During the AICPA conference on PCAOB and SEC developments, two members of the SEC Division of Corporation Finance staff, Craig Olinger, Deputy Chief Accountant and Jill Davis, Associate Chief Accountant, discussed the top areas of staff comment during review of filings of foreign private issuers using IFRS. Broadly, Mr. Olinger noted that the staff does not require companies to look to US GAAP when they are applying IFRS, but he added that companies can do so when appropriate.
It was no surprise that the valuation of financial instruments was the most frequent source of staff comments during the review process. The staff asked issuers for clarifications and expanded disclosure on such issues as the impairment of financial instruments, how the valuations were determined, and why some instruments were measured at cost when fair value should have been used. The staff also sought expanded disclosure on the methods and assumptions used in the valuation process and more information on value-at-risk calculations.
Financial statement presentation was another area of frequent staff comment. For example, the staff will comment if it sees multiple subtotals captioned as different forms of operating income. The staff can also have questions about balance sheet presentation and related party transactions.
There are also frequent staff comments on consolidations and joint ventures around issues such as equity method decisions and restrictions on the ability of subsidiaries to transfer funds to a parent company. Another frequent area of staff comments is around impairment of assets and determinations to allocate goodwill, while still other areas for comment are operating segments and revenue recognition, including tax loss carry forward status disclosures.
There are also staff comments on business combination issues, many the same as under US GAAP, including non-controlling interests, how to recognize intangible assets, and common controlled transactions, which is not specifically addressed by IFRS.