It’s on the minds of everyone from central bankers to shoppers paying bigger grocery bills. Inflation now needs to be top of mind for companies as they draw up their financial statements, US regulators are telling them.
The Securities and Exchange Commission is reminding companies as diverse as childcare provider Bright Horizons Family Solutions Inc., chip maker Nvidia Corp., tobacco company Philip Morris International Inc., and others that they need to spell out to investors and analysts how inflation affects their bottom lines. The SEC wrote to companies, telling them to reveal in future filings how inflationary pressures impact areas like operations, cash flows, liquidity, and pricing.
Companies are rusty on disclosing details about inflation, largely because there hasn’t been much of it for decades. In 1980, during a period of rapid inflation, the SEC mandated that companies discuss inflation in their financial statements, but it scaled back the requirement six years later to an instruction to discuss it only if the effect of inflation was “material.”
In 2020, the SEC went further. In a wide-ranging cleanup of SEC regulations, the agency removed references to inflation and price changes. Instead, companies would only have to disclose these issues if they were part of a known trend or uncertainty that has had a material favorable or unfavorable impact on net sales, or revenue, or income from continuing operations.
“Companies weren’t addressing inflation because it wasn’t anything impacting them,” said Tim Kviz, national managing partner at BDO USA LLP. “And sure enough, no sooner does the SEC remove the requirement, and then inflation rears its ugly head for first time in 40 years.”
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Source: news.bloombergtax.com
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