Monthly Archives: December 2014

IFRS – The SAGA Continues

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As most accountants have heard, Jim Schnurr, the new Chief Accountant at the SEC has been speaking about the SEC possibly continuing to consider the use of IFRS by domestic companies.

At the AICPA’s annual SEC/PCAOB conference in Washington, DC on Monday he delivered his latest update on the status of IFRS, and you can read that speech at:

www.sec.gov/News/Speech/Detail/Speech/1370543609306#.VIcHnYupqrI

In his speech he said “When I arrived at the Commission two months ago, Chair White asked me to take a hard look at where the staff had been on the issue and make a recommendation to her as to the path forward.”

While he did not say anything definite, it is clear the IFRS is no longer on the back burner!

He also said “Based on the progress of our collective efforts, I am hopeful to be in a position in the coming months to commence discussions with the Chair and the Commissioners about the different alternatives for potential further incorporation of IFRS and the related issues/concerns of each alternative with the objective of reaching a recommendation on what, if any, further incorporation or use of IFRS by US registrants would be permitted or required. And, of course, any rulemaking proposal that the Commission decides to consider would be subject to the normal notice and comment process.”

In the Q&A session Mr Schnurr elaborated on some ideas to incorporate, perhaps electively, IFRS information (in adition to US GAAP financial statements) into US registrant’s filings that would be useful for investors when comparing US registrants using US GAAP and those using IFRS. The ideas run the gamut of including IFRS measures in Selected Financial Data, IFRS data in MD&A, non-GAAP measures calculated using IFRS, and full financial statements in IFRS. He asked for feedback on these areas and input on additional ideas to consider.

So, this will not be a speedy process……

As always, your comments and thoughts are welcome!

Comment of the Week – Is it Material?

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As we move towards the year-end reporting process one of the issues many of us, if not all of us, will have to deal with is materiality. Determining whether a particular issue or amount is material is not a simple question. When we decide that something is immaterial the SEC staff sometimes wants to “kick the tires” on that judgment.

Here is an example comment:

Note 1. Summary of Significant Accounting Policies, page 64

1. Please tell us in greater detail the facts and circumstances regarding the corrections to prior year’s income taxes and depreciation of properties. In your response, tell us how you complied with ASC 250-10-45-22 and SAB Topics 1M and 1N, and provide us with your materiality assessment. Please be detailed in your response.

This is a great example of finding an issue that affects prior years and deciding the issue is not material to the prior year or the current year. With that decision a restatement is not necessary.

In their comment the staff is not saying they disagree. But they do want to look more deeply into the judgments involved.

Those of course involve SAB Topic 1M, originally SAB 99 and the issues surrounding quantitative and qualitative materiality, along with Topic 1N, originally SAB 108, which requires evaluation of both the “roll-over” and “iron curtain” methods of evaluating the materiality of a misstatement.

You can find both of the SAB’s in the SAB Codification at the SEC’s website:

 www.sec.gov/interps/account/sabcode.htm

Here are two issues to be sure you deal with in your materiality memo.

First, SAB 99 provides a list of example issues that could make a quantitatively small amount qualitatively material. One “mistake” that companies still make is to view the list of qualitative factors in the SAB as a complete list. One of the worst flaws in a SAB 99 memo can be to list the factors in the SAB and conclude none of them apply and conclude the issue or amount is not material. You must go beyond this list and evaluate whether any other factors make the amount qualitatively material.

Second, and likely the most important advice in every materiality decision, is ALWAYS write your SAB 99 memo when you make the decision, don’t put yourself in a position of having to write it well afterwards!

As always, your thoughts and comments are welcome!