In two recent posts we linked to examples of companies that have used the new Disclosure Modernization and Simplification opportunity to omit the third year back from MD&A. Check out the comments at the bottom of this post for more examples.  And, one of the members our blog community, Alyson Clabaugh from Intelligize, has been working on finding more examples.  She has built this treasure trove of examples!

WOODWARD, INC.  10-K  (FY 2019)          11/25/2019

https://apps.intelligize.com/SECFilings/View/Filings/18137272

For a discussion of the 2018 Results of Operations, including a discussion of the financial results for the fiscal year ended September 30, 2018 compared to the fiscal year ended September 30, 2017, refer to Part I, Item 7 of our Form 10-K filed with the SEC on November 13, 2018.

BRIGHTVIEW HOLDINGS, INC.  10-K  (FY 2019)     11/21/2019

https://apps.intelligize.com/SECFilings/View/Filings/18128052

For discussion around results of operations for the nine months ended September 30, 2017 and for a comparison of our results for the fiscal year ended September 30, 2018 and twelve months ended September 30, 2017 see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for fiscal year ended September 30, 2018, filed with the SEC on November 28, 2018.

KEY TRONIC CORP  10-K  (FY 2019) 9/12/2019

https://apps.intelligize.com/SECFilings/View/Filings/18018826

To review the results of operations comparison of the fiscal year ended June 30, 2018 with the fiscal year ended July 1, 2017, please refer to our Form 10-K filed September 10, 2018 with the Securities and Exchange Commission or follow the link below.

https://www.sec.gov/Archives/edgar/data/719733/000071973318000054/ktcc-06302018x10k.htm

ADTALEM GLOBAL EDUCATION INC.  10-K  (FY 2019)        8/28/2019

https://apps.intelligize.com/SECFilings/View/Filings/17997774

The following discussion is on the comparison between fiscal year 2018 and fiscal year 2019 results. For a discussion on the comparison between fiscal year 2017 and fiscal year 2018 results, see the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Adtalem’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018, as filed with the Securities and Exchange Commission (“SEC”).

ETHAN ALLEN INTERIORS INC  10-K  (FY 2019)      8/9/2019

https://apps.intelligize.com/SECFilings/View/Filings/17967420

For a comparison of our results of operations for the fiscal years ended June 30, 2018 and 2017, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2018, filed with the SEC on August 2, 2018.

PROCTER & GAMBLE CO  10-K  (FY 2019)              8/6/2019

https://apps.intelligize.com/SECFilings/View/Filings/17957753

A detailed discussion of the fiscal 2018 year-over-year changes can be found in the MD&A section in the Form 8-K filed October 22, 2018, which updated our Form 10-K for the year ended June 30, 2018, to revise disclosures to reflect the adoption of the Financial Accounting Standards Board (FASB) ASU 2017-07 and 2016-18. For more information on the adoption of this standard, refer to Note 1 to the Consolidated Financial Statements.

DARDEN RESTAURANTS INC  10-K  (FY 2019)        7/19/2019

https://apps.intelligize.com/SECFilings/View/Filings/17928523

For a comparison of our results of operations for the fiscal years ended May 27, 2018 and May 28, 2017, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended May 27, 2018, filed with the SEC on July 20, 2018.

RESOURCES CONNECTION INC  10-K  (FY 2019)    7/19/2019

https://apps.intelligize.com/SECFilings/View/Filings/17927982

For a comparison of our results of operations for the fiscal years ended May 26, 2018 and May 27, 2017, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended May 26, 2018, filed with the SEC on July 23, 2018 (File No. 0-32113).

ELASTIC N.V.  10-K  (FY 2019)      6/28/2019

https://apps.intelligize.com/SECFilings/View/Filings/17900516

For a discussion of our consolidated statement of operations data for the fiscal year ended April 30, 2018 compared to the year ended April 30, 2017 and as a percentage of revenue for that period, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” the Company’s final prospectus for its IPO filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (File No. 333-227191) on October 5, 2018.

ADVANCED DRAINAGE SYSTEMS, INC.  10-K  (FY 2019)     5/30/2019

https://apps.intelligize.com/SECFilings/View/Filings/17851913

The discussion of our results of operations for the fiscal year ended March 31, 2018 compared with the fiscal year ended March 31, 2017 can be found in our fiscal 2018 Form 10-K. See Item 7. Management’s Discussion and Analysis of Financial Discussion and Results of Operations in our fiscal 2018 Form 10-K for further information on our prior period results of operations.

ABIOMED INC  10-K  (FY 2019)    5/23/2019

https://apps.intelligize.com/SECFilings/View/Filings/17838810

For a comparison of our results of operations for the fiscal years ended March 31, 2018 and March 31, 2017, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended March 31, 2018, filed with the SEC on May 24, 2018.

EAGLE MATERIALS INC  10-K  (FY 2019)   5/23/2019

https://apps.intelligize.com/SECFilings/View/Filings/17839359

FISCAL YEAR 2019 COMPARED WITH FISCAL YEAR 2018

Please see our Form 10-K for fiscal year 2018 for the discussion of our Results of Operations and results of Revenue and Operating Income by segment for fiscal 2018 compared with fiscal 2017. Our 2018 Form 10-K can be found on the investor page of our website, at www.eaglematerials.com.

NEW RELIC, INC.  10-K  (FY 2019)              5/15/2019

https://apps.intelligize.com/SECFilings/View/Filings/17818700

The following tables summarize our consolidated statements of operations data for the fiscal years ended March 31, 2019 and March 31, 2018 and as a percentage of our revenue for those periods. For a discussion of our consolidated statement of operations data for the fiscal year ended March 31, 2017 and as a percentage of revenue for that period, see “Results of Operations for Fiscal Years Ended March 31, 2018, 2017, and 2016” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2018, filed with the SEC on May 11, 2018.

 ARROWHEAD PHARMACEUTICALS, INC.  10-K  (FY 2019)  11/25/2019

https://apps.intelligize.com/SECFilings/View/Filings/18136363

Results of Operations Comparison for 2018 and 2017

For a discussion of our results of operations comparison for 2018 and 2017, refer to our Annual Report on Form 10-K for the fiscal year ended September 30, 2018 filed on December 11, 2018.

HORTON D R INC /DE/  10-K  (FY 2019)    11/25/2019

https://apps.intelligize.com/SECFilings/View/Filings/18135171

For similar operating and financial data and discussion of our fiscal 2018 results compared to our fiscal 2017 results, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our annual report on Form 10-K for the fiscal year ended September 30, 2018, which was filed with the SEC on November 16, 2018.

JACK IN THE BOX INC /NEW/  10-K  (FY 2019)       11/21/2019

https://apps.intelligize.com/SECFilings/View/Filings/18130004

Results of operations – an analysis of our consolidated statements of earnings for fiscal 2019 compared to fiscal 2018. For a comparison of our results of operations for the fiscal 2018 compared to fiscal 2017 can be found under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, filed with the SEC on November 21, 2018.

TRANSDIGM GROUP INC  10-K  (FY 2019)              11/19/2019

https://apps.intelligize.com/SECFilings/View/Filings/18124389

Fiscal year ended September 30, 2018 compared with fiscal year ended September 30, 2017

For our results of operations for fiscal 2018 compared with fiscal 2017, refer to the discussion in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Form 10-K for the fiscal year ended September 30, 2018, as filed with the Securities and Exchange Commission on November 9, 2018.

AUTOZONE INC  10-K  (FY 2019) 10/28/2019

https://apps.intelligize.com/SECFilings/View/Filings/18078013

Fiscal 2018 Compared with Fiscal 2017

A discussion of changes in our results of operations from fiscal 2017 to fiscal 2018 has been omitted from this Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended August 25, 2018, filed with the SEC on October 24, 2018, which is available free of charge on the SECs website at www.sec.gov and at www.autozone.com, by clicking “Investor Relations” located at the bottom of the page.

WD 40 CO  10-K  (FY 2019)          10/22/2019

https://apps.intelligize.com/SECFilings/View/Filings/18070588

Fiscal Year Ended August 31, 2018 Compared to Fiscal Year Ended August 31, 2017

For discussion related to changes in financial condition and the results of operations for fiscal year 2018 compared to fiscal year 2017, refer to Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2018, which was filed with the SEC on October 22, 2018.

KIMBALL ELECTRONICS, INC.  10-K  (FY 2019)       8/27/2019

https://apps.intelligize.com/SECFilings/View/Filings/17995496

A discussion regarding our financial condition and results of operations for fiscal year 2019 compared to fiscal year 2018 is presented below. A discussion regarding our financial condition and results of operations for fiscal year 2018 compared to fiscal year 2017 can be found under captions entitled “Results of Operations – Fiscal Year 2018 Compared with Fiscal Year 2017” and “Liquidity and Capital Resources” in the section entitled “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended June 30, 2018 filed with the SEC on August 28, 2018, which is available free of charge through the SEC’s website at http://www.sec.gov or the Company’s website, http://investors.kimballelectronics.com. The Company’s website and the information contained therein, or incorporated therein, are not intended to be incorporated into this Annual Report on Form 10-K.

LIFEVANTAGE CORP  10-K  (FY 2019)        8/14/2019

https://apps.intelligize.com/SECFilings/View/Filings/17976687

Comparison of Fiscal Years Ended June 30, 2018 and 2017

For a discussion of our results of operations for the fiscal 2018 compared with fiscal 2017, refer to “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the fiscal year ended June 30, 2018, as filed with the SEC on August 15, 2018.

RESMED INC  10-K  (FY 2019)      8/8/2019

https://apps.intelligize.com/SECFilings/View/Filings/17961759

For discussion related to the results of operations and changes in financial condition for the fiscal year ended June 30, 2018 compared to fiscal year June 30, 2017, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the Year Ended June 30, 2018, which was filed with the United States Securities and Exchange Commission on August 17, 2018.

THERMON GROUP HOLDINGS, INC.  10-K  (FY 2019)         6/12/2019

https://apps.intelligize.com/SECFilings/View/Filings/17874036

Year Ended March 31, 2018 (“fiscal 2018”) Compared to the Year Ended March 31, 2017 (“fiscal 2017”)

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K/A for the fiscal year ended March 31, 2018 filed with the SEC on June 8, 2018 for a discussion of the results of operations in fiscal 2018 as compared to fiscal 2017.

TOYOTA MOTOR CREDIT CORP  10-K  (FY 2019)   6/4/2019

https://apps.intelligize.com/SECFilings/View/Filings/17859774

Fiscal 2018 Compared to Fiscal 2017

For a discussion comparing our consolidated results of operations for fiscal 2018 to fiscal 2017, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018, filed with the SEC on June 4, 2018.

NORTONLIFELOCK INC.  10-K  (FY 2019)  5/24/2019

https://apps.intelligize.com/SECFilings/View/Filings/17842177

Pursuant to instruction 1 of the instructions to paragraph 303(a) of Regulation S-K, discussion of the results of operations from fiscal year 2018 to fiscal year 2017 has been omitted. Such omitted discussion can be found under Item 7 of our annual report on Form 10-K for the fiscal year ended March 30, 2018, filed with the Commission on October 26, 2018.

ELECTRONIC ARTS INC.  10-K  (FY 2019)   5/24/2019

https://apps.intelligize.com/SECFilings/View/Filings/17840057

Comparison of Fiscal Year 2018 to Fiscal Year 2017

For the comparison of fiscal year 2018 to fiscal year 2017, refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for our fiscal year ended March 31, 2018, filed with the SEC on May 23, 2018 under the subheading “Comparison of Fiscal Year 2018 to Fiscal Year 2017.”

VISTA OUTDOOR INC.  10-K  (FY 2019)     5/23/2019

https://apps.intelligize.com/SECFilings/View/Filings/17839446

Please see Part III, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operation in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018 filed with the SEC on May 18, 2018 for the results of operations for Fiscal 2018 compared to Fiscal 2017 and for other financial information related to Fiscal 2017.

8X8 INC /DE/  10-K  (FY 2019)      5/21/2019

https://apps.intelligize.com/SECFilings/View/Filings/17833863

For a discussion of our results of operations and liquidity and capital resources for the fiscal year ended March 31, 2017, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2017, filed with the Securities and Exchange Commission on May 30, 2018.

Thank you, Chrissy and Alyson, and as always, your thoughts and comments are welcome!

Thanks to one of our blog community for this example of another company that omitted the third-year back in MD&A –  Darden Restaurants in their May 26, 2019 Form 10-K.

You can read our original post with the P&G example here, and if you find other examples, please leave a comment in this or the earlier post!  Thanks!

As always, your thoughts and comments are welcome!

On December 30, 2019 the SEC proposed changes to its auditor independence rules.  The proposal is intended to “update select aspects of the nearly two-decade-old auditor independence rule set to more effectively structure the independence rules and analysis so that relationships and services that would not pose threats to an auditor’s objectivity and impartiality do not trigger non-substantive rule breaches or potentially time consuming audit committee review of non-substantive matters”.

You can review a press release about the proposal here and find the proposed rule here.

As always, your thoughts and comments are welcome.

In late December the SEC issued several pronouncements that could be relevant for year-end reporting.

First, on December 30, 2019 the SEC issued this Statement on Role of Audit Committees in Financial Reporting and Key Reminders Regarding Oversight Responsibilities from Chair Jay Clayton, Chief Accountant Teotia and CorpFin Director Hinman.  The Statement provides “observations and reminders on a number of potential areas of focus for audit committees”.  Areas addressed in the statement include:

Tone at the top

Auditor independence

Generally accepted accounting principles

ICFR

Communications to the audit committee from the independent auditor

Non-GAAP measures

Reference rate reform

Critical audit matters

The Statement concludes with these words:

“The strength of our capital markets, and the confidence of investors in our markets, is driven by the continued quality and reliability of financial reporting. Independent audit committees perform a vital role in financial reporting and have a significant oversight responsibility in connection with the preparation and review of the financial information our investors and markets expect.”

Second, on December 19, 2019, CorpFin issued two new Disclosure Guidance Topics.

The first, CF Disclosure Guidance: Topic No. 7 – Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2 addresses “how and what to submit when filing an application objecting to public release of information otherwise required to be filed under the Securities Act and the Securities Exchange Act”.  The new Disclosure Guidance topic supersedes Staff Legal Bulletins 1 and 1A.

The second, CF Disclosure Guidance: Topic No. 8 –  Intellectual Property and Technology Risks Associated with International Business Operations outlines CorpFin’s “views regarding disclosure obligations that companies should consider with respect to intellectual property and technology risks that may occur when they engage in international operations.”

As always, your thoughts and comments are welcome!

The SEC’s March 2019 Disclosure Modernization and Simplification rule provided an opportunity to make MD&A less repetitive and hopefully a better communication tool by allowing the third year back to be omitted from the discussion.  The rule added this language to instruction 1 in S-K Item 303:

Instructions to paragraph 303(a): 1. …..  For registrants providing financial statements covering three years in a filing, discussion about the earliest of the three years may be omitted if such discussion was already included in the registrant’s prior filings on EDGAR that required disclosure in compliance with Item 303 of Regulation S-K, provided that registrants electing not to include a discussion of the earliest year must include a statement that identifies the location in the prior filing where the omitted discussion may be found. …..

If you would like to find an example of a company that has made this change check out this Procter and Gamble June 30, 2019 Form 10-K.

If you have seen any other examples of this change please let everyone know with a comment on this post, and thanks for doing that!

As always, your thoughts and comments are welcome!

Back in November we presented a long and technical post about the confusion surrounding how to use “Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure” in Form 10-K.  As we discussed in that post, the folks who teach our Form 10-K In-Depth Workshop, Reed Wilson and Rich Alven, find a fair number of mistakes as they prepare for their workshops by reviewing participant’s 10-Ks.  At the year-end sessions of the Form 10-K In-Depth Workshop they continued to see this confusion and thought an example might be appropriate to reinforce proper use of Item 9.

The example starts with a change in auditor that was properly reported on Form 8-K.

The Audit Committee (the “Audit Committee”) of the Board of Directors of Medical Properties Trust, Inc. (the “Company”) annually considers the selection of the Company’s independent registered public accountants. On September 8, 2008, the Audit Committee elected to dismiss KPMG LLP (“KPMG”) as the Company’s independent registered public accountants for the year ending December 31, 2008.

 No Adverse Opinion or Disagreement. The audit reports of KPMG on the consolidated financial statements and on the effectiveness of internal control over financial reporting of the Company as of and for the years ended December 31, 2007 and 2006 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During the two fiscal years ended December 31, 2007 and 2006 and the subsequent interim periods through September 8, 2008:

(1) there were no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG would have caused it to make reference to the subject matter of the disagreements in its audit reports on the consolidated financial statements of the Company, and

(2) there were no “reportable events” as defined in Item 304(a)(1)(v) of Regulation S-K.

The Company provided KPMG with a copy of the foregoing disclosure.

The Company has requested and received a letter from KPMG, dated September 12, 2008, addressed to the Securities and Exchange Commission. A copy of this letter is attached hereto as Exhibit 16.1 to this Current Report on Form 8-K.

Also on September 8, 2008, the Audit Committee engaged PricewaterhouseCoopers, LLP (“PwC”), effective immediately, to serve as the Company’s independent registered public accountants for the year ending December 31, 2008. During the two fiscal years ended December 31, 2007 and 2006 and the subsequent interim periods, the Company did not consult with PwC regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

This was a very straightforward auditor change, no disagreements or reportable events, and it was appropriately reported on an Item 4.01 Form 8-K.

As our earlier post discusses, this kind of a change should not be mentioned in the following Form 10-K.  However, the company’s Form 10-K for the year that included the auditor change ERRONEOUSLY included this disclosure:

The Audit Committee of the Board of Directors of the Company annually considers the selection of the Company’s independent registered public accountants. On September 8, 2008, the Company notified KPMG LLP (KPMG) that the Company’s Audit Committee, on September 8, 2008, decided not to renew the engagement of its independent registered public accountants, KPMG, and selected PricewaterhouseCoopers LLP (PwC) to serve as the Company’s independent registered public accountants for 2008.

The audit reports of KPMG on the consolidated financial statements of the Company as of and for the years ended December 31, 2005 and 2004 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. The audit reports of KPMG on the consolidated financial statements and on the effectiveness of internal control over financial reporting of the Company as of and for the years ended December 31, 2007 and 2006 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During the two fiscal years ended December 31, 2007 and 2006 and the subsequent interim periods through September 8, 2008: (1) there were no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG would have caused it to make reference to the subject matter of the disagreements in its audit reports on the consolidated financial statements of the Company, and (2) there were no “reportable events” as defined in Item 304(a)(1)(v) of Regulation S-K.

And, to make things even more confusing, the company also included the following disclosure in their Form 10-K for the second year following the auditor change, misunderstanding the two-year look-back requirement in Item 9:

The Audit Committee of the Board of Directors of the Company annually considers the selection of the Company’s independent registered public accountants. On September 8, 2008, the Company notified KPMG LLP (KPMG) that the Company’s Audit Committee, on September 8, 2008, decided not to renew the engagement of its independent registered public accountants, KPMG, and selected PricewaterhouseCoopers LLP (PwC) to serve as the Company’s independent registered public accountants for 2008.

The audit reports of KPMG on the consolidated financial statements of the Company as of and for the years ended December 31, 2005 and 2004 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. The audit reports of KPMG on the consolidated financial statements and on the effectiveness of internal control over financial reporting of the Company as of and for the years ended December 31, 2007 and 2006 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During the two fiscal years ended December 31, 2007 and 2006 and the subsequent interim periods through September 8, 2008: (1) there were no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG would have caused it to make reference to the subject matter of the disagreements in its audit reports on the consolidated financial statements of the Company, and (2) there were no “reportable events” as defined in Item 304(a)(1)(v) of Regulation S-K.

The Company has agreed to indemnify and hold KPMG harmless against and from any and all legal costs and expenses incurred by KPMG in successful defense of any legal action or proceeding that arises as a result of KPMG’s consent to the inclusion or incorporation by reference of its audit report on the Company’s past consolidated financial statements included or incorporated by reference in the Registration Statements on Form S-8 and Form S-3.

Clearly this disclosure was not required, and to add even more confusion, for some reason the company decided to leave out Item 4 from their 10-K and renumbered all the remaining items.

They did not follow Exchange Act Rule 12b-13 which requires all item numbers to be included:

12b-13   Preparation of statement or report.

The statement or report shall contain the numbers and captions of all items of the appropriate form, but the text of the items may be omitted provided the answers thereto are so prepared as to indicate to the reader the coverage of the items without the necessity of his referring to the text of the items or instructions thereto. However, where any item requires information to be given in tabular form, it shall be given in substantially the tabular form specified in the item. All instructions, whether appearing under the items of the form or elsewhere therein, are to be omitted. Unless expressly provided otherwise, if any item is inapplicable or the answer thereto is in the negative, an appropriate statement to that effect shall be made.

Given the “red flag” nature of this disclosure and the confusion about this item, it is always good to have a review and a checklist to help get this right!  Courtesy of our Form 10-K In-Depth Workshop Leader Rich Alven, here is an easy test you can follow to determine that an Item 9 disclosure is not required.

You know you don’t need an Item 9 when:

• You are only describing what was provided in the 8-K filing or
• You are only referencing the 8-K filing

As a reminder, an Item 9 disclosure is only required when ALL of the following conditions are met:

• You are within two fiscal years of when the new auditors were engaged AND
• You had a disagreement with the previous auditor or other reportable event (as described in Item 304(b) AND
• During the first two years of engagement, an event has come up that is similar to the event that caused the disagreement with the previous auditor AND
• Your current auditor allows you to account for it differently than your previous auditor.

So, to recap – Within the first 2 years of a change in auditor:

• If there was no disagreement with your previous auditor – NO Item 9
• If there was a disagreement with your previous auditor and your current auditor requires the same accounting as the previous auditor – NO Item 9
• If your current auditor agrees with you on an issue that was the subject of a disagreement with your previous auditor (which would have been included in your 8-K filing) – Item 9 is required.

As always, your thoughts and comments are welcome!

In a recent presentation members of the SEC’s CorpFin staff mentioned that they have been seeing more companies use supply chain finance programs.  In these types of programs companies make arrangements with their suppliers and financial institutions to help manage the timing of payments to suppliers in an effort to better manage cash.  (You can read more details in the comment letter exchange below.)

One of the concerns the staff raised was that the use of these kinds of programs should be addressed in MD&A in the liquidity and capital resources discussion.  The following comment illustrates this concern:

1. We note your “Accounts Payable days” are 71 days as of December 31, 2018. We further note your Accounts Payable days has increased substantially over the past ten years, with a low of 47 days in 2009, followed by a substantial increase to 63 days in 2011. Please tell us if you are engaging in supply chain finance operations and mechanisms, such as reverse factoring or similar methods to increase your Accounts Payable days. Otherwise, please explain how you have been able to achieve such extended accounts payable terms with your suppliers.

In response to this comment the company replied:

From 2009 through 2018, we increased our Accounts Payable days by executing a strategic initiative to extend payment terms with our suppliers. Through successful negotiations, principally by more directly leveraging our purchasing volume, we have significantly extended our payment terms with many of our suppliers. During 2012, we began to facilitate, through a third-party intermediary, a voluntary supply chain finance program between certain suppliers and several participating financial institutions, which to a lesser extent also improved Accounts Payable days. From 2012 through 2018, fewer than 3% of our suppliers utilized the program, and less than 10% of our direct material-related purchases were paid under the program in any given year. We retain our right to negotiate with the suppliers that elect to participate in the program and benefit from any negotiated pricing or credit terms. The amounts we pay and our payment terms to the participating financial institutions are the same as if we paid our suppliers directly.

Additionally, as disclosed in our Proxy Statements, our Organization and Compensation Committee selects performance metrics for our annual performance program each year, under which our executives and key employees at each of our businesses can earn cash bonuses and restricted stock awards, if the threshold goal is achieved. From 2009 through 2012, the Committee selected cash flow as a metric for this performance program, and from 2013 through 2018, working capital as a percentage of sales was selected by the Committee as a metric for this program. Additionally, from 2009 through 2018, the executive officers selected the metric of average working capital days to incentivize our business unit employees as part of their annual performance program. These metrics reinforce our executive officers’ and other employees’ focus on liquidity, align their incentive compensation measures and are favorably affected by increases in Accounts Payable and corresponding Accounts Payable days.

The SEC’s follow-up to this response was this comment:

1. We have reviewed your response to our prior comment. Please address the following:

Tell us the dollar amount of accounts payable that were settled via your supply chain finance program for each year from 2012 to 2018.

Tell us the balance of your accounts payable that represents amounts due to participating financial institutions under your supply chain finance programs as of each year from 2012 to 2018.

Provide us an analysis to support your conclusion that amounts settled under your supply chain finance program are accounts payable rather than bank financing.

Your analysis should also address the classification of your payments made to the participating financial institutions as well as related disclosure of non-cash financing activities required by ASC 230-10-50-3.

You state in your response that the payment terms to the participating financial institution are the same as if you paid the supplier directly. Please tell us the terms of your supply chain finance arrangements with the participating financial institutions as well as the payment terms with your vendors.

You also state in your response that the program improved your accounts payable days. Please explain how the supply chain finance program increased your accounts payable days outstanding.

Tell us the extent to which the continued improvement to your accounts payable days, and related liquidity, are expected to continue as well as the factors, such as changes in interest rates, that may limit the availability of your supply chain finance programs.

To the extent material, expand your management’s discussion and analysis to address the impact the supply chain finance program has had on your liquidity and whether or not that impact is expected to continue.

Please ensure you have filed as exhibits, all agreements relating to your supply chain finance program.

You can read the company’s lengthy response to this comment and the results of a follow-up phone call along with the incremental F/S and MD&A disclosure the company agreed to provide in future filings here.

As always, your thoughts and comments are welcome.

The role of proxy advisory firms has been hotly and extensively debated over the years.  In August 2019 the SEC issued guidance that:

 Addressed the ability of investment advisers to establish a variety of different voting arrangements with their clients,

Discussed matters investment advisers should consider when they use the services of a proxy advisory firm,

Included an interpretation that proxy voting advice provided by proxy advisory firms generally constitutes a “solicitation” under the federal proxy rules, and

Provided related guidance about the application of the proxy antifraud rule to proxy voting advice.

The discussion about proxy advisory firms continues, and as part of this evolution ISS has released their annual Global Policy Survey.  For an interesting number of comments and perspectives on the survey, including discussion of ESG issues, you can read this post on the soundboard governance blog.  This blog is authored by Doug Chia, a Fellow at the Rutgers Center for Corporate Law and Governance.

Lastly, as a next step in this area, on November 5, 2019 the SEC proposed a rule to “improve accuracy and transparency of proxy voting advice”.

As always, your thoughts and comments are welcome!

On November 19, 2019 the SEC issued SAB 119 to align its guidance with the FASB’s Current Expected Credit Loss Standard, ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  The new SAB  updates existing guidance dealing with what the staff expects of companies as they develop methodologies and supporting documentation for measuring credit losses.

The SAB addresses areas that will sound very familiar to professionals who have been dealing with the new, subjective estimates required to implement the new standard, including:

1. Measuring current expected credit losses

2. Development, governance, and documentation of a systematic methodology

3. Documenting the results of a systematic methodology

4. Validating a systematic methodology

The SAB will be most relevant for financial institutions but could be helpful for all entities.  As of the date of this writing there is one formal detail still in process for the SAB, publication in the Federal Register.

As always, your thoughts and comments are welcome!

As we mentioned in our quarterly Newsletter, during the late summer the FASB had decided to defer the implementation date for its CECL, Leases, Hedging and Long Duration Insurance Contracts standards for certain types of entities.  On November 15, 2019 the final standard for this change was issued.  You can find a press release and links to the final ASU here.  The press release includes this table summarizing the changes:

As always, your thoughts and comments of celebration are welcome!