Top 5 Year-end financial reporting reminders

Start adding items to your reading lists:
or
Save this item to:
This item has been saved to your reading list.

Video , PwC US Dec 13, 2018

Watch our video on the top 5 Year-end financial reporting reminders

This time of year can be quite hectic from a financial reporting perspective for calendar year-end companies. To help you prepare as you go into year end, we would like to share with you our top 5 financial reporting reminders for 2018. See all of our year-end financial reporting resources.

loading-player

Playback of this video is not currently available

Duration: 8:38

Transcript

Hi, I'm Marc Jerusalem, a director in PwC's National Office.

And I'm Chenelle Manley, a senior manager in PwC's National Office.

This time of year can be quite hectic from a financial reporting perspective for calendar year-end companies.

This is especially true this year given the adoption of the revenue standard earlier this year, the pending adoption of the leasing standard in 2019 and preparing for the adoption of the credit loss standard as well.

So to help you prepare as you go into year end, we would like to share with you our top 5 financial reporting reminders for 2018. These topics are:

  1. SEC Comment letter trends
  2. Tax reform
  3. Cybersecurity
  4. Brexit; and
  5. Leases

So Marc, lets kick it off.

Let's start with number one - SEC comment letter trends.

Last month, we launched a new webtool for our analysis of SEC comment letter trends. The new interactive format is available to all on CFOdirect.com.

The webtool is organized by overall trends and allows a user to drill down to the top 10 trends for each specific industry. It also includes example comments and relevant guidance for addressing comments.

The webtool will be updated quarterly on a trailing twelve month basis. So, the current SEC comment letter trends are based on the year ended September 30, 2018.

We encourage you to utilize this webtool when preparing to address comment letter trends in the coming year.

The number of comment letters issued has decreased overall and in most industries since last year. The SEC staff’s focus areas remained generally consistent with those from the prior year, although there was a decrease in the number of comments related to the use of non-GAAP financial measures. Although the number of comment letters has decreased, this topic is still on the SEC's radar.

The focus areas have included the prominence of the presentation of non-GAAP measures, consistency of adjustments, adjustments to related recurring cash expenses, and disclosure of why the non-GAAP metric provides useful information to investors.

Next, lets cover the second key reminder...we're coming up on the one-year anniversary of US tax reform being signed into law.

Chenelle, can you cover the latest on tax reform?

Thanks Marc. The SEC allowed companies to account for the effects of tax reform on a provisional basis for up to a year from the period of enactment.

Companies will now need to finalize all adjustments for items previously disclosed as incomplete or provisional by December 22, 2018.

This means any relevant accounting policy elections, like GILTI and valuation allowance policies, as well as all the other aspects of tax reform must be complete by the end of this year.

Marc, can you talk about our third reminder - the recent news related to SEC cybersecurity enforcement actions.

Sure Chenelle...the SEC recently charged a broker-dealer and investor adviser firm with violating two rules, the Safeguards Rule and the Identity Theft Red Flags Rule.

These rules are designed to protect confidential customer information and to protect customers from the risk of identity theft.

While these rules are not new, their enforcement is.

That firm settled charges with the SEC and agreed to pay $1 million related to its failures in cybersecurity policies and procedures surrounding a cyber-intrusion that compromised personal information of at least 5,600 of its customers.

This was the first SEC enforcement action charging violations of the Identity Theft Red Flags Rule.

Companies should also consider the Interpretive Release issued by the SEC in February 2018. The guidance encouraged more disclosure in various cybersecurity areas, particularly when there is a known breach.

Now, we’ll turn our attention to another hot topic – Number 4: Brexit!

At this moment, it is difficult to predict how Brexit will unfold.

Absent further agreements, the UK is expected to leave the European Union in just over three months, on March 29, 2019. The parties are working to negotiate the details of the withdrawal.

Even with a draft agreement on Brexit, the details of a new trade deal between the UK and EU will not be clear for some time.

The outcome with the biggest disruption is a "no deal" outcome, in which the UK would exit the EU without coming to an agreement on the terms of its withdrawal. This risk will continue to exist until a deal is ratified by both the UK and EU parliaments.

With all this uncertainty, it is imperative that companies assess the risks of the various outcomes and be prepared to describe those risks to their investors and other constituents.

The Brexit scenarios will not only affect UK and EU based companies.

It will also impact US companies that conduct business with others that are based in the UK or EU.

Brexit, deal or no deal - could impact customs, tariffs, staffing of services, and even the acceptance of UK or EU certifications, just to name a few.

Companies that sell or buy high volumes of goods or services to or from the UK or EU, or that have significant UK exposure further down their supply chains, should be prepared to disclose the risks and uncertainties resulting from the possible Brexit outcomes.

The SEC Chairman, Jay Clayton, has publicly stated that the SEC is focused on disclosures about the risks associated with Brexit.

Companies should be prepared to describe the impact that Brexit, deal or no deal - will have on their trends and disclosures, including MD&A and risk factors.

Now onto number five: One of the most significant upcoming accounting changes is the new leases standard, which will be effective for most companies beginning Jan. 1, 2019.

Marc, what can we tell people about that new standard that they don't already know?

Thanks Chenelle. I think one of the sleeper issues relates to identifying whether arrangements contain leases.

We just want to make sure companies have considered that the evaluation under old GAAP and new GAAP are not the same. We think that most companies will adopt the new leases standard electing to use the package of practical expedients described in the standard.

That package allows companies to not reevaluate whether an arrangement is a lease, or their lease classification.

So, we know that many companies will use this election. However, some companies may not have previously evaluated whether supply or service arrangements contain leases.

In that case, they must evaluate those arrangements before adopting the new standard, using the old guidance, because that is what "electing the package of practical expedients" requires.

The definition of a lease under the new leases standard is narrower than the old guidance. Therefore, when adopting the new standard, someone evaluating an arrangement under the new guidance may inappropriately exclude certain leases existing under the old guidance from their analysis.

It is possible that more arrangements are leases today than tomorrow.

So, when a company elects to use the package of practical expedients, it should be careful to carry forward its broader lease evaluation under old GAAP, rather than evaluate the arrangement under new GAAP.

Chenelle, back to you.

Great points on leases Marc! Thanks.

So, that rounds out our top 5 financial reporting reminders for 2018.

For more information on any of the topics highlighted today, you can read The Quarter Close, available on CFOdirect.com, and watch our Q4 Current Accounting and Reporting Developments webcast.

Thanks for joining us!

Contact us

Heather Horn

US Strategic Thought Leader, National Professional Services Group, PwC US

David Schmid

IFRS & US Standard Setting Leader, National Professional Services Group, PwC US

Follow us