SEC Disclosures Checklist How to Use the SEC Disclosures Checklist

Transcription

Accounting Research Manager ®
SEC Disclosures Checklist
www.accountingresearchmanager.com
How to Use the SEC Disclosures Checklist
Checklist as of September 30, 2006
This SEC Disclosures Checklist is for financial statements included in SEC 1934 and 1933 Act domestic filings, such as
the financial statements in a Form 10-K or S-1. This checklist addresses SEC requirements incremental to U.S. GAAP
and supplements the U.S. GAAP – General Disclosures checklist. The SEC Form 10-Q checklist and the Sarbanes-Oxley
mandated requirements checklist are separate.
This checklist prompts you with questions on SEC disclosure requirements that are incremental to U.S. GAAP. The
checklist is organized by accounting topic and provides background material, references, and LINKS to the referenced
source material in Accounting Research Manager’sTM SEC Practice. The checklist also provides a column for you to note
that the disclosure requirements have been met and to enter a workpaper reference. The completed checklist can be
placed in annual or quarterly workpapers to provide support for your review and compliance procedures.
This checklist is designed for the non-small business, domestic registrant.
-1–
© 2006 CCH INCORPORATED. All Rights Reserved.
A WoltersKluwer Business.
TABLE OF CONTENTS
A
1.
2.
3.
4.
B
C
D
E
F
G
H
I
J
K
L
M
1.
2.
3.
4.
5.
6.
7.
8.
N
O
P
Q
GENERAL DISCLOSURES .................................................................................................................................................................................. 4
Introduction ....................................................................................................................................................................................................... 4
Financial Statements and Reporting Periods ................................................................................................................................................... 4
Change in Reporting Periods............................................................................................................................................................................ 4
Financial Reporting Presentation...................................................................................................................................................................... 5
CASH................................................................................................................................................................................................................... 14
ACCOUNTS AND NOTES RECEIVABLE .......................................................................................................................................................... 14
FINANCIAL INSTRUMENTS............................................................................................................................................................................... 16
INVENTORY........................................................................................................................................................................................................ 20
OTHER INVESTMENTS ..................................................................................................................................................................................... 22
FIXED ASSETS, REPAIRS AND MAINTENANCE, AND DEPRECIATION ....................................................................................................... 26
INTANGIBLE ASSETS AND AMORTIZATION................................................................................................................................................... 28
ACCOUNTS AND NOTES PAYABLE................................................................................................................................................................. 28
DEBT AND GUARANTORS OF DEBT ............................................................................................................................................................... 30
LEASES............................................................................................................................................................................................................... 32
INCOME TAXES ................................................................................................................................................................................................. 33
COMMON STOCK, PREFERRED STOCK, AND MINORITY INTERESTS....................................................................................................... 35
COMMON STOCK AND NONREDEEMABLE PREFERRED STOCK........................................................................................................... 35
MINORITY INTERESTS ................................................................................................................................................................................. 36
MANDATORILY REDEEMABLE PREFERRED STOCK................................................................................................................................ 37
SUBORDINATED DEBT ................................................................................................................................................................................. 39
TERMINATED S CORPORATIONS ............................................................................................................................................................... 39
LIMITED PARTNERSHIPS ............................................................................................................................................................................. 39
DIVIDENDS..................................................................................................................................................................................................... 39
STOCK SUBSCRIPTIONS ............................................................................................................................................................................. 41
REVENUE RECOGNITION................................................................................................................................................................................. 42
STOCK-BASED COMPENSATION .................................................................................................................................................................... 44
PENSION PLANS, OTHER POSTRETIRMENT PLANS, AND ESOPS............................................................................................................. 46
BANKRUPTCY .................................................................................................................................................................................................... 47
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R
S
T
U
V
W
X
Y
Z
AA
BB
CC
DD
1.
2.
3.
4.
5.
EE
FF
1.
2.
3.
4.
5.
6.
7.
8.
9.
BUSINESS COMBINATIONS ............................................................................................................................................................................. 47
QUASI-REORGANIZATIONS ............................................................................................................................................................................. 52
SUBSIDIARY’S OR DIVISION’S SEPARATE FINANCIAL STATEMENTS AND SEGMENTS ......................................................................... 53
RELATED PARTY TRANSACTIONS.................................................................................................................................................................. 56
RESTRUCTURING AND IMPAIRMENT CHARGES .......................................................................................................................................... 57
QUARTERLY FINANCIAL DATA ........................................................................................................................................................................ 60
CONSOLIDATION............................................................................................................................................................................................... 60
COMMITMENTS AND CONTINGENCIES ......................................................................................................................................................... 63
DISCONTINUED OPERATIONS ........................................................................................................................................................................ 66
ACCOUNTING CHANGE................................................................................................................................................................................ 67
NEW ACCOUNTING STANDARDS ............................................................................................................................................................... 69
INTERIM DISCLOSURES............................................................................................................................................................................... 71
FORM 10-K SCHEDULES .............................................................................................................................................................................. 72
SCHEDULE I - CONDENSED FINANCIAL INFORMATION .......................................................................................................................... 75
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ..................................................................................................................... 76
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION ................................................................................................... 76
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE........................................................................................................................... 76
SCHEDULE V - SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS..................... 77
1933 REGISTRATION STATEMENTS........................................................................................................................................................... 78
INDUSTRY DISCLOSURES........................................................................................................................................................................... 85
Bank Holding Companies................................................................................................................................................................................ 85
Regulated Industries ....................................................................................................................................................................................... 87
Oil and Gas Companies .................................................................................................................................................................................. 91
Registered Management Investment Companies........................................................................................................................................... 95
Employee Stock Purchase, Savings and Similar Plans.................................................................................................................................. 95
Real Estate Entities......................................................................................................................................................................................... 96
Casinos/Hotels ................................................................................................................................................................................................ 97
Food Retailers/Dept. Store Chains ................................................................................................................................................................. 98
Insurance Companies ..................................................................................................................................................................................... 99
-3–
Disclosure
Requirements
Met?
General Disclosures
Question
Y
N Disclosure Requirements
For all YES answers, respond to the disclosure requirements and provide a reference.
A GENERAL DISCLOSURES
1. Introduction
This questionnaire applies to the financial statements of publicly held entities (including
entities with publicly traded debt) as well as privately held companies whose financial
statements are being included in an SEC filing (e.g., as a result of a business combination or
an Initial Public Offering [IPO].) Examples of 1933 Act filings are Forms S-1, S-2, S-3 and S4; examples of 1934 Act filings are Forms 10-K and 10-Q.
If the financial statements are being prepared to be included in an SEC filing under Rules 305 (business acquired), 3-09 (equity investee), or in connection with an IPO, you will find this
questionnaire helpful.
1. Will the
company's
financial
statements be
included in or
incorporated by
reference into a
Securities and
Exchange
Commission 1933
or 1934 Act filing?
1. Has the
company changed
its fiscal year?
2. Financial Statements and Reporting Periods
In SEC 1934 Act filings and 1933 Act filings, include audited consolidated balance sheets for
the two most recent fiscal years and audited statements of income, cash flows,
comprehensive income, and changes in shareholders' equity accounts for each of the latest
three years, for the registrant and its predecessors. (See the definition of predecessor at
Regulation C, Rule 405.)
References: Regulation S-X, Rules 3-01, 3-02, and 3-04
3. Change in Reporting Periods
When an entity changes its reporting periods, the following should be presented:
1. If the income statement presents a full year, disclosure of summarized financial
information for the short (transition) period;
2. If the income statement presents a short (transition) period, disclosure of summarized
financial information for the full year ended with the balance sheet date;
3. If the registrant has changed its fiscal year, the financial statements for the current period
must cover a period of at least nine months; and
-4–
Reference
Disclosure
Requirements
Met?
General Disclosures
Question
Y
Reference
4. Comparative statements must cover full twelve month periods for all prior years
presented.
For fiscal year-end change, see FRR No. 35 for financial statements required.
References: FRR No. 35; Regulation S-X, Rule 3-06
Table of
Contents
Link
1. Is the company
a nonbank entity?
For Banking
Entities, go to the
questions for Bank
Holding
Companies
4. Financial Reporting Presentation
4.1
Balance Sheet
The following balance sheet line items should appear on the face or the balance sheet or in
related notes unless:
• The amount which would otherwise be required to be shown is not material. (Refer to
Staff Accounting Bulletin (SAB) Topic 1, “Financial Statements,” (SAB 99) (Topics 1M1
and 1M2) for an understanding of the meaning of material;
• The items and conditions are not present;
• Specialized industry practices require otherwise (see INDUSTRY DISCLOSURES); or
• Other generally accepted terminology is appropriate.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
Cash and cash items
Marketable securities
Accounts and notes receivable
Allowances for doubtful accounts and notes receivable
Unearned income
Inventories
Prepaid expenses
Other current assets
Total current assets
Securities of related parties
Indebtedness of related parties - not current
Other investments
Property, plant and equipment
Accumulated depreciation, depletion, and amortization of property, plant and equipment
Intangible assets
Accumulated depreciation and amortization of intangible assets
-5–
Disclosure
Requirements
Met?
General Disclosures
Question
Y
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
Other assets
Total assets
Accounts and notes payable
Other current liabilities
Total current liabilities
Bonds, mortgages and other long-term debt, including capitalized leases
Indebtedness to related parties - noncurrent
Other liabilities
Commitments and contingent liabilities
Deferred credits
Minority interests in consolidated subsidiaries
Preferred stocks subject to mandatory redemption requirements or whose redemption is
outside the control of the issuer (See Regulations S-X, Rule 5-02-28 for additional
disclosures required.)
Preferred stocks which are not redeemable or are redeemable solely at the option of
the issuer
Common stocks
Other stockholders' equity
Total liabilities and stockholders' equity
References: Regulation S-X, Rules 4-01, 02, and 03 and Rules 5-01 and 5-02
2. Does the
company have
current assets that
are not separately
identified on the
balance sheet
(e.g., 'other
current assets')?
State separately on the balance sheet or in a note, any other current asset amounts in
excess of 5% of total current assets.
For purposes of this requirement, other current assets are defined as current assets other
than cash and cash equivalents, marketable securities, receivables (net of allowances),
deferred credits, unearned income, prepaid expenses, and inventory.
Reference: Regulation S-X, Rule 5-02-8
3. Does the
company have
noncurrent assets
that are not
State separately on the balance sheet or in a note, any other noncurrent asset amounts in
excess of 5% of total assets. Include an explanation of any significant additions or deletions
and the policy for deferral and amortization of any significant deferred charges.
-6–
Reference
Disclosure
Requirements
Met?
General Disclosures
Question
Y
Reference
separately
identified on the
balance sheet
(e.g., 'other
noncurrent
assets')?
For purposes of this requirement, other noncurrent assets are defined as noncurrent assets
other than related party securities and indebtedness, other noncurrent investments (e.g.,
marketable securities), fixed assets (net of accumulated depreciation) and intangible assets
(net of accumulated amortization).
4. Does the
company have an
allowance for loan
losses?
Present the allowance as a reduction of the carrying amount of the related balance sheet
item. The allowance for loan losses should not include amounts provided for losses on
financial instruments that are not classified as loans. Also, the liability for guarantees should
be classified separately from the allowance for loan losses.
Reference: Current Accounting and Disclosure Issues in the Division of Corporation
Finance, 12/1/05, IIO2, Allowance for Loan Losses
5. Does the
company have
current liabilities
that are not
separately
identified on the
balance sheet
(e.g., 'other
current liabilities')?
6. Does the
company have
noncurrent
liabilities that are
not separately
identified on the
balance sheet
(e.g., ‘other
noncurrent
liabilities’)?
State separately in the balance sheet or in a note, any other current liability amounts in
excess of 5% of total current liabilities. (Such items may include accrued payroll, accrued
interest, taxes, current portion of deferred income taxes, and current portion of long-term
debt).
State separately in the balance sheet or in a note any other noncurrent liability amounts in
excess of 5% of total liabilities.
For purposes of this requirement, other noncurrent liabilities are defined as noncurrent
liabilities other than long-term debt, capital lease liabilities, related party indebtedness,
deferred credits, contingent liabilities, and minority interests.
Table of
Contents
-7–
Disclosure
Requirements
Met?
General Disclosures
Question
Y
Reference
Link
1. Is the company
a nonbank entity?
For Banking
Entities, go to the
questions for Bank
Holding
Companies
4.2
Income Statement
The following income statement line items should appear on the face of the income
statement, or in related notes as indicated, unless:
• An amount that would otherwise be required to be shown is not material. (Refer to SAB
99 (Topics 1M1 and 1M2) for an understanding of the meaning of material;
• The items and conditions are not present; or
• Specialized industry practices require otherwise (see INDUSTRY DISCLOSURES):
1. Net sales and gross revenues. State separately:
a. Net sales of tangible products;
b. Operating revenues of public utilities and others;
c. Income from rentals; and
d. Revenues from services.
2. Other revenues. Revenue classes that are not more than 10% of total revenues may be
combined with other classes and related costs treated similarly. Also, parenthetically or
otherwise, amounts of excise taxes included in revenues if in excess of 1% of total
revenues.
3. Costs and expenses applicable to sales and revenues. State separately:
a. Cost of tangible goods sold (merchandisers must include occupancy and
buying costs);
b. Operating expenses of public utilities or others;
c. Expenses applicable to rental income;
d. Cost of services; and
e. Expenses applicable to other revenue.
4. Other operating costs and expenses—stating separately any material amounts not
included under 3 above.
5. Selling, general and administrative expenses.
6. Provision for doubtful accounts and notes.
7. Other general expenses - stating separately any material amounts not normally included
in 6 above.
8. Non-operating income. State separately in the income statement or note thereto:
a. Dividends;
b. Interest on securities;
c. Profits on securities (net of losses); and
d. Miscellaneous other income. Material amounts included under
-8–
Disclosure
Requirements
Met?
General Disclosures
Question
Y
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
miscellaneous other income, separately stated in the income statement or
notes thereto, indicating clearly the nature of the transactions out of which
the items arose.
Interest and amortization of debt discount expense.
Non-operating expenses. State separately in the income statement or note:
a. Losses on securities (net of profits); and
b. Miscellaneous income deductions. Material amounts included under
miscellaneous income deductions, separately stated in the income statement
or notes, indicating clearly the nature of the transactions out of which the
items arose.
Income or loss before income tax expense and appropriate items below.
Income tax expense.
Minority interest in income of consolidated subsidiaries.
Equity in earnings of unconsolidated subsidiaries and 50% or less owned persons (and
the amount of dividends received from such persons.)
Income or loss from continuing operations.
Discontinued operations.
Income or loss before extraordinary items and cumulative effects of changes in
accounting principles.
Extraordinary items, less applicable tax.
Cumulative effects of changes in accounting principles.
Net income or loss.
Income or loss applicable to common stock must be reported on the face of the income
statement if materially different (normally 10% or more) from net income or loss (SAB
Topic 6B).
Earnings per share data.
References: Regulation S-X, Rules 4-01, 02, and 03, Rules 5-01 and 5-03, and SAB Topic
6B
2. Has the
company received
subsidies or
grants during the
year?
Subsidies must be presented as a separate line item within the income statement.
Reference: SAB Topic 11A
-9–
Reference
Disclosure
Requirements
Met?
General Disclosures
Question
Y
1. What method
does the company
use to present
cash flows from
operating
activities?
2. Does the
company have
cash receipts from
the sale of goods
or services?
4.3
Cash Flow Statement
SEC staff prefers the direct method of presenting cash flows from operating activities.
Reference: SEC Speech, Nicolaisen 2003
The SEC staff reminded registrants that FASB Statement No. 95, Statement of Cash Flows,
provides that cash receipts from sales of goods or services are operating cash flows. The
staff indicated that this classification is required regardless of whether those cash flows result
from the collection of the receivable from the customer or the sale of the receivable to others.
References: SEC Staff Sample Comment Letter to Registrants on Statement of Cash Flow;
Current Accounting and Disclosure Issues in the Division of Corporation Finance, 12/1/05,
IIC1, Statement of Cash Flows - Classification of Cash Receipts from Inventory Sales
3. Has the
company
reorganized in
bankruptcy and
entered into an
agreement with
the Pension
Benefit Guaranty
Corporation
(PBGC)?
The PBGC is a federally created corporation that guarantees payment to plan participants of
certain pension benefits under defined benefit plans should the plan sponsor be unable to
fulfill its obligation. The agreements with PBGC typically require that payments be made by
the registrant at, and/or subsequent to, emergence from bankruptcy for the defined benefit
plans that were assumed by the PBGC. The cash outflows to the PBGC should be classified
as an operating activity as the agreement with the PBGC does not change the substance of
the activity for which cash is being paid. The cash outflow to the PBGC should not be
classified as a financing activity. Also, these cash outflows should continue to be classified
as an operating activity, even if the company is required to apply “fresh start reporting” upon
emergence from bankruptcy.
Reference: Current Accounting and Disclosure Issues in the Division of Corporation Finance,
12/1/05, IIC2, Statement of Cash Flows - Classification of Payments Related to Settlement of
Pension Liabilities
4. Does the
company have
cash flows from
discontinued
operations?
FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
is silent on the presentation of discontinued operations in the cash flow statement. However,
Statement 95 makes it clear that although separate disclosure of cash flows related to
discontinued operations is not required, separate disclosure is permitted so long as those
separate cash flows are presented in conformity with the basic requirements of Statement 95
- 10 –
Reference
Disclosure
Requirements
Met?
General Disclosures
Question
Y
and are presented consistently for all periods.
If a company chooses to separately present cash flows from discontinued operations, the
staff observed that the presentation should discretely report the operating, investing and
financing cash flows from those discontinued operations by category. Both of the following
presentations would be appropriate under Statement 95:
• Separately identifying cash flows from discontinued operations within each category of
the cash flow statement – operating, investing and financing; or
• Separately identifying operating, investing and financing cash flows from discontinued
operations within a separate section of the cash flow statement.
It would not be appropriate to aggregate all cash flows from discontinued operations within a
single line item, either as a separate category or within an existing category, such as
operating cash flows.
The SEC staff also believes that if a company is reporting cash flows using the indirect
method under Statement 95, the reconciliation should begin with “net income” not “income
from continuing operations.”
Reference: Division of Corporation Finance presentation at the 2005 AICPA National
Conference on Current SEC and PCAOB Developments, Slides 22-25; AICPA CPCAF Alert
98, SEC Staff Position Regarding Changes to the Statement of Cash Flows Relating to
Discontinued Operations
5. Does the
company have
cash flows from
financing inventory
purchases from a
subsidiary of the
supplier (referred
to as floor plan
financing) or from
an unaffiliated
financing source?
In some industries, it is common for a company to finance its inventory purchases under
arrangements referred to as “floor plan financing.” Often, the floor plan financing is provided
by the finance subsidiary of the supplier (e.g., the finance arm of an automobile
manufacturer.) Typically the finance subsidiary obtains a lien against the company’s
inventory, remits cash to the manufacturer (its parent or sister entity) for the company’s
purchase of the inventory, and receives cash from the company (generally when the
company sells the merchandise to its customers).
Financing from a Subsidiary of the Supplier
The SEC staff observed that floor plan arrangements with suppliers are operating activities,
consistent with the guidance in paragraph 23 of Statement 95. The company would report
- 11 –
Reference
Disclosure
Requirements
Met?
General Disclosures
Question
Y
the initial financing as an increase to inventory and trade loans within operating activities;
correspondingly, repayment of trade loans is an operating cash outflow.
Financing from an Unaffiliated Third Party
Floor plan financing can also be arranged through a lender that is not related to the supplier.
Even though the arrangement is substantively the same as an arrangement with the
supplier’s finance subsidiary, the use of a third party lender alters the classification of the
arrangement within the cash flow statement. The statement of cash flows would report the
purchase of inventory as an operating cash outflow, the loan as a financing cash inflow, and
the repayment of the loan as a financing cash outflow.
Conference on Current SEC and PCAOB Developments, Slides 27-29
6. Does the
company have
cash flows from
insurance
proceeds?
The SEC staff observed that a company should report cash flows from insurance proceeds
based on the nature of the insurance coverage, not based on the intended use of proceeds.
•
If the insurance proceeds are for business interruption, then the company should
report the cash flow under operating activities.
•
If the insurance proceeds are for property damage or loss, the cash flow depends on
the nature of the property. For example, insurance proceeds for owned property or
property covered by a capital lease would be reported as investing cash inflow. In
contrast, proceeds related to property covered by an operating lease or inventory
would be reported as operating cash inflow.
Conference on Current SEC and PCAOB Developments, Slides 31 -32
7. Does the
company have
cash flows from
loans held for sale
transactions?
The SEC staff observed that the classification of cash flows arising from loans and trade
receivables depends on whether the loan or receivable:
• Resulted from the sale of the company’s goods or services or from other activities; or
• Was acquired for resale or for investment.
Operating cash flows result from the:
• Sale of short and long-term notes receivable from customers arising from sales of goods
- 12 –
Reference
Disclosure
Requirements
Met?
General Disclosures
Question
Y
•
or services; and
Acquisition and sale of loans that are acquired specifically for resale, are classified as
held for sale (either initially or upon later transfer to that category) and are carried at the
lower of cost or market.
Investing cash flows, on the other hand, arise when:
• Manufacturing companies acquire loans with the intention of holding them for the
foreseeable future. These are not loan or trade receivables resulting from the sale of
inventory to company customers; and
• Finance companies acquire loans with the intention of holding them for the foreseeable
future.
8. Does the
company have
cash flows from
loans held for sale
transactions?
The SEC staff discussed the cash flow statement presentation for retained interests in
securitizations.
When there is an exchange of loans or trade receivables for a retained interest, no cash
inflows or outflows should be reported.
In contrast, when a company acquires loans or receivables for sale (classified as “available
for sale securities”) for cash, receives cash when it securitizes those acquired loans, and
then receives principal payments on retained interests:
• The acquisition of the loans or trade receivables is an operating cash outflow;
• The cash proceeds from the securitization of the acquired loans or trade receivables are
operating cash inflows; and
• The cash flows from principal payments on retained interests received as a result of this
securitization are operating cash flows only if the retained interest is accounted for like a
trading security. Otherwise (i.e., if the retained interest is accounted for like available for
sale or held to maturity securities), the principal payments would be classified as
investing cash inflows.
- 13 –
Reference
Disclosure
Requirements
Met?
General Disclosures
Question
Y
Reference
Table of
Contents
Link
1. Does the company
have restrictions on its
cash?
B CASH
Restricted Foreign Currency
Cash in one country may not be freely transferable to another country because of exchange
control regulations or other reasons. If the restricted funds held in another country are
significant, they should be segregated or disclosed in a caption or note. If the restricted funds
cannot be (or are not intended to be) used for general business purposes in the country where
they are located, such funds should be classified as noncurrent assets in a classified balance
sheet.
Other Restricted Funds
Significant amounts of funds that are legally restricted in other ways also should be segregated
or disclosed in a caption or note. Funds held in escrow, proceeds from loans restricted for
specified purposes and reserve funds required under bond indentures are examples of such
funds. If such funds are to be used to acquire noncurrent assets or to liquidate long-term
liabilities, they should be classified as long term in a classified balance sheet. However, if funds
are restricted for the payment of interest, current maturities of debt or other current liabilities,
they should be classified as current.
Disclose the amount of cash and cash items restricted as to withdrawal or usage separately
presented on the balance sheet (time deposits generally are not deemed restricted), the
provisions of such restrictions, compensating balance amounts, and arrangements.
References: Regulations S-X, Rule 5-02-1; SAB Topic 6H; FRR 203
2. Does the company
have cash deposits in
connection with
repurchase agreements?
Disclose cash deposits in connection with repurchase agreements as restricted cash.
Reference: Regulation S-X, Rule 4-08(m)
Table of
Contents
Link
1. Does the company
C ACCOUNTS AND NOTES RECEIVABLE
State separately on the face of the balance sheet, amounts receivable from:
- 14 –
Disclosure
Requirements
Met?
General Disclosures
Question
Y
have accounts and notes
receivable?
1. Customers;
2. Related parties;
3. Underwriters, promoters and employees; and
4. Others.
If total notes receivable exceed 10% of total receivables, state the above amounts for accounts
receivable and notes receivable separately either on the face of the balance sheet or in the
notes.
References: Regulation S-X, Rule 5-02-3(a) and (b)
2. Does the company
have loans or other
receivables covered by
buyback provisions?
In a circumstance where the seller regains control of assets previously accounted for as sold
under FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, the original balance sheet classification of the assets should be
maintained when control over that asset is re-recognized by the transferor.
12/1/05, IIP1, Loans and Other Receivables - Accounting for Loans or Other Receivables
Covered by Buyback Provisions
3. Does the company
have receivables from
officer, directors, parents
or affiliates?
4. Does the company
have receivables due
under long-term
contracts?
Certain receivables from officers, directors, the parent or affiliates must be shown as a
deduction from stockholders’ equity. See SAB Topics 4E and 4G for details.
References: SAB Topic 4E and Topic 4G
State separately in the balance sheet or in a note to the financial statements the following
amounts:
1. Balances billed but not paid by customers under retainage provisions in contracts.
2. Amounts representing the recognized sales value of performance and such amounts that
had not been billed and were not billable to customers at the date of the balance sheet.
Include a general description of the prerequisites for billing.
3. Billed or unbilled amounts representing claims or other similar items subject to uncertainty
concerning their determination or ultimate realization. Include a description of the nature
and status of the principal items comprising such amount.
4. With respect to (1) through (3) above, also state the amounts included in each item which
are expected to be collected after one year. Also state, by year, if practicable, when the
amounts of retainage (see (1) above) are expected to be collected.
- 15 –
Reference
Disclosure
Requirements
Met?
General Disclosures
Question
Y
Reference
References: Regulation S-X, Rule 5-02-3(c); Rule 5-02-6(d); FRR 206
5. Does the company
have allowances for
doubtful accounts and
notes receivable?
State separately the amount of allowance for doubtful accounts and notes receivable.
Describe clearly and comprehensively the accounting policy for determining the amount of the
allowance, including a description of the systematic analysis and procedural discipline applied.
12/1/05, IIO1, Allowance for Loan Losses - Disclosure
Table of
Contents
Link
1. Does the company
have derivative financial
instruments and or
derivative commodity
instruments?
D FINANCIAL INSTRUMENTS
Describe the accounting policies used for these derivatives and the methods of applying these
policies that materially affect the determination of financial position, cash flows, or results of
operations including:
1. Accounting methods and types of instruments accounted for under each method;
2. Criteria required to be met for each accounting method used;
3. Accounting method used if the criteria specified above are not met;
4. Accounting for terminations of hedging derivative instruments;
5. Accounting for sale, extinguishment, or termination of hedged items, along with
accounting for derivatives designated to an anticipated transaction when that
transaction is no longer likely to occur; and
6. Where and when derivative instruments and their related gains and losses are reported
in the financial statements.
The accounting policy disclosure should distinguish between derivatives used in trading and
non-trading activities.
Reference: Regulation S-X, Rule 4-08(n)
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2. Does the company
have derivatives that
represent an economic
hedge but do not qualify
for hedge accounting
under FASB Statement
No. 133?
The SEC staff encourages registrants to disclose the following:
1. Policy of how and where hedge effectiveness and ineffectiveness are recorded;
2. The income statement caption that includes changes in the fair value of nonqualifying
hedges;
3. The amount of changes in fair value of non-qualifying hedges; and
4. The balance sheet classification of derivatives.
The SEC staff observed that consistency of classification should be maintained from period-toperiod. Also, the staff observed that if a company classifies changes in fair value of economic
hedges (unrealized gains and losses) in a single line item such as “risk management activities,”
the company should not reclassify realized gains and losses (the periodic or final cash
settlements from these economic hedges) in the period realized out of risk management
activities and into revenue or expense lines associated with the related exposure.
References: SEC Speech, Faucette, 2003 and Current Accounting and Disclosure Issues in the
Division of Corporation Finance, 12/1/05, IIM2, Issues Associated with FASB Statement No.
133, Accounting for Derivative Instruments and Hedging Activities - Financial Statement
Presentation and Disclosure
3. Does the company
have residential loan
commitments arising
from the origination of
mortgage loans (interest
rate lock commitments)?
The SEC staff indicates that at the date of origination, loan commitments accounted for as
derivatives under FASB Statement 133 do not give rise to recognizable assets related to
servicing rights or to selling the servicing rights. The SEC staff believes that the “asset”
generated by a loan commitment is essentially an internally developed customer or servicing
relationship intangible asset and thus it may not be recorded. The SEC staff requires that
mortgage lenders make the following disclosures regarding loan commitments accounted for as
derivative instruments:
• Accounting policy for loan commitments pursuant to APB Opinion No. 22, Disclosure of
Accounting Policies; and
• Hedging strategies associated with loan commitments as required by Statement 133.
References: SAB Topic 5DD
4. Does the company
have repurchase and/or
reverse repurchase
securities transactions?
If the repurchase or reverse purchase assets exceed 10% of total assets, disclose the following:
Repurchase agreements
1. The aggregate amount of liabilities incurred as a result of the repurchase agreement,
including accrued interest payable;
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2. The carrying amount, market value of the assets sold under the repurchase agreement, and
the repurchase liability, in a table segregated as to type of security or asset sold, by the
following maturitiesa. Overnight;
b. Term up to 30 days;
c. Term of 30 to 90 days;
d. Term over 90 days; and
e. Demand.
3. If the amount at risk under repurchase agreements exceeds 10% of stockholders’ equity,
disclose –
a. The name of each counterparty;
b. The amount at risk with each; and
c. The weighted average maturity of the repurchase agreements with each.
Reverse repurchase agreements:
1. Disclose the amount of the reverse repurchase agreements separately in the balance sheet;
2. The policy for taking possession of securities or other assets purchased under agreement to
resell;
3. Whether or not there are any provisions to ensure that the market value of the underlying
assets remains sufficient to protect the company in case of default, and the nature of these
provisions;
4. If the amount at risk under repurchase agreements exceeds 10% of stockholder’s equity,
disclose –
a. The name of each counterparty;
b. The amount at risk with each; and
c. The weighted average maturity of the repurchase agreements with each.
Reference: Regulation S-X, Rule 4-08(m)
5. Does the company
have retained interests
related to a sale or
securitization of financial
assets?
Disclose fair values and the significant assumptions used to estimate fair value, at the balance
sheet date for new and retained interests that are financial. The SEC staff requires this
information and the disclosure of the company’s assumptions regarding defaults, prepayments,
and discount rates.
References: EITF Topic D-69
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6. Did the company sell
financial assets that are
not securitizations?
The company should disclose significant assumptions used to estimate the fair value of those
instruments. These include assumptions on:
• Defaults;
• Prepayments; and
• Discount rates.
Reference: EITF Topic D-69
7. Has the company
purchased structurednote securities?
The accounting for structured-note securities that were issued in combination with other
structured-note securities as a unit or a pair is addressed by EITF Issue No. 98-15, “Structured
Notes Acquired for a Specified Investment Strategy.” In that issue, the EITF observed that the
following indicators should be considered for purposes of identifying whether two securities
should be viewed as being purchased for a specified investment strategy and thus included
within the scope of this Issue. All of these indicators are not required to exist in order for the
securities to be accounted for as a unit. Judgment is required in reaching a determination.
1. The two securities are related in that their fair values will move in opposite directions based
on changes in interest rates on a specified date, or after a specified period after issuance.
The fair value changes may be caused by a change in the couple interest rate of the two
securities or by altering the maturities of the securities.
2. The two securities are issued contemporaneously and in contemplation of one another or
are issued separately but the terms for their remaining lives are described in (a).
3. The two securities are issued by the same counterparty and/or the same issuer (or issued
by different issuers but structured through an intermediary).
4. The two securities were purchased by the investor for the sole purpose of achieving a
desired accounting result, and the transactions considered individually would serve no valid
business purpose or would not be entered into otherwise.
SEC registrants who have purchased structured notes on or prior to September 24, 1998 that
have not been accounted for as a unit (that is, in accordance with Issue 98-15) or as trading
securities, and that have not restated their financial statements to conform the accounting to
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Reference
that described in Issue 98-15 should disclose the following. In all financial statements issued
after September 24, 1998, the registrant should disclose the impact on earnings for all periods
presented and cumulatively over the life of the instruments had the registrant accounted for the
instruments as a unit.
Reference: EITF 98-15
8. Does the company
have financial
instruments that include
features indexed to the
company’s own stock?
The SEC staff encouraged companies to identify and disclose all embedded derivative features
of financial instruments that include features indexed to the company’s own stock. The staff also
observed that companies should explicitly state why or why not the embedded derivatives are
accounted for at fair value.
Conference on Current SEC and PCAOB Developments, Slide 121; Current Accounting and
Disclosure Issues in the Division of Corporation Finance, 12/1/05, IIB, Classification and
Measurement of Warrants and Embedded Conversion Features
9. Does the company
have loans receivable
held for sale?
The staff recommended that the company consider the need for clarifying disclosure that:
• Identifies the amount of loans/receivables held-for-sale;
• Explains how it determines which loans/receivables are initially accounted for as held
for sale or are later transferred to the held for sale classification;
• Describes the method it uses to determine the lower of cost or fair value for
loans/receivables held-for-sale; and
• Reconciles the changes in loans/receivables held for sales balances to the amounts
presented in the consolidated statement of cash flows.
Conference on Current SEC and PCAOB Developments, Slide 38; Current Accounting and
Disclosure Issues in the Division of Corporation Finance, 12/1/05, IIP4, Loans and Other
Receivables - Loans Held for Sale
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E
INVENTORY
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1. Does the company
have inventory?
State separately the amounts of the major classes of inventories, such as, finished goods, costs
related to long-term contracts, work in process, raw materials and supplies.
Reference: Regulation S-X, Rule 5-02-6(a)
State the basis of determining the amounts of major classes of inventories. Describe the nature
of cost elements included in inventory and the method by which amounts are removed from
inventory. If any general and administrative costs are included in inventory, state in a note the
aggregate amount incurred in each period and the actual or estimated amount remaining in
inventory at the date of each balance sheet (see Rule).
Reference: Regulation S-X, Rule 5-02-6(b)
2. Does the company
value inventory on a
LIFO basis?
If the method of calculating a LIFO inventory does not allow for the practical determination of
amounts assigned to major classes of inventory, the amounts of those classes may be stated
under cost flow assumptions other than LIFO. Show the excess of the total amount over the
aggregate LIFO amount as a deduction to arrive at the amount of the LIFO inventory.
References: Regulation S-X, Rule 5-02-6(a)
Disclose the amount and basis for determining the excess of replacement or current cost over
stated LIFO value, if material
References: Regulation S-X, Rule 5-02-6(c); and FRR 205.02(c)
Disclose material income from LIFO liquidation, including the effect on income of the liquidation
of LIFO layers and the amount of any provision for temporary liquidation.
Reference: SAB Topic 11F
3. Does the company
have long-term contracts
or programs that give rise
to material amounts of
inventories?
For all long-term contracts or programs, the following information, if applicable, should be
disclosed in a note to the financial statements:
1. The aggregate amount of manufacturing or production costs and any related deferred costs
(e.g., initial tooling costs) that exceeds the aggregate estimated cost of all in-process and
delivered units on the basis of the estimated average cost of all units expected to be
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Reference
produced under long-term contracts and programs not yet complete. Also, disclose the
portion of such amount, which would not be absorbed in cost of sales based on existing firm
orders at the latest balance sheet date.
2. If practicable, disclose the amount of deferred costs by type of cost (e.g., initial tooling,
deferred production, etc.).
3. The aggregate amount representing claims or other similar items subject to uncertainty
concerning their determination or ultimate realization, and include a description of the
nature and status of the principal items comprising such aggregate amount.
4. The amount of progress payments netted against inventory at the date of the balance sheet.
Reference: Regulation S-X, Rule 5-02-6(d)
4. Does the inventory
serve as collateral under a
borrowing arrangement?
Inventory may serve as collateral under a borrowing arrangement. For example, many revolving
lines of credit and asset-based financing agreements provide the lender with a lien against
inventory. Identify the type and dollar amount of inventory serving as collateral and the
obligation collateralized.
Reference: Regulation S-X, Rule 4-08(b)
5. Does the company
have inventory
markdowns associated
with a decision to exit or
restructure an activity?
The SEC staff believes, as documented in EITF Issue No. 96-9, “Classification of Inventory
Markdowns and Other Costs Associated with a Restructuring,” that inventory markdowns
resulting from a decision to exit an activity or restructuring should be classified in the income
statement as a component of cost of goods sold.
Table of
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Link
1. Does the company
have investments in
current and noncurrent
securities?
2. Does the company
F
OTHER INVESTMENTS
Disclose the basis of the carrying value of current and noncurrent security investments, other
than investments in marketable equity securities, together with alternative of total cost or market
value at the balance sheet date.
References: Regulation S-X, Rule 5-02-2 and 5-02-12
For individual securities classified as either available for sale or held to maturity and for
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have "other than
temporary" declines in
the value of its
investments?
nonmarketable equity securities, the company should determine whether a decline in fair value
below cost basis is other than temporary. Staff Accounting Bulletin Topic 5M, “Miscellaneous
Accounting — Other Than Temporary Impairment of Certain Investments in Debt and Equity
Securities,” (SAB 59) defines other than temporary differently from “permanently impaired.” If
the decline is other than temporary, the investment must be written down to fair value and a loss
recognized in the income statement. The SEC staff noted that the following factors are
examples of indicators that a decline in value is other than temporary:
• The extent and length of time over which the market value has been less than cost,
for which the informal guideline is six to nine months;
• The financial condition and near-term prospects of the issuer, including events that
may impair the earnings potential of the investment; and
• The ability and intent of the holder to keep the investment for a period sufficient to
allow for an anticipated recovery in market value.
The staff expects that companies will employ a systematic methodology that includes the
documentation of factors considered.
For all investments in an unrealized loss position for which other-than-temporary impairments
have not been recognized, the registrant should make the following disclosures in its annual
financial statements. The investments should be aggregated by category of investment in
tabular form and segregated by those investments that have been in a continuous unrealized
loss position for less than 12 months and those that have been in a continuous unrealized loss
position for 12 months or longer:
1. The aggregate amount of unrealized losses;
2. The aggregate related fair value of investments with unrealized losses; and
3. In narrative form as of the date of the most recent statement of financial position, sufficient
information to allow financial statement users to understand the quantitative disclosures and
the information that the registrant considered in reaching the conclusion that the
impairments are not other than temporary, including:
a. The nature of the investment;
b. The causes of the impairment;
c. The number of investment positions that are in unrealized loss position;
d. The severity and duration of the impairment; and
e. Other evidence considered by the registrant in reaching its conclusion that the
investment is not other-than-temporarily impaired.
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For cost method investments, the registrant should disclose the following additional information,
if applicable, as of each date for which a statement of financial position is presented in its
annual financial statements:
1. The aggregate carrying amount of all cost method investments;
2. The aggregate carrying amount of cost method investments that the investor did not
evaluate for impairment; and
3. The fact that the fair value of a cost method investment is not estimated if there are no
identified events or changes in circumstances that may have a significant adverse effect on
the fair value of the investment and
a. The registrant determined, in accordance with paragraphs 14 and 15 of FASB
Statement No. 107, Disclosures about Fair Value of Financial Statements, that
it is not practicable to estimate the fair value of the investment; or
b. The investor is exempt from estimating fair value under FASB Statement No.
126, Exemption from Certain Required Disclosures about Financial Instruments
for Certain Nonpublic Entities.
References: SAB Topic 5M; FSP No. FAS 115-1 and FAS 124-1; and SEC Speech, James
2004
4. Does the company
have auction rate
securities?
Auction rate securities are considered highly liquid by market participants because of the
auction process. However, because the auction rate securities have long-term maturity dates
and there is no guarantee the holder will be able to liquidate its holdings, these securities do not
meet the definition of cash equivalents in FASB Statement No. 95, Statement of Cash Flows,
paragraphs 8 and 9. Companies should refer to Statement 95 for the proper classification of
these securities in the Statement of Cash Flows. To determine if these securities are long or
short term, companies should refer to Accounting Research Bulletin (ARB) No. 43, Chapter 3A,
Working Capital – Current Assets and Current Liabilities.
12/1/05, IIH3, Investments - Auction Rate Securities
5. Does the company
have investments in
unconsolidated
subsidiaries or other
associated entities
Disclose the amount (on face of income statement) of equity in earnings of unconsolidated
subsidiaries and 50%-or-less owned persons. The amount of dividend received from such
entities must also be disclosed.
References: Regulation S-X, Rule 5-03-13
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accounted for under the
equity method?
Disclose the amount of consolidated retained earnings of the registrant represented by
undistributed earnings of 50%-or-less owned persons accounted for by the equity method, as of
the date of the most recent audited balance sheet being filed. (See SAB Topic 6K3) for further
guidance.)
References: Regulation S-X, Rule 4-08(e)(2); SAB Topic 6K3
6. Does the company
have a significant
unconsolidated
subsidiary or 50%-orless owned entities?
The SEC has two sets of requirements for financial information of unconsolidated subsidiaries
and equity investees. These requirements are contained in Rule 4-08(g) of Regulation S-X and
Rule 3-09 of Regulation S-X. Rule 4-08(g) addresses situations in which summarized financial
information of an individual investee or group of investees must be presented. Both of these
SEC rules look to Rule 1-02(w) of Regulation S-X to determine the materiality of the investee.
The materiality threshold for Rule 4-08(g) is 10% whereas the materiality threshold for Rule 3-09
is 20%. Rule 3-09 specifies situations in which full financial statements of an individual investee
must be presented.
Provide summarized financial information for unconsolidated subsidiaries and 50%-or-less
owned entities accounted for by the equity method. The disclosure should be made if the
entities are significant under any of the Regulation S-X, Rule 1-02(w) tests (investment, asset,
and income tests). The disclosures should be made in a note to the financial statements and
can be presented on a combined basis, but unconsolidated subsidiaries should not be
combined with 50%-or-less owned entities. Information to be disclosed includes:
• Current and noncurrent assets;
• Current and noncurrent liabilities;
• Redeemable stock and minority interest, if applicable;
• Net sales or gross revenue;
• Gross profit;
• Income or loss from continuing operations before extraordinary items and cumulative effect
of an accounting change; and
• Net income or loss.
References: Regulation S-X, Rule 4-08(g) and Rule 1-02(w)
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Reference
File financial statements for:
• Unconsolidated subsidiaries if:
o Any of Rule 1-02(w) tests (investment, assets, Income) are met at the 20%
level.
• 50%-or-less owned entities if:
o Either the first or third 1-02(w) tests (investment or income) are met at the 20
percent level;
o Either the registrant or a subsidiary of the registrant can account for the entity
by the equity method.
The financial statements should be as of the same dates and for the same periods as the
company’s audited financial statements required by Regulation S-X, Rules 3-01 and 3-02 if
practicable.
• The financial statements are required to be audited for those fiscal years in which the first
or third 1-02(w) tests are met at the 20% level.
References: Regulation S-X, Rule 3-09 and SAB Topic 6K4b
7. Does the company
have intercompany
transactions with its
entities accounted for by
the equity method?
Disclose:
• The amounts of any material unrealized profits and losses on transactions with entities
accounted for under the equity method not eliminated;
• The reasons for not eliminating these items; and
• The method of treatment of these items.
Reference: Regulation S-X, Rule 3A-04
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1. Does the company
have property, plant, and
equipment (PP&E)?
G FIXED ASSETS, REPAIRS AND MAINTENANCE, AND DEPRECIATION
Disclose the PP&E balances, methods and periods of depreciation. If PP&E is significant, the
company should disclose balances and depreciation methods and periods for each major class
of depreciable assets.
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Reference: Regulation S-X, Rule 5-02-13; Accounting Disclosure Rules and Practices, AIIJ,
Property, Plant, and Equipment
2. Does the company
have pre-production
design and development
costs related to long-term
supply arrangements?
Disclose the accounting policy for pre-production design and development costs as well as the
aggregate amount of:
• Assets recognized pursuant to agreements that provide for contractual reimbursement of
pre-production design and development costs;
• Assets recognized for molds, dies, and other tools that the supplier owns; and
• Assets recognized for molds, dies, and other tools that the supplier does not own.
3. Does the company
have specific assets that
are pledged or subject to
lien?
Identify the assets mortgaged, pledged, or otherwise subject to lien, and the approximate dollar
amounts. Also identify the obligations collateralized. This information must be provided for only
the most recent audited balance sheet presented, unless there has been a significant
subsequent change.
Ordinarily, in meeting this rule, the balance-sheet description of the obligation (e.g., "mortgage
notes payable") will satisfy the rule for property and equipment pledged. However, in some
situations it may be necessary to identify specifically the property or equipment and its carrying
amount.
4. Does the company
have planned major
maintenance activities?
The accounting policy for repair and maintenance costs incurred in connection with planned
major maintenance activities as well as the types of costs subject to the policy. Also, any
liabilities accrued for costs expected to be incurred in connection with planned major
maintenance activities should be included in Schedule II, pursuant to SEC regulation S-X, Rule
12-09, Valuation and Qualifying Accounts. [Editor’s note: The FASB issued FASB Staff Position
(FSP) AUG AIR-1, “Accounting for Planned Major Maintenance Activities,” in September 2006.
As a result, the SEC staff announced at the September 7, 2006 EITF meeting, that it is
removing the guidance in EITF Topic D-88. The guidance in FSP AUG AIR-1 prohibits the
“accrue-in-advance” method that was previously acceptable. The FSP is required to be adopted
in the first fiscal year beginning after December 15, 2006 with early adoption permitted as of the
beginning of an entity’s fiscal year. Retrospective application is required unless impracticable.
Registrants should consider the guidance in Staff Accounting Bulletin (SAB) Topic
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Reference
11M,”Miscellaneous Disclosure — Disclosure of the Impact That Recently Issued Accounting
Standards Will Have on the Financial Statements of the Registrant When Adopted in a Future
Period” (SAB 74).
]
Reference: EITF Topic D-88 FSP AUG AIR-1
5. Is depreciation
excluded from cost of
goods sold (or operating
expenses, when cost of
goods sold is not
applicable)?
Disclose if depreciation is not included in cost of goods sold or if cost of goods sold is not
applicable, then operating expenses.
Reference: SAB Topic 11B
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1. Did the company
acquire, or does the
company have, intangible
assets?
H INTANGIBLE ASSETS AND AMORTIZATION
State separately:
1. The amount of intangible assets in excess of 5% of total assets;
2. The basis for determining such amount;
3. An explanation of any significant additions or deletions; and
4. The amount of accumulated depreciation and amortization of intangible assets.
References: Regulation S-X, Rule 5-02-15 and 16
1. Does the company
have accounts and/or
notes payable?
I
ACCOUNTS AND NOTES PAYABLE
State separately amounts payable to:
1. Banks for borrowings;
2. Factors or other financial institutions for borrowings;
3. Holders of commercial paper;
4. Trade creditors;
5. Related parties (see Rule 4-08 (k));
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6. Underwriters, promoters, and employees (other than related parties); and
7. Others.
Amounts applicable to 1, 2 and 3 may be stated separately in the balance sheet or in a note.
References: Regulation S-X, Rule 5-02-19 and Rule 4-08(k)
2. Has the company
converted trade accounts
payable to borrowings
from a lender to take
advantage of the trade
discount?
The liability to the lender is not considered a "trade payable" and should not be classified as
trade payables in the balance sheet. A liability to the lender should be recognized. The SEC
staff believes that a trade creditor is a supplier that has provided a company with goods and
services in advance or payment. Regulation S-X, Article 5, requires separate and clear display
of amounts payable for borrowings and amounts payable to trade creditors.
Additionally, the difference between the carrying amount of the borrowing and the repayment
amount should be accreted through interest expense using the effective interest method.
3. Does the company
have short-term
borrowings?
References: Regulation S-X, Rule 5-02-19 ; SEC Speeches, Comerford, 2003 and 2004
Disclose:
• The weighted average interest rate on short-term borrowings outstanding as of the date of
each balance sheet presented in a footnote.
• The average dollar amount of the borrowings and the average interest for interest and
amortization of debt discount and expense, in the body of the statements or in the
footnotes.
4. Does the company
have any unused lines of
credit or other unused
commitments under
short-term financing
arrangements?
Disclose:
• If significant, the amount and terms (including commitment fees and the conditions under
which lines may be withdrawn) of unused lines of credit for short-term financing, in the
notes to the financial statements.
• The amount of these lines of credit that support a commercial paper borrowing
arrangement or similar arrangements.
Reference: Regulation S-X, Rule 5-02-19; FRR 203
5. Does the company
have significant long-term
Under the conditions specified in SAB Topic 6H2, the borrowing can be classified as long-term
with appropriate disclosure.
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Reference
construction programs
financed through
revolving loans that
extend until the
completion of the
project?
6. Does the company
have material amounts
relating to payables?
Reference: SAB Topic 6H
For commercial and industrial companies, present separately on the face of the balance sheet
or in the notes any current liability in excess of 5% of total current liabilities. For noncurrent
liabilities, present separately any item in excess of 5% of total liabilities.
Table of
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1. Does the company
have long-term debt,
including bonds,
mortgages, capitalized
leases, and other longterm debt?
J
DEBT AND GUARANTORS OF DEBT
For each issue, disclose:
1. The general character of each type of debt including the rate of interest;
2. The date of maturity, or, if maturing serially, a brief indication of serial maturities, such as
'maturing serially from 2007 to 2011’;
3. If the payment of principal or interest is contingent, an indication of the contingency;
4. Amounts and terms of unused commitments;
5. A brief indication of priority; and
6. If convertible, the basis.
Reference: Regulation S-X Rule 5-02-22
2. Does the company
have unused
commitments for longterm financing
arrangements?
If significant, disclose the amount and terms (including commitment fees and the conditions
under which commitments may be withdrawn) of unused commitments for long-term financing
arrangements.
3. Does the company
have financing
arrangements with a
For a subsidiary's or division's separate financial statements, disclose financing arrangements
with parent. If an interest charge on intercompany debt has not been provided, an analysis of
the intercompany accounts and the average balance due to or from related parties, for each
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parent company?
period that an income statement is required.
Reference: SAB Topic 1B1, question 4
4. Is the company’s
debt guaranteed or does
the company guarantee
the debt of another
registrant?
5. Does the company
have obligations that are
collateralized?
Refer to the questions 9 and 10 in this section.
Designate the assets mortgaged, pledged, or otherwise subject to lien, and the approximate
amounts. Briefly identify the obligations collateralized.
6. Do the company’s
affiliates’ securities
collateralize the
company’s debt?
7. Is the company in
default of any debt terms
or covenants?
Provide the financial information required by Rule 3-16.
Reference: Regulation S-X, Rule 3-16
Disclose:
• Facts and amounts concerning any default which existed at the date of the most recent
balance sheet filed and not subsequently cured.
• Amount of the obligation and the period of waiver, when any default or breach exists for
which acceleration of the obligation has been waived for a stated period beyond the
date of the most recent balance sheet being filed.
Reference: Regulation S-X, Rule 4-08(c)
8. Has the company
had changes in the
authorized or issued debt
after the balance sheet
date and before the
report date?
9. Does the company
guarantee, as defined in
Rule 3-10, the securities
Disclose changes in authorized or issued debt since the balance sheet date.
Reference: Regulation S-X, Rule 4-08(f)
The registrant should include in its filing the financial statements of the guarantor, as required
by Rule 3-10. The guarantor company need only provide information for disclosure or
incorporation into condensed consolidating financial information in the registrant’s financial
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Reference
of another entity that is a
registrant?
statements if certain Rule 3-10 conditions are met. These conditions depend on the guarantor
being a parent or "sister" subsidiary of the registrant. For specifics on the requirements and the
conditions, see Rule 3-10.
10. Does the company
have securities that are
guaranteed, as defined in
Rule 3-10, by another
entity?
The company should include in its filing the financial statements of the guarantor, as required by
Rule 3-10. The guarantor company need only provide information for disclosure or incorporation
into condensed consolidating financial information in the registrant’s financial statements if
certain Rule 3-10 conditions are met. These conditions depend on the guarantor being a parent
or "sister" subsidiary of the registrant. For specifics on the requirements and the conditions, see
Rule 3-10.
Table of
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Link
1. Does the company
have lease
commitments?
K LEASES
Disclose the following:
• Material lease agreements or arrangements for both operating and capital leases;
•
The essential provisions of material leases, including the original term, renewal periods,
reasonably assured rent escalations, rent holidays, contingent rent, rent concessions,
leasehold improvement incentives, and unusual provisions or conditions.
•
The accounting policies for leases, including the treatment of each of the above
components of lease agreements.
•
The basis on which contingent rental payments are determined with specificity, not
generality.
•
The amortization period of material leasehold improvements made either at the inception
of the lease or during the lease term, and how the amortization period relates to the initial
lease term.
Reference: SEC Letter, February 2005; Current Accounting and Disclosure Issues in the
Division of Corporation Finance, 12/1/05, IIE2, Leasing - Disclosure
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Reference
Table of
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L
1. Does the company
have income tax expense
or benefits?
INCOME TAXES
Regulation S-X, Rule 4-08(h) requires the following disclosures for income tax expense:
•
The components of income (loss) before tax expense (benefit) as either domestic or
foreign; and
• The amounts applicable to U.S. federal income taxes, to foreign income taxes, and to
other income taxes stated separately for each major component of income tax expense
(i.e., current and deferred).
See the illustration in FRR Section 204.
References: Regulation S-X, Rule 4-08(h)(1); FRR 204
FASB Statement No. 109, Accounting for Income Taxes, requires the following disclosures:
• All "significant" reconciling items (in dollars or percentages) between reported income
tax expense and the amount that would have resulted from applying domestic federal
statutory tax rates to pretax income.
- Regulation S-X, Rule 4-08(h), defines "significant" as requiring disclosure of all
reconciling items that are more than 5% of the amount computed by multiplying
pretax income by the statutory tax rate.
The Statement 109 reconciliation is based on income from continuing operations.
When income tax expense is allocated to more than one caption (e.g., continuing
operations, discontinued operations, extraordinary items, cumulative effects of an
accounting change), the components of income tax expense included in each
caption may be disclosed in an overall presentation.
- See SAB Topic 6I7 for an example of an acceptable presentation.
• The nature and effect of any significant matters affecting comparability between periods,
if not otherwise evident.
• The approximate tax effect of each type of temporary difference and carryforward that
gives rise to a "significant" portion of deferred tax liabilities and deferred tax assets.
Regulation S-X does not define significant for these purposes, but a reasonable
threshold for significance here is 5% of the greater of gross deferred tax assets
before valuation allowance or gross deferred tax liabilities.
[Editor’s Note: The FASB issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty
in Income Taxes, in July 2006. The guidance in FIN 48 prescribes a recognition threshold and
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measurement attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure
and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Early
application of the requirements of FIN 48 is encouraged if the enterprise has not yet issued
financial statements, including interim financial statements, in the period of adoption,
Registrants should consider the guidance in Staff Accounting Bulletin (SAB) Topic
11M,”Miscellaneous Disclosure — Disclosure of the Impact That Recently Issued Accounting
Standards Will Have on the Financial Statements of the Registrant When Adopted in a Future
Period” (SAB 74).]
Reference: SAB Topic 6I7; Statement 109 paragraphs 43 and 47; and SEC Speech, Nicolaisen,
2004 FIN 48
2. Does the company
have contingent income
tax liabilities?
Contingent tax liabilities should be recorded for the difference between the financial statement
benefit of tax deductions “as filed” on the income tax return and the tax benefit recognized
under the company’s accounting policy. The SEC staff commented that the accounting and
disclosure requirements of FASB Statement No. 5, Accounting for Contingencies, apply to both
recorded and unrecorded income tax contingencies. Under Statement 5, contingent tax
liabilities that are both probable and reasonably estimable should be accrued. Accrual for
probable losses when the estimated amount of loss is within a range of amounts is required by
Statement 5 and FASB Interpretation (FIN) No. 14, Reasonable Estimation of the Amount of a
Loss, and Interpretation of FASB Statement No. 5. Companies should accrue the amount within
the range that appears to be a better estimate than any other. If no such amount can be
identified, then the company should accrue the minimum amount in the range. The contingent
income tax liabilities should not be classified as deferred income tax liabilities nor included in
any deferred tax asset valuation allowance. Also, such contingent tax liabilities that are
reasonably possible should be disclosed.
References: SEC Speeches, Green, 2003; Taub, 2004; Poulin, 2004; and Current Accounting
and Disclosure Issues in the Division of Corporation Finance, 12/01/05, II-I, Contingencies and
Loss Reserves
3. Does the company
have a tax holiday in a
foreign jurisdiction?
Provide the effect of the tax holiday.
Reference: SAB Topic 11C
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Reference
4. Is the company a
member of a
consolidated taxreporting group?
A consolidated tax group represents a group of related entities (generally a parent and
subsidiaries) that file a single consolidated tax return.
If the historical financial statements do not reflect the tax position on a separate return basis,
provide a pro forma income statement for the most recent year and interim period reflecting a
tax provision calculated on a separate return basis.
References SAB Topic 1B1
Table of
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1. Does the company
have common stock or
nonredeemable preferred
stock?
M COMMON STOCK, PREFERRED STOCK, AND MINORITY INTERESTS
1. COMMON STOCK AND NONREDEEMABLE PREFERRED STOCK
Disclose:
• By class: par or stated value per share, number of shares authorized, issued and
outstanding, and the related dollar amount. In lieu of indicating the number of shares
outstanding, the number of treasury shares held may be disclosed. This should be
disclosed on the balance sheet.
• If the stock is convertible, indicate this on the face of the balance sheet.
• In a note or statement, show the changes in each class of common and nonredeemable
preferred stock for each period for which an income statement is required to be filed.
• The dollar amount of subscriptions receivable; this amount should be deducted from the
common stock balance.
References: Regulation S-X, Rule 5-02-29 and 30
2. Did the company
have material changes in
the components of
equity?
Disclose, in a separate statement or note, all individually material changes in the components of
equity (dollar amounts and number of securities)
3. Does the company
have outstanding
securities with rights and
Describe pertinent rights and privileges of the various outstanding securities such as:
Reference: Regulation S-X Rule 3-04
1. Dividend and liquidation preferences;
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privileges?
2.
3.
4.
5.
6.
Participation rights;
Call prices and dates;
Conversion or exercise prices or rates;
Sinking fund requirements; and
Unusual voting rights.
Reference: Regulation S-X, Rule 4-08(d)
4. Does the company
have preferences on
involuntary liquidation for
preferred stock?
Disclose total preferences on involuntary liquidation for preferred stock as of the date of the
most recent audited balance sheet being filed. If they:
•
•
Differ from par or stated value, disclose the preference parenthetically in the equity
section of the balance sheet; or
Exceed the par or stated values of such shares, disclose any related restrictions
on retained earnings.
Reference: Regulation S-X, Rule 4-08(d)
5. Does the company
have warrants or rights
outstanding?
Disclose:
•
•
•
Title and aggregate amount of securities called for by warrants or rights
outstanding;
Period during which warrants or rights are exercisable; and
Exercise price.
Reference: Regulation S-X, Rule 4-08(i)
6. Does the company
have minority interests?
2. MINORITY INTERESTS
Disclose minority interests separately outside of shareholders’ equity.
Disclose separately in a note:
• The minority interest represented by the preferred stock of subsidiaries; and
• The applicable dividend requirements if the preferred stock is material in relation to
the consolidated shareholders’ equity.
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Disclosure
Requirements
Met?
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7. Does the company
have mandatorily
redeemable preferred
stock or any class of
stock for which
redemption is outside of
the control of the issuer?
3. MANDATORILY REDEEMABLE PREFERRED STOCK
Under Regulation S-X, Rule 5-02-28, preferred stock must be classified outside shareholders’
equity when the stock is:
• Redeemable at a fixed or determinable price on a fixed or determinable date;
• Redeemable at the option of the holder; or
• Redeemable based on conditions outside the control of the issuer.
Disclose:
• The title of each issue of preferred stock, the carrying amount, and the redemption
amount on the face of the balance sheet;
• The dollar amount of shares subscribed but unissued, and the deduction of the related
receivable;
• If the carrying amount is different from the redemption amount, the accounting
treatment for that difference must be disclosed;
• The number of shares authorized and issued or outstanding; and
• The changes in each class during the period for which income statements are required.
The footnotes should disclose the following information:
• The terms of the shares (e.g., redemption features, rights in event of default, and rights
precedent to junior securities); and
• Redemption requirements in each of the next five years.
NOTE: Mandatorily redeemable stock is subject to FASB Statement No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and Equity. The FASB
delayed the effective date for certain mandatorily redeemable noncontrolling interests
(commonly known as minority interests) in consolidated financial statements. The delay applies
only to instruments issued by consolidated subsidiaries. The effective date is delayed differently
for two types of mandatorily redeemable noncontrolling interests:
1. For shares that must be redeemed upon the liquidation or termination of a limited life
issuing entity (for example, minority interests in a consolidated partnership with a limited
life), FASB Staff Position (FSP) 150-3, “Effective Date, Disclosures, and Transition for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150,
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Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity,” defers indefinitely the classification and measurement guidance in Statement 150.
2. Separately, FSP FAS 150-3 broadens the deferral of the measurement provisions by
expanding it to include other types of mandatorily redeemable noncontrolling interests,
provided the instruments were created before November 3, 2003. An example would be
trust preferred securities issued by a consolidated trust. Entities affected by this expanded
deferral must classify the instruments as debt and classify the returns to investors as
interest where required by Statement 150 and make the disclosures required under FAS
150. However, they will measure the debt and interest in accordance with EITF Topic D-98.
While the measurement and (or) classification guidance in Statement 150 is deferred as noted,
the disclosure requirements are retained.
The effective date of Statement 150 remains unchanged for mandatorily redeemable shares
issued by the parent company, written put options on a company’s shares, forward purchase
contracts for a company’s shares, and contracts that require the issuance of shares in amounts
unrelated to, or inversely related to, the value of the shares.
The FASB has proposed in its exposure draft, Consolidated Financial Statements, Including
Accounting and Reporting of Noncontrolling Interests in Subsidiaries, that minority interests
(termed noncontrolling interest in the exposure draft) be considered equity. Users of this
questionnaire should also consider the status of that FASB exposure draft.
References: Regulation S-X, Rule 5-02-28; SAB Topic 3C; FRR 211
8. Does the company
have mandatorily
redeemable preferred
stock that is redeemable
at a future determinable
date and its redemption
amount is variable?
Disclose:
• Accounting policy for recognition of changes in the redemption value;
• Where changes in redemption value are being accreted, disclose the redemption value
as if it were redeemable on the balance sheet date; and
• If redemption is uncertain, disclose why redemption is uncertain.
See NOTE in 7, above.
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9. Does the company
have subordinated debt?
4. SUBORDINATED DEBT
Subordinated debt may not be presented within stockholders’ equity. Also, a caption may not
be presented that combines only subordinated debt and stockholders’ equity.
10. Is the company an S
Corporation that has
terminated its S
Corporation election?
11. Is the company a
limited partnership?
5. TERMINATED S CORPORATIONS
Retained earnings must be classified as paid-in capital when S Corporation election is
terminated.
6. LIMITED PARTNERSHIPS
In the equity section disclose:
• General partners’ equity separate from limited partners’ equity;
• Changes in the number of equity units authorized and outstanding for each ownership
class;
• A statement of changes in partnership equity for each ownership class for each period for
which an income statement is included.
• Net income clearly allocated between general and limited partners; and
• Results of operations on a per unit basis.
7. DIVIDENDS
have restrictions that limit
the payment of
dividends?
Describe the most significant restrictions on the payment of dividends indicating their sources,
their pertinent provisions, and the amount of retained earnings or net income restricted or free of
restrictions.
Reference: Regulation S-X, Rule 4-08(e)
Compute the company’s proportionate share of the net assets of its consolidated and
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have subsidiaries and/or
investees with restrictions
that limit the payment of
dividends and/or the
transfer of funds to the
company, referred to here
as the parent company?
unconsolidated subsidiary companies as of the end of the most recent fiscal year which are
restricted as to transfer to it as the parent company because third party consent from an entity
such as a lender is required.
•
•
If the company's proportionate share of the restricted net assets of consolidated subsidiaries
exceeds 25% of its consolidated net assets, provide
o
Footnote disclosure in the consolidated financial statements about the nature
and amount of significant restrictions on the ability of the subsidiaries to transfer
funds to the parents through loans, advances, or dividends; and
o
Condensed parent company financial and other information in a Schedule 12-04
If the amount of such restrictions is less than 25%, but the sum of these restrictions plus the
amount of the company's proportionate share of restricted net assets of unconsolidated
subsidiaries plus the company's equity in the undistributed earnings of 50% or less owned
persons (investees) accounted for by the equity method exceed 25% of consolidated net
assets, footnote disclosure is required.
References: Regulation S-X, Rule 4-08(e), SAB Topic 6K2, and SAB Topic 6K3
have an interest in a 50
percent or less owned
entity accounted for by the
equity method?
Disclose the amount of consolidated retained earnings that represents undistributed earnings of
50 percent or less owned persons accounted for by the equity method. The SEC staff has
indicated that these undistributed earnings should represent the difference between the
cumulative equity in earnings reflected in consolidated retained earnings and the cumulative
dividends received from those persons by the consolidated group; it is not appropriate to take
into account dividends paid by the parent company to its shareholders.
Reference: Regulation S-X, Rule 4-08(e)
15. Did the company
declare dividends during
the year?
State the amount of dividends per share and in the aggregate for each class of shares
outstanding.
16. Did the company
declare a stock dividend
Retroactively reflect stock splits that occur after year-end, but before the financial statements
are issued. Disclose in a note the retroactive treatment, explain the change made, and state the
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or stock split subsequent
to year-end but prior to
financial statement
issuance?
17. Did a subsidiary or
division (with separate
financial statements
included in a registration
statement, proxy
statement or Form 8-K)
declare dividends after
year-end or declare
dividends in excess of
earnings?
18. Is the income or loss
applicable to common
stock materially different
from reported net income
or loss?
date the change became effective.
Reference: SAB Topic 4C
Such dividends either be given retroactive effect in the balance sheet with appropriate footnote
disclosure, or reflected in a pro forma balance sheet. A similar presentation is appropriate when
dividends exceed earnings in the current year and the entity will receive proceeds from an
offering.
Reference: SAB Topic 1B3
Disclose income or loss applicable to common stock. The amount to be reported for each period
should be computed as net income or loss less:
• Dividends on preferred stock, including undeclared or unpaid dividends if
cumulative; and
• Periodic increases in the carrying amounts of instruments reported as redeemable
preferred stock or increasing rate preferred stock
have subscribed shares
that cannot be legally
issued until paid for?
have stock subscription
receivables treated as
assets because payment
has been received prior
to the publication of the
financial statements?
8. STOCK SUBSCRIPTIONS
Disclose the dollar amount of subscribed shares that cannot be legally issued until paid for, and
the subscription receivable deducted from equity, if not separately shown in the equity section.
Disclose the payment date.
Reference: SAB Topic 4E
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Reference
have unamortized
discount on shares?
Discount on shares, or any unamortized balance thereof, should be shown separately as a
deduction from the applicable account(s) as circumstances require.
Table of
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N
1. Does the company
generate revenue?
REVENUE RECOGNITION
Disclose the following in the notes to the financial statements:
•
The revenue recognition policy associated with each material type of transaction.
Examples of different types of sales transactions include: sales of products; sales of
services; license arrangements; barter transactions; sales under bill-and-hold terms;
multiple element transactions (e.g. combined sale of product and service or sale of
multiple services).
•
For multiple element transactions, the policy related to the individual components of the
transactions. In addition, disclose the method used to determine the individual
components and the method used to value them.
•
For sales subject to a right of return, material changes in estimated returns. SAB No.
101 illustrates this requirement by indicating that a change in estimate from two percent
of sales to one percent of sales would be disclosed, if the change were material. Note
that certain disclosures may also be required under Statement of Position (SOP) 94-6,
Risks and Uncertainties. SOP 94-6 requires a company to disclose the nature of the
uncertainty and an indication that it is at least reasonably possible that a change in the
estimate will occur in the near term when known information available prior to issuance
of the financial statements indicates that two criteria are met:
- It is at least reasonably possible that the estimate of the effect on the financial
statements of a condition, situation, or set of circumstances that existed at the
date of the financial statements will change in the near term due to one or more
future confirming events, and
- The effect of the change would be material to the financial statement. Refer to
SOP 94-6, paragraph 12.
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•
Revenue from the sales of products, services and other products separately on the face
of the income statement, consistent with the requirements of Regulation S-X, Rule 5-03.
When revenue is presented separately, the SEC staff believes that the related costs of
sales for each type of revenue also should be presented separately on the face of the
income statement.
•
When the company recognizes income for refundable fees net of estimated returns over
the service period, for each income statement presented:
-
Account balances for unearned revenues and refund obligations;
A roll forward of the unearned revenue and refund obligation balances from the
beginning to the end of each income statement presented. See Question 2 for
additional information.
2. Have the company’s
significant contractual
provisions or business
changed?
Consider whether revenue recognition policies are still appropriate and update accounting and
policy disclosures accordingly.
3. Does the company
have refundable fees for
services?
Disclose the accounting policy for refundable fees for services. If the fees are accounted for by
analogy to FAS Statement No. 48, the company should disclose its estimates of cancellation.
For each income statement presented, the company should disclose:
• The amounts of unearned revenue and refund obligations as of the beginning of each
period;
• The amount of cash received from customers;
• The amount of revenue recognized in earnings;
• The amount of refunds paid;
• Other adjustments; and
• The ending balance of unearned revenue and refund obligations.
Reference: SEC Speech, Lopez 2004
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Reference
Reference: SAB Topic 13A4
4. Does the company’s
revenue include
performance-based
incentive fees? These
fees are common in the
investment advisory and
real estate management
businesses.
Disclose the accounting policy used with regard to these arrangement. The company should
disclose whether:
• It has recorded any revenue that is at risk due to future performance contingencies;
• The nature of the contracts giving rise to the contingencies, and;
• If material, the amount of any such revenue recorded.
5. Has the company
received subsidies or
grants during the year?
Subsidies must be presented as a separate line item within the income statement.
Table of
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Link
1. Has the company
accelerated the vesting
terms of its out-of-themoney stock options, or
made any other
significant changes, prior
to adopting FASB
Statement No. 123R,
Share-Based Payment?
O STOCK-BASED COMPENSATION
FASB Statement No. 123, paragraph 47 indicates that for each year an income statement is
provided, companies should disclose the terms of significant modifications of outstanding stock
option awards. Subject to this guidance, the SEC staff believes that companies should disclose
any modifications to accelerate the vesting of out-of-the-money options in anticipation of
adopting the new accounting standard. The staff also believes that registrants should disclose
the reasons that the option terms were modified. The staff does not believe that disclosure
along the lines of, “…during fiscal 2004 certain of the company’s stock options were modified to
accelerate vesting…” would be sufficient. [Editor’s note: On September 19, 2006, Conrad
Hewitt, Chief Accountant of the SEC, published the views of the SEC staff in the form of letter
relating to the accounting required by companies that followed APB Opinion No. 25, Accounting
for Stock Issued to Employees, prior to the effective date of FASB Statement No.123 (Revised
2004), Share-Based Payment. In this letter, the SEC staff addresses the accounting
consequences under Opinion 25 of dating an option award to predate the actual award date,
option grants with administrative delays, uncertainty as to the validity of prior grants, and other
related circumstances. This letter notes that several companies have recently issued press
releases announcing the restatement (or are considering a restatement) of their financial
statements due to errors in their accounting for grants of stock options to employees, members
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of the board of directors, and other service providers.]
References: SEC Speeches, Kokenge 2004, Benedict 2005 SEC letter dated 9/19/2006
2. Does the company
grant employee sharebased compensation
awards with terms that
accelerate vesting upon
retirement?
If the company has been recognizing compensation expense for these awards over the stated
vesting period (rather than the period until retirement eligibility), the SEC staff believes that the
company should make the following disclosures (both before and after the adoption of
Statement No. 123 (Revised 2004): Share-Based Payment):
• Accounting policy followed under APB 25 (if applicable) and Statement 123 for the
recognition of compensation cost for awards that accelerate vesting upon retirement;
• The accounting policy change that will occur/occurred as a result of adopting Statement
123R; and
• The quantitative affect of applying Statement 123R cost recognition requirements
compared to the “old” cost recognition vesting approach, for each income-statement
period presented.
The SEC staff indicated that it would object if a company changed its method of expensing
compensation for share-based awards with terms that accelerate vesting upon retirement
before adoption of Statement 123R. If a company would like to change the method of expensing
these awards prior to adoption of Statement 123R, consultation with the SEC staff is
recommended.
References: Discussion with SEC Staff May 2005; SEC Speech, Benedict 2005
3. Does the company
grant employee stock
options?
The SEC issued a release that allows certain companies that are not small business issuers
additional time to implement the requirements of Statement 123R. As a result of the SEC
release, calendar year registrants that are not small business issuers can continue to follow
FASB Statement No. 123, Accounting for Stock-Based Compensation, throughout 2005 and
implement the new Statement 123R requirements beginning January 1, 2006. However, the
SEC notes that if a company has a fiscal year that ends on June 30, 2005 and is not small
business issuer, that company must still comply with Statement 123R beginning with its quarter
beginning on July 1, 2005. In other words, such companies do not receive any relief from the
SEC rule.
Reference: Regulation S-X, Rule 4-01(a)
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Reference
4. Does the company
grant employee stock
options that it values with
market-based
instruments?
The Chief Accountant of the SEC commented that before a company concludes that a marketbased instrument complies with the measurement objective in Statement 123R, it should:
• Consider the difference between the actual instrument transaction and the modelgenerated (e.g., Black Scholes or binomial) estimate of fair value;
• Satisfy itself and its auditor (and potentially the SEC staff) as to the reasons for any
significant differences between the two values (market-based instrument value vs.
model-generated value). In this regard, because any such instrument would at this time
be new to the market, the company should address whether the instrument itself and/or
the marketing of the instrument were sufficient to achieve a true fair value exchange
price.
Further, should a company decide to use the value produced by a market-based instrument for
purposes of measuring compensation expense under Statement 123R, it would need to fully
disclose the approach used to estimate the fair value of employee stock options.
References: Statement Regarding Use of Market Instruments in Valuing Employee Stock
Options; Memorandum: Economic Evaluation of Alternative Market "Instrument Designs" ; and
SEC Speech, Benedict 2005
Table of
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P PENSION PLANS, OTHER POSTRETIRMENT PLANS, AND ESOPS
The SEC staff observed that companies should identify their accounting policies for defined
benefit pension plans and/or other postretirement benefit plans.
1. Does the company
have a defined benefit
pension plan and/or other
postretirement benefit
plans?
Reference: SEC Speech Taub 2004, and Current Accounting and Disclosure Issues, 12/1/05,
IIJ, Pension, Post Retirement, and Post Employment Plans
2. Does the company
have an employee stock
ownership plan (ESOP)
with shares acquired
The following are ESOP disclosures in SEC filings for shares acquired before January 1, 1993:
1. Impact of ESOPs on the financial statements;
2. Method of recognizing expense;
3. Amount of expense for all periods presented;
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Reference
before January 1, 1993?
4. Interest on ESOP debt for all periods presented;
5. Amount of contribution to the ESOP for all periods presented; and
6. Amount of dividends on ESOP shares used to pay debt service for all periods presented.
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1. Is the company
reorganizing under the
U.S. Bankruptcy Code?
Q BANKRUPTCY
Disclose the extent to which reported interest differs from stated contractual interest (disclose
parenthetically on face of statement of operations.)
If it is probable that the plan will require the issuance of common stock or common stock
equivalents, thereby diluting current equity interests, that fact should be disclosed.
References: SOP 90-7, paragraphs 29 and 34
2. Does the company
consolidate a subsidiary
that is in bankruptcy?
The SEC staff believes that a determination that continued consolidation of a subsidiary in
bankruptcy is appropriate requires a fairly unique set of facts and is appropriate only in
infrequent and uncommon circumstances. The conclusion to consolidate and its basis should be
disclosed. The company should periodically reassess its facts and circumstances to confirm the
appropriateness of such a determination.
Reference: SEC Speech, Green, 2003
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1. Has the company
acquired, or is it in the
process of acquiring, a
significant business as
defined by Regulation SX, Rule 3-05?
R BUSINESS COMBINATIONS
Rule 3-05 requires separate audited balance sheets as of the end of up to the latest two fiscal
years, an unaudited condensed balance sheet for the latest interim period, audited statements
of income and cash flows for periods of up to three years, and separate comparable
unaudited condensed statements for any interim periods for the following:
1. Significant business acquired during the latest fiscal year or subsequent interim period
(includes the purchase of an interest in a business accounted for by the equity method).
2. Significant business to be acquired after the latest interim period (when such action is
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probable).
Requirements by Filing
Financial statements of a business acquired or to be acquired are not required in Form 10-K,
Form 10-Q, or annual reports to shareholders. The financial statements of an acquired business
that is significant are required in:
1. A Form 8-K filing;
2. A registration statement; and
3. In certain cases, a proxy statement.
The financial statements of a business to be acquired (i.e., a probable acquisition) that is
significant, as well as financial statements for individually insignificant acquisitions that are
material in the aggregate, are required in:
1. A registration statement; and
2. In certain cases, a proxy statement.
Definition of Significance
The SEC’s rules define significance using the three quantitative tests of Regulation S-X, Rule 102(w), that are based on the size of the entity acquired or to be acquired relative to the size of
the registrant. These tests are based on:
1. Investment or purchase price test—The registrant’s and its subsidiaries’ investments in and
advances to the business being acquired relative to the total assets of the registrant and its
subsidiaries consolidated as of the end of the most recently completed fiscal year. For business
combinations, this test measures the significance of the total purchase price, including
debt assumed.
2. Asset test—The registrant’s and its other subsidiaries’ proportionate share of the total assets
(after intercompany eliminations) of the business being acquired or disposed of relative to
the total assets of the registrant and its subsidiaries consolidated as of the end of the most
recently completed fiscal year.
3. Pretax income test—The registrant’s and its other subsidiaries’ proportionate share (equity) in
the income from continuing operations before income taxes, extraordinary items, and
cumulative effect of a change in accounting principles of the business being acquired or
disposed of relative to the total pretax income (similarly defined) of the registrant and its
subsidiaries consolidated for the most recently completed fiscal year. The registrant
may use the average of its pretax income for the past five years in this test when the most
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recent year’s pretax income is at least 10% lower than average pretax income for the most
recent five years. However, the pretax income of the business being acquired may not be
averaged. If either the registrant or the acquiree has been in existence for less than one year,
historical financial statements should not be annualized.
Financial Statements to Be Presented
The lowest level of significance for which financial statements of a business acquired or to be
acquired are required is 20%. The larger the relative significance of the entity acquired or to be
acquired, the more extensive the financial statement requirements.
Level of Significance
None of the tests exceeds 20%
Any one of the tests exceeds 20% but none
exceeds 40%
Any one of the tests exceeds 40% but none
exceeds 50%
Any one of the tests exceeds 50%
Number of Periods
None
Most recent fiscal yeara
Two most recent fiscal yearsa,b
Three most recent fiscal yearsa,c
a
Unaudited interim financial statements, including financial statements for the corresponding
interim period of the preceding year, may also be required.
b
Balance sheets and statements of income, cash flows, and changes in shareholders’
equity for the two most recent years are required.
c
Balance sheets for the two most recent fiscal years and statements of income, cash
flows, and changes in shareholder’s equity for three years are required.
Definition of a Business
Rule 3-05 applies to the acquisition of a business, not to the acquisition of an asset. In some
situations, it is not clear whether the acquisition is of a business or of assets. Regulation S-X,
Rule 11-01 (d) indicates that a presumption exists that a separate entity, e.g., a subsidiary
or division, is a business. A lesser component of an entity may also constitute a business,
depending on facts and circumstances. In practice, the SEC staff uses a broad definition of
“business” and in most cases requires statements, even if only a product line, or,
as indicated in Rule 3-05, an investment accounted for under the equity is acquired. Also,
whether the net assets or capital stock of an operation is acquired makes no difference if the
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operation is deemed to be a business.
The following transactions may also constitute the acquisition of a business:
● Acquisition of a working interest in an oil and gas property
● Assumption of customer deposits at branch banks
● Acquisitions of blocks of insurance policies by an insurance
company
● Assumption of policy liabilities in reinsurance transactions
Definition of Probable
Statements for “to be acquired” or proposed acquisitions are required when consummation of
the transaction is probable. This is generally when an agreement in principle has been reached
or the boards of directors of both companies have approved the transaction, even though the
transaction may be subject to shareholder approval or other uncertainties. The SEC’s rules do
not include a specific definition for a “probable acquisition.” The SEC Accounting
Disclosure Rules and Practices Manual, Two.I.A.3.e. states that, “assessment of probability
requires consideration of all available facts” and that “an acquisition is probable where
registrant’s financial statements alone would not provide adequate financial information
to make an investment decision.”
References: Regulation S-X, Rule 3-05, 1-02(w), and 11-01
2. Is the company
preparing an initial public
offering (IPO) involving
businesses that have
been built by the
aggregation of discrete
businesses that remain
substantially intact after
acquisition?
In some cases involving initial public offerings, strict application of the requirements of Rule 305 would be problematic or would result in the presentation of financial statements that are
clearly not material. In these cases, registrants should consider whether electing to
apply the alternative requirements of SAB Topic 1J could provide relief from the requirements
resulting from the application of Rule 3.05. SAB Topic 1J uses the pro forma financial
information for the registrant as a base to measure significance and then requires “coverage”
(via audited historical financial statements of acquired businesses) of a stated percentage of the
registrant’s business for each of the last three years. SAB Topic 1J is a completely separate
and alternative approach to measuring significance. It is advisable to identify the financial
statement requirements under both SAB Topic 1J and Rule 3-05 to determine the best
alternative to follow for a particular registrant’s circumstance.
Reference: SAB Topic 1J
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3. Did the company
acquire a significant
business, acquire a
series of individually
insignificant businesses
that are significant in the
aggregate, or dispose of
a significant portion of a
business?
Provide pro forma disclosures for significant acquisitions or disposals that have occurred during
the current period or as a subsequent event (prior to the issuance of the financial statements) or
are otherwise probable of occurring. (For acquisitions of troubled financial institutions, see SAB
Topic 1K.) Provide:
1. Pro forma condensed income statements for the most recent fiscal year and any interim
period; and
2. Pro forma condensed balance sheet as of the end of the latest interim period.
References: Regulation S-X, Rules 11-01 and 11-02
4. Has a business
combination occurred?
In the footnotes, provide unaudited pro forma combined results of operations for the period in
which the purchase business combination occurred as though the companies had combined at
the beginning of the period, unless the acquisition was at or near the beginning of the period:
1. Including as a minimum:
a. Revenue;
b. Income before extraordinary items;
c. Net income; and
d. Related per share data.
2. The above amounts should reflect the revised bases of the net assets acquired and, when
applicable, the interest expense, preferred stock dividends and tax effects related to the
combination.
3. If comparative financial statements are presented, provide pro formas for the immediately
preceding period as though the companies had combined at the beginning of that period.
4. Disclosure of this pro forma information should be repeated in financial reports for
subsequent periods as long as the related historical financial statements are presented for
comparative purposes.
References: FASB Statement 141, paragraph 54
5. Is the company
awaiting additional
information for the
measurement of
contingencies in a
When the company is awaiting additional information that it has arranged to obtain for the
measurement of contingencies assumed in a business combination (for which fair value is not
determinable at the date of acquisition), disclose that the purchase price allocation is preliminary
and the following:
• The nature of the contingency.
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business combination?
•
Other available information that will enable a reader to understand the potential effects of
the contingency on the final purchase price allocation and on post-acquisition operating
results.
6. Was an operating
company acquired in a
leveraged buy-out
transaction by a holding
company with no other
substantial operations?
A leveraged buy-out, for purposes of this disclosure section, represents a single highly
leveraged transaction or a series of related and anticipated highly leveraged transactions that
result in the acquisition by Newco of all previously outstanding common stock of Oldco; that is,
there can be no remaining minority interest. This excludes transactions in which existing
majority stockholders utilize a holding company to acquire all of the remaining shares of
Company B not previously owned.
When the combined company is the result of a leveraged buy-out as defined above, disclose
the accounting policy and related rationale for determining the new basis.
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1. Has the company
effected a quasireorganization?
S QUASI-REORGANIZATIONS
A quasi-reorganization results when a company eliminates its accumulated deficit by
reclassifying amounts from paid-in capital, and by adjusting assets and liabilities to their fair
values. There are two types of quasi- reorganizations:
•
•
"Deficit-only reclass;” and
Complete quasi-reorganization.
The SEC staff does not accept a "deficit-only reclass" in which the accumulated deficit is
reclassified but assets and liabilities are not revalued.
Eligibility
1. The entity must have exhausted all retained earnings, or in the case of a partnership,
earned surplus.
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2. The entire procedure is made known to all persons entitled to vote on matters of
general corporate policy, and the appropriate consents to the particular transactions
are obtained in advance in accordance with the applicable law and charter provisions.
The need for creditor approval should also be considered in the assessment of an
entity's eligibility.
3.
The entity must have changed management, lines of business, methods of operations,
etc., so that the entity is reasonably expected to have profitable operations based on
the restated asset and liability carrying amounts in terms of present conditions. (The
SEC staff has indicated that a change in management alone would be insufficient to
satisfy this requirement.) The entity cannot have an operating loss immediately after
the quasi-reorganization. The SEC staff has interpreted this very restrictively to mean
the interim or annual period immediately following the quasi-reorganization unless the
interim period reflects a seasonal business where losses normally occur.
Reference: FRR 210
For a period of at least ten years subsequent retained earnings must be dated. Also, for a
period of three years, the company should indicate the total amount of the deficit eliminated on
the face of the balance sheet.
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T
1. Is this a registration
statement, proxy
statement or Form 8-K
that includes a
subsidiary’s or division’s
separate financial
statements?
SUBSIDIARY’S OR DIVISION’S SEPARATE FINANCIAL STATEMENTS AND
SEGMENTS
Carve-outs are a means of presenting financial statements for an entity that had been operating
as a subsidiary, division, or segment of a consolidated group of companies. When carved out
entities are sold or spun off, or when the entity's debt securities are initially sold to the public,
certain requirements defined in SAB Topic 1B must be met. The financial statements of the
entity should include all expenses incurred by the parent on the subsidiary's behalf. To the
extent not charged to the subsidiary in the past, the expenses must be retroactively reflected
with the offsetting credit being to paid-in capital. Although not stated in the SAB, the SEC policy
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also applies to credits allocable to the subsidiary, e.g., management fees billed to the subsidiary
in excess of the underlying cost of the services rendered. In such cases, the adjustment would
be treated as a dividend to the parent.
In the subsidiary financial statements, the name of the ultimate parent, and for the parent, the
name, the relationship, and any changes in ownership should be disclosed.
Explain the following when a registration statement, proxy statement or Form 8-K includes a
subsidiary's or division's separate financial statements:
• The method of allocating common expenses and a statement that the method is reasonable
when a parent company incurs expenses applicable to the subsidiary; and
• An estimate of what expenses would have been on a stand-alone basis if materially
different when practicable. (Such estimates, however, should not be recorded in the
historical statements.)
See SAB Topic 1B when dividends are declared after year-end or are in excess of earnings or if
the financial statements are not indicative of the ongoing entity.
References: SAB Topic 1B1, 1B2, and 1B3
2. Did the parent
company incur debt for a
subsidiary registrant?
When substantially all of the common stock of a company is acquired in one or a series of
purchase transactions, SAB Topic 5J generally requires that the purchase price be "pushed
down" to the subsidiary company's financial statements and that all retained earnings be
eliminated. Regulation S-X, Rule 1-02(aa), defines "wholly owned subsidiary" and this rule
should be referred to for a definition of "substantially" all of the common stock. The SAB notes
that if the subsidiary company had publicly held debt or preferred stock outstanding at the time
the shares were acquired, push-down accounting is not mandatory.
Regardless of whether the debt has been "pushed down" to the subsidiary company, a
subsidiary registrant must disclose the amount and terms of acquisition debt incurred by the
parent.
References: SAB Topic 5J and Regulation S-X, Rule 1-02(aa)
3. Did a subsidiary of
the company issue stock
For sales of stocks by a subsidiary, a company can treat the issuances either as equity
transactions or as income statement transactions. If the latter alternative is selected, gains and
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to a third party?
losses without regard to materiality should be presented as a separate line item of nonoperating
income. The accounting method adopted should be disclosed in its accounting policy footnote
and applied consistently. The SEC staff believes that the company also should include:
• A separate footnote that describes issuances of subsidiary stock that have occurred during
all periods presented, including –
o A description of the transaction;
o The identification of the subsidiary and nature of its operations;
o The number of shares issued;
o The price per share, the total dollar amount and nature of consideration received; and
o The percentage ownership of the parent both before and after the transaction.
• Whether deferred income taxes have been provided on gains recognized and, if no
provision has been recorded, a clear explanation of the reasons.
4. Does the company
have segments?
Meet all the disclosure requirements of FASB Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information, including:
• Product, services, and geographic disclosures; and
• A reconciliation of segment elements to the consolidated financial statements;
The SEC staff commented that it may evaluate the identification and consistency of segment
disclosures in financial statements by actions such as requesting copies of reports furnished to
the chief operating decision maker, reviewing analyst’s reports, reading press interviews with
management, and considering other public information. The staff observed that they request
amended filings if the information reviewed reveals different or additional segments.
12/01/05, IIL, Segment Disclosure
5. Does the company
aggregate quantitatively
immaterial segments?
For purposes of segment disclosures, two or more operating segments should be grouped only
if the segments meet all the requirements of paragraph 17 of Statement 131, including the
requirements for similar economic characteristics.
In particular, the SEC staff observed that Statement 131 does not permit a company to
aggregate quantitatively immaterial segments with a reportable segment unless all the
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aggregation criteria are met. Quantitatively immaterial segments that can not be aggregated
into a reportable segment or aggregated with other reportable segments should be reported as
“all other,” consistent with the requirements of Statement 131.
Conference on Current SEC and PCAOB Developments, Slides 56-61, 64-67
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1. Do the financial
statements include
related party
transactions?
.
U RELATED PARTY TRANSACTIONS
Related party is defined broadly in Regulation S-X, Rule 1-02(u) which references the definition
in FASB Statement No. 57, Related Party Disclosure. In the Statement 57 definition, parties are
considered related when one has the power—through ownership, contractual right, family
relationship, or otherwise—to directly, or indirectly control, or significantly influence the other.
Parties are also related when they are under the common control or significant influence of a
third party. Thus, related parties include parent companies, subsidiaries, sister companies,
other affiliates such as investees accounted for by the equity method, defined benefit pension
plans, and other trusts for the benefit of employees. The term also includes individuals who are
principal owners, management, members of boards of directors, and members of all those
persons’ immediate families as defined below:
1. The term "principal owner" includes owners or known beneficial owners of more than 10%
of the voting interest.
2. The term "management" includes those persons having authority and responsibility for
planning, directing, and controlling the activities of the reporting enterprise.
3. If a director or member of management is also a director of another enterprise, the
enterprises are considered related when they both are under the control or significant
influence of that individual.
4. The term "immediate family" includes any family member whom a principal owner or
member of management might control or influence, or vice versa, because of a family
relationship.
Disclose the following for material related party transactions that affect the financial statements:
1.
Transactions should be identified, and the amounts stated on the face of the balance
sheet, income statement or statement of cash flows.
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2.
In cases where separate financial statements of certain investees or subsidiaries are
presented in the filing, separate disclosure should be made in such statements of the
amounts in the related consolidated financial statements that are (a) eliminated and (b) not
eliminated. Also, any intercompany profits or losses resulting from transactions with related
parties that are not eliminated and the effects thereof should be disclosed.
Reference: Regulation S-X, Rule 4-08(k) and Rule 1-02(u); Accounting Disclosure Rules and
Practices, 7IB - Related Party Matters - General Disclosure Requirements
In determining the materiality of a related-party transaction, SAB Topic 4E indicates that the
significance of an item may be independent of its amount. This is often the case with respect to
related-party transactions.
Reference: Accounting Disclosure Rules and Practices, 7I - Related Party Matters
2. Did the company have
transactions with a
principal shareholder that
benefited the company?
Transactions in which expenses are paid by a principal shareholder for the company’s benefit
should be given appropriate accounting recognition in the company’s financial statement.
Reference: SAB Topic 5T
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1. Did the company incur
costs during the current
period under a
restructuring or other exit
plan?
.
V RESTRUCTURING AND IMPAIRMENT CHARGES
These charges typically result from the consolidation and/or relocation of operations; the
abandonment of operations, or productive assets; or the impairment of the carrying value of
productive or other long-lived assets. The components of these charges also vary, but generally
include the reduction in the carrying value of long-lived assets and provisions for the termination
and/or relocation of operations and employees. These charges generally do not qualify as
extraordinary, but rather as a loss from continuing operations. Thus, disclosure treatment
should be consistent with treatment for other items that are either unusual or infrequent, but not
both.
Restructuring charges should be presented as a component of income from continuing
operations, and separately disclosed, if material. However, restructuring charges should not be
preceded by a subtotal representing "income from continuing operations before restructuring
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charge" (whether or not it is so captioned). In addition, precharge earnings per share, or the per
share effect of the restructuring charge, should not be presented.
Impairment charges related to long-lived assets and gains and losses on dispositions of longlived assets should be reported as part of income from continuing operations. If a caption such
as income from operations is used, these items should be reported as part of income from
operations.
Beginning with the period in which the exit plan is initiated, FASB Statement No. 146,
Accounting for Costs Associated with Exit or Disposal Activities, requires disclosure in all
periods, including interim periods, until the exit plan is completed of the following:
• Description of the exit or disposal activity, including the circumstances leading to the
activity and the expected date of completion;
• For each major type of cost associated with the activity (e.g., one-time termination
benefits, contract termination costs, and other associated costs):
Cost o Total amount expected to be incurred for the activity;
o Amount incurred in the period; and
o Cumulative amount incurred to date.
Liability –
o Reconciliation of the beginning and ending liability balances, showing
separately:
• Changes during the period attributable to costs incurred and charged to
expense;
• Costs paid or otherwise settled; and
• Any adjustments to the liability with an explanation of the reason.
• Line items in the income statement or the statement of activities in which the costs
above are included; and
• For each reportable segment:
o Total amount of costs expected to be incurred in connection with the activity;
o Amount incurred in the period; and
o Cumulative amount incurred to date, net of any adjustments to the liability with
an explanation of the reason.
• If a liability for a cost associated with the activity is not recognized because fair value
cannot be reasonably estimated, that fact and the reasons.
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Also, disclose:
• Exit and involuntary termination costs with appropriate labeling;
• The nature and amount of additional types of exit costs and other types of material
restructuring charges; and
• Losses related to asset impairments separate from charges based on estimates of
future cash expenditures.
In subsequent periods at both interim and annual, disclose:
• Material changes and activity in the liability balances of each significant type of exit
cost and involuntary employee termination benefits resulting from either expenditures
or changes in the estimates of the fair value of the liability. The SEC staff suggests a
tabular format for this disclosure;
• If the company has multiple exit plans, present separate information for each material
exit plan.
For material exit or involuntary employee termination cost related to an acquired business,
disclose in either the financial statements or the MD&A:
• When the company began formulating exit plans for which accrual may be necessary;
• The types and amounts of liabilities recognized for exit costs and involuntary employee
termination benefits included in the acquisition cost allocation; and
• Any unresolved contingencies or purchase price allocation issues and the types of
additional liabilities that may result in an adjustment of the acquisition cost allocation.
Report accruals for restructuring charges as supplemental financial data on Schedule II,
Valuation and Qualifying Accounts (required under Regulation S-X, Rule 5-04). Restructuring
accruals do not need to be presented on Schedule II if the notes to the financial statements
present accrual reconciliations in tabular format.
References: SAB Topic 5P3 and 5P4; Regulation S-X, Rule 5-04; and Statement No. 146, par.
20
2. Does the company
have goodwill that it tests
for impairment annually?
The SEC staff provided its view that the date of goodwill impairment testing can be changed as
long as the period tested is less than twelve-months. The staff noted that a preferability letter is
required from the company’s registered public accountant for such a change.
Reference: Current Accounting and Disclosure Issues in the Division of Corporation Finance, 12/01/05,
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IIG1, Business Combinations - Date of Annual Goodwill Impairment Testing
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1. Is the company a
domestic registrant with
equity securities that are
traded on a national
securities exchange or
association (i.e., a
Section 12(b) or (g)
company)?
W QUARTERLY FINANCIAL DATA
Disclose for each full quarter within the two most recent fiscal years and any subsequent interim
period in an unaudited note to the financial statements:
1. Net sales;
2. Gross profit (net sales less costs and expenses associated directly with or allocated to
products sold or services rendered);
3. Income (loss) before extraordinary items and cumulative effect of a change in accounting;
4. EPS based on income before extraordinary items and cumulative effect of a change in
accounting;
5. Net income (loss), for each full quarter; and
6. EPS based on net income
If quarterly amounts differ from the amounts previously reported on Form 10-Q, reconcile and
describe the differences.
Also, disclose the effect of:
• The disposals of a component of a business;
• Extraordinary, unusual or infrequently occurring items recognized in each quarter;
• The aggregate effect and the nature of year-end or other adjustments that are material to
quarterly results; and
• Pro forma information if presented elsewhere in the filing.
Reference: Regulation S-K, Item 302; SAB Topic 6G
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1. Is the reporting entity
a consolidated entity?
X CONSOLIDATION
The following rules apply to consolidated financial statements:
1. Generally, only majority-owned subsidiaries are consolidated;
2. Financial statements of consolidated subsidiaries are required to be as of a date within 93
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days of the registrant’s year-end. When the difference is not more than 93 days, the entity’s
statements for its fiscal period can be used with the following disclosures:
a. Closing date of the entity;
b. Explanation of the need to use different closing dates;
c. Events in the intervening period that have a material effect.
3. Briefly describe principles of consolidation, including principles of inclusion or exclusion of
companies in the consolidation. This explanation should include reasons for any departure
from the practice of consolidating majority-owned subsidiaries and not consolidating entities
that are less than majority-owned. The definition of majority-owned subsidiary is included in
Regulation S-X, Rule 1-02(n);
4. Identify (e.g., "all subsidiaries") the entities included in the consolidated statements, if not
stated in the financial statement captions; and
5. Identify subsidiaries not consolidated and the reasons therefore unless otherwise evident.
References: Regulation S-X, Rule 3A-02(b) (2), Rule 3A-03 , and Rule 1-02(n)
2. Has a member of
the company’s
consolidated group
changed its fiscal
reporting period?
If dates of financial statements of consolidated subsidiaries are different, disclose the reason for
the change in periods consolidated and the new period. Disclose the amount of sales, income
before extraordinary items and net income charged or credited directly to retained earnings
when a subsidiary has changed its year-end.
Reference: Regulation S-X, Rule 3A-03(b)
3. Has the company
had a change in entity?
If there has been a change in the entities included or excluded in the corresponding statement
for the preceding fiscal period filed with the SEC that has a material effect on the financial
statements, the entities included and the entities excluded should be disclosed.
Reference: Regulation S-X, Rule 3A-03(b)
4. Does the company
have material
intercompany balances
or transactions that were
not eliminated in
consolidation or
combination?
Disclose:
• The amounts of any material intercompany balances or transactions not eliminated;
• The amounts of any material unrealized profits and losses on transactions with entities
accounted for under the equity method not eliminated;
• The reasons for not eliminating these items; and
• The method of treatment of these items.
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5. Does the company
have foreign subsidiaries
that are consolidated?
If foreign subsidiaries that are consolidated are operated under political, economic or currency
restrictions, disclose the effect, insofar as this can reasonably be determined, of foreign
exchange restrictions upon the consolidated financial position and operating results of the
company.
Reference: Regulation S-X, Rule 3A-02(d)
6. Is the company the
primary beneficiary of or
does the company hold
significant interests in a
variable interest entity?
Disclose:
• The nature, purpose, size, and activities of the variable interest entity (VIE);
• If the company is the primary beneficiary of the VIE:
i. The carrying amount and classification of consolidated assets that are collateral for the
VIE’s obligations; and
ii. The lack of recourse if creditors of a consolidated VIE have no recourse to the general
credit of the company.
• If the company holds significant interests in a VIE:
i. Nature and timing of involvement with the VIE; and
ii. The company’s maximum exposure to loss as a result of its involvement with the VIE.
In December 2003, the Chief Accountant of the SEC, Donald Nicolaisen, noted that the SEC
staff would take a close look at the disclosures of companies that adopt FASB Interpretation
(FIN) No. 46 (Revised December 2003); Consolidation of Variable Interest Entities (FIN 46R).
References: SEC Speech, Nicolaisen 2003; FIN 46R, paragraphs 23-24
7. Does the company
hold finance entities with
trust preferred securities?
If certain conditions are met, these finance entities are eligible for the reporting relief offered by
Regulation S-X, Rule 3-10(b). If the entity meets the requirements of this rule and its sponsor
provides the following footnote disclosures, the staff noted that FIN 46R does not affect the Rule
3-10(b) relief:
•
An explanation of the transaction between the parent and the subsidiary that resulted in
debt appearing on the books of the subsidiary,
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Reference
•
A statement of whether the finance subsidiary is consolidated. If the finance subsidiary is not
consolidated, an explanation why, and
•
If a deconsolidated finance subsidiary was previously consolidated, and explanation of the
effect that deconsolidation had on the financial statements
12/01/05, IIK, FIN 46R and Deconsolidation
8. Do any of the
consolidated or
unconsolidated
subsidiaries have
restrictions on their ability
to transfer funds to the
company?
Refer to COMMON and PREFERRED STOCK, see question: 12. Does the company have
restrictions that limit the payment of dividends?
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Y COMMITMENTS AND CONTINGENCIES
General
The SEC staff requires the caption "Commitments and Contingencies – See Note" on the face
of the balance sheet based on Regulation S-X, Rule 5-02-25, except when these liabilities are
not significant. When the caption is included on the balance sheet, the amount column should
be left blank and not indicated with a dash (-) since the dash might be interpreted to mean that
there are not commitments or contingent liabilities.
Contingent Liabilities
SAB Topic 5Y represents the SEC staff’s view on accounting and disclosure relating to loss
contingencies associated with environmental and product liabilities. The staff generally will
apply the position in SAB Topic 5Y to all loss contingencies. Based on the SAB, management
should recognize a liability based on reasonable estimates notwithstanding significant
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uncertainties.
1. Does the company
have environmental,
asbestos or product
liability exposure?
Provide detailed disclosures regarding the judgments and assumptions underlying the
recognition and measurement of environmental and product liabilities (including asbestos).
Examples of disclosures that may be necessary include:
1. Circumstances affecting the reliability and precision of loss estimates;
2. The extent to which unasserted claims are reflected in any accrual or may affect the
magnitude of the contingency;
3. Uncertainties with respect to joint and several liability that may affect the magnitude of the
contingency, including disclosure of the aggregate expected cost to remediate particular
sites that are individually material if the likelihood of contribution by the other significant
parties has not been established;
4. Disclosure of the nature and terms of cost-sharing arrangement with other parties;
5. The extent to which disclosed but unrecognized contingent losses are expected to be
recoverable through insurance, indemnification arrangements, or other sources, with
disclosure of any material limitations of that recovery;
6. Uncertainties regarding the legal sufficiency of insurance claims or solvency of insurance
carriers;
7. The time frame over which the accrued or presently unrecognized amounts may be paid
out; and
8. Material components of the accruals and significant assumptions underlying estimates.
Reference: SAB Topic 5Y
2. Does the company
have site restoration
costs or other
environmental exit costs
that may occur on the
sale, disposal, or
abandonment of
property?
Disclose:
1. The nature of the costs involved;
2. The total anticipated cost;
3. The total costs accrued to date;
4. The balance sheet classification of accrued amounts; and
5. The range or amount of reasonably possible additional losses.
If an asset held for sale or development will require remediation to be performed by the
company prior to development, sale, or as a condition of sale, a note to the financial statements
should describe how the necessary expenditures are considered in the assessment of the
asset’s value and the possible need to reflect an impairment loss. Additionally, if the company
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may be liable for remediation of environmental damage relating to assets or businesses
previously disposed, disclosure should be made in the financial statement unless the likelihood
of a material unfavorable outcome of that contingency is remote. The company should disclose
its accounting policy with respect to such costs.
3. Does the company
recognize environmental,
asbestos or product
liabilities on a discounted
basis?
Disclose:
1. The discount rate used;
2. The expected payment for each of the five succeeding years and the aggregate amount
thereafter;
3. A reconciliation of the expected aggregate undiscounted amount to amounts recognized in
the balance sheet;
4. An explanation of material changes since the prior balance sheet date in the expected
aggregate amount of the obligations/receivables (other than those resulting from a pay
down of the obligation or receivable).
4. Does the company
have legal costs
associated with loss
contingencies?
5. Is the company
experiencing difficulty
estimating IBNR liabilities
for insurance due to
insufficiently understood
claims trends?
6. Has the company
deferred a gain on the
sale of an entity (or
operating assets) to
another company due to
uncertainty of realization?
Disclose the company’s policy for the accrual of legal costs relating to loss contingencies.
Provide FASB Statement No. 5, Accounting for Contingencies, and Statement of Position (SOP)
94-6, Disclosure of Risks and Uncertainties, disclosures for unpaid property/casualty insurance
claims, including IBNR claim reserves, when specific uncertainties (i.e., other than normal or
recurring uncertainties) exist or judgmental adjustments are made to historical experience for
insufficiently understood claims activity.
Reference: SAB Topic 5W
When a company has sold a highly leveraged entity for cash and/or noncash consideration and
has deferred the gain due to the uncertainty of realization, the deferred gain should be disclosed
on the face of the balance sheet and deducted from the related asset account. The notes
should completely describe the transaction. Also, the notes should include a complete
description of the transaction, including the existence of any commitments and contingencies,
the terms of the securities received, and the accounting treatment of amounts due thereon.
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Reference
Reference: SAB Topic 5U
7. Does the company
have contingent liabilities
that are material and
either (1) probable and
estimable, or (2)
reasonably possible?
Accrue for contingencies that are probable and reasonably estimable. If these criteria are not
met, but a material loss is reasonably possible, then the company should disclose the nature of
the contingency and an estimate of the possible loss or range of loss. If it is not possible to
estimate an amount or range of loss, that fact should be disclosed. Disclosure is also required if
there is a reasonable possibility of a charge in excess of the amount accrued. Based on these
requirements, the staff observed that the initial disclosure of a possibly material contingency
often should precede the loss accrual. In the staff’s view, vague or overly broad disclosures that
simply reference general risks or litigation are not sufficient for an inventor to understand the
specific types of contingencies that the registrant is evaluating.
Accrual for probable losses when the estimated amount of loss is within a range of amounts is
required by FASB Statement No. 5, Accounting for Contingencies, and FASB Interpretation
(FIN) No. 14, Reasonable Estimation of the Amount of a Loss. Companies should accrue the
amount within the range that appears to be a better estimate than any other. If no such amount
can be identified, then the company should accrue the minimum amount in the range.
References: SEC Speeches, Taub 2004; and Current Accounting and Disclosure Issues in the
Division of Corporation Finance, 12/01/05, II - I, Contingencies and Loss Reserves
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Z
DISCONTINUED OPERATIONS
Regulation S-X, Rule 5-03-15, requires the disclosure of the operating results of a discontinued
operation and any gain or loss from disposal of the segment. In SAB Topic 5Z, the SEC
expressed its view regarding accounting and disclosure related to discontinued operations.
1. Did the company
dispose of a component
of a business (that
qualifies as a
discontinued operation)
Material contingent liabilities—such as product or environmental liabilities or litigation—that may
remain with the company notwithstanding disposal of the underlying business should be:
• Identified in notes to the financial statements; and
• Discussed in terms of the reasonably likely range of possible loss pursuant to FASB
Statement No. 5.
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Reference
and retain material
contingent liabilities?
Reference: SAB Topic 5Z5
2. Does the company
allocate interest to
discontinued operations?
Disclose:
• The company’s policy regarding allocation of interest to discontinued operations; and
• The amount of interest allocated in determining profit or loss from discontinued operations.
Reference: EITF Issue 87-24
3. Does the company
have a divestiture where
the risks of ownership
continue that is
accounted for by
segregating the assets
and liabilities?
When the risks and other incidents of ownership continue and the divestiture is accounted for by
segregating the assets and liabilities, a note to the financial statements should describe:
•
The nature of the legal arrangements;
•
Relevant financing and other details; and
•
The accounting treatment .
Table of
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AA ACCOUNTING CHANGE
The SEC imposes no financial statement disclosure requirements for changes in accounting,
except for preferability letter requirements, certain additional disclosures required in interim
statements, and disclosure of new standards not yet adopted (see Section BB). However, the
SEC staff will not permit changes justified solely by tax reasons or revisions in the tax laws. The
staff does occasionally challenge the preferability of adopted accounting changes. This does not
mean that the staff requires accounting changes to be precleared. The SEC staff encourages
prefiling consultations only when there are unusual circumstances.
1. Has the company
made a change in
accounting principle or
practice or method of
applying that principle or
practice?
Whenever an accounting change is adopted, Form 10-K and 10-Q filings require a letter from
the registrant's independent accountant as an exhibit. See Regulation S-K Item 601 Exhibit 18.
This letter, generally referred to as a "preferability letter," must indicate whether the change in
accounting principle or practice (or method of applying that principle or practice) is to an
acceptable alternative principle or practice that is, in the auditor's judgment, preferable under
the circumstances. In applying this requirement:
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•
•
•
•
•
No letter need be filed with a Form 10-Q if a letter covering the change had previously been
filed with a Form 10-K.
No letter need be filed when the change is made to comply (including permissible "early"
compliance) with a new standard, interpretation or technical bulletin adopted by the FASB,
with an EITF consensus, with an AICPA statement of position cleared by the FASB, or with
an AICPA Industry Audit and Accounting Guide (both clear and not cleared by the FASB).
No letter need be filed when a change is made to comply with (a) a new SEC rule, SAB or
interpretation or (b) a request of the SEC staff, or (c) new FASB standard.
No letter is required for changes adopted prior to the time a company became subject to the
1934 Act reporting requirements. Accordingly, first-time registrants may make accounting
changes without filing a preferability letter.
Letters must be filed for all other accounting changes disclosed in the financial statement
even when: (a) the changes are immaterial, (b) no reference to the change is made in the
auditors' report, (c) they affect only interim statements and (d) they only will affect the
financial statements of future periods.
Reference: SAB Topic 6G2b
2. Does the company
have a change in
accounting principles that
requires retrospective
application in an interim
period
If the amount is material, disclose for all periods presented, in the footnotes or on the face of the
financial statements, the effect of the change on:
• Net income, in total and per share; and
• The balance of retained earnings.
Similar disclosure should be made if results of operations for any period presented have been
adjusted retrospectively by an item subsequent to the initial reporting of the period.
Reference: Regulation S-X, Rules 10-01(b)(7)
If the amount is immaterial, and there is no retrospective application of the change, then the
cumulative effect of the change should be included in the statement of income for the period in
which the change is made. The company should not adjust the beginning balance of retained
earnings of the period in which the change was made.
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Reference
3. Has the company
had a change in
accounting principle after
the first quarter?
Disclose the effects of the change on previously reported interim periods. When these
disclosures are made, the SEC staff will not require that previous quarterly Form 10-Q reports
be amended for retroactive effects of the change.
Reference: ADRP A.VIII.B – Disclosures in Interim Financial Statements, Other Disclosures
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BB NEW ACCOUNTING STANDARDS
General
A company preparing financial statements should make certain disclosures if an authoritative
standard setter has issued an accounting standard that, when implemented, will affect the
company’s financial statements. The purpose of the disclosure is to (1) notify the reader that a
new standard has been issued which the company will be required to adopt in the future, and
(2) assist the financial statement user in assessing the significance that the standard will have
on the financial statements of the company when adopted.
Companies should not only consider standards recently issued by the FASB, but also
Statements of Position (SOPs) and Practice Bulletins issued by the AICPA and consensus
positions of the EITF. Guidance issued by the SEC staff should also be considered. Future
changes in accounting standards are not considered relevant for purposes of this question if the
standard has not yet been finalized (e.g., it is still in the exposure draft stage).
Materiality
In determining whether or not a change in accounting principle or estimate is
material, the entity should consider the effects of each change individually as well as all
changes in the aggregate. A change that has a material effect on the trend of earnings is
considered material. Also, a change that does not have a material effect in the period of change
but it is reasonably certain to have a material effect in later periods is considered material in the
year in which the change is made.
1. Has an authoritative
Provide the following minimum disclosures:
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body issued an
accounting standard that
is not effective until after
the date of the financial
statements?
1. Existence of the authoritative standard;
2. Date the entity must adopt the new standard or, if early adoption is permitted, the date that
it plans to adopt;
3. Method of adoption;
4. Impact of the new standard on reported financial position and results of operations: if
quantified, indicate amount; if immaterial or not determined, so state. The amount of the
impact to be disclosed is the amount at the expected date of adoption based on the final
standard (i.e., not the exposure draft).
5. If alternative adoption methods and/or adoption dates are available and an entity has not
determined what alternative it will apply, the alternatives should be disclosed and the entity
should state that the method and/or timing of adoption has not been determined.
6. Preferably, when the accounting standard will be adopted on a prospective basis, similar
disclosure should be made. (Required for SEC registrants, optional for others.)
Disclose the impact that recently issued accounting standards will have on the financial
statements when adopted in a future period. The amount of the impact to be disclosed is the
amount at the expected date of adoption based on the final standard. If the impact is not known
or reasonably estimable, a statement to that effect may be made. Companies are not required
to calculate an estimate of the impact of adoption of the standard, only to disclose the expected
impact once management has made a reasonable determination. Although SAB 11M does not
require disclosure of the new standard if the impact on the company’s financial position and
results of operations is not expected to be material, a statement that the impact is immaterial is
desirable.
On September 13, 2006, the SEC staff issued Staff Accounting Bulletin (SAB) Topic 1N,
“Financial Statements — Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements” (SAB 108), SAB 108 addresses how a
registrant should evaluate whether an error in its financial statements is material. The SEC staff
concludes in SAB 108 that materiality should be evaluated using both the “rollover” and “iron
curtain” methods. Registrants are required to comply with the guidance in SAB 108 in financial
statements for fiscal years ending after November 15, 2006. Registrants that have evaluated
financial statement errors contrary to the views of the SEC staff and have not adopted the
provisions of SAB 108 should consider disclosure of same following the guidance in SAB Topic
11M, “Miscellaneous Disclosure — Disclosure of the Impact That Recently Issued Accounting Standards
Will Have on the Financial Statements of the Registrant When Adopted in a Future Period” (SAB 74).
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Reference
Reference: SAB Topic 11M Topic 1N
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CC INTERIM DISCLOSURES
See ARM’s SEC Form 10-Q Checklist, Item 1 – Financial Statements
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Reference
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DD FORM 10-K SCHEDULES
General
Most domestic registrants must file an annual report on Form 10-K. This requirement applies to
companies that have registered securities under Section 12(b) (companies whose securities are listed
on a securities exchange) or Section 12(g) (companies whose securities are traded over the counter).
Form 10-K contains qualitative information about the company's business, properties, legal
proceedings, and other matters. In addition, annual audited financial statements and management's
discussion and analysis of the financial conditions and results of operations of the registrant are
presented in the 10-K. The SEC's rules permit information already filed with the SEC to be
incorporated by reference into the Form 10-K.
As with other periodic reports, Form 10-K refers to the requirements of Regulation S-K and
Regulation S-X. These two regulations, in combination with the registration statement and periodic
report forms, constitute the SEC's integrated disclosure system.
• Regulation S-K governs qualitative information about the registrant, such as the nature of
its business, its properties, legal proceedings, its executives and officers (including
executive compensation), and management's discussion and analysis of the results of
operations (MD&A) For MD&A see the MD&A Checklist
• Regulation S-X governs the presentation of financial information about the registrant.
General financial statement disclosures (presentation and reporting periods) are covered
in Section A, specific financial disclosures are discussed in sections B – BB.
Timing
Registrants with fiscal years ending on or before December 15, 2003, must file their Form 10K no later than 90 days after the end of their fiscal year. Registrants with year-ends on or after this
date that are "accelerated filers" must file their Form 10-K on a phased-in shortened timetable. An
"accelerated filer" is a company that has:
• Been subject to the Exchange Act reporting requirements for at least 12 calendar months;
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•
•
Filed at least one annual report; and
No eligibility to use the SEC's special forms for small business registrants.
On December 21, 2005 the SEC issued final rules that:
• Created a new category of accelerated filer, “large accelerated filer,” that has the above
attributes and a public float of $700 million or more;
• Defined an “accelerated filer,” with the above attributes and a public float of $75 million to
$700 million;
• Relaxed the annual reporting deadline for regular accelerated filers; and
• Extended by one year the timetable for large accelerated filers to move their annual report
filing deadline to 60 days.
This means that both regular and large accelerated filers with calendar year ends of December 31,
2005 will have 75 days to file their annual Form 10-K reports .The changes to filing deadlines will be
phased in through 2007. Phase 1 began for accelerated filers with years ending on or after December
15, 2003. Phase 1 was extended an additional year in 2004 and once again in 2005 to provide
companies with additional time to meet the requirements regarding internal control over financial
reporting. The rules finalized in 2005 froze the annual reporting deadline for accelerated filers at 75
days. These rules also allowed large accelerated filers to accelerate their annual reporting due date to
60 days for fiscal years ending on or after December 15, 2006. The table below summarizes the
changes.
Phase-In
Period
Year 1 (Existing rule)
Years 2 - 4 (Phase 1)
Accelerated Filer
Year 5 Forward (Frozen at Phase 1)
Large Accelerated Filer
Year 5 Forward (Phase 2)
10-K Annual Report Due Date Days After Year-End
90
75
75
60
To illustrate, here is a filing schedule for a company with a December 31 year-end, including
the deadlines that were revised in 2004 and 2005.
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Reporting Period
Year-End – Dec. 31, 2003
Due Date
March 15, 2004
Year-End - Dec. 31, 2004
Filing Deadline
75 days (Phase 1
acceleration)
75 days
Year-End – Dec. 31, 2005
Accelerated Filer
Year End – Dec. 31, 2006
Large Accelerated Filer
Year End – Dec. 31, 2006
75 days
75 days (Phase 1
acceleration frozen)
60 days (Phase 2
acceleration)
March 16, 2006
March 16, 2007
March 16, 2005
March 1, 2007
Reporting on Internal Control over Financial Reporting
Effective for fiscal years ending on or after November 15, 2004, accelerated filer registrants are
required to report on internal control over financial reporting in the annual report (e.g., Form 10-K).
The report should include:
• A statement of management’s responsibility for establishing and maintaining adequate
internal control over financial reporting for the company;
• A statement identifying the framework used by management to evaluate the effectiveness of
this internal control;
• Management’s assessment of the effectiveness of this internal control as of the end of the
company’s most recent fiscal year; and
• A statement that its auditor has issued an attestation report on management’s assessment.
Management must disclose any material weakness and will be unable to conclude that the company’s
internal control over financial reporting is effective if there are one or more material weaknesses in
such control. All nonaccelerated issuers will be required to comply for their fiscal years ending on or
after July 15, 2007.
Effective for fiscal years ending on or after December 1, 2005, well-known seasoned issuers and
accelerated filers are required to disclose SEC staff comments that are material, unresolved, and over
180 days old at the date of filing the Form 10-K. Also effective for fiscal years ending on or after
December 1, 2005, issuers filing an annual report on Form 10-K are required to make an appropriate
risk factor disclosure. Risk factors are defined in Regulation S-K, Item 503(c) as a “discussion of the
most significant factors that make the offering speculative or risky.” The new rules explain that a risk
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factor discussion under Item 503 may not be necessary or appropriate in all cases, depending on the
issuer. Updated risk factor disclosures are required in Form 10-Q after the disclosures have been
made in Form 10-K.
Certain required information may be filed by amendment to the Form 10-K after the filing deadline.
Specifically, proxy or information statement data and non-ERISA employee stock purchase plans may
be filed by amendment not later than 120 days after year-end. Also, Article 12 financial schedules may
be filed by amendment not later than 30 days after the due date of the report. The requirements for
the Article 12 financial schedules are discussed in this section.
1. Is the company
filing a Form 10K?
Commercial/Industrial Companies should file the following schedules:
1. Except as expressly provided otherwise in the applicable form:
a. The Schedules III and IV shall be filed as of the date of the most recent audited balance
sheet.
b. Schedule II shall be filed for each period for which an audited income statement is required to
be filed.
c. Schedules I and V shall be filed as of the date and for periods specified in the schedule.
2. When information is required in schedules for both the registrant and the registrant and its
subsidiaries consolidated it may be presented in the form of a single schedule: PROVIDED, That
items pertaining to the registrant are separately shown and that such single schedule affords a
properly summarized presentation of the facts. If the information required by any schedule
(including the notes) may be clearly shown in the related financial statement or in a note, that
procedure may be followed.
3. The schedules should be audited.
2. Do the
restricted net
assets of
consolidated
subsidiaries
exceed 25% of the
company's
consolidated net
1. SCHEDULE I - CONDENSED FINANCIAL INFORMATION
The condensed financial information schedule should be filed when the consolidated subsidiaries;
restricted net assets (see Rule 4-08(e)(3)) exceed 25 percent of consolidated net assets as of the end
of the most recently completed fiscal year. Consolidated subsidiaries’ restricted net assets represent
the registrant's proportionate share of net assets of consolidated subsidiaries (after intercompany
eliminations) that can’t be transferred to the parent company (e.g., by loan, advance or cash dividend)
without the consent of a third party (i.e., lender, regulatory agency, foreign government, etc.). Where
restrictions on the amount of funds that may be loaned or advanced differ from the amount restricted
as to the transfer in the form of cash dividends, use the amount least restrictive to the subsidiary. For
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assets?
this test, deduct redeemable preferred stocks (Rule 5-02-28) and minority interest to compute net
assets.
If Schedule I is required, follow the format in Regulation S-X, Rule 12-04
References: Regulation S-X, Rule 12-04, Rule 4-08(e)(3), and Rule 5-04
3. Does the
company have
valuation and
qualifying
accounts such as
an allowance for
doubtful
receivables?
4. Is a substantial
portion of the
company's
business direct or
indirect
involvement in
acquiring and
holding real estate
for investment?
5. Does the
company have
mortgage loans on
real estate and
does the company
substantial indirect
or indirect
involvement in
acquiring and
2. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
The valuation and qualifying accounts schedule should be filed to support accounts in each balance
sheet. Examples of reserves to be reported on Schedule II include the allowance for doubtful
receivables and sales returns and restructuring reserves.
If Schedule II is required, follow the format in Regulation S-X, Rule 12-09.
References: Regulation S-X, Rule 12-09 and Rule 5-04
3. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Real estate used in the business should be excluded from this schedule. If Schedule III is required,
follow the format in Rule 12-28.
4. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
Investments in real estate mortgage loans include: first mortgage, second mortgage, construction
loans, etc. If Schedule IV is required, follow the format in Rule 12-29.
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holding real estate
for investment?
6. Does the
company have
liabilities for
property-casualty
insurance claims?
5. SCHEDULE V - SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY
INSURANCE OPERATIONS
This schedule should be filed when a registrant, its subsidiaries or 50%-or-less-owned equity basis
investees, have liabilities for property-casualty ("P/C") insurance claims. The schedule can be omitted
if these reserves do not, in the aggregate, exceed one-half of common stockholders' equity of the
registrant and its consolidated subsidiaries as of the beginning of the fiscal year. If Schedule V is
required, follow the format in Rule 12-18.
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EE 1933 REGISTRATION STATEMENTS
Before a company can offer its securities for sale to the public or have its securities listed on a national
exchange, the securities must be registered with the SEC. Both the Securities Act of 1933 (1933 Act
or Securities Act) and the Securities Exchange Act of 1934 (1934 Act or Exchange Act) address the
registration of securities:
•
•
The 1933 Act governs the registration of securities prior to their initial sale or distribution to
the public. Most offerings of securities will be on a form that falls under the 1933 Act. The
1933 Act also addresses specific situations in which securities offerings are exempt from
the Act's full disclosure requirements.
The 1934 Act governs the registration of securities that are to be listed on a national
exchange. In addition, companies that meet certain size and shareholder requirements
are required to register their securities under the 1934 Act even though their securities are
not listed on any exchange.
The determination of whether securities are required to be registered and which registration form
should be used is a legal matter and should be addressed by qualified legal counsel.
The 1933 Act provides for the disclosure of information to prospective investors. The required
disclosures are made via a registration statement, which is a public document that is available to any
interested party. The registration statement is a lengthy document, often running several hundred
pages. There are several different registration statement forms under the 1933 Act. Generally, each
form can be used only for specific types of entities or transactions. Although each form has specific
instructions regarding its content and format, certain features are common to all forms.
One such common feature is the components of the registration statement. Each registration
statement consists of two principal parts. Part I is a prospectus (the legal offering or "selling"
document) that must be made available to everyone who buys the securities, and also to anyone who
is made an offer to purchase the securities. The prospectus itself consists of two parts. It contains all
the essential facts regarding the issuer's business operations, financial condition, and management
and the securities being offered. This information is provided in the "forepart" of the prospectus. The
prospectus also includes the prescribed financial statements. Thus, the prospectus provides two types
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of information: information about the company and information about the offering. In certain
registration statements, the information about the company may be incorporated by reference from
1934 Act filings or delivered in a separate document. Part II of the registration statement contains
supplemental information (e.g., financial statement schedules, exhibits) that the SEC requires but that
does not need to be included in the prospectus. This information is publicly available either at the
SEC's offices or through the EDGAR database at www.sec.gov.
Another common feature is that all the forms refer to the requirements of Regulation S-K and
Regulation S-X. These two regulations, in combination with the registration statement and periodic
report forms, constitute the SEC's integrated disclosure system.
• Regulation S-K governs qualitative information about the registrant, such as the nature of
its business, its properties, legal proceedings, its executives and officers (including
executive compensation), and management's discussion and analysis of the results of
operations (MD&A) See the MD&A Questionnaire
• Regulation S-X governs the presentation of financial information about the registrant.
General financial statement disclosures (presentation and reporting periods) are covered
in Section A, specific financial disclosures are discussed in Section B-BB.
[Editor’s note: On July 19, 2005, the SEC released final rules that significantly revamp the registration,
communications, and offering processes under the Securities Act of 1933. These new rules have the
most pronounced effect on widely followed companies and enable this defined group of very large
issuers to register their securities on demand without any prior SEC staff review. The new rules are
effective December 1, 2005. The revisions have no direct effect on financial reporting. Exactly how the
new rules affect an issuer depends on the type of issuer, the issuer's reporting history, and the issuer's
worldwide market capitalization or amount of previously registered non-convertible securities. The
rules create four categories of issuers that are based on these and certain other eligibility criteria.
“Well-known seasoned issuers” (WKSIs) represent roughly the largest 30 percent of public companies.
Issuers who are not as large or widely followed but have a reporting history with the Commission and
meet certain other eligibility requirements are categorized as “seasoned issuers.” All other issuers are
either “unseasoned issuers” or “non-reporting issuers.” Whether a company is a domestic or foreign
registrant is irrelevant for purposes of determining its category.]
This section covers the age of financial statements in registration statement filings. Also,
certain earnings per share (EPS), benefit plan, and tax issues unique to initial public registrants are
discussed.
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1. Is the company
filing a 1933 Act
Registration
Statement?
The following table summarizes:
• When financial statements of a recently completed fiscal year must be furnished; and
• The related requirements for including financial statements for SEC filings.
The table covers the age of financial statements at the date of:
• Filing;
• Effective date of the registration statement; and
• The mailing date of a proxy statement.
For purposes of determining the age of financial statements, "days" refer to "calendar days."
Footnotes to the table explain how these requirements apply to large and regular accelerated filers.
When the filing date, effective
date, or proposed mailing date
is:
Within 45 days after fiscal yearend, and the latest fiscal year
audited statements are not
available
Then the following financial statements
are required:
•
•
•
•
From 46 days to within 902 days
(i.e., up to and including the
89th2 day) of latest fiscal year-
•
•
Audited consolidated balance sheet for the two fiscal
year-ends preceding the recently completed fiscal year
Audited statements of income, cash flows, and
shareholders' equity for each of the three fiscal years
preceding the recently completed fiscal year
Unaudited interim balance sheet as of a date less than
1351 days prior to the filing or effective date. The
unaudited interim balance sheet filed by a repeat issuer
(i.e., a company that is already an Exchange Act
registrant) must be as current as the most current
balance sheet filed on Form 10-Q.
Comparative year-to-date unaudited statements of
income and cash flows for the interim period between the
date of the most recent audited balance sheet presented
and the date of the most recent interim balance sheet
being filed
Audited consolidated balance sheet for the two fiscal
year-ends preceding the recently completed fiscal year
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end, audited financial
statements for that year are not
available, and the conditions of
Rule 3-01(c) are met
•
•
•
From 46 days to within 902 days
(i.e., up to and including the
89th2 day) of latest fiscal yearend, audited financial
statements for that year are not
available, and the conditions of
Rule 3-01(c) are NOT met
Within 902 days after fiscal
year-end, and audited financial
statements for latest fiscal year
are available
•
More than 903 days, but less
than 1351 days, of latest fiscal
year-end
•
1351 days or more subsequent
to latest fiscal year-end
•
•
•
•
•
•
shareholders' equity for each of the three fiscal years
preceding the recently completed fiscal year
Unaudited interim balance sheet at least as current as the
end of the third fiscal quarter of the registrant's most
recently completed fiscal year
being filed
If publicly released, the unaudited statement of income for
the most recently completed fiscal year
Audited consolidated balance sheet as of the two most
recently completed fiscal year-ends
shareholders' equity for each of the most recent three
fiscal years
fiscal years
Audited statements of income, cash flows and
shareholder's equity for each of the most recent three
fiscal years
fiscal years
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•
•
1
Unaudited interim balance sheet as of a date less than
1351 days prior to the filing or effective date. The
unaudited interim balance sheet filed by a repeat issuer
(i.e., a company that is already an Exchange Act
registrant) must be as current as the most current
balance sheet filed on Form 10-Q.
being filed
For accelerated filers. (Note: an accelerated filer is a domestic registrant that has a public float of between $75
million and $700 million; been subject to the Exchange Act reporting requirements for at least 12 calendar
months; filed at least one annual report; and has no eligibility to use the SEC's forms for small business
registrants. A large accelerated filer is similarly defined, but has a public float of $700 million or more. Refer to
Rule 12b-2 for the definition of accelerated filer and large accelerated filer):
• 130 days for large accelerated filers and accelerated filers;
• 135 days for all other registrants.
.
(Note: for this purpose, the term "all other registrants" includes domestic registrants that have a public float of less
than $75 million and registrants that are eligible to follow the small business issuer rules).
2
For accelerated filers:
• 60 days (75 days for fiscal years ending before December 15, 2006) for large accelerated filers (up to
th
and including the 59 day);
• 75 days for accelerated filers (up to and including the 74th day); and
• 90 days for all other registrants (up to and including the 89th day).
3
For accelerated filers:
• 60 days (75 days for fiscal years ending before December 15, 2006) for large accelerated filers;
• 75 days for accelerated filers; and
• 90 days for all other registrants.
Also, in the following situations, the requirements are:
1.
For filings of a registrant that has been in existence for less than one full fiscal year, an
audited consolidated balance sheet as of a date within 135 days of the date of filing and
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2.
3.
4.
related audited statements of income, cash flows and changes in shareholders’ equity.
For a first time registration, the audited financial statements may be no more than 1 year and
45 days old at the effective date.
For "publicly released" financial information, an update to the filing.
For public utilities, see Rule 3-03(b).
References: Regulation S-X, Rules 3-01, 3-02, 3-04 and 3-12; SAB Topic 1C
2. Is the company
filing an initial
public offering of
its securities?
3. If the company
is filing an initial
public offering of
its securities, did
it issue potentially
dilutive securities
with nominal
exercise prices
(in the periods
covered by
income
statements that
are included in
the registration
statement or in
the subsequent
period prior to the
effect date of the
filing)?
4. Is the company
registering
convertible
securities?
In an initial public offering, historical EPS should be presented for all periods.
Reference: SAB Topic 4D
Compute and disclose basic EPS; the warrants, options, and other potentially dilutive securities with
nominal exercise prices (nominal issuances) should be given retroactive treatment in the computation,
similar to a stock split or a recapitalization. Also, compute and disclose diluted EPS; nominal
issuances and potential common stock should be given retroactive treatment similar to a stock split or
a recapitalization.
Pro forma per share data must be disclosed when a convertible security is being registered; the
proceeds will be used to extinguish existing preferred stock or debt, and the extinguishment will have a
material effect on EPS.
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5. If the company
is an initial public
registrant, is it a
member of a
consolidated tax
group?
The SEC generally prefers that subsidiary members of a consolidated tax group calculate their tax
provisions on a separate return basis for book purposes. However, it is not uncommon for subsidiaries
to use other allocation methods.
In order that investors understand what the effect on income would have been if the registration had
not been eligible to be included in a consolidated income tax return with its parent, the SEC requires
that a pro forma income statement be disclosed for the most recent year and interim period reflecting a
tax provision calculated on a separate return basis in situations where the historical statements of a
subsidiary do not reflect the tax provisions on a separate basis.
Reference: SAB Topic 1B1
6. Did an
investment
banker provide
advisory services
or financing?
When an investment banker has provided advisory services and financing, disclose the amount
accounted for as debt issuance costs, if material.
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Y
Reference
Table of
Contents
Link
1. Is the entity a
bank holding
company?
2. Is the company
forming a onebank holding
company
3. Does the
company present
tax equivalent
revenue
information?
4. Does the
company have
foreign loans?
5. Does the
company have an
Allocated Transfer
Risk Reserve?
6. Does the
company have a
material amount of
lending and
deposit activities
although it is not a
bank holding
company?
7. Did the
company receive
assistance from a
FF INDUSTRY DISCLOSURES
1. Bank Holding Companies
Various disclosures are required; see Regulation S-X, Article 9 and Industry Guide 3.
References: Regulation S-X, Article 9 and Guide 3
Provide the financial statements required in SAB Topic 1F.
Provide tax equivalent revenue only as allowed by SAB Topic 11G.
Reference: SAB Topic 11G
Provide the disclosures required by SAB Topic 11H.
Provide the disclosures required by SAB Topic 11I
Reference: SAB Topic 11I
The SEC staff believes that Article 9 and Guide 3 apply literally only to bank holding companies,
but provide useful guidance to other registrants, including savings and loan holding companies.
Reference: SAB Topic 11K
Provide the disclosures required by SAB Topic 11N.
Reference: SAB Topic 11N
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Federal regulatory
agency in
conjunction with
either an
acquisition of a
troubled financial
institution or a
similar acquisition?
8. Has the
company made
regulatory assisted
acquisitions?
Disclose the impact of regulatory assisted acquisitions by a display of the assets covered by the
assistance as one line item on the balance sheet, with the effects of assistance segregated in the
income statement. The notes should present, among other things, a breakdown of the major
covered assets and related income, estimated fair value of assets and the estimated amount of the
regulatory receivable at each reporting date.
9. Does the
company have an
allowance for loan
losses?
Describe clearly and comprehensively the accounting policy for determining the amount of the
allowance, including a description of the systematic analysis and procedural discipline applied.
Loan losses should be based on past events and current economic conditions.
References: Current Accounting and Disclosure Issues in the Division of Corporation Finance,
12/01/05, IIO1, Allowance for Loan Losses - Disclosure; and SAB 102
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Reference
Table of
Contents
Link
1. Is the
company subject
to the accounting
required by
FASB Statement
71?
2. Regulated Industries
FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation, applies to general
purpose external financial statements of an enterprise that has regulated operations that meet all of the
following criteria:
a. The enterprise’s rates for regulated services or products provided to its customers are established by
or are subject to approval by an independent, third party regulator or by its own governing board
empowered by statute or contract to establish rates that bind customers.
b. The regulated rates are designed to recover the specific enterprise’s costs of providing the regulated
services or products.
c. In view of the demand for regulated services or products and the level of competition, direct and
indirect, it is reasonable to assume that rates set at levels that will recover the enterprise’s costs can be
charged to and collected from customers. This criterion requires consideration of anticipated changes in
levels of demand or competition during the recovery period for any capitalized costs.
If some of an enterprise’s operations are regulated and meet these criteria, this Statement shall be
applied to only that portion of the enterprise’s operations.
The SEC staff has been requiring rate regulated enterprises to expand footnote disclosures -- summary
of significant accounting policies -- to summarize in one location all the effects of regulation and
application of Statement 71 on the company’s financial statements.
2. Is the
enterprise a
utility company?
Tangible and intangible utility plant of a public utility company should be segregated so as to show
separately the original cost, plant acquisition adjustments, and plant adjustments, as required by the
system of accounts prescribed by the applicable regulatory authorities. This rule should not be
applicable to companies that are not required to make such a classification.
3. Does the utility
have an interest
in a jointly owned
A participating utility should include:
•
Information concerning the extent of its interests in jointly owned plants in a note to its financial
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utility plant?
•
statements. The note should include a table showing separately for each interest in a jointly owned
plant the amount of utility plant in service, the accumulated provision for depreciation (if available),
the amount of plant under construction, and the proportionate share. The amounts presented for
plant in service or plant under construction may be further subdivided to show amounts applicable
to plant subcategories such as production, transmission and distribution. The note should include
statements that the dollar amounts represent the participating utility's share in each joint plant and
that each participant must provide its own financing. Information concerning two or more generating
plants on the same site may be combined if appropriate.
The note should state that the participating utility's share of direct expenses of the joint plants is
included in the corresponding operating expenses on its income statement (e.g., fuel, maintenance
of plant, other operating expense.) If the share of direct expenses is charged to purchased power
then the note should disclose the amount so charged and the proportionate amounts charged to
specific operating expenses on the records maintained for the joint plants.
Reference: See SAB Topic 10C
4. Has the
company used a
construction
intermediary to
finance plant
construction?
The balance sheet of an electric utility company using a construction intermediary to finance
construction should include the intermediary's work in progress in the appropriate caption under utility
plant. The related debt should be included in long-term liabilities and disclosed either on the balance
sheet or in a note.
A note to the financial statements should describe briefly the organization and purpose of the
intermediary and the nature of its authorization to incur debt to finance construction. The note should
disclose the rate at which interest on this debt has been capitalized and the dollar amount for each
period for which an income statement is presented.
5. Has the
company
recognized writeoffs under
Statement 90
due to plant
abandonments,
disposals or
FASB Statement No. 90, Regulated Enterprises — Accounting for Abandonments and Disallowances of
Plant Costs, prescribes the accounting for abandonment of plants and disallowances of costs of
recently completely plants. Write-off costs due to plant abandonments, disposals or other disallowed
costs related to existing facilities, in most cases, do not qualify as extraordinary items for financial
reporting purposes.
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other disallowed
cost related to
existing facilities?
6. Does the
company have
one or more
long-term
contracts for the
purchase of
power?
The cost of power obtained under long-term purchases contracts, including payments required to be
made when a production plant is not operating, should be included in the operating expenses section of
the income statement. A note to the financial statements should present information concerning the
terms and significance of such contracts to the utility company including date of contract expiration,
share of plant output being purchased, estimated annual cost, annual minimum debt service payment
required and amount of related long-term debt or lease obligations outstanding.
Additional disclosure should be given if the contract provides, or is expected to provide, in excess of 5%
of current or estimated future system capability. This additional disclosure may be in the form of
separate financial statements of the vendor entity or inclusion of the amount of the obligation under the
contract as a liability on the balance sheet with a corresponding amount as an asset representing the
right to purchase power under the contract.
The note to the financial statements should disclose the allocable portion of interest included in charges
under such contracts. Accounting Series Release No. 122 discusses the computation of the ratio of
earnings to fixed charges for an enterprise that has guaranteed the debt of a supplier company or has
entered into contracts with a supplier providing for payments designed to service debt of a supplier. The
release states in part that in such instances the ratio "...for the registrant must be accompanied by
effective disclosure of the significance of fixed charges of other companies included in the enterprise
whether or not the revenues and expenses of such companies are set forth in the financial statements
of the registrant. Such disclosure usually should be accomplished by presenting the ratio of earnings to
fixed charges for the total enterprise in equivalent prominence with the ratio for the registrant or
registrant and consolidated subsidiaries."
7. Does the
company have
probable future
revenue from the
inclusion of
environmental
liability costs?
Utility companies cannot net probable future revenue resulting from the inclusion of environmental
liability costs in allowable costs for ratemaking purposes against the estimated liability.
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Disclosure
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General Disclosures
Question
Y
8. Is the
company a public
utility holding
company?
In the consolidated balance sheet of a public utility holding company the difference between the amount
at which the parent's investment is carried and the underlying book equity of subsidiaries as at the
respective dates of acquisition should be shown.
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Question
Y
Reference
Table of
Contents
Link
1. Does the
enterprise
participate in a
'gas balancing'
arrangement with
a joint owner of a
well?
2. Does the entity
include methane
gas in proved
reserves?
3. Does the
company perform
oil and gas
producing
activities?
4. Is the oil and
gas company
performing interim
reporting?
5. Are any of the
company’s
reserves, property
acquisition costs,
exploration costs,
or development
costs located in
foreign countries?
3. Oil and Gas Companies
Disclose the method of accounting for gas imbalances as well as the amount of any imbalance in
terms of units and value.
Refer to SAB Topic 12G for disclosure requirements
Refer to Regulation S-X, Rule 4-10 for financial accounting and reporting standards for companies
engaged in oil and gas producing activities
Supplementary oil and gas information is not required in interim financial reports, except for
information about a major discovery or other favorable or adverse event that causes a significant
change from the information presented in the most recent annual financial report concerning oil and
gas reserve quantities.
If some or all of property acquisition, exploration and development costs are incurred in foreign
countries, the amounts should be disclosed separately for each geographic area for which reserve
quantities are disclosed.
If some or all of the enterprise's reserves are located in foreign countries, the disclosures of net
quantities of reserves and changes should be separately reported for:
• Enterprise's home country, if significant.
• Each foreign geographic area (country or group of countries) in which significant reserves are
located.
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Y
Reference: FASB Statement 69, paragraph 22
6. Does the
company have
asset retirement
obligation
liabilities?
The SEC staff believes that a company should include:
• Asset retirement costs in its Costs Incurred disclosures in the year that the liability is incurred,
rather than on a cash basis. That is, the Costs Incurred disclosures in a given period should
include asset retirement costs capitalized during the year and any gains or losses recognized
upon settlement of asset retirement obligations during the period.
• Accretion of the liability for an asset retirement obligation in the Results of Operations either
as a separate line item, if material, or in the same line item as it is presented on the statement
of operations.
• Future cash flows related to the settlement of an asset retirement obligation in its
Standardized Measure disclosure.
Reference: SEC Sample Letter, February 2004
7. Does the
company have
operations in the
deepwater Gulf of
Mexico?
The SEC staff believes that a company can book proved undeveloped reserves in the deepwater Gulf
of Mexico if the all of the following tests and associated technical information are used:
• Open hole logs;
• Core samples;
• Wire line conveyed sampling; and
• Seismic surveys.
Reference: SEC Sample Letter, April 2004
8. Does the
company engage
in activity related
to buy/sell
arrangements for
oil and gas
commodities?
In financial reports covering periods ending on or after December 15, 2004, companies should:
• Identify separately on the face of the statements of operations, the proceeds and costs associated
with buy/sell and comparable arrangements that are reported on a gross basis for all periods
presented • This can be accomplished by either presenting the amounts as separate line items, or
within parenthetical notations next to the captions that include these amounts.
• Disclose the amounts in a footnote if the amounts are not material enough for disclosure
on the face of the statements of operations.
• Disclose in the accounting policy notes the characteristics of material arrangements of this type,
the circumstances under which they are used, and the accounting literature relied upon in
determining whether gross or net reporting should apply.
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•
Explain in the accounting policy note that the EITF is considering related matters in Issue 04-13,
and describe how the financial statement presentation might change should a single method of
reporting be required.
Reference: SEC Sample Letter, February 11, 2005
9. Does the
company have
capitalized
exploratory drilling
costs?
•
The SEC staff commented that it has observed instances where the accounting for exploratory
drilling costs has not corresponded to the explicit requirements in FASB Statement No. 19,
Financial Accounting and Reporting by Oil and Gas Producing Companies, paragraphs 31-34. The
concern expressed by the SEC staff is documented in a letter dated February 11, 2005; however,
that letter was issued before the issuance of FASB Staff Position (FSP) FAS 19-1, “Accounting for
Suspended Well Costs.” Registrants should consider the guidance in the February 11, 2005 letter
but recognize that it was authored shortly after the Exposure Draft of the FSP was issued and has
not been updated for the final FSP.
Reference: SEC Sample Letter, February 11, 2005, FSP FAS 19-1
10. Does the
company report
capitalized drilling
costs on its
balance sheet?
The SEC staff’s view is that companies should disclose the following in the financial statements:
• The accounting policy regarding capitalization of exploratory drilling costs, including the criteria
management applies in evaluating whether costs incurred meet the criteria for initial and continued
capitalization and the frequency with which such evaluations are made;
• Total capitalized exploratory drilling costs, as of each balance sheet date, pending the
determination of proved reserves;
• As of the most recent balance sheet date, the number of wells and amount of such capitalized
costs that are associated with:
o Wells in areas requiring a major capital expenditure before production could begin, where
additional drilling efforts are not underway or firmly planned for the near future, and
o Wells in areas not requiring a major capital expenditure before production could begin,
where more than one year has elapsed since the completion of drilling;
• Further subdivisions in amounts based on any additional criteria (such as, particular projects or
phases in the exploration programs) that would be meaningful in conveying information about the
uncertainty and risk profile of these cost pools;
• For exploratory drilling costs that continue to be capitalized as such after the completion of drilling,
an explanation of the delay in characterizing reserves as proved reserves, including the activities
undertaken to evaluate the reserves and the wells, additional information needed before the
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•
•
•
associated reserves may be classified as proved, and the estimated timing of when the evaluation
of the reserves will be completed;
An estimate of the effects on the financial statements as of the beginning of the earliest year and
for each year of operations presented that would have resulted from the application of the
proposed FSP;
A tabular disaggregation of exploratory drilling costs deferred by year, or using several ranges of
years, sufficient to convey the length of time that has elapsed since the incurrence of costs for
completed individual wells that do not require a major capital expenditure before production could
begin, along with an indication of the number of wells to which those costs relate; and
For each period in which a statement of operations is presented, the net changes from period to
period in capitalized exploratory drilling costs, including separate disclosure of:
o Additions to capitalized exploratory drilling costs that are pending the determination of
proved reserves;
o Capitalized exploratory drilling costs that were reclassified to wells, equipment and facilities
based on the determination of proved reserves; and
o Capitalized exploratory drilling costs that were charged to expense.
Reference: SEC Sample Letter, February 11, 2005
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Y
Reference
Table of
Contents
Link
1. Is the company
a registered
management
investment
company?
1. Is the entity an
employee stock
purchase, savings,
or similar plan?
4. Registered Management Investment Companies
For registered management investment companies and companies required to be registered as
management investment companies see Regulation S-X, Article 3, (Rule 3-18) and Article 6 for the
form and presentation of financial statements required to be filed.
References: Regulation S-X, Rule 3-18 and Article 6
5. Employee Stock Purchase, Savings and Similar Plans
See Regulation S-X, Article 6A for the form and presentation of financial statements required to be
filed.
Reference: Regulation S-X, Article 6A
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Reference
Table of
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Link
1. Are the company’s
investments in real estate or
mortgage loans on real estate
significant?
6. Real Estate Entities
The disclosure requirements of SAB Topic 7 should be met. Also, schedules required
by Regulation S-X, Rule 12-28 and 12-29 should be included in the annual report to
shareholders.
References: SAB Topic 7, Regulation S-X, Rules 12-28 and 12-29
2. Is the company classified as a
real estate investment trust?
3. Does the company have retail
land purchases or sales?
For real estate investment trusts, see Regulation S-X, Rule 3-15
For real estate operations to be acquired, see Regulation S-X, Rule 3-14
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Reference
Table of
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Link
1. Is the company
a casino/hotel?
7. Casinos/Hotels
Expenses attributable to each of the separate revenue producing activities of casino, hotel and
restaurant operations should be separately presented on the face of the income statement.
See SAB Topic 11L for further guidance.
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Question
Y
Reference
Table of
Contents
Link
1. Is the company a
food
retailer/department
store chain?
2. Is the company a
retail company that
imposes finance
charges on credit
sales?
8. Food Retailers/Dept. Store Chains
Sales of leased or licensed departments are either presented as a separate line item within the
income statement or disclosed in a note to the income statement.
References: SAB Topic 8A
Disclose the amount of gross revenue from finance charges in a footnote and identify the income
statement line item that includes such revenue.
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Question
Y
Reference
Table of
Contents
Link
1. Is this company
an insurance
entity?
9. Insurance Companies
Insurance Company Disclosures:
1. See Article 7 of Regulation S-X.
2. The amounts of statutory net income and stockholders' equity and significant statutory
restrictions on dividends must be disclosed for insurance companies.
3. For permitted statutory accounting practices (including GAAP practices) that individually or in the
aggregate materially affect statutory surplus or risk-based capital, the following disclosures
should be made for the most recent fiscal year presented when the permitted practices differ
from the prescribed statutory accounting practices:
a. A description of the permitted statutory accounting practice.
b. A statement that the permitted statutory accounting practice differs from prescribed statutory
accounting practices.
c. The monetary effect on statutory surplus.
4. For permitted statutory accounting practices (excluding GAAP practices) when prescribed
statutory accounting practices do not address the accounting for the transaction:
a. A description of the transaction and of the permitted statutory accounting practice used.
b. A statement that prescribed statutory accounting practices does not address the accounting
for the transaction.
5. For each fiscal year for which an income statement is presented, the following information about
the liability for unpaid claims and claim adjustment expenses:
a. The balance in the liability for unpaid claims and claim adjustment expenses at the beginning
and end of each fiscal year presented, and the related amount of reinsurance recoverable.
b. Incurred claims and claim adjustment expenses with separate disclosure of the provision for
insured events of the current fiscal year and of increases or decreases in the provision for
insured events of prior fiscal years.
c. Payments of claims and claim adjustment expenses with separate disclosure of payments of
claims and claim adjustment expenses attributable to insured events of the current fiscal year
and to insured events of prior fiscal years.
d. Reasons for the change in the provision for incurred claims and claim adjustment expenses
attributable to insured events of prior fiscal years and whether additional premiums or return
premiums have been accrued as a result of the prior-year effects.
References: Regulation S-X Article 7and SAB Topic 5W
- 99 –
Disclosure
Requirements
Met?
General Disclosures
Question
Y
2. Is the company
an insurance
company with
other than normal,
recurring
uncertainties?
3. Does the
company provide
property and/or
liability insurance?
Provide FAS 5 disclosures for property/casualty insurance claims and IBNR claim reserves, when
specific uncertainties (i.e., other than normal or recurring uncertainties) exist or judgmental
adjustments are made to historical experience for insufficiently understood claims activity.
Reference: SAB Topic 5W
For property/liability insurance companies:
• Adopting or changing policy with respect to discounting certain unpaid claims liabilities related to
short-duration insurance contracts, see SAB Topic 5N
• Underwriting and claims reserving experience of property-casualty underwriters, see Financial
Reporting Release 20.
• Participation in high-yield financing, highly leveraged transactions, or non-investment grade loans
and investments, see Financial Reporting Release 36.
References: SAB Topic 5N, FRR 20,and FRR 36
4. Has the
company acquired
a life insurance
company
accounted for as a
purchase, and did
the company
recognize an asset
for the present
value of future
profits of the
existing contracts?
Disclose:
• A description of the registrant’s accounting policy;
• An analysis of the PVP asset account for each year for which an income statement is presented;
• The estimated amount or percentage of the end of the year PVP balance to be amortized during
each of the next five years.
- 100 –
Reference

SEC Disclosures Checklist How to Use the SEC Disclosures Checklist

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