November 20, 2017 — CAQ SEC Regulations Committee Releases Highlights of July 11, 2017, Joint Meeting With SEC Staff

Waivers under SEC Regulation S-X, Rule 3-131 — The Committee highlighted recent remarks by Division Chief Accountant Mark Kronforst2 regarding the SEC staff’s authority under SEC Regulation S-X, Rule 3-13, to grant waivers for the omission or substitution of certain financial statements otherwise required by SEC Regulation S-X. Mr. Kronforst’s previous comments3 emphasized the SEC staff’s willingness to consider waiver requests when a company can demonstrate that the information is not necessary to protect investors. Companies considering waiver requests are encouraged to “discuss their facts and circumstances with the staff.”

Process for requesting omission of selected financial data — The SEC staff clarified that it does not have delegated authority to waive SEC Regulation S-K requirements, including the requirement in SEC Regulation S-K, Item 301, to provide selected financial data. Rather than submitting a written waiver request, registrants requesting omission of one or multiple periods of selected financial data required by Item 301 may contact CF-OCA for further instruction.

ASC 6065 — The Committee and SEC staff discussed SAB 74 disclosures6 for the new revenue recognition standard, which had also been discussed at the March 23, 2017, CAQ SEC Regulations Committee meeting. The staff “indicated that SAB 74 disclosures observed in first quarter 2017 Forms 10-Q varied in nature, with some registrants continuing to include only boilerplate language regarding the expected impact of the standard while other registrants provided more comprehensive disclosures.” Registrants are reminded to consider the guidance in SAB Topic 11.M and ASC 250-10-S99-67 in drafting such disclosures.

Non-GAAP financial measures — The Committee and SEC staff discussed comments on non-GAAP financial measures that were recently issued by the staff. Registrants are encouraged to contact CF-OCA with questions about applying the guidance8 to a particular non-GAAP financial measure.

Regulation A submissions — The SEC staff provided an overview of Regulation A submissions and observations about the staff’s review process for such filings.

Evaluating the significance of a business disposal in connection with a proxy statement soliciting authorization for the disposal — The Committee and SEC staff discussed the “significance threshold . . . to be used for evaluating whether proxy statements soliciting authorization for a disposal require financial statements of the business being disposed.” The staff indicated that no “bright-line” threshold exists in this circumstance. Instead, registrants are encouraged to discuss specific facts and circumstances with the staff.

Pro forma financial information presented in a Form 8-K for a significant acquisition made after a previously reported significant acquisition — The Committee and SEC staff discussed Item 9.01(b)(1) of Form 8-K, which states that “for any transaction required to be described in answer to Item 2.01 of this form, furnish any pro forma financial information that would be required pursuant to Article 11 of Regulation S-X” in the context of multiple acquisitions. Specifically, the Committee and SEC staff discussed when a significant acquisition occurs after a previously reported significant acquisitions during the most recent fiscal year or subsequent interim period. The Committee and staff then considered whether the pro forma financial information presented in the Form 8-K for the second acquisition is also required to include the pro forma financial information of the first acquisition.

While pro forma information presented in a registration statement under the Securities Act of 1933 would be required to reflect the impact of multiple significant acquisitions, the SEC staff acknowledged that the appropriate application of Article 11 pro forma financial information required in a Form 8-K in the same situation is “not always clear.” While registrants generally show all significant transactions in the Form 8-K reporting the latest acquisition, registrants are encouraged to ask questions and discuss their specific facts and circumstances with CF-OCA.