March 13, 2017

Survey Results: Board Minutes & Auditors

Here are the results from a recent survey on board minutes & auditors:

1. When it comes to board minutes, our company:

– Provides copies of board minutes to auditors upon request in electronic form only –  48%
– Provides copies of board minutes to auditors upon request in paper form only – 7%
– Provides copies of board minutes to auditors upon request in electronic and paper form – 13%
– Doesn’t provide copies of board minutes to auditors – but we do allow inspection of minutes onsite –  31%
– Doesn’t provide copies of board minutes to auditors – nor do we allow inspection of minutes onsite  – 1%

2. Our auditors ask for copies or inspection of board minutes:

– Each quarter – 97%
– Once a year – 1%
– On irregular basis – 2%
– They never ask for board minutes – 0%

Please take a moment to participate anonymously in this “Quick Survey on Rule 10b5-1 Plan Practices” – and this ““Quick Survey on Codes of Conduct.”

Revenue Recognition: New Disclosures Will Be a Challenge

Speaking of auditors, Deloitte provides this heads up on the disclosure requirements associated with the implementation of FASB’s new revenue recognition standard.  For some companies, the new standard will require them to completely rework their income statements, but all companies will have to grapple with several new disclosure requirements:

The new standard will require entities to disclose much more information about revenue activities and related transactions than they do currently. Consequently, they will need time to implement and test appropriate processes, internal controls, and disclosure controls and procedures (including the identification of relevant personnel and information systems throughout the organization) for (1) data-gathering activities, (2) the identification of applicable disclosures on the basis of relevance and materiality, and (3) the preparation and review of disclosures, including the information that supports such disclosures.

Companies are going to need to be ready to address all of the new disclosure requirements in their first filing after implementation.  Deloitte predicts that things could get messy:

The requirement to consider disclosures as part of preparing quarterly or year-end financial statements most likely will significantly affect an entity’s ability to meet reporting deadlines that are already tight (particularly for SEC filings). In addition, an entity may be unable to obtain the information it needs to satisfy the disclosure requirements (e.g., because of problems related to the collection, preparation, or review of data needed for disclosures), which could result in late filings and the identification of deficiencies in internal controls (e.g., material weaknesses).

New disclosure requirements that may prove challenging to implement include those relating to performance obligations, judgments & estimates, contract balances, and disaggregation of revenues.

The Time May be Ripe for a Debt Buyback

This O’Melveny memo says that the current climate of market uncertainty & the potential for interest rate increases makes this a good time for issuers to think about repurchasing some outstanding debt. This excerpt summarizes the available alternatives for debt buybacks:

Cash repurchases of debt generally can be structured as open-market or private repurchases, cash tender offers, or redemptions pursuant to the contractual terms of the governing indenture. These methods vary in terms of implementation time, cost, and the portion of a given debt series that can be repurchased at one time. The scale of repurchases and the structure used may also depend on restrictive covenants in the company’s indentures and other agreements, as well as the availability of operating losses to offset any taxable gains resulting from the repurchases.

The memo reviews the mechanics of each alternative & addresses the disclosure and tax aspects of a debt repurchase.

John Jenkins