Financial Reporting Reminders for SEC Registrants Adopting the FASB’s New ASUs on Other Comprehensive Income
For public entities, ASUs 2011-051 and 2011-122 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Below is a discussion of financial reporting considerations related to condensed financial information that registrants should take into account when adopting these two ASUs.
Presentation of Other Comprehensive Income in Interim Financial Statements
An entity must present a total for comprehensive income in its interim statements but is not required to present the individual components of other comprehensive income (OCI) as it would for annual reporting purposes. However, an entity that has previously displayed the components of OCI for interim periods (i.e., within a full statement as with annual periods) may continue to do so either in a single continuous statement or in two consecutive statements. For additional background and discussion, see Deloitte’s Financial Reporting Alert on the presentation of OCI.
Interaction of OCI Presentation With Other Condensed Financial Information
Under Regulation S-X, Rule 3-10,3 (1) the issuer of a guaranteed registered security and (2) each guarantor must file separate financial statements as if it were a registrant. However, Rule 3-10 also contains exceptions to this general rule that registrants can apply if certain conditions are met. For example, a registrant may present condensed consolidating information in a footnote (the “guarantor footnote”) in lieu of providing separate financial statements.
In addition, Regulation S-X, Rule 5-04,4 states that a registrant is required to present the parent’s condensed financial information (detailed in Regulation S-X, Rule 12-045 or “Schedule I”) when the restricted net assets “of consolidated subsidiaries exceed 25 percent of the consolidated net assets as of the end of the most recently completed fiscal year.”
Rule 3-10 and Rule 12-04 both indicate that the form and content of the condensed financial information for the guarantor footnote and Schedule I are based on the requirements of Regulation S-X, Article 106 (the guidance applicable to interim financial statements). While Article 10 does not specifically address the presentation of comprehensive income, a registrant should present total comprehensive income in its guarantor footnote and Schedule 1 in a manner consistent with the interim requirements for the registrant’s primary financial statements7 (discussed above).
Recast of Historical Annual Financial Information
Once the ASUs have been reflected in issued interim financial statements, a registrant would normally be required to revise its historical annual financial statements included or incorporated by reference in a new or amended registration statement (if the change is material). At the 2011 AICPA Conference on Current SEC and PCAOB Developments, the SEC staff noted that it would not object if a registrant concludes, and its auditor agrees, that there is no need to retrospectively revise the previously issued annual financial statements, as long as the registration statement includes prominent transparent disclosure of the following:
- Net income.
- Components of OCI that would be on the face of the financial statements in accordance with ASU 2011-05.
- Reclassification adjustments that would appear in net income and OCI, to the extent required under the new guidance.
- Total OCI.
- Total comprehensive income.8
This information should be included for all periods that would have been shown in retrospectively revised financial statements. One method of presentation that a registrant may use is a tabular format similar to the table typically used to present selected financial data.
In addition, a registrant should consider the need for disclosures related to retrospective adjustments to condensed consolidating information in a guarantor footnote and Schedule I that were previously reported in the registrant’s most recently filed Form 10-K.
|
Editor’s Note: An alternative approach to presenting the suggested disclosures is to include the information in Item 5 of a Form 10-Q in the quarter of adoption. Thus, the information would be incorporated by reference into an existing or future registration statement. |
[1] FASB Accounting Standards Update No. 2011-05, Presentation of Other Comprehensive Income.
[2] FASB Accounting Standards Update No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.
[3] SEC Regulation S-X, Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.” Rule 3-10 is applicable for annual and interim periods.
[4] SEC Regulation S-X, Rule 5-04, “What Schedules Are to Be Filed.” Rule 5-04 is applicable for annual periods only.
[5] SEC Regulation S-X, Rule 12-04, “Condensed Financial Information of Registrant.”
[6] SEC Regulation S-X, Article 10, “Interim Financial Statements.”
[7] See paragraphs 2515.2 and 2810.1 in the SEC Division of Corporation Finance’s Financial Reporting Manual for additional information about the SEC staff’s interpretive guidance on the presentation of total comprehensive income in a registrant’s guarantor footnote and Schedule 1, respectively.
[8] For more information on this topic, see the highlights of the September 2011 CAQ SEC Regulations Committee joint meeting with the SEC staff.
