As in previous years, Stout was an underwriter for the annual “AICPA & CIMA Conference on Current SEC and PCAOB Developments” in Washington, D.C.  A number of Stout’s professionals attended presentations from the SEC, Financial Accounting Standards Board (FASB), and Public Company Accounting Oversight Board (PCAOB), along with various leaders from across the accounting industry.  Below we highlight five key takeaways from the Conference.

Updates on Non-GAAP Financial Measures

In December 2022, the SEC updated its compliance and disclosure interpretations on non-GAAP (Generally Accepted Accounting Principles) financial measures. The updated interpretations help to further break down what the SEC believes to be a normal operating expense. Presenting a non-GAAP financial measure that excludes a normal operating expense is an example of a measure that could be considered misleading.

Disaggregation of Financial Information

The FASB continues to focus on disaggregation of financial information based on feedback received from investors and other stakeholders.

Segment Disclosures

The FASB has proposed several amendments that would require public entities to disclose noteworthy segment expenses reviewed by the chief operating decision maker (CODM), disclose more than one measure of segment profit or loss if the CODM is evaluating performance at this level, and require public companies with a single reportable segment to disclose more thoughtfully on how management operates its business. 

Income Tax Disclosures

The current FASB proposal for the disaggregation of income tax disclosures would also require further disaggregation about income taxes paid and a company’s rate reconciliation. These suggestions are intended to create more user-friendly information to benefit investors.

Income Statement

The FASB is also in the midst of a project to enhance the income statement and further disaggregate income statement captions. Specifically, at the AICPA (American Institute of Certified Public Accountants) conference, the FASB mentioned the initiative to potentially disaggregate expenses into more granular categories such as compensation, depreciation, and amortization.

ESG Reporting and Disclosures

ESG (Environmental, social, and governance) was a recurring theme during the conference. While the SEC has not yet finalized its ESG disclosure and reporting frameworks, it suggested that companies start planning what they will disclose in their year-end filings once the requirements take effect. Also, surrounding future climate-related disclosures, some considerations were provided for companies to consider: 

1. Understand that governance oversight will play a key role in effective and meaningful disclosures
2. Compare current climate-related disclosures to those that are being proposed by the SEC to identify any gaps
3. Develop a system of tracking and reporting climate-related data so that reporting and forecasting is less time-intensive
4. Create internal controls over climate-related data and disclosures

Crypto Assets

Similar to ESG, there was a lot of discussion around crypto assets. The FASB highlighted proposed guidance, under which crypto assets are required to be measured at fair value, and companies must recognize any increases or decreases in comprehensive income every reporting period. The FASB is still finalizing disclosures and guidance regarding the treatment of crypto assets with a further emphasis on the quality of information being disclosed to investors.

Cybersecurity

Providing accurate and timely information about cybersecurity incidents has been at the focal point for the SEC. The SEC emphasized that it expects registrants to have appropriate levels of training and communication regarding cybersecurity, as the lack of a strong cybersecurity framework could lead to a high level of organizational risk.

Pay vs. Performance Disclosure Requirements

The SEC discussed the recent requirement for registrants to disclose information about the relationship between executive compensation and company performance. Registrants are required to provide a sufficient amount of information to investors when preparing these disclosures. Please refer to our pay vs. performance disclosure article and the potential impact.