Subtopic 250-10: Accounting Changes and Error Corrections

> Accounting Changes

250-10-45-15. If a public entity that regularly reports interim information makes an accounting change during the fourth quarter of its fiscal year and does not report the data specified by paragraph 270-10-50-1 in a separate fourth-quarter report or in its annual report, that entity shall include disclosure of the effects of the accounting change on interim-period results, as required by paragraph 250-10-50-1 (in this checklist), in a note to the annual financial statements for the fiscal year in which the change is made.

Disclosure

©2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

> > Changes in Accounting Principle

250-10-50-1. An entity shall disclose all of the following in the fiscal period in which a change in accounting principle is made:

a. The nature of and reason for the change in accounting principle, including an explanation of why the newly adopted accounting principle is preferable.

b. The method of applying the change, including all of the following:

1 A description of the prior-period information that has been retrospectively adjusted, if any.

2 The effect of the change on income from continuing operations, net income (or other appropriate captions of changes in the applicable net assets or performance indicator), any other affected financial statement line item, and any affected per-share amounts for the current period and any prior periods retrospectively adjusted. Presentation of the effect on financial statement subtotals and totals other than income from continuing operations and net income (or other appropriate captions of changes in the applicable net assets or performance indicator) is not required.

3 The cumulative effect of the change on retained earnings or other

components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented.

4 If retrospective application to all prior periods is impracticable, disclosure of the reasons therefore, and a description of the alternative method used to report the change (see paragraphs 250-10-45-5 through 45-7).

c. If indirect effects of a change in accounting principle are recognized both of the following shall be disclosed:

1. A description of the indirect effects of a change in accounting principle, including the amounts that have been recognized in the current period, and the related per-share amounts, if applicable.

2. Unless impracticable, the amount of the total recognized indirect effects of the accounting change and the related per-share amounts, if applicable, that are attributable to each prior period presented. Compliance with this disclosure requirement is practicable unless an entity cannot comply with it after making every reasonable effort to do so.

Financial statements of subsequent periods need not repeat the disclosures required by this paragraph. If a change in accounting principle has no material effect in the period of change but is reasonably certain to have a material effect in later periods, the disclosures required by (a) shall be provided whenever the financial statements of the period of change are presented.

Note: Paragraphs 250-10-50-2 and 50-3 are omitted because they apply to interim periods only.

> > Change in Accounting Estimate

250-10-50-4. The effect on income from continuing operations, net income (or other

appropriate captions of changes in the applicable net assets or performance indicator), and any related per-share amounts of the current period shall be disclosed for a change in estimate that affects several future periods, such as a change in service lives of depreciable assets. Disclosure of those effects is not necessary for estimates made each period in the ordinary course of accounting for items such as uncollectible accounts or inventory obsolescence; however,

disclosure is required if the effect of a change in the estimate is material.

When an entity effects a change in estimate by changing an accounting principle, the disclosures in paragraph 250-10-50-1 (in this checklist) are also required.

If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods, a description of that change in estimate shall be disclosed whenever the financial statements of the period of change are presented.

> >> Change in Estimate Used in Valuation Technique

250-10-50-5. The disclosure provisions of this Subtopic for a change in accounting estimate are not required for revisions resulting from a change in a valuation technique used to measure fair value or its application when the resulting measurement is fair value in accordance with Topic 820.

> > Change in Reporting Entity

250-10-50-6. When there has been a change in the reporting entity, the financial statements of the period of the change shall describe the nature of the change and the reason for it. In addition, the effect of the change on income before

extraordinary items, net income (or other appropriate captions of changes in the applicable net assets or performance indicator), other comprehensive income, and any related per-share amounts shall be disclosed for all periods presented.

Financial statements of subsequent periods need not repeat the disclosures

required by this paragraph. If a change in reporting entity does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods, the nature of and reason for the change shall be disclosed whenever the financial statements of the period of change are presented. (Sections 805-10-50, 805-20-805-10-50, 805-30-50 (in this checklist), and 805-740-50 describe the manner of reporting and the disclosures required for a business combination.)

> Correction of an Error in Previously Issued Financial Statements

250-10-50-7. When financial statements are restated to correct an error, the entity shall disclose that its previously issued financial statements have been restated, along with a description of the nature of the error. The entity also shall disclose both of the following:

a. The effect of the correction on each financial statement line item and any per-share amounts affected for each prior period presented

b. The cumulative effect of the change on retained earnings or other appropriate components of equity or net assets in the statement of financial position, as of the beginning of the earliest period presented.

250-10-50-8. When prior period adjustments are recorded, the resulting effects (both gross and net of applicable income tax) on the net income of prior periods shall be disclosed in the annual report for the year in which the adjustments are made and in interim reports issued during that year subsequent to the date of recording the adjustments.

250-10-50-9. When financial statements for a single period only are presented, this disclosure shall indicate the effects of such restatement on the balance of retained earnings at the beginning of the period and on the net income of the immediately preceding period. When financial statements for more than one period are presented, which is ordinarily the preferable procedure, the disclosure shall include the effects for each of the periods included in the statements. (See Section 205-10-45 and paragraph 205-10-50-1 in this checklist.) Such disclosures shall include the amounts of income tax applicable to the prior period adjustments.

Disclosure of restatements in annual reports issued subsequent to the first such post-revision disclosure would ordinarily not be required.

250-10-50-10. Financial statements of subsequent periods shall not repeat the

disclosures required by paragraph 250-10-50-8 (in this checklist). See paragraph 250-10-50-2.

SEC Guidance

> Disclosure of the Impact that Recently Issued Accounting Standards Will Have on the Financial Statements of the Registrant when Adopted in a Future Period 1 SAB Topic 11.M (SAB 74). Disclose the following regarding the impact of

accounting standards issued, but not yet adopted, in notes to financial statements and in management’s discussion and analysis (MD&A) if new standard will be adopted by retroactive restatement; otherwise disclose in MD&A:

a. A brief description of the standard and its anticipated adoption date, and the method by which the standard will be adopted,

b. The impact that the standard will have on the financial statements to the extent reasonably estimable or a statement that the impact is not known, and

c. Any other effects that are reasonably likely to occur (e.g., changes in business practices, changes in availability or cost of capital, violations of debt covenants, etc.).

d. Recently issued pronouncements for which SAB 74 disclosures may be required include:

1 ASU 2010-26, Financial Services—Insurance (Topic 944), Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (EITF 09-G)

2 ASU 2010-28, Intangibles—Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (EITF 10-A)

3 ASU 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring

4 ASU 2011-03, Transfer and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements

5 ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.GAAP and IFRSs

6 ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, as amended by ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 7 ASU 2011-06, Other Expenses (Topic 720): Fees Paid to the Federal

Government by Health Insurers (EITF 09-H)

8 ASU 2011-07, Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities (EITF 10-H)

9 ASU 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment

10 ASU 2011-09, Compensation – Retirement Benefits – Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan

11 ASU 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate–a Scope Clarification

12 ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities

13 ASU 2012-01, Health Care Entities (Topic 954): Continuing Care Retirement Communities – Refundable Advance Fees

14 ASU 2012-02, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment

15 ASU 2012-04, Technical Corrections and Improvements

16 ASU 2012-05, Statement of Cash Flows (Topic 230): Not-for-Profit-Entities: Classification of the Sale of Donated Financial Assets in the Statement of Cash Flows (EITF 12-A)

17 ASU 2012-06, Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (EITF 12-C)

18 ASU 2012-07, Entertainment – Films (Topic 926): Accounting for Fair Value Information That Arises after the Measurement Date and Its

Inclusion in the Impairment Analysis of Unamortized Film Costs (EITF

12-©2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

2 SEC Staff Speech. When preparing the SAB 74 disclosures, a registrant should focus on the actual effect adoption will have on historical financial statements (i.e., will historical financial statements presented in the filing materially change). An example would be retrospective application of a new accounting standard that would materially affect the presentation of the financial statements.

> Retrospective Accounting Changes

3 Regulation S-X Rule 3-03(c). If a period or periods reported on include operations of a business prior to the date of acquisition, or for other reasons differ from reports previously issued for any period, the statements shall be reconciled as to sales or revenues and net income in the statement or in a note thereto with the amounts previously reported, provided, however, that such reconciliations need not be made (1) if they have been made in filings with the Commission in prior years or (2) the financial statements which are being retroactively adjusted have not previously been filed with the Commission or otherwise made public.

KPMG and Other Guidance

1 Columns consisting of financial information related to the correction of a material error should be labeled “As Restated.”

2 When prior periods have been adjusted to reflect the retrospective application of a new accounting principle, the use of column headings labeled “As Adjusted” is not required but is considered a best practice.

3 June 23, 2009 meeting of CAQ SEC Regulation Committee. Once a registrant files interim financial statements that reflect the retrospective application of a new accounting principle, any subsequent amendment to previously issued financial statements to correct an error should also reflect that retrospective accounting change.

4 Describe and quantify the effect on income before extraordinary items, net income, and related per share amounts of the current period for a change in estimate (for example, relating to collateralized mortgage obligations (CMOs) / real estate mortgage investment conduits (REMICs)) that affects several future periods such as (not all-inclusive):

a. Average tranche life.

b. Cash flow projections.

c. Reinvestment rate of return.

16 Subtopic 255-10: Changing Prices—Overall

In document Accounting Disclosure Checklist Annual (12/12) (Page 49-54)

Subtopic 250-10: Accounting Changes and Error Corrections—Overall Presentation