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This Heads Up discusses the SEC staff’s announcement at the July 20, 2017, meeting of the Emerging Issues Task Force that the staff would not object to elections by certain public business entities (PBEs) to use the non-PBE effective dates for the sole purpose of adopting the FASB’s new standards on revenue and leases.
At the July 20, 2017, meeting of the Emerging Issues Task Force (EITF), and in response to concerns expressed by accountants, registrants, and other stakeholders, the SEC staff provided significant relief to registrants that are required to include financial statements or financial information of other reporting entities in their SEC filings. Specifically, the SEC staff announced that it would not object to elections by certain public business entities (PBEs) to use the non-PBE effective dates for the sole purpose of adopting the FASB’s new standards on revenue (ASC 606) and leases (ASC 842).
The staff announcement makes clear that the ability to use non-PBE effective dates for adopting the new revenue and leases standards is limited to the subset of PBEs “that otherwise would not meet the definition of a public business entity except for a requirement to include or inclusion of its financial statements or financial information in another entity’s filings with the SEC” (referred to herein as “specified PBEs”).
While the staff announcement is written in the context of specified PBEs, the principal beneficiaries of the relief will be SEC filers that include financial statements or financial information prepared by specified PBEs in their own filings, for example, under the following SEC Regulation S-X rules:
- Rule 3-05, “Financial Statements of Businesses Acquired or to Be Acquired.”
- Rule 3-09, “Separate Financial Statements of Subsidiaries Not Consolidated and 50 Percent or Less Owned Persons.”
- Rule 3-14, “Special Instructions for Real Estate Operations to Be Acquired.”
- Rule 4-08(g), “Summarized Financial Information of Subsidiaries Not Consolidated and 50 Percent or Less Owned Persons.”
Although the staff announcement does not address the FASB’s new standard on credit losses (ASC 326), as explained in more detail in the PDF, the effective-date guidance in ASC 326 is similar to the ASC 606 and ASC 842 effective-date guidance available to specified PBEs as a result of the SEC staff announcement. Accordingly, it was not necessary for the SEC staff to include ASC 326 within the scope of the announcement.
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Heads Up newsletters, published as warranted, analyze important accounting developments, such as new FASB and IASB pronouncements or exposure drafts. Concise examples and answers to frequently asked questions assist readers in understanding and implementing the critical guidance.