Vitesse backdating settlement
If anything, the FASB’s decision to stay its hand, at least temporarily, has increased the pressure on both preparers and auditors of financial statements to demonstrate that they are complying with what FASB and the SEC staff have emphasized are existing GAAP requirements regarding loss contingencies (primarily ASC Subtopic 450-20, formerly known as FAS 5).
Each company “should develop a presentation method that is clear, understandable and appropriately reflects the categories of obligations that are meaningful in light of its capital structure and business[,]” and highlight any changes in that method to enable investors to make period-to-period comparisons.
 We begin with the two most notable SEC interpretive pronouncements in 2010 regarding the need for “early warning” disclosures of material risks in periodic reports.
In practical terms, they call for management to engage in an ongoing process of identifying, and reassessing the significance of, a multitude of business, financial and regulatory risks and uncertainties facing the company. The February 2010 Climate Change Release The first of these SEC interpretive releases, published in February 2010, is somewhat deceptively entitled (the “Climate Change Release”).
Regardless of the appropriate accounting treatment or the existence of an obligation to disclose these transactions as material off-balance sheet arrangements or contractual obligations in the MD&A, further discussion and analysis of these transactions may be necessary in the MD&A if management concludes that they are “reasonably likely to result in the use of a material amount of cash or other liquid assets.” Companies also should review the MD&A Liquidity Release for helpful tips on what the SEC and its Staff expect to see in the MD&A concerning disclosure of cash management and risk management policies relevant to an evaluation of their financial condition.
This disclosure may be necessary, the SEC believes, to provide context for the material exposures identified in the MD&A. The SEC used the Climate Change Release to remind companies to apply the two-pronged analysis, first delineated in a 1989 interpretive release, in evaluating their obligation to disclose known trends, events or uncertainties.