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Journal entry — CAQ SEC Regulations Committee releases highlights of September 26, 2017, joint meeting with SEC staff

Published on: Dec 13, 2017

On Friday, December 8, the Center for Audit Quality (CAQ) posted to its Web site the highlights of the September 26, 2017, CAQ SEC Regulations Committee joint meeting with the SEC staff. Topics discussed at the meeting include:

  • Waivers under SEC Regulation S-X, Rule 3-131 — The SEC staff’s authority under SEC Regulation S-X, Rule 3-13, to grant waivers for the omission or substitution of certain financial information otherwise required by SEC Regulation S-X has been highlighted in recent remarks by the SEC and was also discussed at the July 11, 2017, CAQ SEC Regulations Committee meeting. At the September CAQ SEC Regulations Committee meeting, the Committee and SEC staff discussed the following recent amendments to the SEC Division of Corporation Finance Financial Reporting Manual (FRM):
    • The addition of a new section to the beginning of the FRM, “Communications With the Division of Corporation Finance’s Office of Chief Accountant (CF-OCA).” The section (1) includes a list of staff members that registrants may contact regarding requests for relief under SEC Regulation S-X, Rule 3-13, and (2) is organized according to their subject matter expertise.
    • An update to Section 2065 explaining that registrants may contact the CF-OCA with questions about providing abbreviated financial statements for an entity identified as a predecessor. On the basis of the specific facts and circumstances, the SEC staff may not object to the use of abbreviated financial statements for a predecessor “when full financial statements for some successor periods have been included in a filing.”
Connecting the Dots

Connecting the Dots

See Appendix B of Deloitte’s 2017 edition of SEC Comment Letters — Including Industry Insights for additional information about best practices for submitting Rule 3-13 waivers.

  • Process for requesting omission of selected financial data — At the July 2017 CAQ SEC Regulations Committee meeting, the SEC staff advised non-EGC2 registrants not to submit a formal written waiver request when seeking to omit one or more periods of selected financial data provided pursuant to SEC Regulation S-K, Item 301. In a follow-up discussion at the September 2017 meeting, registrants were encouraged to contact either the CF-OCA or their respective assistant director office to discuss requests for the omission of selected financial data.
  • Draft registration statement processing — The Committee discussed with the SEC staff a list of questions regarding (1) the Division of Corporation Finance’s announcement (the “Announcement”) that beginning in July 2017, the SEC would allow all companies to voluntarily submit draft registration statements for initial public offerings to the SEC staff for nonpublic review, and (2) the newly issued compliance and disclosure interpretations (C&DIs) on Securities Act forms (Questions 101.04 and 101.05) and on the Fixing America’s Surface Transportation (FAST) Act (Question 1), issued August 17, 2017, which cover the omission of certain interim and annual information in a draft registration statement. The Committee’s questions, as well as the SEC staff’s answers, were included in Addendum A to the September meeting highlights and covered the following topics:
    • The eligibility of certain filings for nonpublic review.
    • The permissibility of omitting annual and interim financial statements and any related pro forma information of entities other than the registrant (e.g., those required by Regulation S-X, Rules 3-05,3 3-09,5 or 3-147) if the registrant believes that they will not be required at the time of the first public filing.
    • The possible omission of current- and prior-year interim information from a draft registration statement.
    • The requirement to include interim information in a publicly filed registration statement for an EGC.
    • The acceptability of applying Securities Act Forms C&DI Question 101.05 to an initial registration statement filed under Section 12(b) of the Securities Exchange Act of 1934 (the “Exchange Act”).
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See Deloitte’s July 11, 2017, Heads Up (updated August 24, 2017) for additional information about the confidential review of draft registration statements.

  • Public business entity (PBE) announcement at Emerging Issues Task Force (EITF) meeting — The Committee and SEC staff discussed an announcement made at the July 20, 2017, EITF meeting indicating that certain public business entities (PBEs) may use the non-PBE effective dates for adopting the new revenue and leasing standards.6 This relief is available to PBEs “that otherwise would not meet the definition of a PBE except for a requirement to include or inclusion of its financial statements or financial information in another entity’s filings with the SEC.”

The SEC staff confirmed that financial statements prepared pursuant to SEC Regulation S-X, Rule 3-10(g),7 are within the scope of the July 2017 announcement.

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Connecting the Dots

Refer to Deloitte’s July 20, 2017, Heads Up for more information on the announcement, including an expanded list of financial statements of other entities for which relief may be available.

  • Pro forma financial information for a business combination under common control or discontinued operation — The Committee and SEC staff evaluated the appropriate presentation of pro forma adjustments that are directly attributable to a transaction in pro forma income statements for a common control merger or discontinued operation.8 This discussion considered whether such pro forma income statements should reflect these adjustments “as of the beginning of the earliest period (i.e., 3rd year back) or . . . as [of] the beginning of the most recent year (i.e., only for the most recent fiscal year and interim period).”

The SEC staff indicated that adjustments directly attributable to a transaction should be included only in the most recent annual and interim (i.e., as of the beginning of the most recent fiscal year) periods of the pro forma financial statements. The earliest two years of the pro forma financial statements should include only the impacts of recasting as required by U.S. GAAP.

For example, a transition services agreement established by a registrant as part of the transfer of a business under common control would be directly attributable to the transaction and reflected in the most recent annual and interim periods but would not be reflected in the earliest two years of the pro forma financial statements.

  • The effects of accounting changes by a successor entity on the predecessor-period financial statements — The Committee and SEC staff concluded a discussion that began at the March 23, 2017, CAQ SEC Regulations Committee meeting regarding the effect on predecessor-period financial statements of a full retrospective accounting change for the adoption of a new accounting standard by a successor entity when a different basis of accounting exists between the predecessor and successor because of a change in control, pushdown accounting, or fresh-start reporting.

The SEC staff indicated that retrospective adjustment of the predecessor-period financial statements is not required in this instance since there is no U.S. GAAP or other regulatory requirement to do so.


1 SEC Regulation S-X, Rule 3-13, “Filing of Other Financial Statements in Certain Cases.”

2 Emerging growth company (EGC). See paragraph 10220.2 of the FRM, which notes that “an EGC is not required to present selected financial data in accordance with Regulation S-K, Item 301, for any period prior to the earliest audited period presented in that initial registration statement.”

3 SEC Regulation S-X, Rule 3-05, “Financial Statements of Businesses Acquired or to Be Acquired.”

4 SEC Regulation S-X, Rule 3-09, “Separate Financial Statements of Subsidiaries Not Consolidated and 50 Percent or Less Owned Persons.”

5 SEC Regulation S-X, Rule 3-14, “Special Instructions for Real Estate Operations to Be Acquired.”

6 The new accounting standards for revenue recognition and leases are FASB Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts With Customers, and FASB Accounting Standards Update (ASU) No. 2016-02, Leases, respectively. Note that when effective, ASU 2016-02 will supersede ASC 840, Leases, and add ASC 842, Leases.

7 SEC Regulation S-X, Rule 3-10(g), “Recently Acquired Subsidiary Issuers or Subsidiary Guarantors.”

8 Refer to paragraph 3230.2 of the FRM, which explains that a pro forma condensed income statement is required for all periods presented for transactions involving a common control merger or discontinued operations.

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