Our Financial Reporting Update highlights key developments and issues that are relevant to finance and accounting personnel.
Financial Accounting Standards Board
The Private Company Council (PCC) met to discuss various accounting issues that impact private companies. Topics reviewed included measuring the fair value of equity-classified awards, accounting for asset acquisitions and business combinations, lease accounting, and accounting for intangibles. The Financial Accounting Standards Board (FASB) has a summary overview of the discussion and links to the relevant accounting pronouncements.
The Financial Accounting Standards Advisory Council (FASAC) met to discuss current issues in accounting. One important topic of discussion was a cost-benefit analysis of the new lease standard implementation. The majority of preparers concluded that the cost of implementation was higher than expected and stated that it was uncertain how beneficial the new lease standard was in practice. While the comments from this meeting do not reflect the official positions of the FASAC and the FASB, these groups consider this information when they make policy decisions.
Securities and Exchange Commission
The Securities and Exchange Commission (SEC) charged Stable Road Acquisition Company, SRC-NI, and Momentus Inc. for making misleading comments to shareholders in connection to their special purpose acquisition corporation (SPAC) transaction. In this transaction, Stable Road was the SPAC, SRC-NI was Stable Road’s sponsor, and Momentus was the proposed target. The SEC alleges that Momentus had, on multiple occasions, falsely asserted to investors that its technology had been successfully tested in space even though it was aware that its technology had failed all tests. The SEC charged Momentus for these false statements and charged Stable Road and SRC-NI for failing to conduct due diligence. According to SEC Chair Gary Gensler, “Stable Road, a SPAC, and its merger target, Momentus, both misled the investing public. The fact that Momentus lied to Stable Road does not absolve Stable Road of its failure to undertake adequate due diligence to protect shareholders.” Gensler concluded that this case is an example of the SEC’s firm dedication in holding SPAC entities responsible for their communications with potential investors.
The SEC charged Parallax Health Sciences Inc. for making misleading press releases about its work in combating COVID-19. According to the SEC, Parallax falsely stated that its COVID-19 tests would be available soon even though the company was aware that it was not close to developing a functional test. Additionally, the SEC asserted that the company claimed to offer medical and personal protective equipment for sale even though it never had access to this type of equipment. The SEC alleges that Parallax made these misleading statements to inflate the company’s stock price; furthermore, the company’s stock did improve after Parallax released the statements. The company and two of its executives have offered to settle the allegations for total penalties of $185,000.
American Institute of Certified Public Accountants
The American Institute of Certified Public Accountants (AICPA), the International Federation of Accountants (IFAC), and the Chartered Institute of Management Accountants (CIMA) published a study that discusses assurance of sustainability disclosures around the globe. The research found that sustainability reporting and assurance disclosures vary considerably by location; globally, there is a noticeable lack of standardization. The AICPA notes that as stakeholders continue to place higher significance on sustainability reporting in decision-making, trustworthy assurance over sustainability reporting will also increase in importance.