Saturday, January 31, 2009

COSO To Release Monitoring Guidance Feb. 4; Seeks New Chair

The following information has been posted on the website of the Committee of Sponsoring Organizations of the Treadway Commission (COSO):

  • COSO is pleased to release the first volume of its monitoring guidance — the Introduction – [to COSO’s Guidance for Monitoring Internal Control Systems]. This business guidance more fully develops the monitoring component of the Internal Control - Integrated Framework to assist companies in ensuring the effectiveness of their financial, operational, and compliance-related internal controls. The entire four-volume set of guidance will be available on February 4, 2009.

The guidance is aimed at helping companies improve - and take credit for, when appropriate - effective monitoring of internal control. It is also aimed at helping companies use monitoring to make the internal control process more efficient as well as effective, and to consider the balance of efficiency and effectiveness holistically, including the level of work performed by management and internal audit and the degree to which the external auditors can rely on that work, based on factors such as the persuasiveness of information gathered in the monitoring process.

Monitoring is one of the five components of internal control identified in COSO's landmark guidance issued in 1992, Internal Control-Integrated Framework, which is still the primary set of guidance on internal control used in the U.S. for purposes of assertions on internal control under Sarbanes-Oxley Section 404 and related references to internal control frameworks in guidance pertaining to private company audits issued by the AICPA.

The other four components of internal control identified by COSO in 1992 are: control environment, risk assessment, control activities, and information and communication. COSO's guidance has been translated into a number of languages at the request of interested parties in other countries. COSO has also issued guidance on Enterprise Risk Management (2004) and Guidance for Smaller Public Companies (2006).

How COSO Develops Its Guidance
COSO was formed in 1985 to sponsor the National Commission on Fraudulent Financial Reporting, an independent private-sector initiative which studied the causal factors that can lead to fraudulent financial reporting. It also developed recommendations for public companies and their independent auditors, for the SEC and other regulators, and for educational institutions.

The five founding sponsoring organizations of COSO are the American Institute of CPAs (AICPA), the American Accounting Association (AAA), Financial Executives International (FEI), the Institute of Internal Auditors (IIA), and the Institute of Management Accountants (IMA). FEI’s representative on the COSO board [during development of COSO's Monitoring guidance 2007-2008] was FEI past president and senior advisor Michael P. Cangemi. Cangemi is the president of Cangemi Company, LLC.

The sponsoring organizations, together with other experts, served on a COSO project task force led by Trent Gazzaway, Manager Partner of Corporate Governance, Grant Thornton LLP. Grant Thornton was chosen by the COSO board to draft the monitoring guidance, under the oversight of the COSO project task force. The COSO board is currently chaired by Prof. Larry E. Rittenberg of the University of Wisconsin.

COSO's strength comes from taking in input from a diverse constituency including its five sponsoring organizations and other experts on its project task forces, and through consideration of comment letters filed on its exposure drafts.

The sponsoring organizations leverage resources from within their own organizations to provide input in the development of the guidance, including participation of their representatives on the COSO board, and other represenatives on the COSO project task force. For example, FEI members from a cross section of companies, large and small, participated on an ad hoc FEI Task Force on Monitoring which closely followed the development of the COSO guidance and submitted comment letters on the precursor Discussion Document and Exposure Draft of the monitoring guidance in 2007 and 2008, respectively. Rick Brounstein, CFO of NewCardio Inc. chaired FEI’s Task Force on Monitoring and represented FEI on COSO's monitoring task force along with Cangemi. Brounstein had previously served on the U.S. Securities and Exchange Commission's Advisory Committee on Smaller Public Companies.

Learn More About The COSO Guidance
Cangemi, Brounstein and Gazzaway provided insights on the upcoming guidance in an article about
COSO in Financial Executive Magazine January 2009.

Grant Thornton and FEI also sponsored a webcast about the then-upcoming monitoring gudiance on Dec. 2, 2008. Over 400 people logged into the webcast, moderated by FEI's Cangemi, during which Grant Thornton's Gazzaway presented key points on the upcoming gudiance. If you missed it, (or if you'd like to hear it again) you can still access the archived GT-FEI 12/2 Webcast on COSO.

In other internal control-related news, see Use Operational Controls to Combat a Down Economy, by Ron Kral of Candela Solutions, published in Wisconsin Technology Network News on January 23. Kral served as a member of FEI's Task Force on Monitoring.

Check back to COSO’s website and FEI’s website on February 4 for more details and information about the full 4 volume set of COSO’s new Guidance on Monitoring Internal Control Systems.

COSO Seeks New Board Chair
In other COSO news, COSO is presently inviting applications for the position of Chairman of the COSO board. The current chair’s – Prof. Larry E. Rittenberg’s – term ended last year and he has agreed to stay on an interim basis during the search for a new chair.

At the present time we are not aware of a specific application deadline for the COSO chair position, but we encourage applicants considering applying to apply soon. If we learn of an application deadline we will update this post.

Further information, including a link to the COSO Board Chair Position Description, is available here.

Friday, January 30, 2009

SEC Posts Final Rule on XBRL

As noted in today’s SEC News Digest, the SEC posted today its final rule on XBRL, formally titled, “Interactive Data to Improve Financial Reporting.” This is the final rule that the Commission approved on Dec. 18, 2008.

As described in today’s SEC News Digest, the rule is aimed at “improv[ing] the usefulness of financial information to investors by requiring domestic and foreign companies to provide to the Commission a new exhibit with their financial statements, including the footnotes and schedules to the financial statements, in interactive data format. Interactive data will supplement, but not replace or change, disclosure using the traditional electronic filing formats in ASCII or HTML. Interactive data will be required with a filer's annual and quarterly reports, transition reports, and Securities Act registration statements, and on its corporate web site, if it maintains one. The requirements will be phased in, beginning later this year with approximately 500 of the largest companies.” As specified in the final rule, the three year phase-in period, based on company size and filing status (US GAAP vs. IFRS) is as follows:

  • Domestic and foreign large accelerated filers that use U.S. GAAP and have a worldwide public common equity float above $5 billion as of the end of the second fiscal quarter of their most recently completed fiscal will be required to provide the required XBRL data in an exhibit to their SEC filings [and to be posted on their corporate websites in accordance with the final rule] beginning with a periodic report on Form 10-Q, Form 20-F or Form 40-F containing financial statements for a fiscal period ending on or after June 15, 2009.
  • All other domestic and foreign large accelerated filers using U.S. GAAP will be subject to the same interactive data reporting requirements the following year, beginning with a periodic report on Form 10-Q, Form 20-F or Form 40-F containing financial statements for a fiscal period ending on or after June 15, 2010.
  • All remaining filers using U.S. GAAP, including smaller reporting companies, and all foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB, will be subject to the same interactive data reporting requirements beginning with a periodic report on Form 10-Q, Form 20-F or Form 40-F containing financial statements for a fiscal period ending on or after June 15, 2011.

For a summary of the main provisions of the final rule, refer to the 9 page Summary of Adopted Amendments in Section I. D. (pages 20-29) of the Final rule on XBRL.

In my personal view, the SEC's action of posting the final rule on XBRL after SEC Chairman Mary L. Schapiro has taken office - since she is President Barack Obama's appointee - would appear to quell any potential challenges by the Obama administration to the final rule, which was voted on at the tail-end of the Bush administration, for those thinking about that question in connection with the Memorandum for the Heads of Executive Departments and Agencies (Fed. Reg. link) issued by White House Chief of Staff Rahm Emanuel on Jan. 20. In addition, by framing the effective date of the final XBRL rule as 60 days after publication in the Federal Register - that would appear to comply with the request in the above-linked memorandum to consider delaying the effective date of new rules (specifcally, rules that had been publised in the Fed. Reg but not yet effective) by 60 days; it would also put the effective date at the end of the 60 day review period provided under the Congressional Review Act.

In related news, XBRL-US announced they are holding SEC Filer Training Workshops in:

  • Los Angeles, Wednesday, March 11
  • New York City, Wednesday May 20, and
  • San Francisco, September 16, 2009

Further details on the training workshops can be found here.

Another good source of info. on XBRL is the Hitachi XBRL Blog: Data Interactive.

FASB Releases New Proposal On Interim, Annual, Financial Instruments Disclosures

Earlier today (January 30), FASB released Proposed FSP FAS 107-b and APB 28-a, Interim Disclosures about Fair Value of Financial Instruments. The proposed FASB Staff Position (FSP) replaces the earlier proposed FSP FAS 107-a.

Synopsis: The proposed FSP would amend FAS 107, Disclosures about Fair Value of Financial Instruments, and amend APB Opinion No. 28, Interim Financial Reporting, to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements, effective with interim and annual reporting periods ending after March 15, 2009.

Specific requirements: Here are the specifics from the proposed FSP:

  • This FSP applies to all financial instruments and entities within the scope of Statement 107.
  • An entity shall include disclosures about the fair value of its financial instruments whenever it issues interim financial statements during that fiscal year.
  • An entity shall disclose in the body or in the accompanying notes of its interim financial statements and its annual financial statements the fair value of all financial instruments, whether recognized or not recognized in the statement of financial position, as required by Statement 107.
  • Fair value information disclosed in the notes shall be presented together with the related carrying amount in a form that makes it clear whether the fair value and carrying amount represent assets or liabilities and how the carrying amount relates to what is reported in the statement of financial position.
  • An entity also shall disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments.
  • This FSP shall be effective for interim and annual reporting periods ending after March 15, 2009. This FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending subsequent to initial adoption.

Comment deadline: The comment deadline is March 2.

Props to Securities Mosaic for noting the issuance of the Proposed FSP in its weekly regulatory report!

Thursday, January 29, 2009

FASB To Drop Quantitative Test In FIN46R

Reporting from FASB in Real Life (RL) and Second Life (SL)…

In discussing comments received on its proposed revisions of FAS 140, Transfers of Financial Assets, and FIN 46R, Consolidation of Variable Interest Entities (VIEs), FASB voted to make a number of changes as it moves toward finalizing those amended standards. Among the changes agreed to yesterday were to:

  • eliminate the quantitative assessment/analysis requirement for determining a Primary Beneficiary of a Variable Interest Entity (VIE) - thus, retaining only the qualitative assessment/analysis. See NOTE below.
  • expand the reconsideration requirement by adding another factor to consider, regarding the entity’s status as a VIE
  • provide explicit derecognition guidance in FIN 46R by referencing the requirements in ARB No. 51, Consolidated Financial Statements, as amended by FAS 160, Noncontrolling Interests in Consolidated Financial Statements
  • use the existing transition method provided in FIN 46R, rather than the transition provisions as proposed last year
NOTE: Para. 35, pg. 25 of yesterday's board handout explains the rationale for dropping the quantitative assessment, and retaining only the qualitative assesment, for determining the Primary Beneficiary of a VIE under FIN 46R: "Certain respondents did not believe the Board would achieve its goal of a more principles-based approach if the quantitative analysis in paragraph 14C [of the proposed amendment to FIN 46R] was retained. They asserted that although the guidance in the proposed Statement is clear in respect to the qualitative analysis being the primary assessment for consolidation and that situations in which a quantitative assessment is performed should be rare, practitioners may inevitably default to the quantitative model to avoid having regulators scrutinize their judgment." As further explained in para. 30 of the board handout, the quantitative assessment can be complex, can reach in some instances across thousands of VIEs, and can sometimes provide inconsistent results. In essence, the board's decision was to retain the proposed qualitative assessment which is more principles-based and drop the quantiative assessment which would have been required only in certain circumstances in the earlier proposal. Read the board handout for more details.

See FASB’s official Summary of Board Decisions –Jan. 28 meeting for full details on yesterday's board actions, including the above actions and additional decisions on FAS 140/FIN 46R.

Another interesting development at yesterday’s meeting was that the board agreed with its staff’s recommendation to explore changing the approach to the liability-equity project. The board will focus first on initial recognition in the balance sheet for one broad element - claims or rights against the entity. The next step, as described in yesterday’s board handout (pg 1, para.2), would be to “establish separate principles for distinguishing between liabilities (which affect comprehensive income) and equity (which does not affect comprehensive income).” Once again refer to FASB’s official Summary of Board Decisions –Jan. 28 meeting.

FASB Interaction With Researchers In Second Life
Earlier this week, we told you of the growing presence on Second Life of businesses, professional associations and others. Second Life (SL) is a virtual world created by Linden Labs, where people create avatars (figures of themselves) – as they appear in real life, or in their fantasies - to interact with other people from around the corner or around the globe. Among the sites created on SL are CPA Island developed by the Maryland Association of CPAs (MACPA).

Another program on Second Life is FASB Research Office Hours, a weekly program in which FASB interacts with members of the academic community. The program was developed by Prof. Rob Bloomfield, the director of Graduate Studies - and director of the Business Simulation Laboratory - at the The Johnson School of Business at Cornell University. Bloomfield currently serves as Director of FASB's Research Initiative. He also hosts the weekly Metanomics event series in Second Life, see Bloomfield's Metanomics Blog.

FASB Board Member Larry Smith was the guest speaker at this week’s FASB Research Office Hours program. He gave an update on some current projects, and responded to some questions that were typed in via a ‘chat’ function moderated by Prof. Bloomfield. Attendees were members of the Financial Accounting and Reporting Section (FARS) of the American Accounting Association (AAA), the professional association of accounting professors. In closing the session, Bloomfield asked Smith, “Is there anything researchers can do to help standard-setters?”

Smith responded, “I used to get two academic journals, I was quickly scared away by a number of articles when I saw some calculus and things I hadn’t seen since high school math.” He advised the researchers, “If there is any way you can put more emphasis in your executive summaries, and leave some of the more academic [materials, charts, etc.] for the rest of the report, that would be helpful.”

Here’s some photos (screenshots) courtesy of Prof. Bloomfield, of FASB Research Hours, photo 1 , FASB Research Hours, photo 2 and Sage Hall, Cornell Univ, home of the Johnson Graduate School of Management, where FASB's research office hours are held in Second Life.

UPDATE: Invite to college professors from FEI
FEI is a leading organization of senior financial executives. We offer many networking opportunities, conferences, and other avenues to keep current on issues of importance to financial professionals. FEI members receive discounts to attend our conferences, and receive other benefits of membership like our montly magazine, Financial Executive, and research reports published by the Financial Executives Research Foundation (FERF), FEI's research affiliate. CPE is available at many of our programs and in connection with reading some of our publications. If you are a Dean, Assistant Dean, Professor or Associate Professor, you are eligible for our Academic Member category in FEI, with a reduce dues rate of $150. Apply online or download the academic membership application, or feel free to contact me or Nancy Ehlers, Manager, Membership and Chapter Relations at if you'd like further information about FEI.

If you're interested in more information about our research foundation, FERF, you can contact Cheryl Graziano, VP FERF Research & Operations, and if you'd like to submit a Research Proposal, see FERF's Research Guidelines or contact Bill Sinnett, Director of Research, at

Wednesday, January 28, 2009

'Don't Ask, Don't Tell' Is Over, Dodd Tells Madoff Hearing; Schapiro, Geithner Sworn In

Opening a Senate Banking Commitee hearing Jan. 27 on the failure of regulators to catch alleged $50 bilion Ponzi schemer Bernard Madoff, the committee's chairman, Senator Christopher Dodd said he wanted to know how regulators missed the red flags, how many more 'Madoff schemes' could be out there, and "how to prevent crimes like these going forward - whether we require more resources or additional rulemaking or legislation. "

Joining the ranks of those who have invoked images of "It's the End of the [Regulatory] World As We Know It," (building on his own sounding of the alarm in 2007 and 2008 about the need for regulatory reform and the need to address the foreclosure crisis) Dodd said: "[T]his Committee is committed to strengthening regulation, rebuilding confidence, and, above all, sending a clear message to investors across the world: The era of 'Don’t Ask, Don’t Tell' on Wall St. is over." On this theme, see also "The End of the Financial World As We Know It," by Michael Lewis (author of Liar's Poker) and David Einhorn (president of Greenlight Capital) in the Jan. 3 NYT, and see a slightly different reference in Cox Steps Up, posted Dec. 8 in self-confessed 'audit geek' Michael Ramos' blog, The Eyeshade.)

SEC's Thomsen, Richards Testify
In written testimony before the Senate Banking Committee, SEC Enforcement Director Linda Thomsen provided general information on the SEC’s past investigations relating to Madoff which are a matter of public record, but did not go into any specifics on current investigations, noting (footnoting, actually), that she could not comment on pending litigation or the underlying investigations “in order to avoid jeopardizing the ongoing legal and investigative processes,” and in light of the ongoing internal investigation by the SEC’s Inspector General.

Dodd acknowledged, “we will respect these investigations and not ask you for facts which cannot be disclosed publicly at this time.” However, he added, “I will ask that you be thorough and hold responsible the people who facilitated this securities fraud.” As detailed further below, Dodd emphasized to the committee:

Red Flags Missed -Dodd Asks Why
Dodd recited the laundry list of red flags that waved before the SEC and others regarding Madoff, including the 2001 Barron’s article, “Don’t Ask, Don’t Tell,” questioning Madoff’s strategy and secrecy, the 19-page memorandum delivered by Harry Markopolos to the SEC in 2005 alleging Madoff Securities to be ‘the world’s largest Ponzi scheme,’ the fact that Madoff’s returns were ‘too good to be true,’ and the huge fund used a tiny audit firm with only one active accountant.

He then asked: “How could regulators have missed so many warning signs? Did the examination staffs lack adequate expertise or numbers? Were they intimidated by Mr. Madoff’s influence in the securities industry? Did they lack legal authority? Or, as I suspect, are there deeper problems?” He added, “Former Chairman Chris Cox has suggested as much.”

Limited staff cover over 10,000 Advisors, Hundreds of Thousands of Tips
Lori Richards, Director of the SEC’s Office of Compliance Inspections & Examinations, explained in general terms the agency's inspection and examination process for broker-dealers and advisers, nothing that due to the volume of investment advisers to be examined - which has ballooned in recent years, from 7,547 advisers in 2002, to nearly 11,300 today - vs. the relatively small size of the SEC’s staff dedicated to this area (425 people) - the frequency of inspections of individual firms on average (which used to be once every five years prior to 2002, she said) has lessened such that 14% of the registered advisors were examined last year. She added that such inspections, due to the volume that need to be conducted, do not amount to audits. However, she explained they focus on a risk-based approach.

Thomsen explained how the SEC handles tips, noting they receive hundreds of thousands of tips a year, arrive in a number of different forms, and exhibit differing levels of detail and credibility, noting, “We get telephone calls, handwritten letters, thick bound dossiers with numbered exhibits and extensive accounting analyses, complaint forms from the Enforcement Division’s Office of Internet Enforcement, newspaper articles with company names circled in red ink, formal referrals from other regulators, informal referrals from other Offices and Divisions of the SEC, notes from reformed fraudsters, anonymous scribbling, seemingly random pieces of a company’s financial statements, and occasional lengthy and disjointed diatribes that make no discernible securities-related claims.”

“While we appreciate and examine every lead we receive,” said Thomsen, reiterating some of the statistics provided by Richards, adding, “we simply do not have the resources to fully investigate them all. We use our experience, skill and judgment in attempting to triage these thousands of complaints so we can devote our attention to the most promising leads and the most serious potential violations. Because the process necessarily involves incomplete information and judgment calls made in a tight timeframe, we are also continually working on ways to improve our handling of complaints, tips and referrals to make optimal use of our limited resources."

Enforcement Strikes Back
Thomsen also struck back at detractors who challenged the SEC’s Enforcement strategy, saying, “In recent days there have been suggestions that the staff is not motivated to pursue the big case and somehow is inclined to look the other way. Nothing could be further from the truth. Based on my experience with the hard-working men and women in the Enforcement Division, our staff lives to bring cases, particularly big and difficult cases. The staff is bright, creative and professionally zealous; for most of us, nothing is more rewarding than pursuing a good case.”

“Athletes may score runs or kick goals, but we bring enforcement action,” said Thomsen, adding, “The filing of an enforcement action is one of the few solid benchmarks of success in the pursuit our mission.”

As to the future, Thomsen said, “Looking at what we can do to deter fraud or find it sooner, the steps fall into three general categories: law enforcement; law and regulation; and resources.” For further details, see Thomsen’s written testimony.

Others testifying at the hearing included FINRA Interim CEO Stephen Luparello, SIPC Pres. & CEO Stephen Harbeck, Prof. John C. Coffee of Columbia Law School, and Dr. Henry A. Backe, a partner in a medical practice whose retirement plan lost money with Madoff.

As an aside, one thing I found interesting was that the title of the hearing according to the Senate Banking Committee referred to the “Madoff Fraud,” while the cover page of the written testimony provided by SEC’s Thomsen and Richards refers to the “Madoff Matter.” This not-so-subtle difference in etymology is probably in deference to the fact that the “Matter” is still under “Investigation” [Inquiry] or what is commonly referred to as a MUI, as defined in the SEC’s Enforcement Manual circa Oct. 2008 - posted on the SEC website in the Division of Enforcement section. I don't know how long the Enforcement Manual has been posted on the SEC website; whereas it is fairly well known that the Division of Corporation Finance staff training manual - rechristened this year as Corp Fin’s Financial Reporting Manual – has been posted on the SEC website as a resource for the public for many years.

The Era of Don't Ask, Don't Tell on Wall Street is Over
Calling the Madoff fraud a “regulatory failure of historic proportions,” Dodd stated, “Even if this is an extraordinary case, the Madoff fraud makes crystal clear how critical transparency and accountability are to our markets’ continued success. It makes clear how inseparable proper oversight cops on the beat are to a dynamic, competitive financial system.”

“Our markets are only as strong as those who regulate them and the laws and values which market participants observe,” said Dodd. He added, “Going forward, the American people need to know that this Committee is committed to strengthening regulation, rebuilding confidence, and, above all, sending a clear message to investors across the world: The era of ‘Don’t Ask, Don’t Tell’ on Wall St. is over.”

Schapiro, Geithner Sworn In As Chairman (Secretary) of SEC (Treasury)
Dodd's overaching message of the end of "Don't Ask, Don't Tell" will not be lost on the new Chairman of the SEC, Mary L. Schapiro, and the new Secretary of the Treasury, Timothy F. Geithner, with respect to Wall Street regulation genearlly, and the use of - and oversight relating to the $700 billion Troubled Asset Recovery Program (TARP).

SEC's Thomsen noted in her written testimony for the Jan. 27 hearing ,"On the law and regulation front, as has been widely acknowledged, our current system includes many products and businesses that are largely unregulated (hedge funds, for example); products and businesses that are regulated only on the state level (many insurance products, for example); and balkanized regulation on the federal level (the different regulatory schemes that apply to broker-dealers and investment advisors, for example)." She added, "Consideration should be given to harmonizing the regulatory regimes that apply to ... similar products and businesses. Such harmonization could benefit not only the individual investor but also the market as a whole by contributing to restored market confidence."

Importantly, Thomsen also recommended, "On a more micro level, consideration should be given to quite specific steps that might contribute to slowing down or detecting fraud within an investment advisory business. For example, consideration could be given to requiring third party custody of customer assets, imposing requirements regarding qualifications, size and resources of accounting firms eligible to audit such businesses, or requiring additional disclosure."

Citing written responses from Schapiro to Senator Carl Levin,'s Sarah Johnson's noted in her Jan. 26 article, Schapiro Distances Herself From Cox, "[Schapiro] has indicated that her highest priorities are helping the Obama administration reform the financial regulatory system, and fixing the internal enforcement issues at the SEC, which have been criticized for failing on several occasions to notice Bernard Madoff's alleged $50-billion Ponzi-style fraud." See also Schapiro Agrees SEC Must Reconsider Key Areas Including Proxy Access, IFRS, by Malini Manickavasagam and Steven Marcy, in the Jan. 27 BNA Daily Report for Executives, also citing Schapiro's responses to Levin. For those interested in reading more detail -- props to Cheryl Graziano, VP Research & Operations of FEI's research affiliate, the Financial Executives Researh Foundation (FERF) - for noting this link where Senator Levin posted pdfs of his questions posed to, and answers received from, Schapiro and Geithner in connection with their confirmation by the Senate.

Separately, within a day of Geithner's taking office at Treasury, the agency announced, "In light of President Barack Obama's firm commitment to transparency, accountability and oversight in our government's approach to stabilizing the financial system, U.S. Treasury Secretary Tim Geithner today announced several key reforms to the Emergency Economic Stabilization Act (EESA). As one of his first acts as the 75th Treasury Secretary, Secretary Geithner outlined new, stepped up rules designed to limit the influence of lobbyists and special interests in the EESA process and ensure that investment decisions are guided by objective assessments in the best interest of the health and stability of the financial system."

See also GAO's report released on Jan. 22, High Risk Series: An Update, which identifies "Modernizing the U.S. Financial Regulatory System" as one of three new high risk areas, and see reports and other resources listed on the webpage of the Congressional Oversight Panel (COP), formed to conduct oversight on behalf of Congress on the TARP program.

For a change of pace in the reporting on the Madoff fraud - by someone who totally eschews "Don't Ask, Don't Tell" - check out "Bernard Madoff's Blog."

Monday, January 26, 2009

Will The Year Of The Ox Pull Us Through?

Today marks the beginning of the Chinese New Year. According to the 12 year cycle in Chinese tradition, this year is known as The Year of the Ox. As noted today in Tim Johnson’s China Rising blog (part of the McClatchy newspaper blogs): “The coming year is the year of the ‘niu,’ or ox. Since ‘niu’ is pronounced almost like new, it has become de rigeur in China to wish everyone a Happy Niu Year.”

Given the acceleration of the global economic downturn in 2008, some may say the Year of the Ox (2009) – replacing the Year of the Rat (2008) – comes none too soon.

According to the attributes ascribed to the Ox and the Rat in Chinese astrology (courtesy of wikipedia, excerpted below), some may say the Ox’s attributes will come in particularly handy this year. Some may even say they can associate some of 2008’s (or 2009’s upcoming) most memorable newsmakers – famous or infamous – with one of the animals below; I leave it to your imagination. According to wikipedia's descriptions of the Chinese astrological signs:

  • Rats are leaders, pioneers and conquerors. They are charming, passionate, determined, tenacious, intelligent, attractive, seductive, charismatic, practical and hardworking. Rat people are endowed with great leadership skills and are the most highly organized, meticulous, militaristic, and systematic of the twelve signs…The Rat will treat its most loyal friends with an extra measure of protection and generosity. However, they also have long memories and will rarely forgive or forget an enemy. Behind the smiles and charm… rats can be arrogant and extremely deceptive and selfish. Rats at their worst are terribly Machiavellian, vindictive and power-hungry… There is literally nothing a Rat will not do, say, think or feel to achieve their goals and ambitions. In addition, these people tend to have immense control of their emotions, which they may use as a tool to manipulate and exploit others, both emotionally and mentally. Although they appear cool and reserved on the surface, they have a volcanic temper, which can be quite disturbing to those few who may witness a Rat native's rage. They are masters of mind games and can be very dangerous, calculative and downright cruel if the need arises. Quick-tempered and aggressive, they will not think twice about exacting revenge on those that hurt or impede them in any way and would gladly see them suffer…
  • The Ox is the sign of prosperity through fortitude and hard work. This powerful sign is a born leader, being quite dependable and possessing an innate ability to achieve great things. As one might guess, such people are dependable, calm, and modest. Like their animal namesake, the Ox is unswervingly patient, tireless in their work, and capable of enduring any amount of hardship without complaint. …Security is their main preoccupation in life, and they are prepared to toil long and hard in order to provide a warm, comfortable and stable nest for themselves and their families. …The Ox is not extravagant, and the thought of living off credit cards or being in debt makes them nervous. The possibility of taking a serious risk could cause the Ox sleepless nights. Ox people are truthful and sincere, and the idea of wheeling and dealing in a competitive world is distasteful to them. They are rarely driven by the prospect of financial gain. …Ox people are sociable and relaxed when they feel secure, but occasionally a dark cloud looms over such people and they engage all the trials of the whole world and seek solutions for them…

FEI Meets With Delegation of Auditors From China
Separately, I’d like to note an organization called Triway Enterprise Inc, founded in 1992, with offices in the U.S. and China, which coordinates visits of Chinese business groups in the U.S. and arranges other training, teaching and cross-cultural programs.

Triway recently invited representatives from FEI and other organizations to meet with a delegation of auditors visiting from Yunnan Province who were interested in learning more about U.S. perspectives and practices in corporate governance and internal control.

FEI Past President and Senior Advisor Michael P. Cangemi met with the group on January 9. Read more in this FEI Summary.

Sunday, January 25, 2009

Huff Post On The Year Ahead

Pictured here, left to right: Craig Newmark, founder of Craigslist, Nora Ephron, author and screenwriter, Arianna Huffington, co-founder and editor in chief of The Huffington Post, Erica Jong, author. Not pictured: Paul Rieckhoff, Iraq and Afghanistan Veterans of America (IAVA) executive director, and Trey Ellis, author and screenwriter. Photo credit: Joyce Culver for the 92nd Street Y.

What do bloggers do when we’re not blogging? Besides our main responsibilities at our day jobs, we read other blogs and news stories, and we go to see programs like: “The Year Ahead with Arianna Huffington and Bloggers from The Huffington Post.” That’s exactly what I did Wednesday night Jan. 21 with my BBF (best blogger friend) Francine McKenna, author of the Re: The Auditors blog, and her colleague (via Twitter), Aaron Task of Yahoo Finance Tech Ticker, formerly of Here’s a few of my favorite quotes from the Huff Post program, which took place at the 92nd St. Y in New York City:

On President Barack Obama

  • Erica Jong: He’s the right man for this country at this time… he shows how to be a leader… how to disagree without being disagreeable.
  • Arianna Huffington [to the group]: what are your favorite teachable moments [from the election of Barack Obama].
  • Trey Ellis: The rise of the Black Nerd … [in contrast] with hip hop, kids were afraid to answer questions in class.
  • Paul Rieckhoff: A lifetime of service, a culture of service… [observing Obama] part of integrity is doing the right thing, even when no one is looking…. He’s made [Washington] DC cool again, DC used to be Hollywood for ugly people.
  • Craig Newmark: With the President speaking directly to all of us, there is less opportunity for media to be a filter, this will change the way the White House press corps works… [something to consider] how do we as individuals talk back to the President.

On the Economy

  • Arianna Huffington: I find the more people know [understand] about the economy, the more pessimistic they are.
  • Trey Ellis: He’s [Obama’s] the Captain of the Ship – we don’t know yet if it’s going to be the Poseidon or the Mayflower.
  • Erica Jong: We are closer to the Big D [Depression] than the little r [recession]
  • Nora Ephron: The Wall Street culture persists… companies firing people… I want somebody in [the] Commerce [Department] or Treasury [Department] to help them find ways to not [fire people]… I see so much greed persists in spite of all this.
  • Trey Ellis: The silver lining of the economic crisis is we didn’t address poverty [before], but now that the middle class is poor, we’re forced to face this.

Hungry for more highlights? Read my summary: Huffington Post On: The Year Ahead - or - What I would have live-blogged - if I had been live-bloging from The Year Ahead with Arianna Huffington and Bloggers from The Huffington Post. And, if you’re new to our blog, check out some of our other posts at

Bloggers Francine McKenna, Aaron Task and I enjoyed the Huff Post program so much we had to be shushed by others in our row and around us. Even though we kept things to a whisper -in between Francine and Aaron posting observations on Twitter - the packed crowd was really into this panel, with some Huff Post devotees walking up to the mike during the Q&A session telling how they drove from several states away just to attend the program.

Due to popular demand, a follow-on program has been scheduled for Thursday, February 5 at 8:15 pm at the 92nd St. Y. The program, called The Huffington Post Editors, will feature senior editors from The Huffington Post discussing how they choose the stories that make the news, and sharing insights on blogging. Tickets can be ordered online, but if you want to select certain seats (e.g. some of us have already purchased front row seats) then order by phone by calling the 92nd St. Y box office during their office hours at 212.415.5500.

Saturday, January 24, 2009

Get a (Second) Life

Social networking is booming. Financial executives and CPAs seem to be relatively familiar - directly or indirectly - with sites like LinkedIn (check out the FEI Group on LinkedIn!), Facebook and Twitter , but less so with the virtual world of Second Life. (For related commentary, see Hey Social Media: The Big Four is Just Not That Into You in Francine McKenna's Re:TheAuditors blog, Why I Finally Joined LinkIn and Facebook by IRWebReport's Dominic Jones, and Is Social Media an Oxymoron in Barbara Bix' The Top Line blog.) We provide more info on Second Life, below, and invite you to post a comment on our survey further below.

One group that is significantly ahead of the curve when it comes to Second Life and social networking is the Maryland Association of CPAs (MACPA). MACPA has taken the lead in developing and promoting the Second Life Association of CPAs (SLACPA) and CPA Island, which they frequently post about in their blog, CPA Success. Bill Sheridan, MACPA's Electronic Communications Manager and Editor recently wrote on this subject in his post, Shortest List Ever, the 1 Top Reason to Use Social Media, and I have been receiving some very helpful information on the use of Second Life from Tom Hood, MACPA's Executive Director and CEO, and others on his staff which I appreciate very much.

Another group using Second Life is FASB - yes FASB! - by offering "FASB Research Office Hours" on Second Life.

[UPDATE 1.2.10: Even if you don't use Second Life, you can access live or archived webcasts of FASB Research Office Hours Roundtables at; visit the FASRI Roundtable Calendar for upcoming and archived events, then go to the FASRI viewer, click on the "On Demand" button that will appear at the bottom of the viewer and click on the date of the program you wish to watch (if it is an archived program).]

The FASB presence, aimed at promoting the sharing of knowledge on current FASB and IASB projects and current academic research has been coordinated by Prof. Rob Bloomfield of Cornell, who serves as Director of FASB's Research Initiative, and Prof. Ray Pfeiffer, Jr. of UMass, currently a Research Fellow at FASB. Invitees include members of the American Accounting Association (AAA - the association representing professors of accounting) Financial Accounting and Reporting Section (FARS). [In fact, that reminds me, the AAA started its own social networking site this past year, called AAACommons. If you're not a professor but you are interested in academe and/or AAA's conferences, you can become an associate member.]

According to a recent email from Prof. Bloomfield sent to AAA FARS members, "Over 75 research faculty and doctoral students have attended [FASB Research Hours on Second Life] at least once, many attending repeatedly (with crowds averaging about 15-20). " He adds that attendees from the standard-setters have included FASB board and staff members, and IASB staff members. This week, FASB board member Larry Smith is participating.

The increased interest I've seen in various professional venues surrounding Second Life has prompted me to take a quick survey in our blog:


How many of you are in the virtual world, Second Life? If you are, would you mind posting a comment in the comment section of this blog post, to let us know:

1. Has Second Life benefited you (or your firm) personally or professionally, if so, how? (Please also indicate specifically or generically what type of position you hold, in what industry or profession.)

2. Would you like to share the name of your Second Life avatar with us (privately via email, or by posting it in the comments section for the world to see)?

I thank you (and my avatar thanks you, too) for taking our survey, and feel free to forward it to friends and colleagues! Check back to this post periodically to see the results.

Friday, January 23, 2009

FEI Asks SEC To Extend Comment Deadline On IFRS Roadmap

Earlier today, Financial Executives International (FEI), a leading association of senior financial executives, sent a comment letter to the U.S. Securities and Exchange Commission, formally requesting the SEC to consider extending the comment period on its proposed “Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards” (the “IFRS Roadmap”). FEI’s comment letter asks the SEC to consider formally extending the comment period - currently slated to close on February 19 - by an additional 45 days. The letter, signed by Christine DiFabio, FEI’s Vice President, Technical Activities, notes:

  • The Roadmap is a critical document which requires significant focus and attention to ensure the proper and complete analysis of all of the issues. The potential transition to International Financial Reporting Standards is much more extensive than simply an adoption of new accounting and reporting standards, but represents a transformation impacting a company’s entire organization and must be considered carefully.

    Our membership as well as our technical committees are mindful of the importance of this proposal and want to provide as thorough and constructive an analysis as possible to assist the SEC in their decision making in this area. Many, if not most of our FEI member companies are calendar year registrants, and are thus in the midst of finalizing their 2009 10-K filings. With a reporting season that is uniquely challenges by the economic crisis, companies are finding it difficult to dedicate the necessary time and analysis to the questions asked in the Roadmap, while focusing on continuing to provide accurate and transparent information to their shareholders in this difficult time. FEI believes that an extended comment period will significantly increase the number and level of detail of the responses provided for such a significant proposal.

Less than 20 comment letters have been filed with the SEC on the IFRS roadmap as of January 19, as shown on SEC’s comment letters page.

Separately,’s Marie Leone reports today in an article entitled Will a Tortoise Pace Win the Global Accounting Race:

  • Staffers from President Obama's transition team called the Financial Accounting Standards Board before the new president took office to ask for updates on current projects. That's standard operating procedure for an incoming administration, but it is nice to know that accounting issues were on some White House agenda before the new president took office. It also probably means that the administration, via the Securities and Exchange Commission, will be announcing its new list of priorities sooner than later.
  • Referencing remarks made by SEC staffer Allison Patti at the New York State Society of CPAs (NYSSCPAs) 2009 SEC/FASB/PCAOB conference, Leone reports:

    "The change in administration may mean we are taking a different route [to international financial reporting standards]," noted Allison Patti, an official from the SEC's Office of the Chief Accountant, at an industry meeting.

    She said that the SEC has no official position on the matter, but based on the congressional testimony of Mary Schapiro, the president's pick to head the SEC, it makes sense to slow down the SEC timetable of moving American companies off of U.S. generally accepted accounting principles and onto IFRS. In that way, the SEC can make sure all the implications are studied and the opinions of stakeholders are considered.

Leone concludes:

  • While Schapiro appears to favor slowing the process down, Obama economic advisor Paul Volcker, a former chairman of the Federal Reserve board, delivered a ringing endorsement of IFRS this week, as part of a reworked regulatory system.

    Despite a push from Volcker however, the tortoise approach may win out over a hare approach in the race to international standards. Indeed, no matter what the SEC decides, universities and colleges are ill-prepared to teach IFRS to burgeoning accountants and veteran accounting practitioners have little knowledge of the rules, and not many places to retrain.

The AICPA has posted a number of IFRS resources at, including an IFRS Blog.

Private companies, meantime, are awaiting the issuance of IFRS for Private Entities, which the IASB previously announced is expected to be issued in first quarter, 2009.

An interesting question will arise in the U.S. as to whether public companies will one day be permitted or required by the SEC to report in IFRS – whether that will leave two – U.S. GAAP and full IFRS as published by the IASB – or three possible bases of reporting in the U.S. – with some private companies in the U.S. and elsewhere potentially being interested in adopting IASB’s simplified IFRS for Private Entities – a condensed version of IFRS, with previous drafts weighing in at around 250 pages, vs. 2500 pages of complete IFRS, and about 25,000 comparable pages of U.S. GAAP. These statistics have been floating around for a couple of years, reiterated recently by IASB Chairman David Tweedie in an interview with the NYT’s Floyd Norris, as cited in the NYSSCPA’s Blog, in this January 7 post by Cara Patterson, IFRS: Resistance is Futile.

Schapiro Confirmed By Senate For SEC

Yesterday, the U.S. Senate confirmed Mary L. Schapiro to serve as a commissioner on the U.S. Securities and Exchange Commission, with a term expiring June 5, 2014. For all intents and purposes, this clears the way for her to serve in the position for which she was nominated by President Barack Obama: as Chairman of the SEC. See Senate Daily Digest for Thurs. Jan. 22, under heading: Nominations confirmed, and see this FINRA press release issued earlier today - entitled “FINRA Board of Governors Launches Search to Replace Schapiro; Stephen Luparello to Serve as Interim FINRA CEO” - which notes Schapiro’s nomination to become chairman of the SEC was approved by the Senate yesterday. According to Andrew Ross Sorkin’s Dealbook on, in Schapiro Approved as SEC Chairman, the Senate vote was unanimous.

FASB To Reexpose Amended Proposal on Disclosures of Financial Instruments, Proposing 1Q09 Effective Date

At its board meeting earlier today, FASB voted to reexpose Proposed FASB Staff Position (FSP) No. FAS 107-a, Disclosures About Certain Financial Instruments. The reexposed proposal will be significantly different from the original proposal released on Christmas Eve.

The amended proposal, expected to be released next week for a 30 day comment period, would amend FAS 107, Disclosures About Fair Value of Financial Instruments to require the FAS 107 disclosures – currently provided annually – to be provided in interim (quarterly) financial reports.

Based on discussion at the board meeting, it appears the revised proposal will NOT include a requirement for disclosure of ‘incurred loss’ amounts (a new measurement attribute that had been proposed in response to concerns that fair value amounts are unduly depressed by illiquidity in current market conditions).

However it appears FASB may retain a proposal to provide certain pro forma income amounts incorporating fair value measurements.

Board members noted preparers may not have focused on the original proposed FSP issued in December since they were in the midst of closing the books, and those that did file comment letters may have been more focused on major issues like the proposed ‘incurred loss’ requirement, and may not have focused on the operationality of the new requirement to, in essence, provide FAS 107 annual disclosures on a quarterly basis.

The proposed effective date would be interim periods ending on or after March 15, 2009, thus, for calendar year companies, it would apply to 1Q09 interim reports and 10-Qs. With a 30 day comment period on the upcoming reexposure of the proposed FSP, the final FSP (following board redeliberations when the comment period ends) is not expected to be issued until some time in March.

Another point highlighted at the meeting was an inconsistency between FAS 107, para. 31 (which still permits discounted cash flow entry value amounts as a fair value for certain loans, although other parts of FAS 107 were amended previously when FAS 157 was issued, that portion of para. 31 of FAS 107 remained intact), vs. the exit value notion of FAS 157, Fair Value Measurement. Board members decided not to try to fix this inconsistency in the short-term FSP but to take it up as part of their existing projects on loan loss disclosures or their existing project on financial instruments.

It was mentioned at the board meeting that FASB’s Valuation Resource Group (VRG) is meeting on Feb. 5, and the above issue will be brought to their attention. An area of emphasis at the VRG meeting, said board member Leslie Seidman, will be to discuss the SEC’s Dec. 31 Report to Congress on mark to market accounting; the SEC did not recommend a suspension of fair value (mark to market) accounting, but recommended that FASB consider whether further guidance is needed on fair valuing in illiquid markets.

There was also some discussion in today's FASB board meeting of the existing (cost- based) practicability exception in FAS 107, the existing scope exception for private co’s with less than $100 million in total assets and no derivatives (in FAS 126 amending FAS 107), and other potential scoping issues. It was not clear from the discussion precisely how FASB will handle these issues in the proposed FSP; regardless of what they propose, it appears they will seek comment on these issues.

The information above is based on my listening to the webcast of the FASB meeting. As always, reference should be made to FASB’s official Summary of Board Decisions, which is generally posted in FASB’s News Center same-day or the day after board meetings. Additional details based on my observations of the FASB webcast can be found in this FEI Summary. (NOTE: the FEI summary can be accessed by FEI members only - if you're not a member, join now and get free registration to attend FEI's Summit Conference May 4-5 at the Gaylord Texan Resort in Grapevine, Texas, visit and feel free to let me know if you have any questions about FEI membership, or to contact Nancy Ehlers, Manager, Membership & Chapter Relations, at or 973-765-1099 (mention the blog sent you).

Thursday, January 22, 2009

Textron Ruling Issued

On Jan. 21, 2009 the U.S. Circuit Court of Appeals for the First Circuit issued its ruling in the Textron case. Matt Miller, FEI’s Director of Tax and Economic Policy, explained, “The majority ruling affirmed the District Court’s holding that Textron’s internal tax accrual work papers are privileged material, but it vacated the determination that work-product protection was not waived, and remanded to a lower court to reconsider whether the IRS can force Textron to turn over documents prepared by the company’s auditors, Ernst & Young LLP.” FEI had filed an amicus brief in support of Textron in the case. Find a link to the ruling, a related law firm summary, and other information in this FEI Summary.

FASB Meets Friday, To Consider Finalizing Disclosures FSP

If FASB is meeting, it must be Wednesday - no, wait - actually FASB has held a number of additional board meetings in recent weeks to address issues arising in the credit crisis. For example, on Monday Dec. 15 FASB voted to take certain actions relating to financial assets, including proposing an amendment of to certain impairment/other-than-temporary impairment (OTTI) guidance, which was proposed on Dec. 19 and finalized in January as FSP EITF 99-20.

Additionally, FASB voted on Dec. 15 to propose requiring additional disclosures, such as fair value and 'incurred loss' amounts, for a broad swath of financial assets; this was proposed on Dec. 24 in Proposed FSP FAS 107-a, Disclosures About Certain Financial Assets. Additionally, FASB voted to engage in certain medium-to-long term activities to improve reporting for financial instruments and financial assets.

As a result of releasing Proposed FSP FAS 107-a on disclosures about financial assets, FASB is slated to meet tomorrow (Friday Jan. 23) to consider comments received and vote on whether to issue that FSP as final. NOTE: As originally proposed, the effective date of the FSP, if finalized without change in the proposed effective date, would effectively be retroactive to 2008. That is one of the issues on which FASB specifically sought comment, in addition to other issues, in the proposed FSP.

There's no telling how FASB board members will vote tomorrow, but to get a flavor of the information they will be presented, here's the FASB staffs comment letter summary, which shows that about 3/4 of the over 60 comment letters received did not support the Proposed FSP. It can also be instructive to see what the staff's recommendation will be to the board, that recommendation is generally included in the board handout which is posted the day of the meeting and sometimes the evening before. However, reading the staff recommendation in a board handout can also be like reading tea leaves, for the board is not tied to the staff recommendation and reaches its own decision.

As noted in FASB's comment letter summary, significant concerns raised in the comment letters filed on Proposed FSP FAS 107-a related to the:
a. Overall Objective of the Proposed FSP
b. Scope
c. Disclosures
d. Effective Date and Transition

Private Cos
In addition to concerns voiced in comment letters about the general application of the FSP to all companies - public and private - a number of comment letters noted concern with respect to applicability to private company constituents. For example, the FASB staff comment letter summary cites the comment letter sent by the FASB-AICPA Private Companies Financial Reporting Committee (PCFRC), which said: “the financial reporting user representatives on the PCFRC do not believe that the proposed disclosures are needed to address any significant shortcomings in the information they utilize in making lending, investing, or bonding decisions.”

Additionally, the comment letter filed by FEI's Committee on Private Companies, Standards Subcommittee, (see FEI CPC letter) concurring with the letter filed by the AICPA Private Company Practice Section (PCPS) Technical Issues Committee (TIC), calling for an exemption for private companies, or a significantly deferred effective date. All of the comment letters have been posted by FASB here.

Other FASB News: Technical Corrections, Agenda Changes
At its regularly scheduled board meeting earlier this week, FASB voted to propose a group of technical corrections to various standards; the list appears in Wednesday's board handout, and further information is in FASB's Summary of Board Decisions.

As also noted in FASB's summary of its Jan. 21 meeting, FASB board chairman Robert Herz announced that FASB has dropped one project from its agenda and moved another project from its agenda to the EITF's agenda. Specifically, FASB has dropped the project on accounting for trading inventory, and move dthe project on in process R&D (IPR&D) acquired in an asset acquistion from its agenda to the EITF agenda.

Elisse B. Walter Acting Chair of SEC

The SEC Commissioners webpage was updated today (Jan. 22) to add "Acting Chairman since 2009" below Commissioner Elisse B. Walter's name. Props to's Broc Romanek who commented on recent developments in his blog today and posted on Twitter a link to Bruce Carton's Enforcement Action Blog post in Compliance Week.

Carton's post, entitled, For Those Still Waiting for the 'Chairman Cox Has Resigned' Press Release, states that he was told by an (unnamed) SEC official that "appointments are announced by the White House, and the White House has announced that Elisse Walter is the Acting Chairman."

As previously reported, confirmation hearings took place last week in the Senate Banking Committee for SEC Chairman-Designate Mary L. Schapiro. The nomination is pending a full Senate vote.

Wednesday, January 21, 2009


Please note that we have corrected a paragraph in our blog post from earlier today, SEC's Cox Resigns; Emanuel Issues Memo on Review of Pending Reg's. The corrected paragraph now states:

Pending Schapiro's confirmation, an acting chair from among the existing Commissioners could be designated by President Obama. NOTE: This corrects and replaces the earlier paragraph we had discussing the potential appointment of an acting chair, in which we had incorrectly stated, based on our reading of a paragraph in the Bloomberg article, that the senior commissioner could 'ascend to acting chair' or one could be appointed by the President.

Additionally, we have updated the post to note that the White House Memo issued yesterday regarding pending regulations was posted earlier today as a link on the Washington Post website.

SEC’s Cox Resigns; Emanuel Issues Memo On Review of Pending Regs (CORRECTED)

With the changing of the guard from the Bush to the Obama administration following yesterday’s Presidential inauguration (watch video, or read full text of Obama’s inaugural address as posted on MSNBC), some regulatory changes are happening fairly quickly.

Props to IRwebreport’s Dominic Jones for sharing via Twitter this report by Bloomberg’s Jesse Westbrook, Cox Quits at SEC, Leaves Schapiro to Restore Clout After Madoff. There is no press release (at least not yet) on the SEC website, but Westbrook cites SEC spokesman John Nester saying the resignation took effect yesterday, and a quick check of the SEC website shows Cox is no longer on the SEC Commissioners webpage. The former chairman had previously announced his intent to resign in January, but the exact date at which it would take effect was not previously known. The appointment of SEC Chair-Designate Mary Schapiro is still pending Senate confirmation.

CORRECTION: 3pm Pending Schapiro's confirmation, an acting chair from among the existing Commissioners could be designated by President Obama. NOTE: This corrects and replaces the earlier paragraph we had discussing the potential appointment of an acting chair, in which we had incorrectly stated, based on our reading of a paragraph in the Bloomberg article, that the senior commissioner could 'ascend to acting chair' or one could be appointed by the President.

Observations by a number of experts as to Cox’ legacy at the SEC and the future of the SEC are included in Westbrook’s article. A couple of them cited by Westbrook are:
  • “[Cox] came to the commission wanting to focus on bringing the SEC into the 21st century, making the U.S. more globally competitive by getting rid of burdensome regulations and making the agency more technologically sophisticated. Like so many of his predecessors, that agenda ran up against unprecedented cataclysmic events.” (Georgetown Univ. law prof Donald Langevoort)
  • “The SEC is in worse shape today than the French army was after its defeat at Waterloo. Congress may look to some other agency to regulate, which would be to the detriment of investors.” (Former SEC Chief Accountant Lynn Turner.)

White House Chief of Staff Issues Memo on Review of Reg’s
Here is the White House Memo (more formally, Memorandum for the Heads of Executive Departments and Agencies), which White House Chief of Staff Rahm Emanuel issued yesterday, regarding the Obama administration's desire to review all new and pending regulations. (ADDITION: The White House Memo was posted earlier today on the Washington Post website, linked in the article: Regulators Ordered to Leave Work Unfinished, by Washington Post staff writer Amy Goldstein.)

Among the points in the memo are that: with certain exceptions, no proposed or final regulations should be sent for publication in the Federal Register unless reviewed by a department or agency head appointed or designated by President Obama, and agencies are instructed to consider extending the effective date of pending regulations by 60 days.

Cady North, FEI’s Manager of Government Affairs, explains: "This is common action incoming presidents take in order to evaluate regulations inherited by previous administrations, and it is a directive that both past Presidents Clinton and Bush issued as they took office for the first time.”

It is our understanding that the administration exercises some judgment in interpreting memorandums such the one issued yesterday, e.g., certain ‘exceptions’ are broadly described in the memorandum, so it remains to be seen what the ultimate impact of the memo will be on particular rulemaking. As noted in various press reports, there would appear to be more emphasis on final rules issued during what is informally referred to as the ‘midnight’ period, i.e. between the election in November and the inauguration yesterday.

For example, SEC final rules issued during that period include (but are not limited to) SEC’s final rule on XBRL, approved by the Commission on December 17 but not yet published. According to SEC’s Dec. 18 press release, the effective dates in the final rule on XBRL were to be phased in beginning with large public companies (with public float above $5 billion) providing interactive data beginning with their first quarterly report for fiscal periods ending on or after June 15, 2009. Smaller companies were to be phased in over time, as detailed in the press release.

IRwebreport’s Jones and Georgetown’s Langevoort have observed that now-former SEC Chairman Cox was one of the primary moving forces behind the SEC’s 21st century technology initiatives.

However, technology innovation appears to also be one of the Obama administrations areas of focus, as noted in the final blog posting on the “transition” teams website,, on Jan. 19. That post, entitled, “Inside the Transition: Technology, Innovation and Government Reform,” said: “The Obama Administration’s commitment to reform and transparency is embodied by the one of the Transition’s most dynamic groups—the TIGR (Technology, Innovation and Government Reform) Team.” Following yesterday’s inauguration, the White House blog (part of “The Briefing Room” on the website) and other news updates have now formally moved to the website, which has been redesigned by the Obama team.

AP White House Correspondent Jennifer Loven adds in her article, White House chief of staff orders federal agencies to halt all pending Bush regulations (linked via Chicago Tribune): ”For rules that have already gone into effect, the Democratic-controlled Congress might be able to help the Obama administration by using the Congressional Review Act, a legislative tool to bring new federal regulations under scrutiny.”

Tuesday, January 20, 2009

Yes, We Can

After months of transition planning, today marks Transition with a capital T, the inauguration of Barack Obama as the United States' 44th President. (Here's the inauguration day schedule, courtesy of Newsday.)

Many articles have been written about how Obama has inspired hope in many people. See, for example, the front page of today's NYT, "For the Jobless, Hope and Fear for a New Day," and's "Obama Praises McCain, Calls For Bipartisan Cooperation," which quotes Washington resident Nancy Wigal saying, "The energy on the streets is something I've never seen before. People are walking lighter, standing taller and are reaching out to one another. It feels like hope. It feels like shared happiness." She adds, "It's all because of Obama -- we dare to feel positive that we may have actually elected a leader, not just a politician."

More than just wishful thinking, Obama has in the past (through his work as a community organizer and his theme of 'change') - and is expected to continue - to call for action, as noted in the front page article in today's WSJ, "Obama to Call for a New Era of Responsibility." A hint at this theme was reiterated in Obama's recent actions and statements, as shown in yesterday's Associated Press article "Obama Honors King, Prods Nation to Service."

Also on the theme of personal responsibility, various articles have noted Obama's comments after he spoke with Capt. Chelsea "Sully" Sullenberger, the hero pilot who, with his crew's assistance, was responsible for safe landing of troubled U.S. Airways Flight 1549 last week on the Hudson River, saving all 155 aboard.

The AP article cited above carries this quote by Obama, referencing what Sullenberger told him: "He said, 'Me and my crew, we were just doing our job.' And it made me think, if everybody did their job - whatever that job was - as well as that pilot did his job, we'd be in pretty good shape."

With many challenges ahead for his administration, it seems like the public is rallying to be supportive of Obama in his efforts to turn around the economy and on other key initiatives.

As we have previously noted, Financial Executives International (FEI) issued a statement shortly after the election in November, saying, “We look forward to working with our Nation’s new leadership and representatives to develop sound finance and taxation policies for American companies... FEI has worked closely with both Democratic and Republican Administrations and Congresses for more than 75 years, and is eager to continue to do so with the new Administration.”

Yes, We Can
Various blogs have chosen to post various videos in honor of this historic day. I have picked Yes, We Can, a song written by then-13 (now 14) year old Nat Wolff, which he performs with Natasha Bedingfield. The song title reflects one of the central messages Obama has communicated, that of "Yes, We Can" (in addition to another of Obama's themes, that of "change"); see Tween TV Star Inspired by Obama, by AP's Mespin Fekadu, as carried on .

[Note: The HuffPost will be among those venues 'live blogging' from the inauguration today; I'm also looking forward to seeing my BBF (best blogger friend) Francine McKenna of Re: TheAuditors at the 92nd St. Y program this week in NYC on: "The Year Ahead with Arianna Huffington and Bloggers from The Huffington Post." Francine and I don't always see eye to eye but we have a shared interest in following and writing about current developments on the financial scene, particularly as relate to accounting and auditing; I've told her I sometimes feel like we're the James Carville and Mary Matalin of our niche of bloggers -- she quickly claimed to be Carville; I won't comment, except to say we have qualities of each sometimes (just not always at the same time).

Back to today's events and the Yes, We Can video linked in our blog today, if you haven't heard of Nat Wolff, he and his younger brother Alex are major stars among the tween set (and adults whose TV, movie and concert habits tend to be tied to those of the kids in their family); starring in Nickelodeon's Naked Brothers Band (NBB). Don't worry, like the tagline to the show says, "Real Music. Real Brothers. Not Really Naked," and the Wolff brothers are genuine musician/singer/songwriters, with their own website, Nat' I guess the apple doesn't fall far from the tree, their mom is actress/director/executive producer Polly Draper, and their dad is actor/jazz musician Michael Wolff. You may also know their uncle is Venture Capitalist Tim Draper, founder and managing director of Draper, Fisher Jurvetson . He is also the founder and chairman of the BizWorld Foundation, and author of The Riskmaster blog; kids will recognize him as Principal Schmoke on the NBB TV show. The lyrics to the Wolff's song, Yes We Can, and the images in the video are pretty powerful.

Like many others who will be watching the inauguration today, I am hopeful for the success of our incoming President, Vice President, all of our leaders and our country, and in our leaders' efforts, together with their international counterparts, to strive for peace and economic stability around the globe.

Monday, January 19, 2009

SEC Issues 21st Century Disclosure Report; Comm. Cap Mkts Reg Issues Rec’s

The SEC completed the first phase of its 21st Century Disclosure Initiative (21CDI) by releasing this report on Friday. Related items posted by the SEC include this speech (and related slides) given on Jan. 15 by Dr. Bill Lutz, the head of the 21st Century Disclosure project. See also SEC’s 21CDI Spotlight page.

As described by Law prof J. Robert Brown, Jr. in The Race To The Bottom Blog, “The Report does not recommend any change in the content of the current system of periodic reports. Rather, it is the opening salvo in a comprehensive technological update of the SEC's system of filings. Rather than rely on static documents, the Report recommends a more state of the art, interactive system for filing data.” [emphasis added]

Reactions to the project have varied
Brown has a generally positive take on the need for technological enhancements by the SEC, stating: “EDGAR is now 15 years old. The system was revolutionary in its day, making filings universally accessible at no cost over the SEC website. The system, however, requires modernization. Reliance on interactive data that can be manipulated and compared will be a useful change. In the short term, interactive data will probably be most valuable to market professionals such as analysts. Over time, ordinary investors will benefit, less from direct analysis and more from software programs likely to come onto the market that can monitor changes in the financial condition of public companies and provide comparisons, perhaps in an analysis of the risk assumed by these companies.”

In contrast, other views on the 21CDI project have previously been posted (prior to release of the final 21CDI report) by Blog’s Broc Romanek, e.g. in his Aug. 20, 2008 post Alas, Edgar RIP and his Oct. 8, 2008 post Today’s 21st Century Roundtable: Another Ten Cents. In the latter post, Romanek stated: “When I read the SEC's strategic plan, I was disappointed that the direction of the [21CDI] initiative clearly seems to be in the vein of ‘form over substance.’ The SEC's vision of this project seems to consist of creating a ‘Company File System,’ where all the core information about a company would be in a centrally and logically organized interactive data file. When you read that description, a fair question might be: ‘Isn't that what Edgar does today?’ And a straight-faced answer would be: ‘For the most part, yes.’”

Core recommendations in report; next steps
The core recommendations in the report, which can be found in its Executive Summary, are:

  • Disclosure information and other data should be submitted and stored in an interactive format.
  • The Commission should consider establishing a data warehouse, with a principles-based framework for managing the data.
  • The Commission should consider providing for multiple submission methods for disclosures.
  • The Commission should consider providing for multiple dissemination methods for disclosures.

When the 21st Century Disclosure Initiative was first announced by the SEC (June 24, 2008 press release), they stated a second phase of the project, following release of the report, would be the formation of an advisory committee to consider the report’s recommendations and further actions. The report issued on Friday describes the status of the advisory committee as follows: “Although not discussed in detail, we believe that the Commission should consider establishing an advisory committee composed of investors, filers, information intermediaries, and others to further develop the ideas outlined below. Such a committee would give the Commission insight on how to develop a modernized disclosure system with maximum input from the primary users of the system.”

The nature and timing of the launch of phase 2 of the initiative – the advisory committee – may be impacted by the fact that a new SEC chair is waiting in the wings. The Senate Banking Committee conducted confirmation hearings on SEC Chairman Designate Mary L. Schapiro last week (see link to testimony; and here’s a link to’s Michele Leder’s live blogging from the hearing); a full Senate vote will need take place to confirm the nominee as chair.

Also, some unanticipated major events have taken place since the 21CDI was first launched, including the acceleration of the credit crisis, the fall of Lehman, the rise of TARP, the exposure of the Madoff fraud, and other matters. Additionally, some significant new and proposed rulemaking has been imparted by the SEC in the past six months, including approval of a final rule mandating the move to XBRL, and issuance of a proposed roadmap on a potential mandatory move to IFRS.

My two cents - speaking for myself only - I'd say it is possible, but not probable, the SEC could issue some formal rule proposals for public comment based on the recommendations in the 21CDI report (which cites input from roundtables previously held on this project) without forming an advisory committee. At this point, I’d still venture to guess that no action would be taken on 21CDI report’s recommendations until an advisory committee is formed, and that formation of the advisory committee may be on hold due to other priorities connected with other rulemaking initiatives, and attention being given to regulatory reform more generally (including the structure and interrelationships of regulatory agencies), a subject which Congress, the U.S. Treasury Department and others have been contemplating for over a year now, with new urgency and potentially a new direction charged by the credit crisis, the Madoff fraud, and other recent events.

Committee on Capital Markets Reg Issues Updated Rec’s
On the regulatory reform front... Last week, the private sector Committee on Capital Markets Regulation (CCMR) issued an updated set of recommendations for regulatory reform. (See CCMR recommendations.) CCMR was informally referred to by some as the ‘Paulson Committee’ when it was launched a couple of years ago, in light of statements encouraging the formation of such a committee by U.S. Treasury Secretary Henry Paulson. CCMR was the first major group to issue recommendations on regulatory reform a couple of years ago, although the tenor of calls for regulatory reform in some sectors, in light of events that have taken place over the past year, has modulated some from a couple of years ago. CCMR’s staff director is Harvard Law School Professor Hal Scott.

CCMR’s latest recommendations include “The U.S. should have only two, or at most, three independent regulatory bodies overseeing the financial system: the Federal Reserve Bank (“Fed”), a newly-created independent United States Financial Services Authority (“USFSA”) and possibly another new independent investor/consumer protection agency.” (CCMR says it is possible the investor/consumer protection agency would be part of the USFSA.) Additionally, CCMR states: “the Committee believes that the [financial regulatory] functions must be coordinated by the President through the office of the Secretary of the Treasury.” Footnote 3 in the summary of recommendations states, “In March, the Committee will release a new report—“Capital Markets Regulation After the Credit Crisis”—addressing key substantive regulatory issues.”

Upcoming on the regulatory reform front: as we previously reported, GAO issued a report last week on a framework for considering proposals to modernize the financial regulatory structure. Separately, the Congressional Oversight Panel (COP) established under the Emergency Economic Advisory Act of 2008 has issued two oversight reports so far on the TARP program, and is set to issue a report and recommendations on regulatory reform (having conducted a related hearing last week).

Saturday, January 17, 2009

SEC Extends Deadline on Sarbox 404 Survey

Yesterday (Jan. 16) the SEC issued a press release announcing it has extended the deadline on its Sarbanes-Oxley Section 404 implementation survey. As we previously reported, the survey was originally launched in December; as announced yesterday by the SEC, the survey deadline has been extended to January 31.

The SEC is trying to gather information through the survey, and through interviews with company management, as to registrants’ views and related data on the implementation of internal control reporting under Sarbox 404 and related SEC and PCAOB rules, to determine the impact of new guidance issued by the SEC (management guidance) and PCAOB (AS5, which replaced AS2) in 2007, which were aimed at improving the cost/benefit balance and making internal control reporting more efficient and effective, as well as identifying if further improvements can be made.

Surveys are not submitted anonymously, and participation in the survey is voluntary.

Further information, including links to the survey and contact information at the SEC for related questions, can be found in the press release