18.6 The Effects of Accounting Changes by a Successor Entity on the Predecessor-Period Financial Statements

At the March 23, 2017, CAQ SEC Regulations Committee joint meeting with the SEC staff (the “March 2017 CAQ meeting”), the SEC staff discussed the effect on predecessor-period financial statements of accounting changes by a successor, specifically when the successor’s basis of accounting differs from that of its predecessor because of a change in control, pushdown accounting, or fresh-start reporting. For example, this situation would arise if (1) a transaction that occurs on November 15, 2018, causes a change in basis for which a successor/predecessor black-line presentation is required and (2) the successor entity retrospectively adopts a new accounting standard that is effective as of January 1, 2019. This matter is particularly important in light of the significance of the leasing standard and the lack of comparability that would result if the registrant chooses to adopt the standard as of the earliest comparative period presented but does not adjust the predecessor-period financial statements. As noted in the highlights of the March 2017 CAQ meeting, the SEC staff commented on the applicability of paragraph 13210.2 of the FRM to this topic. In the staff’s view, the need to reflect the impact of discontinued operations in predecessor periods “does not apply to any other accounting changes.” Subsequently, at the September 26, 2017, CAQ SEC Regulations Committee joint meeting with the SEC staff, the SEC staff observed that there is no requirement in U.S. GAAP or other regulations to retrospectively adjust predecessor-period financial statements in response to accounting changes by a successor entity.