The world of financial reporting is complicated and ever-changing. 2017 brings a host of new issues. Implementation deadline of the FASB’s revenue recognition standard is fast approaching and the new lease accounting challenges filers. Attend SECI’s 32nd Midyear SEC Reporting & FASB Forum. This live program is being held May 18-19 in Dallas, June 8-9 in New York City along with a live webcast and June 19-20 in San Francisco. Get practical advice on how to successfully tackle these challenges and more.
Tag Archives: XBRL
Master SEC Reporting and Prepare to Tackle New Challenges
The complicated world of SEC reporting has now gotten even more challenging! Be sure you are prepared to comply with the recently enacted changes and have a plan in place to deal with the SEC staff “hot buttons”. Attend SECI’s live workshop SEC Reporting Skills Workshop 2017 being held April 24-25 in Chicago, May 8-9 in McLean, Va., May 16-17 in Dallas and May 24-25 in San Francisco with additional dates and locations listed on the SECI website.
http://www.pli.edu/Content/SEC_Reporting_Skills_Workshop_2017/_/N-1z10od0Z4k?ID=290559
A Bit of SEC News and a Hopefully Enjoyable Video
By: George M. Wilson & Carol A. Stacey
In the first few weeks of the new Administration there was news from the SEC including reconsideration of the Conflict Minerals and Pay Ratio disclosures as well as the legislative repeal of the Resource Extraction Payment disclosure.
While there have not been as many highly publicized developments in recent weeks, the Commission is continuing its normal business. A final rule for Hyperlinks to Exhibits, a proposal to for Inline XBRL, approving an XBRL Taxonomy for IFRS, and a Request for Comment to consider changes to Bank Holding Company Disclosures in Guide 3 are a few of the normal course of business things going on at the SEC. The Enforcement Division continues its normal process with cases ranging from an auditor trading on inside information to a Ponzi scheme involving resale of Hamilton tickets. And, of course, CorpFin continues its review program, and after reviewing over 50% of all companies last year it will be interesting to see the numbers this year.
In a way, especially with so many of our SEC reporting community working on year-end and quarter-end reports, it is nice to have a normal flow of work from the SEC instead of big stories!
So, enjoy the lull! And, to have a bit of fun in this lull, here is a hopefully entertaining diversion. The SEC’s Office of Investor Education and Advocacy has, via its investor.gov website, produced a number of educational videos for investors. This one, titled “Don’t let someone else live the life you’ve been saving for”, is particularly entertaining! Enjoy!
As always, your thoughts and comments are welcome!
XBRL for Foreign Private Issuers Using IFRS
By George M. Wilson & Carol A. Stacey
Foreign Private Issuers (FPI’s) who file using IFRS have been in a conundrum about XBRL because there was no usable IFRS taxonomy. The SEC excepted these FPI’s from XBRL until an appropriate taxonomy was developed.
A usable IFRS XBRL taxonomy was formally announced by the SEC on March 1, 2017. The announcement includes a link to the IFRS XBRL Taxonomy that FPI’s must use.
The SEC indicated that FPI’s who use IFRS may begin to submit XBRL financial statements immediately, and that they MUST submit XBRL financial statements for periods ending on or after December 15, 2017.
As always, your thoughts and comments are welcome!
Why, Oh Why, Is It Always Segments?
By: George M. Wilson & Carol A. Stacey
If you have been involved with SEC reporting for more than say, five minutes, you have heard about or discussed with someone the SEC’s focus on operating segments. Segment related disclosures are included in several Form 10-K Items, including:
Item 1 – Description of the business,
Item 2 – Properties,
Item 7 – MD&A, and of course
Item 8 – Financial Statements.
Almost every SEC conference or workshop addresses the importance of segment disclosures.
The latest segment “message” from the SEC is in the November 7, 2016 Accounting and Auditing Enforcement Release dealing with PowerSecure.
It is the same familiar message we heard in the Sony case in 1998 and the PACCAR case in 2013. When companies avoid making proper GAAP disclosures for operating segments to try and bury problems in one part of a business with profits from another part of their business, trouble will result.
In the “classic” Sony case the company used profits from its music business to mask problems in its movie business. This case also has a great known trend disclosure problem and becomes an almost scary “double trouble” example. To escalate this case to “triple trouble” the SEC also made it clear that Sony’s assignment of MD&A to the IR manager was not appropriate by naming that person in the case and forcing Sony to reassign this responsibility to the CFO. With all that was going on with Sony the SEC went so far as to require the company to engage its auditors to “examine” MD&A. Surprisingly, under the attest standards, auditors can issue a full opinion report on MD&A!
In the PACCAR case problems in new truck sales were hidden with profits from truck parts sales. This SEC Complaint includes a very detailed summary of the operating segment disclosure requirements, discussing in detail how PACCAR’s management viewed the business and how, in the SEC’s judgement, PACCAR was not following the GAAP requirements. It includes this language:
“However, in reporting its truck and parts results as a single segment, PACCAR did not provide investors with the same insight into the Company as PACCAR’s executives.”
This story line repeats in PowerSecure. For the periods in question PowerSecure reported one segment when that was not how management actually viewed the business:
“PowerSecure also misapplied ASC 280 by concluding that its CODM – who was determined to be the Chief Executive Officer (“CEO”) – did not regularly review operating results below the consolidated level to make decisions about resource allocations and to assess performance. This was inconsistent with the way in which the CEO regularly received, reviewed, and reported on the results of the business and how the company was structured. On a monthly basis, the CEO received financial results that reflected a measure of profitability on a more disaggregated level than the consolidated entity. Further, on a quarterly basis, the CEO met with each business unit some of the business unit leaders had business unit level budgets and forecasts and received incentive compensation based, at least in part, upon the results of their business unit.“
The message is clear, don’t use segments to try and hide problems! As a last reminder, don’t forget that these disclosure requirements may go to an even lower level than operating segments in MD&A. Regulation S-K Item 303 makes this clear:
“Where in the registrant’s judgment a discussion of segment information or of other subdivisions of the registrant’s business would be appropriate to an understanding of such business, the discussion shall focus on each relevant, reportable segment or other subdivision of the business and on the registrant as a whole.”
As always, your thoughts and comments are welcome!
Third Annual Form 10-K Tune-Up
As you draft your annual Form 10-K it is always a challenge to be sure that you deal effectively with new and emerging issues and the ever-evolving focus areas of the SEC. Register for our January 23rd One Hour Briefing, Form 10-K Tune-Up. Review the key issues to address in this year’s Form 10-K, including the latest in SEC Staff comments about non-GAAP measures; new accounting standards, revenue recognition, leases and financial instruments.
A Control Environment and History Follow-Up
By: George M. Wilson & Carol A. Stacey
This famous quote has been in our thoughts over the last several months:
“Those who cannot remember the past are condemned to repeat it.”
George Santayana, the poet and essayist, wrote these famous words in his book The Life of Reason. Many other people including Winston Churchill have thoughtfully incorporated this fundamental principle of life in speeches and remarks.
Another favorite variation of the idea comes from Mark Twain:
“History doesn’t repeat itself, but it does rhyme.”
The lesson here is that if we learn history we can hopefully avoid making the same or similar mistakes in the future. As we discussed a couple of posts back, recent public company news shows that many organizations have not been learning from the past.
One person who can help us learn about history we do not want to repeat is Cynthia Cooper. She was the WorldCom head of internal audit who built and lead the team that worked almost “under cover” to find the largest fraud ever discovered. This was a tone at the top fraud, involving the CEO, CFO and CAO. Her book is a sometimes-chilling story of how bad tone at the top results in fraud.
Sharron Watkins is another person who can help us learn how to not repeat history. She was the Enron Vice President, a direct report to Andy Fastow, who blew the whistle about Enron’s accounting irregularities. And we all know perhaps too much about that fraud which was even the subject of a book and related movie “Enron: The Smartest Guys in the Room”.
Corporate ethics will never be easy, but as history and current events show, it does matter. If leadership of an organization sends the message that making money is the most important thing an organization does, if it sends the message that if you don’t make money you will be fired, if it sends the message that other values can be sacrificed if you make money, the ultimate result is inevitable. In countless frauds over centuries, from Ivar Kreuger, the match king in the early 1900s, to Equity Funding in the 1970s, to Madoff, to Enron, to the companies we are talking about today, this lesson has been proven time and time again.
These stories can help us learn and avoid the mistakes others have made. They can be the focus of training and learning. They can be the foundation for building awareness and support for these issues in organizations large and small.
As always, your thoughts and comments are welcome.
Happy Thanksgiving!
All of us here at the SEC Institute wish you a Happy Thanksgiving! We hope that you have a wonderful time with loved ones and enjoy this time of year.
And, to add a smile, we have been building a list of things we are thankful for!
- All of you and your support of our programs!
- Disclosure Effectiveness
OK, we tried to add some humorous SEC and accounting related items to this list, but when we started to think about all the change in our profession and we got to revenue recognition and leases, we weren’t sure if we were thankful for them or not!
So, even with all the change in the world around us, Happy Thanksgiving, and thanks for your participation and support!
The SEC Institute Team
SEC Review News – No More “Tandy” Language
Have you ever wondered why the SEC puts this language at the end of every comment letter?
We urge all persons who are responsible for the accuracy and adequacy of the disclosure in the filing to be certain that the filing includes the information the Securities Exchange Act of 1934 and all applicable Exchange Act rules require. Since the company and its management are in possession of all facts relating to a company’s disclosure, they are responsible for the accuracy and adequacy of the disclosures they have made.
In responding to our comments, please provide a written statement from the company acknowledging that:
- the company is responsible for the adequacy and accuracy of the disclosure in the filing;
- staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and
- the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
The history of this language goes all the way back to the 70’s. Tandy was the first company to receive this language in a comment letter. The comment process had been asserted as a possible defense and the staff wanted to make it clear that this was not appropriate. It was in 2004, after a flood of FOIA requests to obtain comment letters, that the staff decided to make all comment letters and responses public. With that decision they decided to require “Tandy” language in all comment letter responses. You can read more in this 2004 release.
The Staff has now changed their position. Since this language has been around for so long they will no longer require it in each response. Instead, the staff will simply put this language in comment letters:
We remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action or absence of action by the staff.
You can read the details here.
The change is effective immediately, so all comment letter responses after October 5, 2016 do not need the “Tandy” language.
As always, your thoughts and comments are welcome!
Year-End Planning Topic Number 5 – Disclosure Effectiveness
Our year-end conferences have begun with the presentation of our 12th Annual SEC Reporting & FASB Forum for Mid-sized & Smaller Companies in Las Vegas last week and will continue with our 32nd Annual SEC Reporting & FASB Forums in November and December.
Disclosure effectiveness is a theme that is already emerging from CorpFin at these conferences.
As we think about how we communicate with shareholders this is another year-end planning consideration. We have done a number of posts about disclosure effectiveness and how the SEC (and FASB) are working on projects to make disclosure more effective. This project has roots that go back a good way, and both the JOBS Act and the FAST Act have helped it build momentum.
You can find a nice review of the SEC’s Concept Releases and related proposals about disclosure effectiveness here. All this rule making will, of course, require time as the SEC requests comments and revises its proposals based on constituent feedback.
In the meantime, the Staff is sending a clear message to make disclosures more effective right now. At our recent conference, CorpFin reminded everyone that SEC reports are intended to be communication documents as well as compliance documents and suggested actions we can all take in the context of current rules to make communication more effective:
Streamline disclosures,
Eliminate outdated information,
Tailor disclosures, focusing on factors unique to the company,
Don’t use comment letters in a generic sense.
These ideas fit nicely with the Staff’s previously discussed ideas we have been discussing for quite a while:
Reduce repetition,
Focus disclosure,
Eliminate outdated and immaterial information.
All of this dovetails together with a speech by Keith Higgins that started the initiative in 2014. And, with this much mention by the Staff, clearly change is in the wind, and we all have an opportunity to get ahead of the change and make communication better.
Making changes to annual and quarterly report disclosure is never a simple process, as the number of stakeholders and reviewers make change very challenging. And, thinking about how best to meet the information needs of investors is never easy.
However, many companies are already making changes to disclosure. If you want to find examples, check out American Express and GE. Both have been very proactive in this arena.
Now is a good time to consider and search for opportunities to make current disclosure more effective!
As always, your thoughts and comments are welcome!