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30.11 SAB 74 disclosures (change in accounting principle)
Publication date: 28 Feb 2022
us Financial statement presentation guide
SAB 74, Disclosure of the Impact That Recently Issued Accounting Standards Will Have on the Financial Statements of the Registrant When Adopted in a Future Period (codified in ASC 250-10-S99-5), discusses the SEC staff’s view regarding required disclosures when a new accounting standard has been issued but is not yet effective. The SEC staff emphasizes that reporting entities should provide meaningful (non-boilerplate) disclosures based on known information. Because financial statement and nonfinancial statement disclosure objectives are different, the disclosures included therein should not be duplicative. Although there will be exceptions, the SEC staff's view suggests a general principle that the retrospective effects of a new accounting standard would most likely be disclosed in the financial statements while the future/prospective effects would most likely be discussed in MD&A.
Often, a reporting entity will initially disclose that it is assessing the impact of a new standard and begin to provide more detailed disclosures as the information is available. SAB Topic 74 describes the disclosures to be made.
Excerpt from SAB Topic 74
- A brief description of the new standard, the date that adoption is required and the date that the registrant plans to adopt, if earlier.
- A discussion of the methods of adoption allowed by the standard and the method expected to be utilized by the registrant, if determined.
- A discussion of the impact that adoption of the standard is expected to have on the financial statements of the registrant, unless not known or reasonably estimable. In that case, a statement to that effect may be made.
- Disclosure of the potential impact of other significant matters that the registrant believes might result from the adoption of the standard (such as technical violations of debt covenant agreements, planned or intended changes in business practices, etc.) is encouraged.
Each new accounting standard must be analyzed to determine the appropriate disclosure. The level of information available may differ based on the nature of the standard and from one reporting entity to another.
If a recently issued standard will impact the presentation of, but not materially affect the financial statements, SAB 74 encourages the reporting entity to disclose that a standard has been issued and that its adoption will not have a material effect on the reporting entity’s financial position or results of operations.
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