Practical tip: An emerging growth company should evaluate whether it needs to make disclosures relating to transition to new or revised accounting standards in its next SEC filing

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Practical tip 04/24/2012 by Assurance services
Practical tip: An emerging growth company should evaluate whether it needs to make disclosures relating to transition to new or revised accounting standards in its next SEC filing

At a glance

Ordinarily, a company preparing an SEC filing must apply all accounting standards (including transition provisions) as if it had always been a public company. The JOBS Act of 2012, however, provides an exception to this general rule. Under Section 102(b) of the JOBS Act, an emerging growth company (EGC) may apply any new or revised financial accounting standard on the same date a company that is not an issuer (as defined in the Sarbanes-Oxley Act) is required to apply the new or revised accounting standard, if the standard applies to a non-issuer. This Practical tip highlights that an EGC should evaluate whether it needs to make disclosures relating to transition to new or revised accounting standards in its next SEC filing.

Ordinarily, a company preparing an SEC filing must apply all accounting standards (including transition provisions) as if it had always been a public company. The Jumpstart Our Business Startups Act of 2012 (the JOBS Act), however, provides an exception to this general rule.

Under Section 102(b) of the JOBS Act, an emerging growth company (EGC) may apply any new or revised financial accounting standard on the same date a company that is not an issuer (as defined in the Sarbanes-Oxley Act) is required to apply the new or revised accounting standard, if the standard applies to a non-issuer. If the new or revised accounting standard does not apply to a non-issuer, then an EGC must apply it according to the transition provisions for a non-EGC.

Note:  The definition of an emerging growth company is set forth in Section 101 of the JOBS Act.  Any company that files with the SEC (including debt-only issuers) and that did not sell equity in a Securities Act offering on or before December 8, 2011 should consider whether it meets the definition of an EGC

Section 107(b) of the JOBS Act provides that if an EGC decides to apply new or revised accounting standards on the same basis as a non-EGC it must:

  • make that decision when it is first required to file a registration statement, periodic report, or specified other report with the SEC;
  • notify the SEC of that choice;
  • comply with all standards to the same extent as a non-EGC; and
  • continue to comply with those standards to the same extent as a non-EGC for as long as the company remains an EGC (i.e., the election to follow non-EGC transition is irrevocable).

EGCs should carefully consider these sections of the JOBS Act in connection with their first registration statement (including a confidential submission), periodic report, or specified other report prepared on or after April 5, 2012. For many calendar year-end EGCs, their March 31, 2012 Form 10-Q will be their first report on or after April 5, 2012.

The accounting standards transition choice is styled as an "opt-out." We understand this means that an EGC is presumed to be following non-issuer transition provisions unless it decides to follow non-EGC transition (and properly notifies the SEC of that choice). The SEC staff provided additional guidance on this topic in FAQ 13 of JOBS Act FAQs: Generally Applicable Questions on Title I of the JOBS Act.

Note:  Even though the JOBS Act ties the SEC notification requirement to a decision to "opt-out" (i.e., to follow non-EGC transition), we understand that for clarity, the SEC staff may ask EGCs to disclose a decision to follow non-issuer transition as well. 

If an EGC is following the transition provisions applicable to non-issuers, it should evaluate the disclosure requirements of Staff Accounting Bulletin No. 74 (Topic 11-M) and should consider disclosing the effective date for non-EGCs in addition to the effective date that will apply to the EGC (assuming it remains an EGC). The SEC staff provided additional guidance on this topic in FAQ 14 of JOBS Act FAQs: Generally Applicable Questions on Title I of the JOBS Act.

Questions

PwC clients that have questions about this Practical tip should contact their engagement partner. Engagement teams that have questions should contact John May (1-973-236-4793) or Bill Burke (1-973-236-4229) in the National Professional Services Group.

Authored by:

John A. May
Partner
Phone: 1-973-236-4793
Email: john.a.may@us.pwc.com

Bill Burke
Senior Manager
Phone: 1-973-236-4229
Email: william.f.burke@us.pwc.com