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On The Horizon: SEC updates interpretive revenue recognition guidance

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Contents SEC    Updates issued to interpretive guidance on revenue recognition
   Staff issues additional guidance regarding non-public review process

PCAOB issues annual report on inspections of broker-dealer auditors CAQ releases highlights from May 2017 IPTF meeting IAASB, IESBA, and IAESB issue publication on professional skepticism


SEC Updates issued to interpretive guidance on revenue recognition Staff Accounting Bulletins (SABs) are neither rules nor interpretations of the Commission. They represent interpretations and practices followed by the staff of the Division of Corporation Finance and the Office of the Chief Accountant in administering the financial, accounting, and disclosure requirements of the federal securities laws. The SEC staff intends SABs to be applied to analogous situations.

The SEC announced that it has issued two releases, and that the SEC staff has issued a Staff Accounting Bulletin (SAB), to update the Commission’s interpretive guidance on revenue recognition.

The two releases update the Commission guidance for revenue recognition when delivery has not occurred, as follows:


In addition, the SEC staff issued SAB 116 to align existing SEC guidance with the guidance in ASC 606 and related amendments. SAB 116 modifies existing SEC staff guidance that is included in SAB Topic 13, “Revenue Recognition,” SAB Topic 8, “Retail Companies,” and Section A, “Operating-Differential Subsidies,” of SAB Topic 11, “Miscellaneous Disclosures.”

The guidance in SAB 116 is effective upon adoption of ASC 606; however, a registrant should continue referring to existing SEC staff guidance until it adopts ASC 606.

Staff issues additional guidance regarding non-public review process Announcement supplemented
On August 17, the SEC staff supplemented its previous announcement on the expanded non-public review process for certain draft registration statements. The non-public review process is available for initial Securities Act registration statements submitted within one year of an initial public offering (IPO); the supplement clarifies that the staff of the SEC’s Division of Corporation Finance (CorpFin) will refer to Section 101(c) of the JOBS Act to identify an issuer’s IPO date.

In addition, an eligible issuer that has previously filed a registration statement that is not yet effective may switch to the non-public review process for future pre-effective amendments. Further, issuers may now submit questions about their eligibility to use the expanded processing procedures to CFDraftPolicy@sec.gov.

The SEC staff’s initial announcement was discussed in On the Horizon dated July 13, 2017.

Staff updates FAST Act and Securities Act Forms C&DIs
The Compliance and Disclosure Interpretations described below reflect the views of the SEC staff. They are not rules, regulations, or statements of the Commission and have not been approved by the Commission. The interpretations are intended as general guidance and should not be relied on as definitive.

On the same day, CorpFin updated Question 1 of its Fixing America’s Surface Transportation (FAST) Act Compliance and Disclosure Interpretations (C&DIs) and added Questions 101.04 and 101.05 to its Securities Act Forms C&DIs. These C&DIs include a clarification as to what financial information can be omitted from draft and publicly filed registration statements by an emerging growth company and a non-emerging growth company. In particular, the C&DIs explain staff policy that permits an emerging growth company to omit from its draft registration statements interim financial information that it reasonably believes it will not be required to present separately at the time of the contemplated offering. Similarly, a non-emerging growth company is also permitted to omit from its draft registration statements interim financial information that it reasonably believes it will not be required to present separately at the time of the public filing.



PCAOB issues annual report on inspections of broker-dealer auditors The PCAOB issued an annual report on its inspection program for auditors of brokers and dealers detailing the results of its 2016 inspections. The report covers the inspection of 75 firms and portions of 115 audits and the related engagements.

Deficiencies were identified in 97 percent of the firms inspected in 2016, compared to 96 percent in 2015. Deficiencies were also found in 83 percent of the audits, up from 77 percent in 2015, and in 48 percent of the attestation engagements, compared to 55 percent in 2015.

Independence findings were identified at 10 percent of the firms inspected, up from 7 percent in 2015. These findings were noted only at firms that did not audit public companies and relate primarily to the preparation of financial statements. Deficiencies in the performance of the engagement quality review were noted in 57 percent of the audits, 20 percent of the examinations engagements, and 26 percent of the reviews engagements.

A fact sheet on the annual report is also available.



CAQ releases highlights from May 2017 IPTF meeting The highlights of joint meetings between the Center for Audit Quality’s SEC Regulations Committee’s International Practices Task Force and the SEC staff summarize issues discussed. The highlights do not represent official positions of the AICPA, the FASB, or the IASB and are neither authoritative positions nor interpretations issued by the SEC or its staff.

The CAQ recently issued the highlights of the joint meeting between its International Practices Task Force (IPTF) and the SEC staff held on May 16, 2017. Discussions at the meeting included the following topics:
  • Monitoring of inflation in certain countries, including Argentina, Venezuela, Ukraine, Malawi, Sudan, South Sudan, Libya, Suriname, Angola, Yemen, Egypt, and Mozambique

  • Whether the SEC staff would commence review of otherwise-compliant confidentially submitted or filed registration statements on Form F-1 for an emerging growth company that contains financial statements for the most recently completed financial year prepared using IFRS as issued by the IASB and a PCAOB audit report qualified solely for the omission of prior-year comparative financial statements

  • Confirmation that more current financial statements included in Form 6-K by a foreign private issuer (FPI) not necessary to meet the nine-month timeliness requirement do not need to be XBRL compliant

  • Application of Section 104 of the non-GAAP financial measures C&DIs to segment disclosures presented in accordance with IFRS 8, Operating Segments

  • Indication that FPIs will need to consider the guidance in IAS 1, Presentation of Financial Statements, when determining whether an additional measure presented on the face of the financial statements as a result of the December 2014 amendments to IAS 1 is compliant with IAS 1 or is considered a non-GAAP measure



IAASB, IESBA, and IAESB issue publication on professional skepticism
A joint working group composed of members from the International Auditing and Assurance Standards Board (IAASB), International Ethics Standards Board for Accountants (IESBA), and International Accounting Education Standards Board (IAESB) have issued the publication, “Toward Enhanced Professional Skepticism.” The publication outlines observations about the current environment, details the actions that global standard-setting boards will take, and discusses the role that other stakeholders can play in enhancing professional skepticism.

Key observations from the working group include:
  • Increased attention to business acumen is fundamental to exercising professional skepticism.
  • Environmental factors influence the exercise of professional skepticism.
  • Awareness of personal traits and biases is essential.
  • Professional skepticism must be built in from the outset of the engagement.
  • Standard setters involved can do more to enhance professional skepticism.
  • Aspects of professional skepticism may be relevant to all professional accountants.
  • Standard setting alone is not enough to help cultivate skepticism.



© 2017 Grant Thornton LLP, U.S. member firm of Grant Thornton International Ltd. All rights reserved. This Grant Thornton LLP On the Horizon provides information and comments on current accounting and SEC reporting issues and developments. It is not a comprehensive analysis of the subject matter covered and is not intended to provide accounting or other advice or guidance with respect to the matters addressed in this publication. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this publication. For additional information on topics covered in this publication, contact a Grant Thornton client-service partner.