By Rodney F. Tonkovic, J.D.
The SEC's Division of Corporation Finance has updated its financial reporting manual. The revisions include updates to guidance on testing significance of equity method investments, changes to conform to the FAST Act, and the addition of guidance relating to the implementation of an Accounting Standards Update. These updates, made on March 17, 2016, impact three sections of the Manual.
Conforming to FAST Act. The update includes revisions made to conform to Fixing America's Surface Transportation (FAST) Act. Section 10110.5 has been revised to cover an Emerging Growth Company's loss of eligibility while its registration statement is under review; the company will now continue to be treated as an EGC for the purposes of the disclosure requirements until the earlier of the date of its IPO or one year after it ceased to be an EGC.
Under revised Section 10220.1, new subsection (f) covers the omission of financial information for historical periods. An EGC conducting an initial public offering of its debt or equity securities may omit financial information for historical periods in its SEC filings if the EGC believes that that information will not be required to be included and if it amends the registration statement to contain all required financial information at the time of the offering.
Revised Section 10220.4 states that an EGC may limit its MD&A discussion to cover the periods presented in the financial statements included in its registration statements filed or submitted for its initial public offering. The section previously required EGC's to meet all requirements of Item 303 of Regulation S-K, unless the EGC’s audited financial statements in its registration statements covered two years. Section 10220.5 includes an update to subsection (b) permitting an ECG to omit financial statements required by Regulation S-X from an IPO's registration statement if the issuer reasonably believes those financial statements will not be required at the time of the offering.
Other updates. The revisions also include updates to guidance on testing significance of equity method investments under Section 2410.8. The guidance states that the staff will not object if a registrant uses its historical financial statements in its most recent Form 10-K to determine whether S-X 3-09 financial statements and S-X 4-08(g) financial information is required. The staff also will not object if a registrant, when filing a subsequent Form 10-K, does not recompute S-X 3-09 and S-X 4-08(g) significance for periods earlier than the one during which a retrospectively applied change in accounting principle occurred.
Finally, previously reserved Topic 11 has been updated to add guidance relating to the implementation of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) and IFRS 15, Revenue from Contracts with Customers. The new Topic is entitled: "Reporting Issues Related to Adoption of New Revenue Recognition Standard."