Sunday, January 31, 2010

FEI Files Amicus Brief With Supreme Court On Textron Case

On Jan. 27, 2010 Financial Executives International, an association of 15,000 senior financial executives, filed an amicus curiae "friend of the court" brief with the Supreme Court of the United States in support of a petition for review of the U.S. vs. Textron case.

The petition, submitted jointly by FEI's Committee on Taxation and Committee on Corporate Reporting and prepared by the law firm Miller & Chevalier, maintains that a 2007 lower court decision in favor of Textron appropriately balances the competing interests of the IRS, the investing public, and the fairness considerations that protect attorney work product. However, the lower court decision was reversed by the en banc court of appeals and, accordingly, the Supreme Court is now being asked to weigh in on the issue.

"The issues in the Textron case are extremely important to FEI's membership, and have a direct effect on all publicly held companies and their ability to prepare financial statements and efficiently file tax returns," said Matt Miller, FEI's Senior Director of Government Affairs. "We strongly encourage the Court to grant review in this case so that the Court can clarify the scope of work-product protection. We hope the Court will reach a decision that will allow companies to act in the best interest of their shareholders."

The Supreme Court is expected to act upon the Textron petition early this spring. A copy of the FEI brief is available upon request. A brief timeline of the case, along with related actions taken by FEI, can be found in the FEI press release.

IRS Proposes Increased Disclosure Of Uncertain Tax Positions

On Jan. 26, 2010 the IRS released Announcement 2010-9, described by IRS Commissioner Doug Shulman in remarks at a conference last week as, "a major step towards transparency ... related to changes we are proposing to reporting requirements regarding business taxpayers’ uncertain tax positions."

Included among the proposed new disclosures to the IRS would be the "maximum amount of U.S. income tax exposure if the taxpayer's position is not sustained." The IRS seeks comment by March 29, 2010 as noted in the Announcement.

In his remarks at the New York State Bar Association, Shulman explained the impetus for the proposal:

Today, we spend up to 25 percent of our time in a large corporate audit searching for issues rather than having a straightforward discussion with the taxpayer about the issues. It would add efficiency to the process if we had access to more complete information earlier in the process regarding the nature and materiality of a taxpayer’s uncertain tax positions. The goals of our proposal are simple: to cut down the time it takes to find issues and complete an audit… ensure that both the IRS and taxpayer spend time discussing the law as it applies to their facts, rather than looking for information…and to help us prioritize selection of issues and taxpayers for examination.

Maximum Tax Exposure, 'Concise Description' Would Be Required
Shulman outlined some of the major provisions of Announcement 2010-9, as they would impact business taxpayers (remarks reformatted to outline form below):

  1. Reporting uncertain tax positions would be required at the time a return is filed by certain business taxpayers: those who have both: [1] a financial statement prepared under FIN 48 or other similar accounting standards reflecting uncertain tax positions and [2] assets over $10 million.
  2. Under the Announcement, these taxpayers would be required to annually disclose uncertain tax positions in the form of a [1] concise description of those positions and [2] the maximum amount of US income tax exposure if the taxpayer’s position is not sustained.
  3. By concise, we mean a few sentences that inform us of the nature of the issue, and not pages of factual description or legal analysis... We will be looking only for a brief description of the issue and the maximum amount of US income tax exposure. The proposal does not require the taxpayer to disclose the taxpayer's risk assessment or tax reserve amounts.
  4. We are asking for a list of issues that the taxpayer has already prepared for financial reporting purposes, in order to improve the efficiency and effectiveness of tax examinations.
  5. We are also looking for the maximum exposure, so we can allocate our exam resources appropriately. We need to have a sense of materiality and whether we should spend exam resources on an issue.

Regarding the potential burden on taxpayers from these new requirements, Shulman noted the IRS' view as follows:

We do not believe we will be adding substantial new work or burden on taxpayers. These taxpayers are already required to establish tax reserves for uncertain tax positions in determining their financial statement income under US or foreign accounting standards, such as FIN 48. So the work is alreadybeing done. We are asking for more transparency.

Just to be clear again, this proposal would not require that taxpayers disclose how strong or weak they regard their tax positions or report to us the amounts they reserved on the books regarding those positions.

FEI Office Of Government Affairs, Committees Will Review
Matt Miller, senior director, Government Affairs, in FEI's Washington D.C. office was quoted in USA Today on January 27 in, "IRS Wants Companies to Disclose Debatable Deductions," by Kevin McCoy. Here is what Miller said, as excerpted from the article:

"This puts the audit relationship" with the IRS "in a more confrontational mode," said Matt Miller of Financial Executives International, a 15,000-member group of senior tax officials, CFOs, treasurers and controllers. "It involves the disclosure of exposure items to possible adversaries."

Additionally, Miller explains to us:

FEI supports transparency and other efforts by the Government to improve compliance. However, it is always important to review the appropriate balance between the competing priorities of securities law and federal tax administration, as well as other public policy considerations. This IRS announcement appears to go beyond transparency – it involves disclosure of exposure items to possible adversaries – the mere fact of identifying issues that are uncertain is significant.

FEI's Office of Government Affairs, FEI's Committee on Taxation, and other committees will be studying the IRS' proposal and will consider filing a comment letter(s) on the proposed new disclosures.

Wednesday, January 27, 2010

SEC Votes To Issue Interpretive Guidance On Climate Change Disclosures

At an open commission meeting earlier today, the U.S. Securities and Exchange Commission voted to publish interpretive guidance on climate change disclosures. The measure passed by a 3-2 vote, with Commissioners Kathleen Casey and Troy Paredes voting against the action.

Meredith Cross, Director of the SEC's Division of Corporation Finance, explained that the guidance would be issued in the form of an "interpretive release regarding existing disclosure requirements as apply to climate change matters." She added that the guidance was expected to be "useful to public companies, and to the benefit of investors, to remind companies to consider climate change disclosure matters... just as any material issues covered by the SEC's disclosure rules."

Four Areas In SEC Filings Where Disclosure May Be Required
As noted in the SEC's press release:

The interpretive release approved today provides guidance on certain existing disclosure rules that may require a company to disclose the impact that business or legal developments related to climate change may have on its business. The relevant rules cover a company's:

  • risk factors,
  • business description,
  • legal proceedings, and
  • management discussion and analysis.

Four "Triggers" To Disclosure Provided As Examples
Additionally, the press release notes:

[T]he interpretive guidance highlights the following areas as examples of where climate change may trigger disclosure requirements:

  • Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.
  • Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.
  • Indirect Consequences of Regulation or Business Trends:
    Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.
  • Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.

According to the press release, "The SEC's interpretive release will be posted on the SEC Web site as soon as possible."

SEC To Convene Roundtable On Climate Change
There was a brief reference to an upcoming SEC roundtable on climate change, noted in Commissioner Aguilar's statement:

I look forward to the Commission's roundtable on climate change to be held later this year. I also look forward to the ongoing work of the Commission's Investor Advisory Committee regarding enhanced environmental, social, and governance disclosures.


In her statement, Commissioner Elisse Walter noted:

I am concerned by the fact that today many public companies are in fact providing disclosure about significant climate change related matters through mechanisms outside of the disclosure documents they file with the Commission. While all of the information provided voluntarily by companies through these mechanisms undoubtedly is not required to be disclosed under our rules, I do not believe that public companies today are doing the best job they possibly can do with respect to their current mandated disclosures.

Of course, I understand that company analyses and determinations whether information is material and required to be disclosed involve judgment. And, I understand that there may be some degree of doubt that companies face in reaching their decisions about climate change disclosures. As the staff noted in the interpretive guidance, the Supreme Court has already provided guidance to publicly held companies in TSC Industries when it said that “it is appropriate that these doubts be resolved in favor of those the statute is designed to protect.”2

Walter asked the SEC staff: "Are we applying different materiality standards to this topic?"

Corp Fin Director Meredith Cross replied:

"No; traditional standards of materiality as articulated by the Supreme Court in Basic and TSE industry cases.... That language provides useful background to the traditional materiality description in the [interpretive] release; it is included as additional background information, but it doesn’t change the standard… information is material if [there is a] substantial likelihood an investor ... would consider important in making an investment decision, or if the information would alter the total mix of information..."

Walter added:

As I quoted in my statement, the Supreme Court has said, resolve doubts in favor of those designed to protect…[i.e. investors]

Highlights of Commissioner's Remarks, Q&A

Below are links to the statements made at the SEC's January 27 open commission meeting by:
Chairman Mary L. Schapiro
Commissioner Luis Aguilar
Commissioner Kathleen Casey
Commissioner Troy Paredes
Commissioner Elisse Walter (we will update this post to include a link to Commissioner Walter's remarks, if posted by the SEC)

We are working on a summary of additional highlights from the Commissioner's remarks and the Q&A that took place during the open commission meeting, check back here later for a link to our summary. ** SEE UPDATE POSTED ON 1/28 ABOVE RE: MATERIALITY

FASB Considering 'Big Bang' vs. Staggered Effective Dates

Our previous post summarizing the results of today's FASB meeting closed by indicating we'd be reporting 'more.'

'Big Bang' or Staggered Effective Dates?
During the discussion of the Financial Statement Presentation project at FASB's January 27 board meeting, the subject of whether to have a single effective date for multiple new standards (referred to by some as a 'big bang'* effect) vs. staggered effective dates, particularly given the pervasiveness of the changes that would occur under the Financial Statement Presentation project by itself, was raised.

Under the updated Memorandum of Understanding struck between FASB and the International Accounting Standards Board last fall, a host of major convergence projects are to be completed by June, 2011. **

The Financial Statement Presentation standard, in particular, will have a pervasive impact on financial statements. (For background, see "How Extreme Is The Makeover" by Marie Leone and Tim Reason, March 1, 2009, published in

FASB Board Member Leslie Seidman noted during the discussion of the Financial Statement Presentation project, that one consideration would be whether to make the final standard's effective date concurrent with, or separate from, the numerous other new standards contemplated to be issued over the next two years.

FASB Chairman Robert Herz stated, “We thought about putting out something separate on that question.”

Seidman added that it would be useful for FASB to find out from its constituents, “Is it cheaper to do everything at once, or to roll them out, and if so, in what order?”

[My two cents (I remind you of the disclaimer which appears in the right margin of this blog): Herz did not elaborate during the meeting, but it appeared from his reference to 'putting out something separate' on the issue of effective dates, that FASB may be considering releasing a separate request for public comment specifically on the question of staggered vs. aggregated effective dates for its slate of upcoming standards.]

Topic Discussed By FASAC
In a related development, FASB's Financial Accounting Standards Advisory Council (FASAC) discussed this issue at its October, 2009 meeting. As noted in the para. 90 of the FASAC minutes, (referencing discussion within a breakout group at the FASAC meeting):
"The break-out group stated that they believed all the new standards should be adopted together, with different effective dates for large and small (and maybe public and private) companies. Mr. Herz asked what time period would be required for the statements to be implemented, assuming they are finalized in June 2011. One Council member stated two to three years. Another Council member suggested that, assuming the statements were finished by that date, companies would need a full year to assess the system changes that are needed (2012) and two years to run parallel (2013 and 2014), which would put the implementation process at 3.5 years, and the effective date in fiscal year 2015. That member noted that this timeline would involve a flat-out effort, and that the internal processes for implementation, which include internal education as well as system changes, are incredibly challenging."

* Para. 87 of the Oct. 2009 FASAC minutes references the term 'big bang implementation.' The term is frequently used to describe a one-time changeover to numerous new standards, or in some cases, to another set of GAAP, as in the European Union's requirement for its listed companies to change over at one point in time (2005) from reporting in local GAAP, to adopting International Financial Reporting Standards issued by the IASB. A related reference to 'big bang' appears in a speech by PwC Chairman Sam DiPiazza in 2006: "Transforming the standards in 100 countries (including the 25 EU member states) towards a single basic platform is not just a noisy "big bang" -- but a courageous leap -- towards global standards."

** FASB has a useful summary, International Convergence of Accounting Standards - Overview, which addresses: (1) What does "International Convergence" of accounting standards mean, (2) How does convergence fit into FASB's mission, (3) What is the 'Roadmap' Proposed by the SEC, and (4) provides links to significant historical documents dating back to 1999 on this subject, including the 2002 "Norwalk Agreement."

Final FASB Standard Coming On Deferral Of FAS 167 For Certain Entities

At its Jan. 27, 2010 board meeting, the Financial Accounting Standards Board directed its staff to draft a final standard (Accounting Standards Update or ASU) on the deferral of FAS 167 for certain entities. Additionally, FASB discussed two projects on which it is proceeding toward issuing an Exposure Draft of a proposed standard (Proposed ASU): Financial Statement Presentation, and Insurance Contracts.

Final ASU On Deferral of FAS 167 For Certain Entities Is Coming
FASB discussed comment letters received on its proposed Accounting Standards Update (ASU), Consolidation (Topic 810): Amendments to FAS 167 For Certain Investment Funds. The objective of this project is to determine whether entities with attributes similar to those of an investment company should be evaluated for consolidation in accordance with FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R) (FAS 167).

The board's redeliberation focused on four areas:
  1. Requirements for an entity to qualify for the deferral of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R)
  2. Accounting issues relating to those entities that qualify for the deferral in the proposed Update
  3. Clarification of the related-party guidance in paragraph B22 of Statement 167
  4. Clarification on whether a quantitative test should be the sole basis of the analysis in paragraph B22 for determining whether variability associated with a fee arrangement is more than insignificant.
Details of the board's decisions on the matters listed above can be found in FASB’s Summary of Board Decisions, which notes that the board authorized the staff to proceed in drafting a final ASU for vote by written ballot by the board.

Exposure Draft On Financial Statement Presentation
FASB discussed its Financial Statement Presentation project, as it proceeds toward issuing an Exposure Draft (proposed ASU), following the consideration of comments received its Discussion Paper, Preliminary Views on Financial Statement Presentation.

According to FASB's project summary (updated as of Jan. 5, 2010), FASB currently plans to release the Exposure Draft (proposed ASU) on Financial Statement Presentation in April, 2010. As this is a joint project with the IASB, the IASB also plans to issue an Exposure Draft for public comment. Details of matters discussed on Financial Statement Presentation at the January 27 board meeting can be found in FASB’s Summary of Board Decisions.

FASB Proceeding On Exposure Draft On Insurance Contracts
As detailed in FASB’s Summary of Board Decisions, FASB also discussed certain matters in its Insurance Contracts project, as it works toward developing an Exposure Draft of a proposed standard (proposed ASU) in this area.

(NOTE: FASB's project summary, updated as of Dec. 30, 2009 shows an April, 2009 expected date for the Exposure Draft to be released, although FASB's Technical Plan appears to list the Exposure Draft in the 3Q 2010 column; we will update this post when we clarify).

We will post additional observations from today's FASB board meeting in our next post.

Tuesday, January 26, 2010

Bubble Rap

With yesterday marking the 50th anniversary of the invention of Bubble Wrap, we thought we'd turn to the subject of bubbles.

First, we wish Happy Birthday to Bubble Wrap and its manufacturer, the Sealed Air Corporation. The company was founded by Bubble Wrap's inventors, Marc Chavannes and Al Fielding in 1960, after the accidental discovery of how a product they originally designed as textured wallpaper could provide a new kind of cushioned packaging.

Yesterday was also the 10th anniversary of "Bubble Wrap Appreciation Day," and you can find related activities to enjoy all year long at

In "Pop" Culture Icon Turns 50," the company notes it ran a special gold color edition of the product yesterday. William V. Hickey, President and CEO of Sealed Air Corporation, stated, "We are thrilled to have the golden opportunity to celebrate 50 years of our hallmark brand, Bubble Wrap." He added, "We are honored to manufacture a product that not only serves to cushion fragile materials, but also provides the added benefit of helping to de-stress and bring smiles to the faces of people of all ages worldwide.”

NOTE: Hickey, an FEI member, shared with us:"I have found the FEI network to be a great benefit over the years."

Bubble Rap
Now, if only there was a bubble wrap that would have cushioned (and de-stressed) the U.S. and global economy from that other kind of bubble! In fact, economic bubbles (even the positive trending ones) tend to get a bad rap. On that note, I can't believe no one's written a song called "Bubble Rap," although I did find a song called "Bubble Wrap" by a British group called McFly.

Although there may be no true economic bubble wrap, various proposals are currently on the collective drawing boards of the Office of the President, the Halls of Congress, G-20 leaders and accounting standard-setters (FASB and the IASB), to try to prevent bubbles such as those tied to subprime mortgages which - when popped - contributed to a credit crisis.

Here's a sample of some recent actions and related developments:

President Obama Calls for New Restrictions on Size and Scope of Financial Institutions to Rein In Excesses and Protect Taxpayers (White House Press Release, January 21).

The President's plan has been widely described in the press as "The Volcker Plan," since its central points have been ascribed to former Fed Chairman Paul Volcker, Chair of the President's Economic Recovery Advisory Board (PERAB). The proposal, described by some as an antidote to "Too Big To Fail," and by others as a return to the Glass-Steagall Act, was hailed by some, including the New York Times' Gretchen Morgenson, in her article on Sunday, Resetting the Moral Compass.

"The White House is finally elevating the discourse on how best to rein in risky behavior at banks and protect beleagered taxpayers from future bailouts of Wall Street," Morgenson stated.

However, she also noted, "The proposal has its weaknesses. In the pantheon of risk taking at banks, it is hard to argue that proprietary trading involves substantially more peril than that inherent in commercial lending... And some may wonder why the proposal's spotlight is so trained on proprietary trading and hedge fund operations, since these were not where banks experienced their greatest losses during the crisis."

Some observers describe the plan as a return to the days of the Glass-Steagall Act, separating investment banking and commercial banking. In response to a question on that point, PERAB Chief Economist Austan Goolsby told a press briefing the proposal is not a return to Glass-Steagall.

Personally, (I remind you of the disclaimer in the right margin of this blog): having observed the Federal Reserve Board hearing in Feb. 1987 presided over by then-Fed Chairman Paul Volcker, at which the CEOs of Bankers Trust, Citigroup, and JP Morgan testified as to why they believed they should be permitted to engage in certain activities (initially, to a limited extent), which were prohibited by Glass-Steagall (I worked for Bankers Trust at the time), I can see how some observers view last week's proposal as hearkening to a return to Glass-Steagall.

In the accounting realm, the subjects of fair value accounting and disclosure, and potential moves to dynamic provisioning (or loan loss provisions for 'expected' rather than 'incurred' losses) have been in the news lately, as follows:

FASB Issues ASU 2010-06: Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures About Fair Value Measurements. (FASB)

Watchdog Says Global Accounting Plan Could Exacerbate Procyclicality (Rachel Sanderson, FT, 1/22, reporting on remarks of Lord Turner, Chairman of the U.K. Financial Services Authority.

Regulators Plan to Override IASB's Loan Loss Rule, Says FSA's Turner, (Duncan Wood, Risk Management magazine, via

Finally, on the subject of bubbles, see Plenty of Blame to Go Around (Edward Chancellor's review of John Lanchester's book, "IOU: Why Everyone Owes Everyone and Nobody Can Pay," in the WSJ.)

Thursday, January 21, 2010

Climate Change And The SEC

Two developments yesterday (a speech, and a Sunshine Act Notice), highlight the subject of Climate Change and the SEC.

Changing Climate At The SEC
In remarks yesterday at the 37th annual Securities Regulation Institute, SEC Chairman Mary L. Schapiro highlighted some of the key initiatives in the SEC's agenda. Schapiro's remarks, entitled Embracing the Change, reflected the change in climate at the SEC and in financial regulatory reform more generally, in the post-credit crisis, post-Madoff environment. She stated:

With new leaders throughout the agency, new skills and capabilities, we have been changing the way we think about our core responsibilities to the American people. And, change is manifesting itself in many of the things we do — from how we conduct our exams and initiate investigations to how we prosecute our cases.

In the process, we also have been changing and updating the rules we enforce, re-thinking some of the basic tenets of securities regulation and actively participating in the reforms now wending their way through Congress.

I believe that all of this change is necessary and urge all of us to embrace it — not just that which is coming but that which has already arrived.

Schapiro then spoke of some of the recent and forthcoming major initiatives at the SEC, including:

  • Filling gaps and strengthening standards (including as relate to hedge funds, OTC derivatives, asset-backed securities, custody controls, money markets)
  • Reducing reliance on credit rating agencies
  • Improving compensation policies (NOTE: although the SEC does not directly regulate compensation, Schapiro observed there had been some 'perverse incentives' rewarding executives with compensation for significant risk-taking, and that new disclosure rules adopted by the SEC in December "require companies to disclose their compensation policies and practices if they create risks that are reasonably likely to have a material adverse effect on the company. " She continued, "In considering whether a company's compensation programs create these risks, we expect that companies will carefully examine their own practices. This in turn should enable companies and their boards to more appropriately calibrate risks and rewards." Additionally, on this subject, Schapiro noted, "The new rules also expand the disclosure provided to shareholders about the governance structure, about the background and qualifications of directors and nominees, and about the board's structure and its role in managing risk. The adopted rules require disclosure about the fees paid to compensation consultants and their affiliates for certain additional services. This is intended to provide investors with information to help them better assess the potential conflicts of interest a compensation consultant may have in recommending executive compensation. For those of you here today, advising corporate clients, I encourage you to counsel your clients to live within the spirit of these rules — to encourage greater disclosure, not less."
  • Removing barriers to proxy access
  • Keeping integrity in the markets
  • Reforming internal procedures

Accounting, Disclosure Issues
Of interest: Schapiro made no reference to International Financial Reporting Standards (IFRS) in her speech yesterday; I wonder if we'll hear more about SEC's next steps on its IFRS Roadmap from another speaker at the Securities Reg. Institute this week (see below), or at PLI's SEC Speaks in early February. As we previously reported, Commissioner Elisse Walter had told an AICPA conference in December: "I expect we will likely consider further action [on the IFRS Roadmap] sometime in early 2010."

According to the Securities Regulation Institute agenda, there will be a sesion this Friday on "Practical Accounting and Disclosure Issues for Securities Lawyers," including such topics as fair value accounting and disclosure, contingencies and FAS 5 (Accounting Standards Codification 450.20), impairment, transferred assets and consolidation, revenue recognition, IFRS and convergence - what's next?, liquidity and other MD&A disclosure issues, navigating Corp Fin's review process, providing guidance and 'missing the quarter.' Panelists at that session, moderated by John Huber of Latham & Watkins LLP, will include SEC Chief Accountant Jim Kroeker, SEC Division of Corp Fin Deputy Diretor Shelley Parratt, and KPMG LLP Partner Terry Iannaconi.

Climate Change Interpretive Release Coming
According to SEC's News Digest (Jan. 20) and a Sunshine Act Notice released yesterday, climate change disclosures will be among two matters the SEC will act on at an open commission meeting next week. Specifically, according to the Sunshine Act Notice, the SEC will discuss on Jan. 27:

  • Item 1: The Commission will consider a recommendation to adopt new rules, rule amendments, and a new form under the Investment Company Act of 1940 governing money market funds, to increase the protection of investors, improve fund operations, and enhance fund disclosures.
  • Item 2: The Commission will consider a recommendation to publish an interpretive release to provide guidance to public companies regarding the Commission's current disclosure requirements concerning matters relating to climate change.
Status of Interpretive Guidance
I was initially wondering if the interpretive guidance on climate change disclosures would be 'proposed' or 'final.' According to John Nester, Director of SEC's Office of Public Affairs, the interpretive release on climate change disclosures being discussed by the SEC next week would be a final release. He explained to me yesterday:
An “interpretive release” is a Commission statement regarding how existing regulations are to be interpreted or applied to particular circumstances. An interpretive release does not create a new rule or legal obligation, but rather addresses situations where an existing rule may be unclear or inconsistently

Broc Romanek, in a post today in blog, wrote: "I wonder if this guidance [re: climate change] will apply to this proxy season?"

I assume any interpretive guidance, if approved next week, could theoretically carry an immediate effective date (i.e., immediate upon publication in the Federal Register); however, as always, we will have to see what the SEC decides at their Jan. 27 open meeting.

SEC Updates Compliance & Disclosure Interpretations (C&DI)
In other action yesterday, the SEC's Division of Corporation Finance published yesterday some new Q&A's as part of its Compliance & Disclosure Interpretations.

The new Q&As relate to Reg. S-K (re: Directors, Executive Officers, Promoters and Control Persons; Executive Compensation; Summary Compensation Table; Narrative disclosure of the registrant's compensation policies and practices as they relate to the registrant's risk management; Corporate Goverance). Additionally, there are new Q&As relating to Proxy Disclosure Enhancements Transition.

Wednesday, January 20, 2010

Conferencing You In...

Start the decade off right by learning and engaging at conferences like these:

FEI's Summit Conference, April 26-27, Caesars Palace, Las Vegas. "Smart Business for a Strong Recovery" is this year's theme, and Keynote speakers are Gov. Mitt Romney, former Governor of Massachusetts and founder of Bain Capital, and Gary Loveman, Chairman, CEO and President, Harrah's Entertainment. The Summit conference features a choice among three tracks for break-out sessions: Executive Leadership and Development, Corporate Finance for Private Companies, and Finance and Information Technology. The registration fee for the conference is waived for new members of FEI who join by March 31 under our Connection Through Association program.

PLI's SEC Speaks Conference, Feb. 5-6, The International Trade Center, Washington, D.C. This annual conference, viewed as a 'must attend' event by many, lives up to its name in featuring speeches by the SEC Chairman and Commissioners, Division Directors, and many senior staff. It is also an opportunity to potentially announce major new initiatives, or specifics on previously announced initiatives. There is also an option to attend via webcast if you can't (or prefer not to) attend in person, although the in-person conference offers networking opportunities.

SEC Alumni Association Annual Dinner, Feb. 5, The International Trade Center, Washington, D.C. Each year the Association of SEC Alumni (ASECA) holds its annual dinner in conjunction with SEC Speaks. The focal point of the dinner is the presentation of the William O. Douglas Award, "conferred annually on an SEC alumnus who has contributed to the development of the federal securities laws or served the financial and SEC community with distinction;" this year's recipient of the award is former SEC Enforcement Director William R. McLucas, currently a partner with law firm WilmerHale.

140 Characters Conference, April 20-21, New York City. Also known as the #140conf (or by its Twitter handle, @140conf ( ), founder Jeff Keni Pulver (@jeffpulver) originally intended for the inaugural 140conf in 2009: "to explore the effects of twitter on: Celebrity, 'The Media,' Advertising and (maybe) Politics.” However, he notes, "Over time the scope expanded to look at the effects of twitter on topics ranging from public safety to public diplomacy." The theme of this year's #140conf is, "Exploring the State of Now."

The #140conf team is holding a series of local 'meetups' around the country throughout the year; I had the pleasure of attending one Tuesday night in New York City. Unfortunately I missed the first few speakers due to some priorities in NJ (and due to the fact that I had no idea how far of a walk 80 Greenwich St. would be from the parking lot outside the Holland Tunnel at 412 Greenwich St; I figured "real New Yorkers" would walk it, but eventually I hailed a cab) and I hope to have another opportunity to hear the speakers I missed (Anne Mai Bertelsen, Mai Strategies; Leslie A. Berland, VP Public Affairs, American Express; Dean Landsman and Dean Myers). But I did get there in time to hear some great insights on social media (basically, marketing and media in the age of Twitter) from Jeff Pulver, Bob Watson, and Hank Wasiak, including:

  • Transparency, Trust, Engagement important in Twitter/Social Media; there will be naysayers, engage them (@hankwasiak)
  • "Collabitition" is the new business model: @hankwasiak
  • RT @jennybai: Social media is the FIFTH P of marketing: product, price, place, promotion, PEOPLE. (@hankwasiak)
  • Social Media is a game changer; turns communication hierarchy upside down (@hankwasiak )
  • Twitter is the "new" telephone -@TopBrokerOC video
  • Networks we are creating online will drive business in the future: @TopBrokerOC
Read more highlights in FEI's twitter account @feiblog (, and see other's comments at or under hastag #140conf. Hattip to Francine McKenna, Managing Editor of Re: TheAuditors, (@retheauditors), for illuminating many of us among her twitterati last year on this.

Postscript (updated 1/20/10): I don't know if you've seen the front page article in the Wed. Jan. 20 NYT: "If Your Kids Are Awake, They're Probably Online," (the article could just as easily have read: "if your parents are awake, they're probably online") which notes:
The average young American now spends practically every waking minute — except for the time in school — using a smart phone, computer, television or other electronic device, according to a new study from the KaiserFamily Foundation.

The role of ubiquitous electronic devices (particularly mobile devices and 'near-mobile' devices) and social media in our lives- across virtually all age demographics - from WebKinz to CPA Island - is, as noted at the #140conf meetup, a "gamechanger," or, in some ways, the equivalent of yesterday's "telephone" (or even "website"). I know of one program organized by a group in formation of Wharton Women alumni who connected via LinkedIn, whose inaugural event on Jan. 28, "The Career Woman's Journey: A Traveler's Guide," has been advertised solely through social media. As always, we welcome comments from our readers.

Friday, January 15, 2010

PCAOB AS7, Engagement Quality Review, Approved By SEC

The Public Company Accounting Oversight Board announced today that the U.S. Securities and Exchange Commission has approved PCAOB's Auditing Standard No. 7, Engagement Quality Review (EQR). AS 7 will be added to the PCAOB's Standards webpage, meantime you can refer to the final version of AS7 submitted to the SEC for its approval - which appears as Item 25 in PCAOB's Rulemaking Docket.

SEC Approval Process Mandated by Sarbanes-Oxley
In creating the PCAOB, the Sarbanes-Oxley Act set forth a requirement that all final standards approved by the PCAOB board would be subject to approval by the SEC, after a separate notice and comment period engaged in at the SEC (in addition to the PCAOB's own notice and comment period on their own rule proposals).

Effective Date
As noted in the PCAOB's announcement of the SEC's approval of AS7:
The standard is effective for engagement quality reviews of audits and interim reviews for fiscal years that began on or after Dec. 15, 2009.

Accordingly, for interim reviews of public companies that file financial reports on a calendar-year basis, the EQR standard is applicable beginning with the quarter ending March 31, 2010. The new EQR standard was adopted by the PCAOB on July 28, 2009.

Implementation Guidance Coming in the 'Near Future'
The PCAOB's announcement added:
The SEC, in its order approving the EQR standard, encouraged the PCAOB to issue guidance on the standard’s documentation requirements. The PCAOB plans to publish Staff Questions and Answers on implementation of the standard in the near future.

SEC Response To Other Comments
According to the SEC Order Approving AS 7, nine comment letters were received by the SEC during its own notice and comment period on AS7 (seven from audit firms, one from the Center for Audit Quality (affiliated with the AICPA), and one from the U.S. Chamber of Commerce's Center for Capital Market Competitiveness). Concerns raised in those comment letters, as noted in the SEC Order, related to perceived inconsistencies between language in the PCAOB's adopting release accompanying AS7 vs. the language in the standard itself, questions about the status of language in the adopting release (which is not subject to public comment), and questions about the PCAOB's standard-setting process.

Other than the request of the SEC to the PCAOB to provide implementation guidance on the documentation requirements in AS7 (as noted further above), the SEC did not believe any changes to AS7 were required based on their review of comments received.

Additional information
Additional information can be found in this Crowe Horwath Auditing Update: New PCAOB Auditing Standard To Be Implemented Soon.

Wednesday, January 13, 2010

SEC Enforcement Initiatives Include Office of Market Intelligence, Cooperation Policy Statement

At a press conference this afternoon, SEC Enforcement Director Robert Khuzami announced several new initiatives, detailed further in these press releases:

SEC Names New Specialized Unit Chiefs and Head of New Office of Market Intelligence (OMI)

SEC Announces Initiative to Encourage Individuals and Companies to Cooperate and Assist in Investigations. The new initiatives aimed at maximizing the benefits from cooperation include:
  1. New tools for cooperation, specifically, cooperation agreements , deferred prosecution agreements and non-prosecution agreements.
  2. Streamlin[ing] the process for submitting witness immunity requests to the Justice Department.
  3. Newly issued Policy Statement Concerning Cooperation by Individuals in its Investigations and Related Enforcement Actions. Building on the “Seaboard Report” issued in 2001, the new policy statement identifies four general considerations: (i) The assistance provided by the cooperating individual. (ii) The importance of the underlying matter in which the individual cooperated. (iii) The societal interest in ensuring the individual is held accountable for his or her misconduct. (iv) The appropriateness of cooperation credit based upon the risk profile of the cooperating individual.
Additional information is in the updated SEC Enforcement Manual. An archived webcast of the SEC’s press conference will be available on the SEC Web site, and it is possible that Khuzami’s remarks at the press conference will be posted under speeches.

SEC Votes To Issue Proposed Rule, Concept Release On Broker-Dealer, Market Structure Issues

At an open commission meeting earlier today, the SEC voted to release for public comment a Proposed Rule aimed at banning a practice called "naked sponsored access," and requiring brokers with market access, including those who sponsor customers' access to an exchange, to put in place risk management controls and supervisory procedures, including procedures to help prevent erroneous orders, ensure compliance with regulatory requirements, and enforce pre-set credit or capital thresholds. See SEC press release: SEC Proposes New Rule to Effectively Prohibit Unfiltered Access and Maintain Market Access Controls. There will be a 60-day comment period on the Proposed Rule.

Also at today's SEC meeting, the commission voted to release for public comment a Concept Release seeking comment on market structure issues including high frequency trading, co-locating trading terminals, and markets that do not publicly display price quotations. See SEC press release: SEC Issues Concept Release Seeking Comment on Structure of Equity Markets. There will be a 90-day comment period on the Concept Release.

Additional information can be found in this Wall Street Journal article and Bloomberg article.

Tuesday, January 12, 2010

Q&As Released On Non-GAAP Measures (SEC), Special Reporting, Succession and Broker-Dealers (PCAOB)

In the past couple of days, the SEC and the PCAOB have posted some staff Q&A documents of interest to issuers, auditors and others.

As noted by Broc Romanek in blog, the SEC's Division of Corporation Finance issued a Compliance & Disclosure Intepretation (CD&I) on Non-GAAP Financial Measures yesterday. The document includes 32 Q&As on that subject.

Separately, the PCAOB issued a press release earlier today, linking to 2 staff Q&A's that supplement new rules that went into effect on Dec. 31 (for additional info, see info posted by PCAOB on Dec. 31 re: Registration and Reporting). The Q&As posted today are:
Also today, the PCAOB posted an updated Q&A on:

Monday, January 11, 2010

Financial Fraud Enforcement Task Force Cornerstone Of Anti-Fraud Effort

In remarks last week at the Forum Club of the Palm Beaches, U.S. Attorney General Eric Holder reiterated the importance of the interagency Financial Fraud Enforcement Task Force, which will act to prevent the kinds of fraud perpetrated in the South Florida area and beyond by convicted Ponzi schemer Bernard L. Madoff, and other types of financial fraud.

Invoking the names of Allen Stanford, Tom Petters and Scott Rothstein, alleged to have committed billions of dollars in financial crimes, Holder noted the DOJ and other agencies had taken them - and hundreds of other criminals - "out of the game."

He emphasized: "The Department of Justice, working in concert with the White House and a network of government agencies, will use every tool at our disposal – including new resources, advanced technologies and communications capabilities, and the very best talent we have – to prevent, prosecute and punish financial fraud."

Holder added that the "cornerstone" of this coordinated effort will be the new interagency Financial Fraud Enforcement Task Force. Closely tracking the original interagency announcement of the formation of the task force on Nov. 17, 2009, (which noted the new task force replaces the Corporate Fraud Task Force formed in 2002), Holder told the Palm Beach group:

We will focus on four key types of financial crime:

Mortgage fraud -- from the simplest of “flip” schemes to systematic lending fraud in our nationwide housing market;

Securities fraud – from traditional insider trading, to Ponzi schemes, to accounting fraud, to misrepresentations to investors;

Recovery Act and rescue fraud – including the theft of federal stimulus funds and the illegal use of taxpayer dollars intended to shore up our financial institutions; and

Financial discrimination – including predatory lending practices in minority communities and the sale of financial products that exploit the elderly and disadvantaged.

The Executive Order signed by President Barack Obama on November 17 establishing the task force, specified that the task force would be led by the U.S. Attorney General, and would hold its first meeting within 30 days of the executive order.

According to US DOJ spokesperson Hannah August, the first meeting of the task force took place on December 15, and served as opportunity for the agencies to come together to talk about the work of the task force and set short and long term goals.

Holder emphasized the level of support offered by Congress in pursuit of financial crime. He told the Palm Beach group:
The recently-enacted federal budget for 2010 will enhance these efforts. This budget represents the largest-ever, single-year enhancement to support and expand the Justice Department’s financial fraud programs. This will allow for additional FBI agents, prosecutors and support staff to aggressively pursue mortgage fraud, corporate fraud and other economic crimes. Congress has also stepped up by providing the federal prosecutors with new tools to help investigate and prosecute financial fraud. Our task force will take full advantage of the legislative authorities Congress gave us last year in the Fraud Enforcement and Recovery Act of 2009.

I’m confident that with new authorities, new resources and a bold new plan of action, we can and will make measurable, meaningful progress. And we will succeed in restoring the integrity of our markets, preserving taxpayers’ resources and protecting the vast majority of workers, consumers, investors and corporate executives who play by the rules and adhere to the law.

See also related remarks of SEC Enforcement Director Robert Khuzami at the original press conference (Nov. 17) when the interagency task force was first announced, and testimony given by Khuzami, Assistant Attorney General Lanny Breuer, and FBI Assistant Director Kevin Perkins at the Senate Judiciary Committee hearing on Dec. 9 on "Mortgage Fraud, Securities Fraud, and the Financial Meltdown: Prosecuting Those Responsible"

Rick Anderson To Chair Blue Ribbon Panel on Private Co. Accounting

Earlier today, the Financial Accounting Foundation, AICPA and NASBA announced that Rick Anderson, chairman of audit firm Moss Adams LLP, has been selected to chair the Blue Ribbon Panel on private company accounting. (See FAF Jan. 11 press release.)

The Blue Ribbon Panel was announced by the FAF, AICPA and NASBA in a press release on December 17. FEI issued a statement on December 18 applauding the formation of the panel.

Moss Adams LLP and its Leaders Active in Standard-Setting
According to the Fast Facts posted on Moss Adams' website, Anderson serves as chairman and CEO of Moss Adams, and the firm was ranked the nation's 11th largest audit firm in 2007. Anderson is a member of the FAF Trustees, has served on the AICPA Council, and is the immediate past chair of the AICPA Major Firms Group.

Also of interest on Moss Adams' website is this letter to the G-20 dated Sept. 17, 2009 sent by Anderson and another Moss Adams partner, Bob Bunting, who serves as President of the International Federation of Accountants and is a past president of the AICPA. The letter, sent ahead of the G-20's September meeting in Pittsburgh, called for the G-20 to:

  • urge the early implementation of International Financial Reporting Standards (IFRS), International Standards on Auditing (ISAs) [NOTE: ISAs are written by the International Auditing and Assurance Standards Board (IAASB), a division of IFAC]
  • adopt and implement the Organization for Economic Cooperation and Development's Principles of Corporate Governance as the standard framework for corporate governance in all countries,
  • set out competency requirements for those preparing financial statements, and
  • establish fundamental ethical principles applicable to boards of directors.

Additional actions recommended by Moss Adams to the G-20 can be found in the letter linked above.

Saturday, January 2, 2010

Top 10 Posts of 2009

As we enter 2010, we thought we'd respond to a suggestion made by one of our readers to provide a Top 10 list of our most popular - and favorite - blog posts in the FEI blog in 2009.

Top 10 FEI blog posts in 2009, by number of pageviews (from #1 to #10):

  1. FASB Issues FAS 166, 167 Amending FAS 140, FIN 46R on Securitizations, SPEs
  2. FASB Releases FAS 165, Subsequent Events
  3. Testimony Posted for Mark-to-Market Hearing; Sen. Dodd Considers 'Breakers,' Niederauer Sees MTM as 'Gas on a Fire'
  4. IASB Releases IFRS 9 - Financial Instruments (Completes 1st Phase of Project: Classification & Measurement)
  5. FAS 166, 167 Putting the Kibosh on Q's Expected This Week; SEC Forms Investor Advisory Committee
  6. SEC's 'Dear CFO' Letter on MD&A Disclosure of Loan Loss Provisions, ALLL
  7. Fraud Enforcement and Recovery Act (FERA) Picks Up Speed; Madoff Update
  8. FASB Releases 'Plain English' Statement on Fair Value Actions
  9. FASB Issues FSP EITF 99-20-1 on Impairment of Financial Instruments (OTTI)
  10. FASB Stakes Claim on Disclosure of Litigation Contingencies
Top 10 FEI blog posts in 2009 - my personal favorites
Note: I found it difficult to narrow down my 'favorites' to just 10 posts, so I narrowed it down to 10 categories, some with multiple posts. The listings within each category generally represent my favorite posts on that topic in 2009 (with a few non-favorites thrown in to provide historical/chronological context within some of the more detailed categories); however the lists below are not a comprehensive list of all posts we made on any particular topic. (Note: I have excluded from the list a few posts that are among my personal favorites, but relate to holidays or other particular events.) Categories are listed in alphabetical order; posts within categories are generally listed chronologically.

1. Credit Crisis, Financial Regulatory Reform; Related SEC Actions

2. Fair value/mark-to-market accounting; loan loss accounting:

3. International Financial Reporting Standards and Convergence

4. Leadership

5. Legal:

6. Madoff:

7. Private companies:

8. Sarbanes-Oxley, PCAOB, and COSO

9. Social Media:

10. Standard-Setting:

More Lists
We thank one of our blog readers, Prof. David Albrecht, author of The Summa, for his suggestion (received via Twitter) to provide a Top 10 list of our 2009 posts; see his own top 10 list for his blog, in Best of The Summa 2009.

Separately, published a number of "Best of..." lists of their 2009 coverage of various topics; see e.g.'s Best of 2009: Accounting.

[UPDATE: Another great list, which I found when catching up on year-end emails, was the one posted by Bill Sheridan on Dec. 31 in the Maryland Association of CPAs (MACPA) blog, CPA Success, entitled, The Mother of All Year-End Lists.]

Looking ahead, (as we noted in our post on Dec. 21), see also FEI President & CEO's List of Top Challenges for Financial Executives in 2010.

It would be intriguing to see other bloggers and writers post top 10 lists of their most popular and/or favorite posts from 2009, and/or their lists of what they anticipate the top challenges for 2010 to be. I encourage other bloggers and writers who publish such lists to post a comment below, linking to their list. We also welcome general feedback from readers; you can post a comment anonymously, or with your name.