The Trusted Professional

October 1998 Issue

Y2K - Are You Ready?

Disclosure Guidance from SEC, ASB, and GASB

By Anthony J. Mancuso, CPA

As the millenium approaches, more and more guidance is available on addressing the Year 2000, or Y2K, problem that could cause computers to cease working on January 1, 2000 due to programming errors that may not recognize two-number years after '99. In recent months, the Securities and Exchange Commission, the Auditing Standards Board, and the Government Accounting Standards Board each have issued recommendations regarding disclosure considerations for an organization's Y2K readiness.

Securities and Exchange Commission

The SEC's Release No. 33-7558, targeted to public companies, investment advisers, investment companies, and municipal securities issuers, details the type of information the SEC expects to see in financial reports. In addition, SEC Chairman Arthur Levitt sent letters to over 9,000 publicly-traded companies to stress the urgency of proper disclosure of Y2K readiness.

Among the issues addressed by the SEC is whether a company's actions regarding the Year 2000 problem are material events, trends, or uncertainties that should be disclosed in the Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A). The interpretation also states the need for companies to consider the Year 2000 issue in connection with other rules and regulations and when they prepare financial statements.

In addition, the SEC reminds municipal securities issuers, public companies, investment advisers, and investment companies that the anti-fraud provisions of the federal securities laws apply to disclosure about the Year 2000 problem. The guidance supersedes the revised Staff Legal Bulletin No. 5.

The effective date of the release is August 4, 1998. Companies with a June 30 or July 31 fiscal year-end need to follow the guidance when they file their annual reports. Companies with quarterly periods ending after this effective date also must adhere to the release's interpretation.

(Source: www.sec.gov/rules/concept/33-7558.htm)

Auditing Standards Board

The ASB's interpretation, Consideration of the Year 2000 Issue When Examining or Reviewing Management's Discussion and Analysis, of Statement on Standards for Attestation Engagements No. 8, Management's Discussion and Analysis addresses:

How tests of Year 2000 disclosures may be performed by the practitioner,

Specialized skills and the CPA's use of the work of a specialist,

How the CPA's approach to Year 2000 disclosures differs with a review engagement rather than an examination engagement, and

Obtaining written representations about particular disclosures to supplement other procedures, particularly those that involve management's intent or belief about future events.

(Source: www.aicpa.org/members/div/auditstd/index.htm)

Governmental Accounting Standards Board

GASB's proposed Technical Bulletin, Disclosures About Year 2000 Resources Committed, requires government agencies to disclose a general description of the Year 2000 problem as it relates to the organization. The proposal calls for disclosures of the amount spent or payable during the period covered by the financial statements, the amount of resources committed but not yet spent or payable to make computer systems and other equipment Y2K compliant, and information about the stages of necessary compliance work for systems and other equipment.

The comment period for the technical bulletin has expired and once the final version is released, it affects financial statements issued between October 31, 1998 and December 31, 1999, with earlier application encouraged.

(Source: www.rutgers.edu/Accounting/raw/gasb/exp/tb98-a.html) *