Deloitte
Accounting Research Tool
Previous Section Next Section
...
SEC Staff Accounting Bulletin: Codification of Staff Accounting Bulletins

Topic 5: Miscellaneous Accounting

Topic 5: Miscellaneous Accounting

    1. Removed by SAB 103
    2. Removed by SAB 103
  8. Removed by SAB 112
  9. Removed by SAB 70
  10. Removed by SAB 115
  11. Removed by SAB 95
  18. Removed by SAB 103
  21. Removed by SAB 112
  24. Removed by SAB 103

Footnotes

1
Estimating the fair value of the common stock issued, however, is not appropriate when the stock is closely held and/or seldom or ever traded.
7
In ASR 293 (July 2, 1981) see Financial Reporting Codification §205, the Commission expressed its concerns about the inappropriate use of Internal Revenue Service (IRS) LIFO practices for financial statement preparation. Because the IRS amended its regulations concerning the LIFO conformity rule on January 13, 1981, allowing companies to apply LIFO differently for financial reporting purposes than for tax purposes, the Commission strongly encouraged registrants and their independent accountants to examine their financial reporting LIFO practices. In that release, the Commission acknowledged the “task force which has been established by AcSEC to accumulate information about [LIFO] application problems” and noted that “This type of effort, in addition to self-examination [of LIFO practices] by individual registrants, is appropriate . . .”
8
[Original footnote removed by SAB 114.]
9
The term “short-duration” refers to the period of coverage (see FASB ASC paragraph 944-20-15-7 (Financial Services — Insurance Topic)), not the period that the liabilities are expected to be outstanding.
10
Related parties as used herein are as defined in the FASB ASC Master Glossary.
11
See FASB ASC paragraph 225-20-45-2.
12
FASB ASC paragraph 225-20-45-16 further provides that such items should not be reported on the income statement net of income taxes or in any manner that implies that they are similar to extraordinary items.
13
Examples of common components of exit costs and other types of restructuring charges which should be considered for separate disclosure include, but are not limited to, involuntary employee terminations and related costs, changes in valuation of current assets such as inventory writedowns, long term asset disposals, adjustments for warranties and product returns, leasehold termination payments, and other facility exit costs, among others.
14
The staff would expect similar disclosures for employee termination benefits whether those costs have been recognized pursuant to FASB ASC Topic 420, FASB ASC Topic 712, Compensation — Nonretirement Postemployment Benefits, or FASB ASC Topic 715, Compensation — Retirement Benefits.
15
“Nonredeemable” preferred stock, as used in this SAB, refers to preferred stocks which are not redeemable or are redeemable only at the option of the issuer.
16
As described in the “Facts” section of this issue, a registrant would receive less in proceeds for a preferred stock, if the stock were to pay less than its perpetual dividend for some initial period(s), than if it were to pay the perpetual dividend from date of issuance. The staff views the discount on increasing rate preferred stock as equivalent to a prepayment of dividends by the issuer, as though the issuer had concurrently (a) issued the stock with the perpetual dividend being payable from date of issuance, and (b) returned to the investor a portion of the proceeds representing the present value of certain future dividend entitlements which the investor agreed to forgo.
17
See Question 3 regarding variable increasing rate preferred stocks.
18
It should be noted that the $100 per share amount used in this issue is for illustrative purposes, and is not intended to imply that application of this issue will necessarily result in the carrying amount of a nonredeemable preferred stock being accreted to its par value, stated value, voluntary redemption value or involuntary liquidation value.
19
Application of the interest method with respect to redeemable preferred stocks pursuant to Topic 3.C results in accounting consistent with the provisions of this bulletin irrespective of whether the redeemable preferred stocks have constant or increasing stated dividend rates. The interest method, as described in FASB ASC Subtopic 835-30, produces a constant effective periodic rate of cost that is comprised of amortization of discount as well as the stated cost in each period.
20
The staff first publicly expressed its view as to the appropriate accounting at the December 3-4, 1986 meeting of the EITF.
21
Discretionary accounting changes require the filing of a preferability letter by the registrant’s independent accountant pursuant to Item 601 of Regulation S-K and Rule 10-01(b)(6) of Regulation S-X, respectively.
22
ASR 25.
23
Section 210 (ASR 25) indicates the following conditions under which a quasi-reorganization can be effected without the creation of a new corporate entity and without the intervention of formal court proceedings:
1. Earned surplus, as of the date selected, is exhausted;
2. Upon consummation of the quasi-reorganization, no deficit exists in any surplus account;
3. The entire procedure is made known to all persons entitled to vote on matters of general corporate policy and the appropriate consents to the particular transactions are obtained in advance in accordance with the applicable laws and charter provisions;
The procedure accomplishes, with respect to the accounts, substantially what might be accomplished in a reorganization by legal proceedings — namely, the restatement of assets in terms of present considerations as well as appropriate modifications of capital and capital surplus, in order to obviate, so far as possible, the necessity of future reorganization of like nature.
24
In addition, FASB ASC Subtopic 852-20, Reorganizations — Quasi-Reorganizations, outlines procedures that must be followed in connection with and after a quasi-reorganization.
25
FASB ASC Topic 250 provides accounting principles to be followed when adopting accounting changes. In addition, many newly-issued accounting pronouncements provide specific guidance to be followed when adopting the accounting specified in such pronouncements.
26
Certain newly-issued accounting standards do not require adoption until some future date. The staff believes, however, that if the registrant intends or is required to adopt those standards within 12 months following the quasi-reorganization, the registrant should adopt those standards prior to or as an integral part of the quasi-reorganization. Further, registrants should consider early adoption of standards with effective dates more than 12 months subsequent to a quasi-reorganization.
27
Certain accounting changes require restatement of prior financial statements. The staff believes that if a quasi-reorganization had been recorded in a restated period, the effects of the accounting change on quasi-reorganization adjustments should also be restated to properly reflect the quasi-reorganization in the restated financial statements.
28
See footnote 27.
29
Section 210 (ASR 25) discusses the “conditions under which a quasi-reorganization has come to be applied in accounting to the corporate procedures in the course of which a company, without creation of new corporate entity and without intervention of formal court proceedings, is enabled to eliminate a deficit whether resulting from operations or recognition of other losses or both and to establish a new earned surplus account for the accumulation of earnings subsequent to the date selected as the effective date of the quasi-reorganization.” It further indicates that “it is implicit in a procedure of this kind that it is not to be employed recurrently, but only under circumstances which would justify an actual reorganization or formation of a new corporation, particularly if the sole purpose of the quasi-reorganization is the elimination of a deficit in earned surplus resulting from operating losses.” (emphasis added)
30
FASB ASC paragraph 852-740-55-4 states in part: “As indicated in paragraph 852-20-25-5, after a quasi-reorganization, the entity’s accounting shall be substantially similar to that appropriate for a new entity. As such, any subsequently recognized tax benefit of an operating loss or tax credit carryforward that existed at the date of a quasi-reorganization shall not be included in the determination of income of the “new” entity, regardless of whether losses that gave rise to an operating loss carryforward were charged to income before the quasi-reorganization or directly to contributed capital as part of the quasi-reorganization. A new entity would not have tax benefits attributable to operating losses or tax credits that arose before its organization date.”
31
[Original footnote removed by SAB 114.]
32
FASB ASC paragraph 852-740-45-3 states: “[t]he tax benefit of deductible temporary differences and carryforwards as of the date of a quasi reorganization as defined and contemplated in FASB ASC Subtopic 852-20, ordinarily are reported as a direct addition to contributed capital if the tax benefits are recognized in subsequent years.”
33
FASB ASC paragraph 250-10-45-12.
34
The FASB ASC Master Glossary defines principal owners as “owners of record or known beneficial owners of more than 10 percent of the voting interests of the enterprise.”
35
The FASB ASC Master Glossary defines an economic interest in an entity as “any type or form of pecuniary interest or arrangement that an entity could issue or be a party to, including equity securities; financial instruments with characteristics of equity, liabilities or both; long-term debt and other debt-financing arrangements; leases; and contractual arrangements such as management contracts, service contracts, or intellectual property licenses.” Accordingly, a principal stockholder would be considered a holder of an economic interest in an entity.
36
For example, SAB Topic 1.B indicates that the separate financial statements of a subsidiary should reflect any costs of its operations which are incurred by the parent on its behalf. Additionally, the staff notes that AICPA Technical Practice Aids §4160 also indicates that the payment by principal stockholders of a company’s debt should be accounted for as a capital contribution.
37
However, in some circumstances it is necessary to reflect, either in the historical financial statements or a pro forma presentation (depending on the circumstances), related party transactions at amounts other than those indicated by their terms. Two such circumstances are addressed in Staff Accounting Bulletin Topic 1.B.1, Questions 3 and 4. Another example is where the terms of a material contract with a related party are expected to change upon the completion of an offering (i.e., the principal shareholder requires payment for services which had previously been contributed by the shareholder to the company).
38
[Original footnote removed by SAB 114.]
39
The staff recognizes that the determination of whether the financial institution retains a participation in the rewards of ownership will require an analysis of the facts and circumstances of each individual transaction. Generally, the staff believes that, in order to conclude that the financial institution has disposed of the assets in substance, the management fee arrangement should not enable the financial institution to participate to any significant extent in the potential increases in cash flows or value of the assets, and the terms of the arrangement, including provisions for discontinuance of services, must be substantially similar to management arrangements with third parties.
40
The carrying value should be reduced by any allocable allowance for credit losses or other valuation allowances. The staff believes that the loss recognized for the excess of the net carrying value over the fair value should be considered a credit loss and this should not be included by the financial institution as loss on disposition.
41
The staff notes that FASB ASC paragraph 942-810-45-2 (Financial Services — Depository and Lending Topic) provides guidance that the newly created “liquidating bank” should continue to report its assets and liabilities at fair values at the date of the financial statements.
42
FASB ASC paragraph 845-10-30-14 (Nonmonetary Transactions Topic) provides guidance that an enterprise that distributes loans to its owners should report such distribution at fair value.
43
Typically, the financial institution’s claim on the new entity is subordinate to other debt instruments and thus the financial institution will incur any losses beyond those incurred by the permanent equity holders.
44
FASB ASC paragraph 944-40-30-1 prescribes that “[t]he liability for unpaid claims shall be based on the estimated ultimate cost of settling the claims (including the effects of inflation and other societal and economic factors), using past experience adjusted for current trends, and any other factors that would modify past experience.” [Footnote reference omitted]
45
FASB ASC paragraphs 450-20-50-3 through 450-20-50-4 provide guidance that if no accrual is made for a loss contingency because one or both of the conditions in FASB ASC paragraph 450-20-25-2 are not met, or if an exposure to loss exists in excess of the amount accrued pursuant to the provisions of FASB ASC paragraph 450-20-25-2, disclosure of the contingency shall be made when there is at least a reasonable possibility that a loss or an additional loss may have been incurred. The disclosure shall indicate the nature of the contingency and shall give an estimate of the possible loss or range of loss or state that such an estimate cannot be made.” [Footnote reference omitted and emphasis added.]
46
FASB ASC Topic 275 provides that disclosures regarding certain significant estimates should be made when certain criteria are met. The guidance provides that the disclosure shall indicate the nature of the uncertainty and include an indication that it is at least reasonably possible that a change in the estimate will occur in the near term. If the estimate involves a loss contingency covered by FASB ASC Topic 450, the disclosure also should include an estimate of the possible loss or range of loss, or state that such an estimate cannot be made. Disclosure of the factors that cause the estimate to be sensitive to change is encouraged but not required.
FASB ASC Topic 275 requires disclosures regarding current vulnerability due to certain concentrations which may be applicable as well.
47
The loss contingency referred to in this document is the potential for a material understatement of reserves for unpaid claims.
48
As described in Concepts Statement 7, Using Cash Flow Information and Present Value in Accounting Measurements.
49
The staff believes there is a rebuttable presumption that no asset should be recognized for a claim for recovery from a party that is asserting that it is not liable to indemnify the registrant. Registrants that overcome that presumption should disclose the amount of recorded recoveries that are being contested and discuss the reasons for concluding that the amounts are probable of recovery.
50
See Securities Act Release No. 6130, FR 36, Securities Act Release No. 33-8040, Securities Act Release No. 33-8039, and Securities Act Release 33-8176.
51
See, e.g., footnote 30 of FR 36 (footnote 17 of Section 501.02 of the Codification of Financial Reporting Policies).
52
Registrants are reminded that FASB ASC Subtopic 410-20, Asset Retirement and Environmental Obligations — Asset Retirement Obligations, provides guidance for accounting and reporting for costs associated with asset retirement obligations.
53
If the company has a guarantee as defined by FASB ASC Topic 460, Guarantees, the entity is required to provide the disclosures and recognize the fair value of the guarantee in the company’s financial statements even if the “contingent” aspect of the guarantee is deemed to be remote.
54
In some circumstances, the seller’s continuing interest may be so great that divestiture accounting is inappropriate.
55
However, a plan of disposal that contemplates the transfer of assets to a limited-life entity created for the single purpose of liquidating the assets of a component of an entity would not necessitate classification within continuing operations solely because the registrant retains control or significant influence over the liquidating entity.
56
Registrants are reminded that FASB ASC Topic 460, Guarantees, requires recognition and disclosure of certain guarantees which may impose accounting and disclosure requirements in addition to those discussed in this SAB Topic.
57
Item 303 of Regulation S-K.
58
Registrants also should consider the disclosure requirements of FASB ASC Topic 460.
59
See also disclosure requirement for inventory balances in Rule 5-02(6) of Regulation S-X.
60
FASB ASC Subtopic 860-50 permits an entity to subsequently measure recognized servicing assets and servicing liabilities (which are nonfinancial instruments) at fair value through earnings.
 
61See ASC paragraph 740-10-10-1.
62See ASC paragraph 740-10-25-47.
63See ASC paragraph 740-10-35-4.
64In 2004, the FASB issued limited guidance to address the income tax accounting effects of the American Jobs Creation Act of 2004. See FASB Staff Position ("FSP") FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.
65Provisional amounts would include, for example, reasonable estimates that give rise to new current or deferred taxes based on certain provisions within the Act, as well as adjustments to existing current or deferred taxes that existed prior to the Act’s enactment date.
66The staff would also not object to a Foreign Private Issuer reporting under International Financial Reporting Standards applying a measurement period solely for purposes of completing the accounting requirements for the income tax effects of the Act under International Accounting Standard 12, Income Taxes.
67The staff was informed, in part, by the measurement period guidance applied in certain situations when accounting for business combinations under ASC Topic 805, Business Combinations. The measurement period guidance in ASC paragraph 805-10-25-13 addresses situations where the initial accounting for a business combination is incomplete upon issuance of the financial statements that include the reporting period the business combination occurred.
68See ASC paragraph 740-30-25-17.
69
This SAB expresses no view with respect to any other questions that these activities may raise for any of the entities involved, including the applicability of the registration or other provisions of the federal securities laws or any other federal, state, or foreign laws.
70
References throughout this SAB to “Entity A” are inclusive of the entity as well as any agent acting on its behalf in safeguarding the platform users’ crypto-assets.
71
For purposes of this SAB, the term “crypto-asset” refers to a digital asset that is issued and/or transferred using distributed ledger or blockchain technology using cryptographic techniques.
72
The service may be provided by Entity A or by an agent acting on Entity A’s behalf.
73
The guidance in this SAB is applicable regardless of whether the cryptographic key remains in the name of the platform user or is in the name of the Entity.
74
See generally Report of the Attorney General’s Cyber Digital Task Force: Cryptocurrency Enforcement Framework (Oct. 2020), at 15-16, available at https://www.justice.gov/ag/page/file/1326061/download.
75
For U.S. generally accepted accounting principles (“U.S. GAAP”), refer to glossary definition provided in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820. For International Financial Reporting Standards (“IFRS”), refer to glossary definition provided in IFRS 13.
76
The asset recognized is similar in nature to an indemnification asset as described in FASB ASC 805 and IFRS 3. The measurement of the asset is on the same basis as the crypto-asset safeguarding liability assumed by the entity. The asset recognized by the entity is separate and distinct from the crypto-asset itself that has been transferred to and then held for the platform user.
77
Similar to the guidance in FASB ASC 805 and IFRS 3, Entity A would need to evaluate whether any potential loss events, such as theft, impact the measurement of the asset.
78
For U.S. GAAP, see FASB ASC 275-10-50. For IFRS, see IAS 1.
79
For U.S. GAAP, see FASB ASC 820. For IFRS, see IFRS 13.
80
For U.S. GAAP, see FASB ASC 235-10-50. For IFRS, see IAS 1.
81
See, e.g.,Item 101 of Regulation S-K; Item 105 of Regulation S-K; Item 303 of Regulation S-K.
82
For example, a calendar year-end company that submits a registration statement in January 2023 including financial statements as of and for the fiscal year ending December 31, 2021 and as of and for the nine months ended September 30, 2022 would apply the SAB to those periods.
83
For U.S. GAAP, see FASB ASC 250-10-50-1 through 50-3; for IFRS, see IAS 8. See also, e.g., Item 302 of Regulation S-K and PCAOB Auditing Standard 2820 (par. 8).