Tag Archives: Financial Statements

The CAQ – Why You Need to Know Who They Are!

Uncategorized, , , , , , , , , , ,

Do you know where the SEC initially stated their position about transitioning to the 2013 Revised COSO framework? It was in September of 2013. Here is the path to that announcement.

One of the topics we discuss in our workshops is the importance of the “CAQ” in the financial reporting process. The CAQ is an important source of information about current positions and developments at the SEC. Surprisingly, we frequently discover that many people are not very familiar with this organization.

So, what is the CAQ? It is, in long form, The Center For Audit Quality.

Their web page is thecaq.org

At their home page you can learn about who they are:

“The Center is an autonomous, nonpartisan, nonprofit group based in Washington, D.C. It is governed by a Board that comprises leaders from the public company auditing firms, the American Institute of CPAs and three members from outside the public company auditing profession. The organization is affiliated with the American Institute of CPAs.”

And what they do:

“The Center for Audit Quality is dedicated to enhancing investor confidence and public trust in the global capital markets by:

  • Fostering high quality performance by public company auditors;
  • Convening and collaborating with other stakeholders to advance the discussion of critical issues requiring action and intervention;
  • Advocating policies and standards that promote public company auditors’ objectivity, effectiveness and responsiveness to dynamic market conditions.”

One really important part of this organization is The CAQ SEC Regulations Committee. This group meets periodically with the SEC staff, generally once each quarter for the first three quarters of the year, and discusses current accounting and disclosure issues. The home page for the committee is:

thecaq.org/resources/caq-committees/sec-regulations

The minutes of these meetings are published on the Committee’s webpage and frequently contain information that, while sometimes fairly narrow, is helpful in the financial reporting process.

For example, it was at a CAQ meeting that the SEC Staff early on stated their position about the transition to the 2013 COSO Framework. Here is a link to those minutes: (Check out page 6)

thecaq.org/docs/reports-and publications/2013septembe25jointmeetinghls.pdf?sfvrsn=0

The most recent highlights of the SEC Regulations Committee meeting with the Staff are at:

www.thecaq.org/docs/default-source/sec-regulation-committee-hightlights/sec-regulations-committee-highlights-march-31-2015.pdf?sfvrsn=0

This meeting addressed issues ranging from the reporting implications of the FASB’s new consolidation standard, ASU 2015-02, to the application of S-X Rule 3-14 to real estate acquisitions in prior years for a registration statement.

Yes, many of the issues are narrow and technical, but we suggest you check the CAQ minutes each quarter as you get ready to close!

As usual, your comments and thoughts are appreciated!

SEC Comment of the Week: To GAAP or non-GAAP, aye, that is the question….

Uncategorized, , , , , , , , , , ,

Or – There is more than Reg G!

The use of Non-GAAP financial measures has a long and storied history. Non-GAAP disclosures always seem to engender controversy and questions. While there is no doubt that they are widely used and important to many investors, unfortunately they are sometimes misused, and can even result in enforcement action. Check out this enforcement release against Trump Hotels and casinos as a great example of what not to do:

www.sec.gov/news/headlines/trumphotels.htm

During our workshops we frequently find that there is more than a bit of confusion over the SEC’s guidance for the use of non-GAAP measures. Most SEC Reporting professionals know about “Reg G” and it’s guidance, but that is not the only place the SEC has non-GAAP measure rules. (Note: It was in 2002 that the Title IV of the SOX Act gave the SEC the power and responsibility to regulate the use of “pro forma figures”, later renamed non-GAAP measures.)

Regulation G is the SEC rule that applies when a non-GAAP measure is included in a document that is not filed with the SEC such as an earnings release.

Regulation S-K Item 10(e), which is not as well understood, is additional guidance that must be followed if a non-GAAP measure is included in a filed document, such as in MD&A in Form 10-K and 10-Q or in CD&A in a proxy statement.

This difference is not always well understood and does result in SEC Comments. (There is an example comment to a company that did not follow S-K Item 10’s guidance below)

What is the Difference?

Reg G, the rule for non-filed documents such as an earnings release or an investor presentation, is in essence very simple. You can find Reg G at:

www.ecfr.gov/cgi-bin/text-idx?SID=8e0ed509ccc65e983f9eca72ceb26753&node=17:4.0.1.1.5&rgn=div5

The nuts and bolts of Reg G are fairly straightforward:

“(a) Whenever a registrant, or person acting on its behalf, publicly discloses material information that includes a non-GAAP financial measure, the registrant must accompany that non-GAAP financial measure with:

(1) A presentation of the most directly comparable financial measure calculated and presented in accordance with Generally Accepted Accounting Principles (GAAP); and

(2) A reconciliation (by schedule or other clearly understandable method), which shall be quantitative for historical non-GAAP measures presented, and quantitative, to the extent available without unreasonable efforts, for forward-looking information, of the differences between the non-GAAP financial measure disclosed or released with the most comparable financial measure or measures calculated and presented in accordance with GAAP identified in paragraph (a)(1) of this section.”

There is also an anti-fraud provision to prevent measures that are misleading. A company cannot knowingly lie or omit a material fact in disclosure of a non-GAAP measure. The definition of a non-GAAP measure is also in the rule. (We will explore this definition in our next post!)

Regulation S-K item 10 (e), the source of guidance for non-GAAP measures used in filed documents, has more required disclosure about “why’s” behind the use of non-GAAP measures and some specific rules about things that can’t be done with non-GAAP measures. It does require essentially the same things as Reg G, but then adds additional requirements. Here is its core:

First, if a company uses a non-GAAP measure in a filed document, S-K Item 10(e) requires four things:

“(A) A presentation, with equal or greater prominence, of the most directly comparable financial measure or measures calculated and presented in accordance with Generally Accepted Accounting Principles (GAAP);

(B) A reconciliation (by schedule or other clearly understandable method), which shall be quantitative for historical non-GAAP measures presented, and quantitative, to the extent available without unreasonable efforts, for forward-looking information, of the differences between the non-GAAP financial measure disclosed or released with the most directly comparable financial measure or measures calculated and presented in accordance with GAAP identified in paragraph (e)(1)(i)(A) of this section;

(C) A statement disclosing the reasons why the registrant’s management believes that presentation of the non-GAAP financial measure provides useful information to investors regarding the registrant’s financial condition and results of operations; and

(D) To the extent material, a statement disclosing the additional purposes, if any, for which the registrant’s management uses the non-GAAP financial measure that are not disclosed pursuant to paragraph (e)(1)(i)(C) of this section”

In addition to these four requirements, the first two of which are almost the same as Reg G, S-K Item 10 has five prohibitions. A company cannot:

(A) Exclude charges or liabilities that required, or will require, cash settlement, or would have required cash settlement absent an ability to settle in another manner, from non-GAAP liquidity measures, other than the measures earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation, and amortization (EBITDA);

(B) Adjust a non-GAAP performance measure to eliminate or smooth items identified as non-recurring, infrequent or unusual, when the nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the prior two years;

(C) Present non-GAAP financial measures on the face of the registrant’s financial statements prepared in accordance with GAAP or in the accompanying notes;

(D) Present non-GAAP financial measures on the face of any pro forma financial information required to be disclosed by Article 11 of Regulation S-X (17 CFR 210.11-01 through 210.11-03); or

(E) Use titles or descriptions of non-GAAP financial measures that are the same as, or confusingly similar to, titles or descriptions used for GAAP financial measures…

So far we have discussed and recapped a lot of information. All of that leads to this example SEC staff comment about the use of non-GAAP measures.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 27

  1. We note that you present certain non-GAAP financial measures, including constant currency revenues, gross profit excluding the impacts of the MDP transaction and the exchange, SG&A expense excluding certain costs as a percentage of revenue, and consolidated adjusted EBITDA. Please revise future filings to include all of the disclosures required by Item 10(e)(1)(i) of Regulation S-K for all non-GAAP measures included in your presentation.

This one is as simple as knowing the difference between Reg G and S-K Item 10!

As always, your thoughts and comments are appreciated!

It’s Conference Time!

Uncategorized, , , , , , , , , , ,

Our four Midyear SEC and FASB Forums are underway! This picture is from our Chicago Conference on May 28 and 29. In June the Forums will take place in New York and San Francisco. Check out the dates, agenda and speakers at:

http://www.pli.edu/Content/30th_Midyear_SEC_Reporting_FASB_Forum/_/N-1z12892Z4k?ID=231682

All the programs are chaired by Carol Stacey and bring you up to date with all important developments and current issues at the SEC, FASB and PCAOB.

10-K Tip – Another S-K Item 201 Oddity

10-K/10-Q Tips, , , , , , , , , , ,

Over the years S-K Item 201 has been amended, updated and added to on several occasions. As a result it has become a bit of a disclosure hodge-podge. It contains more than a few twists and turns, and we explored one of them in our last post about the performance graph from S-K item 201(e) that does not have to be in the Form 10-K.

This post is about another twisty disclosure rule, and is also a reminder that the Compliance and Disclosure Interpretations from CorpFin can be really helpful. You can find them all at:

www.sec.gov/divisions/corpfin/cfguidance.shtml#

This S-K Item 201 twist surrounds the equity compensation table that is required by S-K 201(d). At first reading, you would not think there is even an issue. The instructions to Form 10-K seem clear:

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

(a)  Furnish the information required by Item 201 of Regulation S-K (17 CFR 229.201) and …(rest of the instruction omitted as it is not relevant).

With this straightforward instruction it would seem everything required by S-K Item 201 should be included in Item 5 of the 10-K, including S-K 201(d):

(d) Securities authorized for issuance under equity compensation plans
(1) In the following tabular format, provide the information specified in paragraph (d)(2) of this Item as of the end of the most recently completed fiscal year with respect to compensation plans (including individual compensation arrangements) under which equity securities of the registrant are authorized for issuance, aggregated as follows:

(i) All compensation plans previously approved by security holders; and
(ii) All compensation plans not previously approved by security holders.

However, this seemingly straightforward issue gets disrupted when you get to Item 12 in the Form 10-K instructions which says:

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Furnish the information required by Item 201(d) of Regulation S-K (§ 229.201(d) of this chapter) and Item 403 of Regulation S-K (§ 229.403 of this chapter).

So, where is the appropriate place in the Form 10-K for this table? For a while many people read the instructions very literally and put the table in both Item 5 and Item 12! Eventually the common sense approach of the SEC, i.e. you don’t really need it twice, was clarified in this Compliance and Disclosure Interpretation:

Regulation S-K: Section 106. Item 201 — Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

Question 106.01

Question: Is the Item 201(d) disclosure required in Part II of Form 10-K, given that Item 5 of Form 10-K indicates that the registrant is required to furnish the information required under Item 201, or should the Item 201(d) disclosure be included (or incorporated by reference) in Part III of Form 10-K given that Item 12 indicates that the registrant is required to furnish the information required under Item 201(d)?

Answer: The Item 201(d) disclosure should be included in Part III, Item 12 of Form 10-K. An issuer may rely on General Instruction G.3 to Form 10-K to incorporate by reference the Item 201(d) disclosure from its proxy statement or information statement, even if the issuer did not submit a compensation plan for security holder action at its annual meeting of security holders. See American Bar Association (Jan. 30, 2004). [Mar. 13, 2007]

This one is pretty picky, but always good to get the details right! It also shows one facet of the SEC staff’s interpretive process, as the CDI resulted from an interpretive request from the ABA, which is linked to Reg S-K’s CDI 106.1.

As always your thoughts and comments are welcome!

 

Form 10-K Tip – A Subtle Filed Versus Furnished Issue

10-K/10-Q Tips, , , , , , , , , ,

In our previous two posts dealing with the differences between the Form 10-K and the Annual Report to Shareholders (the ARS that accompanies the proxy), we delved into the differences between “filed” and “furnished” documents.

Here is another fairly subtle place that this “filed versus furnished” distinction comes into Form 10-K.

Regulation S-K Item 201(e) is the source of the requirement for the “performance graph” which does a five-year comparison of the return on a $100 investment in the company’s stock, a broad market index and an industry index. (The text of Item 201(e) is included below).

Here is an example of the graph from American Woodmark:

From this part of the Instructions to Item 5 of the Form 10-K it seems relatively straightforward that this graph should be in Item 5 of the 10-K:

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

  1. (a)  Furnish the information required by Item 201 of Regulation S-K (17 CFR 229.201)…

(Note: The rest of the Item 5 instructions are omitted as they do not affect this issue)

However, if you persevere (that is stay awake!) trying to read the whole of S-K Item 201, including the instructions (always an important part of the items!) you will find Instruction 7 to Item 201(e):

  1. The information required by paragraph (e) of this Item need not be provided in any filings other than an annual report to security holders required by Exchange Act Rule 14a-3 (17 CFR 240.14a-3) or Exchange Act Rule 14c-3 (17 CFR 240.14c-3) that precedes or accompanies a registrant’s proxy or information statement relating to an annual meeting of security holders at which directors are to be elected (or special meeting or written consents in lieu of such meeting). Such information will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

The reason for this instruction goes back many years to when changes were made in the proxy rules and this graph was moved from the proxy statement to S-K Item 201.

And, as you read this instruction, you might be tempted to say “so what”! But the subtle and important issue is that the ARS is not a filed document!

So, if you put the graph in the Form 10-K, it is “filed” information, subject to 1934 Act liability provisions. However, if you put it only in the ARS, it is not subject to 1934 Act liability. While this might not be a major issue, it is still one to think about.

One path some companies use is to put the graph on the back page of a 10-K wrap, so it is not actually included in the 10-K itself.

Here is an example of a company, American Woodmark, that dealt with the issue by putting the graph in the 10-K wrap pages instead of the Form 10-K, in order to keep the graph from being filed. Check out page 12 of their ARS:

files.shareholder.com/downloads/AMWD/144697083x0x766550/DAD863ED-7D03-468B-BCCE-E5117F2C1E43/LowRes-14-10531-FSC_AWC-FinalPDF.pdf

Yes, this one is pretty subtle, even picky, but one to think about.

As always, your comments and thoughts are welcome!

Here is the main part text of S-K Item 201(e). You can see the whole Item at:

www.ecfr.gov/cgi-bin/text-idx?SID=8e0ed509ccc65e983f9eca72ceb26753&node=17:3.0.1.1.11&rgn=div5#se17.3.229_1201

S-K Item 201

(e) Performance graph. (1) Provide a line graph comparing the yearly percentage change in the registrant’s cumulative total shareholder return on a class of common stock registered under section 12 of the Exchange Act (as measured by dividing the sum of the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and the difference between the registrant’s share price at the end and the beginning of the measurement period; by the share price at the beginning of the measurement period) with:

(i) The cumulative total return of a broad equity market index assuming reinvestment of dividends, that includes companies whose equity securities are traded on the same exchange or are of comparable market capitalization; provided, however, that if the registrant is a company within the Standard & Poor’s 500 Stock Index, the registrant must use that index; and

(ii) The cumulative total return, assuming reinvestment of dividends, of:

(A) A published industry or line-of-business index;

(B) Peer issuer(s) selected in good faith. If the registrant does not select its peer issuer(s) on an industry or line-of-business basis, the registrant shall disclose the basis for its selection; or

(C) Issuer(s) with similar market capitalization(s), but only if the registrant does not use a published industry or line-of-business index and does not believe it can reasonably identify a peer group. If the registrant uses this alternative, the graph shall be accompanied by a statement of the reasons for this selection.

Leases Update – Final Standard Drafting Underway!

Uncategorized, , , , , , , , ,

For years we have been watching the FASB/IASB project on lease accounting. And many of us wonder whether or not this project will ever finish. Well, checkout what the FASB is saying about their meeting this Wednesday, May 13. Yes, they are working on the project, working on it carefully and diligently and are actually in the process of drafting a final standard!

Wednesday May 13. 2015:

FASB Board Meeting, 9:00 a.m. EDT

  1. Leases. The Board will continue redeliberations of its May 2013 Exposure Draft, Leases, specifically discussing issues that have arisen during the drafting of the final standard.

They have said they hope to issue the final standard before the end of this year!

You can learn more at:

www.fasb.org/jsp/FASB/Page/SectionPage&cid=1218220079452

As always, your thoughts and comments are welcome and appreciated!

Watch Out – Instructions to Form 10-K Typo’s?

Uncategorized, , , , , , , , , , , ,

In all our workshops we always advise everyone to check the SEC’s webpage for the latest version of the instructions whenever it is 10-K or 10-Q time. And, recently, the SEC put updated instructions for Form 10-K on their webpage.

But this update has an interesting twist!

The updated instructions do not have any major changes. The only really new instructions relate to asset-backed issuers.

That said, there is something really strange about the new instructions. Check them out at:

www.sec.gov/about/forms/form10-k.pdf

Now, as you read them check out the cover page and as you look at the second line it says:

“For the fiscal yar ended”

While this looks like it might be a typo, we know the SEC is always VERY CAREFUL when they make these changes, and we think in all likelihood there has been some sort of a technical problem in the process of converting the instructions to PDF form and uploading them to the webpage.

So, how should we react? Should we literally follow these instructions? Include the likely technical issue errors?

Obviously NOT!

In fact, don’t forget what General Instruction C(1) says:

This form is not to be used as a blank form to be filled in, but only as a guide in the preparation of the report on paper meeting the requirements of Rule 12b-12. Except as provided in General Instruction G, the answers to the items shall be prepared in the manner specified in Rule 12b-13.

So, do it right!

As a last note, the 10-Q instructions have not been changed, but as we approach the First Quarter Form 10-Q, watch for updates!

As always, your thoughts and comments are welcome!

SEC Focus Area – Critical Accounting Estimate Disclosures

Uncategorized, , , , , , , , , ,

In recent speeches SEC Staff members have emphasized the importance of appropriate disclosure of Critical Accounting Estimates. In this blog entry we will go a bit further. We will:

  1. Review some typical comments the staff has been including in comment letters, and
  1. Show you how to find and use the actual guidance for disclosure of Critical Accounting Estimates.

In our workshops we unfortunately find a fair amount of confusion about the SEC’s requirements in this area.

Just what is the SEC Staff saying to registrants about this disclosure? Here are some representative comments. (Fortunately most of these comments are “fix in future filings” comments!)

First, a comment that simply tells a registrant what they are, and where to find the guidance. Note the language that makes it clear this is very different from the Summary of Significant Accounting Policies!

  1. We note your response to our prior comment 3. The proposed disclosure for your Critical Accounting Policies within Management’s Discussion and Analysis appears to be a duplication of the accounting policies already disclosed in the footnotes to your financial statements. Please note that the objective of the Critical Accounting Policies within Management’s Discussion and Analysis is different from that of the Summary of Significant Accounting policies included in the footnotes to your financial statements; the objective of the Critical Accounting Policy disclosure is to address material implications of uncertainties associated with the methods, assumptions and estimates underlying the (application of) your critical accounting measurements. Refer to FR-72, which can be found on our website at: http://www.sec.gov/rules/interp/33-8350.htm. Please modify your proposed disclosure within Management’s Discussion and Analysis to eliminate repetition of the accounting policies disclosed elsewhere in your filing and, to the extent not disclosed elsewhere, include disclosure that addresses the specific methods, assumptions and estimates underlying the your critical accounting measurements

Next, here are three comments to illustrate the level of analysis that the SEC Staff expects in your discussion of the historical and potential future variability in financial results related to Critical Accounting Estimates.

  1. We refer to the following disclosures from your Critical Accounting Policies found on page 53, “In establishing our credit practices, we seek to strike an appropriate balance between prudent learner credit policies and learner retention. Accordingly, we periodically review and alter learner credit policies to achieve that objective by restricting or expanding the availability of credit we extend.” Please tell us in detail about the facts and circumstances that have caused you to review and alter learner credit policies in the past.

Goodwill impairment uncertainty is a frequent comment area:

  1. We note your response to prior comment 4 indicating that you will include additional related disclosures if any of your reporting units are at risk of failing step one of the impairment test. If none of your reporting units are at risk of failing step one, please tell us what consideration you gave to disclosing that conclusion. In addition, tell us whether the estimated fair values of any of your reporting units substantially exceed the carrying values, and consider disclosing any such determination. Tell us your threshold for determining that the excess is substantial.

And this last comment is just good, sound analysis:

  1. We note the reduction in your allowance for doubtful accounts as a percentage of total accounts receivable from July 31, 2013 (18.1%) to July 31, 2014 (14.7%). Please describe to us the factor(s) that resulted in the reduction (e.g. changes in the category of outstanding receivables, the composition of the aging or the Company’s accounting policy or methodology with respect to the allowance from the prior period). Also confirm to us that you will clearly describe any significant factor(s) that influenced management’s judgment with respect to the estimate of allowance for doubtful accounts in future filings.

So, just where is the current guidance for Critical Accounting Estimate disclosure? There is a bit of confusion here! This all started in the post-Enron period with FR 60 (the FRs are Financial Reporting Releases, interpretations that are approved by the SEC Commissioners). This release addressed the aggressive use of accounting principles and required disclosure of “Critical Accounting Policies”. It also required that this disclosure be made in plain English. It was issued very quickly in order to apply to year-end 2001 financial statements, and was called a “Cautionary Advice”. As this disclosure was a very new concept, it did not describe in great detail exactly what a critical accounting policy was or what disclosures should be made. You can find this brief FR, for perhaps historical purposes, at:

www.sec.gov/rules/other/33-8040.htm

The key reason the FR was short was that the SEC planned to make a formal rule concerning this disclosure. The rule was proposed, but was never actually finalized.

The reason the rule was never finalized is that the SEC instead addressed this disclosure in FR 72. You can find the current guidance in FR 72 way towards the end in Section V. Here is the release, just scroll way down:

www.sec.gov/rules/interp/33-8350.htm

(Note the evolution in terminology from Critical Accounting Policy to Critical Accounting Estimate.)

If you read this brief Commission interpretation and keep in mind the comments above, you will create meaningful disclosure in this area. A few points to consider:

  1. Critical accounting estimate disclosure is NOT the same as accounting policy disclosures.
  2. You could start with the idea that you have far fewer Critical Accounting Estimates than accounting policies, perhaps three to five as a starting point.
  3. Be sure to address what makes the estimate critical and uncertain, and why the impact could be material.
  4. Include quantified sensitivity analysis that will help investors understand the potential impact if the estimate were to change.

We hope this helps, and as always, your thoughts and comments are appreciated!

Heads-Up – A Revisit of Current vs. Non-Current Debt Restatements

Uncategorized, , , , , , , , , , , , ,

Heads-Up – A Revisit of Current vs. Non-Current Debt Restatements

In our discussions with Workshop participants we are hearing about a trend in how banks and companies are structuring new and revised lines of credit. And, one of the issues we are seeing is evoking a strong feeling of déjà vu!

You may remember that in the early days of the post-SOX era there was a wave of restatements relating to errors in the current versus non-current classification of revolving lines of credit.

The issues centered on an old EITF abstract – EITF 95-22 – Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lock-Box Arrangement. The EITF abstract was about 10 years old when all the restatements happened. The issue involved is very arcane, and since it was very old, it almost seemed like we had all forgotten about this abstract. (This was pre-Accounting Standards Codification of course, so the original abstract is superseded with the guidance contained in ASC 470.)

The portion of the guidance that is relevant is in ASC 470-10-45 paragraphs 4, 5, 14(a) and other locations. It essentially requires that if a revolving line of credit has a bank-required lock-box arrangement where the bank controls the lock-box and a “subjective acceleration clause” then the debt is to be considered current. The issue here is that paragraph 14(a), which contains the guidance for short-term obligations expected to be refinanced long-term, contains a condition that the debt only be cancelable within one year of the borrower’s balance-sheet date by the lender if the borrower violates an objectively determinable or measurable provision of the agreement. The subjective acceleration clause does not meet this requirement, and therefore the related debt cannot be classified as non-current.

We know this is a pretty techy issue, but if you are negotiating a new or revised line of credit, watch out for this one! A very careful review of ASC 470-10-45 paragraphs 4 and 5 will be appropriate. The language here is very complex, and if you have the issue you will likely require some time to properly address!

Two other considerations:

First, for MD&A, it would likely be appropriate to discuss the nature of this financing in the Liquidity and Capital Resources section.

Second, this debt should be included in the table of contractual obligations. As frequently happens with the table, the question of where to include it arises. The likely appropriate answer may vary from company to company, and as the SEC says in FR 83:

“The purpose of the contractual obligations table is to provide aggregated information about contractual obligations and contingent liabilities and commitments in a single location so as to improve transparency of a registrant’s short-term and long-term liquidity and capital resources needs and to provide context for investors to assess the relative role of off-balance sheet arrangements”It then goes on to say:

“Uncertainties about what to include or how to allocate amounts over the periods required in the table should be resolved consistent with the purpose of the disclosure”

So, use of judgment is appropriate. Including the cash flows in the period you expect them to occur and a footnote could be one approach.

As always, your thoughts and comments are appreciated!

Tips for Your Form 10-K Review

Uncategorized, , , , , , , , , , , ,

Welcome to the last half of March! For all of us with 90 day deadlines for our Form 10-K, it is getting close to time to file!

As you prepare for the final reviews of your Form 10-K we thought we would share a list of “Hot-Button Topics” to make sure they are addressed appropriately in your filing.

We developed this list while presenting on-site workshops with CPA firms, and think it may be valuable for all of us who are preparers too.

Here are the topics:

1. SAB 74 Disclosures (see Topic 11M in the codification at: http://www.sec.gov/interps/account/sabcode.htm) – make sure your SAB 74 Recent Accounting Pronouncement disclosure for new standards includes all four points from the SAB and addresses all material new standards for your company, including revenue recognition.

2. Cybersecurity – Most likely almost every company should have a risk factor for cybersecurity, but perhaps more disclosure is appropriate for your company. Be sure to check out Corp Fin Disclosure Topic 2 (at http://www.sec.gov/divisions/corpfin/guidance/cfguidance-topic2.htm).

3. Take time now to be sure that your webpage and such other public disclosures are consistent with 10-K, 10-Q etc. (E.g. segment discussions)

4. Segments are always a big deal. Check out the speech by OCA Deputy Chief Accountant Dan Murdock (at: http://www.sec.gov/News/Speech/Detail/Speech/1370543611034#.VQn1sGd0yUk). And, don’t’ forget the PACCAR enforcement action related in part related to segment disclosure (http://www.sec.gov/litigation/litreleases/2013/lr22711.htm).

5. Item 1 – S-K Item 101(a) – Big changes in “mode of conducting business”, even significant strategic changes, should be discussed.

6. Item 1 – S-K Item 101(c) – The description of the business must be by segment.

7. Review Item 1 discussion of distributions channels and methods etc. for consistency with Rev Rec Accounting.

8. Item 1A – For risk factors assure major risks from a manager’s perspective are included.

9. Item 2 – Relate to impairment risk and possible capex in future as applicable.

10. Item 3 – Not the same as the footnotes to f/S. More factual details, plaintiff suits etc.

11. MD&A – Quantification of changes is a major theme in SEC Comment Letters.

12. MD&A – Known trends – things that could make past not predictive of the future – No surprise stock drops!!

Hope all this helps, and if you have ideas for more topics, let us know!