More than 18 months have passed since most registrants to the Securities and Exchange Commission (SEC) began adhering to new revenue recognition rules known as ASC 606, and the change took affect for private companies earlier this year. Meanwhile, the SEC has proposed changes to requirements related to M&A transactions and continued the debate surrounding disclosures related to a company's effect on the environment.
To find out how registrants are handling these complex issues, Toppan Merrill commissioned Mergermarket to speak with three leading experts on SEC disclosure policies for their insights.
Toppan Merrill question: To your knowledge, what effect is the new revenue accounting standard expected to have on investment funds such as private equity firms and hedge funds? Leading industry experts weigh in...
Amisha Shrimanker Kotte, Jones Day:
I am not currently working with any funds directly on disclosure issues, but I do think that private companies will face a bit of a steeper hill when it comes to implementing the new accounting standard since they are not used to these levels of disclosures like public companies are, and that in turn will affect private equity owners.
With respect to PE firms and hedge funds, they're going to have to think about their fees – both base management fees and performance fees – and how they're accounting for them. A base fee may be included in a transaction since it's not going to change, but performance-based fees are going to be variable so they may be recognized at different points in time when there wouldn't be any reversal of those amounts. This may result in funds recognizing these fees as revenue at later points in time than they did previously.