Footnote Notes: Recent Accounting Pronouncements

ASC 235-10-50-3 describes footnote disclosures required for financial statements to conform to GAAP, and the term “Recent Accounting Pronouncements” does not appear. Nevertheless, public companies large and small devote at least a couple of pages to describing new accounting standards, and what effect they will have on the company.

Even ASC 235-10-S99-1, which repeats “Regulation S-X Rule 4-08, General Notes to Financial Statements,” doesn’t require “Recent Accounting Pronouncements.”

The pages of dense Recent Accounting Pronouncements are, in fact, a requirement of government regulators, not CPAs. The SEC’s Corporate Finance group’s   Topic 11 of the codification of Staff Accounting Bulletins is where you’ll find the requirement.

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

Facts: An accounting standard has been issued that does not require adoption until some future date. A registrant is required to include financial statements in filings with the Commission after the issuance of the standard but before it is adopted by the registrant.

Question 1: Does the staff believe that these filings should include disclosure of the impact that the recently issued accounting standard will have on the financial position and results of operations of the registrant when such standard is adopted in a future period?

Interpretive Response: Yes. The Commission addressed a similar issue with respect to Statement 52 and concluded that “The Commission also believes that registrants that have not yet adopted Statement 52 should discuss the potential effects of adoption in registration statements and reports filed with the Commission.”  The staff believes that this disclosure guidance applies to all accounting standards which have been issued but not yet adopted by the registrant unless the impact on its financial position and results of operations is not expected to be material.

The bold face was added by us. It leaves issuers in a difficult position. Issuers must win the approval of an SEC staff analyst who will be assigned to review their filing, and the language leaves the requirement open to interpretation by the analyst.

Should the filer include all recently issued pronouncements not yet adopted (which can run several pages) and explicitly note a lack of materiality, or should the filer omit pronouncements that are not expected to be material? If they take the latter course, will their filing draw SEC attention because the analyst-reviewer cannot tell if the issuer has failed to consider a particular recent pronouncement, or if the missing pronouncement has been considered and omitted because of immateriality?

A partial answer is way down in footnote 7 of SAB Topic 11M:

In those instances where a recently issued standard will impact the preparation of, but not materially affect, the financial statements, the registrant is encouraged to disclose that a standard has been issued and that its adoption will not have a material effect on its financial position or results of operations.

FASB maintains this master list of Accounting Pronouncements, recent and otherwise.