Category Archives: SEC/FASB/PCAOB

New Smaller Reporting Company Rules with an Interesting Revenue Twist

SEC/FASB/PCAOB

On June 28, 2018, the SEC met and adopted new rulesincreasing the public float threshold for use of the smaller reporting company (SRC) system from $75 million to $250 million.  These new rules also contain a significant change that will allowcompanies with revenues of less than $100 million to use the SRC system if their public float is less than $700 million.

About this expansion of the SRC system Chair Jay Clayton commented“I want our public capital markets to be a place where smaller companies can thrive and thereby provide our Main Street investors with more access to investing options where our public company disclosure rules and protections apply…”

The old SRC rules were based on the requirement of having a public float of less than $75 million. The old rules included a test that applied only to companies with a public float of zero.  Under this old test, if a company had public float of zero, (for example a debt only issuer), then the company could use the SRC system if their revenues were less than $100 million.  This test accomplished goals such as keeping large companies with public debt and hence zero float from using the SRC system.

The new SRC definition changes this revenue test to require that revenues must be less than $100 million and that public float must be zero or below $700 million.  Under this new version of the test companies such as bio-tech entities with a large public float but zero or small revenues may still be eligible to use the SRC system.

According to the press release announcing the change:

“Commission staff estimates that 966 additional companies will be eligible for SRC status in the first year under the new definition.  These include: 779 companies with a public float of $75 million or more and less than $250 million; 161 companies with a public float of $250 million or more and less than $700 million and revenues of less than $100 million; and 26 companies with no public float and revenues of $50 million or more and less than $100 million.”

If you are not familiar with the SRC system you can find out more in S-K Item 10(f)and S-X Article 8.  Two of the significant disclosure simplifications are in the executive compensation disclosures (including only three named executive officers and no CD&A) and the financial statement requirements (only two years of financial statements with only US GAAP disclosures).

At the meeting where the change to the definition of an SRC was approved there were no changes to the definition of accelerated filer definition and the requirements for the auditor’s ICFR attestation required by SOX 404(b) and S-K Item 308(b), but the commission requested the staff to develop recommendations for such a change.

We will discuss the rule change to require the use of inline XBRL, the elimination of the separate XBRL exhibits and the removal of the requirement for website posting requirements for XBRL next week.

As always, your thoughts and comments are welcome!

The FASB and the Tax Act – The Process is Underway!

SEC/FASB/PCAOB

By: George M. Wilson, SEC Institute

On January 10, 2018, the FASB met to begin addressing several of the more complex accounting implications of the Tax Act. Their first formal meeting in this area addressed accounting for tax issues stranded in AOCI and five other accounting challenges in the ACT.

Tax Effects “Stranded” in AOCI

The FASB decided to start a narrow-scope project for tax effects “stranded” in AOCI. For example, if a company has available-for-sale securities the change in fair value and the related tax effect both are recorded in AOCI. Existing GAAP requires that revaluation of these tax effects should go through tax expense in the period of enactment. This can seem a bit “out-of-period.” The Board’s project is expected to move very quickly, with a 15-day comment period and provisions for early adoption for this year.

 

Other Issues

The FASB Staff presented position papers dealing with five other issues to the Board. Based on discussions in the meeting an FAQ document will be prepared and presented at the January 18, 2018, EITF meeting for the first four issues below. The last issue, dealing with private companies and not-for-profits, will be addressed in an FAQ document expected to be posted on the FASB’s webpage.

 

Issue One – Should a company discount the tax liability on a deemed repatriation?

The tax liability on deemed repatriations may be paid over an eight-year period. The staff’s position, briefly summarized, was that since under current GAAP deferred tax assets and liabilities are not discounted this liability should not be discounted.

 

Issue Two – Should a company discount alternative minimum tax credits that become refundable?

The staff’s position here was similar to issue one (i.e., that the amounts should not be discounted).

 

Issue Three – Is the new base erosion anti-abuse tax (BEAT) a separate tax

The staff analogized to the old AMT and suggested accounting for GILTI as we did for the AMT.

 

Issue Four – How should companies account for global intangible low-taxed income (GILTI);

This new tax provision presents a very complex issue about whether it should be accounted for in future periods or as a deferred tax item. The staff presented views that both positions could be supported and that perhaps a policy election with appropriate disclosure would be an appropriate path forward. The need for future standard setting will also be considered.

 

Issue Five – Should private companies and not-for-profit entities be allowed to use the guidance in SEC Staff Accounting Bulletin 118 if they cannot complete their accounting for the new tax law before relevant financial reporting deadlines?

The staff’s position, with which the board agreed, was that use of SAB 118 by these entities would “not be objected to.”

 

All of the above discussions have next steps, particularly the narrow-scope project for stranded tax effects and the actual drafting of the FAQs, so stay tuned!

 

As always, your thoughts and comments are welcome!