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Journal entry — Highlights released of CAQ SEC Regulations Committee’s June 25, 2014, meeting

Published on: Sep 17, 2014

Recently, the Center for Audit Quality (CAQ) posted to its Web site highlights of the June 25, 2014, CAQ SEC Regulations Committee joint meeting with the SEC staff. Below is a summary of noteworthy topics discussed at the meeting.

Capital Formation Initiatives

The SEC staff provided updates on the Commission’s proposed rules on crowdfunding (released on October 23, 2013)1 and Regulation A (released on December 18, 2013),2 both of which were issued in response to mandates of the Jumpstart Our Business Startups (JOBS) Act.3 The staff indicated that it does not have a definite time frame for finalization of either proposed rule. In addition, the staff noted that the Investor Advisory Committee made six recommendations related to the crowdfunding proposal at its April 10, 2014, meeting.

Disclosure Effectiveness

Keith Higgins, director in the SEC’s Division of Corporation Finance (the “Division”), addressed the status of current activities associated with the SEC’s disclosure effectiveness project4 (i.e., a project to review existing disclosure requirements in Regulations S-K and S-X). Further, the SEC staff discussed how registrants can be proactive in making current disclosures more effective.

Other Initiatives

Rulemaking Related to Conflict Minerals and Extractive Industry Payments

The SEC staff pointed out that the Commission’s final rule5 on disclosures provided by extractive issuers regarding certain payments to governments has been vacated. The staff also summarized the history of court appeals pertaining to the conflict minerals final rule,6 discussed the staff’s related statement (and the Commission’s partial stay on certain portions of the final rule), and reminded registrants of their need to provide certain information on Form SD.

Cybersecurity Roundtable: Transparency Versus Vulnerability

On March 26, 2014, the SEC staff held a roundtable to discuss cybersecurity and the impact it has on market participants. Mr. Higgins indicated that one of the more notable takeaways from the roundtable was “the difficulties registrants face in providing disclosures about the adequacy of preventive actions taken to reduce cybersecurity risks without making the company vulnerable to cyber threats.” He also referred to CF Disclosure Guidance: Topic 2, Cybersecurity, which outlines the Division’s views on how registrants should consider and provide disclosures about cybersecurity-related matters.

Current Financial Reporting Matters

Earnings per Unit in Master Limited Partnerships

The SEC staff discussed master limited partnerships (MLPs), noting that because of current diversity in practice, the staff has requested the EITF to address how registrants should calculate earnings per unit (EPU) when one or more businesses are contributed to an MLP after the formation of the MLP. In addition, the staff indicated that “it would not object to additional supplemental disclosure of retroactively adjusted EPU outside of the financial statements.”

Current Practice Issues

The SEC staff addressed the following current practice issues:

  • Inconsistency between U.S. GAAP and Regulation S-X, Rule 3-15,7 with respect to how an entity should present a “gain or loss on sale of properties” for real estate investment trusts in the income statement upon adopting ASU 2014-08.8
  • Compliance with Regulation S-X, Rule 3-12,9 “in connection with a registration statement on Form 10” that automatically becomes effective.
  • Using a “to-be-issued” audit report “in a situation where a registrant has a component that qualifies as a discontinued operation before an initial registration statement is filed but after the date of the latest balance sheet included in the initial filing.”
  • The SEC’s expected finalization of guidance on disclosures about the five-year selected financial date table under ASU 2014-09.10

Editor’s Note: At the Financial Accounting Standards Advisory Council meeting on September 11, 2014, the SEC staff clarified its views on how registrants would reflect their implementation of ASC 60611 (the “new revenue standard”) in the five-year table required under Regulation S-K, Item 301.12

The staff indicated that it would not object if a registrant reflected its adoption of the new revenue standard in the five-year table on a basis that is consistent with the adoption in its financial statements (i.e., the adoption is reflected in less than each of the five years in the table). In other words, in a manner consistent with the new revenue standard, a registrant could present in the five-year table (1) only the most recent three years if the registrant uses the full retrospective method to adopt the new revenue standard or (2) only the most recent fiscal year if it uses the modified transition basis. Regardless of the transition method adopted, registrants would be expected to disclose the method they used to reflect the information (e.g., how the periods are affected) and that the periods are not comparable.


1 SEC Proposed Rule Release No. 33-9470, Crowdfunding.

2 SEC Proposed Rule Release No. 33-9497, Proposed Rule Amendments for Small and Additional Issues Exemptions Under Section 3(b) of the Securities Act.

3 For more information about the JOBS Act, see Deloitte’s April 15, 2014, Heads Up.

4 See Deloitte’s August 26, 2014, Heads Up for additional information regarding the SEC’s disclosure effectiveness project.

5 SEC Final Rule Release No. 34-67717, Disclosure of Payments by Resource Extraction Issuers.

6 SEC Final Rule Release No. 34-67716, Conflict Minerals.

7 SEC Regulation S-X, Rule 3-15, “Special Provisions as to Real Estate Investment Trusts.”

8 FASB Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.

9 SEC Regulation S-X, Rule 3-12, “Age of Financial Statements at Effective Date of Registration Statement or at Mailing Date of Proxy Statement.”

10 FASB Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers.

11 FASB Accounting Standards Codification Topic 606, Revenue From Contracts With Customers.

12 SEC Regulation S-K, Item 301, “Selected Financial Data.”

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