Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, this week’s guest host, and I’m here today with Ryan Istre, an audit director and a member of the PKF Texas SEC team. Ryan, welcome back to the Playbook.

Ryan: Thanks for having me here, Jen.

Jen: So, I know there’s new revenue recognition rules coming. What are the SEC’s views on this for registrants?

Ryan: That’s a very good question, Jen. The new revenue recognition rules – or ASC 606 – are going to be effective for most registrants beginning January 1st of 2018.

Continue Reading Best of… Revenue Recognition Rules

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m here with Miriam Rouziek, an Audit Manager and a member of the PKF Texas SEC team. Miriam, welcome to the Playbook.

Miriam: Thank you for having me, Jen.

Jen: As a member of the SEC team I know you handle comment letters for our clients and work with them on those. What trends are you seeing coming from the SEC in regard to those letters?

Miriam: We’ve noticed a steady decline in SEC comment letters over the years. Since 2018, there’s been a steady decline of about 25%, which is comparable to the decline we saw in 2017. The comment letters are going to be focused on revenue recognition, coming up soon, since the new guidance has been implemented for about a year with the SEC companies.

The majority of comment letters are still going to be focused on larger companies, usually with a market cap of $700,000,000 or more. Those are your larger and more highly accelerated filers who have an accelerated due date – usually in February. These companies are going to have the majority of comment letters. Smaller companies, like the ones PKF handles, are usually going to have a smaller portion of the comment letters, and especially in more technical areas, they’re not going to see as many comment letters on those.

Jen: If a company receives one of these comment letters, they should call you guys, right?

Miriam: Correct. Usually, they should call us or call their attorney, who handles their SEC filings. We can have meetings with the SEC attorney and with the client, and we will be able to talk them through the process, talk them through the comments that the SEC has and any issues they have with the process, helping them figure out what they need to do. Most companies think that the first thing they need to do is call the SEC and have a restatement of their financial statements, but that’s not actually true. Most of the SEC comments are usually geared towards requesting more information, walking the SEC through the disclosures and the thought process of the company.

Jen: Perfect. Well, I think we’ll have to get you back to talk a little bit more. Can we get you back?

Miriam: Absolutely.

Jen: Awesome. For more about this topic, visit pkftexas.com/SECDesk. This has been another Thought Leader Production brought to you by PKF Texas The Entrepreneur’s Playbook. Tune in next week for another chapter.

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m here today with Ryan Istre, an Audit Director and a member of the PKF Texas SEC team. Ryan, welcome back to The Playbook.

Ryan: Thanks for having me, Jen.

Jen: So, with the revenue recognition rules for ASC 606 that have come out and were applicable as of January 1, 2018, what do we need to know about that?

Ryan: That’s a good question, Jen. So, the SEC hasn’t had a whole lot of new comment letters come out about ASC 606. We do probably expect a lot of those to come out right around February and March of next year, because that’s when the companies will have a full cycle of revenue recognition under their belt for the full year.

Jen: So, do you expect them to come out with anything else?

Ryan: Again, they haven’t ever said officially. We’ve just sat through forums and a lot of CPE updates, and what we’ve heard to this point is that the SEC is suggesting that while most of the companies that they’ve been reviewing have been meeting the minimum requirements, they are suggesting that there are still a few more quarters that are available for the rest of the year for them to actually beef up their disclosures. So, we’re thinking they might believe a little deficiency is there but probably not enough to issue a formal comment letter so far.

Jen: Now, are there things in the disclosures that you’re recommending be enhanced based on that?

Ryan: Yes. So, what we’ve heard is that they’re recommending enhanced disclosures around what constitutes a specific performance obligation and what management is determining is the actual point in time in which the companies are meeting those performance obligations.

Jen: Okay, so it sounds like there’s definitely more information to come and that they should if they’re looking at it at all they need to contact someone like you so that we can give them guidance on what to do.

Ryan: Exactly. That would be a good idea; definitely contact the auditors, contact us. What we’ve heard in recent forums is that the Office of the Chief Accountant will continue to respect companies’ disclosure practices and procedures if those disclosures are well-grounded and based upon the principles of the new revenue recognition guide. So, I guess we’ll have to wait and see.

Jen: Yeah, so, let’s get some real-world application and see if it makes common sense maybe?

Ryan: Common sense, principles-based – it’s a toss-up, but only time will tell.

Jen: Perfect. Well, we’ll get you back once we know more information.

Ryan: Definitely.

Jen: Thank you. For more about this topic, visit our Revenue Recognition Central page on PKFTexas.com. This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook. Tune in next week for another chapter.

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m here again with Ryan Istre, one of our audit directors here at PKF Texas. Ryan, welcome back to the Playbook.

Ryan: Thanks for having me, Jen.

Jen: So, how has the process of the PCAOB inspections of auditors of broker dealers impacted us and what we’re doing with our broker dealer clients?

Ryan: That’s a good question. About four years ago, the PCAOB began inspecting auditors of broker dealers. What that means for us is that there’s a new level of rules that we have to play by, however, if you were a client of ours, you would probably not even know the difference. Over all of the previous years that we’ve been doing audits, we’ve been under inspections for AICPA rules, PCAOB rules and various other organizations that ensure our audit quality is up to par. So, from a client’s perspective, you probably wouldn’t even notice a difference.

Jen: So, has anything changed at all then?

Ryan: There are a few changes that have happened. With the PCAOB being the official body over this inspection process for broker dealers, one of the rules has been changed recently is that there’s a concept of what’s called an “engagement quality reviewer.” That is not the lead partner on an engagement, but it’s the second partner to ensure quality control. The PCAOB rules specifically disallow partners who’ve participated in the previous two engagements as the lead partner from turning into that engagement quality reviewer. So, that basically allows for new sets of eyes to happen with regard to the quality controls over the audit.

Jen: So, does any other information come out of the PCAOB’s inspection process?

Ryan: There’s been some good information that’s come out of it. PCAOB is in what they consider their interim inspection period right now. So, while they’re not posting auditor-specific reports as they do with their normal public companies, they’re going to be posting general guidance around what they’ve learned from the inspection process. Unfortunately, there’s been several deficiencies that they’ve found in their audit inspection process – probably higher than I’d like to let onto – but it’s going to be a good thing, because a lot of the infractions that they’ve noticed probably were fairly minor. But there have been some that have been more serious, such as independence infractions and partner rotation rules for some of the smaller firms that may not have been super familiar with the PCAOB’s rules.

Jen: Well, good. And I know our audit team really sticks on to those PCAOB rules.

Ryan: Absolutely. You have to, you have to.

Jen: Perfect. Well, we’ll get you back to talk a little bit more.

Ryan: Yep, sounds good.

Jen: Thank you. This has been another Thought Leader production brought to you by PKF Texas Entrepreneur’s Playbook. Tune in next week for another chapter.

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back with Ryan Istre, an Audit Director and a member of the PKF Texas SEC team. Ryan, welcome back to the Playbook.

Ryan: Thanks for having me, Jen.

Jen: So, I’ve heard that the SEC has made some amendments about the definition of a smaller reporting company. What do these companies need to know?

Ryan: The SEC is in process of expanding the definition of what a small reporting company is. The way a public company determines whether it’s a smaller reporting company is at June 30th of each year, it has to calculate its public float. Public float means how many common shares does the company have outstanding multiplied by the trading price of the shares on that date. Historically $75 million was the cutoff, so if a company’s public float was less than $75 million, it was considered a smaller reporting company. So, the changes that the SEC has made has increased the amount of public float to $250 million, so a lot more companies are going to fall under the definition of a smaller reporting company.

Jen: So, if they’re not actively traded, what if there’s no public float? How do they determine that?

Ryan: That’s a good question. The SEC has also included in the definition of a smaller company a smaller reporting company with no public float annual revenues less than $100 million.

Jen: Okay. Are there any benefits to this to smaller reporting companies?

Ryan: Definitely. In normal public company filings for accelerated filers, you have to include three years of historical financial statement – two years of balance sheets, three years of income statements. And in smaller reporting company rules, you only have to include two years of historical income statements. That doesn’t sound like a lot that they’re dropping off from the requirements, however, in each of the financial statement footnotes and all of the sections of the NDNA, for example, anything under 10 K, because of the amount of disclosures necessary for public companies, dropping off an entire year is actually…

Jen: That’s huge.

Ryan: Definitely, definitely. It’s a big help. The SEC staff actually assumed that about 960 filers will be able to benefit from these expanded rules of smaller reporting companies.

Jen: That’s great. We’ll get you back to talk about it a little bit more.

Ryan: Sure.

Jen: Thank you. For more about this topic, visit PKFTexas.com/SECdesk. This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook. Tune in next week for another chapter.

As part of its Disclosure Effectiveness Initiative of the Division of Corporation Finance, the SEC, in Final Rulemaking Release No. 33-10532, Disclosure Update and Simplification, has adopted amendments to certain of its disclosure requirements that are redundant or outdated or that overlap with, or have been superseded by, other SEC disclosure requirements — disclosures required by United States generally accepted accounting principles (“U.S. GAAP”) or those required by International Financial Reporting Standards (“IFRS”). The objective of the amendments is to facilitate disclosure of information to investors and to simplify compliance without significantly altering the total mix of information provided.

The amendments are also in response to a provision of the Fixing America’s Surface Transportation Act (FAST Act), which mandates the SEC to eliminate provisions of Regulation S-K that are no longer deemed necessary.

“It is important to review our regulations to ensure that they evolve along with our capital markets and remain effective and efficient,” said SEC Chairman Jay Clayton. “Today’s amendments are an example of how thoughtful reviews can prompt changes for the benefit of investors, public companies, and our capital markets.”

Additionally, the SEC is referring to the Financial Accounting Standards Board (“FASB”) for potential incorporation into U.S. GAAP certain disclosure requirements that overlap with U.S. GAAP but that call for incremental information. For the time being, pending subsequent action by the FASB, such incremental disclosures are being retained. The SEC has requested, however, that, within the ensuing 18 months, the FASB determine whether (and which of) the referred disclosure items will be added to its standard-setting agenda. The SEC notes that the incorporation of any of its incremental disclosure requirements into U.S. GAAP could potentially affect all entities that prepare financial statements in accordance with U.S. GAAP, including Regulation A issuers, smaller reporting companies, and non-public entities.

Continue Reading SEC Amends Rules to Eliminate Redundant, Overlapping and Outdated Disclosures

The Financial Accounting Standards Board (“FASB”) recently issued Accounting Standards Update (“ASU”) No. 2018-11 with targeted improvements to ASC Topic 842, Leases, to (1) add an optional transition method that would permit entities to apply the new requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption, and (2) provide a practical expedient for lessors regarding the separation of the lease and non-lease components of a contract.

Prior to the amendments in ASU No. 2018-11, the upcoming requirements in ASC 842 had to be initially applied using a modified retrospective transition method under which lessees were required to recognize lease assets and lease liabilities on the balance sheet for all leases and provide the new and enhanced disclosures for each comparative period presented. In response to constituents’ concerns about unanticipated costs and complexities, ASU No. 2018-11 now allows entities, upon initial adoption, to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Under the new optional transition method, reporting for comparative periods presented must continue to follow the guidance under existing U.S. GAAP.

Continue Reading FASB Issues Targeted Improvements to New Lease Accounting Standard

The U.S. Securities and Exchange Commission (“SEC”) voted last week to adopt amendments to the “smaller reporting companies” (“SRCs”) definition to expand the number of companies that qualify for the scaled-down disclosure requirements. The Commission established the smaller reporting company category of companies in 2008 in an effort to provide general regulatory relief for smaller companies. SRCs may provide scaled disclosures under Regulation S-K and Regulation S-X.

The new smaller reporting company definition adopted last week enables a company with less than $250 million of public float to provide scaled disclosures, as compared to the $75 million threshold under the prior definition. The final rules also expand the definition to include companies with less than $100 million in annual revenues if they also have either no public float or a public float that is less than $700 million, which reflects a change from the revenue test in the prior definition that allowed companies to provide scaled disclosure only if they had no public float and less than $50 million in annual revenues. Continue Reading The SEC Expands the Scope of Smaller Reporting Companies that Qualify for Scaled Disclosures

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, this week’s host, and I’m here today with Ryan Istre, an Audit Director and a member of the PKF Texas SEC team. Welcome to the Playbook Ryan.

Ryan: Thanks Jen, glad to be here.

Jen: So Ryan what are the hot topics that the SEC staff are looking into these days?

Ryan: That’s a good question Jen. So there are a lot of new accounting pronouncements that are coming up in the very near future but one of the hot topics that the SEC staff are looking into right now are non GAAP financial measures. Some of the items that have come out in recent comment letters relate to the prominence of which non GAAP measures are being displayed over GAAP measures, which we all know is a no-no per Regulation G.
Continue Reading Hot Topics from the SEC

Jen:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Jen Lemanski, this week’s guest host, and I’m here today with Ryan Istre, an audit director and a member of the PKF Texas SEC team.  Ryan, welcome back to the Playbook.

Ryan:  Thanks for having me here Jen.

Jen:  So I know there’s new revenue recognition rules coming, what are the SEC’s views on this for registrants?

Ryan:  That’s a very good question Jen.  The new revenue recognition rules – or ASC 606 – are going to be effective for most registrants beginning January 1st of 2018.

Jen:  So this year?

Ryan:  This year, that’s correct.  What this is intended to do is bring into congruence the SEC’s rules with the new revenue recognition standards.  Some of the topics that are being discussed are the potentially outdated Regulation SX rules.  Other topics which may be of a little more importance are the effect of what happens with retrospective application of these new pronouncements when there are predecessor financial statements followed alongside successive financial statements.
Continue Reading What to Know About the SEC’s Revenue Recognition Rules