FASB Updates Disclosure Requirements

The Financial Accounting Standards Board (FASB) and the SEC (Securities and Exchange Commission) have distinct, but interrelated roles that each impact companies’ financial reporting.

• The SEC focuses on enforcing and regulating security laws, which includes ensuring that public companies comply with financial reporting standards.
• The FASB sets the standard for accounting principles generally accepted in the United States of America (U.S. GAAP).

At times the SEC may identify financial reporting initiatives for referral to the FASB for consideration of the implications to U.S. GAAP.

SEC Initiatives & Amendments

In 2016, the SEC identified several disclosure requirements which were viewed as duplicative, overlapping, or outdated and proposed amendments to clarify and simplify its disclosure requirements in certain areas. These matters were referred to the FASB in 2018 for potential incorporation into U.S. GAAP and the Accounting Standards Codification (ASC).

The FASB identified 14of these matters for amendment to the ASC and issued Accounting Standards Update (ASU) 2023-06 in response.

Effective Date and Transition Considerations

The effective dates for each amendment are contingent on the SEC removing the related disclosures from Regulation S-X or Regulation S-K. The disclosures are effective after SEC action as follows:

• SEC filers – the date on which the SEC’s removal of the related disclosure from its regulations becomes effective. Early adoption is prohibited.
• All other entities – Two years after the SEC filer effective date. Other entities are not precluded from including voluntary disclosures consistent with these amendments.

The amendments will be applied prospectively upon becoming effective.

If the SEC does not remove the disclosures from their regulations by June 30, 2027, the amendments will be removed from the ASC and will not be effective for any entity.

Changes to Disclosure or Presentation Requirements

The amendments in ASU 2023-06 cover a wide range of ASC subtopics, of which the most significant changes are summarized below. Once effective, they will expand on disclosure or presentation requirements as follows:

1. ASC 230-10: Statement of Cash Flows – Overall

Adds a requirement to disclose the accounting policy for the presentation of cash flows and the related gains and losses associated with derivative instruments within the statement of cash flows.

2. ASC 250-10: Accounting Changes and Error Corrections – Overall

Clarifies that disclosures of a change in reporting entity resulting in a material prior-period adjustment are required for both interim and annual reporting periods. In these situations, the cumulative effect of the change in equity as of the beginning of the earliest period presented should also be disclosed.

3. ASC 260-10: Earnings Per Share – Overall

Adds a requirement to disclose the methods used to compute diluted earnings-per-share for each dilutive instrument, clarifies that earnings per share disclosures are required for both interim and annual periods, and amends illustrative guidance.

4. ASC 440-10: Commitments – Overall

Requires disclosure of the approximate amount of assets mortgaged or otherwise subject to lien and the related obligations collateralized.

5. ASC 470-10: Debt – Overall

Requires disclosure of the amount and terms of unused lines of credit and unfunded commitments.

Public business entities are also required to disclose the weighted-average interest rate on outstanding short-term borrowings.

6. ASC 505-10: Equity – Overall

Requires disclosure of preference in involuntary liquidation when an entity issues preferred or other senior stock, if that preference is other than par or stated value.

7. ASC 860-30 – Transfers and Servicing – Securing Borrowing and Collateral

For entities with securities borrowing, repurchase, or resale transactions.

Updates the following presentation matters:

1. Liabilities incurred by either the secured party or obligor in securities borrowing or resales transactions should be separately classified and include accrued interest.
2. If the aggregate carrying amount of reverse repurchase agreements exceed 10% of total assets as of the date of the most recent statement of position, the agreement should be separately classified on the face of statement of financial position.

Adds the following disclosure requirements:

1. Public business entities are required to disclose the weighted-average interest rates of repurchase liabilities.
2. Additional disclosures related to counterparty risk for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions when amounts at risk exceed 10% of equity.
3. Additional disclosures when the aggregate carrying amount of reverse repurchase agreements exceeds 10% of total assets.

8. ASC 932-235: Extractive Activities – Oil and Gas – Notes to the Financial Statements

For publicly traded companies, clarifies that disclosures in ASC 932-235-50-3 through 50-36 are applicable for all annual periods presented.

9. ASC 946-20: Financial Services – Investment Companies – Investment Company Activities

Clarifies the requirement for investment companies to disclose the two components of capital on the balance sheet – shareholder capital and distributable earnings – and removes potential perceived inconsistencies in the codification.

10. ASC 974-10: Real Estate – Real Estate Investment Trusts (REIT) – Overall

Requires REITS to disclose the tax status of distributions per unit for annual reporting periods.

Next Steps with SEC Amendments

These amendments will not have a significant impact on SEC reporting entities as they are already included in SEC regulations. Private companies will see some changes to financial reporting requirements; however, the FASB provided certain exceptions to non-public business entities and do not believe that the costs of implementation will be significant.

Since the effective dates of these amendments are unknown, it is important to monitor any changes or SEC action relating to these amendments.

Our assurance team can help you monitor and navigate these and other accounting changes.