FASB Publishes New Accounting Standard to Incorporate 14 SEC Disclosure Rules into GAAP

The FASB on Oct. 9, 2023, issued an accounting standard that pulls 14 SEC disclosure requirements into the U.S. GAAP codification—provisions that will remain in “pending content” until SEC action and could therefore expire in about four years.

The board published Accounting Standards Update (ASU) No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, to introduce narrow changes into GAAP from disclosures that originate in either Regulation S-X or Regulation S-K— the SEC ’s rules about the form and content of financial reports.

For public companies, the provisions are contingent on when the SEC removes the related disclosure from Regulation S-X or Regulation S-K becomes effective, the FASB said. For all other entities, the amendments will be effective two years later.

An unusual twist to the guidance is that if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, “the pending content of the related amendment will be removed from the Codification and will not become effective for any entity.”

Some of the amendments represent clarifications to, or technical corrections and because of the variety of topics, “a broad range of entities may be affected by one or more of those amendments,” according to the rules’ text.

In general, the changes are expected to be welcomed by users of financial statements, enabling them to more easily compare businesses that are subject to the SEC’s existing disclosures with those that were not previously subject to the SEC’s requirements. The guidance also aligns the requirements in the codification with the SEC’s regulations.

The guidance must be prospectively applied and early adoption is prohibited, the board said.

The rules come seven years after the SEC’s action in July 2016 to propose amendments to certain of its disclosure requirements that are believed to be duplicative, overlapping, or out of date in light of its disclosure requirements or those that are in the FASB codification. After considering feedback on its proposal, the SEC issued a final rule in August 2018 and formally referred 27 disclosure requirements for the FASB to consider adding to current GAAP.

In 2019, the FASB issued an exposure draft with 19 of the 27 disclosures referenced by the SEC for public comment. Subsequently this year, the board voted to finalize 14 of the proposed disclosures.

The disclosures are:

• Subtopic 230-10, Statement of Cash Flows—Overall: requires an accounting policy disclosure in annual periods of where cash flows associated with derivative instruments and their related gains and losses are presented in the statement of cash flows.
• Subtopic 250-10, Accounting Changes and Error Corrections—Overall: requires that when there has been a change in the reporting entity, the entity disclose any material prior-period adjustment and the effect of the adjustment on retained earnings in interim financial statements.
• Subtopic 260-10, Earnings Per Share—Overall: 1) requires disclosure of the methods used in the diluted earnings-per-share computation for each dilutive security and clarifies that certain disclosures should be made during interim periods; and 2) amends illustrative guidance to illustrate disclosure of the methods used in the diluted earnings-per-share computation.
• Subtopic 270-10, Interim Reporting—Overall: conforms to the amendments made to Topic 250.
• Subtopic 440-10, Commitments—Overall: requires disclosure of assets mortgaged, pledged, or otherwise subject to lien and the obligations collateralized.
• Subtopic 470-10, Debt—Overall: requires disclosure of amounts and terms of unused lines of credit and unfunded commitments and the weighted-average interest rate on outstanding short-term borrowings. Entities that are not public business entities are not required to provide information about the weighted-average interest rate.
• Subtopic 505-10, Equity—Overall: requires entities that issue preferred stock to disclose preference in involuntary liquidation if the liquidation preference is other than par or stated value.
• Subtopic 815-10, Derivatives and Hedging—Overall: adds cross-reference to disclosure requirements related to where cash flows associated with derivative instruments and their related gains and losses are presented in the statement of cash flows in Topic 230.
• Subtopic 860-30, Transfers and Servicing—Secured Borrowing and Collateral: Requires: a) that accrued interest be included in the disclosure of liabilities incurred in securities borrowing or repurchase or resale transactions; b) separate presentation of the aggregate carrying amount of reverse repurchase agreements on the face of the balance sheet if that amount exceeds 10 percent of total assets; c) disclosure of the weighted-average interest rates of repurchase liabilities for public business entities; d) disclosure of amounts at risk with an individual counterparty if that amount exceeds more than 10 percent of stockholder’s equity; and e) disclosure for reverse repurchase agreements that exceed 10 percent of total assets on whether there are any provisions in a reverse repurchase agreement to ensure that the market value of the underlying assets remains sufficient to protect against counterparty default and, if so, the nature of those provisions.
• Subtopic 932-235, Extractive Activities— Oil and Gas—Notes to Financial Statements: requires that paragraphs 932-235-50-3 through 50-36 be applicable for each annual period presented in the financial statements.
• Subtopic 946-20, Financial Services— Investment Companies— Investment Company Activities: requires that investment companies disclose the components of capital on the balance sheet.
• Subtopic 974-10, Real Estate—Real Estate Investment Trusts—Overall: requires disclosure for annual reporting periods of the tax status of distributions per unit (for example, ordinary income, capital gain, and return of capital) for a real estate investment trust.