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15 January 2018
Corp Fin recently revised some of the guidance in its Financial Reporting Manual related to adoption of new accounting standards. One revision relates to the adoption of a new accounting standard in the context of a significant acquisition, and the second relates to transition period accommodations for EGCs. This new guidance could take on particular significance in the context of the new revenue recognition standard.
At the 2017 PLI Securities Regulation Institute, Corp Fin Chief Accountant Mark Kronforst discussed the recent effort by Chair Clayton and others encouraging the use of the Reg S-X Rule 3-13 waiver process. In the event that mandated disclosures are burdensome to generate, but may not be material to the total mix of information available to investors, companies can seek waivers under Rule 3-13 of Reg S-X to modify their financial reporting requirements. (See this PubCo post and this PubCo post.) Apparently, the process is not often used, but relief is almost always granted, he said. However, that may be because companies have been guided in their submissions by the experience of audit firms as to what will fly. Kronforst noted that the companies can also streamline their request letters to focus on key issues. There's no harm in asking, and companies should first speak with the experts identified in the Corp Fin Financial Reporting Manual to get a feel for what will work. Expedited turnaround time is around five days. (See this PubCo post.)
An EGC may elect to defer compliance with new or revised financial accounting standards until a company that is not an "issuer" as defined under SOX would be required to comply with those standards, if those standards apply to non-issuers. (Under SOX, an "issuer" is an entity with securities registered under section 12 of the Exchange Act or that is required to file reports under section 15(d), or that files or has filed a registration statement that has not yet become effective under the Securities Act, and that it has not withdrawn.) The term new or revised financial accounting standards refers to any update issued by the FASB to its Accounting Standards Codification after April 5, 2012, the date of enactment of the JOBS Act. (Section 10230.1; see Section 10300 for companies filing under IFRS as issued by the IASB.)
In 2012 guidance, the staff advised that EGCs should notify the review staff of their choices in their initial confidential submissions (although not technically required because the submission is not "filed"), as those choices will inform the staff's review.
Note that this approach is in contrast to the approach for "scaled disclosure," which allows EGCs to elect to follow some of the scaled disclosure provisions and some of the regular disclosure requirements.
For further information on this topic please contact Cydney Posner at Cooley LLP by telephone (+1 415 693 2000) or email (firstname.lastname@example.org). The Cooley LLP website can be accessed at www.cooley.com.
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