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The State of Disclosure Review

Selective Disclosure of Information Regarding Cybersecurity Incidents

Further Announcement Regarding Share Repurchase Disclosure Modernization Rule 

FASB Accounting Standards Updates - Accounting Standards Update No. 2023-07 — Segment Reporting (Topic 280) — Improvements to Reportable Segment Disclosures

FASB Accounting Standards Updates - Accounting Standards Update No. 2023-08 -- Intangibles Goodwill and Other Crypto Assets (Subtopic 350-60) --- Accounting for and Disclosure of Crypto Assets

Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures 

Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative

Software Costs –FASB Discusses Accounting for and Disclosure of Software Costs

Articles 

The State of Disclosure Review 

Summary - Gerding, Director of the SEC’s Division of Corporation Finance (Corp Fin), recently discussed the state of disclosure for fiscal year 2023 and provided some of Corp Fin’s disclosure priorities for fiscal year 2024. Corp Fin’s annual report review program is the primary mechanism that it uses to monitor and enhance compliance with disclosure rules and accounting requirements in periodic reports filed by public companies.

Gerding indicates that while the nature of comments varies significantly depending on the specific facts for each company, the top areas of comment in fiscal year 2023 included, among others, China-related matters, non-GAAP disclosures, Management’s Discussion and Analysis, revenue recognition, and financial statement presentation. Emerging areas of focus in 2023 included:

  • Market disruptions in the banking industry;
  • Cybersecurity risks;
  • The impact of inflation; and
  • Disclosure related to newly adopted rules, such as pay versus performance.

Priorities identified by Gerding for 2024 include certain financial reporting topics, especially areas that involve judgment or where the FASB or the IASB have recently issued accounting standards, are generally areas of particular focus, including:

  • Segment reporting, including compliance with new U.S. GAAP disclosures effective in annual periods beginning after December 15, 2023;
  • Compliance with non-GAAP regulations and rules;
  • Critical accounting estimates disclosure in Management’s Discussion and Analysis; and
  • Disclosures related to supplier finance programs in the notes to the financial statements and any related information in Management’s Discussion and Analysis.

In addition to the above 2024 financial reporting topics, Corp Fin anticipates that many of the disclosure priorities from 2023 will continue through the upcoming year, including:

  • Corp Fin continues its focus on China-Based Companies and eliciting disclosure from companies on material risks they face from the PRC government intervening in, or exercising control over, their operations in the PRC.
  • While it appears that inflation is beginning to come down, this is not the time for issuers to revert to boilerplate disclosures. Any material ongoing impacts should be disclosed and Corp Fin asks companies to not just note high level trends, but discuss the more particularized risks and impacts on their specific company.
  • Given the market disruptions in the banking industry that began about a year ago, Corp Fin will be continuing to take a close look at updated disclosures related to interest rate risk and liquidity risk.

For more information, click here.

© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Selective Disclosure of Information Regarding Cybersecurity Incidents  

Summary - Erik Gerding, Director of the SEC’s Division of Corporation Finance (Corp Fin), has issued a statement, Selective Disclosure of Information Regarding Cybersecurity Incidents. The statement aims to clarify that the SEC’s Final Rule, Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, does not preclude a company from sharing additional information about a material cybersecurity incident with others, including their commercial counterparties. Gerding indicates that some companies are under the impression that if they experience a material cybersecurity incident, the SEC’s new rules prohibit them from discussing that incident beyond what was included in the Item 1.05 Form 8-K disclosing the incident. Gerding notes that this is not the case.

Item 1.05 of Form 8-K requires a company that experiences a cybersecurity incident that it determines to be material to describe the material aspects of the nature, scope, and timing of the incident, as well as the incident’s material impact or reasonably likely material impact on the company, including its financial condition and results of operations. Nothing in Item 1.05 prohibits a company from privately discussing a material cybersecurity incident with other parties or from providing information about the incident to such parties beyond what was included in an Item 1.05 Form 8-K.

Gerding acknowledges that “companies could conceivably have concerns that privately disclosing additional information regarding a material cybersecurity incident beyond what was included in an Item 1.05 Form 8-K could implicate the Commission’s rules regarding selective disclosures that are set forth in Regulation FD. It is important to reiterate the scope of Regulation FD. As is well-known, Regulation FD requires public disclosure of any material nonpublic information that has been selectively disclosed to securities market professionals or shareholders, as specified in the regulation. Depending on the information disclosed, and the persons to whom that information is disclosed, discussions regarding a cybersecurity incident may implicate Regulation FD.” However, Gerding provides that nothing in Item 1.05 alters Regulation FD or makes it apply any differently to communications regarding cybersecurity incidents. There are several ways that a public company can privately share information regarding a material cybersecurity incident beyond what was disclosed in its Item 1.05 Form 8-K without implicating Regulation FD.

For more information, click here.

© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Further Announcement Regarding Share Repurchase Disclosure Modernization Rule 

Summary -The SEC has published Further Announcement Regarding Share Repurchase Disclosure Modernization Rule. This announcement indicates that on “December 19, 2023, the U.S. Court of Appeals for the Fifth Circuit issued an opinion in Chamber of Com. of the USA v. SEC, No. 23-60255 (5th Cir.) vacating the Share Repurchase Disclosure Modernization rule (the “Final Rule”). As a result of the vacatur, the disclosure requirements revert to those in effect prior to the Final Rule’s effective date.

For more information, click here.

© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Announcement Regarding Share Repurchase Disclosure Modernization Rule

Summary -The SEC has published an announcement postponing the effective date of the SEC’s Final Rule, Share Repurchase Disclosure Modernization (Repurchase Rule). The Repurchase Rule adopted amendments to modernize and improve disclosure about repurchases of an issuer’s equity securities that are registered under the Securities Exchange Act of 1934. Among other things, the Repurchase Rule requires additional detail regarding the structure of an issuer’s repurchase program and its share repurchases, require the filing of daily quantitative repurchase data either quarterly or semi-annually, and eliminate the requirement to file monthly repurchase data in an issuer’s periodic reports.

The SEC cited the U.S. Court of Appeals for the Fifth Circuit opinion in Chamber of Com. of the USA v. SEC, No. 23-60255 (5th Cir.), in which petitioners challenge the Repurchase Rule, which became effective on July 31, 2023. The court granted the petition for review and remanded to the SEC “to correct the defects” the court identified in the Repurchase Rule by November 30, 2023.

The SEC indicates that in light of the court’s decision, the SEC issued an order postponing the effective date of the Repurchase Rule pursuant to Section 705 of the Administrative Procedure Act. As a result, the Repurchase Rule is stayed pending further SEC action.

For more information, click here.

© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

FASB Accounting Standards Updates - Accounting Standards Update No. 2023-07 — Segment Reporting (Topic 280) — Improvements to Reportable Segment Disclosures

Summary - The FASB issued a final Accounting Standards Update (ASU) that is intended to improve disclosures about a public entity’s reportable segments and addresses requests from investors and other allocators of capital for additional, more detailed information about a reportable segment’s expenses. ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, applies to all public entities that are required to report segment information in accordance with Topic 280. All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023.

The amendments in the ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The key amendments:

  • Require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss.
  • Require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss.
  • Require that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by FASB Accounting Standards Codification® Topic 280, Segment Reporting, in interim periods.
  • Clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit or loss. However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements.
  • Require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.
  • Require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in the ASU and all existing segment disclosures in Topic 280.

For more information, click here.

© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

FASB Accounting Standards Updates - Accounting Standards Update No. 2023-08 -- Intangibles Goodwill and Other Crypto Assets (Subtopic 350-60) --- Accounting for and Disclosure of Crypto Assets

Summary - The FASB published an Accounting Standards Update (ASU) intended to improve the accounting for and disclosure of certain crypto assets. FASB ASU No. 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets, is effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued (or made available for issuance). If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period.

ASU No. 2023-08 requires a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets) as of the beginning of the annual reporting period in which an entity adopts the amendments.

The amendments in ASU No. 2023-08 are intended to improve the accounting for certain crypto assets by requiring an entity to measure those crypto assets at fair value each reporting period with changes in fair value recognized in net income. The amendments also improve the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period.

The amendments in the ASU apply to all assets that meet all the following criteria:

  • Meet the definition of intangible asset as defined in the FASB Accounting Standards Codification®;
  • Do not provide the asset holder with enforceable rights to or claims on underlying goods, services, or other assets;
  • Are created or reside on a distributed ledger based on blockchain or similar technology;
  • Are secured through cryptography;
  • Are fungible; and
  • Are not created or issued by the reporting entity or its related parties.

For more information, click here.

© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures 

Summary - The amendments apply to all public entities that are required to report segment information in accordance with Topic 280, Segment Reporting.

The amendments in the ASU is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The key amendments:

  • Require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss.
  • Require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss.
  • Require that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by FASB Accounting Standards Codification® Topic 280, Segment Reporting, in interim periods.
  • Clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit. However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements.
  • Require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.
  • Require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in the ASU and all existing segment disclosures in Topic 280.

For more information, click here.

© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative

Summary - This ASU incorporates certain U.S. Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards Codification™. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations.

In SEC Release No. 33-10532, Disclosure Update and Simplification, issued August 17, 2018, the SEC referred certain of its disclosure requirements that overlap with, but require incremental information to, generally accepted accounting principles to the FASB for potential incorporation into the Codification.

The ASU incorporates into the Codification 14 of the 27 disclosures referred by the SEC. They modify the disclosure or presentation requirements of a variety of Topics in the Codification. The requirements are relatively narrow in nature. Some of the amendments represent clarifications to, or technical corrections of, the current requirements. Because of the variety of Topics amended, a broad range of entities may be affected by one or more of those amendments.

For more information, click here.

© 2024 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Software Costs –FASB Discusses Accounting for and Disclosure of Software Costs

Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on April 13, 2022, and discussed the pre-agenda research performed to date, including stakeholder feedback received on software costs in response to the June 2021 Invitation to Comment, Agenda Consultation. The FASB made no technical decisions and provided its staff with direction to continue pre-agenda research. That research will be considered in a future decision-making meeting where the FASB will decide whether to add a project on software costs to its technical agenda.  

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.