SEC Urges Year 2000 Disclosure

The Securities and Exchange Commission is requiring companies to disclose substantial year 2000 (Y2K)-related computer costs. In staff legal bulletin no. 5, issued in January, the SEC Divisions of Corporation Finance and Investment Management said a company should disclose Y2K issues if they are material to its financial condition regardless of whether remediation programs or contingency plans are in place. The requirements are effective for 1997 company filings.

Most existing computer programs use only two digits to identify the year. If these programs are not updated, many computer applications could fail by or at the Y2K. For example, Chase Manhattan Bank and BankAmerica Corp. plan to spend more than $200 million each to be Y2K-compliant.

The staff bulletin, originally published in October 1997, was amended to include specific guidance, including the requirement that companies include either of the following in their managements discussion and analysis:

  • The cost of Y2K compliance if it is a material event or uncertainty that would cause reported financial information not to be necessarily indicative of future operating results or financial condition.

  • The cost or consequence of incomplete or untimely Y2K compliance if it represents a material event or uncertainty that is expected to affect future financial results or cause reported financial information not to be necessarily indicative of future operating results or financial condition.

The additional disclosure guidance came after Stuart Kessler, chairman of the AICPA board of directors, and Robert H. Herz, chairman of the AICPA SEC regulations committee, sent a letter to SEC Chairman Arthur Levitt, Jr., and Commissioner Isaac C. Hunt, Jr., expressing their concern that many companies have not yet recognized the technological challenges of fixing the Y2K problem or are still determining its potential cost and impact on operations. Kessler and Herz said they believed this information should be made available to investors.

The SEC staff bulletin requires companies to review, on an ongoing basis, whether they need to disclose anticipated costs, problems and uncertainties associated with the Y2K issue. The SEC also requires Y2K disclosures in certain other filings, including companies Description of Business (item 101 of regulations S-K and S-B) and, when necessary, form 8-K.

Copies of the revised bulletin may be obtained from the SEC Web site at A copy of the AICPA letter to the SEC on the Y2K issue (document no. 1702) is available on the AICPA fax retrieval system by dialing from a fax machine 201-938-3787.


©1998 AICPA


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