Question

What guidance does the SEC provide concerning the impact that recently issued accounting standards will have on the financial statements in a future period?

Answer 1

As per the SEC, where an accounting standard has been issued which does not required adoption untill a future period, a company is still required to include the disclosure of its impact on the financial statements after the standard has been issued but before its adoption.

SEC asks companies to discuss the potential effects of adoption of recently issued accounting standards in registration statements and reports filed with the Commission. This guidance is applicable for all the accounting standards which have already been issued but not yet adopted. There is only one exception to this guidance which is that no disclosure will be required if the impact of adoption of such new accounting standard is immaterial. The level of information to be disclosed is a matter of professional judgement and will vary according to the standard's materiality on the company.

GAAS also specifically requires the auditor to consider the adequacy of such disclosures of impending accounting standards if both of the following conditions are satisfied :

a) Financial statements have been prepared on basis of accounting principles which are acceptable now but won't be acceptable in the future.

b) Financial statements will have to be retrospectively adjusted in the future due to such change in the accounting principles and policies.