The SEC staff recently addressed best practices for financial statement disclosure in periods leading up to the adoption of recently issued accounting standard updates, or ASUs. In particular, the SEC staff commented on the application of Staff Accounting Bulletin (SAB) Topic 11.M “Disclosure of the Impact That Recently Issued Accounting Standards Will Have on the Financial Statements of the Registrant When Adopted in a Future Period,” to three significant ASUs to be implemented over the next few years:
- ASU 2014-0, Revenue from Contracts with Customers,
- ASU 2016-2, Leases (Topic 842), and
- ASU 2016-13, Measurement of Credit Losses on Financial Instruments.
In the Sept. 22 meeting of the FASB’s Emerging Issues Task Force, or EITF, the SEC staff announced that, if a company is unable to reasonably estimate the impact of adopting such ASUs, the company should consider additional qualitative financial statement disclosures to assist readers in determining the significance of the effect that the ASU will have on its financial statements when adopted.
In the staff’s view, such disclosure should include:
- a description of the effect of the accounting policies that the company expects to apply, if determined,
- a comparison with current accounting policies, and
- the company’s progress in implementing the new standards and any significant implementation matters that it still needs to address.
The recent announcement supplements existing guidance in SAB Topic 11.M that a company should evaluate each new accounting standard to determine appropriate disclosure. The disclosure should inform the reader that a new accounting standard has been issued which the company will be required to adopt in the future, and should assist the reader in assessing the significance of the impact that the standard will have on the company’s financial statements when adopted.
The SEC staff stated that the objective in making the announcement in September was to give companies sufficient time to consider the announcement before their year-end financial reporting, and that companies are encouraged but not expected to include these disclosures in financial statements for earlier periods. The SEC staff announcement will be available in the EITF meeting minutes once they are published.