Michael Doan

Bill Sheridan, in writing about the SEC further delaying the adoption of IFRS, quotes the president of IFRS Education and Training, LLC.

You’ve got Canada, Mexico – all the major economies throughout the world are using IFRS. We will run into it somewhere down the line — and that’s if the United States doesn’t adopt it. I believe we will.

[Emphasis mine]

I present to you the following map:

Is this a map of countries that have not adopted IFRS? No.

Is this a map of countries that have not adopted the metric system? Yes.

I’m not saying that the U.S. won’t adopt IFRS, but it doesn’t appear that anyone is in a hurry.  The U.S., she’s a stubborn country.

From CFO.com:

…the SEC appears willing to pursue cases even when the agency knows the defendant did not act with what the law calls scienter — that is, an intent to defraud, knowledge of wrongdoing, or at least reckless disregard of the law.

You only need to be negligent in your duties as CFO to attract possible prosecution from the SEC. This is a scary thought because mistakes do happen, but the SEC seems to be less forgiving. Time to sharpen the pencils.

Yesterday the SEC’s Division of Enforcement sought voluntary production of documents from Green Mountain Coffee Roasters, the maker of the single-cup Keurig brewers. At issue is Green Mountain’s revenue recognition policy. Green Mountain is a publicly traded company with a market capitalization of $4 billion and is audited by PWC, so it most likely has a revenue recognition policy in place.

Smaller companies, particularly privately-held companies, probably don’t have a written revenue recognition policy, but they should. Revenue recognition is always a hot-topic with the SEC and it should be hot topic with any business owner. Revenue recognition under generally accepted accounting principles in the United States is a complex area where even seemly simple transactions can open some very complicated recognition rules.

Companies should maintain a written revenue recognition policy for each of their products or groups of products (if they are homogeneous). Having a well written policy is the first step in ensuring that revenue is recognized in a consistent manner on a company’s financial statements. When I’ve written revenue recognition policies in the past, I’ve generally followed this outline:

1. Describe the product or group of products
2. How and where the product will be sold.
3. How and when the earnings process is complete.
4. References to any accounting literature
5. The journal entry to record the revenue and/or deferral of revenue and supporting accretion schedules.

Because each product or transaction is so unique, it’s very difficult to devise a standard “check-the-box” approach to determining revenue recognition and it’s probably ill-advised. Many companies have well-trained and talented accounting staff that can go through all the complex revenue recognition rules to write up a policy. In the event that they don’t have the expertise or resources (mainly time), hiring a certified public accountant to perform a SAS 50 engagement (reports on the application of accounting principles) is also an option.

Note: SAS 50 was later amended by SAS 97, Amendment to Statement of Auditing Standards No. 50, Reports on the Application of Accounting Principles. It’s also known by the less sexier name AU Section 625.

To further it’s mission to protect investors, the SEC turns to social media to spread the word. In this interview Mark Story, the SEC’s director of new media, explains how the SEC uses social media.

Tools like Twitter, YouTube , a mobile site and an investor-focused microsite enable us to put important information where our stakeholders “live” online, using tools that spread our reach beyond the SEC website.

The SEC today is proposing amendments to enhance the short-term borrowing disclosure. If the proposal is adopted, companies will have to provide a comprehensive  explanation of short-term borrowing that includes quantitative and qualitative information. Disclosures will have to made on an annual and quarterly basis, as well as on information statements that contain financial information, registration statements under the 1933 and 1934 Acts, and proxy information. Form 8-K will also be amended to use terminology that is required in the short-term borrowing disclosure. The new disclosures will be made under a sub-section of the Management Discussion & Analysis.

The SEC will provide an interpretive guidance.

With all the posts I’ve been doing recently about the SEC, it must have been fate that I shared the same dining room at lunch today with former SEC Chairman Christopher Cox. We were a couple of tables apart, but that’s the closest I ever want to be to anyone or anything related to the SEC.

The Corporate & Securities Law blog has a great summary on how the Dodd-Frank Wall Street Reform and Consumer Proctection Act will affect the definition of “accredited investor”. The pertinent points are below:

• Net worth of $1 million excludes the value of the investor’s primary residence.
• The SEC can revise the definition for the first four years following enactment of the act.
• Within the next four years the definition of accredited investor must include an increase to the net worth threshold.
• SEC is required to review the definition of net worth every four years.
• the net worth amount will not be go below a $1 million floor.

Now that the Dodd-Frank bill has been signed into law, issuers of asset-back bonds are required to disclose their credit rankings in their regulatory filings. Credit rating agencies like Moody’s are not happy about this because it subjects them to expert liability , “meaning that they would face the same legal risks as accountants and other parties that participate in bond sales.” Issuers were not able to obtain ratings for inclusion in their flings wit the SEC so the SEC granted issuers a waiver for six months which allows time for implementation of the law.

The article briefly mentions that issuers will consider an alternatives to this a law by using Rule 144a but doesn’t adequately explain what 144a is. A good explanation of 144a is here.