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Disclosure impact
Because the final ASU codifies existing SEC disclosure requirements, public entities that file financial statements with the SEC are unlikely to be significantly affected. Other entities including private entities and public business entities that do not follow Regulation S-X might need to provide new disclosures such as these:
- Assets subject to liens. Disclose assets mortgaged, pledged, or otherwise subject to lien, as well as the obligations collateralized.
- Change in reporting entity. Disclose in interim periods any material retroactive prior-period adjustment related to a change in accounting principles or reporting entity and the impact on retained earnings.
- Earnings per share (EPS). Disclose the EPS calculation method for each dilutive security and provide certain EPS disclosures in interim financial statements.
- Debt. Disclose amounts and terms of unused long-term financing commitments and unused short-term lines of credit. For public business entities only, disclose the weighted-average interest rate on outstanding short-term borrowings.
- Derivatives and hedging. Disclose accounting policy related to where derivative instruments and related gains and losses are reported on statement of cash flows on an annual basis.
- Real estate investment trusts (REIT). Disclose tax status of distributions per unit for REITs on an annual basis.
- Repurchase agreements. Disclose interest rates and accrued interest payable associated with repurchase liabilities, among other various requirements.
- Reverse repurchase agreements. Disclose any provisions in a reverse repurchase agreement to ensure that market value of the underlying assets remains sufficient to protect against counterparty default, among other various requirements.
The final ASU also adds a requirement on the disclosure of preferred stock liquidation preferences in other than par, makes clear that certain oil and gas disclosures should be provided for each annual reporting period presented in the financial statements, requires investment companies to disclose the components of capital on the face of the balance sheet, and makes certain codification conforming amendments.
Transition and effective date
For each amendment, the effective date for entities subject to SEC disclosure requirements will be the same as the SEC’s effective date to remove the related disclosure from Regulation S-X and Regulation S-K. Each amendment will be effective for all other entities two years later. Entities must adopt all amendments prospectively, and early adoption is prohibited.
Additionally, the FASB affirmed that if the SEC has not acted to remove a requirement from Regulation S-X or Regulation S-K by June 30, 2027, any unaddressed final amendments will be removed from the ASC as pending content and will not take effect.
While it is unlikely that SEC registrants will experience significant impacts to their existing disclosures, private, not-for-profit, and public business entities that do not currently apply SEC-required disclosures should carefully review the final ASU to determine how they will be affected, monitor for SEC action, and plan accordingly for adoption.
