Are you ready to implement the FASB/IASB New Revenue Recognition Standard? With approximately nine 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 May 2-3 in New York City, May 22-23 in Chicago and June 21-22 in San Francisco with additional dates listed on the SECI site.
Category Archives: Hot Topic
The Enforcement Division Found Evidence How?????
By: George M. Wilson & Carol A. Stacey
Earlier in March the Enforcement Division announced a settled case against homebuilder Desarrolladora Homex S.A.B. de C.V. This company fraudulently inflated revenues by reporting the sale of over 100,000 homes that had never been built or sold! This was a huge fraud, over $3 billion!
All of that is interesting, but what is really fascinating is how the SEC found that the homes had never been built. They used satellite imagery! You can see one of the pictures here.
We are tempted to say “watch the skies”, but that sounds too much like a 50’s sci-fi movie trailer…..
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!
XBRL for Foreign Private Issuers Using IFRS
By George M. Wilson & Carol A. Stacey
Foreign Private Issuers (FPI’s) who file using IFRS have been in a conundrum about XBRL because there was no usable IFRS taxonomy. The SEC excepted these FPI’s from XBRL until an appropriate taxonomy was developed.
A usable IFRS XBRL taxonomy was formally announced by the SEC on March 1, 2017. The announcement includes a link to the IFRS XBRL Taxonomy that FPI’s must use.
The SEC indicated that FPI’s who use IFRS may begin to submit XBRL financial statements immediately, and that they MUST submit XBRL financial statements for periods ending on or after December 15, 2017.
As always, your thoughts and comments are welcome!
First Quarter 2017 Form 10-Q Hot Topics – SAB 74 and Beyond!
Are you prepared to effectively deal with current and evolving SEC reporting issues, particularly SAB 74 disclosures and recently issued accounting standards in your first quarterly report on Form 10-Q this year? Attend our April 28th One Hour Video Briefing, First Quarter 2017 Form 10-Q Hot Topics as our expert faculty review the key issues to address in your Form 10-Q quarterly reporting.
Hope you Don’t Need This One!
As we discuss in all our programs, litigation is one of the issues and risks in the public company world. Our program “Securities Litigation 2017: From Investigation to Trial” on April 5, 2017 includes an expert faculty of practitioners and government officials. Included on the agenda are:
The steps involved in a securities case
The initial government investigation
Filing of the civil case, and
Settlement or the trial
Again, hope this is not one you need!
As always, your thoughts and comments are welcome!
Non-GAAP Measures – The Saga Continues
By: George M. Wilson & Carol A. Stacey
The sometimes fuzzy distinction between non-GAAP liquidity measures and non-GAAP performance measures is a major concern of the SEC’s Non-GAAP Compliance and Disclosure Interpretations (C&DI’s) and the comment letters the Staff issues focused on this topic. In the middle of this grey question are EBITDA and “adjusted EBITDA”. Whether these measures are liquidity measures or performance measures can be a very complex, subjective question. To take some of the grey away the SEC included this C&DI in their May 2016 changes:
Question 103.02
Question: If EBIT or EBITDA is presented as a performance measure, to which GAAP financial measure should it be reconciled?
Answer: If a company presents EBIT or EBITDA as a performance measure, such measures should be reconciled to net income as presented in the statement of operations under GAAP. Operating income would not be considered the most directly comparable GAAP financial measure because EBIT and EBITDA make adjustments for items that are not included in operating income. In addition, these measures must not be presented on a per share basis. See Question 102.05. (emphasis added) [May 17, 2016]
The last sentence in this answer is all about the potential confusion between EBITDA and cash flow from operations. GAAP and the SEC guidance specifically prohibit presenting cash flow per share because of the potential confusion between earnings per share and cash flow per share. (This goes all the way back to ASR 142 and old SFAS 95!) EBITDA, even when intended by management as an operations measure, is so close to this line that it cannot be presented on a per share basis.
In an interesting sequence of comment letters and responses the SEC has pushed its concerns about these kinds of non-GAAP measures to a new level. After a number of back and forth letters with a registrant focusing on whether a “non-GAAP adjusted net income” was a performance or liquidity measure the staff included this language in a late round comment:
Finally, in light of our discussions about this matter, we will evaluate the industry practices you described to us and consider whether additional comprehensive non-GAAP staff guidance is appropriate.
It is extremely unusual, as was even reported in The Wall Street Journal on February 13, 2017, to see a statement like this in a comment letter.
Even more eyebrow-raising is this comment in the SEC’s closing letter:
Although we do not agree with your view, in light of the circumstances, we have completed our review of your filing. We remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action or absence of action by the staff. (emphasis added)
If you are presenting an EBITDA or similar measure it would be smart to review these letters.
You can find the first of the comment letter series here. The company’s responses (CORRESP documents) and the follow-up comment letters (UPLOAD documents) appear in this EDGAR list.
As always, your thoughts and comments are welcome.
More Change – Final – Resource Extraction Payment Rule Repealed
By: George M Wilson & Carol A. Stacey
On February 14, 2017 President Trump signed the law eliminating the resource extraction payment disclosure provisions of the Dodd Frank Act.
From:
www.whitehouse.gov/the-press-office/2017/02/14/president-trump-cutting-red-tape-american-businesses
GETTING GOVERNMENT OUT OF THE WAY: Today, President Donald J. Trump signed legislation (House Joint Resolution 41) eliminating a costly regulation that threatened to put domestic extraction companies and their employees at an unfair disadvantage.
H.J. Res. 41 blocks a misguided regulation from burdening American extraction companies.
By halting this regulation, the President has removed a costly impediment to American extraction companies helping their workers succeed.
This legislation could save American businesses as much as $600 million annually in regulatory compliance costs and spare them 200,000 hours of paperwork.
The regulation created an unfair advantage for foreign-owned extraction companies.
As always your comments and thoughts are welcome.
Communicate Consistently – It Really Does Matter
By: George M. Wilson & Carol A. Stacey
As we discuss in our workshops, it is crucial that companies communicate consistently across all the channels they use. Here are a couple of SEC comments that illustrate this point.
This first comment refers to articles in the news. Yes, the SEC staff does read the paper! This means that companies need to monitor news stories to assure that publically disseminated information is consistent with other disclosures.
General
- Recent articles indicate that Yahoo’s November 2014 agreement with Mozilla contains a change-in-control provision that provides Mozilla with the right to receive $375 million annually through 2019 if Yahoo is sold and Mozilla does not deem the new partner acceptable. As this provision appears to take the agreement out of the ordinary course of business, please provide us with your analysis of the materiality of this agreement for purposes of Item 601(b)(10) of Regulation S-K.
Here is another frequent theme, how the staff monitors earnings calls and other presentations.
Results of Operations, page II-7
- We note in your September 8, 2015 earnings call, your chief executive officer made reference to verbal commitments from customers to escalate contract prices when oil prices improve. Given the importance of the price of oil on your results, please tell us and consider disclosing in more detail whether such verbal commitments represent a known event. Refer to Item 303(a)(3)(ii) of Regulation S-K and SEC Release No. 33- 8350.
As a parting thought, have all the members of your disclosure committee, and in particular the persons involved in drafting and reviewing MD&A, reviewed your earnings calls as part of their process? (And yes, the second comment is one of our favorite MD&A topics!)
As always, your thoughts and comments are welcome!
Things are Changing More!
By: George M. Wilson & Carol A. Stacey
On February 6, 2017, Acting Chairman Michael Piwowar announced that the SEC will be reconsidering implementation of the Pay Ratio Rule required by the Dodd Frank Act. Chairman Piwowar’s announcement said in part:
“I am seeking public input on any unexpected challenges that issuers have experienced as they prepare for compliance with the rule and whether relief is needed. I welcome and encourage the submission of detailed comments, and request that any comments be submitted within the next 45 days.
I have also directed the staff to reconsider the implementation of the rule based on any comments submitted and to determine as promptly as possible whether additional guidance or relief may be appropriate.”
As you know this new disclosure, unless changed, applies for years beginning on or after January 1, 2017.
As always, your thoughts and comments are welcome.