Tag Archives: FASB/IASB

Starting Out on the Sustainability Reporting Learning Curve

By: George M. Wilson & Carol A. Stacey

In a recent post we discussed reasons why now is an opportune moment to begin learning about sustainability standards. Likely most of us have heard discussion or mention of how this reporting area is becoming important and that investors are beginning to ask for sustainability information.


When you embark on the sustainability reporting learning journey a number of questions arise. What exactly does sustainability reporting entail? Are there certain areas that should be included? Are there standards to follow? It turns out, through the Sustainability Accounting Standards Board (“SASB”), that there is a substantial amount of industry specific guidance.


A Starting Point


Our current reporting model focuses on historical financial information and related non-financial information that helps us build context to understand financial performance. In addition to history, public companies also make disclosures about what is “out there” that might hurt financial performance in the future. (For example, MD&A known-trend disclosures.)


Sustainability information goes well beyond our current model. Here is a quote from a report prepared by the SASB titled “The State of Disclosure 2016: An analysis of the effectiveness of sustainability disclosure in SEC filings”:


“Investors and their portfolio companies have become increasingly aware of the link between sustainability factors and business outcomes. For example, increased energy efficiency can lead to operational cost savings; effective resource management can reduce input price volatility and the risk of supply disruptions; and stronger data security practices can mitigate the risk of fines, litigation, and reputational harm, while also lowering a firm’s cost of capital. As a result, the investment community—in particular, investors with longer term views—are increasingly asking for improved disclosure around financial risks based on non-financial statement information, while companies have begun to disclose more information about how they manage key sustainability issues but provide little in the way of information on financial impact.” (Emphasis added.)


This goes well beyond our historical reporting model. For example, our current disclosures about environmental matters focus on where we may have problems with a state or federal regulator and how much of our capital expenditures are related to environmental compliance. Sustainability reporting is an extension of this thought process and looks at whether a long-term investor might also want to know about whether a company is committed to investing in technology that focuses on reducing such costs on an overall basis, and how much cost savings are expected.


A simple example would be a company with a large fleet of vehicles. If all the company’s current vehicles are powered by internal combustion engines and all burn regular gas or diesel fuel, an investor might be interested to know whether the company plans to replace vehicles as they are retired with vehicles that burn alternative fuels or even electric vehicles. The economics of such issues are not simple. Electric vehicles may have larger original costs, but they have dramatically fewer moving parts and are expected to have lower maintenance costs. If a company commits to such a strategy an investor might look at that company differently than one that plans to replace its fleet with regular internal combustion powered vehicles. The differences in future financial performance between companies pursuing these different strategies could be a very relevant issue for investors.


Here is a quote from the SASB’s web page:


Investors increasingly acknowledge that environmental, social and governance (ESG) factors impact a company’s ability to manage risk and deliver financial performance over the long-term. As such, many investors use ESG information to develop a comprehensive view of company performance and to evaluate a company’s long-term value. However, to do so in a rigorous and scalable way, investors need data that is relevant, reliable, and comparable. This is the need SASB was created to address.


Standard Setting by Industry


Building guidance for these kinds of disclosures is a massive task. The issues and relevant information vary by industry. An industry based approach is actually hard-wired into the SASB’s mission:


The Sustainability Accounting Standards Board sets industry-specific standards for corporate sustainability disclosure, with a view towards ensuring that disclosure is material, comparable, and decision-useful for investors.


The SASB has initially built their standard-setting process to tailor standards based on this sector breakdown:


Health Care


Technology & Communications

Non-Renewable Resources



Resource Transformation

Consumption I

Consumption II

Renewable Resources & Alternative Energy




To begin learning about the guidance for sustainability standards in your industry you start with your sector. Each sector is then divided into industries. For example, the Consumption/Sector includes the following industries:


Agricultural Products

Alcoholic Beverages

Meat, Poultry and Dairy


Processed Foods

Household and Personal Products

Non-Alcoholic Beverages


A tailored set of standards is then built for each of these industries within the sector. The volume of information, not to mention the amount of work behind this process is substantial. Here for example, for Consumption I, is a summary of areas addressed:



Agricultural Products Greenhouse Gas Emissions
Energy & Fleet Fuel Management
Water Withdrawal
Land Use & Ecological Impacts
Food Safety & Health Concerns
Fair Labor Practices & Workforce Health & Safety
Climate Change Impacts on Crop Yields
Environmental & Social Impacts of Ingredient Supply Chains
Management of the Legal & Regulatory Environment
Meat, Poultry, & Dairy Greenhouse Gas Emissions
Energy Management
Water Withdrawal
Land Use & Ecological Impacts
Food Safety
Workforce Health & Safety
Antibiotic Use in Animal Production
Animal Care & Welfare
Environmental & Social Impacts of Animal Supply Chains
Environmental Risks in Animal Feed Supply Chains
Processed Foods Energy & Fleet Fuel Management
Water Management
Food Safety
Health & Nutrition
Product Labeling & Marketing
Packaging Lifecycle Management
Environmental & Social Impacts of Ingredient Supply Chains
Non-Alcoholic Beverages Energy & Fleet Fuel Management
Water Management
Health & Nutrition
Product Labeling & Marketing
Packaging Lifecycle Management
Environmental & Social Impacts of Ingredient Supply Chains
Alcoholic Beverages Energy Management
Water Management
Responsible Drinking & Marketing
Packaging Lifecycle Management
Environmental & Social Impacts of Ingredient Supply Chains
Tobacco Public Health
Marketing Practices
Household & Personal Products Water Management
Packaging Lifecycle Management
Product Environmental, Health, & Safety Performance
Environmental & Social Impacts of Palm Oil Supply Chain



As you might expect, how to build and codify a set of standards dealing with such a variety of issues is constantly evolving process. You can read about the SASB’s plans to codify their standards and how this will change their topical organization in their technical agenda.


In our next post we will look at some of the detailed standards and actual disclosures in a few industries.


As always, your thoughts and comments are welcome!


CorpFin Updates Their Financial Reporting Manual

By: George M.Wilson & Carol A. Stacey


On August 25, 2017, the staff in CorpFin updated their Financial Reporting Manual. The updates include:


A new section at the very beginning of the FRM that describes communications with the Office of the Chief Accountant in CorpFin (CF-OCA). It also includes a concise summary of some of the roles and functions of CF-OCA.


Section 2065 and the related index sections have been updated to clarify that questions about applying the guidance on abbreviated financial statements to a predecessor entity should be directed to CF-OCA.


Sections 10220.1 and 10220.5 have been updated to clarify the guidance on the omission of financial information from draft and filed registration statements when such information “relates to a historical period that the issuer reasonably believes will not be required to be included…at the time of the contemplated offering.” Included in the update are cross references to C&DI’s 101.04 and 101.05.


An interesting aspect of the revisions is how they adjust the FRM for the changes CorpFin Chief Accountant Mark Kronforst has made to organize the CF-OCA staff based on technical SEC reporting areas.


As always, your thoughts and comments are welcome!


SEC Updates Revenue Recognition Guidance – We Knew It Was Coming!

By: George M. Wilson & Carol A. Stacey

More than a quarter in advance of the effective date of the FASB’s new revenue recognition guidance the SEC has made necessary changes in their own revenue recognition guidance. As you can read here, the Commission and Staff have addressed three areas:


  1. SAB Topic 13 and other Staff revenue recognition guidance
  2. Bill-and-hold guidance
  3. Vaccines for Government Stockpiles


SAB 116 rescinds SAB Topic 13, which contained much of the Staff’s legacy GAAP revenue recognition guidance. In addition, SAB Topic 8, Retail Companies, and Section A, Operating-Differential Subsidies of SAB Topic 11, Miscellaneous Disclosure, have been updated to conform with the new FASB revenue recognition model.


To update bill-and-hold guidance, this Commission Release rescinds existing bill-and-hold guidance, which interestingly was from an Accounting and Auditing Enforcement Release (AAER No. 108, In the Matter of Stewart Parness). Upon adoption of ASC 606 companies will instead use the guidance in ASC 606-10-55 paragraphs 81 to 84.

The third update relates to vaccines sold into government stockpiles under the Vaccines for Children Program or the Strategic National Stockpile. The new guidance replaces a 2005 release and continues the practice of recognizing revenue at the time a vaccine is placed in a stockpile program. In this release the commission states that in such arrangements revenue should be recognized at the time of the transfer of the vaccine to the stockpile because the customer will have obtained control of the vaccine and the criteria for revenue recognition under the new bill-and-hold guidance will be met.

As always, your thoughts and comments are welcome!

Join us at the 13th Annual SEC Reporting & FASB Forum for Mid-sized & Smaller Companies

SEPTEMBER 14-15 – Las Vegas – Four Seasons Hotel Las Vegas Co-Chairs: Carol A. Stacey, MSA, CPA – Director, SEC Institute, a Division of PLI George M. Wilson, MBA, CPA – Director, SEC Institute, a Division of PLI

With a specific focus for mid-size and smaller companies, this program will help prepare you for successful third-quarter and year-end reporting processes. Hear from industry and topic experts about the impact of the new leadership at the SEC; rulemaking and projects at the SEC, FASB and PCAOB; and more!

  • FASB’s Lease standard will require potentially significant implementation efforts to meet a 2019 effective date – understand the standard and implementation challenges and what steps to take now
  • Revenue Recognition adoption is less than four months away – hear the experiences of early adopters and understand key last-minute issues, including how to design the required disclosures
  • Learn about recent known-trend enforcement cases and understand the current focus areas of investors and regulators
  • Understand how the Financial Instrument Impairment standard affects all companies and its impact to the allowance for trade accounts receivable
  • A roundtable discussion of current events, such as the SEC’s rulemaking and enforcement agendas; FASB’s direction; PCAOB recent developments, including the new Auditor’s Report standard; and corporate governance updates

Register Here: http://www.pli.edu/Content/13th_Annual_SEC_Reporting_FASB_Forum_for/_/N-1z10lptZ4k?ID=298604



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.




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:




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!

The MD&A Know Trend Test – Staying Out of Trouble!

By: George M. Wilson & Carol A. Stacey


In our last post we reviewed a recent MD&A enforcement case focused on failure to disclose bad news. This forward looking “known-trend” disclosure requirement arises when management is aware of some “trend, demand, commitment, event or uncertainty” that could cause a material problem and fails to disclose this information to shareholders.   The S-K Item 303(a)(3)(ii) language creating this requirement is:


Describe any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.


One of the challenging parts of this requirement is the “reasonably expects” probability threshold. What exactly does this mean? The Staff addressed this requirement in FR 36 with this language:


Where a trend, demand, commitment, event or uncertainty is known, management must make two assessments:


(1) Is the known trend, demand, commitment, event or uncertainty likely to come to fruition? If management determines that it is not reasonably likely to occur, no disclosure is required.


(2) If management cannot make that determination, it must evaluate objectively the consequences of the known trend, demand, commitment, event or uncertainty, on the assumption that it will come to fruition. Disclosure is then required unless management determines that a material effect on the registrant’s financial condition or results of operations is not reasonably likely to occur.

Each final determination resulting from the assessments made by management must be objectively reasonable, viewed as of the time the determination is made.


The language that makes this test challenging is the first part of paragraph (2). In essence, if management cannot make the assumption that a known trend is “not reasonably likely to come to fruition” in step one it must assume that it will come to fruition.


What would this mean if there were a 50/50 chance of something bad happening? As an example, suppose that your goodwill is not impaired this year-end, but the numbers in step one of the impairment test have been deteriorating with this trend:


                                                                                                                                                                                                                                                                         2014              2015              2016

Fair value of reporting unit                $3,000             $2,500             $1,900

Carrying value of reporting unit         $1,800             $1,800             $1,800

Excess of FV over CV                                 $1,200             $   700             $   100



There is clearly a trend here, and while management is likely doing all they can to make the business work, what if their assessment is that there is a 50/50 chance that the goodwill may be impaired next year? While there is no accounting recognition, the MD&A known trend disclosure requirement would say that this potential impairment, if it is material, should be disclosed.


This is not an easy determination, but the enforcement case in the last post makes it clear that it is crucial to get this disclosure right!


As always, your thoughts and comments are welcome!

Revenue Recognition – The Clock is ticking!

Are you ready to implement the FASB/IASB New Revenue Recognition Standard? With just a handful of months to go – The countdown is on! SECI is conducting training workshops throughout the U.S. to prepare filers for the changes and arm them with the tools for implementation. Workshop leaders use interactive lecture, examples and case studies to impart solid knowledge of the provisions of the FASB’s and IASB’s new revenue recognition standard and build an understanding of how the new standard changes revenue recognition accounting and also how it affects the related estimates and judgements. Upcoming workshops include August 24-25 in Grapevine, September 11-12 in Las Vegas and December 13-14 in New York City.


MD&A: A New Known-Trend Enforcement Case

By: George M. Wilson & Carol A. Stacey


One of the “golden rules” of MD&A we discuss in our workshops is “no surprise stock drops”. (Thanks to Brink Dickerson of Troutman Sanders for the rules!) Actually, it is OK if management is surprised with a stock drop. However, it can be problematic if management previously knew of some issue that, when disclosed, causes a surprise stock drop for investors.


The classic start to a known trend enforcement case is a company announcement that results in a stock price drop. On February 26, 2014, UTi, a logistics company, filed an 8-K with news of a severe liquidity problem. UTi’s shares fell to $10.74, a decline of nearly 30% from the prior day’s close of $15.26.


The reason this is an SEC reporting issue is this paragraph from the MD&A guidance in Regulation S-K Item 303 paragraph (a)(3)(ii):


Describe any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations. If the registrant knows of events that will cause a material change in the relationship between costs and revenues (such as known future increases in costs of labor or materials or price increases or inventory adjustments), the change in the relationship shall be disclosed. (emphasis added)


If management knows of some sort of uncertainty that could result in a material impact if it comes to fruition, they must evaluate whether they “reasonably expect” this to happen. If they do “reasonably expect” this to happen then it should be disclosed in MD&A.


When there is a surprise stock drop like the one experienced by UTi, the questions the SEC Enforcement Division will ask, to borrow from another context, are “what did management know about the problem” and “when did they know it?”


Enforcement Release, AAER 3877 revealed that the genesis of UTi’s liquidity problem was an issue in the implementation of a new IT system that created billing problems. And, it was clear from the facts, including an internal PowerPoint presentation, that management knew they had a problem well before they filed the 8-K.


However, in their 10-Q for their third quarter ended October 31, 2013, which was filed in December of 2013, UTi did not disclose the liquidity problem. In fact, they said:


Our primary sources of liquidity include cash generated from operating activities, which is subject to seasonal fluctuations, particularly in our Freight Forwarding segment, and available funds under our various credit facilities. We typically experience increased activity associated with our peak season, generally during the second and third fiscal quarters, requiring significant disbursements on behalf of clients. During the second quarter and the first half of the third quarter, this seasonal growth in client receivables tends to consume available cash. Historically, the latter portion of the third quarter and the fourth quarter tend to generate cash recovery as cash collections usually exceed client cash disbursements.


They also made no mention of the implementation problems with their new IT system. They actually said:


Freight Forward Operating System. On September 1, 2013, we deployed our global freight forwarding operating system in the United States. As of that date, based on a variety of factors, including but not limited to operational acceptance testing and other operational milestones having been achieved, we considered it ready for its intended use. Amortization expense with respect to the system began effective September 2013, and accordingly, we recorded amortization expense related to the new application of approximately $3.3 million during the third quarter ended October 31, 2013.


Hence the surprise when the 8-K disclosed the problems. Both the CEO and CFO are also named in the Enforcement Release and paid penalties.


As mentioned above, the probability standard for disclosure is “reasonably expects”. More about this complex probability assessment in our next post!


As always, your thoughts and comments are welcome!