By Denise Lugo
Companies will not see much change in quarterly disclosure rule requirements from what they provide currently but will find it easier to know where to look, according to FASB discussions on August 19, 2020, on the topic.
The board said it would stick with the status quo on disclosure rules relevant to 10Qs, the forms companies file with the SEC every three months.
“We are trying to update our codification in a way that is consistent with the status quo,” FASB member Marsha Hunt said. “And while I know anytime that we change any word in the codification there is a presumption I guess that we are trying to make a change, and in this case we’re trying to just document continuation of a model that’s been working well for a lot of stakeholders.”
The FASB’s revisions to interim reporting disclosure rules will be done so that companies would look to Topic 270, Interim Reporting, with a link to various disclosure requirements in the GAAP codification.
Topic 270 would get a principle based on changes to SEC Regulation S-X, Rule 10-01, Interim Financial Statements, according to board discussions. The principle for interim reporting would establish reporting requirements in addition to a specific list of required disclosures.
Companies would continue to focus on the transaction or event that has a material effect on the business, the discussions indicated. The language of the rules would indicate that updates resulting from a significant event should be disclosed in the notes and aligned with what would be provided under the annual disclosure requirements, board members said. That is intended to make updated interim information parallel with how annual information has been conveyed to enable users to clearly identify the new information.
“It parallels the existing disclosures,” FASB member Gary Buesser said. “The reason for that, first, I believe investors view the current types of Q disclosures positively. Every investor has some issue they have about ‘I’d rather have some additional disclosure etc.’ but overall, they view it positively,’ he said.
Buesser, one of the investor’s voices on the board, pointed to the differences in how investors and accountants view 10Qs. Investors view it as a discrete period while accountants view it as update to the annual report.
“Investors want quantitative rather than qualitative information and they want it disclosed consistently quarterly by quarter so they can do trend analysis and down load info,” Buesser said. “So to me retaining the current structure in what happens with Qs disclosures makes sense to me,” he said.
Rejects Pulling in Six New Disclosures
A majority of the FASB rejected adding disclosure rules under Topic 270 related to the following: advertising and research development costs; compensation accruals based on current year’s financial performance; breakout of certain balance sheet items; valuation and qualifying accounts; income taxes; factoring arrangements, and major customers.
Many of those disclosures would be required under other rules or would add complications, FASB Vice Chairman James Kroeker pointed out.
“I know on advertising there might be some policy elections of that on an entity basis. I would have thought that that would have already been covered by the guidance where if you have a policy election you need to disclose that policy,” Kroeker said. “If an entity at year end said ‘here is how I account for advertising, including how I account for it at interim,’ then I would have thought in Q1 you would not have needed to then discuss that further unless of course it was materially different than year-end subject to the catch all principle,” he said.
The item related to compensation was raised by an investor who was trying to get an indirect understanding of financial performance at an interim period and was basically looking for earnings guidance, Kroeker observed. And related to the topic of major customers there are already portions of GAAP that require a company to disclose a major customer – though they are not required to mention the customer by name, he said.
The board’s work on interim disclosures is part of its broader efforts to improve the effectiveness of disclosures in the notes to financial statements.
This article originally appeared in the August 20, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.
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