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In December 2021, the AICPA Insurance Expert Panel (IEP) virtually met with the SEC staff and asked for guidance on the transition date for ASU 2018-12: Targeted Improvements to Long-Duration Contracts when a new registration statement is filed in the year of adoption. Specifically, a fact pattern similar to the following was addressed:

Subsequent to the IEP virtual meeting, the staff provided the following response:

Given this background, the Committee asked the staff whether the registrant in the above fact pattern would be required to provide summarized quarterly financial data disclosure pursuant to Item 302(a) of Regulation S-K in connection with the reissuance of its annual financial statements in connection with the Form S-3 if the registrant’s December 31, 2022 Form 10-K did not include disclosure pursuant to Item 302(a).

The staff noted that Form S-3 does not include a specific requirement to provide Item 302(a) disclosures. If the registrant had previously provided Item 302(a) summarized quarterly financial data disclosures in its December 31, 2022 Form 10-K, the registrant would need to consider whether or not its original disclosures in the Form 10-K continue to be appropriate in light of a retroactive change to the financial statements. A registrant may need to modify or supplement the original disclosures as part of this consideration, such as when the retroactive change is material. Additionally, the staff noted that Form S-1 would require Item 302(a) disclosure pursuant to Item 11(g).

While the issue raised by the Committee was in the context of ASU 2018-12, the SEC staff observed that their views would apply to other retrospective changes for which the company is revising financial statements for the purpose of Form S-3.

The Committee asked the staff whether there have been any changes to its interpretation of the definition of a business in S-X Article 11 as it specifically relates to the presumption that the acquisition of a separate entity, subsidiary, or division is a business.

The staff indicated that there have been no changes to its interpretation of the definition of a business and continue to apply the presumption that an acquisition of a separate entity, subsidiary or division is a business. That said, there may be limited circumstances in which the staff might not object to a registrant’s conclusion that the presumption is overcome based on the principles in S-X Rule 11-01(d) which address the continuity of the acquired entity’s operations prior to and after the transaction.

The staff also clarified that any of the criteria outlined in S-X Rule 11-01(d)(2) that are not applicable should not be considered in an analysis of the definition of a business under S-X 11-01(d)

Given the current inflationary environment, the Committee asked the staff for its views regarding the presentation of an NGFM that substitutes one acceptable method of accounting under GAAP for another acceptable method of accounting under GAAP. Specifically, the Committee asked whether a registrant that reports its inventory on a LIFO basis would be allowed to disclose an NGFM showing the impact of reporting its inventory on a FIFO basis.

The staff noted that they have historically not objected to the presentation of an NGFM which substitutes one acceptable GAAP method of accounting for another acceptable GAAP method of accounting. However, they noted that they have historically objected to an NGFM that substitutes an unacceptable accounting method or an accounting method that while not acceptable under the registrant’s basis of accounting, is acceptable under a different accounting framework (e.g., US GAAP vs. IFRS).