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Journal entry — Highlights released of CAQ SEC Regulations Committee’s September 25, 2012, meeting

Published on: Nov 09, 2012

Earlier this week, the Center for Audit Quality (CAQ) posted to its Web site highlights of the September 25, 2012, CAQ SEC Regulations Committee joint meeting with the SEC staff. Below is a summary of noteworthy topics discussed at the meeting.

Fair Value Disclosure Observations

The SEC staff made certain fair-value-related observations about its reviews of registrants’ filings, mainly regarding the application of ASU 2011-04.1 For example, the staff noted that, in certain instances, registrants disclosed a wide range of significant inputs in measuring fair value. The staff has questioned whether such disclosures are more meaningful for investors than the weighted averages “contemplated in ASU 2011-04.” In addition, the staff has observed that some registrants have used multiple techniques to measure fair value and that, in such cases, it might be “appropriate for a registrant to disclose the population valued under each valuation method.” The staff also noted that certain qualitative disclosures about fair value measurements (e.g., sensitivity analyses and other assumptions) could be improved to increase transparency.

IFRS Work Plan

While the SEC staff has indicated that it has no current plans to perform additional activities related to the IFRS work plan,2 it has acknowledged that it expects to evaluate observations from its reviews of Canadian filers (which were first required to adopt IFRSs in 2012). The staff believes that because there are similarities between U.S. GAAP and Canadian GAAP, such observations may help the SEC decide whether and, if so, when to incorporate IFRSs into the U.S. financial reporting system.

JOBS Act Considerations

During the meeting, the SEC staff indicated that it would be publishing additional FAQs on the Jumpstart Our Business Startups (JOBS) Act.3 On September 28, 2012, one such set of FAQs was released. Further, registrants are encouraged to contact the SEC staff if they have questions that are not addressed in the FAQs.

SEC’s Advisory Committee on Small and Emerging Companies

The SEC staff indicated that its Advisory Committee on Small and Emerging Companies (the “Advisory Committee”) met in September 2012. During the meeting, the Advisory Committee focused on various market structure issues, including the impact of decimalization on the market for initial public offerings and (2) opportunities to reduce disclosure requirements and corporate governance rules for smaller public companies. The Advisory Committee is expected to release its recommendations on these matters in the near term. Moreover, the Advisory Committee discussed whether to expand certain provisions of Title I of the JOBS Act to encompass a broader group of registrants that would not qualify as EGCs.

Confidential Reviews of Initial Registration Statement

The SEC staff provided additional insight into its confidential reviews of EGCs’ initial registration statements. The staff confirmed that (1) entities are not required to include auditors’ consents in a confidential submission of a draft registration statement4 and (2) as with its reviews of other filed registration statements, if a confidential draft registration statement excludes a named underwriter, the SEC staff will defer its review of the registration statement until an underwriter is named.

Rulemaking Considerations Related to Conflict Minerals and Extractive Industry Payments

The SEC staff gave an overview of its recently issued final rules on conflict minerals5 and extractive industry issuer payments to governments6 and highlighted its efforts to quantify the rules’ costs and benefits. Further, the staff indicated that it is currently accepting implementation and compliance questions on these rules and is assessing how best to provide interpretive guidance on them.

Request for Comment on XBRL Interactive Data Rules

The SEC staff noted that the SEC’s XBRL interactive data rules are subject to the Paperwork Reduction Act of 1995, which gives the Office of Management and Budget control over rules imposed by government agencies. Therefore, the SEC must obtain feedback every three years about the interactive data rules’ costs and benefits. Accordingly, on August 6, 2012, the SEC issued a request for comment on use of interactive data in XBRL submissions. The comment period ended on October 5, 2012.

Iran Threat Reduction and Syrian Human Rights Act

The SEC staff provided an overview of the Iran Threat Reduction and Syrian Human Rights Act of 2012 (the “Act”), which was signed into law on August 10, 2012. The Act expands Iran-related sanctions and adds Section 13(r) to the Securities

Exchange Act of 1934, which requires registrants that conduct certain business activities with Iran to provide specified disclosures in their quarterly and annual filings. Because the Act is “self-executing,” the staff reminded registrants that even in the absence of final SEC rules, they must comply with the Act’s requirements for all interim and annual filings due after February 6, 2013.

Presentation of the Contractual Obligations Table

The SEC staff addressed the presentation of certain items in a registrant’s contractual obligations table (the “table”). Such items include interest payments, unrecognized tax benefits, and expected payments or contributions related to pension or other postemployment benefit plans. The staff confirmed that the guidance in Interpretive Release FR-837 applies and that a registrant, on the basis of its facts and circumstances, must use judgment in deciding whether to include these items in the table (rather than as a footnote to the table). As an example, the SEC cited interest payments related entirely to fixed-rate debt (e.g., obligations for which the timing and amount of payments are known), indicating that it would expect registrants to include such payments in the table. Conversely, the staff noted that it may be more appropriate to reflect interest payments on variable-rate debt in a footnote to the table.

 


[1] FASB Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.

[2] The SEC staff’s latest report on the potential incorporation of IFRSs, issued in July 2012, did not make any recommendations regarding whether and, if so, when to incorporate IFRSs into the U.S. financial reporting system.

[3] The JOBS Act was signed into law in April 2012.

[4] See the guidance in Questions 7 and 10 of the SEC staff’s FAQs on the confidential submission process for EGCs.

[5] See Deloitte’s September 11, 2012, Heads Up for additional information.

[6] See Deloitte’s September 27, 2012, Heads Up for additional information.

[7] SEC Release No. 33-9144, Commission Guidance on Presentation of Liquidity and Capital Resources Disclosures in Management’s Discussion and Analysis.

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