Skip to main content

Search

Accounting and the SEC Quarterly Update

Article
During the recent Accounting and SEC Update webinar, Weaver professionals discussed the regulatory, accounting and reporting issues that public companies are facing.
10 minute read
October 26, 2022

Several themes were prevalent across industries and regulatory bodies in Weaver’s September 22, 2022 Accounting and SEC Update. The focus was on improving data quality and comparability, communication, transparency, responses to inflation, cybersecurity threats, and ESG (Environmental, Social, and Governance).

Regulatory Releases

Climate Related ESG – To address organizations that are attaching themselves to ESG initiatives with low levels of evidence (sometimes referred to as greenwashing), proposals have been adopted to enhance disclosures and provide greater transparency for investors.

Whistleblower Program – SEC whistleblower program amendments have been approved. They focus on compensating whistleblowers when alternative compensation may be received from another program and provide greater discretion to increasing award amounts.

Pay versus Performance – Effective fiscal year 2022 for calendar filers, the SEC requires additional disclosures be included in within proxies and 10k’s, and will be in effect for all calendar year end filers for the upcoming Form 10K’s and/or proxy statements. More relaxed measures are required of smaller reporting companies upon adoption. Plan time to get the information together and determine if controls need to be updated or put in place.

China Agreement – The PCAOB (Public Company Accounting Oversight Board) has signed an Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China. The agreement is a big step toward opening access to work papers for inspection and investigation.

10 Areas of Focus 2022 PCAOB Inspections – The PCAOB issued staff overview guidance for planned 2022 inspections. These are likely areas your auditors will continue to be focused on.

CECL Effective Date – A reminder of the 1/1/23 effective date for CECL (current expected credit loss) for Smaller Reporting Companies. Be prepared for not only the disclosure statements, but also to adjust your internal controls related to the application of the standard, including the related estimates and inputs.

Form PF – SEC registered Investment advisors have several proposed amendments to Form PF. Trends include disclosing areas that could generate systemic risk, improve data quality and comparability, and reduce reporting errors.

EDGAR Filer Manual – The amended manual became effective September 19th.

Emerging Growth Companies (EGC) Amount. In response to inflation and other factors, the revenue threshold for maintaining EGC status has been increased from $1.07b to $1.235b.

Cybersecurity and Privacy

Cybersecurity Incident Reporting was discussed in detail in the Weaver’s Q2 update. The comment period has closed, but a disclosure requirement is expected. In order to leverage components of these programs to meet current and future requirements, it is important to consider the correlation between cybersecurity and privacy.

SEC Disclosure Requirements have generated a lot of interest with concerns particularly around the timing of the communications.

Obligations  Organizations need to evaluate their contractual obligations as well as federal and state rules when it comes to cybersecurity and privacy laws

50+ Privacy Laws in progress – Many different agencies at the federal level issue privacy laws relating to consumer, health, financial, and children’s and educational privacy.

“The materiality of a cyber incident could be defined by downtime or the loss of earned revenue such as a ransomware attack that takes you offline, or the loss of information. The latter could have a connection from a cyber disclosure perspective as well as with privacy disclosures.”

Brett Nabors
Weaver Partner, IT Advisory Services

 

Five states with signed privacy laws – At the state level, there are a small number of states with existing privacy laws, an additional 4 with legislation in progress, and many others that previously had bills introduced that could be revised or re-introduced.

Control considerations around cybersecurity framework and privacy framework should include an effort toward data minimization and data retention to reduce the organization’s overall exposure.

Management of incident response in compliance with the proposed cybersecurity disclosure requirements and other regulations (including privacy) are improved by:

Tax Implications of the Inflation Reduction Act and CHIPS Act (Creating Helpful Incentives to Produce Semiconductors)

Corporate Alternative Minimum Tax (AMT) – Despite being aimed at companies reporting record earnings and paying no federal tax, many other companies will be swept into its coverage beyond those that meet the billion-dollar threshold.

1% Excise Tax on Stock Repurchases – This stock buy-back provision applies to stock repurchases in publicly traded U.S. corporations or majority owned U.S. subsidiaries. In limited circumstances, it can apply to publicly traded foreign corporations. Effective after 12/31/22, it should be considered as a transactional tax. More guidance is expected.

CHIPS and Science Act – The August Executive Order created the huge 25% tax credit that incentivizes manufacturing semiconductors and related production equipment. These organizations will be attractive investments with some tool and die producers in the oil and gas space expected to shift their production toward semiconductor tools to take advantage of the Act’s tax credits.

“As with any legislative updates are enacted, ensure you include disclosures in your financial statements for any changes that will have a material impact to your organization.”

Robert Henry
Weaver Partner-in-Charge, Tax Provisions and R&D Tax Credit Services

 

“As you become aware of changes, layer them into your MD&A (Management’s Discussion and Analysis) and subsequent event disclosures to ensure compliance. This helps users better understand what current changes are currently effective as well as what is coming down the pike.”

 

Phil Ilgenstein
Partner, Assurance Services and Public Company Practice Leader

State Law Changes – In an effort to create more business-friendly environments, Arkansas and Pennsylvania have approved legislative updates that will require a discrete event to revalue deferred items during the closing of Q3 2022.

Weaver’s Executive Resource Center’s published its “Five Topics for Your Next Board Meeting” is published quarterly to and help you guide conversations around meaningful topics that inform the board and allow executive leadership to share their knowledge and insights.

©2022


Weaver’s Accounting and SEC Update

Sign up for our quarterly series to stay informed!

Accounting and SEC Update Banner