While the SEC grapples with its disclosure effectiveness efforts, FASB is moving forward with its accounting simplification efforts. Last month, FASB issued a pair of proposed ASUs as part of its Simplification Initiative, which is an effort on the part of the FASB to try to increase the usefulness of financial information for investors and decrease the costs and complexity for those preparing financial statements. Comments on both of the proposed ASUs are due by September 30, 2014.
In Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, the FASB proposes to eliminate the concept of “extraordinary” items from GAAP and would thus eliminate the requirement to separately present extraordinary items in the income statement and include disclosure about such items in the notes to the financial statements. As proposed, presentation and disclosure requirements would still apply to items that are either unusual or infrequently occurring.
In Simplifying the Measurement of Inventory, FASB proposes to scrap the lower of cost or market measurement standard in favor of a lower of cost and net realizable value. As a result, the proposal contemplates that preparers would no longer need to consider replacement cost and net realizable value less and appropriately normal profit margin, which, in addition to net realizable, currently constitutes “market.”
Updated Comfort Letter Guidance
Last week, the AICPA issued SAS 129, which amends the guidance in SAS 122 on comfort letters. The amendment addresses the auditor’s responsibilities when engaged to issue comfort letters to requesting parties in connection with a nonissuer entity’s financial statements included in a registration statement or other securities offerings. Through this amendment, the AICPA is seeking address unintended changes to previous practice as a result of its Clarity Project (not to be confused with the FASB Simplification Initiative). The amended comfort letter guidance is effective for comfort letters issued on or after December 15, 2014, but early implementation is encouraged.
A Season of SEC Investor Alerts: This Time, Unregistered Offerings
The SEC’s Office of Investor Education and Advocacy has been busy this summer, publishing numerous investor alerts on a wide variety of topics. Yesterday, the office turned to unregistered offerings, publishing “10 Red Flags That an Unregistered Offering May be a Scam.” When Rule 506(c) of Regulation D was adopted pursuant to Title II of the JOBS Act, many feared that the rule would facilitate scammers trying to use the lifting of the ban on general solicitation as a way to reach more potential victims. This new investor alert is directed at educating investors about any sort of scams involving private placements and unregistered offerings, not just those involving a general solicitation.
– Dave Lynn