Form 10-K – Master the Requirements and Improve Disclosures


Form 10-K requirements and disclosures are undoubtedly challenging. Attend live program, Form 10-K In-Depth Workshop being held November 30-December 1 in San Francisco and December 11-12 in New York. Interactive discussions and exercises will enhance your understanding of each item, with particular focus given to the Management’s Discussion & Analysis (MD&A) section. The workshop leader will Review in detail each Form 10-K item and examine current FASB and SEC disclosure initiatives.

The New Auditor’s Report – A Done Deal with an Impact This Year!

By: George M. Wilson & Carol A. Stacey


On October 23, 2017, the SEC formally approved the PCAOB’s new Auditor’s Reporting Standard, now AS 3101. The final PCAOB standard was submitted to the SEC for approval on July 19 and published in the Federal Register on July 28.


The new standard takes effect in two phases:


The first phase adds information to and modifies the format of the auditor’s report and is effective for audits of periods ending after December 15, 2017, this calendar year end. This change applies to all reporting companies.


The second phase, which adds information about critical audit matters (CAMs) to the auditor’s report, does not apply to EGC’s, and is effective:

For audits of large accelerated filer for fiscal years ending on or after June 30, 2019

For audits of all other companies to which the requirements apply for fiscal years ending on or after December 15, 2020.


The new Auditor’s Report requirements that will be effective this year, for periods ending after December 15, 2017, include these modifications:


  • Auditor tenure – a statement disclosing the year in which the auditor began serving consecutively as the company’s auditor;
  • Independence – a statement regarding the requirement for the auditor to be independent;
  • Addressee – the auditor’s report will be addressed to the company’s shareholders and board of directors or equivalents (additional addressees are also permitted);
  • Amendments to basic elements – certain standardized language in the auditor’s report has been changed, including adding the phrase “whether due to error or fraud,” when describing the auditor’s responsibility under PCAOB standards to obtain reasonable assurance about whether the financial statements are free of material misstatement; and
  • Standardized form of the auditor’s report – the opinion will appear in the first section of the auditor’s report, and section titles have been added to guide the reader.


The second phase, with the later effective date, requires the auditor’s report to discuss critical audit matters, which are defined as:


“A matter that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and

(2) involved especially challenging, subjective, or complex auditor judgment.”


Chair Clayton, in a statement about the new standard, said:


I would be disappointed if the new audit reporting standard, which has the potential to provide investors with meaningful incremental information, instead resulted in frivolous litigation costs, defensive, lawyer-driven auditor communications, or antagonistic auditor-audit committee relationships — with Main Street investors ending up in a worse position than they were before.


I therefore urge all involved in the implementation of the revised auditing standards, including the Commission and the PCAOB, to pay close attention to these issues going forward, including carefully reading the guidance provided in the approval order and the PCAOB’s adopting release


As a thought question, it will be interesting to see how a company’s disclosures of Critical Accounting Estimates will relate to the auditor’s discussion of Critical Audit Matters. More about this in our next post!


As always, your thoughts and comments are welcome!


Form 10-K – Master the Requirements and Improve Disclosures

Form 10-K requirements and disclosures are undoubtedly challenging. Attend live program, Form 10-K In-Depth Workshop being held November 9-10 in Las Vegas, November 30-December 1 in San Francisco and December 11-12 in New York. Interactive discussions and exercises will enhance your understanding of each item, with particular focus given to the Management’s Discussion & Analysis (MD&A) section. The workshop leader will Review in detail each Form 10-K item; examine current FASB and SEC disclosure initiatives.

Getting the Pay Ratio Disclosure Done Right!

As you may have heard, on September 21, 2017, Corporation Finance issued additional guidance about the new pay ratio disclosure and updated some of the existing C&DI’s. While many may have hoped that this requirement would be revised or eliminated, so far all indications are that we will see it in the next proxy season.


To help you with this challenging new rule, PLI will offer a One-Hour Briefing titled “Preparing for the New CEO Pay Ratio Disclosure — What You Need to Know” on October 25, 2017. It is at a special time, 4PM eastern.


As always, your thoughts and comments are welcome!

A Unique Workshop for Attorneys tasked with SEC Reporting

Many lawyers learn SEC reporting through on-the-job training that often is piecemeal at best. Attend SEC Reporting and Practice Skills Workshop for Lawyers January 11-12 in San Francisco with other 2018 dates and locations available. Develop a comprehensive and in-depth understanding of the structure, organization and details of the reporting requirements of the U.S. federal securities laws, including how to use the SEC’s online resources and all related sources of guidance.

Sustainability Standards Out for Comment

By: George M. Wilson & Carol A. Stacey

In this post about sustainability and ESG disclosures we compared two companies’ disclosures about the same topic, the use of water in their products. This comparison showed that without standards to guide companies as they prepare disclosures it is very difficult to draw conclusions about who is more effectively and economically using resources. The Sustainability Accounting Standards Board has been addressing this issue. Over the last few years they developed their provisional standards and sought feedback in input to their process. This has culminated in the release for comment of their Exposure Draft Standards for 79 industries. You can read more about the process here.
The Comment Period for the Standards is 90 days, ending on December 31, 2017.


As always, your thoughts and comments are welcome!

FAST Action!

By: George M. Wilson & Carol A. Stacey


On October 11, we posted about the Treasury Department’s recently issued financial system report which contained a recommendation that the SEC move forward with the FAST Act’s requirement to review disclosures required by Regulation S-K.


Later that day, in the first open meeting of Chairman Clayton’s tenure, the SEC proposed amendments to “modernize and simplify disclosure requirements for public companies” to implement this FAST Act requirement. In a press release Chairman Clayton said:


“The FAST Act has given the Commission the opportunity to update our rules, simplify our forms, and utilize technology to make disclosure more accessible. An effective disclosure regime provides investors with the information necessary to make informed investment choices without imposing unnecessary burdens of time and money on issuers, and today’s action embodies that goal.”


The 253 page proposed rule deals with a number of areas, including:


Description of Property (Item 102)

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 303) – Year-to-Year Comparisons (Instruction 1 to Item 303(a))

Directors, Executive Officers, Promoters, and Control Persons (Item 401)

Compliance with Section 16(a) of the Exchange Act (Item 405)

Corporate Governance (Item 407)

Outside Front Cover Page of the Prospectus (Item 501(b))

Risk Factors (Item 503(c))

Plan of Distribution (Item 508)

Undertakings (Item 512)

Description of Registrant’s Securities (Item 601(b)(4))

Information Omitted From Exhibits (Item 601)

Material Contracts (Item 601(b)(10)(i))

Subsidiaries of the Registrant and Entity Identifiers (Item 601(b)(21)(i))

Incorporation by Reference – Item 10(d)

Securities Act Rule 411, Exchange Act Rule 12b-23 and Rule 12b-32 and Related Rules under the Investment Company Act and Investment Advisers Act Forms

Tagging Cover Page Data

Exhibit Hyperlinks and HTML Format for Investment Companies


The proposed rule would also make several similar changes to reports under the Investment Company and Investment Advisers Acts.


As you can see, the proposal addresses a significant number of areas! We will dive into these proposals in more depth in coming posts. We will, of course, also review the proposal in detail in our Annual Reporting Forums in Dallas, New York and San Francisco in November and December.


As always, your thoughts and comments are welcome!

More Insight into the Possible Direction of Regulatory Change

By: George M. Wilson & Carol A. Stacey


In early October, the U.S. Department of the Treasury published a report titled, “A Financial System That Creates Economic Opportunities: Capital Markets, Report to President Donald J. Trump, Executive Order 13772 on Core Principles for Regulating the United States Financial System”.


This 220-page report addresses many aspects of the capital markets, ranging from securitizations to derivatives. And, as you would expect, it addresses SEC regulation.


Among its recommendations are:


  • Repealing several Dodd-Frank disclosure requirements including the pay ratio and conflict minerals disclosure requirements


  • The SEC moving forward with the FAST Act requirements to review Regulation S-K


  • The SEC proceeding with the proposal to increase the threshold to be a Smaller Reporting Company to $250 million


  • Extending the time period a company can be an Emerging Growth Company to 10 years


  • Allowing all companies that are considering an IPO to “test the waters”


The report is an interesting read, and let us know if you have any thoughts or comments about the report!



Insights – A RevRec Trailblazer and the SEC Comment Process

By: George M. Wilson & Carol A. Stacey

New accounting standards always draw attention from the SEC. Way back in the 1990s, SFAS 133 (now of course ASC 815) was issued to create dramatically different new guidance for derivative and hedge accounting. Louis Dreyfus Natural Gas early adopted the new standard. After certain issues were raised in an SEC review, Louis Dreyfus Natural Gas was forced to restate its initial application of the new derivative accounting model. Their 10-K/A actually included this language:







As we discussed in this post last May, several companies have early adopted the new revenue recognition standard. It is not surprising that the SEC has already reviewed at least some of these companies. The first two comment letters we have found were to First Solar and Workday. Both appear to be financial reviews, with comments on the financial statements and MD&A in First Solar’s case. The revenue recognition comments, which were resolved by First Solar in their first response letter, and by Workday after one follow-up comment, shed some interesting light into the approach the staff is using in assessing whether companies are appropriately implementing the new revenue recognition model.


First Solar


Note 2. Summary of Significant Accounting Policies, page 7


  1. Tell us your significant payment terms and how the timing of satisfaction of performance obligations relates to the timing of payment and the effect on the contract asset and liability balances. Disclose the information required by ASC 606-10-50-9 and 50-12(b) in future filings.


Revenue Recognition – Solar Power Systems Sales and/or Engineering, Procurement and Construction Services, page 8


  1. We note your disclosure that your solar power system sales include performance guarantees that represent a form of variable consideration and are recognized as adjustments to revenue. Please help us better understand your accounting for these potential bonus payments and/or liquidated damages. In this regard, based on your disclosure, it is unclear to us whether these amounts are included as part of your estimate of your transaction price at the outset of the arrangement and then reassessed at the end of each reporting period. Refer to ASC 606-10-32-5 through 32-10 and ASC 606-10-32-14.


  1. Please help us better understand how you reflect consideration in the form of a non-controlling interest as part of your transaction price. In this regard, clarify for us which amounts are included in your estimate of fair value at contract inception and why any profit associated with the non-controlling interest is deferred. Refer to ASC 606-10- 32-21 through 32-24.


  1. Revise future filings to disclose why for performance obligations that you satisfy over time the method used provides a faithful depiction of the transfer of goods or services. Refer to ASC 606-10-50-18.




Form 10-Q for the quarter ended April 30, 2017 Note 2. Accounting Standards and Significant Accounting Policies Revenue Recognition, page 10


  1. We note that prior to the adoption of ASC 606, you capitalized direct sales commissions when they could be associated specifically with non-cancelable subscription contracts, and now, you capitalize all incremental sales commissions. Please describe the additional commission fees that you are now capitalizing, and tell us how you determined that these are incremental costs of obtaining a contract. Refer to ASC 340-40-25-2.


  1. We note you amortize your commission costs over a period of benefit that you have determined to be five years while your subscription contracts are generally three years or longer. Please help us understand how you determined that five years was the appropriate period of benefit. In this regard, tell us how you considered renewals. Please clarify whether additional sales commissions are paid upon contract renewal and, if so, whether such amounts are commensurate with the initial commissions. Please also reconcile your considerations to your disclosure on page 46 that your ability to predict renewals is limited. Refer to ASC 340-40-35-1.



That these comments focus on two issues, (1) providing robust disclosures and (2) building an understanding of how the company made judgments in the application of this new principles-based standard is not surprising.


With the implementation of the new revenue recognition standard soon upon most of us, the information from the review process of early adopters has already provided some helpful insights.


As always, your thoughts and comments are welcome.


Master SEC Forms, Statements, Reporting Rules and “Hot Button” Issues

Attention Financial Reporting Professionals!

Sharpen Your Skills. Master how to accurately complete SEC Reporting Forms and how to comply with the Annual Proxy requirements. Build an understanding of the structure and use of the SEC’s guidance and knowledge of the key disclosure issues in the SEC’s periodic and current reports. Earn Up to 16 CPE Credits.


Register and Attend “SEC Reporting Skills Workshop”

  Upcoming October Live Meetings!

October 12-13 New York City

October 23-24 Chicago


Additonal programs, locations and dates are listed on the SECI site: