SEC Trends & Developments - Summer 2012 - News

Reminder – Full XBRL tagging (financial statements and relates notes) is required for all non-accelerated filers beginning for the quarter ended June 30, 2012.

According to data released by the National Venture Capital Association (“NVCA”), venture capital fundraising in the United States dropped 35% during the first quarter of 2012.  On the positive side, the amount raised by venture capitalists during the first quarter of 2012 is still the third largest amount raised in a recent quarter.  Mark Heesen, the president of the NVCA, said “While the first quarter fundraising numbers represent a slower start than last year, venture firms appear to be more optimistic about the fundraising environment in 2012, especially those who have benefited from the improving exit environment of late, which has also been encouraging to our investors.”  Heesen added “Many venture firms are either now officially in the market to raise a fund or will enter in 2012. For these firms, it will be ‘do or die’ – and the collective outcome of their fundraising efforts will lay the groundwork for the amount of venture capital available for investment in entrepreneurial companies the next decade.”

The FASB and the International Accounting Standards Board (“IASB”) expect to issue a joint standard on revenue recognition.  Deliberation will begin in the second quarter of 2012, and the final standard is expected to be issued in early 2013.  Standards on leases, insurance, impairment, and classification and measurement of financial instruments, are expected to be re-exposed during the second half of 2012 and be issued later in 2013. (See our Accounting Standards Update elsewhere in this issue.)

Based on a recent review of initial public offering documents filed with the SEC in 2012, approximately 42% included going concern language which states that “substantial doubt” exists about the entity’s ability to continue as a going concern.

According to a poll conducted on behalf of the AICPA, couples argue more about finances than any other matter.  Of those that responded to the poll, 27% said that arguments among partners are more likely to occur over finances than children, work, or friends.  Of those that said that finances were the major issue leading to arguments, 58% had disagreements over what they considered a need or what they considered a luxury.  In addition, 49% argued over unexpected expenses and 32% argued over amounts in savings.

According to a recent study, the number one issue giving rise to audit deficiencies was asset valuation issues.  The survey included PCAOB inspection reports of the Big 4 and covered 250 audits and other assignments.  The inspection reports identified 234 audit deficiencies, of which 123 were related to fair value or asset impairment deficiencies.  This is a stark increase from the 38 deficiencies related to fair value or asset impairment deficiencies in the inspection reports of the Big 4 in 2010, when a total of 72 deficiencies were identified.

According to the AICPA’s Business and Industry Economic Outlook Survey for the second quarter of 2012, optimism on the U.S. economy by financial executives has dropped significantly after rising for two straight quarters.  The survey also showed lower expectations on hiring than prior surveys indicated.  While hiring expectations varied by industry, technology, retail trade, scientific and technical professional services, manufacturing, certain health care-related industries such as pharmaceuticals and medical device suppliers, financial services and insurance all forecasted an increase in staffing over the next 12 months.  Health care providers, wholesale trade, construction, and real estate companies all expect reductions in staff over the next 12 months.

The NASDAQ announced that it would reimburse investment firms approximately $14 million in cash to compensate them for losses incurred on Facebook transactions due to the computer glitches at NASDAQ on the first day Facebook went public.  In addition to the $14 million in cash, NASDAQ expects to give approximately $36 million in credits to investment firms, for the same issue, that the firms will be able to use against fees to be charged by NASDAQ in the future.  This amount, $40 million, is well above the $3 million average NASDAQ has traditional reimbursed customers in the past for losses due to technical problems.

The FASB is once again discussing the issue of disclosure overload.  Leslie Seidman, FASB Chairman, said that the Board will issue a discussion paper in the coming weeks concerning disclosure requirements.  Ms. Seidman said, “Let me emphasize that the purpose of this project is to improve disclosure effectiveness, not to single-mindedly reduce disclosure volume.”

According to Audit Analytics, financial statements restatements in 2011 were similar in number to those in 2010.  There were 787 restatements in 2011, compared to 790 in 2010.  In comparison, the number of financial statement restatements in 2006 was 1,790.  The leading issue in restatements continues to be issues related to accounting for debt, quasi-debt, warrants and equity.  The second greatest number of restatements continues to result from recognition of expenses.  The largest restatement of an entity came from China Unicorn, which had a $1.55 billion negative restatement. 

According to a recent report of the 100 largest public technology companies, 71% list data security breaches as a major risk to them.  That compares to 57% in the prior year.  Other concerns included competition and consolidation, general economic concerns in the U.S., government regulations, and lack of new products or services.
According to a study by ValueBridge Advisors, in the first quarter of 2012, 68 companies on the S & P 500 reported earnings that were more than 5% below expectations previously released by analysts.  The causes of the earnings misses were typically inherent risks in each entity’s business and included weather-related problems, equipment breakdowns, fraud, and one-time events such as acquisitions or legal fees.

SEC Trends & Developments - Summer 2012 Issue  

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