SEC is expecting a greater focus on emerging risks, especially in MD&A disclosures.

The business environment continues to be dynamic. Inflation, supply chain issues, interest rates, the strong dollar, the climate, geopolitical conflict, COVID-19, and restrictions or limitations on cross-border cash transfers are all topics the U.S. Securities and Exchange Commission (SEC) staff mentioned in recent forums that likely have an impact on a registrant’s risk factors, forward-looking statements, and management’s discussion and analysis (MD&A) disclosures. SEC staff mentioned MD&A has been a particular area of focus.

Item 303, “Management’s discussion and analysis of financial condition and results of operations,” of Regulation S-K generally requires MD&A disclosure of known material events, trends, and uncertainties that are reasonably likely to cause current reported financial information to be not necessarily indicative of future operating results or of future financial condition. Staff members observed that they issued a number of MD&A comments in 2022 when recent events appear material and applicable to a registrant, but MD&A and other disclosures have not evolved to address the current or expected future impact of these emerging risks. The following areas are of particular interest to the staff members, who provided observations on what disclosures might be expected in response to specific emerging risks:

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Interest-rate environment

  • The current interest-rate environment is expected to present both challenges and opportunities for most registrants, which should be highlighted to investors through enhanced disclosures.

Crowe observation: The staff mentioned two specific examples of how the current interest-rate environment might affect certain industries.

  • A bank might focus on trading or retail operations if investment banking or M&A activity becomes less impactful due to rising interest rates.
  • Manufacturers might shift to lower-cost products if financing costs have increased.

Other industries might have similar impacts, and these examples illustrate how the staff expects disclosures to evolve when interest rates have a material impact on current or future operations.


  • Investors increasingly are interested in granular disclosures discussing how inflation has modified the company’s outlook or business goals rather than a boilerplate disclosure about an “inflationary environment.”
  • Registrants should consider enhanced disclosures and analyses of how inflation has affected results of operations or short- or long-term liquidity and whether inflationary costs have been or will be passed on to customers.
  • If a registrant currently is negotiating price changes and the outcome of those negotiations is uncertain, disclosures should address the uncertainty, if material.

Crowe observation: The staff reminded registrants that risk factors, forward-looking statements, and MD&A might need to be revised to refer to inflationary considerations as an existing or expected impact rather than a possibility.

Supply chain

Crowe observation: Although written in the context of COVID-19, Disclosure Guidance Topic 9 and Topic 9A remain useful when assessing supply chain disclosures more broadly. The staff noted the nature and the known and future impacts of current supply chain disruptions (for example, geopolitical conflict) might differ from other recent supply chain issues (for example, COVID-19). Supply chain interruptions from geopolitical conflict, COVID-19, or other disruptions might be ongoing, and registrants should consider revising disclosures if current or future supply chain considerations will affect the registrant in a different way.

Trend disclosure

  • Staff observed MD&A disclosures often either inappropriately omit trend discussions or provide only cursory discussions, even though Item 303 requires consideration of trends.
  • Registrants should consider the impact of inflation, a strong dollar, supply chain issues, production and consumption, industry innovations, commodities pricing, product mix, shifting resources among geographies, and upstream and downstream drivers when assessing material trends and uncertainties.
  • Registrants should consider how discussions on earnings calls interact with trend disclosures in MD&A. For example, if material, quantification of the impact of supply chain disruption during an earnings call likely also should be discussed in the registrant’s MD&A trend disclosures.

Crowe observation: The staff mentioned investors could benefit from a separately labeled subsection of disclosure that is clearly identified as discussing trends. Registrants also might need to consider whether their trend disclosures are consistent with estimates and assumptions discussed elsewhere (for example, in cash flow forecasts and impairment disclosures within critical accounting estimates).

What’s next

With the ever-evolving dynamic and complex business environment, it is likely MD&A and other disclosures will need to be reassessed and modified continually to address emerging risks. It also is likely MD&A will continue to be a significant SEC staff focus. Registrants, including those charged with governance, should evaluate carefully, in each reporting period, whether material events, trends, or uncertainties have evolved or newly arisen in the most recent period and whether additional or revised disclosure might be necessary to inform investors adequately.

Crowe observation: In late 2022 into early 2023, United States debt limit discussions came into sharper focus among policymakers. Registrants might need to consider whether any potential impact of resolving debt limit issues (for example, the ability of the government to issue new debt, default, or decrease discretionary spending) gives rise to a trend or uncertainty that should be disclosed under Item 303 of Regulation S-K.

Contact us

Mark Shannon
Mark Shannon
Partner, National Office
Steven King
National Office