Public Company Insight

	1st Quarter, 2010

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about the Author

Kenny has over eight years of professional experience and serves as a Senior Audit Manager in the Dallas office of HEIN & ASSOCIATES LLP. He assists both public and private companies with a wide range of accounting and consulting matters, including Securities and Exchange Commission (SEC) reporting and U.S. GAAP implementation. He also has specialized experience helping companies comply with the various derivative accounting requirements. Kenny has developed a focus in the energy, manufacturing, and distribution industries. He is currently a member of the American Institute of Certified Public Accountants (AICPA) and the Texas Society of Certified Public Accountants (TSCPA). Prior to joining HEIN & ASSOCIATES LLP in 2004, Kenny was a senior consultant at Deloitte & Touche LLP. He received his bachelor’s degree in accounting and finance from Kansas State University.

Kenny can be reached at 972.458.2296 or kwilks@heincpa.com.

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Financial Reporting Manual: An Alternative to Wandering in SEC Regulations

By Kenny Wilks, CPA, Senior Audit Manager

Have you searched Securities Exchange Commission (SEC) regulations long enough to feel like you have fallen in the rabbit hole of Alice in Wonderland? You are not alone. Everyone has hit this point while researching, but there is an alternative. If the SEC topic you are researching is difficult to find or interpret, a great resource is the Financial Reporting Manual (the "Manual") published by the SEC Division of Corporate Finance. Access it at http://www.sec.gov/divisions/corpfin/cffinancialreportingmanual.shtml.

The SEC originally designed the Manual for internal reference within the Division of Corporate Finance. Though it has existed for many years, it was only placed online for general use in December of 2008. The Manual’s preface states, "...it is not, nor is it intended to be, published views or interpretations of the Division or the Office of the Chief Accountant, such as a Staff Accounting Bulletin." Therefore, while the Manual is not intended to be authoritative, it is where the SEC staff goes for interpretation, so it can be an invaluable tool for registrants.

Users find the Manual is easier to read than SEC regulations. Take for example the required statements in audited annual financial statements. Rather than looking at multiple locations within Regulation S-X, the Manual provides the following table to easily summarize the requirements:

Statement	Smaller Reporting Companies ¹ Reg. S-X [8-02]	Other Reporting Companies ¹ Reg. S-X [3-01, 302, 3-04]	Notes
Balance Sheet	2 fiscal year-ends	2 fiscal year-ends
Income Statement	2 years	3 years
Stockholders’ Equity	2 years	3 years	May be presented in a note to the financial statements.
Cash Flow	2 years	3 years	Presented for same periods as an income statement, as required by SFAS 95 [ASC 230-10-15-3].
Comprehensive Income	2 years	3 years	Display with same prominence as other financial statements. Information may be presented within the Operating Statement, Statement of Changes in Equity, or in a separate Statement of Comprehensive Income, as required by SFAS 130 [ASC 220-10-45-8].
¹ See Topic 5 for eligibility criteria of Smaller Reporting Companies.

The Manual also provides interpretative guidance on a variety of complex issues, including reporting requirements for acquired businesses, pro forma financial statement content, use of non-GAAP measurements, management discussion & analysis (MD&A) suggestions, and reverse acquisitions. We have found the MD&A guidance to be particularly valuable in light of the SEC’s increased focus in this area. Also, the reverse acquisitions guidance details the content and timing of the various reports required to be filed with the SEC. An excellent table details the required reports depending on whether the accounting acquirer or legal acquirer (registrant) fiscal year is adopted by the surviving registrant.

The SEC regularly updates the Manual for new rules and interpretations. The most current version was updated December 7, 2009 for items through September 30, 2009. Changes "identified in parentheses by section number in the manual" included:

Changes in fiscal year (Section 1360)
Significance - intercompany transactions (Section 2015)
Flowchart overview of Regulation S-X 3-05 (Section 2060)
Significance calculations - multiple series registrants (Section 2410)
Involuntary PCAOB deregistration (section 4115)
Financial statements required pursuant to Regulation S-X 3-05 or 3-09 (Section 5210)
Restricted net assets (Section 5350)
Capitalization table (Section 6270)
First-time adopters of IFRS that previously used U.S. GAAP for the primary financial statements in SEC filings (Section 6345)
Measurement period adjustments (Section 13600)

While the Manual may not be all encompassing of every SEC rule, it does provide an excellent, plain English source for those hard-to-interpret SEC regulations. Next time you feel like Alice, we recommend you look to it to find the answer.