Friday, July 29, 2011

Hey There Bob Pozen!

Just in time to celebrate the third anniversary of the Pozen Committee report –(see SEC’s Aug. 1, 2008 press release, see also the Final Report of the SEC Advisory Committee on Improvements to Financial Reporting (CIFiR),or the Pozen Committee in honor of its chairman, Bob Pozen) –- and, in advance of Mr. Pozen’s August 8 birthday (source: Wikipedia) the FEI Financial Reporting Blog is pleased to present a lost tape of a ‘music video’ called Hey There Bob Pozen. SONG LYRICS.
NOTE: You may recognize the tune to Hey There Bob Pozen, as a song parody of Hey There Delilah by the Plain White T’s. You may also recognize some of the scenes of the Pozen committee from the SEC’s public webcasts. DISCLAIMER 1: please note the SEC had nothing to do with the production of this music video and has not been asked to opine on it, nor has any other standard-setting body or individual. DISCLAIMER 2: Please refer to the FEI blog’s disclaimer, posted on the right side of our blog.
For those of you who like to singalong, we'll be posting a link to the full lyrics in an update at the bottom of this post, as well as on our youtube page, check back later today.

As noted in the SEC’s June 27, 2007 press release announcing the formation of the Pozen committee, established by the SEC under the Federal Advisory Committee Act (FACA), the committee was formed to:

...examine the U.S. financial reporting system with the goals of reducing unnecessary complexity and making information more useful and understandable for investors…[and to]... study the causes of complexity and recommend to the Commission how to make financial reports clearer and more beneficial to investors, reduce costs and unnecessary burdens for preparers, and better utilize advances in technology to enhance all aspects of financial reporting.

The June 27, 2007 press release noted the selection of Robert C. (Bob) Pozen to chair the advisory committee. The committee included a broad range of the SEC’s constituents (investors, preparers, auditors and others) as noted in the SEC’s July 31, 2007 press release listing committee members (see also bios). The Chairmen of the FASB, PCAOB, IFRS Foundation, and a representative from the U.S. Treasury Department participated in this high-level committee as observers.

The detailed deliberations of the Pozen committee during its one-year existence from July 2007 to July 2008, culminated in the issuance of a final report and recommendations on August 1, 2008. Materials relating to the Pozen committee (interim reports and reports of its subcommittees, press releases and archived webcasts) can be found on the SEC’s Spotlight page on the Pozen Committee (CIFiR).

In ‘plain English,’ the recommendations were summarized in the SEC’s August 1, 2008 press release, and under “Key Recommendations” in the Executive Summary of the committee’s final report as follows:
A. Increasing the usefulness of information in SEC reports
B. Enhancing the accounting standards-setting process
C. Improving the substantive design of new accounting standards
D. Delineating authoritative interpretive guidance
E. Clarifying guidance on financial restatements and accounting judgments

The SEC, PCAOB and FASB (as well as related private sector efforts) have implemented, directly and indirectly, numerous recommendations of the Pozen Committee. To name but a few, these include:
- Increasing investor participation in FASB and the FAF
- Launching of Post-Implementation Review by FASB
- SEC’s “Financial Reporting Series” to begin this year, in which SEC will host a series of public roundtables on important topics in financial reporting, with cross-section of constituents participating
- SEC interpretive guidance to increased ability of companies to provide information required by the SEC via various forms of electronic media
- Phasing in eXtensible Business Reporting Language (XBRL) requirements in SEC reports
- Professional judgment: although the SEC and PCAOB have not issued ‘rules’ or ‘standards’ per se on what constitutes professional judgment by preparers or auditors, respectively, various members of the SEC staff have referred to the Pozen committee’s recommendations as useful guidance. For example, during a press session at FEI’s Current Financial Reporting Issues Conference in November, 2009 SEC Chief Accountant Jim Kroeker said: :Regardless whether there is any more formal action on a judgment framework [that the points outlined by CIFiR are] the kinds of things we look for in the preclearance process [in the Office of the Chief Accountant], and in the Corp Fin comment process." (See info about our upcoming 30th anniversary Current Financial Reporting Issues Conference, Nov. 14-15, 2011 in NYC.)

In addition to the diligent efforts of the standard-setters, rule-makers, their advisory committees, and the private sector to avoid unnecessary complexity if possible, particularly through enhanced outreach, post-implementation review, and other methods, some say there is more ground that can be covered in addressing complexity head-on.

For instance, audit firm PwC released a “Point of View” report last month, entitled “Reducing Complexity,”

The topic of improving financial reporting, reducing unnecessary complexity in financial reporting, and making financial reporting more understandable and useful will always be an important topic to financial professionals, whether preparers, auditors, investors, academics, students, regulators, or others, and as we have seen during the Sarbanes-Oxley and Dodd-Frank legislation, to our elected officials as well.

Hey There Bob Pozen, Here's To You, Your Committee and Observers Too
We’d like to take the opportunity on this 3rd anniversary of the Pozen committee report to thank the members of the committee (and their observers and staff) for their dedication to the goal of improving financial reporting and reducing complexity, and to note the Pozen committee report can continue to serve as a useful reference in this endeavor.

Here's to our production team!
I'd like to thank our production team, Steven Zelin, "The Singing CPA," Glenora (Glennie) Blackshire (videographer), Rob Taube, (audio recording engineer). Thanks also to Lili Devita at FEI and the rest of the marketing team (Tish Ysambart and Doug Hoekstra), and my personal thanks to Merrill Reich.

Thursday, July 28, 2011

SEC's New Tips System Gets Good Marks From Markopolos

In an exclusive report published by Reuters yesterday, Madoff whistleblower Harry Markopolos indicates he is pleased with the improvements the SEC has made in following up on tips of alleged securities fraud. The SEC was criticized for its handling of the Madoff ponzi scheme, in reports written up by the SEC's own Inspector General, David Kotz, and at related Congressional hearings. Since that time, the SEC has undertaken numerous post-Madoff reforms.

"Everything they should have done in the Madoff case they are now doing," Markopolos says now of the SEC, as cited in yesterday's article by Reuters Sarah N. Lynch and Matthew Goldstein, SEC Builds New Tips Machine To Catch The Next Madoff. Markopolos adds: "They have done a fantastic job of reforming themselves."

SEC's Tips, Complaints & Referrals Portal
Lynch and Goldstein provide a link to the SEC's new Tips, Complaints and Referrals portal (the external, public side of the portal).

See also the SEC's Tips & Compliants information page, and SEC's Information for You Before You Submit a Tip or Complaint to the Division of Enforcement page.

FBI -SEC Partnership Benefits Both Agencies; Model May Be Replicated
The Reuters writers note the working relationship between the FBI and the SEC, in which an FBI agent (a former PwC auditor) is embedded at the SEC. As noted in the article, this partnership between the FBI and another regulatory agency is believed to benefit investigations at both agencies, and the model may be replicated between the FBI and other agencies as well.

Got Music? More Harmony In Accounting On Its Way...

There's harmony in accounting*, and then there's harmony in accounting**... for all of you aficionados of music, financial reporting, regulatory reporting, or combinations thereof, watch for the FEI Blog's 2011 music video, set to launch in the FEI Blog tomorrow, July 29!


* The first "harmony in accounting" link above goes to a research paper entitled, "Will Harmonizing Accounting Standards Really Harmonize Accounting? - Evidence from Non-U.S. Firms Adopting US GAAP," published in 2007 by two associate professors of accounting at the Harvard Business School: Mark T. Bradshaw, and Gregory S. Miller. The Abstract from their paper is copied below; the last sentence is highlighted as it appears particularly significant:

International harmonization of accounting standards appears to be inevitable. However, little evidence exists regarding whether harmonizing accounting standards will result in actual harmonization of accounting practices. Using a sample of non-US firms that adopt US GAAP to provide evidence on this issue, we find that most firms that adopt US GAAP adjust their accounting methods to those required by US GAAP. Properties of the firms’ accounting numbers also change significantly after adopting US GAAP, but do not fully converge towards that of US firms. In the cross-section,
regulatory oversight is associated with more successful implementation of US
GAAP; firm-specific capital market incentives are not. These results suggest that harmonizing accounting standards may result in more comparable accounting methods and numbers, but that effective regulatory oversight will be important in reaching this outcome.

** The second "harmony in accounting" link above goes to a youtube video entitled "Accounting Songs" posted by "Hescott12" on October 29, 2007. My guess is the singing Professor and his class are based in Australia, as I thought I heard a reference to "ASIC," which would be the Australian Securities and Investments Commission, but I could be wrong. For the curious, I have reached out to Hescott12 for further info and if I receive any I'll update this post.

Butler, Lewent, Rickard To Be Inducted Into FEI Hall of Fame

Former FASAC Chairman, and former Celgene SVP & CFO, Robert C. Butler, former Merck EVP & CFO Judy C. Lewent, and former CVS/Caremark EVP, CFO and CAO David B. Rickard have been selected for induction into the FEI Hall of Fame. The announcement was made by FEI earlier today, and additional background on the inductees can be found in FEI's press release.

Butler, Lewent, and Rickard will be formally inducted at the FEI Hall of Fame Gala, a black-tie event taking place on November 14 at Gotham Hall in New York City. Master of ceremonies will be CNBC’s Tyler Mathisen.

Sponsors & Beneficiaries
FEI congratulations this year's, and prior year's inductees, and thanks the sponsors of this event, including premier sponsor Microsoft, bronze sponsor Merrill Datasite, and media sponsor CNBC.

Additional sponsorship opportunities are available; contact Lorna Raagas

Proceeds from the FEI Hall of Fame Gala benefit FEI's research affiliate, the Financial Executives Research Foundation (FERF).

CFRI - Nov. 14-15, NYC
If you are in NYC to attend the Hall of Fame Gala, and for everyone interested in the latest developments in financial reporting, we encourage you to also attend FEI's 30th annual Current Financial Reporting Issues (CFRI) conference, November 14-15 in New York City. (NOTE: Separate paid registration is required for the Hall of Fame Gala, and CFRI.)

Wednesday, July 27, 2011

FASB Approves New Standard On Multiemployer Pension Plans

At its board meeting earlier today, the Financial Accounting Standards Board approved issuing a new standard on Employer Disclosures For Multiemployer Pension Plans.

According to FASB's press release, the new standard is expected to be published in September, 2011, and will have the following effective date:

  • For public entities, the enhanced disclosures will be required in fiscal years ending after Dec.15, 2011.

  • For nonpublic entities, the enhanced disclosures will be required in fiscal years ending after Dec. 15, 2012.”

Describing the new standard, FASB Chairman Leslie Seidman stated,

“Historically, very limited information about these plans has been disclosed, even though they may represent significant potential obligations for many large, unionized industries such as trucking, supermarket chains, and construction firms. The enhanced disclosures will ensure that shareholders in companies that participate in these plans, workers who depend on them for their retirement benefits, as well as lenders and others, will have more information regarding the employers’ pension commitments and the financial health of the plans.”

Change made to proposal in response to constituent comments
As noted in FASB's press release:

Prior to today’s action by the FASB, employers were required to disclose only their total contributions to all multiemployer plans in which they participate. Today’s decisions conclude comprehensive deliberations about the disclosures an employer should provide. The FASB issued initial proposals for revising disclosures for public comment in September 2010. As part of its redeliberations, the FASB decided to delete a proposal to require employers to disclose their withdrawal liability to all plans in which they participate, or provide a “point-in-time” estimate of its obligations with respect to the underfunded status of individual plans.

Further highlights of the new requirements can be found in FASB's press release. See also FASB's project page.

IASB 'Request For Views' Seeks Comment On Strategy, Work Program

Yesterday, the International Accounting Standards Board published a Request for Views: Agenda Consultation 2011, to seek broad public input on the strategic direction and overall balance of its future work program.

As noted in the IASB's press release:

The consultation document published today asks deliberately open questions to gather views on the IASB’s future work programme from all those involved in or affected by financial reporting. In particular, the IASB is seeking feedback on how it should balance the development of financial reporting with the maintenance of IFRSs and—with consideration of our time and resource constraints—those areas of financial reporting that should be given the highest priority for further improvement.

The comment deadline on the Request for Views: Agenda Consultation 2011 ends November 30.

An informational webcast on this topic will be conducted by the IASB on August 3.

Read more in the IASB’s press release.

Monday, July 25, 2011

FASB, IASB To Re-Expose Leasing ED

At their joint board meeting last week, the FASB and IASB announced they have decided to formally re-expose their proposal for a common leasing standard.

In my view (see disclaimer posted on right side of this blog) this decision will be viewed as very responsive to concerns voiced by preparers and others about the need for the standard-setters to release a revised exposure draft - reflecting all the changes made during redeliberation of the original exposure draft in response to comment letters received. See, e.g. our prior posts, Preparers concerned about change in direction of FASB, IASB leasing proposal, and FEI, Applauding FASB-IASB Move For More Time on Convergence Projects, Calls For Reexposure of Remaining MOU Projects; SEC Announces IFRS Roundtable .

The objective of releasing a revised exposure draft of a proposed standard, in the eyes of FASB and the IASB's constituents, is two-fold: (1) to inform preparers, auditors, users of financial statements and others of the changes made to the original exposure draft, by seeing the most up-to-date version of the exposure draft, and (2) given the significant changes made during redeliberation of the original exposure draft, to allow public comment on the latest version of the exposure draft which incorporates those significant changes.

Said another way, in the words of FASB and the IASB, the decision to re-expose the leasing standard is because:

Even through the boards have not completed all of their deliberations, the decisions taken to date were sufficiently different from those published in the exposure draft to warrant re-exposure of the revised proposals.
As to timing, the revised ED (exposure draft) is expected to be finalized during the 3rd quarter, 2011, "with a view to publishing a revised exposure draft shortly afterwards," according to the two boards.

Separately, as previously reported, FASB and the IASB intend to release a revised ED on their proposed standard on revenue recognition, with an expected release date of this quarter, for a 120-day comment period. (The length of the comment period on the upcoming leasing ED has not yet been determined.)

Wednesday, July 20, 2011

Obama, House and Senate Leaders Work To Avert U.S. Debt Crisis; David Walker Unveils Proposals To ‘Restore Fiscal Sanity’

Christina Crooks, Manager, Government Affairs and Alexandra Sipes, Legislative Aide, in FEI’s Washington, DC office, reporting on the looming U.S. debt crisis, note that following the re-entry of Senator Tom Coburn (R-OK) into the “Gang of Six” on July 19, the ‘G6’ announced their deficit-reduction proposal to a group of 50 senators from both parties.

The G6 proposal would cut the deficit by $3.7 trillion over the next 10 years, by producing an immediate $500 billion in deficit savings and requiring congressional committees to discover viable cuts in entitlements, discretionary spending, and a massive reform of the tax code within six months. The proposal has gained a great deal of support in the Senate from both parties, and President Obama also endorsed the group’s efforts. Experts have indicated this plan may provide the necessary support to boost the debt ceiling and avoid default. Read more about this development Gang of Six Breakthrough: Behind the Scenes, by Manu Raju in

According to Sam Youngman of, citing White House Press Secretary Jay Carney, Obama, House and Senate Leaders are set to meet at 2:50 pm today at the White House to try to firm up a bipartisan solution on the debt talks.

David Walker, Comeback America Initiative, Unveils “Restoring Fiscal Sanity" Report

In related news, earlier today, David Walker, President and CEO of the Comeback America Initiative (CAI), presented the “Restoring Fiscal Sanity Report” during a briefing in the U.S. Senate. Walker is the former Comptroller General of the U.S.

The CAI report issued today includes two proposals to address our nation’s fiscal challenges.

One proposal, the Preemptive Framework, focuses on cutting short-term discretionary spending back while at the same time including $500 billion in investments to help stimulate the economy.
The other path, the Reactive Framework, illustrates what must take place in order to avoid a “crisis management” atmosphere. Walker’s report is said to be more comprehensive and includes much more specific details than other proposals currently circulating in Washington.

CAI is a non-partisan organization dedicated to fostering a national discussion around fiscal challenges and solutions

Read more in CAI’s press release; download the CAI report.

FEI’s President and CEO, Marie Hollein is a member of the CAI Advisory Council.

Additional highlights from Walker’s presentation on Capitol Hill earlier today, announcing the release of the report, will be posted in a summary on FEI’s website.

IRS Issues FAQs on Uncertain Tax Positions

Yesterday, the Internal Revenue Service released additional guidance relating to the IRS' new reporting requirements for Uncertain Tax Positions (UTP). The guidance was issued in the form of Frequently Asked Questions on Schedule UTP.

Props to Alison Bennett, who flagged this development in her article in BNA's Daily Report for Executives earlier today, IRS Issues Uncertain Tax Position Guidance, Clarifies Definition of Recording a Reserve. In her article, Bennett states that the IRS guidance issued yesterday:

address[es] key questions surrounding the recording of a tax reserve and the treatment of net operating loss carryforwards, among other significant issues... and] comes as the deadline approaches for the first wave of taxpayers to file the Schedule UTP... The guidance adds eight new questions to the FAQ first unveiled in March ... and updates one existing question on whether interest and penalties should be included when taxpayers are “ranking” their positions on the new schedule.

The IRS' new requirements for reporting of Uncertain Tax Positions were among those included in FEI CEO's 2011 Top Challenges for Financial Executives published earlier this year, and took FIN 48 (in pre-Codification nomenclature, FASB's rules for reporting of Uncertain Tax Positions) to a new level by creating new IRS reporting requirements for UTP.

Additional links to information relating to Schedule UTP, including IRS Ann. 2010-75, Reporting of Uncertain Tax Positions, and IRS Ann. 2010-76, Policy of Restraint and Uncertain Tax Positions, can be found on the IRS website here.

Monday, July 18, 2011

Obama Nominates Cordray To Head CFPB; Vows to Fight Efforts To Repeal Fin'l Reg Reform; FSOC Finalizes Criteria for Systemically Important FMUs

At a press conference earlier today, President Barack Obama announced his nomination of Richard Cordray, a former Ohio Attorney General, and currently the Enforcement chief for the Consumer Financial Protection Bureau, to serve as the first Director of the CFPB.

The CFPB (or the ‘Bureau’ as referenced during the President’s press conference), created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, has been advised during its development stage by Elizabeth Warren, chair of the Congressional Oversight Panel formed a few years ago to oversee the results of the government’s TARP spending following the credit crisis.

Warren writes in the WhiteHouseBlog today of Cordray’s appointment, noting that, “On Thursday [July 21], the CFPB makes its transition from a start-up to a real, live agency with the authority to write rules and to supervise the activities of America's largest banks.”

Obama Will Fight Efforts To Repeal Financial Reg Reform
In announcing his nomination of Cordray, Obama defended the regulatory changes laid out in the Dodd-Frank Act, saying, “The financial crisis not the result of normal economic cycles or bad luck, [but from] abuses… I will fight any efforts to repeal or undermine the important changes we passed.” Read the full text of the President’s remarks.

Reflecting on the political dissent, Warren added in her post in the WhiteHouseBlog, “In May, forty-four Republican Senators wrote a letter saying that they will block anyone from serving as CFPB Director. Many of them don't like the agency or the ideas that led to its creation. They lost that fight last summer in a straight-up vote, but they say they will use a filibuster over a Director nomination to undercut the agency. Without a Director, however, the agency's authority over payday lenders, debt collectors and other non-bank financial companies can be challenged.
The Republicans say that they will permit a Director only if the agency is amended to make it less independent and less likely to act.” She added, “I remain hopeful that those who want to cripple this consumer bureau will think again and remember that the financial crisis -- and the recession and job losses that it sparked -- began one lousy mortgage at a time.

Learn more about Cordray in Meet Richard Cordray, the Candidate to Lead the CFPB, by Jacob Gaffney of Housing Wire.

CFPB Issues Progress Report
In related news, the CFPB issued a 32-page Progress Report today. As noted in the CFPB’s press release, the report “chronicl[es] [the CFPB’s] work to build the agency from the ground up since the passage last year of the Dodd-Frank Wall Street Reform and Consumer Protection Act.” The CFPB is also expected to issue two more reports this week.

FSOC Releases Final Rule: Criteria For Designating Systemically Important FMUs
Separately, the Financial Stability Oversight Council (FSOC), also formed as part of the Dodd-Frank Act, released a final rule today setting forth the criteria the agency will use to designate systemically important nonbank financial entities, more formally referenced in the rulemaking as Financial Market Utilities or FMUs. See FSOC final rule.

On this topic, Cheyenne Hopkins and Ian Katz wrote in Bloomberg earlier today, in Dodd-Frank Risk Panel Delays Create ‘Guessing Game,’ that an apparent delay in action by the FSOC in identifying the systemically important FMUs is causing regulatory uncertainty among nonbank financial institutions, including whether they will be required to raise capital.

Schapiro, Gensler, Geithner Among “Most Influential U.S. Financial Watchdogs” – Reuters
SEC Chairman Mary L. Schapiro, CFTC Chairman Gary Gensler, and Secretary of the Treasury Tim Geithner are among the “Most Influential U.S. Financial Watchdogs,” in a short-list published by Reuters earlier today. They are joined by Fed Governor Dan Tarullo, CFPB Nominee Rich Cordray, FDIC chairman-nominee Martin Gruenberg, Comptroller of the Currency-nominee Thomas Curry, House Financial Services Committee Ranking Member Barney Frank, and Senate Banking Committee Ranking Member Richard Shelby. (See Shelby’s May 5 press release regarding the letter from 44 Senators to the President on the CFPB, cited directly and indirectly by Warren and Obama, above).

Recommended Reading; Recommended Writing

Students often have 'summer reading lists' - and if you work in, around, or among the world of financial accounting, SEC reporting, and auditing - you do too!

Recommended Reading, listed below, includes various FASB and IASB proposed standards, PCAOB Concept Releases and proposed rules, and SEC proposed rulemaking and Staff Papers currently out for public comment. Recommended Writing would include - no, not a 'book report,' but a well thought-out comment letter on any proposal(s) that could impact you as a preparer, investor, auditor, attorney, analyst, board member, or in any other capacity.

Proposals Out For Comment
If you are a regular reader of this blog, you've seen us highlight for you some of these proposals (listed below, along with the applicable comment deadline):

The above list is not meant to be all-inclusive, simply some highlights of some of the broad-based proposals current out for comment.

Additional Reading on Audit-Related Rulemaking
There are many excellent sources of commentary and analysis ranging from 'Cliff Notes' or 'SparkNotes' versions of the above proposed rulemaking, to indepth analysis that ties historical developments and critical analysis (sometimes, very critical, or shall we say, vocal) of the proposals and the events that in some cases preciptated them.

Before I continue to reference a couple of sources of recommended reading, please note the disclaimer that appears on the right side of this blog. Additionally, please note that I personally may not agree with the opinions taken by these other writers, but I believe reading their posts can provide some important food for thought, particularly for those contemplating drafting comment letters on the related proposals.

These writers have done a fair amount of research (the first post below, by Francine McKenna, links to a plethora of related material, including speeches and analysis, in addition to her own observations) and have seen a fair amount of things in their professional careers (the second author below, Jim Peterson, served as a senior attorney and partner at Andersen) to make it worth your while to take a look at these posts, both of which relate to the first item listed above, the PCAOB's Concept Release on the auditor's reporting model. The PCAOB's Concept Release is significant in that it could be the first step toward what could potentially result in major changes to the content of the auditor's report, therein potentially changing the way audits are conducted. Or, not (depending on analysis of the proposals and practical feedback provided in the comment letter process and the upcoming public roundtable, date t/b/a). I suggest reading:

Securities Law, Investor Relations

Some other go-to sources (which again, I may not always agree with, but provide useful reading to get up to speed on an issue, and related analysis) on proposed rulemaking such as the items listed above, in particular SEC rulemaking, include: Blog by Broc Romanek & Dave Lynn

IR Web Report by Dominic Jones, Pam Agnew & their team

Loyal opposition

On the subject of IFRS convergence, and particular FASB, IASB proposals, voices of the 'loyal opposition' often include:

The Accounting Onion by Tom Selling, and

The Summa, by Prof. Dave Albrecht.

See also these useful blog aggregators and listservs; many voices, one platform:

Securities Mosaic Blogwatch (sub req'd)

AccountingWEB Blogger's Crew

CPAs-L Listserv

Going Concern (not for the faint of heart)

Magazines/websites and other publications:

Financial Executive Magazine, published by FEI, and of course the FEI blog

The Analyst's Accounting Observer, by Jack Ciesielski (sub req'd)

BNA Daily Report for Executives (the home of Steve Burkholder, Denise Lugo, and many other exceptional writers particularly on the FASB/IASB beat) (sub req'd)

CFO Magazine, and and more

Compliance Week (sub req'd)

This list of recommended reading/resources is not meant to be a complete listing, but meant to provide some alternative points of view and information to assist you in reviewing and potentially preparing comment letters on some of this summer's significant proposed rulemaking.

Friday, July 15, 2011

Summer Blockbusters!

Amidst the summer blockbuster season, with fare like the final Harry Potter movie which opened today, setting a record in midnight opening ticket sales, and other top box office hits, the FEI Financial Reporting Blog has announced the upcoming release of its second 'music video' about accounting.

Slated for release the last week in July, the FEI blog's 2011 music video features a star turn by Steven Zelin, "The Singing CPA." The audio was recorded under the outstanding direction of Rob Taube of Rob Taube Words and Music, and the video is being shot by the talented videographer, Glenora ("Glennie") Blackshire.
Similar to the FEI blog's 2010 music video, this year's production will feature a parody of a well-known song, with a slight 'twist' about financial accounting and regulatory reporting. New this year: the music video will feature live footage of the performance, and other surprises.

Watch last year's video, and watch for the release later this month of the FEI blog's 2011 music video on the FEI Blog's youtube channel, and watch for updates in the FEI Blog.

Included in this post are some photos taken at the audio recording session.

Photos credit: Merrill Reich

PCAOB Proposes Two Standards For (1) Broker-Dealers and (2) All Issuers

Earlier this week, the Public Company Accounting Oversight Board proposed two auditing standards, one relating to broker-dealer audits, and another which relates to all auditing supplemental information accompanying financial statements of all issuers (not just broker-dealers). The two proposals are:

BROKER DEALER AUDITS: Proposed Standards for Attestation Engagements Related to Broker and Dealer Compliance or Exemption Reports Required by the U.S. Securities and Exchange Commission and Related Amendments to PCAOB Standards , (see also statements of PCAOB Board Members on this proposal), and

AUDITS OF ALL ISSUERS: Proposed Auditing Standard on Auditing Supplemental Information Accompanying Audited Financial Statements and Related Amendments to PCAOB Standards (see also statements of PCAOB Board Members on this proposal)

Scope and Objective of Proposal on Auditing Supplemental Information
As described in the PCAOB’s press release, the proposal on auditing supplemental information would:

  • supersede the [PCAOB] Board's auditing standard, AU sec. 551, Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents, and related amendments, and

  • establish the auditor's responsibilities when the financial statement auditor is engaged to audit and report on supplemental information that accompanies the audited financial statements.
Examples of such supplemental information include the supporting schedules that brokers and dealers are required to file with the SEC.

  • The proposed standard also would apply to certain supplemental information of issuers that is included in SEC filings.
Additionally, Section III of the proposing release states (footnotes omitted; reformatted for emphasis)

The proposed standard would apply when the auditor of the company's financial statements is engaged to audit and report on supplemental information that accompanies the audited financial statements. Such supplemental information

  • the supporting schedules prepared pursuant to SEC Rule 17a-5,

  • supplemental information required to be prepared pursuant to the rules and
    regulations of a regulatory body other than the SEC and included in an SEC
    filing, and information included in SEC filings that is ancillary to the audited financial statements, derived from the company's accounting books and records, and not otherwise required to be prepared pursuant to the rules and
    regulation of the SEC or another relevant regulatory body.
The auditor's standard report includes an opinion on the financial statements.

  • Historically, when auditors reported on supplemental information, they often
    expressed their opinions on the supplemental information "in relation to" the
    financial statements as a whole. Audit procedures regarding that
    supplemental information generally have been performed in conjunction with the audit of the financial statements.

  • Indeed, the auditor's report on supplemental information currently required
    under AU sec. 551 is rooted in the concept that the supplemental information is
    presented in relation to the financial statements as a whole.

  • The proposed standard retains the existing "in relation to" language in the
    auditor's report.

  • The proposed standard establishes procedural and reporting responsibilities
    for the auditor regarding supplemental information accompanying financial
    statements. The proposed standard enhances existing PCAOB standards by:

  • Requiring the auditor to perform certain audit procedures to test and
    evaluate the supplemental information, and

  • Establishing requirements that promote enhanced coordination between the
    work performed on the supplemental information with work performed on the
    financial statement audit and other engagements, such as a compliance
    attestation engagement for brokers and dealers.

  • The proposed standard would not apply to schedules prepared pursuant to SEC
    Regulation S-X, 17 CFR § 210 because those schedules are deemed to be part of
    the financial statements.

  • Appendix 3 in the proposing release “describes how the proposed standard and
    related amendments would change the requirements in existing PCAOB auditing standards.”
Effective Date
The proposing release states: “The Board expects that the proposed standard would beeffective for fiscal years ending on or after September 15, 2012, subject to approval by the SEC.”

Comment Deadline
The comment deadline on both of the above proposals is September 12.

Thursday, July 14, 2011

XBRL: Smaller Co's Phase In, Liability Exemptions Phase Out

The SEC's three-year phase-in -- from the largest to the smallest companies --to furnish financial statements, footnotes, and certain other information to the SEC using interactive data tags called eXtensible Business Reporting Language or XBRL, recently reached the third and final year of the phase-in, with the smallest companies (those with less than $700 million market cap) joining the ranks of their larger co brethren, effective with fiscal periods ending on or after June 15, 2011. See the SEC's Summary of XBRL Information for Phase 3 Filers.

Lessons Learned
XBRL filers of all sizes will find useful the SEC's recent publication of 'lessons learned' during the implementation of XBRL by large accelerated filers, published in the form of SEC Staff Observations From Review of Interactive Data Financial Statements. The report was prepared by staff of the SEC's Division of Risk, Strategy, and Financial Innovation.

See the related article in the Hitachi Data Interactive Blog: SEC Staff Assess Early 2011 XBRL Submissions, Offer Suggestions for Improvements

Liability Exemptions Being Phased Out
Meanwhile, the liability exemptions offered during the first two years of XBRL filing are being phased out according to preset sunset provisions set forth in the initial XBRL rulemaking. Read more in this article by Skadden Arps' Brian Breheny, Skadden on the Completion of XBRL's Phase-In Period, via PLI's Securities Law Practice Center. Prior to joining Skadden, Breheny was Deputy Director, Legal and Regulatory Policy, in the SEC's Division of Corp Fin.

Who Wants To Win $20,000?
XBRL US, the nonprofit consortium for XBRL business reporting standards in the U.S. market, recently teamed together with the CFA Institute and Wharton Research Data Services to offer "A $20,000 grand prize ... to the company, team or individual developer who submits the most inventive and useful application leveraging XBRL-formatted data from the U.S. Securities and Exchange Commission (SEC) EDGAR database." (See XBRL-US press release.)

As further stated in the press release:

Individuals or organizations can learn more and enter the contest on the XBRL Challenge page on Facebook at or by visiting . Updates will be shared on Facebook and on Twitter at using the hashtag #XBRLCHALLENGE.

Developers and other prospective contestants may participate in a special briefing on August 3, 2011. Go to and click on the link on the right-hand side. All final submissions must be received by January 31, 2012.

Former FASB Chairman Featured In July 28 Webcast
In related news, former FASB Chairman Bob Herz will be the featured speaker in a July 28 webcast co-sponsored by Webfilings and FEI, entitled: SEC Reporting Today and Tomorrow: A Q&A Discussion With Bob Herz, Former FASB Chairman. The discussion will be moderated by Joe Howell, co-founder and managing director of WebFilings and organizer/community moderator of the SEC Professionals Group.

Herz will be answering questions submitted by registrants about key financial reporting developments covering a variety of topics - from the current status of FASB projects and XBRL compliance to the future with IFRS. Participants in the free live webcast can earn 1 CPE.

Monday, July 11, 2011

Investors, Small Cos, and Regulators Sound Off At SEC IFRS Roundtable

Following on our post last week with some highlights from the investors panel at the SEC's July 7 IFRS Roundtable (Carve-Ins, Not Carve-Outs, Can Help IFRS Adoption, Investors Panel Tells SEC), FEI posted a more detailed summary today containing highlights from all three panels at the roundtable.

The FEI summary, entitled "Investors, Small Companies, and Regulators Sound Off at SEC IFRS Roundtable" was authored by Quentin Walsh, a member of FEI’s New Jersey Chapter, who observed the roundtable proceedings first-hand in the public observers’ area.

Additional summaries of the SEC's July 7 IFRS Roundtable can be found in various blogs and news websites. As is apparent in some of the headlines below, (some of which are on the subject of the SEC's consideration of IFRS, but not necessarily last week's roundtable) the posts contain the various author's own views, in addition to highlights from the roundtable.

SEC Roundtable Ponders IFRS Condorsement (Michael Cohn, AccountingTODAY)

SEC Urged To Go Slow On Global Accounting Move (Dena Aubin, Reuters)

Investors Hesitant on Foreign Accounting Rules (Moran Zhang, Medill News Service via Marketwatch)

SEC IFRS Roundtable Debrief: March of the Zombies - (Tom Selling, The Accounting Onion)

Is IFRS For Criminals? (Prof. Dave Albrecht, citing an article by that name by Ed Ketz and Anthony Catanach)

SEC Updates C&DI's On Exec Comp, More

On Friday, July 8 the SEC's Division of Corporation Finance posted a number of new Compliance and Disclosure Interpretations (C&DI's) relating to Executive Compensation and other matters.

Props to Broc Romanek who posted a quick summary in blog, noting that in addition to the new C&DIs, one C&DI was withdrawn, and Corp Fin also released a statement relating to WKSi's (well known seasoned issuers).

Broc's summary links in turn to a post by Vanessa Schoenthaler in her 100 F Street blog (the 100 F St. reference being a nod to the SEC's Washington, DC HQ address).

FAF Conclusions On Private Co Standards Expected This Fall; Outreach Continues; Over 1,100 Comment Letters Filed; FASB Staff Findings Issued

A mid-year update posted earlier toay by the Financial Accounting Foundation - overseer of FASB and GASB - concerning the FAF's consideration of a recommendation made by a Blue Ribbon Panel that a separate board be formed under the FAF to focus on private company standard-setting - notes that further outreach to preparers, users of private company financial statements and others will continue to take place, under the continued leadership of a Working Group of the FAF Trustees focusing on this issue. It also addresses when it expects to reach conclusions, as noted below.

Findings and Conclusions Expected This Fall
Regarding timing of the announcement of the FAF's conclusions, following the completion of the outreach process, the FAF's mid-year update states:

It is anticipated that the Trustees will share their findings and conclusions in the fall.
Over 1,100 comment letters
In addition to in-person meetings being conducted by the FAF Trustees, and outreach being conducted by FASB board and staff members, regarding potential improvements to standard-setting for private companies, the FAF has thus far received over 1,100 comment letters on this subject. A very quick scan of the comment letter file reveals at least three types of positions.

A substantial number of the comment letters, following a form-letter type format (e.g, see Comment Letter 5, and Comment Letter 1105), call for adoption of the Blue Ribbon Panel's recommendation to form a new standards-setting board for private companies. For example, those letters state in part:

I believe a systemic problem exists. The current standard-setting process does not adequately take into account the needs of the private company sector. Further, the panel was correct in that there is not a proper weighing of costs and benefits when it comes to setting standards for private companies ... [A] new, separate body with standard-setting authority must be established directly under FAF and not subject to FASB approval. Given the public company reporting pressures placed upon FASB, the board cannot adequately respond to the competing needs of the private company sector."

Others comment letters, however, while sympathetic to the need to provide more relief to private companies, particularly give that the users of private company financial statements do not have the same needs as users of public company financial statements (such as analysts), are not supportive of the wholesale creation of a new standards board for private companies, preferring instead other approaches, including formation of a new advisory group to FASB regarding private company accounting.

For example, the comment letter filed by Richard Avril, Shareholder, Burr, Pilger Mayer states:

Although I believe it is appropriate to focus on meaningful as well as practical standards for private companies, I also believe that the underlying principles for both public and private entities should be essentially the same for the basic recognition and measurement principles. However, they could include simplifying shortcut or default methods for private companies, in addition to differential disclosure requirements.

There are currently differential disclosure requirements for private and public entities but other than delay in implementation and certain exclusions, often the requirements are quite labor intensive for many smaller private entities. In this regard, I believe there may be a need for the Financial Accounting Standards Board (FASB) to modify its approach and have a process that focuses as much on the needs of private industry as on the analyst and creditor community requests for more layers of information on public enterprises.

Accordingly, I would be supportive of creating a strong advisory body with significant influence to lobby the interests of the private sector with an ongoing FASB rather than the creation of a separate autonomous principal setting body as proposed by the Blue Ribbon Committee.

I think the possibility of having big and little IFRS, U.S. GAAP and many other country specific GAAP may add complexity to comparability and variations in reporting rather than having similar economic transactions reflected consistently in financial reporting by various types of entities. Additionally, these differences could result in additional complexity in the valuation by the respective enterprises for accounting or other purposes.
In the same vein, the comment letter filed by FEI's Committee on Private Company Standards called for the formation of a Private Company Task Force, with standard-setting powers similar to that of FASB's Emerging Issues Task Force, whose consensus positions are released for public comment and subject to FASB approval; certain pervasive or controversial issues are sometimes moved from the EITF's agenda directly to the FASB's agenda.

FASB Staff Preliminary Findings Issued; Possible Academic Research
The mid-year update on private company standard-setting posted by the FAF notes that in addition to conducting further outreach with preparers, users of private company financial statements and others, "the [FAF] Trustees also may consider whether additional academic research is necessary."

Personally (I remind you of the disclaimer posted on the right side of this blog), I wonder if any such academic research would address matters identified by FASB Chairman Leslie Seidman in her "Outlook: 2011" webcast earlier this year, (see our Jan. 25 blog post), in which she said that as part of FASB's initiatives to improve standard-setting for private companies, "[W]e are developing a white paper on the unique needs of users of private company financial statements."

UPDATE 4:35 PM: FASB separately published preliminary staff findings in a "FASB in Focus: Private Companies: The Path to a Differential Standard-Setting Framework"

FEI's research affiliate, the Financial Executives Research Foundation (FERF), published a report on this subject in 2006, entitled What Do Users of Private Company Financial Statements Want? The report is available in FERF's online bookstore and as a resource on the Private Company Financial Reporting Committee (PCFRC's) website; the PCFRC is a joint committee of FASB and the AICPA.

Stay up-to-date on developments relating to the FAF and FASB's consideration of standard-setting for private companies, by visiting FASB's Non-Public Entity Web Portal.

Friday, July 8, 2011

IASB Funding, Due Process, Agenda and More in IFRSF Annual Report

The IASB's (technically, its parent organization, the IFRS Foundation's) funding and financial position, 2010 report of its Due Process Oversight Committee, a list of countries that permit or require IFRS (or, like the U.S., are in the process of reaching that decision), and an update on projects on the IASB's technical agenda are among the highlights that can be found in the IFRS Foundation's Annual Report, published today.

Another key highlight is the Report of the Chairman of the IASB, written just prior to year-end 6/30, by then-Chairman Sir David Tweedie. The observations he makes as to the IASB's development over his 10-year tenure as chair make for very good reading, and should perhaps be required reading, particularly by students of accounting, as well as practitioners.

See also our related posts on yesterday's SEC IFRS Roundable, and on our April 13 post on highlights of the FAF (parent of the FASB & GASB's) Annual Report.

Thursday, July 7, 2011

Carve-Ins, Not Carve-Outs, Can Help IFRS Adoption, Investor Panel Tells SEC

A panel of investors, speaking at an SEC roundtable on International Financial Reporting Standards earlier today, told SEC Chairman Mary L. Schapiro, Commissioner Elisse Walter, and SEC staff present that 'carve-ins' (or requiring additional or alternative information to that required by IFRS) - vs. 'carve-outs' (in which a country opts out of all or a portion of a particular IFRS standard) can be helpful if the SEC were to move to adopt IFRS.

Carve-Ins, Not Carve-Outs
Mark LaMonte, managing director, Moody's Investor Service, told the group, "Carve-outs are not particularly helpful; carve-ins can be. FASB needs to understand where U.S. views [differ] … maybe you have carve-ins [such as] incremental disclosures, or alternative presentations, we still make sure we adopt the standards in a way that allows those global comparisons to take place."

David Larsen, Managing Director, Duff & Phelps noted he supported what has informally been described as a 'condorsement' approach to adopting IFRS in the U.S., as outlined in a May 27 SEC staff paper on the incorporation of IFRS into the U.S. financial reporting system. Under the 'condorsement' approach, the FASB would have a continuing role in participating in the development of IFRS, and in serving as the 'endorsement' mechanism in the U.S., to approve standards for adoption in the U.S., or develop modifications for U.S. adoption, as needed.

Y2K Prep May Be A Useful Model
Larsen added, "The condorsement approach has a great deal of merit; a strong and vibrant FASB has had a strong, positive impact on the development of IFRS."

Drawing a comparison between IFRS adoption and the runup to Y2K, Larsen said, "Similar to y2K, a lot of work was done, a lot of money was spent on consultants to get there; that being said, it seemed to go smoothly, and there were’t too many hiccups."

Private Company Considerations
Alluding to ongoing deliberations by the Financial Accounting Foundation, parent of the FASB, on private company accounting (including consideration of a recommendation released earlier this year by a Blue Ribbon Panel sponsored by the FAF, the AICPA and NASBA, that a separate board be formed under the FAF, to focus on private company standard-setting), Larsen stated, , "We need to be careful not to dilute FASB with a separate private company board."

In contrast, a comment letter filed by Mark Heeson of the National Venture Capital Association included in the SEC's comment file on IFRS warns,

As we noted in our 2007 comment letter on the SEC’s Concept Release on Allowing US Issuers to Prepare Financial Statements in Accordance with International Financial Reporting Standards, both venture capital firms and venture funds generally operate as private companies in a partnership form. Additionally, venture funds invest almost exclusively in private companies. As we note in our 2007 comment letter, NVCA is concerned that the SEC’s evaluation of IFRS has included too little consideration of the way decisions regarding accounting standards for public companies ripple through and affect accounting and auditing for venture capital funds and the private companies in which they invest.
Among the points raised in NVCA's most recent letter, are:

  1. Efforts to converge IFRS and US reporting standards have added to the FASB’s excessive focus on issues of publicly traded companies and retail investment vehicles,

  2. The SEC has a responsibility to minimize the negative consequences of any move to IFRS on private companies in the US and is uniquely positioned to do so, and

  3. [NVCA] remain[s] concerned that the move to IFRS will further solidify the oligopoly position of the Big Four Accounting firms.
NOTE: Canada adopted its own 'home-grown' model of private company GAAP ("Accounting Standards for Private Enterprises or ASPE), as Canadian public companies move to adopt IFRS this year. See, e.g. Canadian GAAP at a Crossroads (updated 4/11) by Deloitte.

Political Pressure A Reason To Join In, Rather Than Opt Out of IFRS Process
Tricia O'Malley, a former IASB board member, and former Chairman of the Canadian Accounting Standards Board (note: Canadian public companies are in the process of adopting IFRS this year), appeared to indicate that concerns about the politicization of accounting standards and the IASB's standard-seting process were a reason for the U.S. to join into and provide a thoughtful counterweight to that process, rather than opting out and letting the political pressures that current face the IASB continue to mount.

Specifically, O'Malley said, "[I]t became quite clear to us early on, a lot of people signed onto use of IFRS as their reporting language without understanding the fundamental philosophy of a conceptual framework, and that financial reporting is for investors.

She added, "I think there are a lot of jurisdictions using IFRS where it is pretty clear the standard setting process has been under political control … [geared toward] policy making, as opposed to … investors." That, said O'Malley, is "one of the reasons [some of] the rest of the world would like to see the U.S. and Japan join ... It would actually help the funding issue, and as Greg [Greg Jonas of Morgan Stanley] mentioned earlier, ensure continuous U.S. participation in the process which I think is absolutely essential, so investor focus remains front and center; that is the critical piece of the IASB continuing to be successful."

Investors Will Be Ready, Panelists Say

Asked by SEC Chief Accountant Jim Kroeker to comment on investors' IFRS readiness, the panelists (notably, mainly institutional investors and analysts) generally indicated that investors will be ready, or at least will be able to gear up to be ready, but that the effort to fully gear up, particularly among investors or analysts that are not focused on multinationals, but more domestically focused, may not take place in earnest until a date certain is announced, as to a pending move, and the nature of that move, to IFRS.

Gerry White, of Grace and White, Inc. observed, "Knowledge of IFRS is very variable, and particularly among people who follow U.S. companies only, is broad but not at all deep; having said that, giving people another two years is not going to make much of a difference, most analysts focus on accounting changes when they happen."

Regarding a potential transition to IFRS, White noted, "The [SEC] staff paper talks about prospective change, our surveys show that among investors, that is a clear second choice, it is much more helpful for investors to have retrospective adoption."

Mary Morris of CalPERS agreed, saying, "Investors will be ready to jump in full force, as Gerry says, when the decision is made," although she also highlighted some matters requiring attention.

Greg Jonas of Morgan Stanley noted, "U.S. investors are heavily exposed to IFRS today, and more as time goes on; we can only protect U.S. investors by bolstering IFRS, making it strong and vibrant, bringing it into the U.S. in a thoughtful way." He added, "Personally, I am a condorsement fan."

Neri Bukspan of Standard and Poor's said, "Investors are going to be ready, we ought to be ready if we cover companies globally." He added that both FASB's Investor Advisory Committee and the IASB's Investor Advisory Committee emphasized the importance of the conceptual framework, which was also referenced by FASB Chairman Leslie Seidman, in attendance as an observer at the roundtable.

Bukspan also noted the importance of a comprehensive disclosure framework, (a project which is currently being deliberated by the FASB, with a Discussion Document due out for public comment in the 4th quarter of this year), adding, "I believe the Commission could promote the dialogue, [including] thinking about what the right kind of disclosure [would be], and considering cost/benefit of prospective vs. retrospective adoption."

Industry Communication With Investors Essential
Panelists emphasized that it is essential that companies individually, and in some cases supported by educational efforts by industry associations, make sure that investors in their companies are prepared for any major change in reporting such as an adoption of IFRS, specific to how such adoption is likely to impact that industry and/or company.

O'Malley observed, with insight from Canadas's ongoing transition: "I would emphasize the incredible importance of industry groups [in educating investors about the transition]; I would give absolute top marks to our own GAAS guys... helping people with questions about transitioning from Canadian GAAP to IFRS, spent a lot of time with groups, including major analysts." She added, "Other industries like the banking industry have done major presentations, explained the kind of choices individual companies are going to be making, has really just started getting into high gear as transition approached, they know the analysts are still trying to understand whats going on in the last year of Canadian reporting."

Further, O'Malley noted, "Some of the companies have actually had ‘boot camps’ for some of the analysts that follow them; one of the CFO's said, ‘This is part of my job, if something happens to my stock price because I didn’t explain something propertly to my analysts, I’m going to wear it.”

Jonas had a similar view, adding, "On the education front, investors will be ready for any thoughtful transition approach, and the primary education vehicle will be what companies say to investors as they prepare for transition, not only in [the year of] transition, but the years prior to transition, so they can prepare for it."

In related news, see Michael Rapaport's July 6 Wall Street Journal article, U.S. Firms Clash Over Accounting Rules.

Process, Process, Process
Kevin Spataro of The Allstate Corporation, (a frequent and well-spoken, in my view (please refer to the disclaimer on the right side of this blog), participant in past SEC and FASB panels on fair value reporting), noted that it's all about "Process, process, process," pointing out that the IASB needs processes that are "similar to those that have made the FASB so successful."

Today's SEC IFRS roundtable also included a panel of small public companies, and a panel of regulators from other regulatory agencies. For more info, refer to the archived webcast, list of panelists and agenda. See also our post yesterday: New IASB Chairman, Hans Hoogervorst, Optimistic SEC Will Move To Incorporate IFRS Shortly.

FEI Elects 2011-2012 Officers; George Boyadjis Becomes Chairman

Earlier today, FEI announced its 2011-12 slate of officers, whose terms begin immediately.

George Boyadjis, CPA, executive director of CresaPartners, LLC, was elected to the position of FEI's national chair, after serving as national vice chair for the previous year. Boyadjis, who has been a member of FEI since 1994, also served a vice president at large from 2008-2010. A member of the FEI Board for five years, Boyadjis previously chaired the Strategic Planning Committee for FEI and has also been a trustee and chair of FERF. He previously served as a member of FEI's Ethics and Eligibility Committee and as president of FEI's Twin Cities chapter. Prior to his current position at CresaPartners, he was EVP, CFO, secretary and treasurer for American TeleCare, Inc., and before that served as CFO, treasurer and corporate compliance officer for MedManagement, LLC.

Marsha L. Hunt, CPA, vice president, controller and principal accounting officer of Cummins, Inc. will now serve as national vice chair.Hunt, an FEI member since 2000, has been a trustee of FERF for seven years (2004-2011), as well as a member of the FEI Hall of Fame Selection Committee, Strategic Planning Committee and the Committee on Corporate Reporting. Prior to joining Cummins in 2003, Marsha worked with Corning Incorporated for 7 years and served as its Assistant Controller.

Taylor Hawes, Sr. CFO of intellectual property and licensing for Microsoft Corporation, will continue to serve as vice president at large. Before joining Microsoft Corporation, Hawes was the North America controller for U.K.-based Raleigh Bicycle Corporation. Hawes, a member of FEI since 2002, serves on the Committee on Finance and Information Technology (CFIT), and previously served as treasurer of FEI, and as a trustee and chair of FERF.

Harry W. Zike, CPA, CFO and Board member of GTE, Plc., will now serve as vice president at large. A member of FEI since 1989, Zike previously served as Chief Financial Officer of Energy Conversion Devices (ECD), and prior to that spent nearly two decades with Siemens, where he held a number of executive financial positions in both Europe and the USA.

David Nunes, senior vice president of Finance for Minor League Baseball, joins the FEI Board in the role of treasurer.Prior to joining Minor League Baseball, Nunes was Vice President of Finance for Sun Life Stadium, home of the Miami Dolphins. Nunes has been a member of FEI since 2000 and has served as Area vice president for the Southern Region and Chapter President for the Southern Florida Chapter.

Robert Shultz, vice president, Enterprise Services Strategy at the Hewlett-Packard Company, will serve as secretary. A member of FEI since 2005, he served as chairman of FEI's Committee on Finance & Information Technology (CFIT) from 2008-11. Shultz joined HP in 1982 and prior to his current position, he served as vice president of Internal Audit, general manager of the Business Process Outsourcing organization, and vice president of Shared Services.

Kim K. Gazzola, vice president for Finance and Administration at Cambridge College, will continue to serve as FERF chair for a second year. FERF, the Financial Executives Research Foundation, is the research affiliate of FEI.Gazzola, a member of FEI since 1989, was previously the president of the Boston chapter. Prior to her tenure at Cambridge College, she served in senior roles at Bridgewater State College, Wentworth Institute of Technology and Gaston & Snow.

Welcoming the new officers, FEI President and CEO Marie Hollein said, "On behalf of our entire organization, I am pleased to welcome and congratulate these accomplished business leaders on their well-earned positions on the FEI board. With their continued leadership and dedication to FEI's mission, we look forward to continued success over the coming year. We are privileged to have these leaders as part of our organization."

Read more about FEI's 2011-2012 leadership:

FEI press release

FEI Office of the Chair (links to bios)

Financial Executive Magazine, July 2011: For FEI's Chair, It's His Time To Pay It Forward
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Read more about FEI and the value of FEI membership:

About FEI

Join FEI (links to short, information video, membership eligibility criteria, online membership application)

FEI Website:

Wednesday, July 6, 2011

New IASB Chairman, Hans Hoogervorst, Optimistic SEC Will Move To Incorporate IFRS Shortly

Hans Hoogervorst, the International Accounting Standards Board's new chairman, said last week he is 'optimistic the SEC will move to fully incorporate IFRS shortly.' Hoogervorst became Chairman of the IASB on July 1, succeeding Sir David Tweedie, whose term ended June 30.

Among Hoogervorst’s former positions (see bio), he served as chairman of the executive board of the Netherlands Authority for the Financial Markets (AFM); chaired the IOSCO technical committee, and co-chaired the Financial Crisis Advisory Group (FCAG) jointly sponsored by FASB and the IASB.

Hoogervorst on IFRS Roadmap; Post-Convergence Agenda
In his welcome message, Hoogervorst notes that the IASB will soon publish a consultation document seeking comment on its post-convergence agenda.

Regarding the SEC’s consideration of permitting or requiring IFRS by public companies in the U.S., Hoogervorst states:

[W]e need to help complete the missing pieces of the IFRS jigsaw, and an important element of that is encouraging the United States to come on board. IFRSs are already permitted for use by non-US companies listed on American markets, and I am optimistic that the US Securities and Exchange Commission (SEC) will move to fully incorporate IFRSs into the US financial reporting regime shortly. The US is the single largest national financial market, with the most developed and mature national accounting standards. It seems reasonable to me that the SEC takes its time to make the appropriate transitional arrangements, however it is clear that US companies would welcome some certainty in the near future. The SEC’s decision will certainly have consequences elsewhere in the world, with several other major economies waiting to see what happens before finalising their own plans to adopt.
Additional priorities are also discussed in the new IASB chairman's welcome message.

Panelists for IFRS Roundtable Announced; Comments on 'Condorsement' Due 7/31
In related news, the SEC recently released the detailed agenda and list of panelists for its previously announced IFRS Roundtable, taking place tomorrow.

As noted in the SEC's press release, the roundtable "will focus on topics such as investor understanding of IFRS, the impact on smaller public companies, and on the benefits and challenges of incorporating IFRS into U.S. public company accounting."

Reminder: the SEC requested comments by July 31 on its SEC staff paper outlining what is informally referred to as a 'condorsement' approach (a term coined by SEC Deputy Chief Accountant Paul Beswick) to using the FASB as the endorsement mechanism for IFRS in the U.S., in a role similar to that of some other national standard-setters in countries that have adopted IFRS.

My Two Cents: The Meaning of "Incorporation" (of IFRS)
In my view (I remind you of the disclaimer posted on the right side of this blog), some of the strongest rhetoric against the potential adoption of IFRS in the U.S. appears to be based on a presumption that the SEC's ultimate decision could be to require public companies to move from their current, U.S. GAAP platform, to a wholly different platform, in the form of IFRS. But let's break this down.

Decision is not pre-ordained; various alternatives still under consideration

The SEC staff emphasized in their staff paper on condorsement that a final decision has not yet been made by the SEC staff vis-a-vis incorporation of IFRS, any upcoming decision is not necessarily a binary decision, and various alternatives are still under consideration.

In the SEC staff's own words (from the SEC staff paper):

The Commission has not yet made a decision as to whether and, if so, how, to incorporate IFRS into the financial reporting system for U.S. issuers. While the Staff’s work on the Work Plan continues, including assessing the quality of the standard setting process, the focus of this Staff Paper is to outline a possible approach for incorporation of IFRS into the U.S. financial reporting system, if the Commission were to decide that incorporation of IFRS is in the best interest of U.S. investors. This Staff Paper does not provide an extensive discussion of a potential timeline of incorporation. That is not to diminish the importance of the timing of incorporation but reflects the fact that the timeline for incorporation is a separate consideration....

...The Staff’s discussion in this Staff Paper is not intended to suggest that the Commission has determined to incorporate IFRS or that the discussed framework is the preferred approach or would be the only possible approach. The framework is presented to illustrate that:
1. The decision faced by the Commission in an effort to achieve a single set of high-quality, globally accepted accounting standards is not necessarily a binary decision (i.e., either to require the use of IFRS by all U.S. issuers immediately or not);
2. Incorporation of IFRS is not inconsistent with the SEC maintaining its ultimate authority over U.S. accounting standard setting; and
3. There are potential ways to accomplish the broad objective of pursuing a single set of high-quality, globally accepted accounting standards while minimizing cost, effort, and other transition obstacles.

'Permit,' 'Require,' or 'Converge'
An oft-cited statistic, loosely translated over the past few years, is that over 100 countries currently "use" IFRS. A useful table specifying which countries in the G-20 have decided to (or, are in the process of deciding whether to) require, permit or converge with IFRS can be found in the IFRS Foundation and IASB's Who We Are and What We Do (updated July, 2011).

As noted in the summary sentence at the top of pg 4 of that publication:

Since 2001, almost 120 countries have required or permitted the use of IFRSs. All remaining major economies have established time lines to converge with or adopt IFRSs in the near future.

The operative word in the above sentence which I would point out, is the word "or," as in, almost 120 countries have required OR permitted the use of IFRS. Refer to the table on pg 4 of the IFRSF/IASB report for country-by-country specifics as relate to the G-20.

The Significance of the Meaning Of 'Incorporate' (re: IFRS)

Moving from the point above, that the use of IFRS in various countries ranges from being a mandatory requirement, to a permitted framework, to a framework upon which national standards have converged, is the next and final point that the SEC's use of the word 'incorporate' - to me, at least - is significant.

Webster's dictionary defines incorporate (parts 1a and 1b of the definition) as:

to unite or work into something already existent so as to form an indistinguishable whole... to blend or combine thoroughly

Thus, to 'incorporate' IFRS could mean, in plain English, for U.S. GAAP to converge with IFRS, period, and that it remain converged with IFRS over the long haul, either through a FASB endorsement mechanism as described in the SEC staff paper, or though maintaining the current design and mandate of the FASB. The downside to keeping a fully standalone mandate for the FASB could be, as expressed by former FASB Chairman Bob Herz in numerous speeches, the challenge of having to 'ride two horses' in maintaining and improving a separate set of U.S. GAAP, along with (what could become an ongoing) convergence mandate.

Additionally, in my view, the word 'incorporate' can be broadly interpreted to include a decision to 'permit' the use of IFRS by U.S. public companies, not only a decision to 'require' the use of IFRS. The jist of the arguments generally made against a decision to simply 'permit' a move to IFRS is that, if companies take advantage of such an 'optional' opportunity (1) they would not want to risk having to change back to U.S. GAAP, with significant costs and complexities attached to changing over an entire accounting and reporting system, impacting SEC reporting and more, and (2) they very likely would not want to incur the cost of having to report, to the SEC, at least, under both IFRS and U.S. GAAP, for much the same reason (incurring the cost of dual reporting systems to fulfill an 'optional' requirement, when one would be sufficient). If companies were offered an opportunity to report in IFRS instead of U.S. GAAP, and had a comfort level the decision would not be reversed on them, I believe there would be some appetite for such a move if IFRS were an 'option.'

However, another flip-side to an IFRS 'option,' would be consideration of investor, preparer, auditor, regulator (regulators in addition to the SEC, who base regulatory actions, taxes, fees, etc. on information provided under U.S. GAAP) and other feedback on the usefulness and understandability of public reporting under an IFRS 'option,' vs. continuing to require U.S. GAAP only, or moving to an IFRS-only requirement.

The main thing I'd like to point out is that 'incorporation' of IFRS in the U.S. public reporting system, as noted in the SEC staff report, can take any number of different forms, ranging from a mandate to optionality (i.e. permission to use IFRS), as well as incorporation through convergence.

In support of this potentially expansive view as to the possible mechanism(s) of incorporation of IFRS in the U.S. financial reporting system, it is interesting to note that the word 'incorporate' has been receiving more prominent placement in SEC releases (certainly in the title of those releases) beginning with the SEC's Feb. 24, 2010 Work Plan for the Consideration of Incorporating IFRS Into the Financial Reporting System for U.S. Issuers (released as an Appendix to the SEC's 2/24/10 Commission Statement in Support of Convergence and Global Accounting Standards). As noted above, the SEC staff paper released in May of this year also has 'incorporation' of IFRS in its title.

Prior to the 2010 IFRS WorkPlan, the SEC did not highlight the term 'incorporation' in its releases. For example, the SEC's Nov. 14, 2008 rule proposal was entitled: Roadmap for the Potential Use of Financial Statements Prepared in Accordance With IFRS, and the SEC's August 7, 2007 Concept Release was entitled, Concept Release on Allowing U.S. Issuers to Prepare Financial Statements in Accordance with IFRS.

How much significance do you think should be ascribed to the word 'incorporate'? Feel free to post a comment on our blog. If you would like to receive the FEI blog by email, please send an email to and write in Subject line: Sign Up.