Top 5 Interim reporting reminders

Video Mar 27, 2017

Picking your head up after closing the year end books? Hear PwC’s Top 5 Interim reporting reminders as you head into Q1. Brian Ness and Brian Schramm discuss how interim disclosures differ from annual requirements, how adopting new standards may affect you, share some thoughts on early warning disclosures, and more.

Top 5 Interim reporting reminders

Hear PwC's Top 5 Interim reporting reminders as companies head into Q1.

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This video was originally released on 2/22/2016.

This video is part of The quarter close publication and video perspectives series.

Transcript

Brian Ness: Hello, I'm Brian Ness, a Partner in the National Office, and I’m joined by my colleague Brian Schramm.

With the calendar year-end reporting cycle behind us, we turn our focus to the interim reporting periods. To help you prepare for the upcoming quarter end, we are going to provide our Top 5 interim reporting reminders.

In preparing interim financial statements, public companies can assume that users have read the year end audited financial statements. Therefore, disclosures that would substantially duplicate the annual disclosures, such as significant accounting policies are not required. Material contingencies, however, are required whether or not there has been a change.

Interim footnotes should generally focus on items that have significantly changed since year end or events that have occurred since year end. For example, property plant and equipment disclosures and stock based compensation disclosures are not required unless there has been significant activity during the year.

However, certain standards require interim disclosures. In some cases, this disclosure is less than required in annual periods. While segment disclosures are required, companies do not need to include certain elements such as disclosure of major customers.

In other cases, the interim disclosure requirements mirror those of the annual period. For example, the disclosure for fair value measurements and financial instruments are the same for interim and annual periods. Now that we’ve covered disclosures in general let’s dive deeper into equity method disclosures.

Brian Schramm: Separate financial statements of significant equity method investees are required in connection with 10-K filings, however, 10-Q’s only require summarized information. SEC rules require summarized income statement information to be disclosed in interim financial statements for each significant equity method investee. However, this disclosure is only required if the investee would be required to file a 10-Q if it were a registrant. For example, if the investee is a foreign private issuer, these disclosures would not be applicable.

Companies need to perform the significance test each quarter as equity investees can ping pong back and forth between significance levels. To the extent they are deemed significant in an interim period, summarized information should be provided for these entities in the 10-Q. The summarized income information is presented on a comparative basis and can be aggregated with other significant investees.

Brian Ness: Now turning to the adoption of new standards. It is common for new standards to be adopted in the first quarter. Those standards may require a different level of disclosure in the annual financial statements as compared to the disclosures that are required in interim financial statements that are prepared until the next annual financial statements are filed. This is true even if the disclosure requirements of new accounting standards are only applicable for annual periods.

Brian Schramm: At times, the adoption of new accounting standards require retrospective application. This can lead to the need to recast prior periods in connection with periodic reporting or new or amended registration statements.

As Brian noted, it’s common for new accounting standards to be adopted in the first quarter. If the standard requires retrospective application, companies considering filing new or amended registration statements will need to give consideration as to whether the change is material. If the changes are material the annual financial statements included in the 10-K will need to be recasted to give effect to the new accounting standard.

Similar consideration would also need to be given for any new discontinued operations, segment changes or voluntary accounting changes that require retrospective accounting treatment.

Brian Ness: Let’s round out our top 5 with some reminders on early warning disclosures for potential impairments. As we noted, a company is not required to repeat critical accounting estimates unless a material change has occurred. For these events, the disclosures should be updated.

Estimates related to goodwill impairment are often identified as critical estimates. When there are reporting units at risk for impairment, companies should consider the necessary disclosures, including:

  • the amount of goodwill in the reporting unit
  • the percentage by which fair value exceeded carrying value as of the date of the most recent test
  • a description of the methods and key assumptions used and how they were determined
  • a discussion of the degree of uncertainty associated with the key assumptions
  • and descriptions of potential events or changes in circumstances that could reasonably be expected to negatively impact key assumptions.

We hope this Top 5 helps make your interim reporting process a bit smoother. As always, for more information, please download our financial statement presentation guide available at CFOdirect.com

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