Background and Deloitte Practice Guide on Disasters

Hurricane Sandy made landfall as a “superstorm” in the northeastern United States last week. In addition to tragic loss of life, Sandy caused widespread damage and destruction of property, disruption of power supplies, and disruption of business activity to varying degrees in regions of the United States and parts of the rest of the world.

The purpose of this alert (and accompanying practice guide) is to highlight some of the financial reporting implications of the natural disaster for affected entities reporting under U.S. GAAP. Such entities may include those with principal operations in the affected area of the United States or those with ancillary operations, interests, or major supplies in the region. In addition, insurance entities may experience significant losses as a result of the natural disaster.

As interim and annual reporting periods approach, we expect that entities will need to address several accounting and disclosure issues related to the natural disaster. Such issues might include:

· Accounting for impairments of assets such as goodwill; property, plant, and equipment; inventory; receivables; loans; or other investments (including evaluating insurance recoveries or third-party guarantees).

· Accounting for losses from environmental damage and clean-up or other legal obligations caused by the natural disasters.

· Accounting for costs related to exit and disposal activities.

· Income statement presentation of losses from the natural disaster (e.g., whether extraordinary-item treatment is appropriate).

· Disclosing the impact (and related uncertainties) of the natural disaster on the operations of the entity and its financial statements.

· Assessing the internal control over financial reporting.

To help entities begin this process, the accompanying practice guide identifies potential issues and, if available, applicable authoritative guidance. The financial reporting implications discussed in this practice guide are not intended to be all-inclusive; rather, they are a starting point for thinking about the issues that might arise.

SEC Guidance

On November 5, 2012, the SEC staff announced that it was preparing measures to help individuals and entities affected by Hurricane Sandy comply with filing deadlines and other federal securities laws and regulations. Such measures are expected to include filing deadline extensions to November 21, 2012, for any filing due between October 29, 2012, and November 20, 2012. While the SEC staff noted that the measures would “extend to any individual or entity¹ with a filing obligation that cannot file timely due to Hurricane Sandy and its aftermath,” it indicated that other requests for additional relief would be considered on a case-by-case basis. Entities are encouraged to consult with their auditors and, if necessary, the SEC staff, if they believe that specific facts and circumstances warrant other relief or additional guidance.²

Questions

Deloitte clients with questions about this alert (or practice guide) should contact their engagement partner. Deloitte engagement teams should direct questions to an appropriate subject-matter resource in Deloitte’s AERS Professional Practice Network.

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1 Such individuals and entities include “publically traded companies, investment companies, investment advisors, other persons with filing obligations, accountants, brokerage firms, and transfer agents, among others.”

2 We do not expect formal guidance from the FASB.