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SEC Disclosures Checklist


Table of Contents

How to Use the SEC Disclosures Checklist Checklist as of December 31, 2008

This SEC Disclosures Checklist is for financial statements included in SEC 1934 and 1933 Act domestic filings, such as
the financial statements in a Form 10-K or S-1. This checklist addresses SEC requirements incremental to U.S. GAAP
and supplements the U.S. GAAP – General Disclosures checklist. The SEC Form 10-Q checklist and the Sarbanes-Oxley
mandated requirements checklist are separate.

This checklist prompts you with questions on SEC disclosure requirements that are incremental to U.S. GAAP. The
checklist is organized by accounting topic and provides background material, references, and LINKS to the referenced
source material in Accounting Research Manager’sTM SEC Practice. The checklist also provides a column for you to note
that the disclosure requirements have been met and to enter a workpaper reference. The completed checklist can be
placed in annual or quarterly workpapers to provide support for your review and compliance procedures.

This checklist is designed primarily for domestic registrants.

“Smaller reporting companies” as the SEC has defined this term in Item 10(f)(1) of Regulation S-K generally means a
company that has a public float of less than $75 million or, if a company does not have a calculable public equity float,
having revenues of less than $50 million in the last fiscal year. Such companies have scaled disclosure and reporting
requirements. The concept of smaller reporting companies was finalized on February 4, 2008, and replaces the concept of
“small business issuers” that the SEC previously used. The SEC has issued the following two resources for smaller
reporting companies on the transition to the new rules (both available on Accounting Research Manager):

• Smaller Reporting Company Compliance and Disclosure Interpretations; and


• Changeover to the SEC’s New Smaller Reporting Company System by Small Business Issuers and Non-
Accelerated Filer Companies: A Small Entity Compliance Guide.

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SEC Disclosures Checklist


Table of Contents

TABLE OF CONTENTS

A GENERAL DISCLOSURES......................................................................................................................................................................................5
1. Introduction..........................................................................................................................................................................................................5
2. Financial Statements and Reporting Periods.......................................................................................................................................................5
3. Change in Reporting Periods...............................................................................................................................................................................5
4. Financial Reporting Presentation.........................................................................................................................................................................6
B CASH......................................................................................................................................................................................................................18
C ACCOUNTS AND NOTES RECEIVABLE..............................................................................................................................................................18
D FINANCIAL INSTRUMENTS..................................................................................................................................................................................20
E INVENTORY...........................................................................................................................................................................................................25
F OTHER INVESTMENTS.........................................................................................................................................................................................27
G FIXED ASSETS, REPAIRS AND MAINTENANCE, AND DEPRECIATION...........................................................................................................32
H INTANGIBLE ASSETS AND AMORTIZATION.......................................................................................................................................................34
I ACCOUNTS AND NOTES PAYABLE......................................................................................................................................................................34
J DEBT AND GUARANTORS OF DEBT...................................................................................................................................................................36
K LEASES..................................................................................................................................................................................................................38
L INCOME TAXES ....................................................................................................................................................................................................39
M COMMON STOCK, PREFERRED STOCK, AND MINORITY INTERESTS...........................................................................................................41
1. COMMON STOCK AND NONREDEEMABLE PREFERRED STOCK..............................................................................................................41
2. MINORITY INTERESTS....................................................................................................................................................................................43
3. MANDATORILY REDEEMABLE PREFERRED STOCK...................................................................................................................................43
4. SUBORDINATED DEBT....................................................................................................................................................................................46
5. TERMINATED S CORPORATIONS..................................................................................................................................................................46

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SEC Disclosures Checklist


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6. LIMITED PARTNERSHIPS................................................................................................................................................................................46
7. DIVIDENDS.......................................................................................................................................................................................................47
8. INCOME APPLICABLE TO COMMON STOCK................................................................................................................................................48
9. STOCK SUBSCRIPTIONS...............................................................................................................................................................................49
10. DISCOUNT ON SHARES................................................................................................................................................................................49
11. OTHER............................................................................................................................................................................................................49
N REVENUE RECOGNITION ...................................................................................................................................................................................50
O SHARE-BASED PAYMENT...................................................................................................................................................................................52
P PENSION PLANS, OTHER POSTRETIRMENT PLANS, AND ESOPS.................................................................................................................55
Q BANKRUPTCY.......................................................................................................................................................................................................55
R BUSINESS COMBINATIONS.................................................................................................................................................................................56
S QUASI-REORGANIZATIONS.................................................................................................................................................................................62
T SUBSIDIARY’S OR DIVISION’S SEPARATE FINANCIAL STATEMENTS AND SEGMENTS...............................................................................63
U RELATED PARTY TRANSACTIONS.....................................................................................................................................................................66
V RESTRUCTURING AND IMPAIRMENT CHARGES..............................................................................................................................................67
W QUARTERLY FINANCIAL DATA...........................................................................................................................................................................69
X CONSOLIDATION..................................................................................................................................................................................................70
Y COMMITMENTS AND CONTINGENCIES.............................................................................................................................................................73
Z DISCONTINUED OPERATIONS............................................................................................................................................................................77
AA ACCOUNTING CHANGES...................................................................................................................................................................................77
BB NEW ACCOUNTING STANDARDS.....................................................................................................................................................................79
CC INTERIM DISCLOSURES....................................................................................................................................................................................81
DD FORM 10-K SCHEDULES ..................................................................................................................................................................................82
1. SCHEDULE I - CONDENSED FINANCIAL INFORMATION.............................................................................................................................85
2. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS.........................................................................................................................86
3. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION.......................................................................................................86
4. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE..............................................................................................................................86
5. SCHEDULE V - SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS.........................86
EE 1933 REGISTRATION STATEMENTS.................................................................................................................................................................88
FF INDUSTRY DISCLOSURES.................................................................................................................................................................................95
1. Bank Holding Companies..................................................................................................................................................................................95
1. Regulated Industries..........................................................................................................................................................................................97
2. Oil and Gas Companies...................................................................................................................................................................................101
3. Registered Management Investment Companies............................................................................................................................................106
4. Employee Stock Purchase, Savings, and Similar Plans..................................................................................................................................106
5. Real Estate Entities.........................................................................................................................................................................................107
6. Casinos/Hotels.................................................................................................................................................................................................108

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7. Food Retailers/Department Store Chains........................................................................................................................................................109


8. Insurance Companies......................................................................................................................................................................................110

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A GENERAL DISCLOSURES
1. Introduction
This questionnaire applies to the financial statements of publicly held entities (including
entities with publicly traded debt) as well as privately held companies whose financial
statements are being included in an SEC filing (e.g., as a result of a business combination or
an Initial Public Offering [IPO].) Examples of 1933 Act filings are Forms S-1, S-3 and S-4;
examples of 1934 Act filings are Forms 10-K and 10-Q.

If the financial statements are being prepared to be included in an SEC filing under Rules 3-
05 (business acquired), 3-09 (equity investee), or in connection with an IPO, you will find this
questionnaire helpful.

2. Financial Statements and Reporting Periods


1. Will the In SEC 1934 Act filings and 1933 Act filings, include audited consolidated balance sheets for
company's the two most recent fiscal years and audited statements of income, cash flows,
financial comprehensive income, and changes in shareholders' equity accounts for each of the latest
statements be three years, for the registrant and its predecessors. (See the definition of predecessor at
included in or Regulation C, Rule 405.)
incorporated by
Smaller reporting companies, as defined by Regulation S-K Item 10(f)(1), must include
reference into a
two years of audited balance sheets, statements of income, cash flows and changes in
Securities and
stockholders’ equity.
Exchange
Commission 1933
References: Regulation S-X, Rules 3-01, 3-02, 3-04 and 8-02
or 1934 Act filing?

3. Change in Reporting Periods


1. Has the When an entity changes its reporting periods, the following should be presented:
company changed 1. If the income statement presents a full year, disclosure of summarized financial
its fiscal year? information for the short (transition) period;
2. If the income statement presents a short (transition) period, disclosure of summarized
financial information for the full year ended with the balance sheet date;

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3. If the registrant has changed its fiscal year, the financial statements for the current period
must cover a period of at least nine months; and
4. Comparative statements must cover full twelve month periods for all prior years
presented.

For fiscal year-end change, see FRR No. 35 for financial statements required.

References: FRR No. 35-102.5; Regulation S-X, Rule 3-06


Table of
Contents
Link
4. Financial Reporting Presentation
4.1 Balance Sheet
1. Is the company The following balance sheet line items should appear on the face or the balance sheet or in
a nonbank entity? related notes unless:
• The amount which would otherwise be required to be shown is not material. (Refer to
For Banking Staff Accounting Bulletin (SAB) Topic 1, “Financial Statements,” (SAB 99) (Topics 1M1
Entities, go to the and 1M2) for an understanding of the meaning of material;
questions for Bank • The items and conditions are not present;
Holding • Specialized industry practices require otherwise (see INDUSTRY DISCLOSURES); or
Companies • Other generally accepted terminology is appropriate.

1. Cash and cash items


2. Marketable securities
3. Accounts and notes receivable
4. Allowances for doubtful accounts and notes receivable
5. Unearned income
6. Inventories
7. Prepaid expenses
8. Other current assets
9. Total current assets
10. Securities of related parties
11. Indebtedness of related parties - not current
12. Other investments
13. Property, plant and equipment

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14. Accumulated depreciation, depletion, and amortization of property, plant and equipment
15. Intangible assets
16. Accumulated depreciation and amortization of intangible assets
17. Other assets
18. Total assets
19. Accounts and notes payable
20. Other current liabilities
21. Total current liabilities
22. Bonds, mortgages and other long-term debt, including capitalized leases
23. Indebtedness to related parties - noncurrent
24. Other liabilities
25. Commitments and contingent liabilities
26. Deferred credits
27. Minority interests in consolidated subsidiaries
28. Preferred stocks subject to mandatory redemption requirements or whose redemption is
outside the control of the issuer (See Regulations S-X, Rule 5-02-28 for additional
disclosures required.)
29. Preferred stocks which are not redeemable or are redeemable solely at the option of
the issuer
30. Common stocks
31. Other stockholders' equity
32. Total liabilities and stockholders' equity

References: Regulation S-X, Rules 4-01, 02, and 03 and Rules 5-01 and 5-02 and 8-01
Note 6

2. Does the State separately on the balance sheet or in a note, any other current asset amounts in
company have excess of 5% of total current assets.
current assets that
are not separately For purposes of this requirement, other current assets are defined as current assets other
identified on the than cash and cash equivalents, marketable securities, receivables (net of allowances),
balance sheet deferred credits, unearned income, prepaid expenses, and inventory.
(e.g., 'other
current assets')?
Reference: Regulation S-X, Rule 5-02-8

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3. Does the State separately on the balance sheet or in a note, any other noncurrent asset amounts in
company have excess of 5% of total assets. Include an explanation of any significant additions or deletions
noncurrent assets and the policy for deferral and amortization of any significant deferred charges.
that are not
separately For purposes of this requirement, other noncurrent assets are defined as noncurrent assets
identified on the other than related party securities and indebtedness, other noncurrent investments (e.g.,
balance sheet marketable securities), fixed assets (net of accumulated depreciation) and intangible assets
(e.g., 'other (net of accumulated amortization).
noncurrent
assets')? Reference: Regulation S-X, Rule 5-02-17

4. Does the Present the allowance as a reduction of the carrying amount of the related balance sheet
company item. The allowance for loan losses should not include amounts provided for losses on
have an financial instruments that are not classified as loans. Also, the liability for guarantees should
allowance be classified separately from the allowance for loan losses.
for loan
losses? Reference: Current Accounting and Disclosure Issues in the Division of Corporation Finance
11/30/06, IIP2 Allowance for Loan Losses – Financial Statement Presentation

5. Does the State separately in the balance sheet or in a note, any other current liability amounts in
company excess of 5% of total current liabilities. (Such items may include accrued payroll, accrued
have interest, taxes, current portion of deferred income taxes, and current portion of long-term
current debt).
liabilities
that are Reference: Regulation S-X, Rule 5-02-20
not
separately

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current
liabilities')
?
6. Does the State separately in the balance sheet or in a note any other noncurrent liability amounts in
company excess of 5% of total liabilities.
have
noncurrent For purposes of this requirement, other noncurrent liabilities are defined as noncurrent
liabilities liabilities other than long-term debt, capital lease liabilities, related party indebtedness,
that are deferred credits, contingent liabilities, and minority interests.
not
separately Reference: Regulation S-X, Rule 5-02-24
identified
on the
balance
sheet
(e.g.,
‘other
noncurrent
liabilities’)
?
7. Has the The SEC staff believes that management should make a positive assertion regarding its
company ability and intent to hold or sell loan receivables and classify them accordingly. When
changed management makes a change in its assessment resulting in a reclassification, sufficient and
its transparent disclosure should be provided regarding this decision.
classificati
on of loan
receivable SEC Speech Carpenter 2007
s (e.g.,
from held-
for-sale to
held-for-
investmen
t)?
8. Does the FASB Statement No. 157, Fair Value Measurements, applies in various applications when a
company company measures fair value. The SEC staff believes that companies should explain why it

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have has changed how it determines fair value when that change goes from a Level 2 to a Level 3
assets or measurement as those terms are used in Statement 157. For example, companies should
liabilities consider disclosing the types of instruments reclassified and the nature of the inputs no
subject to longer observable.
the
guidance
In late March 2008, the SEC staff issued guidance in the form of a sample letter
in
to public companies regarding suggested disclosures in MD&A on the
Statement
application of Statement 157. Companies that have assets or liabilities (e.g.,
157?
asset backed securities, derivatives, etc.) covered by Statement 157 should
consider the guidance in this release. The guidance includes commentary on
reporting on Form 10-Q. The SEC staff issued further guidance in September
2008 with another sample letter to public companies regarding disclosures in
MD&A relating to Statement 157. Further, the staffs of the SEC and FASB
issued guidance on fair value accounting in a press release dated September
30, 2008. Subsequently, on October 10, 2008, FASB Staff Position 157-3,
Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active, was issued that refers to these letters and press release adding
further support for this guidance.
While much of the disclosures noted above should be contained in MD&A, registrants
should ensure that their financial statement footnote disclosure is consistent with such
disclosure and those required by Statement 157, as amended.

References: SEC Speech Hunsaker 2007, Sample Letters Dated March 2008 and
September 2008 Sent to Public Companies Regarding the Application of Statement 157,
FASB FSP 157-3, Press Release dated September 30, 2008— SEC Office of the Chief
Accountant and FASB Staff Clarifications on Fair Value Accounting, December 2008
Hunsaker presentation “Fair Value: Best Practices for MD&A Disclosures”; SEC Speech Carr
December 8, 2008
Table of
Contents
Link
4.2 Income Statement
The following income statement line items should appear on the face of the income
1. Is the company statement, or in related notes as indicated, unless:
a nonbank entity? • An amount that would otherwise be required to be shown is not material. (Refer to SAB

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99 (Topics 1M1 and 1M2); together with SAB Topic 1N, (SAB 108); for an understanding
For Banking of the meaning of material
Entities, go to the • The items and conditions are not present; or
questions for Bank • Specialized industry practices require otherwise (see INDUSTRY DISCLOSURES):
Holding
Companies 1. Net sales and gross revenues. State separately:
a. Net sales of tangible products;
b. Operating revenues of public utilities and others;
c. Income from rentals; and
d. Revenues from services.
2. Other revenues. Revenue classes that are not more than 10% of total revenues may be
combined with other classes and related costs treated similarly. Also, parenthetically or
otherwise, amounts of excise taxes included in revenues if in excess of 1% of total
revenues.
3. Costs and expenses applicable to sales and revenues. State separately:
a. Cost of tangible goods sold (merchandisers must include occupancy and
buying costs);
b. Operating expenses of public utilities or others;
c. Expenses applicable to rental income;
d. Cost of services; and
e. Expenses applicable to other revenue.
4. Other operating costs and expenses—stating separately any material amounts not
included under 3 above.
5. Selling, general and administrative expenses.
6. Provision for doubtful accounts and notes.
7. Other general expenses - stating separately any material amounts not normally included
in 6 above.
8. Non-operating income. State separately in the income statement or note thereto:
a. Dividends;
b. Interest on securities;
c. Profits on securities (net of losses); and
d. Miscellaneous other income. Material amounts included under
miscellaneous other income, separately stated in the income statement or
notes thereto, indicating clearly the nature of the transactions out of which
the items arose.

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9. Interest and amortization of debt discount expense.


10. Non-operating expenses. State separately in the income statement or note:
a. Losses on securities (net of profits); and
b. Miscellaneous income deductions. Material amounts included under
miscellaneous income deductions, separately stated in the income statement
or notes, indicating clearly the nature of the transactions out of which the
items arose.
11. Income or loss before income tax expense and appropriate items below.
12. Income tax expense.
13. Minority interest in income of consolidated subsidiaries.
14. Equity in earnings of unconsolidated subsidiaries and 50% or less owned persons (and
the amount of dividends received from such persons.)
15. Income or loss from continuing operations.
16. Discontinued operations.
17. Income or loss before extraordinary items and cumulative effects of changes in
accounting principles.
18. Extraordinary items, less applicable tax.
19. Cumulative effects of changes in accounting principles.
20. Net income or loss.
21. Income or loss applicable to common stock must be reported on the face of the income
statement if materially different (normally 10% or more) from net income or loss (SAB
Topic 6B).
22. Earnings per share data.

References: Regulation S-X, Rules 4-01, 02, and 03, Rules 5-01 and 5-03, and SAB Topic
6B

2. Has the Subsidies must be presented as a separate line item within the income statement.
company received
subsidies or Reference: SAB Topic 11A
grants during the
year?
3. Does the When one class of common is convertible into another class of common, FASB Statement
company have No. 128, Earnings per Share, requires the use of the two-class method of computing EPS in

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common stock certain circumstances, namely, when there is more than one class of common stock and the
that is convertible classes have different dividend rates or when there are other securities that have a right to
into another class participate in dividends with common stock. EITF Issue No. 03-6, “Participating Securities
of common and and the Two-Class Method under FASB Statement No. 128,” provides computational
has it considered guidance.
the presentation
effect on EPS? The SEC staff believes that for diluted EPS, a company with two classes of common stock
must actually present both a basic and diluted earnings per share number for each class of
common stock regardless of conversion rights.

References: EITF Issue 03-6; FASB Statement 128, paragraphs 60 and 61; SEC Speech,
Cole 2006
4.3 Cash Flow Statement
1. What method SEC staff prefers the direct method of presenting cash flows from operating activities.
does the
company use Reference: SEC Speech, Nicolaisen 2003
to present
cash flows
from operating
activities?
2. Does the The SEC staff reminded registrants that FASB Statement No. 95, Statement of Cash Flows,
company have provides that cash receipts from sales of goods or services are operating cash flows. The
cash receipts staff indicated that this classification is required regardless of whether those cash flows result
from the sale from the collection of the receivable from the customer or the sale of the receivable to others.
of goods or
services? References: SEC Staff Sample Comment Letter to Registrants on Statement of Cash Flow;
Current Accounting and Disclosure Issues in the Division of Corporation Finance, 12/1/05,
IIC1, Statement of Cash Flows - Classification of Cash Receipts from Inventory Sales

3. Has the The PBGC is a federally created corporation that guarantees payment to plan participants of
company certain pension benefits under defined benefit plans should the plan sponsor be unable to
reorganized in fulfill its obligation. The agreements with PBGC typically require that payments be made by
bankruptcy the registrant at, and/or subsequent to, emergence from bankruptcy for the defined benefit
and entered plans that were assumed by the PBGC. The cash outflows to the PBGC should be classified
into an as an operating activity as the agreement with the PBGC does not change the substance of

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agreement the activity for which cash is being paid. The cash outflow to the PBGC should not be
with the classified as a financing activity. Also, these cash outflows should continue to be classified
Pension as an operating activity, even if the company is required to apply “fresh start reporting” upon
Benefit emergence from bankruptcy.
Guaranty
Corporation Reference: Current Accounting and Disclosure Issues in the Division of Corporation Finance,
(PBGC)? 12/1/05, IIC2, Statement of Cash Flows - Classification of Payments Related to Settlement of
Pension Liabilities

4. Does the FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
company have is silent on the presentation of discontinued operations in the cash flow statement. However,
cash flows at the December 2005 AICPA National Conference on current SEC and PCAOB
from Developments, the SEC staff observed that Statement 95 makes it clear that although
discontinued separate disclosure of cash flows related to discontinued operations is not required, separate
operations? disclosure is permitted so long as those separate cash flows are presented in conformity with
the basic requirements of Statement 95 and are presented consistently for all periods.

If a company chooses to separately present cash flows from discontinued operations, the
staff observed that the presentation should discretely report the operating, investing and
financing cash flows from those discontinued operations by category. Both of the following
presentations would be appropriate under Statement 95:
• Separately identifying cash flows from discontinued operations within each category
of the cash flow statement – operating, investing and financing; or
• Separately identifying operating, investing and financing cash flows from
discontinued operations within a separate section of the cash flow statement.

It would not be appropriate to aggregate all cash flows from discontinued operations within a
single line item, either as a separate category or within an existing category, such as
operating cash flows.

The SEC staff also believes that if a company is reporting cash flows using the indirect
method under Statement 95, the reconciliation should begin with “net income” not “income
from continuing operations.”

References: Division of Corporation Finance presentation at the 2005 AICPA National

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Conference on Current SEC and PCAOB Developments, Slides 22-25; AICPA CPCAF Alert
98, SEC Staff Position Regarding Changes to the Statement of Cash Flows Relating to
Discontinued Operations; Current Accounting and Disclosure Issues in the Division of
Corporation Finance 11/30/06, IIC1, Statement of Cash Flows – Discontinued Operations

5. Does the In some industries, it is common for a company to finance its inventory purchases under
company have arrangements referred to as “floor plan financing.” Often, the floor plan financing is provided
cash flows by the finance subsidiary of the supplier (e.g., the finance arm of an automobile
from financing manufacturer.) Typically the finance subsidiary obtains a lien against the company’s
inventory inventory, remits cash to the manufacturer (its parent or sister entity) for the company’s
purchases purchase of the inventory, and receives cash from the company (generally when the
from a company sells the merchandise to its customers).
subsidiary of
the supplier Financing from a Subsidiary of the Supplier
(referred to as
floor plan The SEC staff observed that floor plan arrangements with suppliers are operating activities,
financing) or consistent with the guidance in paragraph 23 of Statement 95. The company would report
from an the initial financing as an increase to inventory and trade loans within operating activities;
unaffiliated correspondingly, repayment of trade loans is an operating cash outflow.
financing
source? Financing from an Unaffiliated Third Party

Floor plan financing can also be arranged through a lender that is not related to the supplier.
Even though the arrangement is substantively the same as an arrangement with the
supplier’s finance subsidiary, the use of a third party lender alters the classification of the
arrangement within the cash flow statement. The statement of cash flows would report the
purchase of inventory as an operating cash outflow, the loan as a financing cash inflow, and
the repayment of the loan as a financing cash outflow.

Reference: Division of Corporation Finance presentation at the 2005 AICPA National


Conference on Current SEC and PCAOB Developments, Slides 27-29

6. Does the The SEC staff observed that a company should report cash flows from insurance proceeds
company have based on the nature of the insurance coverage, not based on the intended use of proceeds.
cash flows • If the insurance proceeds are for business interruption, then the company should

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from report the cash flow under operating activities.


insurance • If the insurance proceeds are for property damage or loss, the cash flow depends on
proceeds? the nature of the property. For example, insurance proceeds for owned property or
property covered by a capital lease would be reported as investing cash inflow. In
contrast, proceeds related to property covered by an operating lease or inventory
would be reported as operating cash inflow.

References: Division of Corporation Finance presentation at the 2005 AICPA National


Conference on Current SEC and PCAOB Developments, Slides 31 -32; Current Accounting
and Disclosure Issues in the Division of Corporation Finance 11/30/06, IIC2, Statement of
Cash Flows – Insurance Proceeds
7. Does the The SEC staff observed that the classification of cash flows arising from loans and trade
company have receivables depends on whether the loan or receivable:
cash flows • Resulted from the sale of the company’s goods or services or from other activities; or
from loans • Was acquired for resale or for investment.
held-for-sale
transactions? Operating cash flows result from the:
• Sale of short- and long-term notes receivable from customers arising from sales of
goods or services; and
• Acquisition and sale of loans that are acquired specifically for resale, are classified
as held for sale (either initially or upon later transfer to that category) and are carried at
the lower of cost or market.

Investing cash flows, on the other hand, arise when:


• Manufacturing companies acquire loans with the intention of holding them for the
foreseeable future. These are not loan or trade receivables resulting from the sale of
inventory to company customers; and
• Finance companies acquire loans with the intention of holding them for the
foreseeable future.

Reference: Division of Corporation Finance presentation at the 2005 AICPA National


Conference on Current SEC and PCAOB Developments, Slides 40-41

- 16 –
© 2008 CCH INCORPORATED. All Rights Reserved.
A WoltersKluwer Business.
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

8. Does the The SEC staff discussed the cash flow statement presentation for retained interests in
company have securitizations.
cash flows
from interests When there is an exchange of loans or trade receivables for a retained interest, no cash
that continue inflows or outflows should be reported.
to be held by
the transferor In contrast, when a company acquires loans or receivables for sale (classified as “available
in for sale securities”) for cash, receives cash when it securitizes those acquired loans, and
securitizations then receives principal payments on retained interests:
? • The acquisition of the loans or trade receivables is an operating cash outflow;
• The cash proceeds from the securitization of the acquired loans or trade receivables are
operating cash inflows; and
• The cash flows from principal payments on retained interests received as a result of this
securitization are operating cash flows only if the retained interest is accounted for like a
trading security. Otherwise (i.e., if the retained interest is accounted for like available for
sale or held to maturity securities), the principal payments would be classified as
investing cash inflows.

Reference: Division of Corporation Finance presentation at the 2005 AICPA National


Conference on Current SEC and PCAOB Developments, Slides 43-45

- 17 –
© 2008 CCH INCORPORATED. All Rights Reserved.
A WoltersKluwer Business.
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Table of
Contents
Link
B CASH
1. Does the company Restricted Foreign Currency
have restrictions on its Cash in one country may not be freely transferable to another country because of exchange
cash? control regulations or other reasons. If the restricted funds held in another country are
significant, they should be segregated or disclosed in a caption or note. If the restricted funds
cannot be (or are not intended to be) used for general business purposes in the country where
they are located, such funds should be classified as noncurrent assets in a classified balance
sheet.

Other Restricted Funds


Significant amounts of funds that are legally restricted in other ways also should be segregated
or disclosed in a caption or note. Funds held in escrow, proceeds from loans restricted for
specified purposes and reserve funds required under bond indentures are examples of such
funds. If such funds are to be used to acquire noncurrent assets or to liquidate long-term
liabilities, they should be classified as long term in a classified balance sheet. However, if funds
are restricted for the payment of interest, current maturities of debt or other current liabilities,
they should be classified as current.

Disclose the amount of cash and cash items restricted as to withdrawal or usage separately
presented on the balance sheet (time deposits generally are not deemed restricted), the
provisions of such restrictions, compensating balance amounts, and arrangements.

References: Regulations S-X, Rule 5-02-1; SAB Topic 6H; FRR 203

2. Does the company Disclose cash deposits in connection with repurchase agreements as restricted cash.
have cash deposits in
connection with Reference: Regulation S-X, Rule 4-08(m)(1)(iii)
repurchase agreements?

Table of
Contents
Link
C ACCOUNTS AND NOTES RECEIVABLE
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

1. Does the company State separately on the face of the balance sheet, amounts receivable from:
have accounts and notes 1. Customers;
receivable? 2. Related parties;
3. Underwriters, promoters and employees; and
4. Others.
If total notes receivable exceed 10% of total receivables, state the above amounts for accounts
receivable and notes receivable separately either on the face of the balance sheet or in the
notes.

References: Regulation S-X, Rule 5-02-3(a) and (b)

2. Does the In a circumstance where the seller regains control of assets previously accounted for as sold
company have under FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets
loans or other and Extinguishments of Liabilities, the original balance sheet classification of the assets should
receivables be maintained when control over that asset is re-recognized by the transferor.
covered by
buyback Reference: Current Accounting and Disclosure Issues in the Division of Corporation Finance
provisions? 11/30/06, IIQ1. Loans and Other Receivables – Accounting for Loans or Other Receivables
Covered by Buyback Provisions
3. Does the Certain receivables from officers, directors, the parent or affiliates must be shown as a
company have deduction from stockholders’ equity. See SAB Topics 4E and 4G for details.
receivables from
officer, directors, References: SAB Topic 4E and Topic 4G
parents, or
affiliates?

4. Does the State separately in the balance sheet or in a note to the financial statements the following
company have amounts:
receivables due 1.Balances billed but not paid by customers under retainage provisions in contracts.
under long-term 2.Amounts representing the recognized sales value of performance and such amounts
contracts? that had not been billed and were not billable to customers at the date of the balance
sheet. Include a general description of the prerequisites for billing.
3.Billed or unbilled amounts representing claims or other similar items subject to
uncertainty concerning their determination or ultimate realization. Include a description of
the nature and status of the principal items comprising such amount.
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

4.With respect to (1) through (3) above, also state the amounts included in each item
which are expected to be collected after one year. Also state, by year, if practicable, when
the amounts of retainage (see (1) above) are expected to be collected.

References: Regulation S-X, Rule 5-02-3(c); Rule 5-02-6(d); FRR 206

5. Does the State separately the amount of allowance for doubtful accounts and notes receivable.
company
have Reference: Regulation S-X, Rule 5-02-4
allowanc
es for
doubtful
accounts
and (or)
notes
receivabl
e?

Describe clearly and comprehensively the accounting policy for determining the amount of the
allowance, including a description of the systematic analysis and procedural discipline applied.

Reference: Current Accounting and Disclosure Issues in the Division of Corporation Finance
11/30/06, IIP1. Allowance for Loan Losses - Disclosure
6. Does the company Describe the reason for a litigation settlement receivable and where the credit has been
have a receivable relating classified in the statement of operations and why.
to litigation settlement?
Reference: SEC Speech, West 2007
Table of
Contents
Link
D FINANCIAL INSTRUMENTS
1. Does the company Describe the accounting policies used for these derivatives and the methods of applying these
have derivative policies that materially affect the determination of financial position, cash flows, or results of
financial instruments operations including:
and (or) derivative 1. Accounting methods and types of instruments accounted for under each method;
commodity 2. Criteria required to be met for each accounting method used;
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

instruments? 3. Accounting method used if the criteria specified above are not met;
4. Accounting for terminations of hedging derivative instruments;
5. Accounting for sale, extinguishment, or termination of hedged items, along with
accounting for derivatives designated to an anticipated transaction when that
transaction is no longer likely to occur; and
6. Where and when derivative instruments and their related gains and losses are reported
in the financial statements.

The accounting policy disclosure should distinguish between derivatives used in trading and
non-trading activities.

Reference: Regulation S-X, Rule 4-08(n)

2. Does the company The SEC staff encourages registrants to disclose the following:
have derivatives that 1. Policy of how and where hedge effectiveness and ineffectiveness are recorded;
represent an 2. The income statement caption that includes changes in the fair value of nonqualifying
economic hedge but hedges;
do not qualify for 3. The amount of changes in fair value of non-qualifying hedges; and
hedge accounting 4. The balance sheet classification of derivatives.
under FASB The SEC staff observed that consistency of classification should be maintained from period-to-
Statement No. 133? period. Also, the staff observed that if a company classifies changes in fair value of economic
hedges (unrealized gains and losses) in a single line item such as “risk management activities,”
the company should not reclassify realized gains and losses (the periodic or final cash
settlements from these economic hedges) in the period realized out of risk management
activities and into revenue or expense lines associated with the related exposure.

References: SEC Speech, Faucette, 2003; Current Accounting and Disclosure Issues in the
Division of Corporation Finance 11/30/06, IIM3, Issues Associated with SFAS 133, Accounting
for Derivative Financial Instruments and Hedging Activities - Financial Statement Presentation
and Disclosure

3. Does the company The SEC staff believes that the fair value of written loan commitments accounted for as
have residential loan derivative instruments (or otherwise measured subsequently at fair value through earnings
commitments arising under paragraph 16 of FASB Statement 133 or the fair value election of FASB Statement No.
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

from the origination 159, The Fair Value Option for Financial Assets and Financial Liabilities) should consider the
of mortgage loans expected future cash flows related to the associated servicing of the loan.
(interest rate lock
commitments)? This issue is addressed in SEC Staff Accounting Bulletin (SAB) Topic 5DD, "Miscellaneous
Accounting -- Written Loan Commitments Recorded at Fair Value Through Earnings" (SAB
109). Question 1 of SAB Topic 5DD was amended by SAB 109 on November 5, 2007, to apply
prospectively to derivative loan commitments issued or modified in fiscal quarters beginning
after December 15, 2007.

Before the issuance of SAB 109, the SEC staff had concluded in SAB 105, “Loan Commitments
Accounted for as Derivative Instruments,” that the fair value of loan commitments accounted for
as derivative instruments should not consider expected future cash flows related to the
associated servicing of the loan.

References: SAB Topic 5DD. SAB 109, SAB 105

4. Does the company If the repurchase or reverse repurchase assets exceed 10% of total assets, disclose the
have repurchase and following:
(or) reverse Repurchase agreements
repurchase securities 1. The aggregate amount of liabilities incurred as a result of the repurchase agreement,
transactions? including accrued interest payable;
2. The carrying amount, market value of the assets sold under the repurchase agreement, and
the repurchase liability, in a table segregated as to type of security or asset sold, by the
following maturities-
a. Overnight;
b. Term up to 30 days;
c. Term of 30 to 90 days;
d. Term over 90 days; and
e. Demand.
3. If the amount at risk under repurchase agreements exceeds 10% of stockholders’ equity,
disclose –
a. The name of each counterparty;
b. The amount at risk with each; and
c. The weighted average maturity of the repurchase agreements with each.
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Reverse repurchase agreements:


1. Disclose the amount of the reverse repurchase agreements separately in the balance sheet;
2. The policy for taking possession of securities or other assets purchased under agreement to
resell;
3. Whether or not there are any provisions to ensure that the market value of the underlying
assets remains sufficient to protect the company in case of default, and the nature of these
provisions;
4. If the amount at risk under repurchase agreements exceeds 10% of stockholders’ equity,
disclose –
a. The name of each counterparty;
b. The amount at risk with each; and
c. The weighted average maturity of the repurchase agreements with each.

Reference: Regulation S-X, Rule 4-08(m)

5.Does the company Disclose fair values and the significant assumptions used to estimate fair value, at the balance
have interests that sheet date for new and retained interests that are financial. The SEC staff requires this
continue to be held information and the disclosure of the company’s assumptions regarding defaults, prepayments,
related to a sale or and discount rates. See also discussion and references above in Question 8, General
securitization of Disclosures, Financial Reporting Presentation, Balance Sheet.
financial assets?
On January 8, 2008, the SEC staff issued financial statement disclosure guidance for registrants
that have transferred subprime adjustable rate mortgage loans to a Qualifying Special-Purpose
Entity (as defined in FASB Statement No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities). Registrants that have made such transfers
should carefully review the disclosure guidance by the SEC staff.

In addition, on December 11, 2008, the FASB issued FASB Staff Position (FSP) 140-4 and FIN
46R-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and
Interests in Variable Interest Entities. Registrants should review the guidance therein and make
appropriate disclosures.

Reference: EITF Topic D-69, Conrad Hewitt Letter Dated January 8, 2008, FSP 140-4 and FIN
46R-8
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

6.Did the company sell The company should disclose significant assumptions used to estimate the fair value of those
financial assets that instruments. These include assumptions on:
are not • Defaults;
securitizations? • Prepayments; and
• Discount rates.

Reference: EITF Topic D-69

7.Has the company The accounting for structured-note securities that were issued in combination with other
purchased structured-note securities as a unit or a pair is addressed by EITF Issue No. 98-15, “Structured
structured-note Notes Acquired for a Specified Investment Strategy.” In that issue, the EITF observed that the
securities? following indicators should be considered for purposes of identifying whether two securities
should be viewed as being purchased for a specified investment strategy and thus included
within the scope of this Issue. All of these indicators are not required to exist in order for the
securities to be accounted for as a unit. Judgment is required in reaching a determination.

1. The two securities are related in that their fair values will move in opposite directions based
on changes in interest rates on a specified date, or after a specified period after issuance.
The fair value changes may be caused by a change in the couple interest rate of the two
securities or by altering the maturities of the securities.

2. The two securities are issued contemporaneously and in contemplation of one another or
are issued separately but the terms for their remaining lives are described in (a).

3. The two securities are issued by the same counterparty and/or the same issuer (or issued
by different issuers but structured through an intermediary).

4. The two securities were purchased by the investor for the sole purpose of achieving a
desired accounting result, and the transactions considered individually would serve no valid
business purpose or would not be entered into otherwise.

SEC registrants who have purchased structured notes on or prior to September 24, 1998 that
have not been accounted for as a unit (that is, in accordance with Issue 98-15) or as trading
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

securities, and that have not restated their financial statements to conform the accounting to
that described in Issue 98-15 should disclose the following. In all financial statements issued
after September 24, 1998, the registrant should disclose the impact on earnings for all periods
presented and cumulatively over the life of the instruments had the registrant accounted for the
instruments as a unit.

Reference: EITF 98-15

8. Does the company The staff recommended that the company consider the need for clarifying disclosure that:
have loans • Identifies the amount of loans/receivables held-for-sale;
receivable held-for- • Explains how it determines which loans/receivables are initially accounted for as held
sale? for sale or are later transferred to the held for sale classification;
• Describes the method it uses to determine the lower of cost or fair value for
loans/receivables held-for-sale; and
• Reconciles the changes in loans/receivables held for sales balances to the amounts
presented in the consolidated statement of cash flows.

References: Division of Corporation Finance presentation at the 2005 AICPA National


Conference on Current SEC and PCAOB Developments, Slide 38; Current Accounting and
Disclosure Issues in the Division of Corporation Finance 11/30/06, IIQ4, Loans and Other
Receivables – Loans Held for Sale

9. Does the company The SEC staff encouraged companies to identify and disclose all embedded derivative features
have financial of financial instruments that include features indexed to the company’s own stock. The staff also
instruments that observed that companies should explicitly state why or why not the embedded derivatives are
include features accounted for at fair value.
indexed to the
company’s own References: Division of Corporation Finance presentation at the 2005 AICPA National
stock? Conference on Current SEC and PCAOB Developments, Slide 121; Current Accounting and
Disclosure Issues in the Division of Corporation Finance 11/30/06, IIB, Classification and
Measurement of Warrants and Embedded Conversion Features
Table of
Contents
Link
E INVENTORY
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

1. Does the company State separately the amounts of the major classes of inventories, such as, finished goods, costs
have inventory? related to long-term contracts, work in process, raw materials and supplies.

Reference: Regulation S-X, Rule 5-02-6(a)

State the basis of determining the amounts of major classes of inventories. Describe the nature
of cost elements included in inventory and the method by which amounts are removed from
inventory. If any general and administrative costs are included in inventory, state in a note the
aggregate amount incurred in each period and the actual or estimated amount remaining in
inventory at the date of each balance sheet (see Rule).

References: Regulation S-X, Rule 5-02-6(b), SEC Speech, McGrath 2006

2. Does the company If the method of calculating a LIFO inventory does not allow for the practical determination of
value inventory on a amounts assigned to major classes of inventory, the amounts of those classes may be stated
LIFO basis? under cost flow assumptions other than LIFO. Show the excess of the total amount over the
aggregate LIFO amount as a deduction to arrive at the amount of the LIFO inventory.

Reference: Regulation S-X, Rule 5-02-6(a)

Disclose the amount and basis for determining the excess of replacement or current cost over
stated LIFO value, if material

References: Regulation S-X, Rule 5-02-6(c); and FRR 205.02(c)

Disclose material income from LIFO liquidation, including the effect on income of the liquidation
of LIFO layers and the amount of any provision for temporary liquidation.

Reference: SAB Topic 11F

3. Does the company For all long-term contracts or programs, the following information, if applicable, should be
have long-term contracts disclosed in a note to the financial statements:
or programs that give rise
to material amounts of 1. The aggregate amount of manufacturing or production costs and any related deferred costs
inventories? (e.g., initial tooling costs) that exceeds the aggregate estimated cost of all in-process and
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

delivered units on the basis of the estimated average cost of all units expected to be
produced under long-term contracts and programs not yet complete. Also, disclose the
portion of such amount, which would not be absorbed in cost of sales based on existing firm
orders at the latest balance sheet date.
2. If practicable, disclose the amount of deferred costs by type of cost (e.g., initial tooling,
deferred production, etc.).
3. The aggregate amount representing claims or other similar items subject to uncertainty
concerning their determination or ultimate realization, and include a description of the
nature and status of the principal items comprising such aggregate amount.
4. The amount of progress payments netted against inventory at the date of the balance sheet.

Reference: Regulation S-X, Rule 5-02-6(d)

4. Does the inventory Inventory may serve as collateral under a borrowing arrangement. For example, many revolving
serve as collateral under a lines of credit and asset-based financing agreements provide the lender with a lien against
borrowing arrangement? inventory. Identify the type and dollar amount of inventory serving as collateral and the
obligation collateralized.

Reference: Regulation S-X, Rule 4-08(b)

5. Does the company The SEC staff believes, as documented in EITF Issue No. 96-9, “Classification of Inventory
have inventory Markdowns and Other Costs Associated with a Restructuring,” that inventory markdowns
markdowns associated resulting from a decision to exit an activity or restructuring should be classified in the income
with a decision to exit or statement as a component of cost of goods sold.
restructure an activity?
Reference: EITF 96-9
Table of
Contents
Link
F OTHER INVESTMENTS
1. Does the company Disclose the basis of the carrying value of current and noncurrent security investments, other
have investments in than investments in marketable equity securities, together with alternative of total cost or market
current and noncurrent value at the balance sheet date.
marketable securities?
References: Regulation S-X, Rules 5-02-2 and 5-02-12
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

2. Does the company For individual securities classified as either available for sale or held to maturity and for
have "other-than- nonmarketable equity securities, the company should determine whether a decline in fair value
temporary" declines below cost basis is other than temporary. Staff Accounting Bulletin Topic 5M, “Miscellaneous
in the value of its Accounting — Other Than Temporary Impairment of Certain Investments in Debt and Equity
investments? Securities,” (SAB 59) defines other than temporary differently from “permanently impaired.” If
the decline is other than temporary, the investment must be written down to fair value and a loss
recognized in the income statement. The SEC staff noted that the following factors are
examples of indicators that a decline in value is other than temporary:
• The extent and length of time over which the market value has been less than cost,
for which the informal guideline is six to nine months;
• The financial condition and near-term prospects of the issuer, including events that
may impair the earnings potential of the investment; and
• The ability and intent of the holder to keep the investment for a period sufficient to
allow for an anticipated recovery in market value.

The staff expects that companies will employ a systematic methodology that includes the
documentation of factors considered.

For all investments in an unrealized loss position for which other-than-temporary impairments
have not been recognized, the registrant should make the following disclosures in its annual
financial statements. The investments should be aggregated by category of investment in
tabular form and segregated by those investments that have been in a continuous unrealized
loss position for less than 12 months and those that have been in a continuous unrealized loss
position for 12 months or longer:
1. The aggregate amount of unrealized losses;
2. The aggregate related fair value of investments with unrealized losses; and
3. In narrative form as of the date of the most recent statement of financial position, sufficient
information to allow financial statement users to understand the quantitative disclosures and
the information that the registrant considered in reaching the conclusion that the
impairments are not other than temporary, including:
a. The nature of the investment;
b. The causes of the impairment;
c. The number of investment positions that are in unrealized loss position;
d. The severity and duration of the impairment; and
e. Other evidence considered by the registrant in reaching its conclusion that the
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

investment is not other-than-temporarily impaired.

For cost method investments, the registrant should disclose the following additional information,
if applicable, as of each date for which a statement of financial position is presented in its
annual financial statements:
1. The aggregate carrying amount of all cost method investments;
2. The aggregate carrying amount of cost method investments that the investor did not
evaluate for impairment; and
3. The fact that the fair value of a cost method investment is not estimated if there are no
identified events or changes in circumstances that may have a significant adverse effect on
the fair value of the investment and
a. The registrant determined, in accordance with paragraphs 14 and 15 of FASB
Statement No. 107, Disclosures about Fair Value of Financial Statements, that
it is not practicable to estimate the fair value of the investment; or
b. The investor is exempt from estimating fair value under FASB Statement No.
126, Exemption from Certain Required Disclosures about Financial Instruments
for Certain Nonpublic Entities.

If a registrant has “perpetual preferred securities” (securities that are frequently


structured in equity form but possess significant “debt-like” characteristics), and has
concluded that such securities are not other-than-temporarily impaired, the SEC
staff believes a registrant should provide adequate disclosure regarding such
securities where cost exceeds fair value. Specifically, the SEC staff believes such
disclosure should include sufficient detail to allow investors to understand the
information considered in reaching a conclusion that the impairment is not other-
than-temporary and the factors considered in concluding that there was no
evidence of credit deterioration in such securities.

References: SAB Topic 5M; FSP No. FAS 115-1 and FAS 124-1; SEC Speech, James 2004,
Current Accounting and Disclosure Issues in the Division of Corporation Finance 11/30/06, IIH,
Other-Than-Temporary Declines in Value, October 14, 2008 letter to FASB chairman (Robert H.
Herz) from SEC chief accountant (Conrad Hewitt)

3. Does the company Disclose the amount (on face of income statement) of equity in earnings of unconsolidated
have investments in subsidiaries and 50%-or-less owned persons. The amount of dividend received from such
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

unconsolidated entities must also be disclosed.


subsidiaries or other
associated entities Reference: Regulation S-X, Rule 5-03-13
accounted for under
the equity method?

Disclose the amount of consolidated retained earnings of the registrant represented by


undistributed earnings of 50%-or-less owned persons accounted for by the equity method, as of
the date of the most recent audited balance sheet being filed. (See SAB Topic 6K3) for further
guidance.)

References: Regulation S-X, Rule 4-08(e)(2); SAB Topic 6K3

4. Does the company The SEC has two sets of requirements for financial information of unconsolidated subsidiaries
have a significant and equity investees. These requirements are contained in Rule 4-08(g) of Regulation S-X and
unconsolidated Rule 3-09 of Regulation S-X. Rule 4-08(g) addresses situations in which summarized financial
subsidiary or 50%-or- information of an individual investee or group of investees must be presented. Both of these
less owned entities? SEC rules look to Rule 1-02(w) of Regulation S-X to determine the materiality of the investee.
The significance threshold for Rule 4-08(g) is 10% whereas the materiality threshold for Rule 3-
09 is 20%. Rule 3-09 specifies situations in which full financial statements of an individual
investee must be presented.

Provide summarized financial information for unconsolidated subsidiaries and 50%-or-less


owned entities accounted for by the equity method. The disclosure should be made if the
entities are significant under any of the Regulation S-X, Rule 1-02(w) tests (investment, asset,
and income tests). The disclosures should be made in a note to the financial statements and
can be presented on a combined basis, but unconsolidated subsidiaries should not be
combined with 50%-or-less owned entities. Information to be disclosed includes:
• Current and noncurrent assets;
• Current and noncurrent liabilities;
• Redeemable stock and minority interest, if applicable;
• Net sales or gross revenue;
• Gross profit;
• Income or loss from continuing operations before extraordinary items and cumulative effect
of an accounting change; and
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

• Net income or loss.

The SEC staff provided certain clarifying guidance on the application of Rule 4-08(g) at the July
10, 2007 SEC Regulations Committee meeting. Specifically, the staff addressed reporting
issues when an investee meets the significance test under this rule in the current year but not in
the prior year (or vice-a-versa).

References: Regulation S-X, Rule 4-08(g) and Rule 1-02(w), Discussion Document A-SEC
Regulations Committee-July 10, 2007.

File financial statements for:


• Unconsolidated subsidiaries if:
o Any of Rule 1-02(w) tests (investment, assets, income) are met at the 20%
level.
• 50%-or-less owned entities if:
o Either the first or third 1-02(w) tests (investment or income) are met at the 20
percent level;
o Either the registrant or a subsidiary of the registrant can account for the entity
by the equity method.

The financial statements should be as of the same dates and for the same periods as the
company’s audited financial statements required by Regulation S-X, Rules 3-01 and 3-02 if
practicable.
• The financial statements are required to be audited for those fiscal years in which the first
or third 1-02(w) tests are met at the 20% level.

The SEC staff provided certain clarifying guidance on the application of Rules 1-02(w) and 3-09
at the July 10, 2007 SEC Regulations Committee meeting. The issue addressed by the staff
was how to evaluate significance when an equity method investee in the real estate industry has
a gain on a partial sale of real estate. Separately, the SEC Regulations Committee also
addressed application of Rules 3-09 and 4-08(g) to investments when a registrant has elected
the fair value option as permitted by FASB Statement No. 159, The Fair Value Option for
Financial Assets and Liabilities.
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

References: Regulation S-X, Rule 3-09 and SAB Topic 6K4b, Discussion Document C-SEC
Regulations Committee-July 10, 2007, Discussion Document F-Regulations Committee-October
11, 2007

5. Does the company Disclose:


have intercompany • The amounts of any material unrealized profits and losses on transactions with entities
transactions with its accounted for under the equity method not eliminated;
entities accounted • The reasons for not eliminating these items; and
for by the equity • The method of treatment of these items.
method?

Reference: Regulation S-X, Rule 3A-04

6. Does the company Auction rate securities are considered highly liquid by market participants because of the
have auction rate auction process. However, because the auction rate securities have long-term maturity dates
securities? and there is no guarantee the holder will be able to liquidate its holdings, these securities do not
meet the definition of cash equivalents in FASB Statement No. 95, Statement of Cash Flows,
paragraphs 8 and 9. Companies should refer to Statement 95 for the proper classification of
these securities in the Statement of Cash Flows. To determine if these securities are long or
short term, companies should refer to Accounting Research Bulletin (ARB) No. 43, Chapter 3A,
Working Capital – Current Assets and Current Liabilities.

Reference: Current Accounting and Disclosure Issues in the Division of Corporation Finance
11/30/06, IIH3, Investments – Auction Rate Securities
Table of
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G FIXED ASSETS, REPAIRS AND MAINTENANCE, AND DEPRECIATION
1. Does the company Disclose the PP&E balances, methods and periods of depreciation. If PP&E is significant, the 1 1.2
have property, plant, company should disclose balances and depreciation methods and periods for each major class .
and equipment of depreciable assets. 1
(PP&E)?
References: Regulation S-X, Rule 5-02-13; Accounting Disclosure Rules and Practices, AIIJ,
Property, Plant, and Equipment
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

2. Does the company Disclose the accounting policy for pre-production design and development costs as well as the 1 1.4
have pre-production aggregate amount of: .
design and • Assets recognized pursuant to agreements that provide for contractual reimbursement of 3
development costs pre-production design and development costs;
related to long-term • Assets recognized for molds, dies, and other tools that the supplier owns; and
supply • Assets recognized for molds, dies, and other tools that the supplier does not own.
arrangements?
Reference: EITF 99-5

3. Does the company Identify the assets mortgaged, pledged, or otherwise subject to lien, and the approximate dollar
have specific assets amounts. Also identify the obligations collateralized. This information must be provided for only
that are pledged or the most recent audited balance sheet presented, unless there has been a significant
subject to lien? subsequent change.

Ordinarily, in meeting this rule, the balance-sheet description of the obligation (e.g., "mortgage
notes payable") will satisfy the rule for property and equipment pledged. However, in some
situations it may be necessary to identify specifically the property or equipment and its carrying
amount.

Reference: Regulation S-X, Rule 4-08(b)

4. Does the company The accounting policy for repair and maintenance costs incurred in connection with planned
have planned major major maintenance activities as well as the types of costs subject to the policy. Also, any
maintenance liabilities accrued for costs expected to be incurred in connection with planned major
activities? maintenance activities should be included in Schedule II, pursuant to SEC regulation S-X, Rule
12-09, Valuation and Qualifying Accounts. [Editor’s note: The FASB issued FASB Staff Position
(FSP) AUG AIR-1, “Accounting for Planned Major Maintenance Activities,” in September 2006.
As a result, the SEC staff announced at the September 7, 2006 EITF meeting, that it is
removing the guidance in EITF Topic D-88. The guidance in FSP AUG AIR-1 prohibits the
“accrue-in-advance” method that was previously acceptable. The FSP is required to be adopted
in the first fiscal year beginning after December 15, 2006 with early adoption permitted as of the
beginning of an entity’s fiscal year. Retrospective application is required unless impracticable.
Registrants should consider the guidance in Staff Accounting Bulletin (SAB) Topic
11M,”Miscellaneous Disclosure — Disclosure of the Impact That Recently Issued Accounting
Standards Will Have on the Financial Statements of the Registrant When Adopted in a Future
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Period” (SAB 74).]

Reference: FSP AUG AIR-1

5. Is depreciation Disclose if depreciation is not included in cost of goods sold or if cost of goods sold is not
excluded from cost of applicable, then operating expenses.
goods sold (or
operating expenses, Reference: SAB Topic 11B
when cost of goods
sold is not
applicable)?

Table of
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Link
H INTANGIBLE ASSETS AND AMORTIZATION 1 1.2
.
1
1. Did the company 1.3 State separately: 1 1.5
acquire, or does the 1. The amount of intangible assets in excess of 5% of total assets; .
company have, intangible 2. The basis for determining such amount; 4
assets? 3. An explanation of any significant additions or deletions; and
4. The amount of accumulated depreciation and amortization of intangible assets.

References: Regulation S-X, Rule 5-02-15 and 16

I ACCOUNTS AND NOTES PAYABLE


1. Does the State separately amounts payable to:
company have 1. Banks for borrowings;
accounts and/or 2. Factors or other financial institutions for borrowings;
notes payable? 3. Holders of commercial paper;
4. Trade creditors;
5. Related parties (see Rule 4-08 (k));
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

6. Underwriters, promoters, and employees (other than related parties); and


7. Others.
Amounts applicable to 1, 2 and 3 may be stated separately in the balance sheet or in a note.

References: Regulation S-X, Rule 5-02-19 and Rule 4-08(k)

2. Has the company The liability to the lender is not considered a "trade payable" and should not be classified as
converted trade trade payables in the balance sheet. A liability to the lender should be recognized. The SEC
accounts payable to staff believes that a trade creditor is a supplier that has provided a company with goods and
borrowings from a services in advance or payment. Regulation S-X, Article 5, requires separate and clear display
lender to take of amounts payable for borrowings and amounts payable to trade creditors.
advantage of the
trade discount? Additionally, the difference between the carrying amount of the borrowing and the repayment
amount should be accreted through interest expense using the effective interest method.

References: Regulation S-X, Rule 5-02-19 ; SEC Speeches, Comerford, 2003 and 2004
3. Does the company Disclose:
have short-term • The weighted average interest rate on short-term borrowings outstanding as of the date of
borrowings? each balance sheet presented in a footnote.
• The average dollar amount of the borrowings and the average interest for interest and
amortization of debt discount and expense, in the body of the statements or in the
footnotes.

Reference: Regulation S-X, Rule 5-02-19

4. Does the company Disclose:


have any unused • If significant, the amount and terms (including commitment fees and the conditions under
lines of credit or other which lines may be withdrawn) of unused lines of credit for short-term financing, in the
unused commitments notes to the financial statements.
under short-term • The amount of these lines of credit that support a commercial paper borrowing
financing arrangement or similar arrangements.
arrangements?
References: Regulation S-X, Rule 5-02-19; FRR 203.

5. Does the company Under the conditions specified in SAB Topic 6H2, the borrowing can be classified as long-term
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

have significant long- with appropriate disclosure.


term construction
programs financed Reference: SAB Topic 6H
through revolving
loans that extend
until the completion
of the project?
6. Does the company For commercial and industrial companies, present separately on the face of the balance sheet
have material or in the notes any current liability in excess of 5% of total current liabilities. For noncurrent
amounts relating to liabilities, present separately any item in excess of 5% of total liabilities.
other liabilities?
References: Regulation S-X, Rule 5-02-20, Rule 5-02-24

Table of
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J DEBT AND GUARANTORS OF DEBT
1. Does the For each issue, disclose:
company have 1. The general character of each type of debt including the rate of interest;
long-term debt, 2. The date of maturity, or, if maturing serially, a brief indication of serial maturities, such as
including bonds, 'maturing serially from 2007 to 2011’;
mortgages, 3. If the payment of principal or interest is contingent, an indication of the contingency;
capitalized 4. Amounts and terms of unused commitments;
leases, and other 5. A brief indication of priority; and
long-term debt? 6. If convertible, the basis.

Reference: Regulation S-X Rule 5-02-22

2. Does the If significant, disclose the amount and terms (including commitment fees and the conditions
company have under which commitments may be withdrawn) of unused commitments for long-term financing
unused arrangements.
commitments for
long-term
financing Reference: Regulation S-X, Rule 5-02-22
arrangements?
3. Does the For a subsidiary's or division's separate financial statements, disclose financing arrangements
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

company have with parent. If an interest charge on intercompany debt has not been provided, an analysis of
financing the intercompany accounts and the average balance due to or from related parties, for each
arrangements period that an income statement is required.
with a parent
company? Reference: SAB Topic 1B1, question 4

4. Is the company’s Refer to the questions 9 and 10 in this section.


debt guaranteed
or does the
company
guarantee the
debt of another
registrant?
5. Does the Designate the assets mortgaged, pledged, or otherwise subject to lien, and the approximate
company have amounts. Briefly identify the obligations collateralized.
obligations that
are Reference: Regulation S-X, Rule 4-08(b)
collateralized?
6. Do the Provide the financial information required by Rule 3-16.
company’s
affiliates’ Reference: Regulation S-X, Rule 3-16
securities
collateralize the
company’s debt?
7. Is the company Disclose:
in default of any • Facts and amounts concerning any default which existed at the date of the most recent
debt terms or balance sheet filed and not subsequently cured.
covenants? • Amount of the obligation and the period of waiver, when any default or breach exist for
which acceleration of the obligation has been waived for a stated period beyond the
date of the most recent balance sheet being filed.

Reference: Regulation S-X, Rule 4-08(c)

8. Has the company Disclose changes in authorized or issued debt since the balance sheet date.
had changes in
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

the authorized or Reference: Regulation S-X, Rule 4-08(f)


issued debt after
the balance
sheet date and
before the report
date?
9. Does the The registrant should include in its filing the financial statements of the guarantor, as required by
company Rule 3-10. The guarantor company need only provide information for disclosure or incorporation
guarantee, as into condensed consolidating financial information in the registrant’s financial statements if
defined in Rule certain Rule 3-10 conditions are met. These conditions depend, in part, on the guarantor being
3-10, the a parent, subsidiary, or "sister" subsidiary of the registrant. For specifics on the requirements
securities of and the conditions, see Rule 3-10.
another entity
that is a Reference: Regulation S-X, Rule 3-10
registrant?
10. Does the The company should include in its filing the financial statements of the guarantor, as required by
company have Rule 3-10. The guarantor company need only provide information for disclosure or incorporation
securities that into condensed consolidating financial information in the registrant’s financial statements if
are guaranteed, certain Rule 3-10 conditions are met. These conditions depend, in part, on the guarantor being
as defined in a parent, subsidiary, or "sister" subsidiary of the registrant. For specifics on the requirements
Rule 3-10, by and the conditions, see Rule 3-10.
another entity?
Reference: Regulation S-X, Rule 3-10

Table of
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Link
K LEASES
1. Does the Disclose the following:
company have • Material lease agreements or arrangements for both operating and capital leases;
lease • The essential provisions of material leases, including the original term, renewal periods,
commitments? reasonably assured rent escalations, rent holidays, contingent rent, rent concessions,
leasehold improvement incentives, and unusual provisions or conditions.
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

• The accounting policies for leases, including the treatment of each of the above
components of lease agreements.
• The basis on which contingent rental payments are determined with specificity, not
generality.
• The amortization period of material leasehold improvements made either at the inception
of the lease or during the lease term, and how the amortization period relates to the initial
lease term.
References: SEC Letter, February 2005; Current Accounting and Disclosure Issues in the
Division of Corporation Finance 11/30/06, IIE2, Leasing - Disclosure
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Link
L INCOME TAXES
1. Does the company Regulation S-X, Rule 4-08(h) requires the following disclosures for income tax expense:
have income tax expense • The components of income (loss) before tax expense (benefit) as either domestic or
or benefits? foreign; and
• The amounts applicable to U.S. federal income taxes, to foreign income taxes, and to
other income taxes stated separately for each major component of income tax expense
(i.e., current and deferred).
See the illustration in FRR Section 204.
References: Regulation S-X, Rule 4-08(h)(1); FRR 204

FASB Statement No. 109, Accounting for Income Taxes, requires the following disclosures:
• All "significant" reconciling items (in dollars or percentages) between reported income
tax expense and the amount that would have resulted from applying domestic federal
statutory tax rates to pretax income.
- Regulation S-X, Rule 4-08(h), defines "significant" as requiring disclosure of all
reconciling items that are more than 5% of the amount computed by multiplying
pretax income by the statutory tax rate.
-The Statement 109 reconciliation is based on income from continuing operations.
-When income tax expense is allocated to more than one caption (e.g., continuing
operations, discontinued operations, extraordinary items, cumulative effects of an
accounting change), the components of income tax expense included in each
caption may be disclosed in an overall presentation.
-See SAB Topic 6I7 for an example of an acceptable presentation.
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

• The nature and effect of any significant matters affecting comparability between
periods, if not otherwise evident.
• The approximate tax effect of each type of temporary difference and
carryforward that gives rise to a "significant" portion of deferred tax liabilities and
deferred tax assets.
- Regulation S-X does not define significant for these purposes, but a reasonable
threshold for significance here is 5% of the greater of gross deferred tax assets
before valuation allowance or gross deferred tax liabilities.
Like other companies, SEC registrants must also comply with the disclosure requirements in
paragraphs 20 and 21 of FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in
Income Taxes, issued in July 2006. FIN 48 requires the disclosure of where an entity classifies
any interest and penalties incurred as well as various information at the end of each annual
reporting period (see below).

[Editor’s Note: The FASB issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty
in Income Taxes, in July 2006. The guidance in FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN
48 is effective for fiscal years beginning after December 15, 2006. Early application of the
requirements of FIN 48 is encouraged if the enterprise has not yet issued financial statements,
including interim financial statements, in the period of adoption, Registrants should consider the
guidance in Staff Accounting Bulletin (SAB) Topic 11M,”Miscellaneous Disclosure — Disclosure
of the Impact That Recently Issued Accounting Standards Will Have on the Financial
Statements of the Registrant When Adopted in a Future Period” (SAB 74).]

References: SAB Topic 6I7; Statement 109 paragraphs 43 and 47; SEC Speech, Nicolaisen,
2004; FIN 48; Current Accounting and Disclosure Issues in the Division of Corporation Finance
11/30/06, IIA, Adoption of a New Accounting Standard in an Interim Period; SEC Speech, Taub
December 2006, SEC Speech, Minke-Girard 2006; ARM Hot Topic dated February 14, 2007

2. Does the company Contingent tax liabilities should be recorded for the difference between the financial statement
have contingent benefit of tax deductions “as filed” on the income tax return and the tax benefit recognized under
income tax liabilities? the company’s accounting policy. The SEC staff commented that the accounting and disclosure
requirements of FASB Statement No. 5, Accounting for Contingencies, apply to both recorded
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

and unrecorded income tax contingencies. Under Statement 5, contingent tax liabilities that are
both probable and reasonably estimable should be accrued. Accrual for probable losses when
the estimated amount of loss is within a range of amounts is required by Statement 5 and FASB
Interpretation (FIN) No. 14, Reasonable Estimation of the Amount of a Loss, and Interpretation
of FASB Statement No. 5. Companies should accrue the amount within the range that appears
to be a better estimate than any other. If no such amount can be identified, then the company
should accrue the minimum amount in the range. The contingent income tax liabilities should
not be classified as deferred income tax liabilities nor included in any deferred tax asset
valuation allowance. Also, such contingent tax liabilities that are reasonably possible should be
disclosed. [Editor’s note: The guidance in FIN 48 should be considered by companies that have
adopted that standard.]

References: SEC Speeches, Green, 2003; Taub, 2004; Poulin, 2004; and Current Accounting
and Disclosure Issues in the Division of Corporation Finance 11/30/06, III1, Contingencies, Loss
Reserves, and Uncertain Tax Positions –Accounting and Financial Statement Disclosure

3. Does the company Provide the effect of the tax holiday.


have a tax holiday in
a foreign jurisdiction? Reference: SAB Topic 11C

4. Is the company a A consolidated tax group represents a group of related entities (generally a parent and
member of a subsidiaries) that file a single consolidated tax return.
consolidated tax-
reporting group? If the historical financial statements do not reflect the tax position on a separate return basis,
provide a pro forma income statement for the most recent year and interim period reflecting a
tax provision calculated on a separate return basis.

Reference SAB Topic 1B1

Table of
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Link
M COMMON STOCK, PREFERRED STOCK, AND MINORITY INTERESTS
1. COMMON STOCK AND NONREDEEMABLE PREFERRED STOCK
1. Does the company Disclose:
have common stock or • By class: par or stated value per share, number of shares authorized, issued
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

nonredeemable preferred and outstanding, and the related dollar amount. In lieu of indicating the number of
stock? shares outstanding, the number of treasury shares held may be disclosed. This should
be disclosed on the balance sheet.
• If the stock is convertible, indicate this on the face of the balance sheet.
• In a note or statement, show the changes in each class of common and
nonredeemable preferred stock for each period for which an income statement is
required to be filed.
• The dollar amount of subscriptions receivable; this amount should be deducted
from the common stock balance.

References: Regulation S-X, Rule 5-02-29 and 30

2. Did the company Disclose, in a separate statement or note, all individually material changes in the components of
have material equity (dollar amounts and number of securities)
changes in the
components of Reference: Regulation S-X Rule 3-04
equity?

3. Does the company Describe pertinent rights and privileges of the various outstanding securities such as:
have outstanding
securities with rights and 1. Dividend and liquidation preferences;
privileges? 2. Participation rights;
3. Call prices and dates;
4. Conversion or exercise prices or rates;
5. Sinking fund requirements; and
6. Unusual voting rights.

Reference: Regulation S-X, Rule 4-08(d)

4. Does the company Disclose total preferences on involuntary liquidation for preferred stock as of the date of the
have preferences on most recent audited balance sheet being filed. If they:
involuntary liquidation
for preferred stock? • Differ from par or stated value, disclose the preference parenthetically in the
equity section of the balance sheet; or
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

• Exceed the par or stated values of such shares, disclose any related
restrictions on retained earnings.

Reference: Regulation S-X, Rule 4-08(d)

5. Does the company Disclose:


have warrants or
rights outstanding? • Title and aggregate amount of securities called for by warrants or rights
outstanding;
• Period during which warrants or rights are exercisable; and
• Exercise price.

Reference: Regulation S-X, Rule 4-08(i)

2. MINORITY INTERESTS
6. Does the company Disclose minority interests separately outside of shareholders’ equity.
have minority Disclose separately in a note:
interests? • The minority interest represented by the preferred stock of
subsidiaries; and
• The applicable dividend requirements if the preferred stock is
material in relation to the consolidated shareholders’ equity.

The FASB has issued FASB Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements, that changes the term “minority interests” to “noncontrolling interests” and
certain other changes, primarily balance sheet classification. Statement 160 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after December 15, 2008
(that is, January 1, 2009, for entities with calendar year-ends). Earlier adoption is prohibited.

Reference: Regulation S-X, Rule 5-02-27

3. MANDATORILY REDEEMABLE PREFERRED STOCK


7. Does the company Under Regulation S-X, Rule 5-02-28, preferred stock must be classified outside shareholders’
have mandatorily equity when the stock is:
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

redeemable preferred • Redeemable at a fixed or determinable price on a fixed or determinable date;


stock or any class of • Redeemable at the option of the holder; or
stock for which • Redeemable based on conditions outside the control of the issuer.
redemption is outside
of the control of the Disclose:
issuer? • The title of each issue of preferred stock, the carrying amount, and the redemption
amount on the face of the balance sheet;
• The dollar amount of shares subscribed but unissued, and the deduction of the related
receivable;
• If the carrying amount is different from the redemption amount, the accounting
treatment for that difference must be disclosed; and
• The number of shares authorized and issued or outstanding (in the footnotes or on the
face of the balance sheet).

The footnotes should disclose the following information:


• The terms of the shares (e.g., redemption features, rights in event of default, and
rights precedent to junior securities);
• Redemption requirements in each of the next five years; and
• The changes in each class during the period for which income statements are
required.

NOTE: Mandatorily redeemable stock is subject to FASB Statement No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and Equity. The FASB
delayed the effective date for certain mandatorily redeemable noncontrolling interests
(commonly known as minority interests) in consolidated financial statements. The delay applies
only to instruments issued by consolidated subsidiaries. The effective date is delayed differently
for two types of mandatorily redeemable noncontrolling interests:
1. For shares that must be redeemed upon the liquidation or termination of a limited life
issuing entity (for example, minority interests in a consolidated partnership with a limited
life), FASB Staff Position (FSP) 150-3, “Effective Date, Disclosures, and Transition for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150,
Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity,” defers indefinitely the classification and measurement guidance in Statement 150.
2. Separately, FSP FAS 150-3 broadens the deferral of the measurement provisions by
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

expanding it to include other types of mandatorily redeemable noncontrolling interests,


provided the instruments were created before November 3, 2003. An example would be
trust preferred securities issued by a consolidated trust. Entities affected by this expanded
deferral must classify the instruments as debt and classify the returns to investors as
interest where required by Statement 150 and make the disclosures required under FAS
150. However, they will measure the debt and interest in accordance with EITF Topic D-98.
3. The SEC staff has indicated its position that if a company issues preferred shares that are
conditionally redeemable, the shares are not within the scope of Statement 150 because
there is no unconditional obligation to redeem the shares by transferring assets at a
specified or determinable date or upon an event certain to occur. If the uncertain event
occurs, the condition is resolved, or the event becomes certain to occur, then the shares
become mandatorily redeemable under Statement 150 and would require reclassification to
a liability at fair value (with a corresponding reduction to equity).
4. The SEC Staff has indicated its position regarding classification on the balance sheet for
certain financial instruments (or host contracts) that meet the conditions for temporary
equity classification under ASR 268 and Topic D-98 – which may include mandatorily
redeemable stock. The SEC staff will not accept liability classification for financial
instruments (or host contracts) that meet the conditions for temporary equity classification
under ASR 268 and Topic D-98. Consistent with SEC Regulation S-X, Articles 5-02, 7-03,
and 9-03, these financial instruments should be classified on the balance sheet between
captions for liabilities and shareholder's equity. As a consequence, the fair value option
under FASB Statement No. 159, Fair Value Measurements, may not be applied to any
financial instrument (or host contract) that meets the conditions for temporary equity
classification under ASR 268 and Topic D-98.

While the measurement and (or) classification guidance in Statement 150 is deferred as noted,
the disclosure requirements are retained.

The effective date of Statement 150 remains unchanged for mandatorily redeemable shares
issued by the parent company, written put options on a company’s shares, forward purchase
contracts for a company’s shares, and contracts that require the issuance of shares in amounts
unrelated to, or inversely related to, the value of the shares.

References: Regulation S-X, Rule 5-02-28; SAB Topic 3C; FRR 211
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

8. Does the company Disclose:


have mandatorily • Accounting policy for recognition of changes in the redemption value;
redeemable preferred • Where changes in redemption value are being accreted, disclose the redemption value
stock that is as if it were redeemable on the balance sheet date; and
redeemable at a • If redemption is uncertain, disclose why redemption is uncertain.
future determinable
date and its See NOTE in 7, above.
redemption amount is
variable?
References: EITF Topic D-98, FRR 211

4. SUBORDINATED DEBT
.9 Does the Subordinated debt may not be presented within stockholders’ equity. Also, a caption may not
company be presented that combines only subordinated debt and stockholders’ equity.
have
subordin Reference: SAB Topic 4A
ated
debt?
5. TERMINATED S CORPORATIONS
10. Is the company an S Retained earnings must be classified as paid-in capital when S Corporation election is
Corporation that has terminated.
terminated its S
Corporation election? Reference: SAB Topic 4B

6. LIMITED PARTNERSHIPS
11. Is the In the equity section disclose:
company • General partners’ equity separate from limited partners’ equity;
a limited • Changes in the number of equity units authorized and outstanding for each ownership
partners class;
hip? • A statement of changes in partnership equity for each ownership class for each period for
which an income statement is included.
• Net income clearly allocated between general and limited partners; and
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

• Results of operations on a per unit basis.

Reference: SAB Topic 4F

7. DIVIDENDS
12. Does the company Describe the most significant restrictions on the payment of dividends indicating their sources,
have restrictions that limit their pertinent provisions, and the amount of retained earnings or net income restricted or free of
the payment of restrictions.
dividends?
Reference: Regulation S-X, Rule 4-08(e)

13. Does the company Compute the company’s proportionate share of the net assets of its consolidated and
have subsidiaries and/or unconsolidated subsidiary companies as of the end of the most recent fiscal year which are
investees with restrictions restricted as to transfer to it as the parent company because third party consent from an entity
that limit the payment of such as a lender is required.
dividends and (or) the
transfer of funds to the • If the company's proportionate share of the restricted net assets of consolidated subsidiaries
company, referred to here exceeds 25% of its consolidated net assets, provide
as the parent company? o Footnote disclosure in the consolidated financial statements about the nature
and amount of significant restrictions on the ability of the subsidiaries to transfer
funds to the parents through loans, advances, or dividends; and
o Condensed parent company financial and other information in a Schedule 12-04
• If the amount of such restrictions is less than 25%, but the sum of these restrictions plus the
amount of the company's proportionate share of restricted net assets of unconsolidated
subsidiaries plus the company's equity in the undistributed earnings of 50% or less owned
persons (investees) accounted for by the equity method exceed 25% of consolidated net
assets, footnote disclosure is required.

References: Regulation S-X, Rule 4-08(e), SAB Topic 6K2, and SAB Topic 6K3

14. Does the company Disclose the amount of consolidated retained earnings that represents undistributed earnings of
have an interest in a 50% 50% or less owned persons accounted for by the equity method. The SEC staff has indicated
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

or less owned entity that these undistributed earnings should represent the difference between the cumulative equity
accounted for by the in earnings reflected in consolidated retained earnings and the cumulative dividends received
equity method? from those persons by the consolidated group; it is not appropriate to take into account
dividends paid by the parent company to its shareholders.

Reference: Regulation S-X, Rule 4-08(e)

15. Did the company State the amount of dividends per share and in the aggregate for each class of shares
declare dividends outstanding.
during the year?
Reference: Regulation S-X, Rule 3-04

16. Did the company Retroactively reflect stock splits that occur after year-end, but before the financial statements
declare a stock dividend are issued. Disclose in a note the retroactive treatment, explain the change made, and state the
or stock split subsequent date the change became effective.
to year-end, but prior to
financial statement Reference: SAB Topic 4C
issuance?
17. Did a subsidiary or Such dividends should either be given retroactive effect in the balance sheet with appropriate
division (with separate footnote disclosure, or reflected in a pro forma balance sheet. A similar presentation is
financial statements appropriate when dividends exceed earnings in the current year and the entity will receive
included in a registration proceeds from an offering.
statement, proxy
statement, or Form 8-K) Reference: SAB Topic 1B3
declare dividends after
year-end or declare
dividends in excess of
earnings?
8. INCOME APPLICABLE TO COMMON STOCK
18. Is the income or loss Disclose income or loss applicable to common stock. The amount to be reported for each period
applicable to should be computed as net income or loss less:
common stock • Dividends on preferred stock, including undeclared or unpaid dividends if
materially different cumulative; and
from reported net • Periodic increases in the carrying amounts of instruments reported as redeemable
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

income or loss? preferred stock or increasing rate preferred stock

Reference: SAB Topic 6B

9. STOCK SUBSCRIPTIONS
19. Does the Disclose the dollar amount of subscribed shares that cannot be legally issued until paid for, and
company the subscription receivable deducted from equity, if not separately shown in the equity section.
have
subscribed Reference: Regulation S-X, Rule 5-02-28
shares that
cannot be
legally issued
until paid for?
20. Does the company Disclose the payment date.
have stock
subscription Reference: SAB Topic 4E
receivables treated
as assets because
payment has been
received prior to the
publication of the
financial statements?
10. DISCOUNT ON SHARES
21. Does the company Discount on shares, or any unamortized balance thereof, should be shown separately as a
have unamortized deduction from the applicable account(s) as circumstances require.
discount on shares?
Reference: Regulation S-X, Rule 4-07

11. OTHER
22. Does the company A registrant should consider whether it has created a special class of stock that is available only
have any special classes to employees and whether the substance of the transaction has been considered when
of stock that have been establishing the appropriate accounting under GAAP.
granted to employees?
Reference: SEC Speech, Ucuzoglu December 2006
Table of
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Contents
Link
N REVENUE RECOGNITION
1. Does the company Disclose the following in the notes to the financial statements:
generate revenue?
The revenue recognition policy associated with each material type of transaction.
Examples of different types of sales transactions include: sales of products; sales of services;
license arrangements; barter transactions; sales under bill-and-hold terms; multiple element
transactions (e.g. combined sale of product and service or sale of multiple services).

For multiple element transactions, the policy related to the individual components of the
transactions. In addition, disclose the method used to determine the individual components and
the method used to value them.

For sales subject to a right of return, material changes in estimated returns. SAB No.
104 illustrates this requirement by indicating that a change in estimate from two percent of sales
to one percent of sales would be disclosed, if the change were material. Note that certain
disclosures may also be required under Statement of Position (SOP) 94-6, Risks and
Uncertainties. SOP 94-6 requires a company to disclose the nature of the uncertainty and an
indication that it is at least reasonably possible that a change in the estimate will occur in the
near term when known information available prior to issuance of the financial statements
indicates that two criteria are met:
- It is at least reasonably possible that the estimate of the effect on the financial
statements of a condition, situation, or set of circumstances that existed at the
date of the financial statements will change in the near term due to one or more
future confirming events, and
- The effect of the change would be material to the financial statement. Refer to
SOP 94-6, paragraph 12.
Revenue from the sales of products, services and other products separately on the face
of the income statement, consistent with the requirements of Regulation S-X, Rule 5-03. When
revenue is presented separately, the SEC staff believes that the related costs of sales for each
type of revenue also should be presented separately on the face of the income statement. The
SEC staff will allow allocation of revenue from an arrangement that could not be separated for
recognition purposes between product, service or other revenues, as long as the vendor has a
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

reasonable basis for allocation, consistently applies the allocation and discloses its rationale.

When the company recognizes income for refundable fees net of estimated returns over
the service period, for each income statement presented:

- Account balances for unearned revenues and refund obligations;


- A roll forward of the unearned revenue and refund obligation balances from the
beginning to the end of each income statement presented. See Question 2 for
additional information.

References: SAB Topic 13B, SEC Speech, McGrath 2006, Barrysmith 2007

2. Have the Consider whether revenue recognition policies are still appropriate and update accounting and
company’s policy disclosures accordingly.
significant
contractual Reference: SEC Speech, Lopez 2004
provisions or
business
changed?
3. Does the Disclose the accounting policy for refundable fees for services. If the fees are accounted for by
company have analogy to FASB Statement No. 48, Revenue Recognition When Right of Return Exists, the
refundable fees company should disclose its estimates of cancellation. For each income statement presented,
for services? the company should disclose:
• The amounts of unearned revenue and refund obligations as of the beginning of each
period;
• The amount of cash received from customers;
• The amount of revenue recognized in earnings;
• The amount of refunds paid;
• Other adjustments; and
• The ending balance of unearned revenue and refund obligations.

Reference: SAB Topic 13A4a


General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

4. Does the Disclose the accounting policy used with regard to these arrangement. The company should
company’s disclose whether:
revenue • It has recorded any revenue that is at risk due to future performance contingencies;
include • The nature of the contracts giving rise to the contingencies, and;
performance- • If material, the amount of any such revenue recorded.
based
incentive
fees? These Reference: EITF Topic D-96
fees are
common in
the
investment
advisory and
real estate
management
businesses.
5. Has the Subsidies must be presented as a separate line item within the income statement.
company
received Reference: SAB Topic 11A
subsidies or
grants during
the year?
Table of
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Link
O SHARE-BASED PAYMENT
1. Has the company FASB Statement No. 123, paragraph 47 indicates that for each year an income statement is
accelerated the provided, companies should disclose the terms of significant modifications of outstanding stock
vesting terms of option awards. Subject to this guidance, the SEC staff believes that companies should disclose
its out-of-the- any modifications to accelerate the vesting of out-of-the-money options in anticipation of
money stock adopting the new accounting standard. The staff also believes that registrants should disclose
options, or made the reasons that the option terms were modified. The staff does not believe that disclosure
any other along the lines of, “…during fiscal 2004 certain of the company’s stock options were modified to
significant accelerate vesting…” would be sufficient. [Editor’s note: On September 19, 2006, Conrad
changes, prior to Hewitt, Chief Accountant of the SEC, published the views of the SEC staff in the form of letter
adopting FASB relating to the accounting required by companies that followed APB Opinion No. 25, Accounting
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Statement No. for Stock Issued to Employees, prior to the effective date of FASB Statement No.123 (Revised
123R, Share- 2004), Share-Based Payment. In this letter, the SEC staff addresses the accounting
Based Payment? consequences under Opinion 25 of dating an option award to predate the actual award date,
option grants with administrative delays, uncertainty as to the validity of prior grants, and other
related circumstances. This letter notes that several companies have recently issued press
releases announcing the restatement (or are considering a restatement) of their financial
statements due to errors in their accounting for grants of stock options to employees, members
of the board of directors, and other service providers. On January 16, 2007, the SEC's Division
of Corporation Finance (Corp Fin) issued a sample letter to companies requesting guidance
related to filing restated financial statements for errors when accounting for stock option grants.
During 2006, certain registrants discovered that they had improperly complied with the
accounting requirements relating to company-issued stock options – a problem that includes
"back-dating" as it is sometimes referred to. This problem is most acute in years before a
company was required to adopt the accounting prescribed in Statement 123R. A registrant that
has identified errors relating to its stock option grants and concludes that it should amend prior
filings, should carefully review and consider the guidance in this SEC release.]

References: SEC Speeches, Kokenge 2004; Benedict 2005; SEC letter dated 9/19/2006,
January 16, 2007 Corp Fin letter

2. Does the If the company has been recognizing compensation expense for these awards over the stated
company grant vesting period (rather than the period until retirement eligibility), the SEC staff believes that the
employee share- company should make the following disclosures (both before and after the adoption of
based Statement No. 123 (Revised 2004): Share-Based Payment):
compensation • Accounting policy followed under APB 25 (if applicable) and Statement 123 for the
awards with recognition of compensation cost for awards that accelerate vesting upon retirement;
terms that • The accounting policy change that will occur/occurred as a result of adopting Statement
accelerate 123R; and
vesting upon
• The quantitative affect of applying Statement 123R cost recognition requirements
retirement?
compared to the “old” cost recognition vesting approach, for each income-statement
period presented.

The SEC staff indicated that it would object if a company changed its method of expensing
compensation for share-based awards with terms that accelerate vesting upon retirement before
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

adoption of Statement 123R. If a company would like to change the method of expensing these
awards prior to adoption of Statement 123R, consultation with the SEC staff is recommended.

Reference: SEC Speech, Benedict 2005

3. Does the The SEC issued a release that allows certain companies that are not smaller reporting
company grant companies additional time to implement the requirements of Statement 123R. As a result of the
employee stock SEC release, calendar year registrants that are not smaller reporting companies can continue to
options? follow FASB Statement No. 123, Accounting for Stock-Based Compensation, throughout 2005
and implement the new Statement 123R requirements beginning January 1, 2006. However, the
SEC notes that if a company has a fiscal year that ends on June 30, 2005 and is not a smaller
reporting company, that company must still comply with Statement 123R beginning with its
quarter beginning on July 1, 2005. In other words, such companies do not receive any relief
from the SEC rule.

Reference: Regulation S-X, Rule 4-01(a)

4. Does the The Chief Accountant of the SEC commented that before a company concludes that a market-
company grant based instrument complies with the measurement objective in Statement 123R, it should:
employee stock • Consider the difference between the actual instrument transaction and the model-
options that it generated (e.g., Black Scholes or binomial) estimate of fair value;
values with • Satisfy itself and its auditor (and potentially the SEC staff) as to the reasons for any
market-based significant differences between the two values (market-based instrument value vs.
instruments? model-generated value). In this regard, because any such instrument would at this time
be new to the market, the company should address whether the instrument itself and/or
the marketing of the instrument were sufficient to achieve a true fair value exchange
price.

Further, should a company decide to use the value produced by a market-based instrument for
purposes of measuring compensation expense under Statement 123R, it would need to fully
disclose the approach used to estimate the fair value of employee stock options.

References: Regulation S-X, Rule 4-01(a); Statement Regarding Use of Market Instruments
in Valuing Employee Stock Options; Memorandum: Economic Evaluation of Alternative
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Market "Instrument Designs" ; and SEC Speech, Benedict 2005

Table of
Contents
Link
P PENSION PLANS, OTHER POSTRETIRMENT PLANS, AND ESOPS
1. Does the The SEC staff observed that companies should identify material assumptions underlying the
company have a accounting for benefit plans and should have support for these assumptions and estimates.
defined benefit [See FASB Statement No. 158 required disclosures noted below].
pension plan and
(or) other References: SEC Speech Taub 2004, SEC Speech Ucuzoglu 2006, and Current Accounting
postretirement and Disclosure Issues in the Division of Corporation Finance 11/30/06, IIJ2, Pension, Post
benefit plans? Retirement, and Post Employment Plans - Disclosure; FASB Statement No. 158, paragraphs 7,
20-22
2. Does the The following are ESOP disclosures in SEC filings for shares acquired before January 1, 1993:
company 1. Impact of ESOPs on the financial statements;
have an 2. Method of recognizing expense;
employee 3. Amount of expense for all periods presented;
stock 4. Interest on ESOP debt for all periods presented;
ownership 5. Amount of contribution to the ESOP for all periods presented; and
plan (ESOP) 6. Amount of dividends on ESOP shares used to pay debt service for all periods presented.
with shares
acquired Reference: EITF 89-8
before
January 1,
1993?
Table of
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Link
Q BANKRUPTCY
1. Is the company Disclose the extent to which reported interest differs from stated contractual interest (disclose
reorganizing parenthetically on face of statement of operations.)
under the U.S.
Bankruptcy If it is probable that the plan will require the issuance of common stock or common stock
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Code? equivalents, thereby diluting current equity interests, that fact should be disclosed.

References: SOP 90-7, paragraphs 29 and 34

2. Does the The SEC staff believes that a determination that continued consolidation of a subsidiary in
company bankruptcy requires a fairly unique set of facts and is appropriate only in infrequent and
consolidate a uncommon circumstances. The conclusion to consolidate and its basis should be disclosed. The
subsidiary that is company should periodically reassess its facts and circumstances to confirm the
in bankruptcy? appropriateness of such a determination.

Reference: SEC Speech, Green, 2003

Table of
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Link
R BUSINESS COMBINATIONS
1. Has the company Rule 3-05 requires separate audited balance sheets as of the end of up to the latest two fiscal
acquired, or is it in the years, an unaudited condensed balance sheet for the latest interim period, audited statements
process of acquiring, a of income and cash flows for periods of up to three years, and separate comparable
significant business as unaudited condensed statements for any interim periods for the following:
defined by Regulation S- 1. Significant business acquired during the latest fiscal year or subsequent interim period
X, Rule 3-05? (includes the purchase of an interest in a business accounted for by the equity method).
2. Significant business to be acquired after the latest interim period (when such action is
probable).

Requirements by Filing

Financial statements of a business acquired or to be acquired are not required in Form 10-K,
Form 10-Q, or annual reports to shareholders. The financial statements of an acquired business
that is significant are required in:
1. A Form 8-K filing;
2. A registration statement; and
3. In certain cases, a proxy statement.
The financial statements of a business to be acquired (i.e., a probable acquisition) that is
significant, as well as financial statements for individually insignificant acquisitions that are
material in the aggregate, are required in:
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

1. A registration statement; and


2. In certain cases, a proxy statement.

Definition of Significance

The SEC’s rules define significance using the three quantitative tests of Regulation S-X, Rule 1-
02(w), that are based on the size of the entity acquired or to be acquired relative to the size of
the registrant. These tests are based on:
1. Investment or purchase price test—The registrant’s and its subsidiaries’ investments in and
advances to the business being acquired relative to the total assets of the registrant and its
subsidiaries consolidated as of the end of the most recently completed fiscal year. For business
combinations, this test measures the significance of the total purchase price, including
debt assumed.
2. Asset test—The registrant’s and its other subsidiaries’ proportionate share of the total assets
(after intercompany eliminations) of the business being acquired or disposed of relative to
the total assets of the registrant and its subsidiaries consolidated as of the end of the most
recently completed fiscal year.
3. Pretax income test—The registrant’s and its other subsidiaries’ proportionate share (equity) in
the income from continuing operations before income taxes, extraordinary items, and
cumulative effect of a change in accounting principles of the business being acquired or
disposed of relative to the total pretax income (similarly defined) of the registrant and its
subsidiaries consolidated for the most recently completed fiscal year. The registrant
may use the average of its pretax income for the past five years in this test when the most
recent year’s pretax income is at least 10% lower than average pretax income for the most
recent five years. However, the pretax income of the business being acquired may not be
averaged. If either the registrant or the acquiree has been in existence for less than one year,
historical financial statements should not be annualized.

Financial Statements to Be Presented

The lowest level of significance for which financial statements of a business acquired or to be
acquired are required is 20%. The larger the relative significance of the entity acquired or to be
acquired, the more extensive the financial statement requirements.

Level of Significance Number of Periods


General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

None of the tests exceeds 20% None


Any one of the tests exceeds 20% but none Most recent fiscal yeara
exceeds 40%
Any one of the tests exceeds 40% but none Two most recent fiscal yearsa,b
exceeds 50%
Any one of the tests exceeds 50% Three most recent fiscal yearsa,c
a
Unaudited interim financial statements, including financial statements for the corresponding
interim period of the preceding year, may also be required.
b
Balance sheets and statements of income, cash flows, and changes in shareholders’
equity for the two most recent years are required.
c
Balance sheets for the two most recent fiscal years and statements of income, cash
flows, and changes in shareholder’s equity for three years are required.

Definition of a Business

Rule 3-05 applies to the acquisition of a business, not to the acquisition of an asset. In some
situations, it is not clear whether the acquisition is of a business or of assets. Regulation S-X,
Rule 11-01 (d) indicates that a presumption exists that a separate entity, e.g., a subsidiary
or division, is a business. A lesser component of an entity may also constitute a business,
depending on facts and circumstances. In practice, the SEC staff uses a broad definition of
“business” and in most cases requires statements, even if only a product line, or,
as indicated in Rule 3-05, an investment accounted for under the equity is acquired. Also,
whether the net assets or capital stock of an operation is acquired makes no difference if the
operation is deemed to be a business.

The following transactions may also constitute the acquisition of a business:


● Acquisition of a working interest in an oil and gas property
● Assumption of customer deposits at branch banks
● Acquisitions of blocks of insurance policies by an insurance
company
● Assumption of policy liabilities in reinsurance transactions

Definition of Probable
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Statements for “to be acquired” or proposed acquisitions are required when consummation of
the transaction is probable. This is generally when an agreement in principle has been reached
or the boards of directors of both companies have approved the transaction, even though the
transaction may be subject to shareholder approval or other uncertainties. The SEC’s rules do
not include a specific definition for a “probable acquisition.” The SEC Accounting
Disclosure Rules and Practices Manual, Topic Two.I.A.3.e. states that, “assessment of
‘probability’ requires consideration of all available facts” and that an acquisition “is probable
where registrant’s financial statements alone would not provide adequate financial information
to make an investment decision.”

Determining significance

The SEC staff has provided its views on applying the significance test when applying Rule 3-
05(b)(3) to an acquiree when the acquiree’s most recent pre-acquisition annual financial
statements present predecessor and successor results.

Smaller Reporting Companies


Rule 8-04 outlines the financial statements of the business acquired or to be acquired to be
furnished when the acquirer is a smaller reporting company, as defined by Regulation S-K
Item 10(f)(1). Such requirements are slightly different than those outlined above.

References: Regulation S-X, Rule 3-05, 1-02(w), 8-04, 8-05 and 11-01; SAB Topic 1J , SEC
Regulations Committee--Discussion Document C - October 11, 2007

2. Is the company In some cases involving initial public offerings, strict application of the requirements of Rule 3-05
preparing an initial public would be problematic or would result in the presentation of financial statements that are clearly
offering (IPO) involving not material. In these cases, registrants should consider whether electing to
businesses that have apply the alternative requirements of SAB Topic 1J could provide relief from the requirements
been built by the resulting from the application of Rule 3-05. SAB Topic 1J uses the pro forma financial
aggregation of discrete information for the registrant as a base to measure significance and then requires “coverage”
businesses that remain (via audited historical financial statements of acquired businesses) of a stated percentage of the
substantially intact after registrant’s business for each of the last three years. SAB Topic 1J is a completely separate and
acquisition? alternative approach to measuring significance. It is advisable to identify the financial statement
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

requirements under both SAB Topic 1J and Rule 3-05 to determine the best alternative to follow
for a particular registrant’s circumstance.

References: SAB Topic 1J; Regulation S-X, Rule 3-05

3. Did the company Provide pro forma disclosures for significant acquisitions or disposals that have occurred during
acquire a significant the current period or as a subsequent event (prior to the issuance of the financial statements) or
business, acquire a are otherwise probable of occurring. (For acquisitions of troubled financial institutions, see SAB
series of individually Topic 1K.) Provide:
insignificant businesses
that are significant in the 1. Pro forma condensed income statements for the most recent fiscal year and any interim
aggregate, or dispose of period; and
a significant portion of a 2. Pro forma condensed balance sheet as of the end of the latest interim period.
business?
References: Regulation S-X, Rules 11-01 and 11-02

4. Has a business In the footnotes, provide unaudited pro forma combined results of operations for the period in
combination which the purchase business combination occurred as though the companies had combined at
occurred? the beginning of the period, unless the acquisition was at or near the beginning of the period:
1. Including as a minimum:
a. Revenue;
b. Income before extraordinary items;
c. Net income; and
d. Related per share data.
2. The above amounts should reflect the revised bases of the net assets acquired and, when
applicable, the interest expense, preferred stock dividends and tax effects related to the
combination.
3. If comparative financial statements are presented, provide pro formas for the immediately
preceding period as though the companies had combined at the beginning of that period.
4. Disclosure of this pro forma information should be repeated in financial reports for
subsequent periods as long as the related historical financial statements are presented for
comparative purposes.

References: FASB Statement 141, paragraphs 54 and 55


General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

5. Is the company When the company is awaiting additional information that it has arranged to obtain for the
awaiting additional measurement of contingencies assumed in a business combination (for which fair value is not
information for the determinable at the date of acquisition), disclose that the purchase price allocation is preliminary
measurement of and the following:
contingencies in a • The nature of the contingency.
business • Other available information that will enable a reader to understand the potential effects of
combination? the contingency on the final purchase price allocation and on post-acquisition operating
results.

Reference: SAB Topic 2A7

6. Was an operating A leveraged buy-out, for purposes of this disclosure section, represents a single highly
company acquired in a leveraged transaction or a series of related and anticipated highly leveraged transactions that
leveraged buy-out result in the acquisition by Newco of all previously outstanding common stock of Oldco; that is,
transaction by a there can be no remaining minority interest. This excludes transactions in which existing
holding company with majority stockholders utilize a holding company to acquire all of the remaining shares of Oldco
no other substantial not previously owned.
operations?
When the combined company is the result of a leveraged buy-out as defined above, disclose
the accounting policy and related rationale for determining the new basis.

Reference: EITF 88-16

7. Has the allocation of FASB Statement No. 141, Business Combinations, requires that an acquirer allocate cost to the
the purchase price various individual assets acquired in a business combination. The SEC staff believes that the
identified unfavorable allocation process should consider the acquired entity’s in-process revenue contracts and
revenue contracts and whether the terms may be less favorable than could be realized in a current market transaction.
customer relationship In that case, recognition of an unfavorable contract liability may be required. Further, the fact
intangibles? that the acquired entity has a contractual relationship with the customer may also give rise to a
valuable customer relationship which must be considered when applying Statement 141.

Reference: SEC Speech, Ucuzoglu, December 2006


8. Is the company a part Pro forma financial statements are required in certain situations depending on the form of the
of a merger of entities transaction and other judgment matters.
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

under common
control? Reference: Regulation S-X, Rules 3-05, 11-02(c); SAB 80; and Division of Corporation Finance
presentation at the 2006 AICPA National Conference on Current SEC and PCAOB
Developments, Slides 8-23
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S QUASI-REORGANIZATIONS
1. Has the company A quasi-reorganization results when a company eliminates its accumulated deficit by
effected a quasi- reclassifying amounts from paid-in capital, and by adjusting assets and liabilities to their fair
reorganization? values. There are two types of quasi- reorganizations:

• "Deficit-only reclass;” and


• Complete quasi-reorganization.

The SEC staff does not accept a "deficit-only reclass" in which the accumulated deficit is
reclassified but assets and liabilities are not revalued.

Eligibility

1. The entity must have exhausted all retained earnings, or in the case of a partnership,
earned surplus.

2. The entire procedure is made known to all persons entitled to vote on matters of
general corporate policy, and the appropriate consents to the particular transactions
are obtained in advance in accordance with the applicable law and charter provisions.
The need for creditor approval should also be considered in the assessment of an
entity's eligibility.

3. The entity must have changed management, lines of business, methods of operations,
etc., so that the entity is reasonably expected to have profitable operations based on
the restated asset and liability carrying amounts in terms of present conditions. (The
SEC staff has indicated that a change in management alone would be insufficient to
satisfy this requirement.) The entity cannot have an operating loss immediately after
the quasi-reorganization. The SEC staff has interpreted this very restrictively to mean
the interim or annual period immediately following the quasi-reorganization unless the
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

interim period reflects a seasonal business where losses normally occur.

Reference: FRR 210

For a period of at least ten years subsequent retained earnings must be dated. Also, for a
period of three years, the company should indicate the total amount of the deficit eliminated on
the face of the balance sheet.

Reference: Regulation S-X, Rule 5-02-31(b)

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T SUBSIDIARY’S OR DIVISION’S SEPARATE FINANCIAL STATEMENTS AND SEGMENTS
1. Is this a registration Carve-outs are a means of presenting financial statements for an entity that had been operating
statement, proxy as a subsidiary, division, or segment of a consolidated group of companies. When carved out
statement or Form 8-K entities are sold or spun off, or when the entity's debt securities are initially sold to the public,
that includes a certain requirements defined in SAB Topic 1B must be met. The financial statements of the
subsidiary’s or division’s entity should include all expenses incurred by the parent on the subsidiary's behalf. To the
separate financial extent not charged to the subsidiary in the past, the expenses must be retroactively reflected
statements? with the offsetting credit being to paid-in capital. Although not stated in the SAB, the SEC policy
also applies to credits allocable to the subsidiary, e.g., management fees billed to the subsidiary
in excess of the underlying cost of the services rendered. In such cases, the adjustment would
be treated as a dividend to the parent.

In the subsidiary financial statements, the name of the ultimate parent; and for the parent, the
name, the relationship, and any changes in ownership should be disclosed.

Explain or include the following when a registration statement, proxy statement or Form 8-K
includes a subsidiary's or division's separate financial statements:
• The method of allocating common expenses and a statement that the method is reasonable
when a parent company incurs expenses applicable to the subsidiary; and
• An estimate of what expenses would have been on a stand-alone basis if materially
different when practicable. (Such estimates, however, should not be recorded in the
historical statements.)
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

See SAB Topic 1B when dividends are declared after year-end or are in excess of earnings or if
the financial statements are not indicative of the ongoing entity.

References: SAB Topic 1B1, 1B2, and 1B3

2. Did the parent When substantially all of the common stock of a company is acquired in one or a series of
company incur debt purchase transactions, SAB Topic 5J generally requires that the purchase price be "pushed
for a subsidiary down" to the subsidiary company's financial statements and that all retained earnings be
registrant? eliminated. Regulation S-X, Rule 1-02(aa), defines "wholly owned subsidiary" and this rule
should be referred to for a definition of "substantially" all of the common stock. The SAB notes
that if the subsidiary company had publicly held debt or preferred stock outstanding at the time
the shares were acquired, push-down accounting is not mandatory.

Regardless of whether the debt has been "pushed down" to the subsidiary company, a
subsidiary registrant must disclose the amount and terms of acquisition debt incurred by the
parent.

References: SAB Topic 5J and Regulation S-X, Rule 1-02(aa) , December 8, 2008 Speech
Robert G. Fox III

3. Did a subsidiary of For sales of stocks by a subsidiary, a company can treat the issuances either as equity
the company issue transactions or as income statement transactions. If the latter alternative is selected, gains and
stock to a third party? losses without regard to materiality should be presented as a separate line item of nonoperating
income. The accounting method adopted should be disclosed in its accounting policy footnote
and applied consistently. The SEC staff believes that the company also should include:
• A separate footnote that describes issuances of subsidiary stock that have occurred during
all periods presented, including –
o A description of the transaction;
o The identification of the subsidiary and nature of its operations;
o The number of shares issued;
o The price per share, the total dollar amount and nature of consideration
received; and
o The percentage ownership of the parent both before and after the transaction.
• Whether deferred income taxes have been provided on gains recognized and, if no
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

provision has been recorded, a clear explanation of the reasons.

Reference: SAB Topic 5H

4. Does the company Meet all the disclosure requirements of FASB Statement No. 131, Disclosures about Segments
have segments? of an Enterprise and Related Information, including:
• Product, services, and geographic disclosures; and
• A reconciliation of segment elements to the consolidated financial statements;

The SEC staff commented that it may evaluate the identification and consistency of segment
disclosures in financial statements by actions such as requesting copies of reports furnished to
the chief operating decision maker, reviewing analyst’s reports, reading press interviews with
management, and considering other public information. The staff observed that they request an
amended filing if the information reviewed reveals different or additional segments.

Reference: Current Accounting and Disclosure Issues in the Division of Corporation Finance
11/30/06, IIL, Segment Disclosure
5. Does the company For purposes of segment disclosures, two or more operating segments should be grouped only
aggregate if the segments meet all the requirements of paragraph 17 of Statement 131, including the
quantitatively requirements for similar economic characteristics.
immaterial
segments? In particular, the SEC staff observed that Statement 131 does not permit a company to
aggregate quantitatively immaterial segments with a reportable segment unless all the
aggregation criteria are met. Quantitatively immaterial segments that can not be aggregated
into a reportable segment or aggregated with other reportable segments should be reported as
“all other,” consistent with the requirements of Statement 131.

References: Division of Corporation Finance presentation at the 2005 AICPA National


Conference on Current SEC and PCAOB Developments, Slides 56-61, 64-67, Current
Accounting and Disclosure Issues in the Division of Corporation Finance 11/30/06, IIL,
Segment Disclosure

Table of
Contents
Link
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

U RELATED PARTY TRANSACTIONS


1. Do the financial Related party is defined broadly in Regulation S-X, Rule 1-02(u) which references the definition
statements include in FASB Statement No. 57, Related Party Disclosures. In the Statement 57 definition, parties
related party are considered related when one has the power—through ownership, contractual right, family
transactions? relationship, or otherwise—to directly, or indirectly control, or significantly influence the other.
. Parties are also related when they are under the common control or significant influence of a
third party. Thus, related parties include parent companies, subsidiaries, sister companies, other
affiliates such as investees accounted for by the equity method, defined benefit pension plans,
and other trusts for the benefit of employees. The term also includes individuals who are
principal owners, management, members of boards of directors, and members of all those
persons’ immediate families as defined below:

1. The term "principal owner" includes owners or known beneficial owners of more than 10%
of the voting interest.
2. The term "management" includes those persons having authority and responsibility for
planning, directing, and controlling the activities of the reporting enterprise.
3. If a director or member of management is also a director of another enterprise, the
enterprises are considered related when they both are under the control or significant
influence of that individual.
4. The term "immediate family" includes any family member whom a principal owner or
member of management might control or influence, or vice versa, because of a family
relationship.

Disclose the following for material related party transactions that affect the financial statements:
1. Transactions should be identified, and the amounts stated on the face of the balance
sheet, income statement or statement of cash flows.
2. In cases where separate financial statements of certain investees or subsidiaries are
presented in the filing, separate disclosure should be made in such statements of the
amounts in the related consolidated financial statements that are (a) eliminated and (b) not
eliminated. Also, any intercompany profits or losses resulting from transactions with related
parties that are not eliminated and the effects thereof should be disclosed.

References: Regulation S-X, Rule 4-08(k) and Rule 1-02(u); Accounting Disclosure Rules and
Practices, 7.I.B - Related Party Matters - General Disclosure Requirements
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

In determining the materiality of a related-party transaction, SAB Topic 4E indicates that the
significance of an item may be independent of its amount. This is often the case with respect to
related-party transactions.

Reference: Accounting Disclosure Rules and Practices, 7.I. - Related Party Matters

2. Did the company have Transactions in which expenses are paid by a principal shareholder for the company’s benefit
transactions with a should be given appropriate accounting recognition in the company’s financial statement.
principal shareholder that
benefited the company? Reference: SAB Topic 5T

Table of
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V RESTRUCTURING AND IMPAIRMENT CHARGES
1. Did the company incur These charges typically result from the consolidation and (or) relocation of operations; the
costs during the current abandonment of operations or productive assets; or the impairment of the carrying value of
period under a productive or other long-lived assets. The components of these charges also vary, but generally
restructuring or other exit include the reduction in the carrying value of long-lived assets and provisions for the termination
plan? and/or relocation of operations and employees. These charges generally do not qualify as
. extraordinary, but rather as a loss from continuing operations. Thus, disclosure treatment should
be consistent with treatment for other items that are either unusual or infrequent, but not both.

Restructuring charges should be presented as a component of income from continuing


operations, and separately disclosed, if material. However, restructuring charges should not be
preceded by a subtotal representing "income from continuing operations before restructuring
charge" (whether or not it is so captioned). In addition, precharge earnings per share, or the per
share effect of the restructuring charge, should not be presented.

Impairment charges related to long-lived assets and gains and losses on dispositions of long-
lived assets should be reported as part of income from continuing operations. If a caption such
as income from operations is used, these items should be reported as part of income from
operations.

Beginning with the period in which the exit plan is initiated, FASB Statement No. 146,
Accounting for Costs Associated with Exit or Disposal Activities, requires disclosure in all
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

periods, including interim periods, until the exit plan is completed of the following:
• Description of the exit or disposal activity, including the circumstances leading to the
activity and the expected date of completion;
• For each major type of cost associated with the activity (e.g., one-time termination
benefits, contract termination costs, and other associated costs):
Cost –
o Total amount expected to be incurred for the activity;
o Amount incurred in the period; and
o Cumulative amount incurred to date.
Liability –
o Reconciliation of the beginning and ending liability balances, showing
separately:
• Changes during the period attributable to costs incurred and charged to
expense;
• Costs paid or otherwise settled; and
• Any adjustments to the liability with an explanation of the reason.
• Line items in the income statement or the statement of activities in which the costs
above are included; and
• For each reportable segment:
o Total amount of costs expected to be incurred in connection with the activity;
o Amount incurred in the period; and
o Cumulative amount incurred to date, net of any adjustments to the liability with
an explanation of the reason.
• If a liability for a cost associated with the activity is not recognized because fair value
cannot be reasonably estimated, that fact and the reasons.

Also, disclose:
• Exit and involuntary termination costs with appropriate labeling;
• The nature and amount of additional types of exit costs and other types of material
restructuring charges; and
• Losses related to asset impairments separate from charges based on estimates of
future cash expenditures.

In subsequent periods at both interim and annual, disclose:


General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

• Material changes and activity in the liability balances of each significant type of exit
cost and involuntary employee termination benefits resulting from either expenditures
or changes in the estimates of the fair value of the liability. The SEC staff suggests a
tabular format for this disclosure;
• If the company has multiple exit plans, present separate information for each material
exit plan.

For material exit or involuntary employee termination cost related to an acquired business,
disclose in either the financial statements or the MD&A:
• When the company began formulating exit plans for which accrual may be necessary;
• The types and amounts of liabilities recognized for exit costs and involuntary employee
termination benefits included in the acquisition cost allocation; and
• Any unresolved contingencies or purchase price allocation issues and the types of
additional liabilities that may result in an adjustment of the acquisition cost allocation.

Report accruals for restructuring charges as supplemental financial data on Schedule II,
Valuation and Qualifying Accounts (required under Regulation S-X, Rule 5-04). Restructuring
accruals do not need to be presented on Schedule II if the notes to the financial statements
present accrual reconciliations in tabular format.

References: SAB Topics 5P3 and 5P4; Regulation S-X, Rule 5-04; and Statement No. 146, par.
20

2. Does the company The SEC staff provided its view that the date of goodwill impairment testing can be changed as
have goodwill that it long as the period tested is less than twelve-months. The staff noted that a preferability letter is
tests for impairment required from the company’s registered public accountant for such a change.
annually?
Reference: Current Accounting and Disclosure Issues in the Division of Corporation Finance
11/30/06, IIG2, Business Combinations – Date of Annual Goodwill Impairment Testing; Slides
61-74 of Steven C. Jacobs December 9, 2008 presentation
Table of
Contents
Link
W QUARTERLY FINANCIAL DATA
1. Is the company a Disclose for each full quarter within the two most recent fiscal years and any subsequent interim
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

domestic registrant with period in an unaudited note to the financial statements:


equity securities that are 1. Net sales;
traded on a national 2. Gross profit (net sales less costs and expenses associated directly with or allocated to
securities exchange or products sold or services rendered);
association (i.e., a 3. Income (loss) before extraordinary items and cumulative effect of a change in accounting;
Section 12(b) or (g) 4. EPS based on income before extraordinary items and cumulative effect of a change in
company)? accounting;
5. Net income (loss), for each full quarter; and
6. EPS based on net income

If quarterly amounts differ from the amounts previously reported on Form 10-Q, reconcile and
describe the differences.

Also, disclose the effect of:


• The disposals of a component of a business;
• Extraordinary, unusual or infrequently occurring items recognized in each quarter;
• The aggregate effect and the nature of year-end or other adjustments that are material to
quarterly results; and
• Pro forma information if presented elsewhere in the filing.

Smaller reporting companies are not required to provide this information.

Reference: Regulation S-K, Item 302(a) and (c); SAB Topic 6G

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X CONSOLIDATION
1. Is the reporting entity The following rules apply to consolidated financial statements:
a consolidated entity?
1. Generally, only majority-owned subsidiaries are consolidated;
2. Financial statements of consolidated subsidiaries are required to be as of a date within 93
days of the registrant’s year-end. When the difference is not more than 93 days, the entity’s
statements for its fiscal period can be used with the following disclosures:
a. Closing date of the entity;
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

b. Explanation of the need to use different closing dates;


c. Events in the intervening period that have a material effect.
3. Briefly describe principles of consolidation, including principles of inclusion or exclusion of
companies in the consolidation. This explanation should include reasons for any departure
from the practice of consolidating majority-owned subsidiaries and not consolidating entities
that are less than majority-owned. The definition of majority-owned subsidiary is included in
Regulation S-X, Rule 1-02(n);
4. Identify (e.g., "all subsidiaries") the entities included in the consolidated statements, if not
stated in the financial statement captions; and
5. Identify subsidiaries not consolidated and the reasons therefore unless otherwise evident.

References: Regulation S-X, Rule 3A-02(b), Rule 3A-03 , and Rule 1-02(n)

2. Has a member of the If dates of financial statements of consolidated subsidiaries are different, disclose the reason for
company’s the change in periods consolidated and the new period. Disclose the amount of sales, income
consolidated group before extraordinary items and net income charged or credited directly to retained earnings
changed its fiscal when a subsidiary has changed its year-end.
reporting period?
Reference: Regulation S-X, Rule 3A-03(b)

3. Has the company If there has been a change in the entities included or excluded in the corresponding statement
had a change in for the preceding fiscal period filed with the SEC that has a material effect on the financial
entity? statements, the entities included and the entities excluded should be disclosed.

Reference: Regulation S-X, Rule 3A-03(b)

4. Does the company Disclose:


have material • The amounts of any material intercompany balances or transactions not eliminated;
intercompany • The amounts of any material unrealized profits and losses on transactions with entities
balances or accounted for under the equity method not eliminated;
transactions that • The reasons for not eliminating these items; and
were not eliminated • The method of treatment of these items.
in consolidation or
combination?
Reference: Regulation S-X, Rule 3A-04
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

5. Does the company If foreign subsidiaries that are consolidated are operated under political, economic or currency
have foreign restrictions, disclose the effect, insofar as this can reasonably be determined, of foreign
subsidiaries that are exchange restrictions upon the consolidated financial position and operating results of the
consolidated? company.

Reference: Regulation S-X, Rule 3A-02(d)

6. Is the company the Disclose:


primary beneficiary of • The nature, purpose, size, and activities of the variable interest entity (VIE);
or does the company • If the company is the primary beneficiary of the VIE:
hold significant i. The carrying amount and classification of consolidated assets that are
interests in a variable collateral for the VIE’s obligations; and
interest entity? ii. The lack of recourse if creditors of a consolidated VIE have no recourse
to the general credit of the company.
• If the company holds significant interests in a VIE:
i. Nature and timing of involvement with the VIE; and
ii. The company’s maximum exposure to loss as a result of its
involvement with the VIE.

In December 2003, the Chief Accountant of the SEC, Donald Nicolaisen, noted that the SEC
staff would take a close look at the disclosures of companies that adopt FASB Interpretation
(FIN) No. 46 (Revised December 2003); Consolidation of Variable Interest Entities (FIN 46R).

In addition, on December 11, 2008, the FASB issued FASB Staff Position (FSP) 140-4 and FIN
46R-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and
Interests in Variable Interest Entities. Registrants should review the guidance therein and make
appropriate disclosures.

References: SEC Speech, Nicolaisen 2003; FIN 46R, paragraphs 23-24, SEC Speech, Mahar
2006, FSP 140-4 and FIN 46R-8
7. Does the company If certain conditions are met, these finance entities are eligible for the reporting relief offered by
hold finance entities Regulation S-X, Rule 3-10(b). If the entity meets the requirements of this rule and its sponsor
with trust preferred provides the following footnote disclosures, the staff noted that FIN 46R does not affect the Rule
securities? 3-10(b) relief:
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

• An explanation of the transaction between the parent and the subsidiary that resulted in debt
appearing on the books of the subsidiary,

• A statement of whether the finance subsidiary is consolidated. If the finance subsidiary is not
consolidated, an explanation why, and

• If a deconsolidated finance subsidiary was previously consolidated, and explanation of the


effect that deconsolidation had on the financial statements

Reference: Current Accounting and Disclosure Issues in the Division of Corporation Finance
11/30/06, IIK, FIN 46 and Deconsolidation

8. Do any of the Refer to COMMON and PREFERRED STOCK, see question: 12. Does the company have
consolidated or restrictions that limit the payment of dividends?
unconsolidated
subsidiaries have
restrictions on their
ability to transfer
funds to the
company?
9. Is the company no If a parent company has provided a guarantee (e.g., a lawsuit indemnity) as defined in FASB
longer consolidating Interpretation (FIN) No. 45, Guarantor’s Accounting and Disclosure Requirements for
an entity but Guarantees, Including Indirect Guarantees of Indebtedness of Others, to a consolidated entity
maintains an that it spins-off, the parent company should consider recognizing and disclosing the FIN 45
obligation under FIN obligation.
45?
Reference: SEC Speech West 2007
Table of
Contents
Link
Y COMMITMENTS AND CONTINGENCIES
General
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

The SEC staff requires the caption "Commitments and Contingencies – See Note" on the face
of the balance sheet based on Regulation S-X, Rule 5-02-25, except when these liabilities are
not significant. When the caption is included on the balance sheet, the amount column should
be left blank and not indicated with a dash (-) since the dash might be interpreted to mean that
there are not commitments or contingent liabilities.

Contingent Liabilities

SAB Topic 5Y represents the SEC staff’s view on accounting and disclosure relating to loss
contingencies associated with environmental and product liabilities. The staff generally will apply
the position in SAB Topic 5Y to all loss contingencies. Based on the SAB, management should
recognize a liability based on reasonable estimates notwithstanding significant uncertainties.

1. Does the company Provide detailed disclosures regarding the judgments and assumptions underlying the
have environmental, recognition and measurement of environmental and product liabilities (including asbestos).
asbestos or product Examples of disclosures that may be necessary include:
liability exposure?
1. Circumstances affecting the reliability and precision of loss estimates;
2. The extent to which unasserted claims are reflected in any accrual or may affect the
magnitude of the contingency;
3. Uncertainties with respect to joint and several liability that may affect the magnitude of the
contingency, including disclosure of the aggregate expected cost to remediate particular
sites that are individually material if the likelihood of contribution by the other significant
parties has not been established;
4. Disclosure of the nature and terms of cost-sharing arrangement with other parties;
5. The extent to which disclosed but unrecognized contingent losses are expected to be
recoverable through insurance, indemnification arrangements, or other sources, with
disclosure of any material limitations of that recovery;
6. Uncertainties regarding the legal sufficiency of insurance claims or solvency of insurance
carriers;
7. The time frame over which the accrued or presently unrecognized amounts may be paid
out; and
8. Material components of the accruals and significant assumptions underlying estimates.

Reference: SAB Topic 5Y


General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

2. Does the company Disclose:


have site restoration 1. The nature of the costs involved;
costs or other 2. The total anticipated cost;
environmental exit costs 3. The total costs accrued to date;
that may occur on the 4. The balance sheet classification of accrued amounts; and
sale, disposal, or 5. The range or amount of reasonably possible additional losses.
abandonment of
property? If an asset held for sale or development will require remediation to be performed by the
company prior to development, sale, or as a condition of sale, a note to the financial statements
should describe how the necessary expenditures are considered in the assessment of the
asset’s value and the possible need to reflect an impairment loss. Additionally, if the company
may be liable for remediation of environmental damage relating to assets or businesses
previously disposed, disclosure should be made in the financial statement unless the likelihood
of a material unfavorable outcome of that contingency is remote. The company should disclose
its accounting policy with respect to such costs.

Reference: SAB Topic 5Y

3. Does the company Disclose:


recognize environmental, 1. The discount rate used;
asbestos or product 2. The expected payment for each of the five succeeding years and the aggregate amount
liabilities on a discounted thereafter;
basis? 3. A reconciliation of the expected aggregate undiscounted amount to amounts recognized in
the balance sheet;
4. An explanation of material changes since the prior balance sheet date in the expected
aggregate amount of the obligations/receivables (other than those resulting from a pay
down of the obligation or receivable).

Reference: SAB Topic 5Y

4. Does the company Disclose the company’s policy for the accrual of legal costs relating to loss contingencies.
have legal costs
associated with loss Reference: EITF Topic D-77
contingencies?
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

5. Is the company Provide FASB Statement No. 5, Accounting for Contingencies, and Statement of Position (SOP)
experiencing difficulty 94-6, Disclosure of Risks and Uncertainties, disclosures for unpaid property/casualty insurance
estimating IBNR liabilities claims, including incurred but not reported (IBNR) claim reserves, when specific uncertainties
for insurance due to (i.e., other than normal or recurring uncertainties) exist or judgmental adjustments are made to
insufficiently understood historical experience for insufficiently understood claims activity.
claims trends?
Reference: SAB Topic 5W
6. Has the company When a company has sold a highly leveraged entity for cash and (or) noncash consideration
deferred a gain on the and has deferred the gain due to the uncertainty of realization, the deferred gain should be
sale of an entity (or disclosed on the face of the balance sheet and deducted from the related asset account. The
operating assets) to notes should completely describe the transaction. Also, the notes should include a complete
another company due to description of the transaction, including the existence of any commitments and contingencies,
uncertainty of realization? the terms of the securities received, and the accounting treatment of amounts due thereon.

Reference: SAB Topic 5U

7. Does the Accrue for contingencies that are probable and reasonably estimable. If these criteria are not
company met, but a material loss is reasonably possible, then the company should disclose the nature of
have the contingency and an estimate of the possible loss or range of loss. If it is not possible to
contingent estimate an amount or range of loss, that fact should be disclosed. Disclosure is also required if
liabilities that there is a reasonable possibility of a charge in excess of the amount accrued. Based on these
are material requirements, the staff observed that the initial disclosure of a possibly material contingency
and either: often should precede the loss accrual. In the staff’s view, vague or overly broad disclosures that
(1) probable simply reference general risks or litigation are not sufficient for an inventor to understand the
and specific types of contingencies that the registrant is evaluating.
estimable, or
(2) Accrual for probable losses when the estimated amount of loss is within a range of amounts is
reasonably required by FASB Statement No. 5, Accounting for Contingencies, and FASB Interpretation
possible? (FIN) No. 14, Reasonable Estimation of the Amount of a Loss. Companies should accrue the
amount within the range that appears to be a better estimate than any other. If no such amount
can be identified, then the company should accrue the minimum amount in the range.

References: SEC Speech, Taub 2004; and Current Accounting and Disclosure Issues in the
Division of Corporation Finance 11/30/06, III1, Contingencies, Loss Reserves, and Uncertain
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Tax Positions – Accounting and Financial Statement Disclosure


Table of
Contents
Link
Z DISCONTINUED OPERATIONS
Regulation S-X, Rule 5-03-15, requires the disclosure of the operating results of a discontinued
operation and any gain or loss from disposal of the segment. In SAB Topic 5Z, the SEC
expressed its view regarding accounting and disclosure related to discontinued operations.

1.6 Did the company Material contingent liabilities—such as product or environmental liabilities or litigation—that may
dispose of a remain with the company notwithstanding disposal of the underlying business should be:
component of a • Identified in notes to the financial statements; and
business (that • Discussed in terms of the reasonably likely range of possible loss pursuant to FASB
qualifies as a Statement No. 5.
discontinued
operation) and retain Reference: SAB Topic 5Z5
material contingent
liabilities?
2.1 Does the company Disclose:
allocate interest to • The company’s policy regarding allocation of interest to discontinued operations; and
discontinued • The amount of interest allocated in determining profit or loss from discontinued operations.
operations?
Reference: EITF Issue 87-24

3. Does the company When the risks and other incidents of ownership continue and the divestiture is accounted for by
have a divestiture where segregating the assets and liabilities, a note to the financial statements should describe:
the risks of ownership • The nature of the legal arrangements;
continue that is • Relevant financing and other details; and
accounted for by • The accounting treatment.
segregating the assets
and liabilities? Reference: SAB Topic 5E

Table of
Contents
Link
AA ACCOUNTING CHANGES
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

The SEC imposes no financial statement disclosure requirements for changes in accounting,
except for preferability letter requirements, certain additional disclosures required in interim
statements, and disclosure of new standards not yet adopted (see Section BB). However, the
SEC staff will not permit changes justified solely by tax reasons or revisions in the tax laws. The
staff does occasionally challenge the preferability of adopted accounting changes. This does not
mean that the staff requires accounting changes to be precleared. The SEC staff encourages
prefiling consultations only when there are unusual circumstances.

1. Has the company Whenever an accounting change is adopted, Form 10-K and 10-Q filings require a letter from
made a change in the registrant's independent accountant as an exhibit. See Regulation S-K Item 601 Exhibit 18.
accounting principle This letter, generally referred to as a "preferability letter," must indicate whether the change in
or practice or method accounting principle or practice (or method of applying that principle or practice) is to an
of applying that acceptable alternative principle or practice that is, in the auditor's judgment, preferable under
principle or practice? the circumstances. In applying this requirement:

• No letter need be filed with a Form 10-Q if a letter covering the change had previously been
filed with a Form 10-K.
• No letter need be filed when the change is made to comply (including permissible "early"
compliance) with a new standard, interpretation or technical bulletin adopted by the FASB,
with an EITF consensus, with an AICPA statement of position cleared by the FASB, or with
an AICPA Industry Audit and Accounting Guide (both cleared and not cleared by the FASB).
• No letter need be filed when a change is made to comply with (a) a new SEC rule, SAB or
interpretation or (b) a request of the SEC staff, or (c) new FASB standard.
• No letter is required for changes adopted prior to the time a company became subject to the
1934 Act reporting requirements. Accordingly, first-time registrants may make accounting
changes without filing a preferability letter.
• Letters must be filed for all other accounting changes disclosed in the financial statement
even when: (a) the changes are immaterial, (b) no reference to the change is made in the
auditors' report, (c) they affect only interim statements and (d) they only will affect the
financial statements of future periods.

References: SAB Topic 6G2b; SEC Speech, Minke-Girard 2006

2. Does the company If the amount is material, disclose for all periods presented, in the footnotes or on the face of the
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

have a change in financial statements, the effect of the change on:


accounting principle • Net income, in total and per share; and
that requires • The balance of retained earnings.
retrospective
application in an Similar disclosure should be made if results of operations for any period presented have been
interim period? adjusted retrospectively by an item subsequent to the initial reporting of the period.

Reference: Regulation S-X, Rule 10-01(b)(7)

If the amount is immaterial, and there is no retrospective application of the change, then the
cumulative effect of the change should be included in the statement of income for the period in
which the change is made. The company should not adjust the beginning balance of retained
earnings of the period in which the change was made.

Reference: SAB Topic 5F

3. Has the company Disclose the effects of the change on previously reported interim periods. When these
had a change in disclosures are made, the SEC staff will not require that previous quarterly Form 10-Q reports
accounting principle be amended for retroactive effects of the change.
after the first quarter?
Reference: ADRP A.VIII.B – Disclosures in Interim Financial Statements, Other Disclosures

Table of
Contents
Link
BB NEW ACCOUNTING STANDARDS
General

A company preparing financial statements should make certain disclosures if an authoritative


standard setter has issued an accounting standard that, when implemented, will affect the
company’s financial statements. The purpose of the disclosure is to (1) notify the reader that a
new standard has been issued which the company will be required to adopt in the future, and
(2) assist the financial statement user in assessing the significance that the standard will have
on the financial statements of the company when adopted.

Companies should not only consider standards recently issued by the FASB, but also
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Statements of Position (SOPs) and Practice Bulletins issued by the AICPA and consensus
positions of the EITF. Guidance issued by the SEC staff should also be considered. Future
changes in accounting standards are not considered relevant for purposes of this question if the
standard has not yet been finalized (e.g., it is still in the exposure draft stage).

Materiality

In determining whether or not a change in accounting principle or estimate is


material, the entity should consider the effects of each change individually as well as all
changes in the aggregate. A change that has a material effect on the trend of earnings is
considered material. Also, a change that does not have a material effect in the period of change
but it is reasonably certain to have a material effect in later periods is considered material in the
year in which the change is made.

1. Has an authoritative Provide the following minimum disclosures:


body issued an 1. Existence of the authoritative standard;
accounting standard that 2. Date the entity must adopt the new standard or, if early adoption is permitted, the date that
is not effective until after it plans to adopt;
the date of the financial 3. Method of adoption;
statements? 4. Impact of the new standard on reported financial position and results of operations: if
quantified, indicate amount; if immaterial or not determined, so state. The amount of the
impact to be disclosed is the amount at the expected date of adoption based on the final
standard (i.e., not the exposure draft).
5. If alternative adoption methods and/or adoption dates are available and an entity has not
determined what alternative it will apply, the alternatives should be disclosed and the entity
should state that the method and/or timing of adoption has not been determined.
6. Preferably, when the accounting standard will be adopted on a prospective basis, similar
disclosure should be made. (Required for SEC registrants, optional for others.)

Disclose the impact that recently issued accounting standards will have on the financial
statements when adopted in a future period. The amount of the impact to be disclosed is the
amount at the expected date of adoption based on the final standard. If the impact is not known
or reasonably estimable, a statement to that effect may be made. Companies are not required
to calculate an estimate of the impact of adoption of the standard, only to disclose the expected
impact once management has made a reasonable determination. Although SAB 11M does not
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

require disclosure of the new standard if the impact on the company’s financial position and
results of operations is not expected to be material, a statement that the impact is immaterial is
desirable.

On September 13, 2006, the SEC staff issued Staff Accounting Bulletin (SAB) Topic 1N,
“Financial Statements — Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements” (SAB 108), SAB 108 addresses how a
registrant should evaluate whether an error in its financial statements is material. The SEC staff
concludes in SAB 108 that materiality should be evaluated using both the “rollover” and “iron
curtain” methods. Registrants are required to comply with the guidance in SAB 108 in financial
statements for fiscal years ending after November 15, 2006. Registrants that have evaluated
and quantified financial statement errors contrary to the views of the SEC staff and have not
adopted the provisions of SAB 108 should consider disclosure of same following the guidance in
SAB Topic 11M, “Miscellaneous Disclosure — Disclosure of the Impact That Recently Issued
Accounting Standards Will Have on the Financial Statements of the Registrant When Adopted in
a Future Period” (SAB 74).

References: SAB Topic 11M Topic 1N

Table of
Contents
Link

CC INTERIM DISCLOSURES

See ARM’s SEC Form 10-Q Checklist, Item 1 – Financial Statements


General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Table of
Contents
Link
DD FORM 10-K SCHEDULES
General

Most domestic registrants must file an annual report on Form 10-K. This requirement applies
to companies that have registered securities under Section 12(b) (companies whose securities are
listed on a securities exchange) or Section 12(g) (companies whose securities are traded over the
counter).

Form 10-K includes both qualitative and quantitative information about the registrant. Form
10-K contains qualitative information about a registrant’s business, properties, legal proceedings,
stock, and other matters. In addition, annual audited financial statements and management's
discussion and analysis of the financial condition, results of operations and cash flows of the registrant
are presented in the 10-K. The SEC's rules permit information already filed with the SEC (such as in
registration statements or current reports on Form 8-K) to be incorporated by reference into the Form
10-K.

Form 10-K references the requirements of both Regulation S-K and Regulation S-X. These
two regulations, in combination with the registration statement and periodic report forms, constitute
the SEC's disclosure system that integrates the disclosure requirements of the Securities Act of 1933
with those proscribed by the 1934 Securities Exchange Act (collectively referred to as the “integrated
disclosure system”). In general:

• Regulation S-K governs qualitative information about the registrant, such as the nature of
its business, its properties, legal proceedings, its executives and officers (including
executive compensation), and management's discussion and analysis (MD&A) of financial
condition, results of operations, and cash flows. For MD&A disclosure requirements, see
our MD&A Disclosures Checklist
• Regulation S-X governs the presentation of financial information about the registrant.
General financial statement disclosures (presentation and reporting periods) are covered
in Section A; specific financial disclosures are discussed in sections B – BB.
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Timing

Form 10-K due dates are based on the registrants’ filer status as either a type of accelerated
filer or a nonaccelerated filer. Specifically, Form 10-K due dates vary depending on whether the
registrant is either: (1) a Large Accelerated Filer; (2) Accelerated Filer; or (3) Nonaccelerated Filer.

An "accelerated filer" is a registrant that has:


• An aggregate market value of voting and nonvoting common equity held by nonaffiliates
of $75 million or more;
• Been subject to the Exchange Act reporting requirements for at least 12 calendar months;
• Filed at least one annual report; and
• No eligibility to use the SEC's smaller reporting company rules.

SEC rules further distinguish some accelerated filers as “large accelerated filers.” A large accelerated
filer is a registrant with all of the above accelerated filer requirements and has a public float of more
than $700 million;

Filing deadlines for each respective type of filer status is as follows:

10-K Annual Report Due Date -


Type of Filer Days After Year-End
Large Accelerated Filers 60
Accelerated Filers 75
Nonaccelerated Filers 90

Reporting on Internal Control over Financial Reporting

Effective for fiscal years ending on or after November 15, 2004, accelerated filer registrants are
required to report on internal control over financial reporting in the annual report (e.g., Form 10-K).
The report should include:
• A statement of management’s responsibility for establishing and maintaining adequate
internal control over financial reporting for the company;
• A statement identifying the framework used by management to evaluate the effectiveness of
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

this internal control;


• Management’s assessment of the effectiveness of this internal control as of the end of the
company’s most recent fiscal year; and
• A statement that its auditor has issued an attestation report on management’s assessment.

Management must disclose any material weakness and will be unable to conclude that the company’s
internal control over financial reporting is effective if there are one or more material weaknesses in
such control. All nonaccelerated issuers will be required to comply for their fiscal years ending on or
after July 15, 2007. [During 2006, the SEC deferred the compliance date for nonaccelerated filers.
See section 1.7 of our separate checklist, “SEC Incremental Requirements Mandated by Sarbanes-
Oxley,” for complete details.]

Effective for fiscal years ending on or after December 1, 2005, well-known seasoned issuers and
accelerated filers are required to disclose SEC staff comments that are material, unresolved, and over
180 days old at the date of filing the Form 10-K. Also effective for fiscal years ending on or after
December 1, 2005, issuers filing an annual report on Form 10-K are required to make an appropriate
risk factor disclosure. Risk factors are defined in Regulation S-K, Item 503(c) as a “discussion of the
most significant factors that make the offering speculative or risky.” The new rules explain that a risk
factor discussion under Item 503 may not be necessary or appropriate in all cases, depending on the
issuer. Updated risk factor disclosures are required in Form 10-Q after the disclosures have been
made in Form 10-K.

Certain required information may be filed by amendment to the Form 10-K after the filing deadline.
Specifically, proxy or information statement data and non-ERISA employee stock purchase plans may
be filed by amendment not later than 120 days after year-end. Also, Article 12 financial schedules may
be filed by amendment not later than 30 days after the due date of the report. The requirements for
the Article 12 financial schedules are discussed in this section.

On June 20, 2007, the SEC issued interpretive guidance and related rule amendments associated
with management’s report on internal control required by Section 404 of the Sarbanes-Oxley Act of
2002. The interpretive guidance provides a top-down, risk-based approach to evaluating internal
controls that, if followed, satisfies the requirements of Section 404. The final rules are generally
effective August 27, 2007. For further information on the final rules, see our checklist, SEC
Incremental Certifications, Disclosures, and Reporting Mandated by Sarbanes-Oxley Requirement
Checklist.
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

1. Is the company Commercial/Industrial Companies should file the following schedules (this requirement does not apply
filing a Form 10- to “Smaller Reporting Companies” as defined in Item 10(f)(1) of Regulation S-K):
K? 1. Except as expressly provided otherwise in the applicable form:
a. The Schedules III and IV shall be filed as of the date of the most recent audited balance
sheet.
b. Schedule II shall be filed for each period for which an audited income statement is required to
be filed.
c. Schedules I and V shall be filed as of the date and for periods specified in the schedule.
2. When information is required in schedules for both the registrant and the registrant and its
subsidiaries consolidated it may be presented in the form of a single schedule: PROVIDED, that
items pertaining to the registrant are separately shown and that such single schedule affords a
properly summarized presentation of the facts. If the information required by any schedule
(including the notes) may be clearly shown in the related financial statement or in a note, that
procedure may be followed.
3. The schedules should be audited.

Reference: Regulation S-X, Rule 5-04

1. SCHEDULE I - CONDENSED FINANCIAL INFORMATION


2. Do the The condensed financial information schedule should be filed when the consolidated subsidiaries’
restricted net restricted net assets (see Rule 4-08(e)(3)) exceed 25 percent of consolidated net assets as of the end
assets of of the most recently completed fiscal year. Consolidated subsidiaries’ restricted net assets represent
consolidated the registrant's proportionate share of net assets of consolidated subsidiaries (after intercompany
subsidiaries eliminations) that can’t be transferred to the parent company (e.g., by loan, advance or cash dividend)
exceed 25% of the without the consent of a third party (i.e., lender, regulatory agency, foreign government, etc.). Where
company's restrictions on the amount of funds that may be loaned or advanced differ from the amount restricted
consolidated net as to the transfer in the form of cash dividends, use the amount least restrictive to the subsidiary. For
assets? this test, deduct redeemable preferred stocks (Rule 5-02-28) and minority interest to compute net
assets.

If Schedule I is required, follow the format in Regulation S-X, Rule 12-04

References: Regulation S-X, Rule 12-04, Rule 4-08(e)(3), and Rule 5-04
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

2. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS


3. Does the The valuation and qualifying accounts schedule should be filed to support accounts in each balance
company have sheet. Examples of reserves to be reported on Schedule II include the allowance for doubtful
valuation and receivables and sales returns and restructuring reserves.
qualifying
accounts such as If Schedule II is required, follow the format in Regulation S-X, Rule 12-09.
an allowance for
doubtful References: Regulation S-X, Rule 12-09 and Rule 5-04
receivables?
3. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
4. Is a substantial Real estate used in the business should be excluded from this schedule. If Schedule III is required,
portion of the follow the format in Rule 12-28.
company's
business direct or References: Regulation S-X, Rule 12-28 and Rule 5-04
indirect
involvement in
acquiring and
holding real estate
for investment?
4. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
5. Does the Investments in real estate mortgage loans include: first mortgage, second mortgage, construction
company have loans, etc. If Schedule IV is required, follow the format in Rule 12-29.
mortgage loans on
real estate and References: Regulation S-X, Rule 12-29 and Rule 5-04
does the company
have substantial
indirect or indirect
involvement in
acquiring and
holding real estate
for investment?
5. SCHEDULE V - SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY
INSURANCE OPERATIONS
6. Does the This schedule should be filed when a registrant, its subsidiaries or 50%-or-less-owned equity basis
company have investees, have liabilities for property-casualty ("P/C") insurance claims. The schedule can be omitted
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

liabilities for if these reserves do not, in the aggregate, exceed one-half of common stockholders' equity of the
property-casualty registrant and its consolidated subsidiaries as of the beginning of the fiscal year. If Schedule V is
insurance claims? required, follow the format in Rule 12-18.

References: Regulation S-X, Rule 12-18 and Rule 5-04


General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Table of
Contents
Link
EE 1933 REGISTRATION STATEMENTS
Before a company can offer its securities for sale to the public or have its securities listed on a national
exchange, the securities must be registered with the SEC. Both the Securities Act of 1933 (1933 Act
or Securities Act) and the Securities Exchange Act of 1934 (1934 Act or Exchange Act) address the
registration of securities:

• The 1933 Act governs the registration of securities prior to their initial sale or distribution to
the public. Most offerings of securities will be on a form that falls under the 1933 Act. The
1933 Act also addresses specific situations in which securities offerings are exempt from
the Act's full disclosure requirements.
• The 1934 Act governs the registration of securities that are to be listed on a national
exchange. In addition, companies that meet certain size and shareholder requirements
are required to register their securities under the 1934 Act even though their securities are
not listed on any exchange.

The determination of whether securities are required to be registered and which registration form
should be used is a legal matter and should be addressed by qualified legal counsel.

The 1933 Act provides for the disclosure of information to prospective investors. The required
disclosures are made via a registration statement, which is a public document that is available to any
interested party. The registration statement is a lengthy document, often running several hundred
pages. There are several different registration statement forms under the 1933 Act. Generally, each
form can be used only for specific types of entities or transactions. Although each form has specific
instructions regarding its content and format, certain features are common to all forms.

One such common feature is the components of the registration statement. Each registration
statement consists of two principal parts. Part I is a prospectus (the legal offering or "selling"
document) that must be made available to everyone who buys the securities, and also to anyone who
is made an offer to purchase the securities. The prospectus itself consists of two parts. It contains all
the essential facts regarding the issuer's business operations, financial condition, and management
and the securities being offered. This information is provided in the "forepart" of the prospectus. The
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

prospectus also includes the prescribed financial statements. Thus, the prospectus provides two types
of information: information about the company and information about the offering. In certain
registration statements, the information about the company may be incorporated by reference from
1934 Act filings or delivered in a separate document. Part II of the registration statement contains
supplemental information (e.g., financial statement schedules, exhibits) that the SEC requires but that
does not need to be included in the prospectus. This information is publicly available either at the
SEC's offices or through the EDGAR database at www.sec.gov.

Another common feature is that all the forms refer to the requirements of Regulation S-K and
Regulation S-X. These two regulations, in combination with the registration statement and periodic
report forms, constitute the SEC's integrated disclosure system.
• Regulation S-K governs qualitative information about the registrant, such as the nature of
its business, its properties, legal proceedings, its executives and officers (including
executive compensation), and management's discussion and analysis of the results of
operations (MD&A) See the MD&A Questionnaire
• Regulation S-X governs the presentation of financial information about the registrant.
General financial statement disclosures (presentation and reporting periods) are covered
in Section A, specific financial disclosures are discussed in Section B-BB.

This section covers the age of financial statements in registration statement filings. Also,
certain earnings per share (EPS), benefit plan, and tax issues unique to initial public registrants are
discussed.

1. Is the company For companies not qualifying as “smaller reporting companies,” the following table summarizes:
filing a 1933 Act • When financial statements of a recently completed fiscal year must be furnished; and
Registration • The related requirements for including financial statements for SEC filings.
Statement?
The table covers the age of financial statements at the date of:
• Filing;
• Effective date of the registration statement; and
• The mailing date of a proxy statement.
For purposes of determining the age of financial statements, "days" refer to "calendar days."
Footnotes to the table explain how these requirements apply to large and regular accelerated filers.
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

When the filing date, effective Then the following financial statements
date, or proposed mailing date are required:
is:
Within 45 days after fiscal year- • Audited consolidated balance sheet for the two fiscal
end, and the latest fiscal year year-ends preceding the recently completed fiscal year
audited statements are not • Audited statements of income, cash flows, and
available shareholders' equity for each of the three fiscal years
preceding the recently completed fiscal year
• Unaudited interim balance sheet as of a date less than
1351 days prior to the filing or effective date. The unaudited
interim balance sheet filed by a repeat issuer (i.e., a company
that is already an Exchange Act registrant) must be as current
as the most current balance sheet filed on Form 10-Q.
• Comparative year-to-date unaudited statements of
income and cash flows for the interim period between the date
of the most recent audited balance sheet presented and the
date of the most recent interim balance sheet being filed
From 46 days to within 902 days • Audited consolidated balance sheet for the two fiscal
(i.e., up to and including the year-ends preceding the recently completed fiscal year
89th2 day) of latest fiscal year- • Audited statements of income, cash flows, and
end, audited financial shareholders' equity for each of the three fiscal years
statements for that year are not preceding the recently completed fiscal year
available, and the conditions of • Unaudited interim balance sheet at least as current as the
Rule 3-01(c) are met end of the third fiscal quarter of the registrant's most recently
completed fiscal year
• Comparative year-to-date unaudited statements of
income and cash flows for the interim period between the date
of the most recent audited balance sheet presented and the
date of the most recent interim balance sheet being filed
• If publicly released, the unaudited statement of income for
the most recently completed fiscal year
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

From 46 days to within 902 days • Audited consolidated balance sheet as of the two most
(i.e., up to and including the recently completed fiscal year-ends
89th2 day) of latest fiscal year- • Audited statements of income, cash flows, and
end, audited financial shareholders' equity for each of the most recent three fiscal
statements for that year are not years
available, and the conditions of
Rule 3-01(c) are NOT met
Within 902 days after fiscal • Audited consolidated balance sheet as of the two most
year-end, and audited financial recently completed fiscal year-ends
statements for latest fiscal year • Audited statements of income, cash flows, and
are available shareholders' equity for each of the most recent three fiscal
years
More than 903 days, but less • Audited consolidated balance sheet as of the two most
than 1351 days, of latest fiscal recently completed fiscal year-ends
year-end • Audited statements of income, cash flows and
shareholder's equity for each of the most recent three fiscal
years
1351 days or more subsequent • Audited consolidated balance sheet as of the two most
to latest fiscal year-end recently completed fiscal year-ends
• Audited statements of income, cash flows, and
shareholders' equity for each of the most recent three fiscal
years
• Unaudited interim balance sheet as of a date less than
1351 days prior to the filing or effective date. The unaudited
interim balance sheet filed by a repeat issuer (i.e., a company
that is already an Exchange Act registrant) must be as current
as the most current balance sheet filed on Form 10-Q.
• Comparative year-to-date unaudited statements of
income and cash flows for the interim period between the date
of the most recent audited balance sheet presented and the
date of the most recent interim balance sheet being filed
1
For accelerated filers. (Note: an accelerated filer is a domestic registrant that has a public float of between $75
million and $700 million; been subject to the Exchange Act reporting requirements for at least 12 calendar
months; filed at least one annual report; and has no eligibility to use the SEC's rules for smaller reporting
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

companies. A large accelerated filer is similarly defined, but has a public float of more than $700 million. Refer to
Rule 12b-2 for the definition of accelerated filer and large accelerated filer together with the guidance in
Compliance and Disclosure Interpretations-Exchange Act Rules Section 161):
• 130 days for large accelerated filers and accelerated filers;
• 135 days for all other registrants.
.
(Note: for this purpose, the term "all other registrants" includes domestic registrants that have a public float of less
than $75 million and registrants that are eligible to follow the smaller reporting company rules).
2
For accelerated filers:
• 60 days for large accelerated filers (up to and including the 59th day);
• 75 days for accelerated filers (up to and including the 74th day); and
• 90 days for all other registrants (up to and including the 89th day).
3
For accelerated filers:
• 60 days for large accelerated filers;
• 75 days for accelerated filers; and
• 90 days for all other registrants.

Also, in the following situations, the requirements are:


1. For filings of a registrant that has been in existence for less than one full fiscal year, an
audited consolidated balance sheet as of a date within 135 days of the date of filing and
related audited statements of income, cash flows and changes in shareholders’ equity.
2. For a first time registration, the audited financial statements may be no more than 1 year and
45 days old at the effective date.
3. For "publicly released" financial information, an update to the filing.
4. For public utilities, see Rule 3-03(b).

Smaller reporting companies, as defined, have slightly different requirements as described in Rule 8-
08 of S-X.

References: Regulation S-X, Rules 3-01, 3-02, 3-04, 3-12 and 8-08; SAB Topic 1C; Compliance and
Disclosure Interpretations-Exchange Act Rules Section 130
2. Is the company In an initial public offering, historical EPS should be presented for all periods.
filing an initial
public offering of Reference: SAB Topic 4D
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

its securities?
3. If the company Compute and disclose basic EPS; the warrants, options, and other potentially dilutive securities with
is filing an initial nominal exercise prices (nominal issuances) should be given retroactive treatment in the computation,
public offering of similar to a stock split or a recapitalization. Also, compute and disclose diluted EPS; nominal
its securities, did issuances and potential common stock should be given retroactive treatment similar to a stock split or
it issue potentially a recapitalization.
dilutive securities
with nominal Reference: SAB Topic 4D
exercise prices
(in the periods
covered by
income
statements that
are included in
the registration
statement or in
the subsequent
period prior to the
effective date of
the filing)?
4. Is the company Pro forma per share data must be disclosed when a convertible security is being registered; the
registering proceeds will be used to extinguish existing preferred stock or debt, and the extinguishment will have a
convertible material effect on EPS.
securities?
Reference: SAB Topic 3A

5. If the company The SEC generally prefers that subsidiary members of a consolidated tax group calculate their tax
is an initial public provisions on a separate return basis for book purposes. However, it is not uncommon for subsidiaries
registrant, is it a to use other allocation methods.
member of a
consolidated tax In order that investors understand what the effect on income would have been if the registration had
group? not been eligible to be included in a consolidated income tax return with its parent, the SEC requires
that a pro forma income statement be disclosed for the most recent year and interim period reflecting a
tax provision calculated on a separate return basis in situations where the historical statements of a
subsidiary do not reflect the tax provisions on a separate basis.
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Reference: SAB Topic 1B1

6. Did an When an investment banker has provided advisory services and financing, disclose the amount
investment accounted for as debt issuance costs, if material.
banker
provide Reference: SAB Topic 2A6
advisory
services or
financing?
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Table of
Contents
Link
FF INDUSTRY DISCLOSURES
1. Bank Holding Companies
1. Is the entity a Various disclosures are required; see Regulation S-X, Article 9 and Industry Guide 3.
bank holding
company? References: Regulation S-X, Article 9 and Guide 3

2. Is the company Provide the financial statements required in SAB Topic 1F.
forming a one-
bank holding Reference: SAB Topic 1F
company
3. Does the Provide tax equivalent revenue only as allowed by SAB Topic 11G.
company present
tax equivalent Reference: SAB Topic 11G
revenue
information?
4. Does the Provide the disclosures required by SAB Topic 11H.
company have
foreign loans? Reference: SAB Topic 11H
5. Does the Provide the disclosures required by SAB Topic 11I
company have an
Allocated Transfer Reference: SAB Topic 11I
Risk Reserve?
6. Does the The SEC staff believes that Article 9 and Guide 3 apply literally only to bank holding companies,
company have a but provide useful guidance to other registrants, including savings and loan holding companies.
material amount of
lending and Reference: SAB Topic 11K
deposit activities
although it is not a
bank holding
company?
7. Did the Provide the disclosures required by SAB Topic 11N.
company receive
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

assistance from a Reference: SAB Topic 11N


Federal regulatory
agency in
conjunction with
either an
acquisition of a
troubled financial
institution or a
similar acquisition?

8. Has the Disclose the impact of regulatory assisted acquisitions by a display of the assets covered by the
company made assistance as one line item on the balance sheet, with the effects of assistance segregated in the
regulatory-assisted income statement. The notes should present, among other things, a breakdown of the major
acquisitions? covered assets and related income, estimated fair value of assets and the estimated amount of the
regulatory receivable at each reporting date.

Reference: EITF 88-19

9. Does the Describe clearly and comprehensively the accounting policy for determining the amount of the
company have allowance, including a description of the systematic analysis and procedural discipline applied.
an allowance Loan losses should be based on past events and current economic conditions.
for loan
losses? References: Current Accounting and Disclosure Issues in the Division of Corporation Finance
11/30/06, IIP1, Allowance for Loan Losses – Disclosure; and SAB 102
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Table of
Contents
Link
1. Regulated Industries
1. Is the FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation, applies to general
company subject purpose external financial statements of an enterprise that has regulated operations that meet all of the
to the accounting following criteria:
required by a. The enterprise’s rates for regulated services or products provided to its customers are established by
FASB Statement or are subject to approval by an independent, third party regulator or by its own governing board
71? empowered by statute or contract to establish rates that bind customers.
b. The regulated rates are designed to recover the specific enterprise’s costs of providing the regulated
services or products.
c. In view of the demand for regulated services or products and the level of competition, direct and
indirect, it is reasonable to assume that rates set at levels that will recover the enterprise’s costs can be
charged to and collected from customers. This criterion requires consideration of anticipated changes in
levels of demand or competition during the recovery period for any capitalized costs.

If some of an enterprise’s operations are regulated and meet these criteria, this Statement shall be
applied to only that portion of the enterprise’s operations.

The SEC staff has been requiring rate regulated enterprises to expand footnote disclosures -- summary
of significant accounting policies -- to summarize in one location all the effects of regulation and
application of Statement 71 on the company’s financial statements.

Reference: FASB Statement No. 71

2. Is the Tangible and intangible utility plant of a public utility company should be segregated so as to show
enterprise a separately the original cost, plant acquisition adjustments, and plant adjustments, as required by the
utility company? system of accounts prescribed by the applicable regulatory authorities. This rule should not be
applicable to companies that are not required to make such a classification.

Reference: Regulation S-X, Rule 5-02-13(b)

3. Does the utility A participating utility should include:


have an interest
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

in a jointly owned • Information concerning the extent of its interests in jointly owned plants in a note to its financial
utility plant? statements. The note should include a table showing separately for each interest in a jointly owned
plant the amount of utility plant in service, the accumulated provision for depreciation (if available),
the amount of plant under construction, and the proportionate share. The amounts presented for
plant in service or plant under construction may be further subdivided to show amounts applicable
to plant subcategories such as production, transmission and distribution. The note should include
statements that the dollar amounts represent the participating utility's share in each joint plant and
that each participant must provide its own financing. Information concerning two or more generating
plants on the same site may be combined if appropriate.
• The note should state that the participating utility's share of direct expenses of the joint plants is
included in the corresponding operating expenses on its income statement (e.g., fuel, maintenance
of plant, other operating expense.) If the share of direct expenses is charged to purchased power
then the note should disclose the amount so charged and the proportionate amounts charged to
specific operating expenses on the records maintained for the joint plants.

Reference: See SAB Topic 10C

4. Has the The balance sheet of an electric utility company using a construction intermediary to finance
company used a construction should include the intermediary's work in progress in the appropriate caption under utility
construction plant. The related debt should be included in long-term liabilities and disclosed either on the balance
intermediary to sheet or in a note.
finance plant
construction? A note to the financial statements should describe briefly the organization and purpose of the
intermediary and the nature of its authorization to incur debt to finance construction. The note should
disclose the rate at which interest on this debt has been capitalized and the dollar amount for each
period for which an income statement is presented.

Reference: SAB Topic 10A

5. Has the FASB Statement No. 90, Regulated Enterprises — Accounting for Abandonments and Disallowances
company of Plant Costs, prescribes the accounting for abandonment of plants and disallowances of costs of
recognized write- recently completely plants. Write-off costs due to plant abandonments, disposals or other disallowed
offs under costs related to existing facilities, in most cases, do not qualify as extraordinary items for financial
Statement 90 reporting purposes.
due to plant
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

abandonments, Reference: SAB Topic 10E


disposals or
other disallowed
cost related to
existing facilities?
6. Does the The cost of power obtained under long-term purchases contracts, including payments required to be
company have made when a production plant is not operating, should be included in the operating expenses section of
one or more the income statement. A note to the financial statements should present information concerning the
long-term terms and significance of such contracts to the utility company including date of contract expiration,
contracts for the share of plant output being purchased, estimated annual cost, annual minimum debt service payment
purchase of required and amount of related long-term debt or lease obligations outstanding.
power?
Additional disclosure should be given if the contract provides, or is expected to provide, in excess of 5%
of current or estimated future system capability. This additional disclosure may be in the form of
separate financial statements of the vendor entity or inclusion of the amount of the obligation under the
contract as a liability on the balance sheet with a corresponding amount as an asset representing the
right to purchase power under the contract.

The note to the financial statements should disclose the allocable portion of interest included in charges
under such contracts. Accounting Series Release No. 122 discusses the computation of the ratio of
earnings to fixed charges for an enterprise that has guaranteed the debt of a supplier company or has
entered into contracts with a supplier providing for payments designed to service debt of a supplier. The
release states in part that in such instances the ratio "...for the registrant must be accompanied by
effective disclosure of the significance of fixed charges of other companies included in the enterprise
whether or not the revenues and expenses of such companies are set forth in the financial statements
of the registrant. Such disclosure usually should be accomplished by presenting the ratio of earnings to
fixed charges for the total enterprise in equivalent prominence with the ratio for the registrant or
registrant and consolidated subsidiaries."

Reference: SAB Topic 10D

7. Does the Utility companies cannot net probable future revenue resulting from the inclusion of environmental
company have liability costs in allowable costs for ratemaking purposes against the estimated liability.
probable future
revenue from the Reference: SAB Topic 10F
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

inclusion of
environmental
liability costs?
8. Is the In the consolidated balance sheet of a public utility holding company the difference between the amount
company a public at which the parent's investment is carried and the underlying book equity of subsidiaries as at the
utility holding respective dates of acquisition should be shown.
company?
Reference: Regulation S-X, Rule 3A-05
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Table of
Contents
Link
2. Oil and Gas Companies
[Editor’s note: On December 29, 2008, the SEC announced that it had approved revisions to
“modernize its oil and gas company reporting requirements.” Users of this checklist should consult
those final rules when they are made available by the SEC as the questions below have not been
updated for this announcement.]
1. Does the Disclose the method of accounting for gas imbalances as well as the amount of any imbalance in
company terms of units and value.
participate in a
“gas balancing” Reference: EITF 90-22
arrangement with
a joint owner of a
well?
2. Does the entity Refer to SAB Topic 12G for disclosure requirements
include methane
gas in proved
reserves?
3. Does the Refer to Regulation S-X, Rule 4-10 (Rule 8-01 Note 2c for Smaller Reporting Companies) for financial
company perform accounting and reporting standards for companies engaged in oil and gas producing activities
oil and gas
producing
activities?
4. Is the oil and Supplementary oil and gas information is not required in interim financial reports, except for
gas company information about a major discovery or other favorable or adverse event that causes a significant
performing interim change from the information presented in the most recent annual financial report concerning oil and
reporting? gas reserve quantities.

Reference: Regulation S-X, Rule 4-10, Rule 8-01 Note 2c

5. Are any of the If some or all of property acquisition, exploration and development costs are incurred in foreign
company’s countries, the amounts should be disclosed separately for each geographic area for which reserve
reserves, property quantities are disclosed.
acquisition costs,
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

exploration costs, If some or all of the enterprise's reserves are located in foreign countries, the disclosures of net
or development quantities of reserves and changes should be separately reported for:
costs located in • Enterprise's home country, if significant.
foreign countries? • Each foreign geographic area (country or group of countries) in which significant reserves are
located.

Reference: FASB Statement 69, paragraph 22

6. Does the The SEC staff believes that a company should include:
company • Asset retirement costs in its Costs Incurred disclosures in the year that the liability is incurred,
have rather than on a cash basis. That is, the Costs Incurred disclosures in a given period should
asset include asset retirement costs capitalized during the year and any gains or losses recognized
retirement upon settlement of asset retirement obligations during the period.
obligation • Accretion of the liability for an asset retirement obligation in the Results of Operations either
liabilities? as a separate line item, if material, or in the same line item as it is presented on the statement
of operations.
• Future cash flows related to the settlement of an asset retirement obligation in its
Standardized Measure disclosure.

Reference: SEC Sample Letter, February 2004

7. Does the The SEC staff believes that a company can book proved undeveloped reserves in the deepwater Gulf
company of Mexico if the all of the following tests and associated technical information are used:
have • Open hole logs;
operations • Core samples;
in the • Wire line conveyed sampling; and
deepwater • Seismic surveys.
Gulf of
Mexico? Reference: SEC Sample Letter, April 2004

8. Does the In financial reports covering periods ending on or after December 15, 2004, companies should:
company • Identify separately on the face of the statements of operations, the proceeds and costs associated
engage in with buy/sell and comparable arrangements that are reported on a gross basis for all periods
activity presented -
related to
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

buy/sell • This can be accomplished by either presenting the amounts as separate line items, or
arrangem within parenthetical notations next to the captions that include these amounts.
ents for oil • Disclose the amounts in a footnote if the amounts are not material enough for disclosure
and gas on the face of the statements of operations.
commoditi • Disclose in the accounting policy notes the characteristics of material arrangements of this type,
es? the circumstances under which they are used, and the accounting literature relied upon in
determining whether gross or net reporting should apply.

References: SEC Sample Letter, February 11, 2005; Current Accounting and Disclosure Issues in the
Division of Corporation Finance 11/30/06, IID, Oil and Gas

9. Does the • The SEC staff commented that it has observed instances where the accounting for exploratory
company drilling costs has not corresponded to the explicit requirements in FASB Statement No. 19,
have Financial Accounting and Reporting by Oil and Gas Producing Companies, paragraphs 31-34. The
capitalized concern expressed by the SEC staff is documented in a letter dated February 11, 2005; however,
explorator that letter was issued before the issuance of FASB Staff Position (FSP) FAS 19-1, “Accounting for
y drilling Suspended Well Costs.” Registrants should consider the guidance in the February 11, 2005 letter
costs? but recognize that it was authored shortly after the Exposure Draft of the FSP was issued and has
not been updated for the final FSP.

References: SEC Sample Letter, February 11, 2005; FSP FAS 19-1; Current Accounting and
Disclosure Issues in the Division of Corporation Finance 11/30/06, IID, Oil and Gas

10. Does the The SEC staff’s view is that companies should disclose the following in the financial statements:
company • The accounting policy regarding capitalization of exploratory drilling costs, including the criteria
report management applies in evaluating whether costs incurred meet the criteria for initial and continued
capitalized capitalization and the frequency with which such evaluations are made;
drilling • Total capitalized exploratory drilling costs, as of each balance sheet date, pending the
costs on determination of proved reserves;
its balance • As of the most recent balance sheet date, the number of wells and amount of such capitalized
sheet? costs that are associated with:
o Wells in areas requiring a major capital expenditure before production could begin, where
additional drilling efforts are not underway or firmly planned for the near future, and
o Wells in areas not requiring a major capital expenditure before production could begin,
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

where more than one year has elapsed since the completion of drilling;
• Further subdivisions in amounts based on any additional criteria (such as, particular projects or
phases in the exploration programs) that would be meaningful in conveying information about the
uncertainty and risk profile of these cost pools;
• For exploratory drilling costs that continue to be capitalized as such after the completion of drilling,
an explanation of the delay in characterizing reserves as proved reserves, including the activities
undertaken to evaluate the reserves and the wells, additional information needed before the
associated reserves may be classified as proved, and the estimated timing of when the evaluation
of the reserves will be completed;
• An estimate of the effects on the financial statements as of the beginning of the earliest year and
for each year of operations presented that would have resulted from the application of FASB Staff
Position FAS 19-1, “Accounting for Suspended Well Costs.”;
• A tabular disaggregation of exploratory drilling costs deferred by year, or using several ranges of
years, sufficient to convey the length of time that has elapsed since the incurrence of costs for
completed individual wells that do not require a major capital expenditure before production could
begin, along with an indication of the number of wells to which those costs relate; and
• For each period in which a statement of operations is presented, the net changes from period to
period in capitalized exploratory drilling costs, including separate disclosure of:
o Additions to capitalized exploratory drilling costs that are pending the determination of
proved reserves;
o Capitalized exploratory drilling costs that were reclassified to wells, equipment and facilities
based on the determination of proved reserves; and
o Capitalized exploratory drilling costs that were charged to expense.

References: SEC Sample Letter, February 11, 2005; Current Accounting and Disclosure Issues in the
Division of Corporation Finance 11/30/06, IID, Oil and Gas

11. Is the entity Entities that are involved in an oil and gas exchange offering must meet the accounting and disclosure
involved in requirements in SAB Topic 2D.
an oil and
gas Reference: SAB Topic 2D
exchange
offering?
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

12. Does the Oil and gas producing companies following the full cost method of accounting should disclose certain information
company follow the as follows:
full cost method of • For each cost center for each year that an income statement is required, disclose the total amount of
accounting under amortization expense (per equivalent physical unit of production if amortization is computed on the basis of
Rule 4-10(c) of physical units or per dollar of gross revenue from production if amortization is computed on the basis of
Regulation S-X? gross revenue).
• State separately on the face of the balance sheet the aggregate of the capitalized costs of unproved
properties and major development projects that are excluded, in accordance with paragraph (i)(3) of this rule,
from the capitalized costs being amortized. Provide a description in the notes to the financial statements of
the current status of the significant properties or projects involved, including the anticipated timing of the
inclusion of the costs in the amortization computation. Present a table that shows, by category of cost:
(A) the total costs excluded as of the most recent fiscal year; and

(B) the amounts of such excluded costs incurred:


(1) in each of the three most recent fiscal years, and

(2) in the aggregate for any earlier fiscal years in which the costs were incurred.
Categories of cost to be disclosed include acquisition costs, exploration costs,
development costs in the case of significant development projects and capitalized
interest.

[Editor’s note: The disclosure requirement in Regulation S-X, Rule 4-10(c)7 refers to a paragraph k. The SEC
deleted that paragraph in Financial Reporting Release 40-A; however, it has not formally removed that guidance
from Regulation S-X.]

References: Regulation S-X, Rule 4-10(c)(7)


General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Table of
Contents
Link
3. Registered Management Investment Companies
1. Is the company For registered management investment companies and companies required to be registered as
a registered management investment companies see Regulation S-X, Article 3, (Rule 3-18) and Article 6 for the
management form and presentation of financial statements required to be filed.
investment
company? References: Regulation S-X, Rule 3-18 and Article 6

4. Employee Stock Purchase, Savings, and Similar Plans


1. Is the entity an See Regulation S-X, Article 6A for the form and presentation of financial statements required to be
employee stock filed.
purchase, savings,
or similar plan? Reference: Regulation S-X, Article 6A
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Table of
Contents
Link
5. Real Estate Entities
1. Are the company’s The disclosure requirements of SAB Topic 7 should be met. Also, schedules required
investments in real estate or by Regulation S-X, Rule 12-28 and 12-29 should be included in the annual report to
mortgage loans on real estate shareholders.
significant?
References: SAB Topic 7, Regulation S-X, Rules 12-28 and 12-29

2. Is the company classified as a For disclosure requirements for real estate investment trusts, see Regulation S-X,
real estate investment trust? Rule 3-15
3. Does the company have retail For disclosure requirements for real estate operations to be acquired, see Regulation
land purchases or sales? S-X, Rules 3-14 and 8-06 (for smaller reporting companies)

4. Is the company filing a For registration statements, where proceeds will be used to make significant mortgage
registration statement and using loans on operating or commercial property, follow the disclosure requirements of SAB
the proceeds to make mortgage Topic 1I.
loans on operating and
commercial real estate? References: SAB Topic 1I
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Table of
Contents
Link
6. Casinos/Hotels
1. Is the company Expenses attributable to each of the separate revenue producing activities of casino, hotel and
a casino/hotel? restaurant operations should be separately presented on the face of the income statement.

See SAB Topic 11L for further guidance.


General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Table of
Contents
Link
7. Food Retailers/Department Store Chains
1. Is the company a Sales of leased or licensed departments are either presented as a separate line item within the
food retailer or income statement or disclosed in a note to the income statement.
department store
chain? Reference: SAB Topic 8A

2. Is the Disclose the amount of gross revenue from finance charges in a footnote and identify the income
company a statement line item that includes such revenue.
retail company
that imposes Reference: SAB Topic 8B
finance
charges on
credit sales?
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

Table of
Contents
Link
8. Insurance Companies
1. Is this company Insurance Company Disclosures:
an insurance 1. See Article 7 of Regulation S-X.
entity? 2. The amounts of statutory net income and stockholders' equity and significant statutory
restrictions on dividends must be disclosed for insurance companies.
3. For permitted statutory accounting practices (including GAAP practices) that individually or in the
aggregate materially affect statutory surplus or risk-based capital, the following disclosures
should be made for the most recent fiscal year presented when the permitted practices differ
from the prescribed statutory accounting practices:
a. A description of the permitted statutory accounting practice.
b. A statement that the permitted statutory accounting practice differs from prescribed statutory
accounting practices.
c. The monetary effect on statutory surplus.
4. For permitted statutory accounting practices (excluding GAAP practices) when prescribed
statutory accounting practices do not address the accounting for the transaction:
a. A description of the transaction and of the permitted statutory accounting practice used.
b. A statement that prescribed statutory accounting practices does not address the accounting
for the transaction.
5. For each fiscal year for which an income statement is presented, the following information about
the liability for unpaid claims and claim adjustment expenses:
a. The balance in the liability for unpaid claims and claim adjustment expenses at the beginning
and end of each fiscal year presented, and the related amount of reinsurance recoverable.
b. Incurred claims and claim adjustment expenses with separate disclosure of the provision for
insured events of the current fiscal year and of increases or decreases in the provision for
insured events of prior fiscal years.
c. Payments of claims and claim adjustment expenses with separate disclosure of payments of
claims and claim adjustment expenses attributable to insured events of the current fiscal year
and to insured events of prior fiscal years.
d. Reasons for the change in the provision for incurred claims and claim adjustment expenses
attributable to insured events of prior fiscal years and whether additional premiums or return
premiums have been accrued as a result of the prior-year effects.
General Disclosures Disclosure Reference
Requirement
s
Question Y N Disclosure Requirements Met?

For all YES answers, respond to the disclosure requirements and provide a reference.

References: Regulation S-X Article 7and SAB Topic 5W

2. Is the company Provide FAS 5 disclosures for property/casualty insurance claims and IBNR claim reserves, when
an insurance specific uncertainties (i.e., other-than-normal or recurring uncertainties) exist or judgmental
company with adjustments are made to historical experience for insufficiently understood claims activity.
other than normal
recurring Reference: SAB Topic 5W
uncertainties?

3. Does the For property/liability insurance companies:


company provide • Adopting or changing policy with respect to discounting certain unpaid claims liabilities related to
property and/or short-duration insurance contracts, see SAB Topic 5N
liability insurance? • Underwriting and claims reserving experience of property-casualty underwriters, see Financial
Reporting Release 20.
• Participation in high-yield financing, highly leveraged transactions, or non-investment grade loans
and investments, see Financial Reporting Release 36.

References: SAB Topic 5N, FRR 20,and FRR 36

4. Has the Disclose:


company acquired • A description of the registrant’s accounting policy;
a life insurance • An analysis of the present value of profits (PVP) asset account for each year for which an income
company statement is presented;
accounted for as a • The estimated amount or percentage of the end of the year PVP balance to be amortized during
purchase, and did each of the next five years.
the company
recognize an asset Reference: EITF 92-9
for the present
value of future
profits of the
existing contracts?