Board Backs Staff’s Convertible Instrument Disclosure Improvements

FASB has backed a series of improvements to convertible instrument disclosures, including the format in which that information can be presented to investors. As part of an effort to simplify its liabilities and equities guidance, the FASB staff recommended several disclosure improvements for convertible instruments. The board unanimously supported the staff’s recommendations, which would add a disclosure objective for convertible preferred shares and convertible debt; amend guidance on certain terms and features, such as including a disclosure around control of the conversion option and events that significantly affect conversion conditions; align disclosure guidance between contingently convertible instruments and other convertible instruments; and centralize the guidance for convertible debt and convertible preferred shares. The board stopped short of requiring these disclosures to be presented in a tabular format, and instead backed an option in which issuers could use either a tabular or narrative disclosure. “I like the suggestion not to prescribe a format,” said FASB Member Marsha Hunt. “But I do think our illustrations should be helpful to try and help evolve best practice. … where we’re going is to try and help steer that direction and still [leave] people room for judgment.”

Deliberations on Segment Reporting Continue

At its February 13 meeting, FASB discussed its ongoing project to improve how companies provide information around business segments. FASB has spent months on outreach related to potential tweaks to Accounting Standards Codification Topic 280, “Segment Reporting,” and as a result has explored three options for changing the “management approach” toward determining which segment information needs to be reported. The management approach “requires an entity to report segment information in the way that management internally organizes its segments to make operating decisions and assess performance,” according to meeting materials prepared by FASB. Of the three alternatives, FASB staff did not recommend pursuing two of them. As for the remaining alternative, FASB staff will study how to clarify the meaning of “regularly reviewed information,” with a particular focus on technology changes and information that is reviewed by the chief operating decision maker only on an irregular basis. Board members also said more investors should be consulted as part of the ongoing study. “The path you’re on gets us the better information from companies,” said FASB member Gary Buesser, who went on to suggest, “We should go out to investors and ask them, ‘What do you want for segments?’”


PCAOB Proposes Clarification Following Supreme Court Ruling

The PCAOB has filed proposed amendments to make clear that the board’s hiring and removal of hearing officers for auditor disciplinary proceedings are subject to approval by the SEC. The board wants to address any uncertainty following the June 2018 Supreme Court decision in Lucia et al. v. SEC (585 U.S. _), which held that the SEC’s process for hiring its administrative law judges was unconstitutional. PCAOB Chairman William Duhnke said last year that he wanted clarity about the board’s enforcement program following the Supreme Court decision. “Uncertainty in this respect can invite lengthy litigation about collateral issues and cast a cloud over our enforcement program,” Duhnke said in a speech in October 2018 in Washington. “As a result, we are currently pursuing short-term and long-term options that should put to rest any doubts about the constitutionality of our enforcement program. For example, in the short term, the board retains full statutory authority to oversee disciplinary proceedings itself, without the involvement of a separately appointed hearing officer. Therefore, we retain our ability to pursue litigated matters.”