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SEC Staff Reiterates Announcements Regarding Disclosures Related to Recently Issued Accounting Standards

Jan. 10, 2017

During a recent AICPA conference, the Securities and Exchange Commission (SEC) staff once again stressed the importance of SEC registrants disclosing their estimates of the financial impact of future accounting standards updates within their financial statements.

SEC staff had raised the issue in a Financial Accounting Standards Board (FASB) meeting earlier in the fall to specifically address three significant accounting standards changes that are on the horizon: Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606); ASU No. 2016-02, Leases (Topic 842); and ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

The requirement to disclose the future expected impact of adoption of a new accounting standard comes from a codified SEC Staff Accounting Bulletin (SAB), Topic 11M Disclosure Of The Impact That Recently Issued Accounting Standards Will Have On The Financial Statements Of The Registrant When Adopted In A Future Period (which is also known to many as SAB 74). Topic 11M (or SAB 74) states that registrants should evaluate each new accounting standard to determine the appropriate disclosure. Registrants must also recognize that the level of information available will differ with respect to various standards and from one registrant to another.

According to Topic 11M, the objective of the disclosure should be to:

  1. Notify the reader of the disclosure documents that a standard has been issued that the registrant will be required to adopt in the future; and
  2. Assist the reader in assessing the significance of the impact that the new standard will have on the financial statements of the registrant when adopted.

The following disclosures should generally be considered by the registrant:

  • A brief description of the new standard, the date that adoption is required and the date that the registrant plans to adopt, if earlier.
  • A discussion of the methods of adoption allowed by the standard and the method expected to be utilized by the registrant, if determined.
  • A discussion of the impact that adoption of the standard is expected to have on the financial statements of the registrant, unless not known or reasonably estimable. In that case, a statement to that effect may be made.
  • Disclosure of the potential impact of other significant matters that the registrant believes might result from the adoption of the standard (such as technical violations of debt covenant agreements, planned or intended changes in business practices, etc.) is encouraged.

During the September EITF meeting, the SEC staff announced that if a registrant does not know or cannot reasonably estimate the impact that adoption of ASUs 2014-09, 2016-02 and 2016-13 is expected to have on the registrant’s financial statements, the registrant should make a statement to that effect. In addition, the registrant should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact that the standards will have on the financial statements of the registrant when adopted. The additional qualitative disclosures should include a description of the effect of the accounting policies the registrant expects to apply, if determined, and a comparison to the registrant’s current accounting policies. An example might be to state that the timing of revenue recognition is expected to be accelerated under the new standard because it will be recognized at a point in time versus over the term of the contract. In addition, the registrant should describe the status of its process to implement the new standards and the significant implementation matters yet to be addressed.

At the 2016 AICPA National Conference on Current SEC and PCAOB Developments held in December, the SEC staff repeated the message and further expanded on it. The SEC staff noted that these incremental qualitative disclosures would be helpful to investors regardless of whether the registrant applies U.S. GAAP or IFRS. The SEC staff also mentioned that a registrant should not be reluctant to disclose reasonably estimable quantitative information merely because the ultimate impact of adoption may differ, even if it’s only for a subset of the registrant’s arrangements, such as one product category or revenue stream.

For More Information

If you have specific comments, questions or concerns about the new credit loss impairment model, please contact Rich Howard or Christine McAlarney of MHM's Professional Standards Group. Rich can be reached at or 949.450.4402. Christine can be reached at or 727.572.1400.


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