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Topic | Observations |
1. Foreign Currency | We do not support eliminating the third sentence of Rule 3-20(d) of Regulation S-X, which defines the currency of an operation's primary economic environment and a hyperinflationary environment. While the definitions are the same as included in ASC 830, its applicability is different. As explained in the Proposing Release, 33-7054 and the adopting release 33-7117, the guidance in Rule 3-20(d) of Regulation SX was developed to apply to the issuer, i.e., the parent company. The guidance in ASC 830 addresses the determination of the currency used for measurement and the assessment of a hyperinflationary environment for a subsidiary. The incremental guidance in Rule 3- 20(d) was considered necessary as foreign private issuers could choose their reporting currency and the Commission did not believe that the selection of the reporting currency should impact the determination of the currency used for measurement.
We recommend retaining the last sentence of the first paragraph of Rule 3-20(d) of Regulation S-X, which specifies compliance with Item 17(c)(2) of Form 20-F, which requires disclosure and quantification of departures from the specified methodology if the financial statements are prepared on a basis other than US GAAP or IFRS.
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2. Consolidation | We support the proposed amendments to the disclosure requirements. |
3. Obligations | We support the proposed amendments to the disclosure requirements. |
4. Income Tax Disclosures | We support the proposed amendments to the disclosure requirements. See our observations in the cover letter. |
5. Warrants, Rights, and Convertible Instruments | We support the proposed amendments to the disclosure requirements. |
6. Related Parties | We support the proposed amendments to the disclosure requirements. |
7. Contingencies | We support the proposed amendments to the disclosure requirements. |
8. Earnings per Share | We support the proposed amendments to the disclosure requirements. |
9. Insurance Companies | We support the proposed amendments to the disclosure requirements. |
10. Bank Holding Companies | We support the proposed amendments to the disclosure requirements. |
11. Changes in Accounting Principles | We support the proposed amendments to the disclosure requirements. |
12. Interim Adjustments | We support the proposed amendments to the disclosure requirements. |
13. Interim Financial Statements – Common Control Transactions | We support the proposed amendments to the disclosure requirements. |
14. Interim Financial Statements – Dispositions | We support the proposed amendments to the disclosure requirements. |
Topic | Observations |
1. REIT Disclosures – Undistributed Gains or Losses on the Sale of Properties and Status as a REIT | We support the proposed amendments to the disclosure requirements. |
2. Consolidation – Difference in Fiscal Periods and Changes in Fiscal Periods | We support the proposed amendments to the disclosure requirements. |
3. Repurchase and Reverse Repurchase Agreements – Balance Sheet Presentation, Disaggregated Disclosures, and Collateral Policy | We support the proposed deletions in Rule 4-08(m) except for the deletion of the requirement to disclose the registrant’s policy with regard to taking possession of securities or other assets purchased under agreements to resell (that is, reverse repurchase agreements).
As noted in the Proposing Release, US GAAP is not as specific with respect to taking possession of collateral. Therefore, we recommend that the disclosure be referred to the FASB for potential incorporation into US GAAP. We believe that disclosure about possession of collateral is an important aspect of reverse repurchase agreements and is useful information in understanding the credit risk associated with the transactions in which the registrant does not take possession of the collateral. |
4. Derivative Accounting Policy | We support the proposed amendments to the disclosure requirements. |
5. Distributable Earnings for Registered Investment Companies | We support the proposed deletion and amendments to the disclosure requirements. |
6. Insurance Companies – Liability Assumptions and Reinsurance Transactions | We support the proposed amendments to the disclosure requirements.
In addition, we do not believe the disclosure requirements for material nonrecurring reinsurance transactions should be referred to the FASB for potential incorporation into US GAAP. We believe nonrecurring reinsurance transactions are addressed by the disclosure requirements of ASC 944-20-50-3.
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7. Interim Financial Statements – Material Events Subsequent to the End of the Most Recent Fiscal Year | We support the proposed amendments to the disclosure requirements. |
8. Interim Financial Statements – Changes in Accounting Principles | We support the proposed amendments to the disclosure requirements.
The Proposing Release also questions whether the disclosure of the date of any material accounting change is necessary in light of the US GAAP requirement to disclose changes in accounting principles in the period of change. In our view, the actual date of change is unnecessary given the US GAAP requirements set forth in ASC 250,
which not only require an issuer to inform the reader that a change was made during the interim period, but also to communicate the reason the change was made, why the new principle was considered preferable, the method of applying the change, and any indirect effects of the change.
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9. Interim Financial Statements – Pro Forma Business Combination Information | We support the proposed amendments to the disclosure requirements.
In addition, as noted in our comment letter dated November 25, 2015 in response to the Request for Comment on the Effectiveness of Financial Disclosures about Entities Other Than the Registrant, we recommend that the Commission coordinate with the FASB to establish more consistency between the proforma presentation requirements in ASC 805
and Article 11. |
10. Interim Financial statements – Dispositions | We support the proposed amendments to the disclosure requirements.
As noted in the Proposing Release, smaller reporting companies are currently required to file proforma financial information for significant disposed businesses under Item 9.01 of Form 8-K. We understand there may be diversity in practice as the text of Rule 8-05 only refers to significant acquisitions and does not specifically refer to dispositions. In order for Item 9.01 of Form 8-K to sufficiently substitute for the disclosure requirements in Rule 8-03(b)(4), Rule 8-05 could be amended to address significant dispositions. |
11. Segments | We support the proposed amendments to the disclosure requirements. |
12. Geographic Areas – Financial Information and Risks and Dependence | We support the proposed amendments to the disclosure requirements. |
13. Seasonality – Interim Disclosures and Annual Disclosures | We support the proposed amendments to the disclosure requirements. |
14. Research and Development Activities – Domestic Issuers, Foreign Private Issuers, and Regulation A Issuers | We support the proposed amendments to the disclosure requirements. |
15. Warrants, Rights, and Convertible Instruments | We support the proposed amendments to the disclosure requirements. |
16. Dividends | We support the proposed amendments to the disclosure requirements.
However, it is not clear to us if the Commission’s intent is to require the changes in stockholders’ equity and noncontrolling interests to be required for just the year-to-date period, or the quarter as well. |
17. Equity Compensation Plans | We support the proposed deletion of the requirements in Item 201(d) with the exception of the requirement to disclose “any formula for calculating the number of securities available for issuance under the plan.” We recommend that this disclosure be referred to the FASB for potential incorporation into US GAAP. This information might be useful to investors, if material. ASC 718
provides a general disclosure objective that may imply this information should be disclosed. However, in our experience, such disclosure is not likely to occur without further clarification of how the general disclosure objective applies to formulas for calculating the number of securities to be awarded. |
18. Ratio of Earnings to Fixed Charges | We support the proposed amendments to the disclosure requirements. |
Topic | Observations |
1. Foreign Currency Restrictions | While it could be viewed as implicit, Rule 3-20 of Regulation S-X does not explicitly require the use of the US dollar. Rather than changing Regulation S-X to explicitly require US companies to report in US dollars, we recommend that the Commission consider providing US registrants the same flexibility in selecting their reporting currency as a foreign private issuer.
Alternatively, consideration should be given to codifying the staff policy to allow domestic issuers that have substantially all of their operations in a particular country to report using that reporting currency.
There are some domestic registrants that have substantially all of their operations in a foreign country whose financial statements and MD&A may be more understandable if presented in the currency of that country. For example, if the financial statements were prepared using the home country currency, there would not be variations in balances and amounts between years simply because of translation into US dollars.
For the same reasons, we believe that a foreign business that does not meet the definition of a foreign private issuer should be allowed to choose its reporting currency (i.e., similar to a foreign private issuer). Additionally, the foreign business may be required to use a currency other than the US dollar to prepare financial statements in a different market and it would not be beneficial to the shareholders to require the company to prepare financial statements using a different reporting currency solely for SEC reporting purposes.We do not have concerns with the proposal to move the restriction in Rule 3A-02 of Regulation S-X to Rule 3-20 of Regulation S-X. |
2. Restrictions on Dividends and Related Items – Domestic Issuers and Foreign Private Issuers | We support the proposed amendments to the disclosure requirements. |
3. Geographic Areas | We support the proposed deletion of Item 101(d)(4). However, we question whether the proposed revisions to Item 303 are necessary and believe they could be confusing as currently drafted. We believe the addition of the phrase “geographic area” right after “for each reportable segment” could be interpreted by some registrants to mean that separate MD&A discussions are required first on a segment by segment basis and then for the entire business broken down by geographic area, regardless of the basis for segment reporting. Others may interpret the amendments as providing a choice to reflect MD&A on a segment basis or geographic basis. Accordingly, we recommend that the Commission clarify the proposed revisions to avoid this potential misinterpretation. |
Topic | Observations |
1. REIT Disclosures – Tax Status of Distributions | We support referral of the disclosure requirements to the FASB for potential incorporation into US GAAP. |
2. Consolidation | While we do not oppose referral of the disclosure requirements to the FASB for potential incorporation into US GAAP, we observe that existing requirements may be sufficient to achieve the disclosure objective. For instance, ASC 810-10-50B
provides disclosure requirements for the deconsolidation of a subsidiary or a group of assets and ASC 805 provides disclosures upon acquisition of a controlling financial interest in a business. |
3. Discount on Shares | While we do not oppose referral of the requirement that discounts on shares be presented separately as a deduction from the applicable accounts to the FASB for incorporation into GAAP, we question whether the requirement provides useful information to investors given the following:
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4. Assets Subject to Lien | We support referral of the disclosure requirements to the FASB for potential incorporation into US GAAP. |
5. Obligations – Defaults Not Cured, Waived Defaults, Changes in Obligations, and Amounts and Terms of Financing Arrangements | We support referral of the disclosure requirements to the FASB for potential incorporation into US GAAP. |
6. Preferred Shares | We support referral of the disclosure requirements to the FASB for potential incorporation into US GAAP. |
7. Income Tax Disclosures | As noted in our cover letter, if the FASB adopts the Proposed Income Tax ASU as a Final ASU, we recommend that the Commission consider eliminating Rule 4-08(h) in its entirety, along with Commission and staff interpretive guidance, absent a specific disclosure objective that necessitates retaining the requirement. |
8. Related Parties | We support referral of the disclosure requirements to the FASB for potential incorporation into US GAAP. |
9. Repurchase and Reverse Repurchase Agreements | We support referral of the disclosure requirements to the FASB for potential incorporation into US GAAP. |
10. Interim Financial Statements – Computation of Earnings Per Share | We support referral of the disclosure requirements to the FASB for potential incorporation into US GAAP.
As highlighted in the Proposing Release, US GAAP does not explicitly require disclosure of the computation of EPS in interim filings. However, the disclosure requirements in ASC 260-10-50-1
(which include the reconciliation of the numerators and denominators of basic and diluted earnings per share) are required “for each period for which an income statement is presented.” We note the Basis for Conclusions to FASB No. 128
indicates that the Board decided to require the reconciliation of the numerators and denominators of the basic and diluted EPS computations because “the reconciliation is simple and straightforward and will help users better understand the dilutive effect of certain securities included in the EPS computations.” The Basis for Conclusions also indicates that the “reconciliation required by this Statement should satisfy the SEC requirement…” However, APB 28
(now ASC 270) was not amended to specifically mention the computation of EPS in the minimum required disclosures for interim financial statements. In light of these observations and the importance of EPS in interim financial statements, we support the potential clarification to US GAAP. |
11. Interim Financial Statements – Retroactive Prior Period Adjustments | We support referral of the disclosure requirements to the FASB for potential incorporation into US GAAP.
With respect to whether the application of the requirement to disclose the effect of retroactive prior period adjustments on retained earnings to smaller reporting companies would result in additional costs, we observe that these companies must account for retroactive changes in the same manner as companies that are not smaller reporting companies. Therefore, smaller reporting companies are already required to determine the impact of any such changes on retained earnings in order to recast their financial statements. |
12. Interim Financial Statements – Common Control Transactions | We support referral of the disclosure requirements to the FASB for potential incorporation into US GAAP. We believe that investors in certain entities, such as MLPs, may benefit from receiving information on key financial statement line items (e.g., income from continuing operations, net income) on a separate basis for comparable periods prior to a combination of entities under common control.
However, we question whether the supplemental separate results of the combined entities should be limited to interim periods, as currently proposed, particularly if separate entity results would be useful to investors. While the Proposing Release points to ASC 250-10-50-6 as the source of existing overlapping requirements on an annual basis, we do not believe those disclosures accomplish the same objective. We observe that such disclosures are only provided in the year of the change, rather than for each period until such entities have been combined for all periods presented. |
13. Products and Services | We believe the existing disclosure requirements about products and services in ASC 280
and Item 101 are similar to such an extent that it would be appropriate to delete the disclosure requirements in Item 101. Further, we do not believe that any of the differences in the disclosure requirements should be referred to the FASB for potential incorporation into US GAAP. While US GAAP provides an impracticability exception, we observe that the exception is infrequently utilized. To the extent it is invoked, we have observed the same impracticability issues with the Item 101 disclosure.
As it relates to the bright lines in Item 101(c)(1)(i), we believe the US GAAP disclosures are appropriate and sufficient, particularly considering the range of judgment necessary to aggregate revenue by classes of “similar products or services.”
With respect to whether issuers encounter challenges in disclosing revenue by products and services, it is our observation that most issuers identify their operating segments on the basis of product or service. In our experience, it is uncommon for issuers that define segments based on geography to assert that it is impracticable to disclose revenue based on products and services or groups of similar products and services. |
14. Major Customers | We believe the disclosure requirements about major customers in ASC 280 and Item 101 are substantially similar in that they share a common objective: to inform readers about significant concentrations in revenue with one or more customers. Accordingly, we recommend that the SEC delete its disclosure requirement with respect to major customers in Items 101(c)(1)(vii) and 101(h)(4)(vi) and request the FASB to consider at a future date whether (1) requiring or encouraging the naming of significant customers is necessary and appropriate and (2) to retain the current 10% bright line in ASC 280-10-50-42 for disclosure of revenue concentration by customer. |
15. Legal Proceedings | See our observations in the cover letter. |
16. Oil and Gas Producing Activities | While we believe ASC 932-235
is generally interpreted to apply to each period presented, we support referral of the disclosure to the FASB in order to clarify US GAAP. If the incremental requirement is ultimately added, we encourage the Commission to also delete Instructions 2 and 3 of Item 302(b).
It is our understanding that the current requirement that exempts smaller reporting companies from providing the oil and gas information under ASC 932 was simply a drafting error when the Commission incorporated the concepts of Regulation S-B into Regulation S-K and Regulation S-X. Regulation S-B did not provide an exemption from providing the supplemental disclosures required by US GAAP for companies engaged in oil and gas producing activities. Regulation S-B also did not require smaller reporting companies to provide the quarterly information other companies are required to provide under Item 302 of Regulation S-K, Supplemental Financial Information. When the Commission incorporated Regulation S-B into Regulation SX and Regulation S-K, they created Item 302(c) of Regulation S-K indicating that smaller reporting companies did not need to comply with this section. We believe this paragraph should have only exempted smaller reporting companies from providing the information required by Item 302(a). This would be consistent with the objective of incorporating the concepts of Regulation S-B into Regulations S-X and S-K.
We believe amending Item 302 to limit the exemption to paragraph (a) and thus require disclosure of the information under paragraph (b) would be appropriate. It is not clear what action the FASB should take to address this issue given such disclosures are already required by GAAP. |
Topic | Observations |
1. Stale Transition Dates | We support the proposed amendments to the disclosure requirements. |
2. Income Tax Disclosures | We support the proposed amendments to the disclosure requirements. |
6. Foreign Private Issuer (FPI) Initial Public Offering (IPO) Age of Financial Statements | We support the proposed amendments to the disclosure requirements. |
Topic | Observations |
1. Auditing Standards | We support the proposed amendments to the disclosure requirements. |
2. Statement of Cash Flows | We support the proposed amendments to the disclosure requirements. |
3. Gain or Loss on Sale of Properties by REITs | We support the proposed amendments to the disclosure requirements. |
4.a. Consolidation – Difference in Fiscal Periods | We support the proposed amendments to the disclosure requirements. |
4.b. Consolidation – Bank Holding Company Act of 1956 | We support the proposed amendments to the disclosure requirements. |
4.c. Consolidation – Intercompany Transactions Generally | We support the proposed amendments to the disclosure requirements. |
4.d. Consolidation – Intercompany Transactions in Separate Financial Statements | We support the proposed amendments to the disclosure requirements. |
4.e. Dividends Per Share In Interim Financial Statements | We support the proposed amendments to the disclosure requirements. |
4.f. Interim Financial Statements – Pro Forma Business Combination Information | We support the proposed amendments to the disclosure requirements. |
5. Development Stage Entities | We support the proposed amendments to the disclosure requirements.
We also recommend that the definition of development stage entity be deleted from Rule 1-02(h). |
6. Insurance Companies – Statutory Accounting Requirements, Reinsurance Recoverable, and Separate Account Assets | We support the proposed amendments to the disclosure requirements. |
7. Bank Holding Companies – Net Presentation and Goodwill | We support the proposed amendments to the disclosure requirements. |
8. Discontinued Operations | We generally support the proposed amendments to the disclosure requirements.However, we believe the SEC should consider different revisions to Item 302 to better accomplish the disclosure objective outlined. In lieu of the proposed changes, we recommend that the SEC amend Item 302(a)(1) to require that the supplementary quarterly financial information include “income (loss) from continuing operations” where it previously had required “income (loss) before extraordinary items and cumulative effect of a change in accounting principle.” Presenting “income (loss) from continuing operations” as well as “net income (loss)” would highlight the effects of discontinued operations.
We note that when the proposed edits to the SEC Demonstration version of the Proposal, Item 302(a)(1) requires disclosure of “income (loss),” which instead should refer, as we suggest above, to “income (loss) from continuing operations.
We also recommend that the SEC reconsider what interim period financial metrics it requires to be disclosed on a per share basis and make them consistent with measures that are presented on the face of the interim income statements. |
9. Pooling-of-Interests | We support the proposed amendments to the disclosure requirements. |
10. Statement of Comprehensive Income | We support the proposed amendments to the disclosure requirements. |
11. Extraordinary Items | We support the proposed amendments to the disclosure requirements. |
12. Cumulative Effect of Changes in Accounting Principles | We support the proposed amendments to the disclosure requirements. |
14. Selected Financial Data for Foreign Private Issuers that Report under IFRS | We support the proposed amendments to the disclosure requirements. |
15. Canadian Regulation A Issuers | We support the proposed amendments to the disclosure requirements. |
16. Non-Existent or Incorrect References | We support the proposed amendments to the disclosure requirements. |
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