Friday, April 29, 2011
Topics addressed in comment letters include the definition of netting 'simulatenously' in different time zones, netting of multiple contracts/books of business with particular counterparties through clearinghouses vs. individual contracts directly via the counterparties, issues relating to legal terminology and contracts, and the extent of disclosures required on a cost-benefit basis.
Comment letters were also filed by preparer organizations including FEI's Committee on Corporate Reporting, FEI Canada's Committee on Corporate Reporting, and IMA's Financial Reporting Committee. A number of companies filed individual comment letters as well.
Organizations filing comment letters on behalf of the audit profession include those filed by the AICPA's Financial Reporting Executive Committee , and separate letters filed by the largest accounting firms as well as midsize/regional firms.
Letters were also filed by industry specific groups that would be keenly impacted by changes to the offsetting (netting) rules, particularly in the financial services industry, such as the American Banker's Association, the Securities Industry and Financial Markets' Association's Dealer Accounting Committee, and SIFMA's Funding Executive Committee. Other international banking organizations and individual financial services companies filed comment letters as well.
Interestingly, the Federal Housing Finance Agency (FHFA - regulator of Fannie Mae and Freddie Mac) filed a one page FHFA comment letter supporting the proposals, while the 12 Federal Home Loan Banks filed a four-page FHLB comment letter objecting to various aspects of the proposals.
In addition, IOSCO (and other national and international regulatory organizations) added their views to the mix.
Refer to the exposure drafts and the comment letter page linked above for further details on the offsetting proposal and constituent views.
ROUNDTABLES THIS WEEK
The first of 3 public roundtable discusions jointly sponsored by the IASB and FASB on the offsetting (netting) proposal is slated to take place tomorrow May 3 at the IASB in London. Additional roundtables will be held May 6 in Singapore, and next Monday May 9 at FASB's offices in Norwalk, CT. The roundtables will be available by public webcast; registration is required.
The ‘respective efforts’ of the Monitoring Board and the IFRSF include the governance review of the IFRSF, being conducted by the Monitoring Board (addressing the composition, roles and responsibilities of the Monitoring Board, IFRSF and IASB), and the strategy review being conducted by the IFRSF Trustees (addressing the IFRSF’s mission, governance, and funding, as well as the IASB’s standard-setting process, including operational aspects of due process and standard-setting oversight).
According to the IFRSF, an integrated package of improvements covering the Monitoring Board and the Trustee’s Strategy Review is expected to be issued by the end of August. To help inform their work, a series of roundtables will be held in June in Tokyo, Hong Kong, New York and London.
In addition, as follow-on to the first IFRSF strategy review document issued in November, 2010 (see Nov. 2010 report and comments) a second document was released for public comment this week, entitled: Report of the Trustees Strategy Review: IFRSs as the Global Standard: Setting a Strategy for the Foundation’s Second Decade. The comment deadline on the most April, 2011 IFRSF strategy review report is July 25.
Due Process Oversight Committee
In related news, the IFRSF Due Process Oversight Committee, chaired by David Sidwell, has published various meeting summaries, its calendar and agenda, and related documents, in a separate section of the IFRSF website. See DPOC.
Tuesday, April 26, 2011
Nominations may be made by FEI members and nonmembers who register in the nomination section of the Hall of Fame website.
Eligibility requirements for nominees are as follows: "Nominees should have a career history of strong leadership and innovation, demonstrated organizational performance and a reputation for acting with integrity and ethical behavior.
"Inductees will be in the later stages of their careers or retired. Eligible inductees would be individuals who have served as senior financial executives, at some point in their careers, in public, private or non-profit organizations and, in that role or others, have significantly impacted their organizations, industry or society at large.
"Both members and nonmembers of FEI are eligible for nomination. Longstanding and distinguished FEI leadership is honored through FEI’s Distinguished Service Award and while commendable, it should not be the major contributing factor for determining admission to the Hall of Fame."
Readers of this blog will recognize many of the names of past inductees, for their leadership role in the finance profession, in corporate, non-profit, and public service.
Nomination Deadline: May 26
The deadline for nominations to be submitted for the 6th annual FEI Hall of Fame is May 26. Additional information, including Hall of Fame FAQs, can be found on http://www.feihall.org/.
HOF Gala Will Be Held Nov. 14 at Gotham Hall
The FEI Hall of Fame (HOF) Class of 2011 will be inducted at a black-tie Gala event on November 14 at Gotham Hall in New York City. (That's Gotham Hall, not Gotham City.)
Join premier sponsor Microsoft, bronze sponsor Merrill Datasite, and media sponsor CNBC by checking out sponsorship opportunities at the FEI Hall of Fame; register to attend the event; registration info will be posted on the reservations page.
Make It A Two-Day or Three-Day Event: Attend FEI CFRI, IFRS Boot Camp
As in past years, the FEI Hall of Fame is being held in conjunction with (separate registration required) FEI's annual Current Financial Reporting Issues Conference (CFRI).
FEI, celebrating its 80th anniversary this year, will hold its 30th annual CFRI conference on Nov. 14-15, at the New York Marriott Marquis hotel on Times Square in New York City.
Extend your stay by a day to attend the IFRS Boot Camp on Nov. 16 in NYC (separate registration required.) Visit the event webpages as further details will be added.
Friday, April 22, 2011
The SEC study, required by Section 989G(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, examined existing studies and included a call for public comment.
Following are the summary conclusions reached by the SEC staff as cited in their study:
1. The costs of Section 404(b) have declined since the Commission first implemented the requirements of Section 404, particularly in response to the 2007 reforms;
2. Investors generally view the auditor‘s attestation on ICFR as beneficial;
3. Financial reporting is more reliable when the auditor is involved with ICFR assessments; and
4. There is not conclusive evidence linking the requirements of Section 404(b) to listing decisions of the studied range of issuers.
Based on the information studied, the SEC staff makes two recommendations:
1. Maintain existing investor protections of Section 404(b) for accelerated filers, which have been in place since 2004 for domestic issuers and 2007 for foreign private issuers
The Staff believes that the existing investor protections for accelerated
filers to comply with the auditor attestation provisions of Section 404(b)
should be maintained (i.e., no new exemptions). There is strong evidence that
the auditor‘s role in auditing the effectiveness of ICFR improves the
reliability of internal control disclosures and financial reporting overall and
is useful to investors. The Staff did not find any specific evidence that such
potential savings would justify the loss of investor protections and benefits to
issuers subject to the study, given the auditor‘s obligations to perform
procedures to evaluate internal controls even when the auditor is not performing
an integrated audit. Also, while the research regarding the reasons for listing
decisions is inconclusive, the evidence does not suggest that granting an
exemption to issuers that would expect to have $75-$250 million in public float
following an IPO would, by itself, encourage companies in the United States or
abroad to list their IPOs in the United States. The Staff acknowledges that the
reasons a company may choose to undertake an IPO are varied and complex. The
reasons are often specific to the company, with each company making the decision
as to whether and where to go public based on its own situation and the market
factors present at the time. The costs associated with conducting an IPO and
becoming a public company no doubt factor into the decisions and may be
particularly challenging for smaller companies. The Staff appreciates that the
costs and benefits of the regulatory actions that the Commission takes – and
does not take – certainly can impact these decisions. At Chairman Schapiro‘s
request, the Staff is taking a fresh look at several of the Commission‘s rules,
beyond those related to Section 404(b), to develop ideas for the Commission
about ways to reduce regulatory burdens on small business capital formation in a
manner consistent with investor protection. However, the Dodd-Frank Act already
exempted approximately 60% of reporting issuers from Section 404(b), and the
Staff does not recommend further extending this exemption.
2. Encourage activities that have potential to further improve both effectiveness and efficiency of Section 404(b) implementation
The Staff recommends that the PCAOB monitor its inspection results and consider publishing observations, beyond the observations previously published in September 2009, on the performance of audits conducted in accordance with AS 5. These observations could assist auditors in performing top-down, risk based audits of ICFR. These communications could include the lessons that can be learned from internal control deficiencies identified through PCAOB inspections.
The Staff is observing COSO‘s project to review and update its internal control framework, which is the most common framework used by management and the
auditor alike in performing assessments of ICFR. The Staff believes that this project can contribute to effective and efficient audits by providing management and auditors with improved internal control guidance that reflects today‘s operating and regulatory environment and by allowing constituent groups to share information on improvements that can be made that enhance the ability to design, implement, and assess internal controls.
The letter, signed by CPC-S Chairman George Beckwith, continued:
The new group’s [e.g., PCTF] opinions and proposals would have to be taken seriously. If over time, the majority of its proposals are denied or not acted upon, the group will not have achieved its objectives and its structure would have to be re-evaluated. However, if over time the new group’s proposals were seriously considered and private company constituents were provided some relief from standards they feel add cost without enhancing relevant information, the group will have achieved its goal and the new group would be part of the FASB process.
CPC-S’ letter was sent in response to the FAF’s request for input as it considers the recommendations of the Blue Ribbon Panel (BRP) on Standard Setting for Private Companies and other possible actions relating to improving the FASB’s responsiveness to the needs of private companies and the users of their financial statements.
Earlier this year, the BRP (cosponsored by the FAF, the AICPA, and NASBA) made a recommendation that, in the long-term, a new board be formed under the oversight of the FAF – at a peer level to the FASB and GASB which operate under the FAF – to focus on private company accounting.
Reflecting on the BRP’s long-term recommendation, and on more recent actions taken by the FASB to be responsive to the needs of its private company constituents (preparers, auditors and users of private company financial statements), FEI’s CPC-S concluded (reformatted to bullets),
- There seems to be a credibility gap that may have caused some people to question whether the FASB as an organization can produce high quality standards for private companies.
- In our opinion, the FASB processes are good, the board members are smart and focused on high quality standard setting for all companies.
- We believe there may be a combination of process and structural changes short of a full FASB peer board that would result in high quality standards for both public and private companies.
- Working within the existing governance framework and the FASB would avoid some of the implementation issues that would require state recognition of a new standard setting body.
- A group working under the authority of the existing FASB would also insure a greater level of coordination between public and private company standards and be less expensive than a separate peer board.
- We feel that a separate board may create an us vs. them mentality in standards setting and a perception of inferior standards in the users’ minds to a greater extent than if the process were all under the authority of the FASB with significantly enhanced focus on private company issues.
- For these reasons, we believe that the establishment of a new group with standards proposing ability may be a viable alternative to a separate peer board. In our view, this new group could be modeled after the Emerging Issues Task Force (“EITF”) in that it will have the ability to propose changes which are approved, adjusted or denied by the FASB. This group, which we will call the Private Company Task Force (“PCTF”), would enhance the standard setting process by focusing entirely on private company issues and addressing their unique concerns.
- The PCTF would be able to set its own agenda, suggest exceptions to existing standards and participate in the FASB’s existing due process on proposed standards."
Thursday, April 21, 2011
FEI, Applauding FASB-IASB Move For More Time on Convergence Projects, Calls For Reexposure of Remaining MOU Projects; SEC Announces IFRS Roundtable
Big Week on the Convergence Front
In what’s shaping up to be a big week on the convergence front, following last week’s announcement by FASB and the IASB that they would delay completion of their MOU projects ‘by a few months:’
1. FEI sent a letter to FASB and the IASB applauding last week’s announcement, and asking that the boards formally re-expose, for a 90-day comment period, the remaining MOU standards;
2. The SEC announced an IFRS roundtable will take place in July, and
3. FASB and the IASB released their MOU progress report.
Commitment to Convergence, and High Quality Standards
On a podcast posted by FASB today, FASB Chairman Leslie Seidman provided highlights of the MOU progress report (detailed further below), which followed last week's announcement by FASB and the IASB of the decision to take more time to complete the MOU standards. Specifically, Seidman observed:
The primary purpose of [last week’s joint announcement] was to communicate our ongoing commitment to carrying out our robust due process on the convergence projects. Taking a look at the remaining decisions to be made, and our desire to cross-check with stakeholders on any key changes that we are making, we concluded that it was going to take us a few more months to complete our work. We think those changes are necessary to satisfy ourselves that the resulting standards are of high quality…
FEI Applauds FASB/IASB Move To Take More Time; Calls For Reexposure of Remaining MOU Standards
In response to last week’s announcement by FASB and the IASB to take a few more months to complete the remaining MOU convergence projects on revenue recognition, financial instruments and leasing (as well as an additional project on insurance contracts), FEI President and CEO Marie N. Hollein stated in an April 19 letter to FASB Chairman Leslie Seidman and IASB Chairman Sir David Tweedie:
FEI applauds the Boards’ joint decision to allow more time to complete these projects...
...[I]t is necessary and appropriate to re-expose the revised standard[s] to ensure that the new guidance achieves the desired result and does not introduce new issues or otherwise create unintended consequences for constituents.
Acknowledging the boards’ outreach efforts to date, and explaining why reexposure of the proposed standards is necessary, Hollein stated:
We understand that members of the Board and staff have engaged in extensive outreach with constituents in face to face meetings and conference calls. We support such interactions as a valuable way to more quickly identify key issues with the Board’s tentative conclusions. However, it is important to remember that the specific language of the proposed standard is what ultimately determines the future path of interpretations, implementation and compliance. ..It is …imperative that ample time and great care …be devoted to ensuring that the literal words of the final standards in each of these areas are capable of high quality application on a consistent and repeatable basis at a reasonable cost.
...We therefore recommend that for each of these projects, the Boards issue revised
Exposure Drafts and allow a comment period of 90 days for each. FEI members stand ready to assist the Boards in whatever means are necessary to help identify potential issues with the revised proposed standards and to ensure that these documents are both operational and capable of cost-effective application in the U.S. environment.
...We wish to stress that the quality and thoroughness of the due process, not the adherence to a timetable, is what is most important to the Boards’ constituents. We therefore ask that the Boards to take whatever steps are necessary to ensure that the final standards to be issued meet the specifications we discuss above, even if it means that the revised standards will be issued after December 31, 2011.
FASB/IASB MOU Progress Report Released
The MOU progress report, issued today, references the initial target completion date for the convergence projects under the FASB-IASB Memorandum of Understanding of June 30, 2011, and the more recent announcement of the extension by a few months of that completion date.
Rev Rec, Leasing ‘Drafts’ Will Be Posted; Boards Will Consider Whether Re-exposure is Necessary
Seidman, in today's FASB podcast, provided highlights from the MOU progress report that would be of particular interest to U.S. constituents, regarding the remaining MOU projects, which are: revenue recognition, leasing, and financial instruments, and the additional convergence project added by FASB and the IASB on insurance contracts.
She noted that after the boards complete their consideration of comments received on the Exposure Drafts on revenue recognition and leasing - which the board's estimate will be completed by June, 2011 - that updated ‘drafts’ of those standards will be posted on the FASB and IASB websites, as part of the boards’ efforts to inform constituents and obtain stakeholder input.
However, she stopped short of committing to issuance of a formal exposure draft (re-exposure, technically, as previous exposure drafts were issued). Rather, she emphasized, analogous to the wording in the MOU progress report itself, that:
Before each standard is issued, the boards will consider:
• whether re-exposure is necessary; and
• whether they have undertaken sufficient outreach on the proposed standard to assure the boards that the proposed standard is operational and will bring improvements to financial reporting.
Detailing further, Seidman said:
Even if we conclude that a formal re-exposure is not necessary, both boards plan to post a draft of the standard on our websites for people to review. We’ll also use this draft as the basis for additional outreach, and our fatal flaw reviews.
Based on that feedback, we will then decide how to proceed:
• can we move to a final standard,
• do we have additional work to do, and
• assess again whether we need to re-expose.
So you can see that we’re building in the quality control procedures to make sure that people are aware of these important standards and that we have an opportunity to discuss them with stakeholders before they are issued as final standards.
Regarding financial instruments, Seidman noted on today's podcast:
As you know, the boards approached the financial instruments topics in different ways, so we are not on the same timetable for all of the issues. The progress report [issued today] lays the history of the project in detail. At this point, the FASB and IASB are working side by side on impairment and offsetting, or netting on the balance sheet.
On impairment of financial assets, we received many comments on our supplementary ED; while there was no clear consensus in the comments, we received many helpful suggestions, and we plan to try to decide on a basic impairment approach in the next couple of months. Then, we’ll evaluate what additional outreach we need, and whether re-exposure is necessary, before we finalize a new standard.
About classification and measurement of financial assets and liabilities, the FASB is in the process of redeliberating the key provisions of our ED in light of the comments we received. We’ve decided to make several changes in response to widespread commentary from all of our stakeholders to reaffirm several provisions, and we identified enhanced disclosure as a priority area of focus. The FASB plans to finalize our discussions in the 3rd quarter on the classification and measurement issues. At that point, we’ll have to evaluate whether we need to re-expose our conclusions.
The IASB then plans to expose the modified FASB approach to its constituents, with the goal of developing a converged standard on accounting for financial instruments.
Seidman also provided an update on hedging on today’s podcast:
This is another case where the timing will be different between the two boards… The FASB will be at the table when the IASB discusses the comments it received on its ED, which was basically a new approach to hedge accounting. … If we decide to make more significant changes to hedge accounting, we would need to re-expose those provisions, before the FASB issues a new, final standard.
Regarding the FASB-IASB insurance project, Seidman said:
Insurance is actually not one of the projects on our MOU. But because it’s a global industry, we did decide to work together with the IASB on this project. The FASB joined the discussions fairly late, and accordingly, we issued a Discussion Paper when the IASB issued its ED. We’re now working through the comments received on both of those documents, and expect to conclude on the central issues on the project by June. However, there are other issues that we won’t get to until this summer; once we finalize our discussions, the FASB will issue an ED for public comment; so, I don’t expect a final insurance standard to be issued in the U.S. until 2012. The boards will then consider any differences that have arisen, and decide how best to address them.
Coming Attractions: Guidance on Fair Value Measurements, OCI
Seidman noted some other upcoming standards to be issued by FASB:
We expect to issue some clarifications to the guidance on fair value measurements in the next few weeks. We don’t expect these clarifications to result in major changes in practice in the US, but now we’ll have a completely converged standard on how to develop fair value estimates in cases where another standard requires or permits fair value to be used. That standard will be effective in 2012 for a calendar year company.
Other Comprehensive Income (OCI)
Seidman added on today's podcast:
We’re about to issue an amendment to the guidance on how to present Other Comprehensive Income (OCI); this will be a big change for U.S. co’s, because they’ll no longer be able to present OCI as part of the Statement of Changes in Stockholders Equity.
The converged approach would be to present OCI either as part of a single statement
of income, or in a consecutive statement following net income. That change would also go into effect in 2012 for a calendar year company.
Seidman also noted that FASB’s Technical Plan (outlining expected completion dates for various phases of projects on the FASB agenda) has been updated on FASB’s website.
Due Process in Focus
Regarding due process (a favorite topic of this blog), today’s MOU progress report also states:
To provide additional assurance, the Trustees of the IFRS Foundation are undertaking an enhanced oversight process between its Due Process Oversight
Committee and the IASB to ensure that the IASB is meeting its due process requirements. The FASB’s due process is also subject to oversight by its Board of Trustees as well as its Standard-setting Process Oversight Committee.
SEC Announces IFRS Roundable
Rounding out this week's convergence news, running neck-and-neck with issuance of the FASB-IASB's MOU progress report, the SEC announced yesterday that it plans to hold a roundtable on IFRS in July, specifically on the:
benefits or challenges in potentially incorporating International Financial Reporting Standards (IFRS) into the financial reporting system for U.S. issuers.
The SEC's press release continues:
The July 7 event will feature three panels representing investors, smaller public companies, and regulators. The panel discussions will focus on topics such as investor understanding of IFRS and the impact on smaller public companies and on the regulatory environment of incorporating IFRS.
“We must carefully consider and deliberate whether incorporating IFRS into our
financial reporting system is in the best interest of U.S. investors and markets,” said SEC Chief Accountant James Kroeker. “This roundtable will provide an excellent opportunity for investors, preparers, and regulators to provide the SEC staff with valuable information that will help the Commission in its ongoing consideration of incorporating IFRS.”
Monday, April 18, 2011
- "Gotta Love Tax Season" - series of short videos by CPA firm KatzAbosch, a partner firm in the Leading Edge Alliance, and a member firm of our friends at the Maryland Association of CPAs (MACPA).
- Party Like It's 1099 - article by Denis Storey in BenefitsPro, describes the repeal of Form 1099 related legislation; the repeal was signed into law on Friday. See related blog post by Bill Sheridan in the CPA Success Blog.
- Party Like It's 1099 - article on BrooklynBased.net referencing work performed by Steven Zelin, The Singing CPA.
Thursday, April 14, 2011
After evaluating the issues yet to be addressed we jointly concluded that, without extending the work out indefinitely, we all could benefit from a few more months to develop these standards, some of which really go to the core issues of many companies.Tweedie added:
[W]e have decided to extend the timetable for a few additional months to enable us to check whether our conclusions will last the test of time. We are also mindful of the G20 target, we have been reminded of that many times over the last few years, and we intend to try to finish this convergence programme by end of 2011. The June target has helped us to get there but at the same time it is clear that we need a little more time to check the conclusions, and to ensure that the standards are of the highest quality.Seidman then noted:
[O]ur next step is to lay out the plans for the completion of the work on the remaining projects. This is going to include: how are we going to complete our technical discussions, and importantly, how are we going to consult with stakeholders as we move forward to finalising these standards.Significantly, Seidman added:
We intend to post our conclusions on those items in the next convergence progress report, which is due to be published in the next few daysListen to the podcast of today's announcement; read the transcript.
Wednesday, April 13, 2011
- the FAF's 'Listening Tour' of 2009, in which members of the FAF Trustees travelled around the country listening to constituents, resulting in a number of actions taken by the FAF, including the formation (with the AICPA and NASBA) of the Blue Ribbon Panel on Standard-Setting at Private Companies
- the 'post-implementation review process' for FASB and GASB standards, launched in 2010
- video webcasting of FASB board meetings (a change from prior audio-only webcasts) and webcasting of FASB Education Sessions
- expanded outreach through the FAF's own website, including a periodic online update from FAF President Terri Polley, From the President's Desk,
- taking on the responsibility for the ongoing maintenance of the US GAAP Financial Reporting Taxonomy - for eXtensible Business Reporting Language or XBRL - applicable to public issuers registered with the US Securities and Exchange Commission (SEC).
- new appointments in 2010, including Leslie Seidman as Chairman of the FASB; Russ Golden, Daryl Buck, and Hal Schroeder as new FASB board members, and four new FAF members: John Davidson of Tyco, Steve Howe of Ernst & Young, Mack Lawhon of Weaver, LLP and Mary Stone of the University of Alabama.
Seidman notes the appointment of the three new FASB board members (see above), and notes the appointment of FASB's new technical director, Sue Cosper, as enabling FASB to: "expand and enhance our outreach to constituents, especially private companies and investors."
Among the upcoming initiatives addressed in GASB Chairman Robert H. Attmore's letter included in the annual report is the issuance for public comment of a due process document on GASB's project on fiscal sustainability as relates to economic condition reporting. Specifically, Attmore states:
This project, it is important to note, is not about predictions about what will happen in the future; instead, it is intended to furnish financial statement users with information that will better enable them to assess a government’s financial standing now and its ability to continue to meet its obligations as they come due.The annual report also includes the FAF's financial statements, footnotes and MD&A, a list of members of the FAF, FASAC, GASAC, the FASB and GASB boards and FASB advisory groups, as well as a clean opinion from audit firm McGladrey & Pullen, and a Management Report on Financial Responsibility and Internal Controls, which includes a voluntary assertion on the effectiveness of internal control (as required for public companies; provided voluntarily by the FAF, a not-for-profit organization).
Monday, April 11, 2011
- FASB Chairman: No Retreat on Leases (Matthew Lamoreaux, AICPA Journal of Accountancy, 4/7/11)
- FASB/IASB Joint Project on Lease Accounting (KPMG/FEI In-Depth Accounting Webcast, 3/23/11)
Thursday, April 7, 2011
(video credit: abo1121's youtube post of Rob't Preston, The Music Man, at the 1971 Tony Awards)
This week saw the issuance by FASB of a new standard on troubled debt restructurings, and a Congressional hearing on accounting and auditing issues that some members of Congress found troubling. The FASB standard was issued on Tuesday in the form of Accounting Standards Update (ASU) No. 2011-02: Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring. As noted in FASB's press release and a related FASB in Focus:
For public companies, the new guidance is effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may indentify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. For nonpublic entities, it is effective for annual periods ending on or after December 15, 2012, including interim periods within those annual periods. Early adoption is permitted for public and nonpublic entities.The Congressional hearing on accounting and auditing, which took place yesterday, was convened by the Senate Banking Committee's Subcommittee on Securities, Insurance and Investment. Entitled "The Role of the Accounting Profession in Preventing Another Financial Crisis," panelists at the hearing included FASB Chairman Leslie Seidman, SEC Chief Accountant Jim Kroeker, PCAOB Chairman Jim Doty, Anton Valukas (Examiner in the Lehman Bankruptcy proceeding), former SEC Chief Accountant Lynn E. Turner, Center for Audit Quality (CAQ) Executive Director Cyndi Fornelli, and U.S. Chamber of Commerce Center for Capital Market Competitiveness VP Tom Quaadman. Click on the link to the hearing to view the archived webcast, and links to testimony. Some of the news outlets that covered highlights from the hearing are linked below:
Auditors Not Solely To Blame For Crisis, Stronger Role Necessary, Experts Testify (Tina Chi, BNA Daily Report for Executives). EXCERPT:
Congress Probes Accountants' Role in Financial Crisis (Michael Cohn, AccountingToday). EXCERPT:
In his opening remarks, subcommittee Chairman Sen. Jack Reed (D-R.I.) said that the goal of the hearing was not to place the blame of the financial crisis on one company or one auditor. The purpose was to discuss how to eliminate the “systemic weaknesses that may continue to impair investor confidence and provide inadequate information to the investing public, public company directors and general markets,” he said. In response to Reed's question about why faulty accounting and audit practices were “allowed to go on,” Doty said that in the buildup to the financial crisis, many auditors were not “self-reliant” and did not feel that they could approach audit committees and management to sound an alarm about problems associated with the “momentum investing” that was so popular at the time. This hesitancy on behalf of auditors is something that the “audit profession is well aware of now, and knows it needs to change,” Doty said....
...[I]n addition to the FASB's shortcomings, the SEC as well as audit committees also played a role in the financial crisis as well, [former SEC Chief Accountant Lynn E.] Turner said. “The SEC has probably not been adequately performing the oversight it needed to do. The lack of certain disclosures is troubling,” he said. Audit committees need to play a stronger role in enhancing and improving the transparency of the audit process as well, he said. According to Turner, the PCAOB should undertake [a comprehensive] study of the role of the auditors and accounting profession in the financial crisis and issue a public report on its findings. “I believe such a retrospective review, in-depth study, and report by not only the PCAOB, but also the SEC and FASB, should be undertaken and published,” he said...
Financial Accounting Standards Board chair Leslie Seidman discussed the role of FASB in the standard-setting process and referred back to the controversy over mark-to-market accounting... Cindy Fornelli, the executive director of the Center for Audit Quality, agreed that auditors did not cause the financial crisis. “Following the past several years of global economic turmoil, there have been extensive examinations by panels and commissions to identify the root causes of the financial crisis and determine what could be done to reduce the risk of a future similar crisis,” she said. “While none of the panels or commissions found that auditing was a root cause of the financial crisis, auditors, like all participants in the capital markets, have a responsibility to examine their role in light of lessons learned from the crisis and consider what improvements can be made in audit standards and what more they can contribute to market integrity and investor protection.” Thomas Quaadman, vice president of the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce argued for less reliance on prescriptive rule-making by standard setters and greater transparency. “For decades, standard setters have been operating under inadequate rules and guidance, resulting in the impairment of financial reporting and as a contributing factor that escalated the financial crisis,” he said. “In order to prevent the next crisis we must address the fundamental flaws with the system.” Public Company Accounting Oversight Board chairman James Doty urged Congress to amend the Sarbanes-Oxley Act to allow for public disciplinary hearings of auditors...And, here's some additional points of view: - Ben Hallman highlights the hearing in The Center for Public Integrity Blog, Paper Trail. - Prof. Dave Albrecht, a fairly outspoken and widely read blogger, provided his take on the hearing in his blog, The Summa. - Jim Hamilton covers the hearing in Jim Hamilton's World of Securities Regulation. UPDATE 4.13.11: Tom Sellingprovides his thoughts on the hearing in his blog post today in The Accounting Onion.
Monday, April 4, 2011
Senior Level Faculty Lead Anti-Fraud Workshops
Dates announced for the FEI-CAQ executive breakfasts include May 10 (Chicago), May 16 (Boston), May 25 (Dallas), and June 14 (San Francisco). Faculty leading the workshops include FEI President and CEO Marie N. Hollein, CAQ Executive Director Cindy Fornelli, and the following senior financial executives and auditors: Evelyn Angelle, Senior Vice President and Chief Accounting Officer, Halliburton Company, David F. Bond, Senior Vice President, Finance and Control, Safeway Inc., Bryan Jones, Partner Forensic Services, KPMG LLP, Graham Murphy, Partner, Forensic Services, KPMG, LLP, Kristin Rivera, Partner Forensic Services, PwC, LLP, Bob Strasser, Partner, BDO Seidmam, LLP, and John Wozniak, Corporate Vice President and Chief Accounting Officer, Motorola Solutions. The cost to attend one of the breakfasts is $95; FEI members attend for free. Advance registration is required. Not an FEI member? Check out FEI's 80/80/80 discount program.
History of the FEI Financial Literacy Quiz
The first edition of the FEI Financial Literacy Quiz was developed in the 1990's by Phil Livingston, then-President and CEO of FEI (and now Chief Executive Officer for the Marketing and Business Solutions organization of LexisNexis in the U.S.,); Professor Emeritus Roman Weil (then a Professor at the University of Chicago, now Professor Emeritus, and visiting professor at NYU's Stern School of Business; publications); and John Stewart, then-partner with audit firm Arthur Andersen (and now a managing director of the consulting firm, Financial Reporting Advisors, LLC). The quiz was launched in the period immediately preceding the Sarbanes-Oxley Act, when there was increasing focus on the need to strengthen audit committees, and the primary audience for the quiz as originally constructed was for audit committee members.
The 2nd Edition of the quiz, published this week, was updated by FEI staff to include new questions in a number of areas, including financial reporting, auditing, recent legislation, fraud prevention and detection. FEI acknowledges the assistance of other partners in the CAQ-FEI-IIA-NACD Anti-Fraud Initiative in informally reviewing and commenting on drafts of the 2nd edition.
Quiz is a Starting Point, Not a Destination
To provide context on what the FEI Financial Literacy Quiz is - and is not - the Introduction to the quiz notes: This instructional quiz, developed by Financial Executives International, does not provide a certification by FEI or any other body. The questions in this quiz address a sample of basic elements of the financial reporting process and oversight of finance issues... [it] is not meant to provide a complete picture of one’s financial reporting literacy or qualifications to perform a particular job. Rather, the questions in this quiz are meant to highlight a variety of areas such that, if knowledge gaps are identified, the individual taking the quiz can seek further information on, individually, or potentially through an organization they work for, serve on the board of directors of, or through educational opportunities offered by professional associations such as FEI....Following are some of the areas covered in this Second Edition of the FEI Financial Literacy Quiz: financial reporting and auditing, governance, regulation, legislation and standard-setting; fraud prevention and detection, and private companies.
My Two Cents: Raising Awareness
Allow me to add 'my two cents' (please see the disclaimer on the right side of this blog). The true value of the FEI Financial Literacy Quiz is not in what it proves you are - for it does not 'prove' or 'certify' anything, as carefully noted in the Introduction to the quiz excerpted above. Rather, the value of the quiz is to raise awareness - as a relatively quick identifier of some areas where the person taking the quiz may have some knowledge gaps. Indeed, in some cases, the gaps shown by the quiz could simply be the tip of the iceberg, given the depth and breadth of knowledge required to be 'financially literate' in the role of financial executive, internal or external auditor, audit committee member, or investor.
FEI stands ready to assist its members (and nonmembers) by providing a variety of educational offerings in the form of conferences and webcasts, local chapter events, national advocacy and accounting policy committees, and materials published in our magazine, Financial Executive, and by our research affiliate, the Financial Executives Research Foundation (FERF).
The above-mentioned breakfast series on fraud deterrence and detection, cosponsored by FEI and the CAQ, are one example of these initiatives. On the anti-fraud front, additional publications and programs are also forthcoming from members of the CAQ-FEI-IIA-NACD Anti-Fraud Initiative, both individually and collectively. One additional point: the FEI Financial Literacy Quiz is not designed to identify or certify anyone as a 'financial expert.' (Questions about the definition, stock exchange listing and related regulatory requirements for, and qualifications and performance of 'audit committee financial experts' in practice, were raised by various members of the Public Company Accounting Oversight Board's Standing Advisory Group during the PCAOB SAG's March 24 Q&A session with the COSO Chairman.)
Once again, the main purpose of the FEI Financial Literacy Quiz is to raise awareness, not to certify or provide an indepth training experience per se, but to encourage participation in an knowledge-seeking exercise through a relatively quick 'quiz,' rather than trying to be all-encompassing. Some may argue that even the CPA exam (or other professional exam, such as the Bar Exam) cannot cover 100% of the knowledge that a person needs to qualify as a CPA (or other professional); thus, the purpose of this quiz is to raise awareness and encourage people to fill in identified knowledge gaps, through participating in educational programs offered by FEI or other professional associations, through programs offered by universities or online training, (see also programs offered by FEI's Strategic Partners) or by other means. So, what have you got to lose? Take the quiz!