SEC Reporting Considerations Related to Adoption of the New Revenue Standard
May 6, 2016 — Wesley Bricker, deputy chief accountant in the SEC’s Office of the Chief Accountant, spoke at the 2016 Baruch College Financial Reporting Conference yesterday in New York City. Mr. Bricker commented on transition-period activities related to several of the FASB’s recently issued accounting standards, including the new revenue standard (ASU 2014-091). His remarks addressed two significant reporting and disclosure matters that broadly affect SEC registrants: (1) SAB Topic 11.M2 disclosures and (2) the requirement for revised financial statements in a registration statement.
SAB Topic 11.M Disclosures
Mr. Bricker emphasized the importance of providing investors with disclosures that explain the impact that new accounting standards are expected to have on an entity’s financial statements (“transition disclosures”).3 Such disclosures provide investors with the information necessary to determine the effects of adopting a new standard and how the adoption will affect comparability period over period. Mr. Bricker highlighted the importance of “timely investor education and engagement” and presented examples of both successful and unsuccessful past transitions to new accounting standards. He indicated that transparent disclosure of anticipated impacts of a new standard in multiple reporting periods preceding its adoption has prevented market participants from reacting adversely to significant accounting changes. In a manner consistent with previous SEC staff comments on transition disclosures,4 Mr. Bricker reiterated that “[i]nvestors should expect the level of disclosures to increase as companies make further progress in their implementation plans” in connection with newly issued standards.
Requirement for Revised Financial Statements in a Registration Statement
Registrants planning to use the full retrospective method of adoption have expressed concerns about the requirement to provide revised financial statements after the first quarter in which the new revenue standard is adopted but before filing a Form S-35 registration statement. If a registrant elects the full retrospective method of adoption and subsequently files a registration statement that incorporates by reference interim financial statements reflecting the impact of the adoption of the new revenue standard, it would be required to retrospectively revise its annual financial statements in its Form 10-K. Those financial statements would include one more year of retrospectively revised financial statements than the number of years that would be required if the registrant did not file a registration statement (the “fourth year”).
Footnotes
1
FASB Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers.
2
SEC Staff Accounting Bulletin (SAB) No. 74 (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.”
3
See SAB Topic 11.M.
5
While Mr. Bricker referred to Item 11(b) of Form S-3, other registration statements, such as Form S-4, include similar requirements.