Monthly Archives: August 2017

A New Look

Hey, if you haven’t been there in a while, go check out the SEC’s home page!

As always, your thoughts and comments are welcome!

 

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Master SEC Reporting and Prepare to Tackle New Challenges – August & September Dates Announced

The complicated world of SEC reporting has now gotten even more complicated! Be sure you are prepared to comply with the recently enacted changes and have a plan in place to deal with the SEC staff “hot buttons”. Attend SECI’s live workshop SEC Reporting Skills Workshop 2017 being held August 17-18 in New York City, August 21-22 in Grapevine and September 25-26 in San Francisco with additional dates and locations listed on the SECI website.

 

http://www.pli.edu/Content/SEC_Reporting_Skills_Workshop_2017/_/N-1z10oe8Z4k?ID=290537

 

Sustainability Disclosures – It’s Time to Explore!

By: George M. Wilson & Carol A. Stacey

 

Sustainability disclosures are being mentioned more and more in the news, in company reporting and in regulatory discussions. While it may seem like it is “early days” for this information, it may not be as early as we all think. Here are summaries of a few of the things going on now.

 

Sustainability information has been touched on by the SEC in their disclosures effectiveness project. In the voluminous 2016 Regulation S-K Concept release the SEC included this language:

We are interested in receiving feedback on the importance of sustainability and public policy matters to informed investment and voting decisions. In particular, we seek feedback on which, if any, sustainability and public policy disclosures are important to an understanding of a registrant’s business and financial condition and whether there are other considerations that make these disclosures important to investment and voting decisions. We also seek feedback on the potential challenges and costs associated with compiling and disclosing this information.

Enough companies are already disclosing sustainability information that the AICPA has published a Guide for Attestation Engagements on Sustainability Information. The AICPA also has a very informative web page about sustainability disclosures in general.

 

Standard setters in other parts of the world have also begun discussion about sustainability information. Here is an excerpt from a speech Hans Hoogervorst, Chair of the IASB, delivered in April 2017 at the IIRC Council Meeting in New York:

In their latest review of structure and effectiveness, from 2015 to 2016, the Trustees of the IFRS Foundation confirmed the current approach of the International Accounting Standards Board (the Board) to wider corporate reporting. Broadly, this approach is to cooperate with organisations like the Corporate Reporting Dialogue (CRD) and the International Integrated Reporting Council (IIRC).

The Board was also asked to study further what its future role should be in the wider corporate reporting landscape. The Board is examining this question now. During the Board meeting of March 2017, we devoted public discussion to this issue for the first time.

As we wind down from second-quarter reporting (or whenever your fiscal-year has a less busy period!), this might be an opportune moment to learn a bit about these disclosures. There are several sources of information you can begin with:

The Sustainability Standards Board (SASB) maintains industry specific sustainability accounting standards that help public corporations disclose material, decision-useful information to investors. The members of the SASB are appointed by the SASB Foundation, a structure similar to that of the FASB and the FAF. The SASB Foundation is chaired by Michael Bloomberg and both the Foundation Board and the SASB itself have members with deep capital markets, business and academic experience.

The International Integrated Reporting Council defines integrated reporting as “a process founded on integrated thinking that results in a periodic integrated report by an organization about value creation over time and related communications regarding aspects of value creation. An integrated report is a concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term.”

Both of these organizations are focused on providing information beyond our existing financial reporting and SEC reporting models. And, interestingly, many companies are already responding to demand for such information. In a report from the SASB titled “The State of Disclosure – An Analysis of the Effectiveness of Sustainability Disclosures in SEC Filing – 2016,” the SASB reviewed the reports of up to the top 10 companies in 79 industries. Among their findings were:

Overwhelmingly, companies have recognized the existence of, or the potential for, material impacts related to the sustainability topics included in SASB standards. Indeed, 69 percent of companies in the analysis reported on at least three-quarters of the sustainability topics included in their industry standard, and 38 percent provided disclosure on every SASB topic.

With this background, our next few posts will help you build an understanding of the state of these disclosures in current reporting, the nature of investor demand for these disclosures, and the standards that the SASB is developing to help investors get the information that they believe they need.

As always, your thoughts and comments are welcome!

FASB, SEC and PCAOB Update for SEC Reporting Professionals Workshop

FASB, SEC and PCAOB Update for SEC Reporting Professionals Workshop

Taking place August 23rd in Grapevine, TX.

What You Will Learn:

  • The latest FASB developments, including:
  • The new lease accounting model in-depth and related implementation steps
  • Implementation issues for the new revenue recognition standard and the latest Transition Resource Group developments
  • Statement of cash flow classification issues
  • Other recently issued standards, including the simplification project standards
  • Practical tips on applying existing financial reporting requirements
  • Current SEC developments, including Disclosure Effectiveness and status of Dodd-Frank disclosures
  • SEC review comment letter priorities via case studies and detailed discussion
  • Current PCAOB proposals and rulemaking projects, including the auditor’s report
  • Common findings from PCAOB reviews and the potential impact on both the Independent Public Accountant and their public clients
  • Emerging issues and challenges in merger and acquisition accounting

What You Should Bring

Customize your Workshop experience by bringing your company’s or a client’s most recent SEC filings, including Forms 10-K, 10-Q, and a recent 8-K. If you are in the process of an IPO, bring a copy of your latest filing and the SEC’s most recent comment letter. If you work with a company that is not yet public, filings from a company in your industry are a reasonable alternative.

How You Can Register:

http://www.pli.edu/Content/FASB_SEC_and_PCAOB_Update_for_SEC_Reporting/_/N-1z10odqZ4k?ID=290526

 

 

A Revenue Recognition and LEASES Trailblazer

By: George M. Wilson & Carol A. Stacey

As we discussed in this post enumerating Rev Rec early adopters, Microsoft disclosed in their SAB 74 disclosures plans to early adopt both the new Rev Rec and Lease Accounting standards as of July 1, 2017, the beginning of their fiscal year 2018. As you will see in their Form 10-K for the year-ended June 30, 2017, they have executed their plan. (New Microsoft financial reporting motto: “Sleep is for the Weak”?)

 

As you review their disclosures you will see that Microsoft adopted the Rev Rec standard with a full retrospective approach, making this disclosure:

 

The standard will be effective for us beginning July 1, 2018, with early adoption permitted. We elected to early adopt the standard effective July 1, 2017. In preparation for adoption of the standard, we have implemented internal controls and key system functionality to enable the preparation of financial information and have reached conclusions on key accounting assessments related to the standard, including our assessment that the impact of accounting for costs incurred to obtain a contract is immaterial.

 

The most significant impact of the standard relates to our accounting for software license revenue. Specifically, for Windows 10, we will recognize revenue predominantly at the time of billing and delivery rather than ratably over the life of the related device. For certain multi-year commercial software subscriptions that include both distinct software licenses and Software Assurance, we will recognize license revenue at the time of contract execution rather than over the subscription period. Due to the complexity of certain of our commercial license subscription contracts, the actual revenue recognition treatment required under the standard will depend on contract-specific terms and in some instances may vary from recognition at the time of billing. Revenue recognition related to our hardware, cloud offerings such as Office 365, LinkedIn, and professional services will remain substantially unchanged.

Adoption of the standard will result in the recognition of additional revenue of $6.6 billion and $5.8 billion for fiscal year 2017 and 2016, respectively, and an increase in the provision for income taxes of $2.5 billion and $2.1 billion, respectively, primarily due to the net change in Windows 10 revenue recognition. In addition, adoption of the standard will result in an increase in accounts receivable and other current and long-term assets of $2.7 billion and $4.2 billion, as of June 30, 2017 and 2016, respectively, driven by unbilled receivables from upfront recognition of revenue for certain multi-year commercial software subscriptions that include both distinct software licenses and Software Assurance; a reduction of unearned revenue of $17.8 billion and $11.7 billion as of June 30, 2017 and 2016, respectively, driven by the upfront recognition of license revenue from Windows 10 and certain multi-year commercial software subscriptions; and an increase in deferred income taxes of $5.2 billion and $4.8 billion as of June 30, 2017 and 2016, respectively, driven by the upfront recognition of revenue.

 

One of the interesting aspects of this disclosure is the conclusion that contract acquisition costs are not material, making commissions accounting much simpler! And it is worth noting that the new revenue recognition guidance will require Microsoft to recognize some revenue earlier than the old guidance.

 

For the new lease standard Microsoft included this disclosure:

 

The standard will be effective for us beginning July 1, 2019, with early adoption permitted. We elected to early adopt the standard effective July 1, 2017 concurrent with our adoption of the new standard related to revenue recognition. We elected the available practical expedients on adoption. In preparation for adoption of the standard, we have implemented internal controls and key system functionality to enable the preparation of financial information.

The standard will have a material impact on our consolidated balance sheets, but will not have a material impact on our consolidated income statements. The most significant impact will be the recognition of ROU assets and lease liabilities for operating leases, while our accounting for capital leases remains substantially unchanged.

 

Adoption of the standard will result in the recognition of additional ROU assets and lease liabilities for operating leases of $6.6 billion and $5.2 billion as of June 30, 2017 and 2016, respectively.

 

 

Microsoft’s discussion of new internal controls and system functionality are key issues in implementing the new lease accounting model.

 

Microsoft also included a tabular disclosure entitled “Expected Impacts to Reported Results” detailing the impact on selected statement of operations and balance sheet amounts from adopting both standards. You can find it on pages 61 and 62 of the          Form 10-K.

 

When Microsoft files their Form 10-Q for their first Quarter Ended September 30, 2017, the full impact along with all required disclosures will be interesting to see!

 

As always, your thoughts and comments are welcome!

Projects, Pronouncements and Developments Affecting Your SEC Reporting

How do the latest SEC, EITF, PCAOB and FASB updates affect your reporting? Attend FASB, SEC and PCAOB Update for SEC Reporting Professionals Workshop being held August 23rd in Grapevine, TX. Get up to date in-depth information on all the latest developments and practical tips on applying existing financial reporting requirements, including pushdown accounting, debt issuance costs and commitment fees, discontinued operations and dispositions, segment reporting and goodwill impairment.

http://www.pli.edu/Content/FASB_SEC_and_PCAOB_Update_for_SEC_Reporting/_/N-1z10odqZ4k?ID=290526

Demystifying Alternative Financing Solutions for Emerging and Growing Companies

Auditors and Financial Officers of companies who raise capital with complex financial instruments often find themselves drowning in convoluted accounting issues and restatements. Avoid the confusion by attending the live workshop, Debt vs. Equity Accounting for Complex Financial Instruments being held September 13th in Las Vegas. Through a detailed review of the accounting literature and numerous examples and case studies this Workshop will help you build the knowledge and experience to appropriately recognize, initially record and subsequently account for these complex financing tools

http://www.pli.edu/Content/Debt_vs_Equity_Accounting_for_Complex_Financial/_/N-1z10odmZ4k?ID=290522