Tag Archives: Governance

A Bit of SEC News and a Hopefully Enjoyable Video

By: George M. Wilson & Carol A. Stacey

In the first few weeks of the new Administration there was news from the SEC including reconsideration of the Conflict Minerals and Pay Ratio disclosures as well as the legislative repeal of the Resource Extraction Payment disclosure.

While there have not been as many highly publicized developments in recent weeks, the Commission is continuing its normal business. A final rule for Hyperlinks to Exhibits, a proposal to for Inline XBRL, approving an XBRL Taxonomy for IFRS, and a Request for Comment to consider changes to Bank Holding Company Disclosures in Guide 3 are a few of the normal course of business things going on at the SEC. The Enforcement Division continues its normal process with cases ranging from an auditor trading on inside information to a Ponzi scheme involving resale of Hamilton tickets. And, of course, CorpFin continues its review program, and after reviewing over 50% of all companies last year it will be interesting to see the numbers this year.

In a way, especially with so many of our SEC reporting community working on year-end and quarter-end reports, it is nice to have a normal flow of work from the SEC instead of big stories!

So, enjoy the lull! And, to have a bit of fun in this lull, here is a hopefully entertaining diversion. The SEC’s Office of Investor Education and Advocacy has, via its investor.gov website, produced a number of educational videos for investors. This one, titled “Don’t let someone else live the life you’ve been saving for”, is particularly entertaining! Enjoy!

https://youtu.be/59iJmRDdeqY

 

As always, your thoughts and comments are welcome!

Jeepers – More Whistleblower Enforcement Cases? – Do We Have the Message Yet?

By: George M. Wilson & Carol A. Stacey

Just a few weeks ago we did the latest in a series of posts about the SEC’s Whistleblower program. That post focused on two significant enforcement cases where companies attempted to impede whistleblowers. For other posts in our whistleblower series, see:

Our post discussing the background of the SOX and Dodd/Frank whistleblower programs

Our post about the total amount being paid-out to whistleblowers exceeding $100,000,000 (It is even more today!)

Our post discussing a company having to pay a $500,000 fine for firing a whistleblower

SEEMS LIKE THE MESSAGE SHOULD BE CLEAR BY NOW! Don’t try to limit how employees can blow the whistle.

But, the Enforcement Division is not done!

In a case announced on January 17 a company paid a $650,000 fine for including language trying to restrict whistleblower rights in over 1,000 severance arrangements. After removing the language the company also voluntarily agreed to conduct annual training for employees about their whistleblowing rights.

In a case announced on January 21 the SEC found a company that actively searched for a whistleblower, to the point of essentially threatening employees. The reason for the hunt was clear, the treasurer and the company had manipulated information related to hedge accounting and was actively trying to hide the fact that certain hedging relationships were not effective. When the SEC began to ask questions about the issue, the company suspected someone had blown the whistle. The company tried to ferret out the whistleblower, compounding their offenses. The company and the treasurer both paid fines.

There is a very important reason for these cases. In many situations a fraud would go undetected if it were not for the conscience and courage of whistleblowers.

It would seem that the SEC is actively searching for more enforcement cases to make the point that it is illegal for a company to try and prevent or impede employees from blowing the whistle.

Not to be too preachy, and hopefully to be a bit practical, here are two thoughts:

For all of us who may see a need to blow the whistle, know that this is never easy, and know that you have rights and protections.

For companies, don’t try to hide problems and make sure any agreements surrounding employee departures don’t have these kinds of restrictions!

 

As always, your thoughts and comments are welcome!

IPO’s – Getting Ready and Keeping Up

By: George M. Wilson & Carol A. Stacey

If you are contemplating an IPO or advising companies in this process, PLI’s “Securities Offerings 2017: A Public Offering: How it is Done” will provide you with valuable knowledge and how-to tools about the IPO process. The program simulates an offering from start to finish, builds a foundation in the law and SEC guidance, and walks through each step in the process. The program is on March 3, 2017 and you can learn more here.

The program also includes up to 2 hours of ethics credit (see program page on www.pli.edu for credit by state).

Revenue Recognition –Some Example Implementation Judgements and an Update on the AICPA’s Industry Task Forces

By: George M. Wilson & Carol A. Stacey

Some of the New Revenue Recognition Judgments

If you have begun your implementation work for the new revenue recognition standard you know that this one-size-fits-all, principles based model will require many new judgments for most of us. Among the challenging questions are:

  1. When does an agreement with a customer become legally enforceable and include the five elements that bring it in scope for revenue recognition?
  2. How do we properly account on the balance sheet for transactions with customers before there is an in-scope, legally enforceable contract?
  3. When does a product or service we deliver to a customer meet the new criteria of “distinct” and become a performance obligation, the unit of account for revenue recognition?
  4. How do we make the now required estimate of variable consideration and apply the new constraint?
  5. What will be the best method to make the required estimate of stand-alone selling price when it is not directly observable?
  6. When does control transfer to a customer now that delivery, ownership and risk of loss are no longer the points in time when revenue is recognized?

 

This list is, of course, in no way complete. Individual companies may find their judgments more or less extensive and complex.

While the FASB has produced all of these new principles and the related judgments, it has also included a fair amount of implementation guidance in the new standard and clarified several issues in updates to the ASU. There are a few more soon to be final technical corrections in another ASU that you can read about here.

 

AICPA Help for Specialized Industries

 

Since this new standard is a “one-size-fits-all” approach to revenue recognition and it supersedes all industry specific guidance we have today, industries like oil and gas, airlines and others face unique challenges. In addition to the FASB’s efforts to assist us in this process you may have heard that the AICPA has also formed special task forces to deal with industry specific challenges in implementing the new standard.

You can learn about the AICPA’s efforts surrounding the new revenue recognition task force here.

The industry groups are:

 

There are over 100 specific position papers that have been put in process for the working groups and task forces which will ultimately be reviewed by FINREC. If you work in one of these industries, the links above will help you find the related working papers and their status.

 

As always, your thoughts and comments are welcome!

A Control Environment and History Follow-Up

By: George M. Wilson & Carol A. Stacey

 

This famous quote has been in our thoughts over the last several months:
“Those who cannot remember the past are condemned to repeat it.”

George Santayana, the poet and essayist, wrote these famous words in his book The Life of Reason. Many other people including Winston Churchill have thoughtfully incorporated this fundamental principle of life in speeches and remarks.

Another favorite variation of the idea comes from Mark Twain:
“History doesn’t repeat itself, but it does rhyme.”

The lesson here is that if we learn history we can hopefully avoid making the same or similar mistakes in the future. As we discussed a couple of posts back, recent public company news shows that many organizations have not been learning from the past.

 

One person who can help us learn about history we do not want to repeat is Cynthia Cooper. She was the WorldCom head of internal audit who built and lead the team that worked almost “under cover” to find the largest fraud ever discovered. This was a tone at the top fraud, involving the CEO, CFO and CAO. Her book is a sometimes-chilling story of how bad tone at the top results in fraud.

 

Sharron Watkins is another person who can help us learn how to not repeat history. She was the Enron Vice President, a direct report to Andy Fastow, who blew the whistle about Enron’s accounting irregularities. And we all know perhaps too much about that fraud which was even the subject of a book and related movie “Enron: The Smartest Guys in the Room”.

 

Corporate ethics will never be easy, but as history and current events show, it does matter. If leadership of an organization sends the message that making money is the most important thing an organization does, if it sends the message that if you don’t make money you will be fired, if it sends the message that other values can be sacrificed if you make money, the ultimate result is inevitable. In countless frauds over centuries, from Ivar Kreuger, the match king in the early 1900s, to Equity Funding in the 1970s, to Madoff, to Enron, to the companies we are talking about today, this lesson has been proven time and time again.

 

These stories can help us learn and avoid the mistakes others have made. They can be the focus of training and learning. They can be the foundation for building awareness and support for these issues in organizations large and small.

 

As always, your thoughts and comments are welcome.

More Transitions at the SEC

 

By: George M. Wilson & Carol A. Stacey

As you have most likely heard, Chair White recently announced that she will leave the Commission at the end of the Obama administration. As usual, whenever there is a change in administration the senior leadership at the commission leaves and their successors are appointed by the new President. Yesterday Chief Accountant Jim Schnurr announced that he will be retiring from the Commission. You can read the details here. Wes Bricker has been named the new Chief Accountant.

 

If you want to follow along and see SEC news as it happens, you can find all the SEC’s current press releases here.

 

As always, your thoughts and comments are welcome!

Three Years of Fun – Planning the “Big Three” New FASB Statement Transitions

by: George M. Wilson & Carol A. Stacey, SEC Institute

We have all heard about the major projects the FASB has completed in recent years. Together with their implementation dates for public companies and allowed transition methods they are:

Revenue recognition: January 1, 2018. (F/Y’s beginning after December 15, 2017)

Early adoption is allowed to the original effective date, F/Y’s beginning after 12/15/16). Either a retrospective or modified retrospective with a cumulative effect adjustment transition may be used.
Leases: January 1, 2019. (F/Y’s beginning after December 15, 2018)

Early adoption is allowed. A retrospective transition must be used. The retrospective approach includes several practical accommodations.

Financial Instrument Impairment: January 1, 2020 (F/Y’s beginning after December 15, 2019)

Early adoption to years beginning after December 15, 2018 is allowed. The transition method is essentially a “modified retrospective approach with a cumulative effect adjustment” with adjustments for certain types of financial instruments.
The revenue recognition and lease changes have been widely discussed, but the financial instruments impairment change has not been as “hot” a topic. It could be problematic for some companies as it will apply to all financial instruments, including accounts receivable. Many companies could face significant challenges gathering the information to move from the current incurred loss model to the new expected loss model.
While the impact of each new standard will vary from company to company, every company needs to think about how to manage these three transitions. Will it be best for your company to adopt all three at once, or will it be best to adopt them sequentially? Or perhaps mix and match a bit?
There are several considerations in these implementation date decisions. How they will affect investor relations is a major issue. The time and other resources required, systems issues and ICFR impact are among the other inputs to this decision. Each company has to evaluate these considerations based on their own circumstances.
Given the potential magnitude of these changes and their widespread discussion in the reporting environment, disclosures about these changes have become more and more important to users. With the recent SEC Staff Announcement at the September EITF meeting about SAB 74 (SAB Codification Topic 11-M) disclosures, disclosing where you are in this process has become almost required. The more or less simple “standard” disclosures about “we have not selected a transition method” and “we do not yet know the impact” may not be enough. Qualitative information about where you are in the process may be a required disclosure.

There are strong incentives to move diligently on these transitions and to tell investors where you are in the process. And, anyway, who really wants to look unprepared?
Three years of sequential fun or big change? Spread it out or rip off the Band-Aid? Slow burn or big bang? We all get to decide what will be best for our company and our investors, the key issue is to make this decision on a timely basis!

 

As always, your thoughts and comments are welcome!

A Year End Planning Detail – No More Mailing the ARS to the SEC!

One frequently asked question in our Workshops concerns the “10-K Wrap” or the annual report that companies prepare: Is this a required report or is it an optional investor relations “marketing” document?

Turns out it actually is required for the proxy process. When a company solicits proxies for its annual meeting, and the annual meeting includes, the election of directors, the proxy statement must be accompanied or preceded by an Annual Report to Shareholders or “ARS”.   You can find all the details about this requirement in Rule 14a-3. The Form 10-K and the ARS, however, are significantly different. The Form 10-K is a filed document while the ARS is furnished to shareholders pursuant to the proxy rules.

In this earlier post we reviewed the details of the proxy requirement for the ARS.

If you would like a refresher on the filed vs. furnished issues, check out this post.

One of the seeming anachronisms in this process is that the SEC has, even in these days of EDGAR, still required that paper copies of the ARS be sent to the SEC. This requirement is in the proxy rules. (Check out rules 14a-3(c) and Rule 14c-3(b)). Every time we talk about this requirement in our Workshops there are visions of the last scene from “Raiders of the Lost Ark” with a huge warehouse full of boxes no one will ever open again!

 

On November 2 the SEC modernized this requirement with the following Compliance and Disclosure Interpretation:

Proxy Rules and Schedule 14A (Regarding Submission of Annual Reports to SEC under Rules 14a-3(c) and 14c-3(b))

 

Question: Exchange Act Rule 14a-3(c) and Rule 14c-3(b) require registrants to mail seven copies of the annual report sent to security holders to the Commission “solely for its information.” A similar provision in Form 10-K requires certain Section 15(d) registrants to furnish to the Commission “for its information” four copies of any annual report to security holders. Can a registrant satisfy these requirements by means other than physical delivery or electronic delivery pursuant to Rule 101(b)(1) of Regulation S-T?

Answer: Yes. The Division will not object if a company posts an electronic version of its annual report to its corporate web site by the dates specified in Rule 14a-3(c), Rule 14c-3(b) and Form 10-K respectively, in lieu of mailing paper copies or submitting it on EDGAR. If the report remains accessible for at least one year after posting, the staff will consider it available for its information. [November 2, 2016]

So, as we approach this year end we can change this process and even save some postage!

As always, your thoughts and comments are welcome!

 

George M.  Wilson, Director, The SEC Institute & Carol A. Stacey, Director, The SEC Institute

SECI Annual Forum Returns to Dallas, New York City & San Francisco!

Annual reporting season is here and the Division of Corporate Finance has been busy! Revisions to non-GAAP guidance is being finalized as well as the pay ratio rule and thousands of 10-Ks are being reviewed.

Revenue Recognition and Leasing Standards have been finalized and companies are faced with implementing compliance.

Register today for our 32nd Annual SEC Reporting & FASB Forum being offered November 14-15 in Dallas, December 12-13 in New York City and December 19-20 in San Francisco.

  • Get the latest updates on What’s Happening NOW in World of SEC Reporting
  • Earn CPE credit
  • Network with other Practitioners

Our Reporting Roundtable will lead a lively discussion of current events including simplification overload, disclosure effectiveness, juggling Rev. Rec., Leases, CECL adoptions and more.

Follow this link to Register today and reserve your spot!

http://www.pli.edu/Content/32nd_Annual_SEC_Reporting_FASB_Forum/_/N-1z11c8sZ4k?ID=262904

 

 

 

 

 

 

 

Hot Topic Update – FASB’s Dramatic New Lease Accounting Standard

 

The FASB’s new lease accounting standard presents complex accounting, internal control, system and implementation challenges. Learn the conceptual underpinnings, overall structure and details of the standard as it applies to both lessees and lessors. Register now for our live half-day seminar November 30th in San Francisco or December 15th in New York City, Implementing the FASB’s New Lease Accounting Standard Workshop 2016. Discussion includes implementation steps and system and ICFR issues.

http://www.pli.edu/Content/Seminar/Implementing_the_FASB_s_New_Lease_Accounting/_/N-4kZ1z10l1v?fromsearch=false&ID=300755