United States

SAB 74 disclosures for new standard on lease accounting


SEC Staff Accounting Bulletin (SAB) 74 (codified in SAB Topic 11.M), Disclosure of the Impact that Recently Issued Accounting Standards will have on the Financial Statements of the Registrant when Adopted in a Future Period, requires that when a recently issued accounting standard has not yet been adopted, a registrant should discuss the potential effects of the future adoption in its interim and annual SEC filings. There has been a lot of discussion about the SAB 74 disclosures related to FASB Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), but registrants are reminded to also provide transparent disclosure about progress toward implementation of ASU 2016-02, Leases (ASC 842).

ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for (a) a public business entity, (b) a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed or quoted on an exchange or an over-the-counter market and (c) an employee benefit plan that files financial statements with the SEC. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

The SEC staff has reminded registrants of the need to evaluate the appropriate financial statement disclosures for recent accounting standards issued but not yet adopted, including ASU 2016-02. Center for Audit Quality Alert No. 2017-03, SAB Topic 11.M – A Focus on Disclosures for New Accounting Standards, encourages preparers, audit committees and auditors to focus on the disclosures for new accounting standards. In addition to discussing internal control considerations and other matters related to implementation of new standards, the Alert reminds registrants of the following SAB 74 disclosures expected to be included in financial statements in the periods before new accounting standards are effective:

  • A comparison of current accounting policies to the expected new accounting policies
  • The status of implementation
  • Consideration of the effect of new footnote disclosure requirements in addition to the effect on the balance sheet and income statement
  • Disclosure of the quantitative impact of new accounting standards if it can be reasonably estimated
  • Disclosure that the expected financial statement impact of new accounting standards cannot be reasonably estimated
  • Qualitative disclosures

RSM resources to assist entities in understanding ASC 842 include: