Category Archives: Accounting and Auditing

Does it pay to challenge the SEC over non-GAAP financial measures?

by Cydney Posner

As discussed in this article, the WSJ engaged Audit Analytics to perform an analysis of SEC comment letters and company responses regarding the use of non-GAAP financial measures. What did they find?  Companies are winning the argument more often than you might think. Continue reading

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New revenue recognition standard—are companies overlooking the disclosures?

by Cydney Posner

The warnings are everywhere—it’s time to get serious about revenue recognition. The new standard is expected to result in significant changes to measuring, recognizing and reporting of revenue—regarded as the key line item in the financials for most companies. While the impact of the new standard will be certainly be felt on the bottom line for most companies, even when the new rule is not expected to have any material impact on the financials, the related disclosures may well be material, according to Sylvia E. Alicea, Professional Accounting Fellow, Office of the Chief Accountant, in remarks at the Bloomberg BNA Conference on Revenue Recognition.  Moreover, the SEC is expecting to see robust transition disclosures by the third quarter of this year, and the staff is watching closely. Continue reading

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New revenue recognition standard— don’t ignore the impact on compensation

by Cydney Posner

At the recent Bloomberg BNA Conference on Revenue Recognition,  a Deloitte partner observed that, to the extent that, in awarding compensation, companies use metrics that are keyed to revenue, the new revenue recognition standard could affect compensation or bonus plans because the ways of measuring and the timing of recognition of revenue change. He reminded attendees that, “‘when those plans were put into place, whatever they were, they overlap years. You then have the question of, ‘they set up some sort of benchmark and we’re going to pay someone a bonus based on how they do against this metric’— the problem is that metric was designed based on the old rules and you basically changed how you’re going to keep score.’” (See this article in Bloomberg BNA.) Continue reading

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Are “other key operating metrics” the new non-GAAP financial measures?

by Cydney Posner

As reported by BNA, the top accounting staff at the SEC are quite satisfied with companies’ responses to the SEC’s assault on abuses of non-GAAP financial measures. The staff’s concern was that companies’ reporting was often inappropriately painting, through the use of non-GAAP measures, healthier-than-justified pictures of companies’ performance, potentially misleading investors.  In response, the staff mounted a campaign against the non-GAAP practices that the staff viewed as abusive. At a 2017 Baruch College Financial Reporting Conference, Mark Kronforst, chief accountant at Corp Fin,  discussing the SEC’s effort, concluded  that “I have to say, I think it was a success.” Wesley Bricker, SEC chief accountant, concurred. Is the SEC now applying that same strategy to other reporting metrics? Continue reading

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It’s baaaack — the Financial CHOICE Act of 2017

by Cydney Posner

A draft of the Financial CHOICE Act of 2017 (fka version 2.0), a bill to create hope and opportunity for investors, consumers, and entrepreneurs — a masterpiece of acronyming — has just been released (and weighs in at 593 pages).   The bill, sponsored by Jeb Hensarling, Chair of the House Financial Services Committee, was framed as a Republican proposal to reform the financial regulatory system and relieve the affliction of Dodd-Frank. In addition to taking aim at much of Dodd-Frank, among other things, the bill places a heavier burden on regulators and proxy advisory firms generally, eliminates a lot of studies and repeals or eases a number of regulations. A hearing in the House has been scheduled for this week. The bill never made much progress when it was originally introduced last year (as version 1.0), but with Congress and the Presidency now in Republican hands, its chances of survival in some form are immensely greater.  Of course, the Senate Dems could filibuster — assuming, that is, that the legislative filibuster survives that long — the Senate version of the bill, or threaten to do so, which could lead to some negotiation.

While the vast majority of provisions in the draft bill relate to the banking provisions of Dodd-Frank and the Consumer Financial Protection Bureau, some are related to new requirements for agency rulemaking, capital formation, compensation and corporate governance matters, and other matters of interest. Selected provisions are summarized below: Continue reading

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SEC Chief Accountant addresses audit committee effectiveness

by Cydney Posner

In a recent speech at the University of Tennessee, “Advancing the Role and Effectiveness of Audit Committees,” SEC Chief Accountant Wes Bricker discusses his recommendations for — wait for it — improving the effectiveness of audit committees.  The speech addresses issues such as diversity, work overload, tone at the top, staying current, implementing new GAAP standards, internal control over financial reporting, non-GAAP measures, external auditor oversight and enhanced audit committee reporting. Continue reading

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Corp Fin suggests it will take a look at non-GAAP disclosure practices in the pharmaceutical industry

by Cydney Posner

Even important industry players can sometimes run up against brick walls at Corp Fin. In a recent give-and-take with the SEC, Allergan was scolded for its use of certain non-GAAP financial measures in its press releases.  While in its responses to the staff, the company cogently explained its reasoning, the staff did not ultimately agree with company’s view, putting to the test one of the staff’s most recent CDIs regarding performance versus liquidity per-share measures. Moreover, in conversations with the staff, the company apparently conveyed the impression that the practice disfavored by the staff was widely followed in its industry group, leading the staff to caution that it plans to evaluate practices in the pharmaceutical industry. Companies in that industry may want to pay attention. Continue reading

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