What are the accounting issues most often being encountered by public companies filing annual reports with the SEC? The following trends were noted at the February 11th meeting of the National Association of Corporate Directors/New England:
- Request for detail as to effective tax rate as compared to the United States corporate rate of 35%, explaining variances above or below that rate.
- Discussion of the judgments applied to adjustment to valuations of balance sheet assets.
- Explanation of why a registrant believes that earnings held offshore are not subject to a balance sheet entry showing a deferred tax liability (why is the company saying that it does not intend to bring money held offshore into the United States?).
- More detailed segment reporting for different businesses.
- Discussion of assumed rate of return in funding retirement plans, measured against historical performance.
- Discussion of the judgment reached in not marking down goodwill (which must be reviewed annually for comparison of carrying value to fair value).
- Clearer labeling of non-GAAP financial reporting.
- Greater clarity in the accounting treatment of investments in China, Russia, India and other places where foreign direct ownership is limited and where companies enter into joint venture agreements.
- Increased focus on the robustness of internal financial controls, driven by PCAOB focus.
A few years ago there was an effort to seek “convergence” of United States accounting principles (GAAP) with international accounting (IFRS). Full convergence lacks steam; the different accounting systems have reached agreement on specific areas of reporting but full convergence is now viewed to be “a long way off.”