In his remarks today, in addition to addressing initial coin offerings and blockchain related matters, Chair Clayton discussed the Securities and Exchange Commission’s remaining Dodd-Frank Act rulemaking mandates.  Chair Clayton identified four categories of rulemaking.  He noted that, with respect to the remaining security-based swap rules, the remaining rules are being considered holistically and harmonization with CFTC rules is under review.  The second category relates to executive compensation rules.  Chair Clayton notes that the Commission is likely to take a serial approach to completing the rest of the mandatory executive compensation rules.  The third category relates to specialized disclosure rules, and Chair Clayton focused his remarks on the resource extraction rules and the need to navigate the Congressional Review Act limitations.  The fourth category he identified relates to measures, such as clawbacks, which, Chair Clayton notes some companies already have taken steps to address.  Here is a link to the full transcript of the remarks:  https://www.sec.gov/news/speech/speech-clayton-012218.

On Friday, January 19, 2018, the Securities and Exchange Commission (“SEC”) announced that “should there be a federal government shutdown after January 19, the SEC will remain open for a limited number of days, fully staffed and focused on the agency’s mission.” We understand that all of the SEC’s operations, including filing reviews, no-action and interpretive requests and acceleration requests, will continue as normal during this period as a result of remaining appropriations or other sources of funding. Using carryover funds from appropriations, the SEC has been able to stay open during prior federal government shutdowns, including as recently as the shutdown in 2013.

Read our client alert and FAQs.

The Securities and Exchange Commission’s Division of Economic and Risk Analysis is hosting a session in collaboration with New York University’s Salomon Center for the Study of Financial Institutions to discuss shareholder engagement and corporate governance related matters, including the roles of institutional and activist investors.  The session will be held on January 19th.  Additional details and information on registration are available here:  https://www.sec.gov/news/press-release/2018-3.

The Staff of the Office of the Chief Accountant and of the Division of Corporation Finance issued SAB 118 (see: https://www.sec.gov/interps/account/staff-accounting-bulletin-118.htm) in order to provide guidance for issuers as they prepare their financial statements. The staff guidance provides a “measurement period” for issuers to evaluate the impacts of the Tax Cut and Jobs Act on the their financial statements and sets forth staff expectations for disclosure to investors during the measurement period. The Staff also issued a Compliance and Disclosure Interpretation 110.02, which we set out below:

Question 110.02

Question: Does the re-measurement of a deferred tax asset (“DTA”) to incorporate the effects of newly enacted tax rates or other provisions of the Tax Cuts and Jobs Act (“Act”) trigger an obligation to file under Item 2.06 of Form 8-K?

Answer: No, the re-measurement of a DTA to reflect the impact of a change in tax rate or tax laws is not an impairment under ASC Topic 740. However, the enactment of new tax rates or tax laws could have implications for a registrant’s financial statements, including whether it is more likely than not that the DTA will be realized. As discussed in Staff Accounting Bulletin No. 118 (Dec. 22, 2017), a registrant that has not yet completed its accounting for certain income tax effects of the Act by the time the registrant issues its financial statements for the period that includes December 22, 2017 (the date of the Act’s enactment) may apply a “measurement period” approach to complying with ASC Topic 740. Registrants employing the “measurement period” approach as contemplated by SAB 118 that conclude that an impairment has occurred due to changes resulting from the enactment of the Act may rely on the Instruction to Item 2.06 and disclose the impairment, or a provisional amount with respect to that possible impairment, in its next periodic report.

See our more detailed client alert here.

The US Chamber of Commerce submitted a letter to the SEC noting the challenges that may exist for many public companies, especially those with complex global operations, by the recent passage of the tax changes. The letter notes that it may be quite difficult for public companies that have a December 31 fiscal year to take into account and reflect in their SEC filings, including in their Forms 10-K, the effects of the tax law changes on their financial results. See the letter here: https://www.centerforcapitalmarkets.com/wp-content/uploads/2017/12/US-Chamber-of-Commerce-Public-Company-Reporting-and-H.R.-1.pdf

Morrison & Foerster Webinar 

Our speakers reviewed and discussed SEC and FASB developments that registrants and directors should consider as they prepare their Forms 10-K, including the following:

  • Use of Non-GAAP financial measures;
  • Comment letter trends;
  • Updating your MD&A;
  • New revenue recognition standard;
  • Developments in derivatives/hedge accounting;
  • New lease accounting rules; and
  • New credit impairment rules.

Speakers:

  • Thomas Rees
    Senior Managing Director, FTI Consulting
  • Larry Smith
    Senior Managing Director, FTI Consulting
  • Anna Pinedo
    Partner, Morrison & Foerster LLP
  • James Tanenbaum
    Partner, Morrison & Foerster LLP

To view this complimentary webinar, please click here.

The SEC’s recently released rulemaking agenda (see: https://goo.gl/psRmG5) includes a number of matters that will affect capital formation.  For example, the agenda references as priorities modernization of disclosures for mining registrants, amendments to the smaller reporting company definition, finalizing certain proposed changes to Regulation S-K and S-X to remove outdated requirements, Industry Guide 3 changes for bank holding company disclosures, Regulation S-X related changes, and amendments to implement the recommendations in the FAST Act study.

A few items of interest to readers of this blog were moved to the long-term action items.  These include amendments to the accredited investor definition, extending the ability to test-the-waters to companies that are not EGCs, and the broader disclosure effectiveness related amendments to Regulation S-K.

On December 4, 2017, the SEC approved the NYSE’s proposed amendment to Section 202.06 of the NYSE Listed Company Manual. The proposed amendment limits the issuance of material news by a listed company during the period of time from the official closing time of the NYSE’s trading session until the earlier of the publication of the company’s official closing price or five minutes after the NYSE’s official closing time. The NYSE originally issued the proposed amendment on August 17, 2017. For more information, see our prior blog post available here.

A copy of the SEC order approving the proposed rule change is available here.

On December 1, 2017, the SEC’s Division of Corporation Finance updated its Financial Reporting Manual for the following changes:

  • Revising guidance related to the pro forma impact of adopting new accounting standards (Sections 3250.1(m)-(n)), including clarifying that if a registrant:
    • acquires a significant business, and such business adopts a new accounting standard as of a different date and/or under a different transition method than the registrant, than the registrant must conform the date and method of adoption of the acquired business to its own date and method in its pro forma financial information; however, the guidance suggests that the SEC Staff will consider requests for relief from this requirement; and
    • retrospectively adopts a new accounting standard on January 1, 2018, makes a significant acquisition in September 2018, and later files a Form 8-K that includes pro forma financial information for the year ended December 31, 2017 and the six months ending June 30, 2018, than the registrant does not need to apply the new accounting policy to the pro forma information for periods prior to adoption until it has reflected the new standard in the historical financial statements for those periods; however, if the registrant believes the effect of the new standard on 2017 historical information will be material, it should make appropriate disclosure to that effect in the notes to the pro forma financial information.
  • Revising guidance to address the adoption of new or revised financial accounting standards after an EGC loses its EGC status (Section 10230.1), clarifying that:
    • EGCs that take advantage of an extended transition period provision are encouraged to review their plans to adopt accounting standards upon losing EGC status and to discuss with the SEC Staff any issues they foresee in being able to timely comply; and
    • generally, if an EGC loses its status after it would have had to adopt a standard absent the extended transition, the issuer should adopt the standard in its next filing after losing status, but depending on the facts and circumstances the SEC Staff may not object to other alternatives.
  • Clarifying the effective dates for ASU No. 2014-09 “Revenue from Contracts with Customers” and ASU No. 2016-02 “New Leasing Standard” for certain public business entities (Sections 11100 and 11200).

The updates to the Financial Reporting Manual are available here.