During the recent 2016 AICPA National Conference, SEC staff, including Wesley Bricker, the newly appointed Chief Accountant, provided issuers disclosure guidance for 2017.
Non-GAAP Measures. Mr. Bricker emphasized that audit committees should understand the non-GAAP measures used by management and the controls surrounding their preparation. Meanwhile, Mr. Mark Kronforst, Chief Accountant in the SEC’s Division of Corporation Finance, explained that while the SEC staff does not frequently issue comments objecting to non-GAAP adjustments related to restructuring, legal settlements, stock-based compensation expenses or the impact of purchase accounting adjustments for the step up in inventory or amortization that will only have a short-term impact, the SEC will consider the size of the adjustments and the explanations provided to ensure that the adjustments comply with the CDI guidance. Mr. Kronfrost also indicated that the SEC staff is currently conducting outreach to better understand the scope of adjustments being taken for pensions and derivatives. The SEC will generally not address these adjustments in comment letters until the outreach is completed and the SEC staff has concluded on the appropriateness of these types of adjustments. Finally Ms. Helen Munter, PCAOB Director of Registration and Inspections, stated that she expects the PCAOB to focus on non-GAAP performance measures in the upcoming year, specifically examining what incremental work auditors are doing with respect to these measures.
Segment Reporting – Nili Shah, Deputy Chief Accountant, reminded registrants that the determination of operating segments continues to be a focus of comment letters. She stated that it is important for registrants to critically examine all of the aggregation criteria for operating segments and all of the economic characteristics (quantitative, qualitative, and consistency with the overall principle), rather than only looking to the quantitative characteristics in making the determination.
Income Tax Disclosure – Ms. Shah stated that the SEC staff is concerned about a lack of improvement in the presentation of the income tax related disclosure in the financial statements and the MD&A. Specifically, the SEC staff is focused on income tax rate reconciliations, boilerplate disclosures related to changes in valuation allowances and unrecognized tax benefits, and the indefinite reinvestment assertion. She stated that unless there is improved disclosure in these areas this year, the SEC staff will likely begin issuing comments. In addition, Ms. Shah discussed the tax-related disclosures that she believes should be addressed in MD&A, including the reasons for changes in the statutory and effective tax rates (ETR), the extent to which the historical ETR is indicative of the future tax rate, the effect of taxes on liquidity, and uncertainties related to the registrant’s tax positions.