SEC Regulations Committee
March 23, 2017 - Joint Meeting with SEC Staff
NOTICE: The Center for Audit Quality (CAQ) SEC Regulations Committee meets periodically with the staff of the SEC to discuss emerging financial reporting issues relating to SEC rules and regulations. The purpose of the following highlights is to summarize the issues discussed at the meetings. These highlights have not been considered or acted on by senior technical committees of the AICPA and do not represent an official position of the AICPA or the CAQ. As with all other documents issued by the CAQ, these highlights are not authoritative and users are urged to refer directly to applicable authoritative pronouncements for the text of the technical literature.
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These highlights were prepared by a representative of CAQ who attended the meeting and do not purport to be a transcript of the matters discussed. The views attributed to the SEC staff are informal views of one or more of the staff members present, do not constitute an official statement of the views of the Commission or of the staff of the Commission and should not be relied upon as authoritative.
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SEC Regulations Committee
Securities and Exchange Commission
Observers and Guests
Christine Davine, Chair
Steven Jacobs, Vice-Chair
Division of Corporation Finance (Division)
Mark Kronforst, Chief Accountant
Craig Olinger, Deputy Chief Accountant
Nili Shah, Deputy Chief Accountant
Cicely LaMothe, Associate Director
Christy Adams, Associate Chief Accountant
Tricia Armelin, Associate Chief Accountant
Jessica Barberich, Associate Chief Accountant
Patrick Gilmore, Associate Chief Accountant
Todd Hardiman, Associate Chief Accountant
Dana Hartz, Staff Accountant
Jaime John, Associate Chief Accountant
Joel Levine, Associate Chief Accountant
Lindsay McCord, Associate Chief Accountant
Eiko Yaoita Pyles, CF-OCA Rotator
Jarrett Torno, CF-OCA Rotator
Office of the Chief Accountant
Joseph Epstein , Professional Accounting Fellow
Kendra Decker, Grant Thornton
Phillip Posey, Deloitte
Brian Cassidy, CAQ
Annette Schumacher Barr, CAQ Observer
II. PERSONNEL AND COMMITTEE UPDATE
The staff noted that Jaime John and Christine Adams were promoted to Associate Chief Accountants within the Division of Corporation Finance’s Office of Chief Accountant (CF-OCA).
The Committee noted the addition of five new members since the previous meeting:
In Attendance: Lyndon Park, Curt Calaway, Paula Hamric and Jake Vossen
Not in Attendance: Larry Kallio
III. CURRENT FINANCIAL REPORTING MATTERS
A. SAB 74 Disclosures about Newly-Issued Standards
The Committee shared observations on current trends in SAB 74 disclosures1 of newly-issued accounting standards (i.e. Revenue Recognition, Leases and Credit Losses)2 based on filings of 2016 Forms 10-K.
The staff noted they are monitoring SAB 74 disclosures and will comment on those appearing deficient.
[Note: In a speech before the Annual Life Sciences Accounting & Reporting Congress on March 21, 2017, Wes Bricker - Chief Accountant, discussed transition disclosures regarding the impact of the new revenue recognition standard.]
B. Non-GAAP Financial Measures
The Committee and the staff discussed observations on non-GAAP financial measure disclosures. The staff indicated they have observed improvement in compliance with non-GAAP measure guidance, resulting in a decline in the overall level of SEC comments on non-GAAP financial measures. They did not indicate any new areas of focus in their reviews of non-GAAP financial measures.
C. Definition of a Business – Interaction between the new GAAP definition of a business and the S-X Article 11 definition
In January, FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. Per the ASU, if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business. The Committee asked the staff whether changes should be expected regarding how the SEC interprets Article 11 of Regulation S-X in light of the change in US GAAP (e.g., whether the conclusion that an acquisition of a working interest in an oil and gas or real estate property is an asset under GAAP impacts the Article 11 conclusion).
The staff indicated that the issuance of ASU 2017-01 did not affect Article 11 of Regulation S-X.
D. The effects of accounting changes by a successor entity on the predecessor period financial statements
The Committee and staff discussed the effects of accounting changes by a successor entity on the predecessor period financial statements when there is a different basis of accounting (e.g., due to a change in control, push-down accounting, or fresh-start reporting).
Specifically, the Committee asked for the SEC staff’s views on whether the adoption of a new accounting principle by a successor entity using full retrospective transition would be required to be applied to a predecessor entity that has not presented financial statements for the period of adoption (and may not exist as of the effective date) similar to the SEC staff position in FRM 13210.2 as it relates to discontinued operations. The staff stated that the existing guidance in FRM 13210.2 does not apply to any other accounting changes and therefore, has no bearing on the analysis.
The staff is considering this issue.
E. Adoption of ASC 606, Revenue from Contracts with Customers, when an Emerging Growth Company (EGC) that elected private company adoption dates ceases to qualify as an EGC
The Committee and staff discussed the timing of adoption of ASC 606 and transition when an EGC who elected private company adoption dates ceases to qualify as an EGC (which often may be on the last date of the fiscal year) after the effective date for public business entities but prior to the required effective date for the EGC.
The staff is considering this issue.
F. Electronic Submission of Pre-Filing Correspondence
The staff indicated that when submitting interpretive requests, waiver requests and similar pre-filing correspondence, electronic submission (via an email to CF-OCA at email@example.com) is sufficient and submission of paper documents is not necessary.
Staff Accounting Bulletin (SAB) 74 was codified into SAB Topic 11-M Disclosure of the Impact That Recently Issued Accounting Standards Will Have on the Financial Statements of the Registrant When Adopted in a Future Period.