Tag Archives: Tax

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

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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!

Planning on an IPO?

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One of the great things going on in the economy right now is the increase in IPO activity. Working with a company through the IPO process is one of the most challenging and rewarding experiences SEC reporting professionals can have. It is always a huge learning process, and since no two deals are ever exactly the same, also very exciting!

Companies have to do significant preparation to be ready for an IPO, and the IPO process itself can be all consuming. Both these phases of the project are only prelude to all the additional work as a public company. With so much change involved, training and preparation are crucial.

To help with all the phases of the IPO process we offer a variety of courses through PLI’s Corporate and Securities practice area. You can check this area out on our webpage, www.pli.edu .

For near-term IPO training we are offering our “How to Prepare an Initial Public Offering” program on April 10. You can attend live in New York City at our conference center or participate via webcast. You can learn more at:

www.pli.edu/Content/Seminar/How_to_Prepare_an_Initial_Public_Offering/_/N-4kZ1z129o6?fromsearch=false&ID=224973

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

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

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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

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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!

Recent Happenings at the SEC

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For those who have had their heads buried in their 10-K process, this is a hit list of things that the SEC has been working on that you might have missed.

FRM Update

The CorpFin staff updated the Financial Reporting Manual in early January. The only changes made related to the FASB’s adoption of pushdown accounting and the SEC’s rescission of the Staff Accounting Bulletin on that topic. You can find the updated manual at: http://www.sec.gov/divisions/corpfin/cffinancialreportingmanual.shtml

New C&DI

The CorpFin staff added a new compliance and disclosure interpretation that addresses the use of graphics in SEC filings. See the C&DI at: http://www.sec.gov/divisions/corpfin/guidance/regs-tinterp.htm#118.01

Staff Review of Conflicting Shareholder Proposals

In light of the review of Exchange Act Rule 14a-8(i)(9) ordered by SEC Chair White, the CorpFin staff will express no views on shareholder proposals that directly conflict with a management proposal during the current proxy season. CD announcements at:

http://www.sec.gov/corpfin/announcement/cf-announcement—rule-14a-8i9-no-views.html#.VPC8Ryk0OJU and

http://www.sec.gov/corpfin/Article/corp-fin-staff-review-of-conflicting-shareholder-proposals.html#.VPC8lyk0OJU

Rule Proposal for Hedging Disclosure

In February, the SEC issued a rule proposal that would enhance corporate disclosure of company hedging policies for directors and employees, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposal would require disclosure about whether directors, officers and other employees are permitted to hedge or offset any decrease in the market value of equity securities granted by the company as compensation or held, directly or indirectly, by employees or directors.

You can find the rule proposal at: http://www.sec.gov/rules/proposed/2015/33-9723.pdf

Disclosure Effectiveness

As we discussed in our one hour briefing earlier this year, disclosure effectiveness is on the front burner of projects in CorpFin. What you may not have realized is that it is on the agenda of others at the SEC and outside the building. See for example:

It’s 10-K Time!

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As we move into February, the filing deadlines for Form 10-K annual reports for calendar year-end companies are approaching quickly! And, as we do every year, we are all thinking about two key issues:

1. Are there any new issues that should be dealt with in this year’s 10-K, and

2. Are there any areas where I can make the 10-K better.

At the end of January Carol and George presented a One-Hour Briefing to help start the 10-K Tune-Up process. We are going to present a series of blog entries to explore some of those issues and dig a bit more deeply into some of them than we could in the One-Hour Briefing.

(In case you missed it the One-Hour Briefing is archived at:

www.pli.edu/Content/OnDemand/First_Annual_Form_10_K_Tune_Up/_/N-4nZ1z122ez?fromsearch=false&ID=250112 )

These are the topics we addressed:

New and emerging Issues

Conflict minerals & Form SD disclosure
SAB 74 disclosures for the new Revenue Recognition standard
Disclosure effectiveness
Changes in key assumptions for defined benefit plans
Operations in highly-inflationary countries
ICFR and COSO
Optional IFRS

Frequent SEC Comment Areas:

Segments – a new approach?
Statement of Cash Flows
Critical accounting estimates

So, for this first follow-on, as review, check out our latest posts on:

Cybersecurity – seciblog.pli.edu/318

SAB 74 Disclosures for the new Rev Rec Standard- seciblog.pli.edu/171

These are two key areas to address in this year’s 10-K.

Later this week – Critical Accounting Estimates – The SEC’s Current Focus

IFRS – The SAGA Continues

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As most accountants have heard, Jim Schnurr, the new Chief Accountant at the SEC has been speaking about the SEC possibly continuing to consider the use of IFRS by domestic companies.

At the AICPA’s annual SEC/PCAOB conference in Washington, DC on Monday he delivered his latest update on the status of IFRS, and you can read that speech at:

www.sec.gov/News/Speech/Detail/Speech/1370543609306#.VIcHnYupqrI

In his speech he said “When I arrived at the Commission two months ago, Chair White asked me to take a hard look at where the staff had been on the issue and make a recommendation to her as to the path forward.”

While he did not say anything definite, it is clear the IFRS is no longer on the back burner!

He also said “Based on the progress of our collective efforts, I am hopeful to be in a position in the coming months to commence discussions with the Chair and the Commissioners about the different alternatives for potential further incorporation of IFRS and the related issues/concerns of each alternative with the objective of reaching a recommendation on what, if any, further incorporation or use of IFRS by US registrants would be permitted or required. And, of course, any rulemaking proposal that the Commission decides to consider would be subject to the normal notice and comment process.”

In the Q&A session Mr Schnurr elaborated on some ideas to incorporate, perhaps electively, IFRS information (in adition to US GAAP financial statements) into US registrant’s filings that would be useful for investors when comparing US registrants using US GAAP and those using IFRS. The ideas run the gamut of including IFRS measures in Selected Financial Data, IFRS data in MD&A, non-GAAP measures calculated using IFRS, and full financial statements in IFRS. He asked for feedback on these areas and input on additional ideas to consider.

So, this will not be a speedy process……

As always, your comments and thoughts are welcome!

When-fore art thou revenue recognition?

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With every revenue recognition workshop we have presented to date participants have had strong opinions on the new standard’s implementation date. (For public companies the new standard must be implemented for periods beginning after December 15, 2016, years after December 15, 2017 for non-public companies.)

The FASB and IASB put this date into the public discussion well before the final standard was issued. That said, as soon as the final standard was published late last May constituents began voicing concerns about the feasibility of meeting this date. (Yes, given the protracted timing building new accounting standards many of us still don’t pay attention to the standard setting process until the new standard is final!)

In June and July, after feedback from constituents about the effective date began to flow in, the board indicated that they would be listening and be ready to react to this feedback.

At the Transition Resource Group meeting on October 31, 2015, it became clear that, as they always do, the board is listening.   At this meeting of the FASB Vice Chair Jim Kroeker announced that the Board and the FASB Staff will conduct additional outreach with both public and private companies over the next several months to gauge their progress in preparing to implement the new revenue recognition standard.

Mr. Kroeker emphasized that the Board is considering whether or not to defer the effective date of the new revenue standard. He also said that a decision will be made no later than the second quarter of 2015.

You can check out the archived webcast of the entire TRG meeting at:

www.fasb.org/cs/ContentServer?c=Page&pagename=FASB%2FPage%2FSectionPage&cid=1176164066683

As always, your thoughts and comments are appreciated!

Do you think the date should be deferred? Lets us know, and we will summarize everyone’s thoughts!

XBRL Starting to Bubble-Up to the Comment Letter Surface?

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One of the questions that SEC reporting companies have asked about XBRL (among the many questions we ask about XBRL!) is when will the SEC start to write comments about XBRL submissions?

Very few companies have ever seen a comment letter include any mention of their XBRL submissions.

It appears that comments may be starting to be issued about XBRL.  One of the ways the SEC sends messages in in a kind of generic comment letter that they call a “Sample Letter Sent to Public Companies”, which we refer to as a “Dear CFO Letter”.

While this seems to lack the impact of a comment letter sent directly to a company, the Dear CFO Letter is actually just as important as a directly received comment letter.  It is a message to a broad group of companies about an issue that the SEC thinks is pervasive, and is, in essence, a broadly transmitted comment letter.

The most recent Dear CFO Letter actually deals with XBRL!  You can find it at:

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

The letter reminds registrants to be sure to include all calculation relationships.

It also includes this language:

“Acceptance of your filing by EDGAR does not mean that your filing is complete or in compliance with the Commission’s requirements.”

This Dear CFO letter coupled with the XBRL report we blogged about last week could be the start of a greater emphasis on XBRL matters in filings.

We would love to hear your comments!  Leave them here or email Carol or George.