SEC-Specific Accounting

Overview: Issued by the Securities and Exchange Commission as official accounting pronouncements, Accounting Series Releases (ASRs) include accounting requirements, disclosure mandates, auditing policies, and Commission activities regarding companies filing financial statements with the SEC. The Accounting Series Releases are now codified as Financial Reporting Releases (FRRs). Staff Accounting Bulletins (SABs) reflect the Commission Staff's views regarding accounting-related disclosure practices. They represent interpretations and policies followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the federal securities laws.

Services: Public reporting companies are required to comply with the rules and interpretive guidance of the SEC. Although keeping up with the FRRs and SABs doesn’t usually present a problem, staying current with all of the SEC’s interpretive guidance can be very difficult. Our professionals maintain vigilance over developments at the SEC by researching its publicly available guidance and attending its conferences. We’re also not opposed to picking up the phone and asking direct questions regarding Staff interpretation.

Case Study: In evaluating a public company’s hybrid debt agreement for derivative financial instruments, our team could not reach a joint conclusion on whether a specific feature that provided anti-dilution protection under certain contingent events met the definition of a derivative as provided in ASC 815 Derivatives and Hedging. After considerable internal debate, we contacted the SEC directly and reviewed the provision and our views with them. The Staff, who are perhaps as enthusiastic about these accounting issues as are we, discussed the topic internally for two days before contacting us with their conclusion that the feature did, in fact, meet the definition of a derivative. This particular situation reinforces the need to contact the SEC for their interpretation of pressing accounting issues, and it further demonstrates the willingness of the Staff to carefully review and advise on meaningful questions.