As a nonpublic company, you might think your disclosure checklist is up-to-date and sufficiently thorough. Unfortunately, chances are high that it’s not. An out-of-date disclosure checklist can potentially expose you to legal and financial risks. In this blog article, we explore why your nonpublic company disclosure checklist needs an update and what essential information to add.
First, let’s understand the reason why the disclosure checklist needs to be updated. The Financial Accounting Standards Board (FASB) has made several changes to the Generally Accepted Accounting Principles (GAAP) in recent years. These changes require nonpublic companies to disclose additional information in their financial statements. Consequently, the previously sufficient disclosure checklists may now fall short of compliance requirements, thereby exposing businesses to potential legal and financial risks.
Next, let’s explore what essential information to add to your nonpublic company disclosure checklist. Firstly, you need to ensure the disclosure checklist reflects the latest changes to GAAP. Stay abreast of new and proposed accounting standards and evaluate how they could affect your business. For instance, adapt the checklist to include new accounting standards like ASC 606 or ASC 842, which came into effect in recent years.
Secondly, ensure the disclosure checklist covers all the significant accounting policies of your company. A comprehensive list detailing accounting principles and policies is essential in ensuring that the financial statements adhere to GAAP. In case of an audit, such a detailed list will provide the necessary information required to address potential audit questions and concerns.
Thirdly, consider any industry-specific requirements for disclosure. Companies must ensure that they comply with any relevant industry-specific requirements that supersede GAAP. For instance, companies in the real estate industry must adapt their checklist to include disclosures related to lease agreements, which are unique to their industry.
Lastly, consider adding environmental, social, and governance (ESG) disclosures to your checklist. ESG disclosures are becoming increasingly critical and are likely to be mandatory in the US in the future. Companies that prepare their ESG disclosures in advance will benefit by being better positioned for any regulatory changes.
In conclusion, updating your nonpublic company disclosure checklist is essential in ensuring that your company is in compliance with regulatory standards and best practices. By updating your checklist and adequately disclosing the necessary information, you minimize legal and financial risks for your business. Make sure to stay informed about new and proposed accounting standards continually, ensure all accounting policies are adequately documented, and consider industry-specific requirements. Remember, a well-written, up-to-date checklist could ultimately help your business succeed.
