Re­port­ing

Accounting Today - - Assurance - From page 26 From page 21

took a lot of en­gage­ment, a lot of fore­sight, and many times at the com­mis­sion you mea­sure suc­cess by the num­ber of com­plaints. We haven’t re­ceived any com­plaints from the in­vest­ment com­mu­nity, the pre­parer com­mu­nity, or the au­dit com­mu­nity, so my hat is off to our chief ac­coun­tant and his team, and the head of the Di­vi­sion of Cor­po­ra­tion Fi­nance and his team did a ter­rific job on this.”

Brexit dis­clo­sures

Clay­ton and Bricker were asked whether sim­i­lar staff ac­count­ing bul­letins might be re­leased by the SEC about other is­sues, and they cited Brexit as an im­por­tant area for com­pa­nies.

“One of the ar­eas that prob­a­bly doesn’t need a SAB 118, but does ben­e­fit from con­tin­ued fo­cus by this group is a topic like Brexit,” said Bricker. “For many of you, or many of your com­pa­nies, you have ac­tiv­i­ties with in­te­grated sup­ply chains, in­te­grated fi­nanc­ing around the globe, that all de­pend upon or are im­pacted by the ne­go­ti­a­tions be­tween Bri­tain and the EU. That’s an area where dis­clo­sure has come along, but I’ll say this year-end should deepen as you un­der­stand the con­nect­ed­ness of your busi­nesses to those is­sues on things like the as­sump­tions that go into as­set val­u­a­tions, the as­sump­tions that go into in­come, the as­sump­tions that even go into the ba­sis of pre­sen­ta­tion, whether it’s a go­ing con­cern ba­sis or a liq­ui­da­tion ba­sis, the as­sump­tions that go into your fi­nanc­ing, and the nar­ra­tives that bring all of that to­gether so that in­vestors un­der­stand that cir­cum­stance and how com­pa­nies are man­ag­ing.”

Clay­ton be­lieves com­pa­nies should be pro­vid­ing more dis­clo­sure about their plans for Brexit, es­pe­cially if there’s a “hard Brexit” in which the EU and the U.K. fail to come to terms on an agree­ment for a smooth tran­si­tion.

“Wes de­scribed this at the pre­parer level,” said Clay­ton. “Let me just say at the dis­clo­sure level more gen­er­ally, we are fo­cused on Brexit dis­clo­sure and we are go­ing to be more fo­cused on it go­ing for­ward. We have seen a wide range of dis­clo­sure in the same in­dus­tries — Com­pany A with a fairly de­tailed dis­cus­sion of how man­age­ment is look­ing at the is­sue of Brexit and the im­pact for its com­pany, and Com­pany B with what I would say is a macro pol­icy state­ment that Brexit is com­ing and it presents a risk. I want to see the dis­clo­sure to the ex­tent that it’s ma­te­rial and ap­pro­pri­ate grav­i­tate to­ward Com­pany A. My per­sonal view is that the po­ten­tial im­pact of Brexit has been un­der­stated, and that those im­pacts will start to man­i­fest them­selves be­fore the cur­rent Brexit ‘go live’ date. If you add to­gether I would say the more cau­tious dis­clo­sure in the mar­ket­place, you start to get greater un­ease as to the knock-on ef­fects of a no deal or a hard Brexit. I would ex­pect com­pa­nies to be look­ing at this closely and shar­ing their views with the in­vest­ment com­mu­nity.”

CECL im­ple­men­ta­tion

Fi­nan­cial Ac­count­ing Stan­dards Board vice chair­man James Kroeker dis­cussed the cur­rent ex­pected credit losses stan­dard at the con­fer­ence, and whether there are plans to mod­ify it in re­sponse to let­ters from some groups.

“Ac­count­ing stan­dards should re­flect how the busi­ness is run, both from the eyes of man­age­ment, but then to re­flect that in a way that is aligned with eco­nomic ac­tiv­ity,” he said dur­ing a press con­fer­ence. “To the ex­tent that ac­count­ing wasn’t do­ing that in the past, that was the in­curred loss ap­proach, which is dis­con­nected from the risk. There were crit­i­cisms about, does that in and of it­self build an eco­nomic pat­tern that risk be­comes much more ap­par­ent right at the time when you en­ter into a cri­sis. If you re­call at the time, there was a lot of dis­cus­sion about how the in­curred loss ap­proach was pro­cycli­cal, so fig­ur­ing out whether or not pro­vid­ing that in­for­ma­tion to in­vestors bet­ter aligns with risk man­age­ment, my view would be that ac­tu­ally pro­vides, at least from the in­vestors’ in­vest­ing of cap­i­tal, greater sta­bil­ity that you have that in­sight. Of course, the let­ter talks about that in­ter­ac­tion with reg­u­la­tory cap­i­tal, which is sep­a­rate and apart from the in­for­ma­tion that in­vestors get for mak­ing their de­ci­sions.”

He noted that FASB is con­tin­u­ing to mon­i­tor the progress of a Tran­si­tion Re­source Group that has been set up to help com­pa­nies make the tran­si­tion to the new stan­dard.

“The num­ber of ques­tions that are out there on CECL have de­creased and the vol­ume hasn’t been sig­nif­i­cant even to start with,” he noted. “But in terms of un­der­stand­ing a rea­son­able ap­pli­ca­tion of CECL and peo­ple’s readi­ness to im­ple­ment it, we con­tinue to get pos­i­tive mes­sages. That is, peo­ple aren’t be­hind the curve. CECL is the en­acted stan­dard, so I would urge peo­ple to con­tinue to move for­ward, ex­pect­ing to im­ple­ment it on the ef­fec­tive date.”

AT

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