Tag Archives: SEC

Comment of the Week – Critical Accounting Estimates

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It has been a while since we posted about critical accounting estimates. While this is now a normal part of MD&A it is surprising how many folks in our workshops don’t know where the “official” guidance for this disclosure is found.

 

There is a bit of confusion in the history of this disclosure. It all started in the post-Enron period with concerns about the quality of accounting principle selection discussed in 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 in plain English of “Critical Accounting Policies”. FR 60 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, here.

 

FR 60 was issued as a “quick fix” and the SEC planned to follow it with a formal rule for this disclosure. The rule was proposed, but it was never actually finalized. Instead the SEC dealt with this disclosure in FR72. If you scroll to Section V towards the end of FR 72 you will find the requirements for disclosure of critical accounting estimates.

 

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

 

(As you read this FR, note the evolution in terminology from Critical Accounting Policies to Critical Accounting Estimates.)

 

Don’t forget to look at the most recent Staff guidance in this area in FRM Section 9500, which gives guidance on disclosure of critical accounting estimates in the area of goodwill impairment.

 

Here are a few key issues about disclosure of Critical Accounting Estimates:

 

  1. Critical accounting estimates are not the same as significant accounting policies, and this part of MD&A should not simply duplicate this information from the financial statements. The focus should be on estimates and assumptions used in GAAP that have a material impact on financial condition and operating performance and on comparability over time.
  2. This disclosure should focus on why the estimate is “critical” and what is challenging about the estimate. Why is it difficult to make this estimate and what creates uncertainty about the precision of the estimate?
  3. Most companies won’t have that many of these “critical” estimates. Most companies start with a few and build from there. Often, lessons from past changes in estimates can help your identification process.
  4. The staff sometimes will ask about the quantified sensitivity analysis discussed in the last part of FR 72, so if information is available and will help investors understand the significance of the estimate and its uncertainty, consider disclosing it.

 

To help understand this disclosure, here is a recent comment from the SEC:

Critical Accounting Policies and Estimates

  1. In future filings please provide a more robust discussion of your critical accounting policies and estimates to focus on the assumptions and uncertainties that underlie your critical accounting estimates rather than duplicating the accounting policy disclosures in the financial statement footnotes. Please quantify, where material, and provide an analysis of the impact of critical accounting estimates on your financial position and results of operations for the periods presented. In addition, please include a qualitative and quantitative analysis of the sensitivity of reported results to changes in your assumptions, judgments, and estimates, including the likelihood of obtaining materially different results if different assumptions are applied. If reasonably likely changes in inputs to estimates would have a material effect on your financial condition or results of operations, the impact that could result given the range of reasonable outcomes should be disclosed and quantified. Please refer to SEC Release No. 33-8350. In your response, please show us what your disclosure would have looked like if these changes were made in your most recently filed Form 10-K.

 

 

As always, your thoughts and comments are appreciated!

Audit Committee Learning Opportunity

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In a constantly changing world Audit Committee members know they need to be continuous learners to fulfill their responsibilities. To help them in this process PLI offers a variety of programs, and in June we will present:

Audit Committees and Financial Reporting 2016: Recent Developments and Current Issues.

The program is on June 21, 2016 and will be presented live in New York and via webcast.   You can find details here. The program features industry and SEC speakers, including Jim Schnurr the Chief Accountant.   The agenda includes:

SEC Developments You Need to Know About PCAOB Developments: What’s Happening in the Auditing Arena? Evolving Expectations for Audit Committees, including Audit Committee and Company Communications Financial Reporting Developments: What Audit Committees Need to Know Networking Break Risk Management & Compliance: What Audit Committees Need To Know Evolving Ethical and Liability Challenges for Audit Committee Advisors: 2016 Edition
As always, your thoughts and comments are appreciated!

SEC News – The FAST Act Form 10-K Summary

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The SEC, on June 1, 2016, adopted an Interim Final Rule and Request for Comment to implement the Form 10-K summary provisions of The FAST Act. Passed earlier this year, the FAST Act contains a number of SEC reporting requirements, many of which the SEC has already implemented.

 

The Interim Final rule provides that a company may, at its option, include a summary in its Form 10-K. Each item in the summary must include a cross-reference by hyperlink to the material contained in the company’s Form 10-K to which the item relates.

 

The summary is a new Item 16 in Form 10-K:

 

Item 16. Form 10-K Summary.

 

Registrants may, at their option, include a summary of information required by this form, but only if each item in the summary is presented fairly and accurately and includes a hyperlink to the material contained in this form to which such item relates, including to materials contained in any exhibits filed with the form.

 

Instruction: The summary shall refer only to Form 10-K disclosure that is included in the form at the time it is filed. A registrant need not update the summary to reflect information required by Part III of Form 10-K that the registrant incorporates by reference from a proxy or information statement filed after the Form 10-K, but must state in the summary that the summary does not include Part III information because that information will be incorporated by reference from a later filed proxy or information statement involving the election of directors.

 

 

While perhaps not particularly dramatic, this is a nice step towards making Form 10-K a better communication tool, which is of course a big part of the disclosure effectiveness activities of the SEC. We could even debate whether such a rule is necessary as some companies, GE in particular, already provides such a summary.

 

You can read the Interim Final Rule and request for comment here.

 

And, if you have not read it recently, Carol and George, your bloggers, suggest taking a look here at the GE Form 10-K. You will find it interesting and the summary is on page 217.

 

As always, your thoughts and comments are welcome!

 

SEC Non-GAAP Concerns Ratchet Up

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We discuss non-GAAP measures frequently in our blog. We also did a One-Hour Briefing “Non-GAAP Measures and Metrics: Getting it Right” on April 1 which you can find at:

www.pli.edu/Content/Non_GAAP_Measures_and_Metrics_Getting_it/_/N-1z10vnyZ4n?ID=282910

 

While we try to avoid being “preachy” we do see some real problems in how companies are using non-GAAP measures. Our most recent blog post about these non-GAAP measure problems is at:

seciblog.pli.edu/?p=615

 

To reinforce these issues from the SEC’s perspective Deputy Chief Accountant Wesley Bricker and OCA Chief Accountant Mark Kronforst both addressed the use of non-GAAP measures at a recent conference.

 

You can read Mr. Bricker’s speech at:

www.sec.gov/news/speech/speech-bricker-05-05-16.html

 

In his speech he outlines four major areas where the SEC believes that companies may not be using non-GAAP measures appropriately. He even makes the comment that if a company uses a non-GAAP revenue measure they can expect a comment from the staff.

While Mr. Kronforst’s speech is not on the SEC web page, he reportedly used the words “crack down” when talking about how the SEC will be reviewing the use of non-GAAP measures.

The message is clear, be thoughtful and careful with non-GAAP measures!

 

As always, your thoughts and comments are welcome!

Procrastinating about Rev Rec?

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Let’s face it, almost all of us procrastinate! And when there is a good reason to procrastinate, well, that is all the better! One of the big rationales for procrastinating dealing with the new revenue recognition standard was that the FASB was definitely going to make changes to the original ASU (ASU 2014-09). As the Transition Resource Group identified and discussed issues in the new standard it became clear that the FASB would clarify certain issues and improve the standard in other areas. In fact the FASB started four discrete projects to make changes.

Yesterday that rationale came to an end.   The FASB released the fourth of the four ASU’s. They are:

 

  1. ASU 2015-14 – Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date – Issued August 2015

 

  1. ASU 2016-8 – Revenue Recognition — Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net) – Issued March 2016

 

  1. ASU 2016-10 – Revenue Recognition — Identifying Performance Obligations and Licenses – Final Standard Issued in April 2016

 

  1. ASU 2016-12 – Revenue Recognition — Narrow-Scope Improvements and Practical Expedients – Issued May 2016

 

All the core issues are now in the standard as amended! And yes, the TRG and the AICPA’s Industry Task Forces will continue to work on specific issues. You can read about the TRG’s issues at:

www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176164066683

 

And you can follow-up on the AICPA’s task forces at:

www.aicpa.org/InterestAreas/FRC/AccountingFinancialReporting/RevenueRecognition/Pages/RevenueRecognition.aspx

 

And, even with the TRG and AICPA still at work, the core is there. It is time to get busy!

 

As always, your thoughts and comments are welcome!

Non-GAAP Measures in the News

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How companies use non-GAAP measures is one of the “hot topics” that we post about frequently. This is not just because we think it is interesting. (Although we do!). More to the point, it is a subject of frequent SEC comment, and in the last several weeks both SEC Chair Mary Jo White and Chief Accountant James Schnurr have expressed their concern about more aggressive use of non-GAAP measures. And a recent report from FACTSET (mentioned in more detail below) bears out this concern.

Carol and George, your blog authors, recently did a One-Hour Briefing about Non-GAAP measures.

You can find the archived One-Hour Briefing at:

www.pli.edu/Content/OnDemand/Non_GAAP_Measures_and_Metrics_Getting_it/_/N-4nZ1z10vny?fromsearch=false&ID=283312

 

In the Briefing we included this quote from Mr. Schnurr’s March 22, 2016 speech to the 12’th Annual Life Sciences Accounting and Reporting Congress in Philadelphia, PA:

 

Non-GAAP measures

Before I conclude today’s remarks, I’d like to provide my perspectives on non-GAAP measures, which is a topic that continues to receive attention from investors, those at the SEC, as well as the general news media.

The Commission adopted rules in 2003 addressing the disclosure of non-GAAP financial measures, both generally and with respect to inclusion in SEC filings. While the Commission’s rules allow companies to provide non-GAAP measures to investors as alternative measures that supplement information in the financial statements, the rules are clear that the non-GAAP measures must not be misleading. The SEC staff has observed a significant and, in some respects, troubling increase over the past few years in the use of, and nature of adjustments within, non-GAAP measures by companies as well prominence that the analysts and media have accorded such measures when reporting on the results of the companies they cover.

 

Non-GAAP measures are intended to supplement the information in the financial statements and not supplant the information in the financial statements. However, when the financial news networks report quarterly earnings, they very frequently report the non-GAAP measure of earnings with no reference to the actual GAAP earnings, often not even identifying it as having been adjusted. In addition, I am particularly troubled by the extent and nature of the adjustments to arrive at alternative financial measures of profitability, as compared to net income, and alternative measures of cash generation, as compared to the measures of liquidity or cash generation. In my view, preparers should carefully consider whether significant adjustments to profitability outside of customary measures such as EBITDA or non-recurring items or other charges to the business, such as the sale of portions of the business in order to provide the user with an understanding of how these events impact trends and future performance, are appropriate. As it relates to cash measures, I believe those measures should be reconciled to cash flow from operations.

 

Staff in the Division of Corporation Finance continues to monitor non-GAAP disclosures as part of its selective review process and regularly issues comments on this issue. The staff also provides guidance on the application of Commission rules through speeches and other mechanisms — and of course, staff comment letters are publicly available. You can expect that the staff will continue to be vigilant in their review of the use of these measures for compliance with the rules.

 

The proliferation of non-GAAP reporting measures among registrants, and reliance and reporting by analysts, should warrant increased focus by management and the audit committee. I believe the focus should go beyond determinations that the measures comply with the Commission’s rules and include probing questions on why, in contrast to the GAAP measure, the non-GAAP measure is an appropriate way to measure the company’s performance and is useful to investors. In addition, companies should ensure that the measure is prepared in a manner that includes appropriate controls and oversight procedures.

 

You can find the whole speech at:

www.sec.gov/news/speech/schnurr-remarks-12th-life-sciences-accounting-congress.html

 

Chair White’s Speech at an AICPA conference in December included these remarks:

  • Another financial reporting topic of shared interest and current conversation is the use of non-GAAP measures.  This area deserves close attention, both to make sure that our current rules are being followed and to ask whether they are sufficiently robust in light of current market practices.  Non-GAAP measures are allowed in order to convey information to investors that the issuer believes is relevant and useful in understanding its performance.  By some indications, such as analyst coverage and press commentary, non-GAAP measures are used extensively and, in some instances, may be a source of confusion.
  • Like every other issue of financial reporting, good practices in the use of non-GAAP measures begin with preparers.  While your chief financial officer and investor relations team may be quite enamored of non-GAAP measures as useful market communication devices, your finance and legal teams, along with your audit committees, should carefully attend to the use of these measures and consider questions such as:
    • Why are you using the non-GAAP measure, and how does it provide investors with useful information?
    • Are you giving non-GAAP measures no greater prominence than the GAAP measures, as required under the rules?
    • Are your explanations of how you are using the non-GAAP measures – and why they are useful for your investors – accurate and complete, drafted without boilerplate?
    • Are there appropriate controls over the calculation of non-GAAP measures?

 

So, the message has clearly been sent, be thoughtful about the use of non-GAAP measures and be careful to not be misleading.

 

How are companies responding to these messages?

For now, it does not look like they are listening. FACTSET has done a very detailed study that includes all the earnings releases for the Dow Jones Industrial Average companies for their most recent year-end. Their results are available at:

 

www.factset.com/insight/2016/03/earningsinsight_03.11.16#.Vw5yo2OPAQK

 

Their findings are very dramatic. For companies that released a non-GAAP earnings measure the difference between GAAP EPS and non-GAAP EPS from 2014 to 2015 widened from 11.8% to 30.7%. And that is just one of may statistics that highlight growing differences between GAAP and non-GAAP measures. Of course, the non-GAAP measures all seem to look better…

 

So, we suggest careful review by your audit committee and management of the use of non-GAAP measures. And, be sure to look back to the comments above and ask the questions Chair White asked:

 

  • Why are you using the non-GAAP measure, and how does it provide investors with useful information?
  • Are you giving non-GAAP measures no greater prominence than the GAAP measures, as required under the rules?
  • Are your explanations of how you are using the non-GAAP measures – and why they are useful for your investors – accurate and complete, drafted without boilerplate?
  • Are there appropriate controls over the calculation of non-GAAP measures?”

As always, your comments and thoughts are welcome!

Carol and George

 

Get the Message: SEC Enforcement Case Deals With Evaluating ICFR Weaknesses!

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By sending a clear message through the enforcement process, the SEC has come full circle in their concerns about whether ICFR audits are finding material weaknesses. The staff has said on numerous occasions that they see too many situations where a company identifies a control deficiency but the company’s analysis fails when assessing whether the control deficiency is in fact a material weakness.

Over the last few years the SEC Staff have emphasized their concerns in numerous speeches and other public settings. As they sometimes do when they don’t see companies listening, they have also emphasized this issue through enforcement.

This enforcement is dramatic, involving:

The company

Two company officers

The audit partner

The ICFR consulting firm partner (a surprise here!)

 

This excerpt from a December 2015 speech by Deputy Chief Accountant Brian Croteau summarizes the SEC’s concerns:

Still, given the frequency with which certain ICFR issues are identified in our consultations with registrants, I’d be remiss not to remind management and auditors of the importance of properly identifying and describing the nature of a control deficiency and understanding the complete population of transactions that a control is intended to address in advance of assessing the severity of any identified deficiencies.  Then, once ready to assess the severity of a deficiency, it’s important to remember that there are two components to the definition of a material weakness – likelihood and magnitude.  The evaluation of whether it is reasonably possible that a material misstatement could occur and not be prevented or detected on a timely basis requires careful analysis that contemplates both known errors, if any, as well as potential misstatements for which it is reasonably possible that the misstatements would not be prevented or detected in light of the control deficiency.  This latter part of the evaluation, also referred to as analysis of the so called “could factor,” often requires management to evaluate information that is incremental to that which would be necessary, for example, for a materiality assessment of known errors pursuant to SAB 99. The final conclusions on severity of deficiencies frequently rest on this “could factor” portion of the deficiency evaluation; however, too often this part of the evaluation appears to be an afterthought in a company’s analysis.  Yet consideration of the “could factor” is very important. 

The issue is clear; too often companies are finding a control deficiency but not appropriately evaluating the severity of the issue to determine if it is a material weakness.

In a “classic” example this SEC enforcement involves a company that performed its annual ICFR evaluation and stated in its form 10-K that ICFR was effective at year-end. Then, shortly after that report in their Form 10-K, the company restated its financial statements and disclosed the existence of a material weakness. It is very unlikely that the material weakness arose between the year-end of the Form 10-K and the date of the restatement.

You can read about the enforcement in this press release, which also has links to the SEC Enforcement Orders for the company and the individuals involved:

www.sec.gov/news/pressrelease/2016-48.html

 

The fact that the company and auditor were named is not surprising. What is surprising is that the firm the company retained to provide SOX 404 services, which included assisting “management with the documentation, testing, and evaluation of the company’s ICFR” and no external report, was included in the enforcement.

This is a loud and clear message to all participants in the process! Be thorough and complete in your evaluation of control deficiencies!

If you would like to delve a bit deeper into this issue one of our follow-up posts to this year’s Form 10-K Tune-Up One Hour Briefing focused on ICFR issues, including the issue raised in this enforcement case.

You can read our post at:

seciblog.pli.edu/?p=530

 

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

 

The SEC Comment Process – What if?

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In all our workshops and seminars, when we discuss the SEC review process we always emphasize that when you get a comment from the staff you do NOT immediately change disclosure in response to the comment. As the staff says in their on-line “Filing Review Process” document, they view the process of issuing comments as a “dialogue with a company about its disclosure”.

You can find the filing review process document, which is updated on a regular basis at:

www.sec.gov/corpfin/Article/filing-review-process—corp-fin.html

 

To illustrate, here is a real life comment example.

 

STEP ONE – COMMENT RECEIVED

What would you do if you received this comment?

 

Reportable Segments, page 39

  1. Your segment discussion and analysis only refers to non-GAAP amounts. Pursuant to Item 10(e) of Regulation S-K, we remind you that more prominence should not be given to non-GAAP financial measures compared to GAAP financial measures. In this regard, please revise your discussion and analysis to first provide a discussion of the corresponding GAAP amounts for each segment ensuring equal prominence to that of your non-GAAP amounts.

The comment uses the language “please revise”, which is a bit scary, and in the back of our minds we hope we can push the comment to an “in future filings” comment if we decide the staff is on-point. The comment is focused on the use of non-GAAP measures in MD&A as discussed in operating segment disclosures. Of course, the use of non-GAAP measures in segment disclosures is appropriate if in fact your chief operating decision maker uses non-GAAP information. So, your first step in the research process for this comment might be to go review that part of ASC 280.

 

 

STEP TWO – REVIEW GAAP LITERATURE

Here is the relevant section:

Measurement

50-27     The amount of each segment item reported shall be the measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segment and assessing its performance. Adjustments and eliminations made in preparing a public entity’s general-purpose financial statements and allocations of revenues, expenses, and gains or losses shall be included in determining reported segment profit or loss only if they are included in the measure of the segment’s profit or loss that is used by the chief operating decision maker. Similarly, only those assets that are included in the measure of the segment’s assets that is used by the chief operating decision maker shall be reported for that segment. If amounts are allocated to reported segment profit or loss or assets, those amounts shall be allocated on a reasonable basis.

ASC 280 then goes on to require disclosure about the measurement basis used for segment disclosures:

50-29     A public entity shall provide an explanation of the measurements of segment profit or loss and segment assets for each reportable segment. At a minimum, a public entity shall disclose all of the following (see Example 3, Cases A through C [paragraphs 280-10-55-47 through 55-49]):

  1. The basis of accounting for any transactions between reportable segments.
  2. The nature of any differences between the measurements of the reportable segments’ profits or losses and the public entity’s consolidated income before income taxes, extraordinary items, and discontinued operations (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). Those differences could include accounting policies and policies for allocation of centrally incurred costs that are necessary for an understanding of the reported segment information.
  3. The nature of any differences between the measurements of the reportable segments’ assets and the public entity’s consolidated assets (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). Those differences could include accounting policies and policies for allocation of jointly used assets that are necessary for an understanding of the reported segment information.
  4. The nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss and the effect, if any, of those changes on the measure of segment profit or loss.
  5. The nature and effect of any asymmetrical allocations to segments. For example, a public entity might allocate depreciation expense to a segment without allocating the related depreciable assets to that segment.

 

ASC 280 also includes this reconciliation requirement:

 

50-30     A public entity shall provide reconciliations of all of the following (see Example 3, Case C [paragraphs 280-10-55-49 through 55-50]):

  1. The total of the reportable segments’ revenues to the public entity’s consolidated revenues.
  2. The total of the reportable segments’ measures of profit or loss to the public entity’s consolidated income before income taxes, extraordinary items, and discontinued operations. However, if a public entity allocates items such as income taxes and extraordinary items to segments, the public entity may choose to reconcile the total of the segments’ measures of profit or loss to consolidated income after those items.
  3. The total of the reportable segments’ assets to the public entity’s consolidated assets.
  4. The total of the reportable segments’ amounts for every other significant item of information disclosed to the corresponding consolidated amount. For example, a public entity may choose to disclose liabilities for its reportable segments, in which case the public entity would reconcile the total of reportable segments’ liabilities for each segment to the public entity’s consolidated liabilities if the segment liabilities are significant.

 

With this, our review of the relevant GAAP literature is well underway, and substantially complete.

 

STEP THREE – REVIEW THE RELEVANT SEC NON-GAAP GUIDANCE

As you research the SEC’s requirements surrounding the use of non-GAAP measures, most of us are familiar with Reg G, which applies to non-GAAP measures in documents that are not filed, such as earnings releases. But this comment is about S-K Item 10(e) which applies to non-GAAP measures included in MD&A. As you read Item 10(e) you would find:

(5) For purposes of this paragraph (e), non-GAAP financial measures exclude financial measures required to be disclosed by GAAP, Commission rules, or a system of regulation of a government or governmental authority or self-regulatory organization that is applicable to the registrant. However, the financial measure should be presented outside of the financial statements unless the financial measure is required or expressly permitted by the standard-setter that is responsible for establishing the GAAP used in such financial statements.

Where to go from here? Lets get into the specific facts in the company’s Form 10-K.

 

 

STEP FOUR – APPLY THE RESEARCH TO THE COMPANY’S DISCLOSURES

Here is an excerpt from the company’s segment note:

 

“We prepared the financial results for our reportable segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. We included the earnings of equity affiliates that are closely associated with our reportable segments in the respective segment’s net income. We have allocated certain common expenses among reportable segments differently than we would for stand-alone financial information. Segment net income may not be consistent with measures used by other companies. The accounting policies of our reportable segments are the same as those applied in the consolidated financial statements.”

Here is an excerpt from the MD&A disclosure that the SEC comment is focused on:

When compared to the same period last year, core earnings increased in the twelve months ended December 31, 2013 by $202 million, or 13%, driven by the following items:

 

· Higher core earnings in the Optical Communications, Life Sciences,

Environmental Technologies and Display Technologies segments in the

amounts of $59 million, $44 million, $11 million and $7 million, respectively; and
·  

Lower operating expenses in the amount of $49 million, driven by a decrease in

variable compensation and cost control measures implemented by our segments.

 

You can find the company’s Form 10-K at:

files.shareholder.com/downloads/glw/1822865217x0xS24741%2D15%2D15/24741/filing.pdf

 

You can read the issues the SEC is commenting about in MD&A on page 39, and the segment note starts on page 137.

At this point we are ready to make an informed judgment about the comment. And this one follows a really twisty path! First, the MD&A clearly includes non-GAAP measures for “core” operations. And, interestingly, these are not the measures that are disclosed in the segment note in the financial statements. Since the measures used in the MD&A are not in the segment note the provision in S-K Item 10(e) excluding disclosures required under GAAP does not apply, and so the company must comply with the provisions. The next step is to, as we said above, make a case with the staff that it will be appropriate to fix this comment in future filings and not amend the current Form 10-K.

 

STEP FIVE – RESPOND TO THE COMMENT

Here is the company’s response to the comment, and the staff did allow this to become a future filings comment:

We acknowledge the Staff’s comments and, beginning with our Form 10-Q filed for the second quarter of 2014, will revise our future disclosure to ensure that more prominence is not given to non-GAAP financial measures when compared to GAAP financial measures.  With respect to the request to revise our discussion and analysis to first provide a discussion of the corresponding GAAP amounts for each segment, we provide the following updated disclosure, which we propose to use in future filings.

You can read the response letter and the complete version of the response to comment 8 including the proposed disclosure at:

 

www.sec.gov/Archives/edgar/data/24741/000002474114000025/filename1.htm

 

 

As always, your thoughts and comments are welcome!

Some XBRL News and A Few Tidbits

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XBRL has not really been in the news much lately, but on March 29, 2016 the SEC released a second DERA study about tagging processes. The study, titled “Staff Observations of Custom Axis Tags” is at:

www.sec.gov/structureddata/reportspubs/osd_assessment_custom-axis-tags.html

Here is an excerpt from the introduction of the report:

As part of our ongoing process to monitor registrant compliance with the requirements to report their financial information in their eXtensible Business Reporting Language (XBRL) exhibits, staff in the SEC Division of Economic and Risk Analysis recently assessed certain aspects of the XBRL exhibits that affect the data quality of the disclosures provided. Specifically, the staff examined the use of custom axis tags in XBRL exhibits that reporting companies submitted with their annual reports on Form 10-K. An axis tag in XBRL allows a filer to divide reported elements into different dimensions (e.g., revenue by geographical area, fair value measurement levels, components of total equity (e.g., common, preferred)) while also showing the relationships between separately reported elements.

……………

The staff’s analysis resulted in a few key observations. First, unlike our previous staff observations that revealed a lower average rate of custom line item tags among large filers, staff observed a higher average use of custom axis tags as filer size increased, with the rate of custom axis tags highest for large accelerated filers. Second, for a random sample of filings that staff reviewed, staff observed instances of filers creating custom axis tags unnecessarily when an appropriate standard axis tag existed in the U.S. GAAP taxonomy.

 

This is an interesting development, and clearly demonstrates the SEC’s work to help make XBRL information more reliable and useful.

The earlier information the SEC has issued about XBRL include:

A “Dear CFO” letter about calculation structures that is at:

www.sec.gov/divisions/corpfin/guidance/xbrl-calculation-0714.htm

This earlier DERA study of extension use at:

www.sec.gov/dera/reportspubs/assessment-custom-tag-rates-xbrl.html

 

Getting XBRL Right

Next, here is a good reminder to make sure that your XBRL submissions are prepared properly and tagging is done appropriately. While XBRL is not subject to ICFR and there is no requirement for any sort of auditor review, XBRL submissions are subject to your disclosure controls and procedures. As a result you should have appropriate controls to assure that your XBRL submission:

“is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.”

The above quote is from the definition of Disclosure Controls and Procedures in Exchange Act Rule 13a-15 which is at:

www.ecfr.gov/cgi-bin/text-idx?SID=8e0ed509ccc65e983f9eca72ceb26753&node=17:4.0.1.1.1&rgn=div5#se17.4.240_113a_615

This requirement is highlighted in a recent Form 10-K/A filed by Goldman Sachs to make some corrections in their XBRL submission. Goldman filed their original 10-K on February 19, 2016 and on March 1, 2016 filed a Form 10-K/A. As is required by the Exchange Act Rules for amendments, Goldman included this explanatory note:

EXPLANATORY NOTE

Due to an error by our external financial printer, our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (Original Form 10-K) was filed with an incorrect version of Exhibit 101, which provides items from our Original Form 10-K formatted in eXtensible Business Reporting Language.

This Amendment No. 1 on Form 10-K/A (Amendment) to our Original Form 10-K, filed on February 19, 2016, is being filed in accordance with Rule 12b-15 under the Securities Exchange Act of 1934 for the sole purpose of including the correct version of Exhibit 101.

This Amendment does not amend or otherwise update any other information in the Original Form 10-K and does not reflect events occurring after the date of the Original Form 10-K.

Goldman was perhaps doing something that is appropriate, which we discuss in our workshops. After the filing someone likely double checked the XBRL submission and found the problem, and they fixed it as soon as possible. This is an example of disclosure controls in action on a detective basis, and again, while the SEC has not really indicated that they will do a lot of review of XBRL submissions, we need to make sure they are done appropriately. And, who knows, it is possible the SEC pointed this out to Goldman.

 

Taxonomy Update

On March 7, 2016 the SEC updated the EDGAR system to accept the 2016 XBRL taxonomies previously released by the FASB. The announcement is at:

www.sec.gov/structureddata/announcement/osd-announcement-030716—xbrl-taxonomy-update.html

 

Using XBRL Information

While we still don’t hear a lot about users taking advantage of all the information in the XBRL database, user tools are continuing to evolve. One tool that provides a nice way to access and use XBRL data comes from a company called Calcbench. If you do peer group analysis or are searching for comparable disclosures, this is a very useful tool. You can learn more at:

www.calcbench.com

 

As usual your thoughts and comments, including any insights you have about people using XBRL or XBRL user tools, is welcome!

Ever Been to an SEC Event? Mark out April 13 for a webcast!

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In our workshops we sometimes joke (a bit) about how fun it is to listen to a webcast of an SEC meeting. And yes, we do say the same thing about FASB meetings. (Total Geek-Out For Sure!)

These meetings are interesting in that you can observe the process the SEC Commissioners and the FASB follow. The depth of the discussions and their careful consideration of the issues is always fascinating to observe.

These meetings generally do not tell you what might happen in the short-term, but do provide a longer-term glimpse into the directions of policy-making and standard setting.

Disclosure effectiveness is a major longer-term initiative at the SEC right now. On April 13, 2016 the SEC is going to discuss “whether to issue a concept release seeking comment on modernizing certain business and financial disclosure requirements in Regulation S-K.”

As you know, this kind of change is something the SEC staff has wanted to do for years. In addition, provisions of both the JOBS Act and the FAST Act focused on disclosure effectiveness. And here is the logical next step – this meeting will likely help illuminate the future direction of disclosure effectiveness.

 

In addition, this meeting may offer ideas that you can implement now to help make your disclosure more direct and useful to investors.

 

So, perhaps this is the time to listen to one of the meetings? You could play it on your computer, have the sound coming out of your speakers, and think how many of your colleagues would join you and listen! SEC Party time perhaps? If you can’t make the live webcast, you can find all of the archived meetings at http://www.sec.gov/news/openmeetings.shtml

 

You can learn more at:

sec.gov/news/openmeetings/2016/ssamtg033016.htm

 

where the original meeting was announced and at:

www.sec.gov/news/openmeetings/2016/ssamtg041316.htm

where the date was changed from March 30 to April 13, 2016.

 

As always, your thoughts and comments are welcome!