Accounting Research Manager ® SEC Disclosures Checklist www.accountingresearchmanager.com How to Use the SEC Disclosures Checklist Checklist as of September 30, 2006 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 for the non-small business, domestic registrant. -1– © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Accounting Research Manager ® SEC Disclosures Checklist www.accountingresearchmanager.com TABLE OF CONTENTS A 1. 2. 3. 4. B C D E F G H I J K L M 1. 2. 3. 4. 5. 6. 7. 8. N O P Q GENERAL DISCLOSURES .................................................................................................................................................................................. 4 Introduction ....................................................................................................................................................................................................... 4 Financial Statements and Reporting Periods ................................................................................................................................................... 4 Change in Reporting Periods............................................................................................................................................................................ 4 Financial Reporting Presentation...................................................................................................................................................................... 5 CASH................................................................................................................................................................................................................... 14 ACCOUNTS AND NOTES RECEIVABLE .......................................................................................................................................................... 14 FINANCIAL INSTRUMENTS............................................................................................................................................................................... 16 INVENTORY........................................................................................................................................................................................................ 20 OTHER INVESTMENTS ..................................................................................................................................................................................... 22 FIXED ASSETS, REPAIRS AND MAINTENANCE, AND DEPRECIATION ....................................................................................................... 26 INTANGIBLE ASSETS AND AMORTIZATION................................................................................................................................................... 28 ACCOUNTS AND NOTES PAYABLE................................................................................................................................................................. 28 DEBT AND GUARANTORS OF DEBT ............................................................................................................................................................... 30 LEASES............................................................................................................................................................................................................... 32 INCOME TAXES ................................................................................................................................................................................................. 33 COMMON STOCK, PREFERRED STOCK, AND MINORITY INTERESTS....................................................................................................... 35 COMMON STOCK AND NONREDEEMABLE PREFERRED STOCK........................................................................................................... 35 MINORITY INTERESTS ................................................................................................................................................................................. 36 MANDATORILY REDEEMABLE PREFERRED STOCK................................................................................................................................ 37 SUBORDINATED DEBT ................................................................................................................................................................................. 39 TERMINATED S CORPORATIONS ............................................................................................................................................................... 39 LIMITED PARTNERSHIPS ............................................................................................................................................................................. 39 DIVIDENDS..................................................................................................................................................................................................... 39 STOCK SUBSCRIPTIONS ............................................................................................................................................................................. 41 REVENUE RECOGNITION................................................................................................................................................................................. 42 STOCK-BASED COMPENSATION .................................................................................................................................................................... 44 PENSION PLANS, OTHER POSTRETIRMENT PLANS, AND ESOPS............................................................................................................. 46 BANKRUPTCY .................................................................................................................................................................................................... 47 -2– © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Accounting Research Manager ® SEC Disclosures Checklist www.accountingresearchmanager.com R S T U V W X Y Z AA BB CC DD 1. 2. 3. 4. 5. EE FF 1. 2. 3. 4. 5. 6. 7. 8. 9. BUSINESS COMBINATIONS ............................................................................................................................................................................. 47 QUASI-REORGANIZATIONS ............................................................................................................................................................................. 52 SUBSIDIARY’S OR DIVISION’S SEPARATE FINANCIAL STATEMENTS AND SEGMENTS ......................................................................... 53 RELATED PARTY TRANSACTIONS.................................................................................................................................................................. 56 RESTRUCTURING AND IMPAIRMENT CHARGES .......................................................................................................................................... 57 QUARTERLY FINANCIAL DATA ........................................................................................................................................................................ 60 CONSOLIDATION............................................................................................................................................................................................... 60 COMMITMENTS AND CONTINGENCIES ......................................................................................................................................................... 63 DISCONTINUED OPERATIONS ........................................................................................................................................................................ 66 ACCOUNTING CHANGE................................................................................................................................................................................ 67 NEW ACCOUNTING STANDARDS ............................................................................................................................................................... 69 INTERIM DISCLOSURES............................................................................................................................................................................... 71 FORM 10-K SCHEDULES .............................................................................................................................................................................. 72 SCHEDULE I - CONDENSED FINANCIAL INFORMATION .......................................................................................................................... 75 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ..................................................................................................................... 76 SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION ................................................................................................... 76 SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE........................................................................................................................... 76 SCHEDULE V - SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS..................... 77 1933 REGISTRATION STATEMENTS........................................................................................................................................................... 78 INDUSTRY DISCLOSURES........................................................................................................................................................................... 85 Bank Holding Companies................................................................................................................................................................................ 85 Regulated Industries ....................................................................................................................................................................................... 87 Oil and Gas Companies .................................................................................................................................................................................. 91 Registered Management Investment Companies........................................................................................................................................... 95 Employee Stock Purchase, Savings and Similar Plans.................................................................................................................................. 95 Real Estate Entities......................................................................................................................................................................................... 96 Casinos/Hotels ................................................................................................................................................................................................ 97 Food Retailers/Dept. Store Chains ................................................................................................................................................................. 98 Insurance Companies ..................................................................................................................................................................................... 99 -3– © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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-2, S-3 and S4; 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 305 (business acquired), 3-09 (equity investee), or in connection with an IPO, you will find this questionnaire helpful. 1. Will the company's financial statements be included in or incorporated by reference into a Securities and Exchange Commission 1933 or 1934 Act filing? 1. Has the company changed its fiscal year? 2. Financial Statements and Reporting Periods In SEC 1934 Act filings and 1933 Act filings, include audited consolidated balance sheets for the two most recent fiscal years and audited statements of income, cash flows, comprehensive income, and changes in shareholders' equity accounts for each of the latest three years, for the registrant and its predecessors. (See the definition of predecessor at Regulation C, Rule 405.) References: Regulation S-X, Rules 3-01, 3-02, and 3-04 3. Change in Reporting Periods When an entity changes its reporting periods, the following should be presented: 1. If the income statement presents a full year, disclosure of summarized financial 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; 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– © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. 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; Regulation S-X, Rule 3-06 Table of Contents Link 1. Is the company a nonbank entity? For Banking Entities, go to the questions for Bank Holding Companies 4. Financial Reporting Presentation 4.1 Balance Sheet The following balance sheet line items should appear on the face or the balance sheet or in related notes unless: • The amount which would otherwise be required to be shown is not material. (Refer to Staff Accounting Bulletin (SAB) Topic 1, “Financial Statements,” (SAB 99) (Topics 1M1 and 1M2) for an understanding of the meaning of material; • The items and conditions are not present; • Specialized industry practices require otherwise (see INDUSTRY DISCLOSURES); or • Other generally accepted terminology is appropriate. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Cash and cash items Marketable securities Accounts and notes receivable Allowances for doubtful accounts and notes receivable Unearned income Inventories Prepaid expenses Other current assets Total current assets Securities of related parties Indebtedness of related parties - not current Other investments Property, plant and equipment Accumulated depreciation, depletion, and amortization of property, plant and equipment Intangible assets Accumulated depreciation and amortization of intangible assets -5– © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. Other assets Total assets Accounts and notes payable Other current liabilities Total current liabilities Bonds, mortgages and other long-term debt, including capitalized leases Indebtedness to related parties - noncurrent Other liabilities Commitments and contingent liabilities Deferred credits Minority interests in consolidated subsidiaries 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.) Preferred stocks which are not redeemable or are redeemable solely at the option of the issuer Common stocks Other stockholders' equity Total liabilities and stockholders' equity References: Regulation S-X, Rules 4-01, 02, and 03 and Rules 5-01 and 5-02 2. Does the company have current assets that are not separately identified on the balance sheet (e.g., 'other current assets')? State separately on the balance sheet or in a note, any other current asset amounts in excess of 5% of total current assets. For purposes of this requirement, other current assets are defined as current assets other than cash and cash equivalents, marketable securities, receivables (net of allowances), deferred credits, unearned income, prepaid expenses, and inventory. Reference: Regulation S-X, Rule 5-02-8 3. Does the company have noncurrent assets that are not State separately on the balance sheet or in a note, any other noncurrent asset amounts in excess of 5% of total assets. Include an explanation of any significant additions or deletions and the policy for deferral and amortization of any significant deferred charges. -6– © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. separately identified on the balance sheet (e.g., 'other noncurrent assets')? For purposes of this requirement, other noncurrent assets are defined as noncurrent assets other than related party securities and indebtedness, other noncurrent investments (e.g., marketable securities), fixed assets (net of accumulated depreciation) and intangible assets (net of accumulated amortization). 4. Does the company have an allowance for loan losses? Present the allowance as a reduction of the carrying amount of the related balance sheet item. The allowance for loan losses should not include amounts provided for losses on financial instruments that are not classified as loans. Also, the liability for guarantees should be classified separately from the allowance for loan losses. Reference: Regulation S-X, Rule 5-02-17 Reference: Current Accounting and Disclosure Issues in the Division of Corporation Finance, 12/1/05, IIO2, Allowance for Loan Losses 5. Does the company have current liabilities that are not separately identified on the balance sheet (e.g., 'other current liabilities')? 6. Does the company have noncurrent liabilities that are not separately identified on the balance sheet (e.g., ‘other noncurrent liabilities’)? State separately in the balance sheet or in a note, any other current liability amounts in excess of 5% of total current liabilities. (Such items may include accrued payroll, accrued interest, taxes, current portion of deferred income taxes, and current portion of long-term debt). Reference: Regulation S-X, Rule 5-02-20 State separately in the balance sheet or in a note any other noncurrent liability amounts in excess of 5% of total liabilities. For purposes of this requirement, other noncurrent liabilities are defined as noncurrent liabilities other than long-term debt, capital lease liabilities, related party indebtedness, deferred credits, contingent liabilities, and minority interests. Reference: Regulation S-X, Rule 5-02-24 Table of Contents -7– © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. Link 1. Is the company a nonbank entity? For Banking Entities, go to the questions for Bank Holding Companies 4.2 Income Statement The following income statement line items should appear on the face of the income statement, or in related notes as indicated, unless: • An amount that would otherwise be required to be shown is not material. (Refer to SAB 99 (Topics 1M1 and 1M2) for an understanding of the meaning of material; • The items and conditions are not present; or • Specialized industry practices require otherwise (see INDUSTRY DISCLOSURES): 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 -8– © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 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. Interest and amortization of debt discount expense. 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. Income or loss before income tax expense and appropriate items below. Income tax expense. Minority interest in income of consolidated subsidiaries. Equity in earnings of unconsolidated subsidiaries and 50% or less owned persons (and the amount of dividends received from such persons.) Income or loss from continuing operations. Discontinued operations. Income or loss before extraordinary items and cumulative effects of changes in accounting principles. Extraordinary items, less applicable tax. Cumulative effects of changes in accounting principles. Net income or loss. 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). 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 company received subsidies or grants during the year? Subsidies must be presented as a separate line item within the income statement. Reference: SAB Topic 11A -9– © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 1. What method does the company use to present cash flows from operating activities? 2. Does the company have cash receipts from the sale of goods or services? 4.3 Cash Flow Statement SEC staff prefers the direct method of presenting cash flows from operating activities. Reference: SEC Speech, Nicolaisen 2003 The SEC staff reminded registrants that FASB Statement No. 95, Statement of Cash Flows, provides that cash receipts from sales of goods or services are operating cash flows. The staff indicated that this classification is required regardless of whether those cash flows result from the collection of the receivable from the customer or the sale of the receivable to others. 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 company reorganized in bankruptcy and entered into an agreement with the Pension Benefit Guaranty Corporation (PBGC)? The PBGC is a federally created corporation that guarantees payment to plan participants of certain pension benefits under defined benefit plans should the plan sponsor be unable to fulfill its obligation. The agreements with PBGC typically require that payments be made by the registrant at, and/or subsequent to, emergence from bankruptcy for the defined benefit plans that were assumed by the PBGC. The cash outflows to the PBGC should be classified as an operating activity as the agreement with the PBGC does not change the substance of the activity for which cash is being paid. The cash outflow to the PBGC should not be classified as a financing activity. Also, these cash outflows should continue to be classified as an operating activity, even if the company is required to apply “fresh start reporting” upon emergence from bankruptcy. Reference: Current Accounting and Disclosure Issues in the Division of Corporation Finance, 12/1/05, IIC2, Statement of Cash Flows - Classification of Payments Related to Settlement of Pension Liabilities 4. Does the company have cash flows from discontinued operations? FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, is silent on the presentation of discontinued operations in the cash flow statement. However, Statement 95 makes it clear that although separate disclosure of cash flows related to discontinued operations is not required, separate disclosure is permitted so long as those separate cash flows are presented in conformity with the basic requirements of Statement 95 - 10 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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.” Reference: Division of Corporation Finance presentation at the 2005 AICPA National 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 5. Does the company have cash flows from financing inventory purchases from a subsidiary of the supplier (referred to as floor plan financing) or from an unaffiliated financing source? In some industries, it is common for a company to finance its inventory purchases under arrangements referred to as “floor plan financing.” Often, the floor plan financing is provided by the finance subsidiary of the supplier (e.g., the finance arm of an automobile manufacturer.) Typically the finance subsidiary obtains a lien against the company’s inventory, remits cash to the manufacturer (its parent or sister entity) for the company’s purchase of the inventory, and receives cash from the company (generally when the company sells the merchandise to its customers). Financing from a Subsidiary of the Supplier The SEC staff observed that floor plan arrangements with suppliers are operating activities, consistent with the guidance in paragraph 23 of Statement 95. The company would report - 11 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. the initial financing as an increase to inventory and trade loans within operating activities; correspondingly, repayment of trade loans is an operating cash outflow. 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 company have cash flows from insurance proceeds? The SEC staff observed that a company should report cash flows from insurance proceeds based on the nature of the insurance coverage, not based on the intended use of proceeds. • If the insurance proceeds are for business interruption, then the company should report the cash flow under operating activities. • If the insurance proceeds are for property damage or loss, the cash flow depends on 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. Reference: Division of Corporation Finance presentation at the 2005 AICPA National Conference on Current SEC and PCAOB Developments, Slides 31 -32 7. Does the company have cash flows from loans held for sale transactions? The SEC staff observed that the classification of cash flows arising from loans and trade receivables depends on whether the loan or receivable: • Resulted from the sale of the company’s goods or services or from other activities; or • Was acquired for resale or for investment. Operating cash flows result from the: • Sale of short and long-term notes receivable from customers arising from sales of goods - 12 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. • 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 8. Does the company have cash flows from loans held for sale transactions? The SEC staff discussed the cash flow statement presentation for retained interests in securitizations. When there is an exchange of loans or trade receivables for a retained interest, no cash inflows or outflows should be reported. In contrast, when a company acquires loans or receivables for sale (classified as “available for sale securities”) for cash, receives cash when it securitizes those acquired loans, and 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 - 13 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. Table of Contents Link 1. Does the company have restrictions on its cash? B CASH Restricted Foreign Currency Cash in one country may not be freely transferable to another country because of exchange 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 have cash deposits in connection with repurchase agreements? Disclose cash deposits in connection with repurchase agreements as restricted cash. Reference: Regulation S-X, Rule 4-08(m) Table of Contents Link 1. Does the company C ACCOUNTS AND NOTES RECEIVABLE State separately on the face of the balance sheet, amounts receivable from: - 14 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. have accounts and notes receivable? 1. Customers; 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 company have loans or other receivables covered by buyback provisions? In a circumstance where the seller regains control of assets previously accounted for as sold under FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, the original balance sheet classification of the assets should be maintained when control over that asset is re-recognized by the transferor. Reference: Current Accounting and Disclosure Issues in the Division of Corporation Finance, 12/1/05, IIP1, Loans and Other Receivables - Accounting for Loans or Other Receivables Covered by Buyback Provisions 3. Does the company have receivables from officer, directors, parents or affiliates? 4. Does the company have receivables due under long-term contracts? Certain receivables from officers, directors, the parent or affiliates must be shown as a deduction from stockholders’ equity. See SAB Topics 4E and 4G for details. References: SAB Topic 4E and Topic 4G State separately in the balance sheet or in a note to the financial statements the following amounts: 1. Balances billed but not paid by customers under retainage provisions in contracts. 2. Amounts representing the recognized sales value of performance and such amounts 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. 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. - 15 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. References: Regulation S-X, Rule 5-02-3(c); Rule 5-02-6(d); FRR 206 5. Does the company have allowances for doubtful accounts and notes receivable? State separately the amount of allowance for doubtful accounts and notes receivable. Reference: Regulation S-X, Rule 5-02-4 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, 12/1/05, IIO1, Allowance for Loan Losses - Disclosure Table of Contents Link 1. Does the company have derivative financial instruments and or derivative commodity instruments? D FINANCIAL INSTRUMENTS Describe the accounting policies used for these derivatives and the methods of applying these policies that materially affect the determination of financial position, cash flows, or results of operations including: 1. Accounting methods and types of instruments accounted for under each method; 2. Criteria required to be met for each accounting method used; 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) - 16 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 2. Does the company have derivatives that represent an economic hedge but do not qualify for hedge accounting under FASB Statement No. 133? The SEC staff encourages registrants to disclose the following: 1. Policy of how and where hedge effectiveness and ineffectiveness are recorded; 2. The income statement caption that includes changes in the fair value of nonqualifying hedges; 3. The amount of changes in fair value of non-qualifying hedges; and 4. The balance sheet classification of derivatives. The SEC staff observed that consistency of classification should be maintained from period-toperiod. 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 and Current Accounting and Disclosure Issues in the Division of Corporation Finance, 12/1/05, IIM2, Issues Associated with FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities - Financial Statement Presentation and Disclosure 3. Does the company have residential loan commitments arising from the origination of mortgage loans (interest rate lock commitments)? The SEC staff indicates that at the date of origination, loan commitments accounted for as derivatives under FASB Statement 133 do not give rise to recognizable assets related to servicing rights or to selling the servicing rights. The SEC staff believes that the “asset” generated by a loan commitment is essentially an internally developed customer or servicing relationship intangible asset and thus it may not be recorded. The SEC staff requires that mortgage lenders make the following disclosures regarding loan commitments accounted for as derivative instruments: • Accounting policy for loan commitments pursuant to APB Opinion No. 22, Disclosure of Accounting Policies; and • Hedging strategies associated with loan commitments as required by Statement 133. References: SAB Topic 5DD 4. Does the company have repurchase and/or reverse repurchase securities transactions? If the repurchase or reverse purchase assets exceed 10% of total assets, disclose the following: Repurchase agreements 1. The aggregate amount of liabilities incurred as a result of the repurchase agreement, including accrued interest payable; - 17 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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 maturitiesa. 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. 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 stockholder’s 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 have retained interests related to a sale or securitization of financial assets? Disclose fair values and the significant assumptions used to estimate fair value, at the balance sheet date for new and retained interests that are financial. The SEC staff requires this information and the disclosure of the company’s assumptions regarding defaults, prepayments, and discount rates. References: EITF Topic D-69 - 18 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 6. Did the company sell financial assets that are not securitizations? The company should disclose significant assumptions used to estimate the fair value of those instruments. These include assumptions on: • Defaults; • Prepayments; and • Discount rates. Reference: EITF Topic D-69 7. Has the company purchased structurednote securities? The accounting for structured-note securities that were issued in combination with other structured-note securities as a unit or a pair is addressed by EITF Issue No. 98-15, “Structured Notes Acquired for a Specified Investment Strategy.” In that issue, the EITF observed that the 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 securities, and that have not restated their financial statements to conform the accounting to - 19 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. 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 have financial instruments that include features indexed to the company’s own stock? The SEC staff encouraged companies to identify and disclose all embedded derivative features of financial instruments that include features indexed to the company’s own stock. The staff also observed that companies should explicitly state why or why not the embedded derivatives are accounted for at fair value. Reference: Division of Corporation Finance presentation at the 2005 AICPA National Conference on Current SEC and PCAOB Developments, Slide 121; Current Accounting and Disclosure Issues in the Division of Corporation Finance, 12/1/05, IIB, Classification and Measurement of Warrants and Embedded Conversion Features 9. Does the company have loans receivable held for sale? The staff recommended that the company consider the need for clarifying disclosure that: • Identifies the amount of loans/receivables held-for-sale; • Explains how it determines which loans/receivables are initially accounted for as held 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. Reference: 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, 12/1/05, IIP4, Loans and Other Receivables - Loans Held for Sale Table of Contents Link E INVENTORY - 20 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 1. Does the company have inventory? State separately the amounts of the major classes of inventories, such as, finished goods, costs 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). Reference: Regulation S-X, Rule 5-02-6(b) 2. Does the company value inventory on a LIFO basis? If the method of calculating a LIFO inventory does not allow for the practical determination of amounts assigned to major classes of inventory, the amounts of those classes may be stated 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. References: 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 have long-term contracts or programs that give rise to material amounts of inventories? For all long-term contracts or programs, the following information, if applicable, should be disclosed in a note to the financial statements: 1. The aggregate amount of manufacturing or production costs and any related deferred costs (e.g., initial tooling costs) that exceeds the aggregate estimated cost of all in-process and delivered units on the basis of the estimated average cost of all units expected to be - 21 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. 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 serve as collateral under a borrowing arrangement? Inventory may serve as collateral under a borrowing arrangement. For example, many revolving lines of credit and asset-based financing agreements provide the lender with a lien against 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 have inventory markdowns associated with a decision to exit or restructure an activity? The SEC staff believes, as documented in EITF Issue No. 96-9, “Classification of Inventory Markdowns and Other Costs Associated with a Restructuring,” that inventory markdowns resulting from a decision to exit an activity or restructuring should be classified in the income statement as a component of cost of goods sold. Reference: EITF 96-9 Table of Contents Link 1. Does the company have investments in current and noncurrent securities? 2. Does the company F OTHER INVESTMENTS Disclose the basis of the carrying value of current and noncurrent security investments, other than investments in marketable equity securities, together with alternative of total cost or market value at the balance sheet date. References: Regulation S-X, Rule 5-02-2 and 5-02-12 For individual securities classified as either available for sale or held to maturity and for - 22 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. have "other than temporary" declines in the value of its investments? nonmarketable equity securities, the company should determine whether a decline in fair value below cost basis is other than temporary. Staff Accounting Bulletin Topic 5M, “Miscellaneous Accounting — Other Than Temporary Impairment of Certain Investments in Debt and Equity 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 investment is not other-than-temporarily impaired. - 23 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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. References: SAB Topic 5M; FSP No. FAS 115-1 and FAS 124-1; and SEC Speech, James 2004 4. Does the company have auction rate securities? Auction rate securities are considered highly liquid by market participants because of the auction process. However, because the auction rate securities have long-term maturity dates 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, 12/1/05, IIH3, Investments - Auction Rate Securities 5. Does the company have investments in unconsolidated subsidiaries or other associated entities Disclose the amount (on face of income statement) of equity in earnings of unconsolidated subsidiaries and 50%-or-less owned persons. The amount of dividend received from such entities must also be disclosed. References: Regulation S-X, Rule 5-03-13 - 24 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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 6. Does the company have a significant unconsolidated subsidiary or 50%-orless owned entities? The SEC has two sets of requirements for financial information of unconsolidated subsidiaries and equity investees. These requirements are contained in Rule 4-08(g) of Regulation S-X and Rule 3-09 of Regulation S-X. Rule 4-08(g) addresses situations in which summarized financial information of an individual investee or group of investees must be presented. Both of these SEC rules look to Rule 1-02(w) of Regulation S-X to determine the materiality of the investee. The materiality 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 • Net income or loss. References: Regulation S-X, Rule 4-08(g) and Rule 1-02(w) - 25 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. 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. References: Regulation S-X, Rule 3-09 and SAB Topic 6K4b 7. Does the company have intercompany transactions with its entities accounted for by the equity method? Disclose: • The amounts of any material unrealized profits and losses on transactions with entities accounted for under the equity method not eliminated; • The reasons for not eliminating these items; and • The method of treatment of these items. Reference: Regulation S-X, Rule 3A-04 Table of Contents Link 1. Does the company have property, plant, and equipment (PP&E)? G FIXED ASSETS, REPAIRS AND MAINTENANCE, AND DEPRECIATION Disclose the PP&E balances, methods and periods of depreciation. If PP&E is significant, the company should disclose balances and depreciation methods and periods for each major class of depreciable assets. - 26 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. Reference: Regulation S-X, Rule 5-02-13; Accounting Disclosure Rules and Practices, AIIJ, Property, Plant, and Equipment 2. Does the company have pre-production design and development costs related to long-term supply arrangements? Disclose the accounting policy for pre-production design and development costs as well as the aggregate amount of: • Assets recognized pursuant to agreements that provide for contractual reimbursement of pre-production design and development costs; • Assets recognized for molds, dies, and other tools that the supplier owns; and • Assets recognized for molds, dies, and other tools that the supplier does not own. Reference: EITF 99-5 3. Does the company have specific assets that are pledged or subject to lien? Identify the assets mortgaged, pledged, or otherwise subject to lien, and the approximate dollar amounts. Also identify the obligations collateralized. This information must be provided for only the most recent audited balance sheet presented, unless there has been a significant 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 have planned major maintenance activities? The accounting policy for repair and maintenance costs incurred in connection with planned major maintenance activities as well as the types of costs subject to the policy. Also, any liabilities accrued for costs expected to be incurred in connection with planned major 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 - 27 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. 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). ] Reference: EITF Topic D-88 FSP AUG AIR-1 5. Is depreciation excluded from cost of goods sold (or operating expenses, when cost of goods sold is not applicable)? Disclose if depreciation is not included in cost of goods sold or if cost of goods sold is not applicable, then operating expenses. Reference: SAB Topic 11B Table of Contents Link 1. Did the company acquire, or does the company have, intangible assets? H INTANGIBLE ASSETS AND AMORTIZATION State separately: 1. The amount of intangible assets in excess of 5% of total assets; 2. The basis for determining such amount; 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 1. Does the company have accounts and/or notes payable? I ACCOUNTS AND NOTES PAYABLE State separately amounts payable to: 1. Banks for borrowings; 2. Factors or other financial institutions for borrowings; 3. Holders of commercial paper; 4. Trade creditors; 5. Related parties (see Rule 4-08 (k)); - 28 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements 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 converted trade accounts payable to borrowings from a lender to take advantage of the trade discount? The liability to the lender is not considered a "trade payable" and should not be classified as trade payables in the balance sheet. A liability to the lender should be recognized. The SEC staff believes that a trade creditor is a supplier that has provided a company with goods and services in advance or payment. Regulation S-X, Article 5, requires separate and clear display of amounts payable for borrowings and amounts payable to trade creditors. 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. 3. Does the company have short-term borrowings? References: Regulation S-X, Rule 5-02-19 ; SEC Speeches, Comerford, 2003 and 2004 Disclose: • The weighted average interest rate on short-term borrowings outstanding as of the date of 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 have any unused lines of credit or other unused commitments under short-term financing arrangements? Disclose: • If significant, the amount and terms (including commitment fees and the conditions under which lines may be withdrawn) of unused lines of credit for short-term financing, in the notes to the financial statements. • The amount of these lines of credit that support a commercial paper borrowing arrangement or similar arrangements. Reference: Regulation S-X, Rule 5-02-19; FRR 203 5. Does the company have significant long-term Under the conditions specified in SAB Topic 6H2, the borrowing can be classified as long-term with appropriate disclosure. - 29 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. construction programs financed through revolving loans that extend until the completion of the project? 6. Does the company have material amounts relating to payables? Reference: SAB Topic 6H For commercial and industrial companies, present separately on the face of the balance sheet or in the notes any current liability in excess of 5% of total current liabilities. For noncurrent liabilities, present separately any item in excess of 5% of total liabilities. Reference: Regulation S-X, Rule 5-02-20 Table of Contents Link 1. Does the company have long-term debt, including bonds, mortgages, capitalized leases, and other longterm debt? J DEBT AND GUARANTORS OF DEBT For each issue, disclose: 1. The general character of each type of debt including the rate of interest; 2. The date of maturity, or, if maturing serially, a brief indication of serial maturities, such as 'maturing serially from 2007 to 2011’; 3. If the payment of principal or interest is contingent, an indication of the contingency; 4. Amounts and terms of unused commitments; 5. A brief indication of priority; and 6. If convertible, the basis. Reference: Regulation S-X Rule 5-02-22 2. Does the company have unused commitments for longterm financing arrangements? If significant, disclose the amount and terms (including commitment fees and the conditions under which commitments may be withdrawn) of unused commitments for long-term financing arrangements. 3. Does the company have financing arrangements with a For a subsidiary's or division's separate financial statements, disclose financing arrangements with parent. If an interest charge on intercompany debt has not been provided, an analysis of the intercompany accounts and the average balance due to or from related parties, for each Reference: Regulation S-X, Rule 5-02-22 - 30 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. parent company? period that an income statement is required. Reference: SAB Topic 1B1, question 4 4. Is the company’s debt guaranteed or does the company guarantee the debt of another registrant? 5. Does the company have obligations that are collateralized? Refer to the questions 9 and 10 in this section. Designate the assets mortgaged, pledged, or otherwise subject to lien, and the approximate amounts. Briefly identify the obligations collateralized. Reference: Regulation S-X, Rule 4-08(b) 6. Do the company’s affiliates’ securities collateralize the company’s debt? 7. Is the company in default of any debt terms or covenants? Provide the financial information required by Rule 3-16. Reference: Regulation S-X, Rule 3-16 Disclose: • Facts and amounts concerning any default which existed at the date of the most recent balance sheet filed and not subsequently cured. • Amount of the obligation and the period of waiver, when any default or breach exists 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 had changes in the authorized or issued debt after the balance sheet date and before the report date? 9. Does the company guarantee, as defined in Rule 3-10, the securities Disclose changes in authorized or issued debt since the balance sheet date. Reference: Regulation S-X, Rule 4-08(f) The registrant should include in its filing the financial statements of the guarantor, as required by Rule 3-10. The guarantor company need only provide information for disclosure or incorporation into condensed consolidating financial information in the registrant’s financial - 31 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. of another entity that is a registrant? statements if certain Rule 3-10 conditions are met. These conditions depend on the guarantor being a parent or "sister" subsidiary of the registrant. For specifics on the requirements and the conditions, see Rule 3-10. Reference: Regulation S-X, Rule 3-10 10. Does the company have securities that are guaranteed, as defined in Rule 3-10, by another entity? The company should include in its filing the financial statements of the guarantor, as required by Rule 3-10. The guarantor company need only provide information for disclosure or incorporation into condensed consolidating financial information in the registrant’s financial statements if certain Rule 3-10 conditions are met. These conditions depend on the guarantor being a parent or "sister" subsidiary of the registrant. For specifics on the requirements and the conditions, see Rule 3-10. Reference: Regulation S-X, Rule 3-10 Table of Contents Link 1. Does the company have lease commitments? K LEASES Disclose the following: • Material lease agreements or arrangements for both operating and capital leases; • The essential provisions of material leases, including the original term, renewal periods, reasonably assured rent escalations, rent holidays, contingent rent, rent concessions, leasehold improvement incentives, and unusual provisions or conditions. • 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. Reference: SEC Letter, February 2005; Current Accounting and Disclosure Issues in the Division of Corporation Finance, 12/1/05, IIE2, Leasing - Disclosure - 32 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. Table of Contents Link L 1. Does the company have income tax expense or benefits? INCOME TAXES Regulation S-X, Rule 4-08(h) requires the following disclosures for income tax expense: • The components of income (loss) before tax expense (benefit) as either domestic or 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. • 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. [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 - 33 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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).] Reference: SAB Topic 6I7; Statement 109 paragraphs 43 and 47; and SEC Speech, Nicolaisen, 2004 FIN 48 2. Does the company have contingent income tax liabilities? Contingent tax liabilities should be recorded for the difference between the financial statement benefit of tax deductions “as filed” on the income tax return and the tax benefit recognized under 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 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. References: SEC Speeches, Green, 2003; Taub, 2004; Poulin, 2004; and Current Accounting and Disclosure Issues in the Division of Corporation Finance, 12/01/05, II-I, Contingencies and Loss Reserves 3. Does the company have a tax holiday in a foreign jurisdiction? Provide the effect of the tax holiday. Reference: SAB Topic 11C - 34 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. 4. Is the company a member of a consolidated taxreporting group? A consolidated tax group represents a group of related entities (generally a parent and subsidiaries) that file a single consolidated tax return. 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. References SAB Topic 1B1 Table of Contents Link 1. Does the company have common stock or nonredeemable preferred stock? M COMMON STOCK, PREFERRED STOCK, AND MINORITY INTERESTS 1. COMMON STOCK AND NONREDEEMABLE PREFERRED STOCK Disclose: • By class: par or stated value per share, number of shares authorized, issued and outstanding, and the related dollar amount. In lieu of indicating the number of 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 have material changes in the components of equity? Disclose, in a separate statement or note, all individually material changes in the components of equity (dollar amounts and number of securities) 3. Does the company have outstanding securities with rights and Describe pertinent rights and privileges of the various outstanding securities such as: Reference: Regulation S-X Rule 3-04 1. Dividend and liquidation preferences; - 35 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. privileges? 2. 3. 4. 5. 6. Participation rights; Call prices and dates; Conversion or exercise prices or rates; Sinking fund requirements; and Unusual voting rights. Reference: Regulation S-X, Rule 4-08(d) 4. Does the company have preferences on involuntary liquidation for preferred stock? Disclose total preferences on involuntary liquidation for preferred stock as of the date of the most recent audited balance sheet being filed. If they: • • Differ from par or stated value, disclose the preference parenthetically in the equity section of the balance sheet; or 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 have warrants or rights outstanding? Disclose: • • • 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) 6. Does the company have minority interests? 2. MINORITY INTERESTS Disclose minority interests separately outside of shareholders’ equity. Disclose separately in a note: • 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. - 36 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. Reference: Regulation S-X, Rule 5-02-27 7. Does the company have mandatorily redeemable preferred stock or any class of stock for which redemption is outside of the control of the issuer? 3. MANDATORILY REDEEMABLE PREFERRED STOCK Under Regulation S-X, Rule 5-02-28, preferred stock must be classified outside shareholders’ equity when the stock is: • Redeemable at a fixed or determinable price on a fixed or determinable date; • Redeemable at the option of the holder; or • Redeemable based on conditions outside the control of the issuer. Disclose: • 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; • The number of shares authorized and issued or outstanding; and • The changes in each class during the period for which income statements are required. 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); and • Redemption requirements in each of the next five years. 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, - 37 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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 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. 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. The FASB has proposed in its exposure draft, Consolidated Financial Statements, Including Accounting and Reporting of Noncontrolling Interests in Subsidiaries, that minority interests (termed noncontrolling interest in the exposure draft) be considered equity. Users of this questionnaire should also consider the status of that FASB exposure draft. References: Regulation S-X, Rule 5-02-28; SAB Topic 3C; FRR 211 8. Does the company have mandatorily redeemable preferred stock that is redeemable at a future determinable date and its redemption amount is variable? Disclose: • Accounting policy for recognition of changes in the redemption value; • Where changes in redemption value are being accreted, disclose the redemption value as if it were redeemable on the balance sheet date; and • If redemption is uncertain, disclose why redemption is uncertain. See NOTE in 7, above. - 38 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. Reference: EITF Topic D-98 9. Does the company have subordinated debt? 4. SUBORDINATED DEBT Subordinated debt may not be presented within stockholders’ equity. Also, a caption may not be presented that combines only subordinated debt and stockholders’ equity. Reference: SAB Topic 4A 10. Is the company an S Corporation that has terminated its S Corporation election? 11. Is the company a limited partnership? 5. TERMINATED S CORPORATIONS Retained earnings must be classified as paid-in capital when S Corporation election is terminated. Reference: SAB Topic 4B 6. LIMITED PARTNERSHIPS In the equity section disclose: • General partners’ equity separate from limited partners’ equity; • Changes in the number of equity units authorized and outstanding for each ownership class; • 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 • Results of operations on a per unit basis. Reference: SAB Topic 4F 7. DIVIDENDS 12. Does the company have restrictions that limit the payment of dividends? Describe the most significant restrictions on the payment of dividends indicating their sources, their pertinent provisions, and the amount of retained earnings or net income restricted or free of restrictions. 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 - 39 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. have subsidiaries and/or investees with restrictions that limit the payment of dividends and/or the transfer of funds to the company, referred to here as the parent company? unconsolidated subsidiary companies as of the end of the most recent fiscal year which are restricted as to transfer to it as the parent company because third party consent from an entity such as a lender is required. • • If the company's proportionate share of the restricted net assets of consolidated subsidiaries exceeds 25% of its consolidated net assets, provide 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 have an interest in a 50 percent or less owned entity accounted for by the equity method? Disclose the amount of consolidated retained earnings that represents undistributed earnings of 50 percent or less owned persons accounted for by the equity method. The SEC staff has indicated that these undistributed earnings should represent the difference between the cumulative equity in earnings reflected in consolidated retained earnings and the cumulative dividends received 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 declare dividends during the year? State the amount of dividends per share and in the aggregate for each class of shares outstanding. Reference: Regulation S-X, Rule 3-04 16. Did the company declare a stock dividend Retroactively reflect stock splits that occur after year-end, but before the financial statements are issued. Disclose in a note the retroactive treatment, explain the change made, and state the - 40 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. or stock split subsequent to year-end but prior to financial statement issuance? 17. Did a subsidiary or division (with separate financial statements included in a registration statement, proxy statement or Form 8-K) declare dividends after year-end or declare dividends in excess of earnings? 18. Is the income or loss applicable to common stock materially different from reported net income or loss? date the change became effective. Reference: SAB Topic 4C Such dividends either be given retroactive effect in the balance sheet with appropriate footnote disclosure, or reflected in a pro forma balance sheet. A similar presentation is appropriate when dividends exceed earnings in the current year and the entity will receive proceeds from an offering. Reference: SAB Topic 1B3 Disclose income or loss applicable to common stock. The amount to be reported for each period should be computed as net income or loss less: • Dividends on preferred stock, including undeclared or unpaid dividends if cumulative; and • Periodic increases in the carrying amounts of instruments reported as redeemable preferred stock or increasing rate preferred stock Reference: SAB Topic 6B 19. Does the company have subscribed shares that cannot be legally issued until paid for? 20. Does the company have stock subscription receivables treated as assets because payment has been received prior to the publication of the financial statements? 8. STOCK SUBSCRIPTIONS Disclose the dollar amount of subscribed shares that cannot be legally issued until paid for, and the subscription receivable deducted from equity, if not separately shown in the equity section. Reference: Regulation S-X, Rule 5-02-28 Disclose the payment date. Reference: SAB Topic 4E - 41 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. 21. Does the company have unamortized discount on shares? Discount on shares, or any unamortized balance thereof, should be shown separately as a deduction from the applicable account(s) as circumstances require. Reference: Regulation S-X, Rule 4-07 Table of Contents Link N 1. Does the company generate revenue? REVENUE RECOGNITION Disclose the following in the notes to the financial statements: • 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. 101 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. - 42 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. • 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. • 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. Reference: SAB Topic 13B 2. Have the company’s significant contractual provisions or business changed? Consider whether revenue recognition policies are still appropriate and update accounting and policy disclosures accordingly. 3. Does the company have refundable fees for services? Disclose the accounting policy for refundable fees for services. If the fees are accounted for by analogy to FAS Statement No. 48, the company should disclose its estimates of cancellation. For each income statement presented, 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: SEC Speech, Lopez 2004 - 43 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. Reference: SAB Topic 13A4 4. Does the company’s revenue include performance-based incentive fees? These fees are common in the investment advisory and real estate management businesses. Disclose the accounting policy used with regard to these arrangement. The company should disclose whether: • It has recorded any revenue that is at risk due to future performance contingencies; • The nature of the contracts giving rise to the contingencies, and; • If material, the amount of any such revenue recorded. 5. Has the company received subsidies or grants during the year? Subsidies must be presented as a separate line item within the income statement. Reference: EITF Topic D-96 Reference: SAB Topic 11A Table of Contents Link 1. Has the company accelerated the vesting terms of its out-of-themoney stock options, or made any other significant changes, prior to adopting FASB Statement No. 123R, Share-Based Payment? O STOCK-BASED COMPENSATION FASB Statement No. 123, paragraph 47 indicates that for each year an income statement is provided, companies should disclose the terms of significant modifications of outstanding stock option awards. Subject to this guidance, the SEC staff believes that companies should disclose any modifications to accelerate the vesting of out-of-the-money options in anticipation of adopting the new accounting standard. The staff also believes that registrants should disclose the reasons that the option terms were modified. The staff does not believe that disclosure along the lines of, “…during fiscal 2004 certain of the company’s stock options were modified to accelerate vesting…” would be sufficient. [Editor’s note: On September 19, 2006, Conrad Hewitt, Chief Accountant of the SEC, published the views of the SEC staff in the form of letter relating to the accounting required by companies that followed APB Opinion No. 25, Accounting for Stock Issued to Employees, prior to the effective date of FASB Statement No.123 (Revised 2004), Share-Based Payment. In this letter, the SEC staff addresses the accounting 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 - 44 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. of the board of directors, and other service providers.] References: SEC Speeches, Kokenge 2004, Benedict 2005 SEC letter dated 9/19/2006 2. Does the company grant employee sharebased compensation awards with terms that accelerate vesting upon retirement? If the company has been recognizing compensation expense for these awards over the stated vesting period (rather than the period until retirement eligibility), the SEC staff believes that the company should make the following disclosures (both before and after the adoption of Statement No. 123 (Revised 2004): Share-Based Payment): • Accounting policy followed under APB 25 (if applicable) and Statement 123 for the recognition of compensation cost for awards that accelerate vesting upon retirement; • The accounting policy change that will occur/occurred as a result of adopting Statement 123R; and • The quantitative affect of applying Statement 123R cost recognition requirements 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 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. References: Discussion with SEC Staff May 2005; SEC Speech, Benedict 2005 3. Does the company grant employee stock options? The SEC issued a release that allows certain companies that are not small business issuers additional time to implement the requirements of Statement 123R. As a result of the SEC release, calendar year registrants that are not small business issuers can continue to 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 small business issuer, 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) - 45 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. 4. Does the company grant employee stock options that it values with market-based instruments? The Chief Accountant of the SEC commented that before a company concludes that a marketbased instrument complies with the measurement objective in Statement 123R, it should: • Consider the difference between the actual instrument transaction and the modelgenerated (e.g., Black Scholes or binomial) estimate of fair value; • Satisfy itself and its auditor (and potentially the SEC staff) as to the reasons for any significant differences between the two values (market-based instrument value vs. 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: Statement Regarding Use of Market Instruments in Valuing Employee Stock Options; Memorandum: Economic Evaluation of Alternative Market "Instrument Designs" ; and SEC Speech, Benedict 2005 Table of Contents Link P PENSION PLANS, OTHER POSTRETIRMENT PLANS, AND ESOPS The SEC staff observed that companies should identify their accounting policies for defined benefit pension plans and/or other postretirement benefit plans. 1. Does the company have a defined benefit pension plan and/or other postretirement benefit plans? Reference: SEC Speech Taub 2004, and Current Accounting and Disclosure Issues, 12/1/05, IIJ, Pension, Post Retirement, and Post Employment Plans 2. Does the company have an employee stock ownership plan (ESOP) with shares acquired The following are ESOP disclosures in SEC filings for shares acquired before January 1, 1993: 1. Impact of ESOPs on the financial statements; 2. Method of recognizing expense; 3. Amount of expense for all periods presented; - 46 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. before January 1, 1993? 4. Interest on ESOP debt for all periods presented; 5. Amount of contribution to the ESOP for all periods presented; and 6. Amount of dividends on ESOP shares used to pay debt service for all periods presented. Reference: EITF 89-8 Table of Contents Link 1. Is the company reorganizing under the U.S. Bankruptcy Code? Q BANKRUPTCY Disclose the extent to which reported interest differs from stated contractual interest (disclose parenthetically on face of statement of operations.) If it is probable that the plan will require the issuance of common stock or common stock equivalents, thereby diluting current equity interests, that fact should be disclosed. References: SOP 90-7, paragraphs 29 and 34 2. Does the company consolidate a subsidiary that is in bankruptcy? The SEC staff believes that a determination that continued consolidation of a subsidiary in bankruptcy is appropriate requires a fairly unique set of facts and is appropriate only in infrequent and uncommon circumstances. The conclusion to consolidate and its basis should be disclosed. The company should periodically reassess its facts and circumstances to confirm the appropriateness of such a determination. Reference: SEC Speech, Green, 2003 Table of Contents Link 1. Has the company acquired, or is it in the process of acquiring, a significant business as defined by Regulation SX, Rule 3-05? R BUSINESS COMBINATIONS Rule 3-05 requires separate audited balance sheets as of the end of up to the latest two fiscal years, an unaudited condensed balance sheet for the latest interim period, audited statements of income and cash flows for periods of up to three years, and separate comparable unaudited condensed statements for any interim periods for the following: 1. Significant business acquired during the latest fiscal year or subsequent interim period (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 - 47 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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: 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 102(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 - 48 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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 None of the tests exceeds 20% Any one of the tests exceeds 20% but none exceeds 40% Any one of the tests exceeds 40% but none exceeds 50% Any one of the tests exceeds 50% Number of Periods None Most recent fiscal yeara Two most recent fiscal yearsa,b 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 - 49 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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 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, 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.” References: Regulation S-X, Rule 3-05, 1-02(w), and 11-01 2. Is the company preparing an initial public offering (IPO) involving businesses that have been built by the aggregation of discrete businesses that remain substantially intact after acquisition? In some cases involving initial public offerings, strict application of the requirements of Rule 305 would be problematic or would result in the presentation of financial statements that are clearly not material. In these cases, registrants should consider whether electing to apply the alternative requirements of SAB Topic 1J could provide relief from the requirements resulting from the application of Rule 3.05. SAB Topic 1J uses the pro forma financial information for the registrant as a base to measure significance and then requires “coverage” (via audited historical financial statements of acquired businesses) of a stated percentage of the registrant’s business for each of the last three years. SAB Topic 1J is a completely separate and alternative approach to measuring significance. It is advisable to identify the financial statement requirements under both SAB Topic 1J and Rule 3-05 to determine the best alternative to follow for a particular registrant’s circumstance. Reference: SAB Topic 1J - 50 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 3. Did the company acquire a significant business, acquire a series of individually insignificant businesses that are significant in the aggregate, or dispose of a significant portion of a business? Provide pro forma disclosures for significant acquisitions or disposals that have occurred during the current period or as a subsequent event (prior to the issuance of the financial statements) or are otherwise probable of occurring. (For acquisitions of troubled financial institutions, see SAB Topic 1K.) Provide: 1. Pro forma condensed income statements for the most recent fiscal year and any interim period; and 2. Pro forma condensed balance sheet as of the end of the latest interim period. References: Regulation S-X, Rules 11-01 and 11-02 4. Has a business combination occurred? In the footnotes, provide unaudited pro forma combined results of operations for the period in which the purchase business combination occurred as though the companies had combined at 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, paragraph 54 5. Is the company awaiting additional information for the measurement of contingencies in a When the company is awaiting additional information that it has arranged to obtain for the measurement of contingencies assumed in a business combination (for which fair value is not determinable at the date of acquisition), disclose that the purchase price allocation is preliminary and the following: • The nature of the contingency. - 51 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. business combination? • Other available information that will enable a reader to understand the potential effects of the contingency on the final purchase price allocation and on post-acquisition operating results. Reference: SAB Topic 2A7 6. Was an operating company acquired in a leveraged buy-out transaction by a holding company with no other substantial operations? A leveraged buy-out, for purposes of this disclosure section, represents a single highly leveraged transaction or a series of related and anticipated highly leveraged transactions that result in the acquisition by Newco of all previously outstanding common stock of Oldco; that is, there can be no remaining minority interest. This excludes transactions in which existing majority stockholders utilize a holding company to acquire all of the remaining shares of Company B not previously owned. 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 Table of Contents Link 1. Has the company effected a quasireorganization? S QUASI-REORGANIZATIONS A quasi-reorganization results when a company eliminates its accumulated deficit by reclassifying amounts from paid-in capital, and by adjusting assets and liabilities to their fair 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. - 52 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. 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 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) Table of Contents Link T 1. Is this a registration statement, proxy statement or Form 8-K that includes a subsidiary’s or division’s separate financial statements? SUBSIDIARY’S OR DIVISION’S SEPARATE FINANCIAL STATEMENTS AND SEGMENTS Carve-outs are a means of presenting financial statements for an entity that had been operating as a subsidiary, division, or segment of a consolidated group of companies. When carved out entities are sold or spun off, or when the entity's debt securities are initially sold to the public, certain requirements defined in SAB Topic 1B must be met. The financial statements of the entity should include all expenses incurred by the parent on the subsidiary's behalf. To the extent not charged to the subsidiary in the past, the expenses must be retroactively reflected with the offsetting credit being to paid-in capital. Although not stated in the SAB, the SEC policy - 53 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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 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.) 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 company incur debt for a subsidiary registrant? When substantially all of the common stock of a company is acquired in one or a series of purchase transactions, SAB Topic 5J generally requires that the purchase price be "pushed down" to the subsidiary company's financial statements and that all retained earnings be 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) 3. Did a subsidiary of the company issue stock For sales of stocks by a subsidiary, a company can treat the issuances either as equity transactions or as income statement transactions. If the latter alternative is selected, gains and - 54 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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 provision has been recorded, a clear explanation of the reasons. Reference: SAB Topic 5H 4. Does the company have segments? Meet all the disclosure requirements of FASB Statement No. 131, Disclosures about 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 amended filings if the information reviewed reveals different or additional segments. Reference: Current Accounting and Disclosure Issues in the Division of Corporation Finance, 12/01/05, IIL, Segment Disclosure 5. Does the company aggregate quantitatively immaterial segments? For purposes of segment disclosures, two or more operating segments should be grouped only if the segments meet all the requirements of paragraph 17 of Statement 131, including the requirements for similar economic characteristics. 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 - 55 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. 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. Reference: Division of Corporation Finance presentation at the 2005 AICPA National Conference on Current SEC and PCAOB Developments, Slides 56-61, 64-67 Table of Contents Link 1. Do the financial statements include related party transactions? . U RELATED PARTY TRANSACTIONS Related party is defined broadly in Regulation S-X, Rule 1-02(u) which references the definition in FASB Statement No. 57, Related Party Disclosure. In the Statement 57 definition, parties are considered related when one has the power—through ownership, contractual right, family 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. - 56 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. 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. Reference: Regulation S-X, Rule 4-08(k) and Rule 1-02(u); Accounting Disclosure Rules and Practices, 7IB - Related Party Matters - General Disclosure Requirements 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, 7I - Related Party Matters 2. Did the company have transactions with a principal shareholder that benefited the company? Transactions in which expenses are paid by a principal shareholder for the company’s benefit should be given appropriate accounting recognition in the company’s financial statement. Reference: SAB Topic 5T Table of Contents Link 1. Did the company incur costs during the current period under a restructuring or other exit plan? . V RESTRUCTURING AND IMPAIRMENT CHARGES These charges typically result from the consolidation and/or relocation of operations; the abandonment of operations, or productive assets; or the impairment of the carrying value of productive or other long-lived assets. The components of these charges also vary, but generally include the reduction in the carrying value of long-lived assets and provisions for the termination 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 - 57 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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 longlived 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 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. - 58 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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: • 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 Topic 5P3 and 5P4; Regulation S-X, Rule 5-04; and Statement No. 146, par. 20 2. Does the company have goodwill that it tests for impairment annually? The SEC staff provided its view that the date of goodwill impairment testing can be changed as long as the period tested is less than twelve-months. The staff noted that a preferability letter is required from the company’s registered public accountant for such a change. Reference: Current Accounting and Disclosure Issues in the Division of Corporation Finance, 12/01/05, - 59 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. IIG1, Business Combinations - Date of Annual Goodwill Impairment Testing Table of Contents Link 1. Is the company a domestic registrant with equity securities that are traded on a national securities exchange or association (i.e., a Section 12(b) or (g) company)? W QUARTERLY FINANCIAL DATA Disclose for each full quarter within the two most recent fiscal years and any subsequent interim period in an unaudited note to the financial statements: 1. Net sales; 2. Gross profit (net sales less costs and expenses associated directly with or allocated to products sold or services rendered); 3. Income (loss) before extraordinary items and cumulative effect of a change in accounting; 4. EPS based on income before extraordinary items and cumulative effect of a change in 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. Reference: Regulation S-K, Item 302; SAB Topic 6G Table of Contents Link 1. Is the reporting entity a consolidated entity? X CONSOLIDATION The following rules apply to consolidated financial statements: 1. Generally, only majority-owned subsidiaries are consolidated; 2. Financial statements of consolidated subsidiaries are required to be as of a date within 93 - 60 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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; 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) (2), Rule 3A-03 , and Rule 1-02(n) 2. Has a member of the company’s consolidated group changed its fiscal reporting period? If dates of financial statements of consolidated subsidiaries are different, disclose the reason for the change in periods consolidated and the new period. Disclose the amount of sales, income before extraordinary items and net income charged or credited directly to retained earnings when a subsidiary has changed its year-end. Reference: Regulation S-X, Rule 3A-03(b) 3. Has the company had a change in entity? If there has been a change in the entities included or excluded in the corresponding statement for the preceding fiscal period filed with the SEC that has a material effect on the financial statements, the entities included and the entities excluded should be disclosed. Reference: Regulation S-X, Rule 3A-03(b) 4. Does the company have material intercompany balances or transactions that were not eliminated in consolidation or combination? Disclose: • The amounts of any material intercompany balances or transactions not eliminated; • The amounts of any material unrealized profits and losses on transactions with entities accounted for under the equity method not eliminated; • The reasons for not eliminating these items; and • The method of treatment of these items. - 61 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. Reference: Regulation S-X, Rule 3A-04 5. Does the company have foreign subsidiaries that are consolidated? If foreign subsidiaries that are consolidated are operated under political, economic or currency restrictions, disclose the effect, insofar as this can reasonably be determined, of foreign exchange restrictions upon the consolidated financial position and operating results of the company. Reference: Regulation S-X, Rule 3A-02(d) 6. Is the company the primary beneficiary of or does the company hold significant interests in a variable interest entity? Disclose: • The nature, purpose, size, and activities of the variable interest entity (VIE); • If the company is the primary beneficiary of the VIE: i. The carrying amount and classification of consolidated assets that are collateral for the VIE’s obligations; and 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). References: SEC Speech, Nicolaisen 2003; FIN 46R, paragraphs 23-24 7. Does the company hold finance entities with trust preferred securities? If certain conditions are met, these finance entities are eligible for the reporting relief offered by Regulation S-X, Rule 3-10(b). If the entity meets the requirements of this rule and its sponsor provides the following footnote disclosures, the staff noted that FIN 46R does not affect the Rule 3-10(b) relief: • An explanation of the transaction between the parent and the subsidiary that resulted in debt appearing on the books of the subsidiary, - 62 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. • 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, 12/01/05, IIK, FIN 46R and Deconsolidation 8. Do any of the consolidated or unconsolidated subsidiaries have restrictions on their ability to transfer funds to the company? Refer to COMMON and PREFERRED STOCK, see question: 12. Does the company have restrictions that limit the payment of dividends? Table of Contents Link Y COMMITMENTS AND CONTINGENCIES General 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 - 63 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. uncertainties. 1. Does the company have environmental, asbestos or product liability exposure? Provide detailed disclosures regarding the judgments and assumptions underlying the recognition and measurement of environmental and product liabilities (including asbestos). Examples of disclosures that may be necessary include: 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 2. Does the company have site restoration costs or other environmental exit costs that may occur on the sale, disposal, or abandonment of property? Disclose: 1. The nature of the costs involved; 2. The total anticipated cost; 3. The total costs accrued to date; 4. The balance sheet classification of accrued amounts; and 5. The range or amount of reasonably possible additional losses. 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 - 64 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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 recognize environmental, asbestos or product liabilities on a discounted basis? Disclose: 1. The discount rate used; 2. The expected payment for each of the five succeeding years and the aggregate amount thereafter; 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 have legal costs associated with loss contingencies? 5. Is the company experiencing difficulty estimating IBNR liabilities for insurance due to insufficiently understood claims trends? 6. Has the company deferred a gain on the sale of an entity (or operating assets) to another company due to uncertainty of realization? Disclose the company’s policy for the accrual of legal costs relating to loss contingencies. Reference: EITF Topic D-77 Provide FASB Statement No. 5, Accounting for Contingencies, and Statement of Position (SOP) 94-6, Disclosure of Risks and Uncertainties, disclosures for unpaid property/casualty insurance claims, including IBNR claim reserves, when specific uncertainties (i.e., other than normal or recurring uncertainties) exist or judgmental adjustments are made to historical experience for insufficiently understood claims activity. Reference: SAB Topic 5W When a company has sold a highly leveraged entity for cash and/or noncash consideration and has deferred the gain due to the uncertainty of realization, the deferred gain should be disclosed on the face of the balance sheet and deducted from the related asset account. The notes should completely describe the transaction. Also, the notes should include a complete description of the transaction, including the existence of any commitments and contingencies, the terms of the securities received, and the accounting treatment of amounts due thereon. - 65 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. Reference: SAB Topic 5U 7. Does the company have contingent liabilities that are material and either (1) probable and estimable, or (2) reasonably possible? Accrue for contingencies that are probable and reasonably estimable. If these criteria are not met, but a material loss is reasonably possible, then the company should disclose the nature of the contingency and an estimate of the possible loss or range of loss. If it is not possible to estimate an amount or range of loss, that fact should be disclosed. Disclosure is also required if there is a reasonable possibility of a charge in excess of the amount accrued. Based on these requirements, the staff observed that the initial disclosure of a possibly material contingency often should precede the loss accrual. In the staff’s view, vague or overly broad disclosures that simply reference general risks or litigation are not sufficient for an inventor to understand the specific types of contingencies that the registrant is evaluating. Accrual for probable losses when the estimated amount of loss is within a range of amounts is required by FASB Statement No. 5, Accounting for Contingencies, and FASB Interpretation (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 Speeches, Taub 2004; and Current Accounting and Disclosure Issues in the Division of Corporation Finance, 12/01/05, II - I, Contingencies and Loss Reserves 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. Did the company dispose of a component of a business (that qualifies as a discontinued operation) Material contingent liabilities—such as product or environmental liabilities or litigation—that may remain with the company notwithstanding disposal of the underlying business should be: • Identified in notes to the financial statements; and • Discussed in terms of the reasonably likely range of possible loss pursuant to FASB Statement No. 5. - 66 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. and retain material contingent liabilities? Reference: SAB Topic 5Z5 2. Does the company allocate interest to discontinued operations? Disclose: • The company’s policy regarding allocation of interest to discontinued operations; and • The amount of interest allocated in determining profit or loss from discontinued operations. Reference: EITF Issue 87-24 3. Does the company have a divestiture where the risks of ownership continue that is accounted for by segregating the assets and liabilities? When the risks and other incidents of ownership continue and the divestiture is accounted for by segregating the assets and liabilities, a note to the financial statements should describe: • The nature of the legal arrangements; • Relevant financing and other details; and • The accounting treatment . Reference: SAB Topic 5E Table of Contents Link AA ACCOUNTING CHANGE 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 made a change in accounting principle or practice or method of applying that principle or practice? Whenever an accounting change is adopted, Form 10-K and 10-Q filings require a letter from the registrant's independent accountant as an exhibit. See Regulation S-K Item 601 Exhibit 18. This letter, generally referred to as a "preferability letter," must indicate whether the change in accounting principle or practice (or method of applying that principle or practice) is to an acceptable alternative principle or practice that is, in the auditor's judgment, preferable under the circumstances. In applying this requirement: - 67 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. • • • • • 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 clear 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. Reference: SAB Topic 6G2b 2. Does the company have a change in accounting principles that requires retrospective application in an interim period If the amount is material, disclose for all periods presented, in the footnotes or on the face of the financial statements, the effect of the change on: • Net income, in total and per share; and • The balance of retained earnings. Similar disclosure should be made if results of operations for any period presented have been adjusted retrospectively by an item subsequent to the initial reporting of the period. Reference: Regulation S-X, Rules 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 - 68 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. 3. Has the company had a change in accounting principle after the first quarter? Disclose the effects of the change on previously reported interim periods. When these disclosures are made, the SEC staff will not require that previous quarterly Form 10-Q reports be amended for retroactive effects of the change. 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 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: - 69 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. body issued an accounting standard that is not effective until after the date of the financial statements? 1. Existence of the authoritative standard; 2. Date the entity must adopt the new standard or, if early adoption is permitted, the date that it plans to adopt; 3. Method of adoption; 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 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 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). - 70 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. Reference: SAB Topic 11M Topic 1N Table of Contents Link CC INTERIM DISCLOSURES See ARM’s SEC Form 10-Q Checklist, Item 1 – Financial Statements - 71 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference 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 contains qualitative information about the company's business, properties, legal proceedings, and other matters. In addition, annual audited financial statements and management's discussion and analysis of the financial conditions and results of operations of the registrant are presented in the 10-K. The SEC's rules permit information already filed with the SEC to be incorporated by reference into the Form 10-K. As with other periodic reports, Form 10-K refers 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) For MD&A see the MD&A 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. Timing Registrants with fiscal years ending on or before December 15, 2003, must file their Form 10K no later than 90 days after the end of their fiscal year. Registrants with year-ends on or after this date that are "accelerated filers" must file their Form 10-K on a phased-in shortened timetable. An "accelerated filer" is a company that has: • Been subject to the Exchange Act reporting requirements for at least 12 calendar months; - 72 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. • • Filed at least one annual report; and No eligibility to use the SEC's special forms for small business registrants. On December 21, 2005 the SEC issued final rules that: • Created a new category of accelerated filer, “large accelerated filer,” that has the above attributes and a public float of $700 million or more; • Defined an “accelerated filer,” with the above attributes and a public float of $75 million to $700 million; • Relaxed the annual reporting deadline for regular accelerated filers; and • Extended by one year the timetable for large accelerated filers to move their annual report filing deadline to 60 days. This means that both regular and large accelerated filers with calendar year ends of December 31, 2005 will have 75 days to file their annual Form 10-K reports .The changes to filing deadlines will be phased in through 2007. Phase 1 began for accelerated filers with years ending on or after December 15, 2003. Phase 1 was extended an additional year in 2004 and once again in 2005 to provide companies with additional time to meet the requirements regarding internal control over financial reporting. The rules finalized in 2005 froze the annual reporting deadline for accelerated filers at 75 days. These rules also allowed large accelerated filers to accelerate their annual reporting due date to 60 days for fiscal years ending on or after December 15, 2006. The table below summarizes the changes. Phase-In Period Year 1 (Existing rule) Years 2 - 4 (Phase 1) Accelerated Filer Year 5 Forward (Frozen at Phase 1) Large Accelerated Filer Year 5 Forward (Phase 2) 10-K Annual Report Due Date Days After Year-End 90 75 75 60 To illustrate, here is a filing schedule for a company with a December 31 year-end, including the deadlines that were revised in 2004 and 2005. - 73 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. Reporting Period Year-End – Dec. 31, 2003 Due Date March 15, 2004 Year-End - Dec. 31, 2004 Filing Deadline 75 days (Phase 1 acceleration) 75 days Year-End – Dec. 31, 2005 Accelerated Filer Year End – Dec. 31, 2006 Large Accelerated Filer Year End – Dec. 31, 2006 75 days 75 days (Phase 1 acceleration frozen) 60 days (Phase 2 acceleration) March 16, 2006 March 16, 2007 March 16, 2005 March 1, 2007 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 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. 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 - 74 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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. 1. Is the company filing a Form 10K? Commercial/Industrial Companies should file the following schedules: 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 2. Do the restricted net assets of consolidated subsidiaries exceed 25% of the company's consolidated net 1. SCHEDULE I - CONDENSED FINANCIAL INFORMATION The condensed financial information schedule should be filed when the consolidated subsidiaries; restricted net assets (see Rule 4-08(e)(3)) exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. Consolidated subsidiaries’ restricted net assets represent the registrant's proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) that can’t be transferred to the parent company (e.g., by loan, advance or cash dividend) without the consent of a third party (i.e., lender, regulatory agency, foreign government, etc.). Where restrictions on the amount of funds that may be loaned or advanced differ from the amount restricted as to the transfer in the form of cash dividends, use the amount least restrictive to the subsidiary. For - 75 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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 3. Does the company have valuation and qualifying accounts such as an allowance for doubtful receivables? 4. Is a substantial portion of the company's business direct or indirect involvement in acquiring and holding real estate for investment? 5. Does the company have mortgage loans on real estate and does the company substantial indirect or indirect involvement in acquiring and 2. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS The valuation and qualifying accounts schedule should be filed to support accounts in each balance sheet. Examples of reserves to be reported on Schedule II include the allowance for doubtful receivables and sales returns and restructuring reserves. If Schedule II is required, follow the format in Regulation S-X, Rule 12-09. References: Regulation S-X, Rule 12-09 and Rule 5-04 3. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Real estate used in the business should be excluded from this schedule. If Schedule III is required, follow the format in Rule 12-28. References: Regulation S-X, Rule 12-28 and Rule 5-04 4. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE Investments in real estate mortgage loans include: first mortgage, second mortgage, construction loans, etc. If Schedule IV is required, follow the format in Rule 12-29. References: Regulation S-X, Rule 12-29 and Rule 5-04 - 76 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. holding real estate for investment? 6. Does the company have liabilities for property-casualty insurance claims? 5. SCHEDULE V - SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS This schedule should be filed when a registrant, its subsidiaries or 50%-or-less-owned equity basis investees, have liabilities for property-casualty ("P/C") insurance claims. The schedule can be omitted if these reserves do not, in the aggregate, exceed one-half of common stockholders' equity of the registrant and its consolidated subsidiaries as of the beginning of the fiscal year. If Schedule V is required, follow the format in Rule 12-18. References: Regulation S-X, Rule 12-18 and Rule 5-04 - 77 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference 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 prospectus also includes the prescribed financial statements. Thus, the prospectus provides two types - 78 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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. [Editor’s note: On July 19, 2005, the SEC released final rules that significantly revamp the registration, communications, and offering processes under the Securities Act of 1933. These new rules have the most pronounced effect on widely followed companies and enable this defined group of very large issuers to register their securities on demand without any prior SEC staff review. The new rules are effective December 1, 2005. The revisions have no direct effect on financial reporting. Exactly how the new rules affect an issuer depends on the type of issuer, the issuer's reporting history, and the issuer's worldwide market capitalization or amount of previously registered non-convertible securities. The rules create four categories of issuers that are based on these and certain other eligibility criteria. “Well-known seasoned issuers” (WKSIs) represent roughly the largest 30 percent of public companies. Issuers who are not as large or widely followed but have a reporting history with the Commission and meet certain other eligibility requirements are categorized as “seasoned issuers.” All other issuers are either “unseasoned issuers” or “non-reporting issuers.” Whether a company is a domestic or foreign registrant is irrelevant for purposes of determining its category.] 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. - 79 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 1. Is the company filing a 1933 Act Registration Statement? The following table summarizes: • When financial statements of a recently completed fiscal year must be furnished; and • The related requirements for including financial statements for SEC filings. 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. When the filing date, effective date, or proposed mailing date is: Within 45 days after fiscal yearend, and the latest fiscal year audited statements are not available Then the following financial statements are required: • • • • From 46 days to within 902 days (i.e., up to and including the 89th2 day) of latest fiscal year- • • Audited consolidated balance sheet for the two fiscal year-ends preceding the recently completed fiscal year Audited statements of income, cash flows, and 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 Audited consolidated balance sheet for the two fiscal year-ends preceding the recently completed fiscal year Audited statements of income, cash flows, and - 80 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. end, audited financial statements for that year are not available, and the conditions of Rule 3-01(c) are met • • • From 46 days to within 902 days (i.e., up to and including the 89th2 day) of latest fiscal yearend, audited financial statements for that year are not available, and the conditions of Rule 3-01(c) are NOT met Within 902 days after fiscal year-end, and audited financial statements for latest fiscal year are available • More than 903 days, but less than 1351 days, of latest fiscal year-end • 1351 days or more subsequent to latest fiscal year-end • • • • • • shareholders' equity for each of the three fiscal years preceding the recently completed fiscal year Unaudited interim balance sheet at least as current as the 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 Audited consolidated balance sheet as of the two most recently completed fiscal year-ends Audited statements of income, cash flows, and shareholders' equity for each of the most recent three fiscal years Audited consolidated balance sheet as of the two most recently completed fiscal year-ends Audited statements of income, cash flows, and shareholders' equity for each of the most recent three fiscal years Audited consolidated balance sheet as of the two most recently completed fiscal year-ends Audited statements of income, cash flows and shareholder's equity for each of the most recent three fiscal years Audited consolidated balance sheet as of the two most recently completed fiscal year-ends Audited statements of income, cash flows, and shareholders' equity for each of the most recent three fiscal years - 81 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. • • 1 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 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 forms for small business registrants. A large accelerated filer is similarly defined, but has a public float of $700 million or more. Refer to Rule 12b-2 for the definition of accelerated filer and large accelerated filer): • 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 small business issuer rules). 2 For accelerated filers: • 60 days (75 days for fiscal years ending before December 15, 2006) for large accelerated filers (up to th and including the 59 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 (75 days for fiscal years ending before December 15, 2006) 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 - 82 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 2. 3. 4. related audited statements of income, cash flows and changes in shareholders’ equity. For a first time registration, the audited financial statements may be no more than 1 year and 45 days old at the effective date. For "publicly released" financial information, an update to the filing. For public utilities, see Rule 3-03(b). References: Regulation S-X, Rules 3-01, 3-02, 3-04 and 3-12; SAB Topic 1C 2. Is the company filing an initial public offering of its securities? 3. If the company is filing an initial public offering of its securities, did it issue potentially dilutive securities with nominal exercise prices (in the periods covered by income statements that are included in the registration statement or in the subsequent period prior to the effect date of the filing)? 4. Is the company registering convertible securities? In an initial public offering, historical EPS should be presented for all periods. Reference: SAB Topic 4D Compute and disclose basic EPS; the warrants, options, and other potentially dilutive securities with nominal exercise prices (nominal issuances) should be given retroactive treatment in the computation, similar to a stock split or a recapitalization. Also, compute and disclose diluted EPS; nominal issuances and potential common stock should be given retroactive treatment similar to a stock split or a recapitalization. Reference: SAB Topic 4D Pro forma per share data must be disclosed when a convertible security is being registered; the proceeds will be used to extinguish existing preferred stock or debt, and the extinguishment will have a material effect on EPS. Reference: SAB Topic 3A - 83 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 5. If the company is an initial public registrant, is it a member of a consolidated tax group? The SEC generally prefers that subsidiary members of a consolidated tax group calculate their tax provisions on a separate return basis for book purposes. However, it is not uncommon for subsidiaries to use other allocation methods. In order that investors understand what the effect on income would have been if the registration had 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. Reference: SAB Topic 1B1 6. Did an investment banker provide advisory services or financing? When an investment banker has provided advisory services and financing, disclose the amount accounted for as debt issuance costs, if material. Reference: SAB Topic 2A6 - 84 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. Table of Contents Link 1. Is the entity a bank holding company? 2. Is the company forming a onebank holding company 3. Does the company present tax equivalent revenue information? 4. Does the company have foreign loans? 5. Does the company have an Allocated Transfer Risk Reserve? 6. Does the company have a material amount of lending and deposit activities although it is not a bank holding company? 7. Did the company receive assistance from a FF INDUSTRY DISCLOSURES 1. Bank Holding Companies Various disclosures are required; see Regulation S-X, Article 9 and Industry Guide 3. References: Regulation S-X, Article 9 and Guide 3 Provide the financial statements required in SAB Topic 1F. Reference: SAB Topic 1F Provide tax equivalent revenue only as allowed by SAB Topic 11G. Reference: SAB Topic 11G Provide the disclosures required by SAB Topic 11H. Reference: SAB Topic 11H Provide the disclosures required by SAB Topic 11I Reference: SAB Topic 11I The SEC staff believes that Article 9 and Guide 3 apply literally only to bank holding companies, but provide useful guidance to other registrants, including savings and loan holding companies. Reference: SAB Topic 11K Provide the disclosures required by SAB Topic 11N. Reference: SAB Topic 11N - 85 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. Federal regulatory agency in conjunction with either an acquisition of a troubled financial institution or a similar acquisition? 8. Has the company made regulatory assisted acquisitions? Disclose the impact of regulatory assisted acquisitions by a display of the assets covered by the assistance as one line item on the balance sheet, with the effects of assistance segregated in the income statement. The notes should present, among other things, a breakdown of the major 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 company have an allowance for loan losses? 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. Loan losses should be based on past events and current economic conditions. References: Current Accounting and Disclosure Issues in the Division of Corporation Finance, 12/01/05, IIO1, Allowance for Loan Losses - Disclosure; and SAB 102 - 86 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. Table of Contents Link 1. Is the company subject to the accounting required by FASB Statement 71? 2. Regulated Industries FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation, applies to general purpose external financial statements of an enterprise that has regulated operations that meet all of the following criteria: a. The enterprise’s rates for regulated services or products provided to its customers are established by or are subject to approval by an independent, third party regulator or by its own governing board 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. 2. Is the enterprise a utility company? Tangible and intangible utility plant of a public utility company should be segregated so as to show separately the original cost, plant acquisition adjustments, and plant adjustments, as required by the 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 have an interest in a jointly owned A participating utility should include: • Information concerning the extent of its interests in jointly owned plants in a note to its financial - 87 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 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 company used a construction intermediary to finance plant construction? The balance sheet of an electric utility company using a construction intermediary to finance construction should include the intermediary's work in progress in the appropriate caption under utility plant. The related debt should be included in long-term liabilities and disclosed either on the balance sheet or in a note. 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 company recognized writeoffs under Statement 90 due to plant abandonments, disposals or FASB Statement No. 90, Regulated Enterprises — Accounting for Abandonments and Disallowances of Plant Costs, prescribes the accounting for abandonment of plants and disallowances of costs of recently completely plants. Write-off costs due to plant abandonments, disposals or other disallowed costs related to existing facilities, in most cases, do not qualify as extraordinary items for financial reporting purposes. Reference: SAB Topic 10E - 88 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. other disallowed cost related to existing facilities? 6. Does the company have one or more long-term contracts for the purchase of power? The cost of power obtained under long-term purchases contracts, including payments required to be made when a production plant is not operating, should be included in the operating expenses section of the income statement. A note to the financial statements should present information concerning the terms and significance of such contracts to the utility company including date of contract expiration, share of plant output being purchased, estimated annual cost, annual minimum debt service payment required and amount of related long-term debt or lease obligations outstanding. 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 company have probable future revenue from the inclusion of environmental liability costs? Utility companies cannot net probable future revenue resulting from the inclusion of environmental liability costs in allowable costs for ratemaking purposes against the estimated liability. Reference: SAB Topic 10F - 89 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 8. Is the company a public utility holding company? In the consolidated balance sheet of a public utility holding company the difference between the amount at which the parent's investment is carried and the underlying book equity of subsidiaries as at the respective dates of acquisition should be shown. Reference: Regulation S-X, Rule 3A-05 - 90 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. Table of Contents Link 1. Does the enterprise participate in a 'gas balancing' arrangement with a joint owner of a well? 2. Does the entity include methane gas in proved reserves? 3. Does the company perform oil and gas producing activities? 4. Is the oil and gas company performing interim reporting? 5. Are any of the company’s reserves, property acquisition costs, exploration costs, or development costs located in foreign countries? 3. Oil and Gas Companies Disclose the method of accounting for gas imbalances as well as the amount of any imbalance in terms of units and value. Reference: EITF 90-22 Refer to SAB Topic 12G for disclosure requirements Refer to Regulation S-X, Rule 4-10 for financial accounting and reporting standards for companies engaged in oil and gas producing activities Supplementary oil and gas information is not required in interim financial reports, except for information about a major discovery or other favorable or adverse event that causes a significant change from the information presented in the most recent annual financial report concerning oil and gas reserve quantities. If some or all of property acquisition, exploration and development costs are incurred in foreign countries, the amounts should be disclosed separately for each geographic area for which reserve quantities are disclosed. If some or all of the enterprise's reserves are located in foreign countries, the disclosures of net quantities of reserves and changes should be separately reported for: • Enterprise's home country, if significant. • Each foreign geographic area (country or group of countries) in which significant reserves are located. - 91 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. Reference: FASB Statement 69, paragraph 22 6. Does the company have asset retirement obligation liabilities? The SEC staff believes that a company should include: • Asset retirement costs in its Costs Incurred disclosures in the year that the liability is incurred, rather than on a cash basis. That is, the Costs Incurred disclosures in a given period should include asset retirement costs capitalized during the year and any gains or losses recognized upon settlement of asset retirement obligations during the period. • Accretion of the liability for an asset retirement obligation in the Results of Operations either 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 company have operations in the deepwater Gulf of Mexico? The SEC staff believes that a company can book proved undeveloped reserves in the deepwater Gulf of Mexico if the all of the following tests and associated technical information are used: • Open hole logs; • Core samples; • Wire line conveyed sampling; and • Seismic surveys. Reference: SEC Sample Letter, April 2004 8. Does the company engage in activity related to buy/sell arrangements for oil and gas commodities? In financial reports covering periods ending on or after December 15, 2004, companies should: • Identify separately on the face of the statements of operations, the proceeds and costs associated with buy/sell and comparable arrangements that are reported on a gross basis for all periods presented • This can be accomplished by either presenting the amounts as separate line items, or within parenthetical notations next to the captions that include these amounts. • Disclose the amounts in a footnote if the amounts are not material enough for disclosure on the face of the statements of operations. • Disclose in the accounting policy notes the characteristics of material arrangements of this type, the circumstances under which they are used, and the accounting literature relied upon in determining whether gross or net reporting should apply. - 92 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. • Explain in the accounting policy note that the EITF is considering related matters in Issue 04-13, and describe how the financial statement presentation might change should a single method of reporting be required. Reference: SEC Sample Letter, February 11, 2005 9. Does the company have capitalized exploratory drilling costs? • The SEC staff commented that it has observed instances where the accounting for exploratory drilling costs has not corresponded to the explicit requirements in FASB Statement No. 19, Financial Accounting and Reporting by Oil and Gas Producing Companies, paragraphs 31-34. The concern expressed by the SEC staff is documented in a letter dated February 11, 2005; however, that letter was issued before the issuance of FASB Staff Position (FSP) FAS 19-1, “Accounting for Suspended Well Costs.” Registrants should consider the guidance in the February 11, 2005 letter 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. Reference: SEC Sample Letter, February 11, 2005, FSP FAS 19-1 10. Does the company report capitalized drilling costs on its balance sheet? The SEC staff’s view is that companies should disclose the following in the financial statements: • The accounting policy regarding capitalization of exploratory drilling costs, including the criteria management applies in evaluating whether costs incurred meet the criteria for initial and continued capitalization and the frequency with which such evaluations are made; • Total capitalized exploratory drilling costs, as of each balance sheet date, pending the determination of proved reserves; • As of the most recent balance sheet date, the number of wells and amount of such capitalized 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, 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 - 93 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. • • • 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 the proposed FSP; 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. Reference: SEC Sample Letter, February 11, 2005 - 94 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. Table of Contents Link 1. Is the company a registered management investment company? 1. Is the entity an employee stock purchase, savings, or similar plan? 4. Registered Management Investment Companies For registered management investment companies and companies required to be registered as management investment companies see Regulation S-X, Article 3, (Rule 3-18) and Article 6 for the form and presentation of financial statements required to be filed. References: Regulation S-X, Rule 3-18 and Article 6 5. Employee Stock Purchase, Savings and Similar Plans See Regulation S-X, Article 6A for the form and presentation of financial statements required to be filed. Reference: Regulation S-X, Article 6A - 95 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. Table of Contents Link 1. Are the company’s investments in real estate or mortgage loans on real estate significant? 6. Real Estate Entities The disclosure requirements of SAB Topic 7 should be met. Also, schedules required by Regulation S-X, Rule 12-28 and 12-29 should be included in the annual report to shareholders. References: SAB Topic 7, Regulation S-X, Rules 12-28 and 12-29 2. Is the company classified as a real estate investment trust? 3. Does the company have retail land purchases or sales? For real estate investment trusts, see Regulation S-X, Rule 3-15 For real estate operations to be acquired, see Regulation S-X, Rule 3-14 - 96 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. Table of Contents Link 1. Is the company a casino/hotel? 7. Casinos/Hotels Expenses attributable to each of the separate revenue producing activities of casino, hotel and restaurant operations should be separately presented on the face of the income statement. See SAB Topic 11L for further guidance. - 97 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. Table of Contents Link 1. Is the company a food retailer/department store chain? 2. Is the company a retail company that imposes finance charges on credit sales? 8. Food Retailers/Dept. Store Chains Sales of leased or licensed departments are either presented as a separate line item within the income statement or disclosed in a note to the income statement. References: SAB Topic 8A Disclose the amount of gross revenue from finance charges in a footnote and identify the income statement line item that includes such revenue. Reference: SAB Topic 8B - 98 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements Reference For all YES answers, respond to the disclosure requirements and provide a reference. Table of Contents Link 1. Is this company an insurance entity? 9. Insurance Companies Insurance Company Disclosures: 1. See Article 7 of Regulation S-X. 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. References: Regulation S-X Article 7and SAB Topic 5W - 99 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Disclosure Requirements Met? General Disclosures Question Y N Disclosure Requirements For all YES answers, respond to the disclosure requirements and provide a reference. 2. Is the company an insurance company with other than normal, recurring uncertainties? 3. Does the company provide property and/or liability insurance? Provide FAS 5 disclosures for property/casualty insurance claims and IBNR claim reserves, when specific uncertainties (i.e., other than normal or recurring uncertainties) exist or judgmental adjustments are made to historical experience for insufficiently understood claims activity. Reference: SAB Topic 5W For property/liability insurance companies: • Adopting or changing policy with respect to discounting certain unpaid claims liabilities related to short-duration insurance contracts, see SAB Topic 5N • 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 company acquired a life insurance company accounted for as a purchase, and did the company recognize an asset for the present value of future profits of the existing contracts? Disclose: • A description of the registrant’s accounting policy; • An analysis of the PVP asset account for each year for which an income statement is presented; • The estimated amount or percentage of the end of the year PVP balance to be amortized during each of the next five years. Reference: EITF 92-9 - 100 – © 2006 CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Business. Reference
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