Category: Accounting and Auditing

A Christmas gift from the SEC staff: guidance on disclosure of the accounting effect of the Tax Cuts and Jobs Act

Yesterday, the staffs of the Office of Chief Accountant and Corp Fin issued guidance regarding disclosure of the accounting impact of the Tax Cuts and Jobs Act, just signed into law on December 22.  As discussed in this PubCo post, companies have been fretting about the timing of the new Act and whether they will be able to accurately determine the impact of the tax changes on their financial statements in time to file their annual and quarterly reports with the SEC.  That is largely because, under U.S. accounting rules, companies must generally reflect the impact of these tax changes in the quarter they are signed into law, even if they go into effect at a future date. The staff has been talking with companies about their concerns and has responded with this guidance, which, Corp Fin Director Bill Hinman observes, “recognizes that investors demand and deserve high-quality information, while also recognizing that entities may face challenges in accounting for one of the most comprehensive changes to the U.S. federal tax code since 1986.”  According to the related SEC Statement, the “staff guidance, which reflects the approach taken in prior situations where legislative changes could significantly affect financial reporting, provides a ‘measurement period’ for issuers to evaluate the impacts of the [Act] on the their financial statements.  Importantly, the guidance also sets forth staff expectations for disclosure to investors during the measurement period.” Merry Christmas finance departments and auditors!

Assessing impact of major tax law change, if enacted, on financial statements on a timely basis would present huge challenge

The potential passage of the new tax bill is giving some finance departments conniptions, according to Bloomberg BNA, and they’re hoping that the SEC will address the problem.  The SEC?  Yes.  While companies are happy to see the tax breaks, some companies, especially large multinational companies, are anxious about whether they will be able to accurately determine the impact of the tax changes on their financial statements in time to file their annual and quarterly reports with the SEC. The obvious concern is that, if the SEC doesn’t extend the filing deadline, companies could risk making material misstatements. 

What’s on the Agenda—the SEC’s Regulatory Flexibility Agenda, that is?

SEC Chair Jay Clayton has repeatedly made a point of his intent to take the Regulatory Flexibility Act Agenda ”seriously,” streamlining it to show what the SEC actually expected to take up in the subsequent period. (See this PubCo post and this PubCo post.)  The agenda has just been released, and it certainly appears that Clayton has been true to his word: several items that had taken up long-term residency on numerous prior agendas seem to be absent from this one.

Boilerplate CAMs in auditor’s reports? That would be a bummer, man

In what were surely unprepared remarks to the American Institute of CPAs conference on SEC and PCAOB developments, as reported by Bloomberg BNA, SEC Chair Jay “the Dude” Clayton commented on the impact he expects the new form of auditor’s report could have on his mood: “‘If it results in quality, I’ll be happy….And if it results in boilerplate, I’ll be really bummed out.’”  

New guidance from Corp Fin related to adoption of new accounting standards

Corp Fin recently revised some of the guidance in its Financial Reporting Manual related to adoption of new accounting standards.  One revision relates to the adoption of a new accounting standard in the context of a significant acquisition, and the second relates to transition period accommodations for EGCs.  This new guidance could take on particular significance in the context of the new revenue recognition standard.

2017 Audit Committee Transparency Barometer from the Center for Audit Quality shows continued increase in enhanced disclosures

Earlier this month, the Center for Audit Quality together with Audit Analytics posted their annual Audit Committee Transparency Barometer, which measured the quality of  proxy disclosures regarding audit committees among companies in the S&P Composite 1500.   The report shows continued voluntary enhancements to transparency and broadly increased disclosure around audit committee oversight of the external auditor.  The report includes several useful examples of the types of disclosure discussed.

Highlights of the 2017 PLI Securities Regulation Institute

Summarized below are some of the highlights of the 2017 PLI Securities Regulation Institute panel discussions with the SEC staff (Michele Anderson, Wesley Bricker, Karen Garnett, William Hinman, Mark Kronforst, Shelley Parratt, Ted Yu), as well as a number of  former staffers and other commentators. Topics included the Congressional and SEC agendas, fresh insights into the shareholder proposal guidance, as well as expectations regarding cybersecurity, conflict minerals, pay ratio disclosure, waivers and many other topics.