The long-awaited final standard from the FASB and IASB’s revenue recognition convergence project was issued on May 28, 2014. You can download ASU 2014-09 Revenue from Contracts with Customers (Topic 606) from this page on the FASB website: http://www.fasb.org/cs/ContentServer?c=Page&pagename=FASB%2FPage%2FSectionPage&cid=1176156316498 .

The standards are touted as being converged, and all who have followed the project for years know what a challenge that was. Now the process of implementation must begin.  The Boards have established a joint transition group, in part to ensure a smooth transition, and in part to try to effect consistent application – a key to successful convergence.

To help you start learning and planning, we have scheduled a one-hour briefing, Revenue Recognition Revolution is Here: Highlights of the New Standard and What to do Now, on June 11, 2014 at 10:30 a.m E.D.T. The briefing, which will be a webcast, will be led by Carol Stacey and George Wilson and will provide you with an overview of the standard, as well as get you started on the path to implementation. You can register at:

http://www.pli.edu/Content/Seminar/Revenue_Recognition_Revolution_is_Here_Highlights/_/N-4kZ1z12a55?&ID=224795

For an in-depth dive into the new revenue recognition standard, you can also attend one of our upcoming workshops, held in several different locations:

Implementing the FASB/IASB New Revenue Recognition Standard Workshop 2014 

http://www.pli.edu/Content/Implementing_the_FASBIASB_New_Revenue_Recognition/_/N-1z12celZ4k?ID=214938]

June 18-19 in New York City

June 25-26 in San Francisco

August 21-22 in Dallas

September 15-16 in Las Vegas

We hope you can join us!

As we approach the June 2, 2014 deadline for the first conflict minerals report on Form S, there is still substantial uncertainty about what the report should look like and what it should contain.

A few companies have actually already filed, and just in case it might help, here is one of the recent filings.

It is a company called Affymetrix, Inc. and you can see their From SD at:

http://www.sec.gov/cgi-bin/browse-edgar?company=&match=&filenum=0-28218&State=&Country=&SIC=&myowner=exclude&action=getcompany

We all know someone who works, or worked, in public service, possibly even ourselves. This is the week set aside to recognize them for their efforts on behalf of all of us. We hope you will join us in thanking the thousands of people in all levels of government who work in a myriad of capacities on our behalf. The SEC has a nice tribute in the form of list of 50 Ways Government Works for us – go to:

http://www.sec.gov/spotlight/sec-employees/psrw50ways.pdf.

We’d like to add another to the list, borrowing from a January 2014 speech by SEC Chair, Mary Jo White:

“For nearly 80 years, the Securities and Exchange Commission has been playing a vital role in the economic strength of our nation. Year after year, the agency has steadfastly sought to protect investors, make it possible for companies of all sizes to raise the funds needed to grow, and to ensure that our markets are operating fairly and efficiently.”

The recently announced error in Bank of America’s computation of their regulatory capital requirement provided the financial press with a typical “sensation of the moment”.  In searching for ways to discuss the error some commentators even characterized it as an “accounting error”, the kind of thing sure to get a bit of sensational notice.

However, the nature of this error is a bit more complex, and has different lessons to teach.  Here is an excerpt from the B of A press release:

“Bank of America Corporation today announced a downward revision to the company’s previously disclosed regulatory capital amounts and ratios due to an incorrect adjustment related to the treatment of certain structured notes assumed in the Merrill Lynch & Co., Inc. acquisition in 2009. The reduction in the regulatory capital amounts and ratios has no impact on the company’s historical consolidated financial statements or shareholders’ equity, which were properly stated in accordance with accounting principles generally accepted in the United States of America (GAAP).”

(See more at: http://investor.bankofamerica.com/phoenix.zhtml?c=71595&p=irol-newsArticle&ID=1922893&highlight=)

What really happened here was an error in a disclosure that is not from the accounting system per se, the computation of regulatory capital.  Regulatory capital, a key indicator of financial health and strength, starts from financial statement information, but is actually a very complex numerical exercise that goes well beyond the financial statements.  It is an important disclosure for financial institutions, and in fact is disclosed in the notes to the financial statements.  But it was in all the complex and fancy computations outside the financial statements that the error occurred.

So, the lesson here is not really about the accounting for the financial statements, it is about what sort of care, and more importantly what sort of controls are necessary for the information disclosed in the notes that is not lifted directly from the accounting system, but rather that starts with information from the accounting system.

This is a far more complex issue, and one that has tripped up other companies in the past.

Two notable examples:

As far back as 1995, Fidelity had a major error in a spreadsheet that caused them to announce that their Magellan fund would have to pay a taxable dividend.  When the error was caught, they had to deal with the embarrassment of having to correct their earlier announcement.  The error?  A wrong sign in a computation in a spreadsheet.  You can google search for articles and also check out:

http://catless.ncl.ac.uk/Risks/16.72.html

In 2005 SunTrust Bank dealt with a very similar situation when a math error in a spreadsheet used to compute part of the allowance for loan losses came to light.  This one was more serious, as the financial statements were misstated and a restatement was required.  In fact, three people lost their jobs in this messy spreadsheet error case!

So, what is the lesson?  It is to take care to design and test controls over information that goes beyond the financials and review all that information very, very carefully!