SEC Issues SABs on Restructuring and Impairment Charges, Revenue Recognition
Late last year, the SEC staff issued two staff accounting bulletins (SABs), one dealing with aspects of restructuring and impairment charges, the other with revenue recognition.
SABs are not rules or interpretations of the SEC. Rather, they are interpretations and practices followed by staff of the Office of the Chief Accountant and the Division of Corporate Finance in administering the disclosure requirements of Federal securities laws.
These two SABs, Nos. 100 and 101, as well as SAB No. 99, also issued last year, complete the work of the SEC staff in response to SEC Chair Arthur Levitt's concerns about earnings management.
In November 1999, the SEC released SAB No. 100, which provides guidance on the accounting for and disclosure of certain expenses and liabilities commonly reported in connection with restructuring activities and business combinations and the recognition and disclosure of asset impairment charges.
Specifically, SAB No. 100 addresses such practices as inappropriately recording restructuring charges and general reserves for future losses, reversing or relieving reserves in inappropriate periods, and recognizing or not recognizing an asset impairment charge in the appropriate period. Levitt has referred to overstating restructuring charges, one of the ways companies clean up their balance sheets, as the "big bath," in which the company hopes that Wall Street will overlook the one-time loss and focus on future earnings.
SAB No. 100 reiterates current criteria and provides guidance on how the staff interprets and applies those criteria. It states that costs and charges falling within the scope of Emerging Issues Task Force (EITF) Issues No. 94-3, 95-3, or SIAS 121 must be accounted for in accordance with the appropriate standard, and that the EITF issues and SIAS 121 should not be applied outside their respective scopes. The SAB provides examples of the staff's interpretations of how this accounting literature should be applied.
In addition, SAB No. 100 informs investors of the additional disclosures that the SEC staff requested to enhance financial statement transparency and provides the staff's views on assessing and measuring enterprise level goodwill for impairment in accordance with APB Opinion No. 17, Intangible Assets. …