Monthly Archives: August 2014

A New Chief Accountant for the SEC

The SEC announced the appointment of James Schnurr as it’s chief accountant yesterday. Jim will join the Commission in October, replacing Paul Beswick, who announced his resignation in May.

Congratulations Jim!

To learn more about Jim, you can find the SEC’s Press Release at:

As always, we would love to hear your comments!

More on Metrics!

A couple of weeks ago we did a “Comment of the Week” blog posting about how the SEC has focused comments on the meaningfulness and reliability along with other issues in company developed metrics. You can find that post below; just scan down for the July 28 post.

Anyway, to help emphasize the importance of these metrics, and improving them as we go along, here is an example of how they need to be reviewed and improved. Twitter included this language as preliminary note in their 10-Q filed August 11, 2014. Check out the third and last paragraphs in particular.


We review a number of metrics, including monthly active users, or MAUs, timeline views, timeline views per MAU and advertising revenue per timeline view, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics” for a discussion of how we calculate MAUs, timeline views, timeline views per MAU and advertising revenue per timeline view.

The numbers of active users and timeline views presented in this Quarterly Report on Form 10-Q are based on internal company data. While these numbers are based on what we believe to be reasonable estimates for the applicable period of measurement, there are inherent challenges in measuring usage and user engagement across our large user base around the world. For example, there are a number of false or spam accounts in existence on our platform. We have performed an internal review of a sample of accounts and estimate that false or spam accounts represented less than 5% of our MAUs. In making this determination, we applied significant judgment, so our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have estimated. We are continually seeking to improve our ability to estimate the total number of spam accounts and eliminate them from the calculation of our active users. For example, we made an improvement in our spam detection capabilities in the second quarter of 2013 and suspended a large number of accounts. Spam accounts that we have identified are not included in the active user numbers presented in this Quarterly Report on Form 10-Q. We treat multiple accounts held by a single person or organization as multiple users for purposes of calculating our active users because we permit people and organizations to have more than one account. Additionally, some accounts used by organizations are used by many people within the organization. As such, the calculations of our active users may not accurately reflect the actual number of people or organizations using our platform.

Our metrics are also affected by third-party applications that automatically contact our servers for regular updates with no user action involved, and this activity can cause our system to count the users associated with such applications as active users on the day or days such contact occurs.  Historically we tracked and reported in this section all users who accessed Twitter through third-party applications. We have reviewed and refined our processes, however, to calculate a new metric that is comprised of only such active users who have used applications with the capability to automatically contact our servers for regular updates where there was no discernable user action involved.  In the three months ended June 30, 2014, approximately 11% of all active users solely used third-party applications to access Twitter.  However, only up to approximately 8.5% of all active users used third party applications that may have automatically contacted our servers for regular updates without any discernable additional user-initiated action.  The calculations of MAUs presented in this Quarterly Report on Form 10-Q may be affected as a result of automated activity.

In addition, our data regarding user geographic location for purposes of reporting the geographic location of our MAUs is based on the IP address associated with the account when a user initially registered the account on Twitter. The IP address may not always accurately reflect a user’s actual location at the time such user engaged with our platform.

We present and discuss timeline views in this Quarterly Report on Form 10-Q. We have estimated a small percentage of timeline views in the three months ended September 30, 2013 to account for certain timeline views that were logged incorrectly during the quarter as a result of a product update. We believe this estimate to be reasonable, but the actual numbers could differ from our estimate. Further, timeline views in 2012 exclude an immaterial number of timeline views for our mobile applications, certain of which were not fully tracked until June 2012. We present and discuss our total audience based on both internal metrics and data from Google Analytics, which measures unique visitors to our properties.

We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy. Our measures of user growth and user engagement may differ from estimates published by third parties or from similarly-titled metrics of our competitors due to differences in methodology.

As always, we would love to hear your comments!

10-K/10-Q Tip Number One

Pick –up line for an accounting bar – So, what’s your favorite Item in Form 10-K?

A question that occasionally comes up, and can create confusion in the 10-K and 10-Q preparation process is what to do with item numbers that do not apply to your company.

For example, in Part One of the Form 10-K, Item 4 concerning mine safety disclosures frequently does not apply. So, what should you do with this Item number? Could you leave it out? Must you list it? Is it a style choice?

Well, as it turns out, the SEC has an Exchange Act Rule that answers this question: (And yes, we are into total SEC Geek territory here)

§240.12b-13   Preparation of statement or report.

The statement or report shall contain the numbers and captions of all items of the appropriate form, but the text of the items may be omitted provided the answers thereto are so prepared as to indicate to the reader the coverage of the items without the necessity of his referring to the text of the items or instructions thereto. However, where any item requires information to be given in tabular form, it shall be given in substantially the tabular form specified in the item. All instructions, whether appearing under the items of the form or elsewhere therein, are to be omitted. Unless expressly provided otherwise, if any item is inapplicable or the answer thereto is in the negative, an appropriate statement to that effect shall be made.

(Note that the bolding was added for this blog, and that this is also done below)

So, all Item numbers must be listed!

If you would like to look at the Exchange Act Rules, you can find them in our SEC handbook, or here on the web:

That said, every rule has an exception, and the exception to this rule is in the Form 10-Q, Part Two, which has an instruction that says:


Instruction. The report shall contain the item numbers and captions of all applicable items of Part II, but the text of such items may be omitted provided the responses clearly indicate the coverage of the item. Any item which is inapplicable or to which the answer is negative may be omitted and no reference thereto need be made in the report. If substantially the same information has been previously reported by the registrant, an additional report of the information on this form need not be made. The term “previously reported” is defined in Rule 12b-2 (17 CFR 240. 12b-2). A separate response need not be presented in Part II where information called for is already disclosed in the financial information provided in Part I and is incorporated by reference into Part II of the report by means of a statement to that effect in Part II which specifically identifies the incorporated information.

(Note that the bolding was added for this blog)

So, save those references, and we all hope your reporting goes well.

As usual, we would love to hear your thoughts and comments.

Comment of the Week

So, how good is your goodwill?

The staff in the Division of Corporation Finance, as it has over the last several years, continues to ask questions about goodwill recoverability.  And, more importantly, the staff frequently asks for incremental disclosures about the risks surrounding goodwill recoverability in MD&A.

Forewarning disclosures, the complex known trend disclosure that got Sony into trouble when it had an unexpected goodwill write-off, are never easy. And, of course, they are very different from a risk factor. If you want a brief reminder, the Sony case is at:

Here is a very recent comment dealing with this issue:

1. We note that for 2013 you performed a quantitative assessment for Europe, India & Southeast Asia, and Middle East reporting units. Please tell us if you believe these reporting units are at risk of failing step one of the impairment test and your basis for this conclusion. Please also tell us, and in future filings disclose, the following related to the reporting units at risk of failing step one:

The percentage by which fair value exceeded carrying value as of the date of the most recent impairment test; and

  •  The amount of goodwill allocated to these reporting units.

Alternatively, if in your view your reporting units are not at risk please disclose that fact. Refer to Item 303(a)(3)(ii) of Regulation S-K and Section V of Release 33-8350 for further guidance.

And, here is another similar comment, which even asks for disclosure regarding valuation approaches and assumptions:

We note that QiG continues to operate in a loss position and generates minimal revenues. We reference the disclosure that goodwill allocated to QiG is not at risk of failing step one of future impairment tests. Please revise future filings to disclose the specific valuation approach and underlying assumptions you used in determining the fair value of the QiG reporting unit to assess goodwill impairment. Please also clarify how you concluded that the fair value of the QiG reporting unit is substantially in excess of carrying value as of the date of your last impairment test.

So, if you are getting, or could get close on an impairment test, don’t forget known trend disclosure in MD&A!

As always, we welcome your comments and thoughts!