United States

Highlights of recent SEC Regulations Committee meeting


In a recent meeting of the Center for Audit Quality SEC Regulations Committee with SEC staff members, the following emerging financial reporting issues, among others, were discussed:

  • Cash outflows in the contractual obligations table pursuant to Regulation S-K Item 303(a)(5) should continue to be consistent with disclosures in accordance with U.S. generally accepted accounting principles (GAAP) upon adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 842, Leases. If, however, these amounts do not adequately capture liquidity needs and expected future cash outflows, registrants should consider whether incremental footnote disclosures are necessary, as discussed in Section 9240.7 of the Division of Corporation Finance Financial Reporting Manual (FRM) as well as the Commission Guidance on Presentation of Liquidity and Capital Resources Disclosures in Management’s Discussion and Analysis.
  • Registrants are encouraged to look to the provisions of Regulation S-K Item 301 when determining whether years 4 and 5 of the selected financial data table should be recast or whether additional explanatory disclosures would be sufficient to explain factors that materially affect the comparability of information reflected in the selected financial data upon a retrospective accounting change, other than the adoption of ASC 606, Revenue from Contracts with Customers.
  • A SPAC (or blank check company) cannot avail itself of the accommodation in FRM 2025.3 to use pro forma information to measure significance for the inclusion of financial statements of a subsequent acquisition in accordance with Regulation S-X 3-05.
  • The SEC staff stated there should be internal controls surrounding the non-GAAP financial measures process and engagement of audit committees when non-GAAP measures are based on individually tailored accounting principles and/or include multiple significant adjustments to earnings. The staff also noted that disclosures of non-GAAP margins (e.g., contribution margins) only are acceptable if the registrant also discloses a reconciliation from the non-GAAP measure to the most directly comparable GAAP financial measure (e.g., gross margin). Further, the staff communicated that registrants generally should not adjust a non-GAAP performance measure to remove the impact of FASB Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

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