New ASU Adds Selected SEC Disclosures to Codification

ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, was issued in October 2023.

Why Was the ASU Issued?

In 2018, the SEC issued Release No. 33-10532, Disclosure Update and Simplification, which contained certain disclosure requirements that overlap with U.S. GAAP, but require additional information. Because of this overlap, these disclosure requirements were passed on to the FASB to consider incorporating into the FASB ASC. The FASB incorporated 14 of the 27 disclosure requirements referred to them by the SEC in the new ASU.

The FASB believes that the amendments to disclosures contained in the new ASU will clarify, make technical corrections, or improve disclosure and presentation requirements in a variety of ASU topics. In addition, it’s noted that comparability of entities not previously subject to SEC disclosure requirements to those that had to comply with such requirements should be improved. Also, the amendments will help align the Codification to SEC regulations.

Who Is Impacted by the ASU?

It’s important to note that the requirements apply to all entities that are in the scope of the various FASB ASC Topics. Thus, the ASU may impact a wide range of entities through one or more of the amendments.

What are Some of Key Considerations?

The revisions amend thirteen FASB ASC Topics. However, the FASB’s media advisory states that the disclosure requirements are relatively narrow in nature.

Some of the more significant amendments are:

Statement of Cash Flows (FASB ASC 230). The ASU adds an accounting policy disclosure when cash flows relating to derivative instrument and associated gains and losses are presented in the cash flows statement.
Accounting Changes and Error Corrections (FASB ASC 250). For changes in reporting entity, disclosure of any prior-period adjustment and the impact on retained earnings in interim financial statements is required.
Commitments (FASB ASC 440). Disclosure is required of assets mortgaged, pledged, or otherwise subject to lien, and the obligations collateralized.
Debt (FASB ASC 470). Amounts and terms of unused lines of credit and unfunded commitments are required to be disclosed. For public business entities, disclosure is also required of the weighted-average interest rate on outstanding short-term borrowings.
Earnings per share (FASB ASC 260). Disclosure is required of methods used in the diluted EPS computation for each dilutive security.
Equity (FASB ASC 505). For issued preferred stock, disclosure of the preference in involuntary liquidation is required, if other than par or stated value.
Transfers and Servicing—Secured Borrowing and Collateral (FASB ASC 860). The ASU includes requirements for the following:
- Accrued interest included in the disclosure of incurred liabilities on securities borrowing or repurchase or resale transactions.
- Separate presentation of the aggregate carrying amount of reverse repurchase agreements on the balance sheet if over 10% of total assets.
- Disclosure of amounts at risk with an individual counterparty if more that 10% of stockholder’s equity.
- For reverse repurchase agreements over 10% of total assets, disclosure of provisions to ensure that market value of underlying assets remains sufficient to protect against counterparty default.
- For public business entities, disclosure is also required of the weighted-average interest rates of repurchase liabilities.

Effective Date

For entities that are required to comply with the SEC’s existing disclosure requirements (and those that are required to file or furnish financial statements with the SEC for purposes of the sale or issuance of securities not subject to contractual restrictions on transfer), the effective date for each amendment is the date where the SEC’s removal of the related disclosure from Regulation S-X or Regulation S-K becomes effective. Early adoption is prohibited. For all other entities, the amendments are effective two years later.

If by June 30, 2027, the SEC hasn’t removed the disclosure requirements from Regulation S-X or Regulation S-K, the related disclosure amendments in the ASU will be removed from the FASB ASC and won’t become effective.