Chapter 2 — Financial Statement Accounting and Disclosure Topics

2.19 SAB Topic 11.M (SAB 74) — Disclosures About the Impact of Recently Issued Accounting Pronouncements

Copying or printing Roadmaps is currently disabled. If you are a DART subscriber, please log in to enable these features. Deloitte clients who are not DART subscribers may request printed copies of Roadmaps from their engagement teams.

2.19 SAB Topic 11.M (SAB 74) — Disclosures About the Impact of Recently Issued Accounting Pronouncements

Examples of SEC Comments

We note the disclosures . . . relating to the impact of CECL and the discussion of the quantitative build to the allowance disclosed by your CFO at the conference . . . but were unable to locate this information in your Form 10-K . . . . Please revise to include this information in future filings . . . , consistent with SAB Topic 11:M.
You state that you expect the impact of adoption of Topic 842 to be material to total assets and liabilities on the consolidated balance sheets. Please quantify the impact of adoption to the extent that you have determined such amounts. If you cannot reasonably estimate the impact of adoption, please revise to provide more specific qualitative disclosures of the potential impact that this standard will have on your financial statements when adopted. Also describe the status of your process to implement the new standard and the significant implementation matters yet to be addressed. Refer to ASC 250-10-S99-6 and SAB Topic 11.M.

SAB Topic 11.M (SAB 74) indicates that a registrant should disclose the effects of recently issued ASUs and SABs that are not yet effective “unless the impact on [the registrant’s] financial position and results of operations is not expected to be material” (footnote omitted). These disclosures, which should take into account the impact of the full scope of the new standards, including recognition, measurement, presentation, and disclosure, are meant to help financial statement users assess the effect that the new standards will have once adopted.

According to SAB Topic 11.M, a registrant should consider including the following disclosures in MD&A and the footnotes to the financial statements:

A brief description of the new standard, the date that adoption is required and the date that the registrant plans to adopt, if earlier.
A discussion of the methods of adoption allowed by the standard and the method expected to be utilized by the registrant, if determined.
A discussion of the impact that adoption of the standard is expected to have on the financial statements of the registrant, unless not known or reasonably estimable. In that case, a statement to that effect may be made.
Disclosure of the potential impact of other significant matters that the registrant believes might result from the adoption of the standard (such as technical violations of debt covenant agreements, planned or intended changes in business practices . . . ).

The SEC staff has reminded registrants about best practices to apply in the periods leading up to the adoption of new accounting standards, such as ASU 2016-13 (the “credit losses standard,” which is codified in ASC 326). The staff’s comments reiterate themes it has addressed over the past several years that have focused on disclosures related to implementation activities.

In September 2016, as reflected in the minutes of the September 22, 2016, EITF meeting, the SEC staff issued an announcement13 (the “2016 Announcement”) regarding SAB Topic 11.M. The 2016 Announcement stated that when a registrant is unable to reasonably estimate the impact of adopting the revenue standard, the leasing standard, or the credit losses standard, the registrant should consider providing additional qualitative disclosures about the significance of the impact on its financial statements. The SEC staff would expect such disclosures to include a description of:

The effect of any accounting policies that the registrant expects to select upon adopting the new standard(s).
How such policies may differ from the registrant’s current accounting policies.
The status of the registrant’s implementation process and the nature of any significant implementation matters that have not yet been addressed.

Since the 2016 Announcement, the SEC staff has continued to emphasize the importance of providing these transition disclosures for new standards, which now also include ASU 2017-04 (the “goodwill impairment standard,” which is codified in ASC 350) and ASU 2018-12 (the “long-duration insurance contracts standard,” which is codified in ASC 944). The staff has also explained that it would expect these disclosures to become more informative to the financial statement users as a registrant’s required adoption dates come closer.

Registrants should continue to focus on providing appropriate disclosures in the periods leading up to their adoption of the new standards.

Other Deloitte Resources

Roadmap, Current Expected Credit Losses

Roadmap, Leases

Footnotes

SEC Staff Announcement, September 22, 2016, “Disclosure of the Impact That Recently Issued Accounting Standards Will Have on the Financial Statements of a Registrant When Such Standards Are Adopted in a Future Period (in Accordance With Staff Accounting Bulletin (SAB) Topic 11.M).”