Corp Fin Updates Financial Reporting Manual

The new version revises topics including reporting status (according to Section 404 in the Sarbanes-Oxley Act), financial statement requirements for multiple series registrants, income averaging, changes in accountants, and foreign business financial statements, says Melanie Dolan, a partner in audit and risk advisory at KPMG and a former associate chief accountant in Corp Fin.

The staff deleted guidance about including interest payments, tax liabilities, and pension and Other Post-Employment Benefit (OPEB) funding obligations in a registrant's Contractual Obligations Table to be consistent with discussion of these topics in the Commission's Guidance on Presentation of Liquidity and Capital Resources Disclosure in Management's Discussion and Analysis issued in September, Dolan says.

The new version represents the SEC staff's clarification and consolidation in one manual of positions that the Commission Staff took in the fourth quarter of last year, says Steven Jacobs, a partner in assurance at Ernst & Young.  “The manual is not Commission-level guidance, which has a much higher authority; it's the views of the Staff.”

The “highly informal” manual is “designed to be an internal reference document and to provide general guidance only to Division staff,” the staff said in the manual.

“The changes are pretty minimal and I group them into four buckets,” says Jacobs. “One is guidance for combined reporting, so if you have a parent and subsidiary that are each issuers, the SEC Staff has provided its views on how and when companies may be able to file a combined 10-k.”

Another change is a clarification on a point related to significance tests, which are required for separate financial statements, says Jacobs. This refers to an update three months ago that the staff did, where they were loosening their position on being able to use a 5-year average in calculating significance if you have a loss in the most recent year, where previously they had prohibited it.

In the third “bucket” is another clarification point related to the age of financial statements for acquired foreign business, Jacobs says.

“The biggest issue overall is that the SEC deleted a lot of guidance that they had related to the contractual obligations table and how you may classify things in the contractual obligations table of MD&A,” says Jacobs. “The reason for those changes was that in the fourth quarter of last year, the Commission itself issued an interpretive guidance that included how you present the contractual obligations table that provided companies with a lot more flexibility, so these changes were to align the staff guidance in the manual with the guidance that the Commission issued already.”