Tuesday, March 30, 2010

SEC Issues "Dear CFO" Letter Requesting Info On Repos

Yesterday, the SEC's Division of Corporation Finance posted a "Sample Letter Sent to Public Companies Asking for Information Related to Repurchase Agreements, Securities Lending Transactions, or Other Transactions Involving the Transfer of Financial Assets." Commonly referred to as a "Dear CFO" letter, the posting of a 'sample' or 'illustrative' letter by the SEC is a way for the agency to communicate to the general public (and to issuers in general) matters of focus for which the SEC is seeking particular information, or reminding registrants of particular reporting requirements.

According to the introductory paragraph above the March 29 Dear CFO Letter, the letter was sent "to certain public companies requesting information about repurchase agreements, securities lending transactions, or other transactions involving the transfer of financial assets with an obligation to repurchase the transferred assets."

The sample letter, signed by staff at the level of Senior Associate Chief Accountant, requests certain information in connection with Corp Fin's review of Form 10-K (the letter specifies which year's 10-K), particularly with respect to repos treated as sales (vs. financings) and regarding repo transactions and right-of-offset.

Included among the detailed information requested by the SEC, shown in the March 29 "Dear CFO letter," is quarterly balance sheet amounts and quarterly average balance sheet amounts for the past three years for repos treated as sales (i.e., off-balance sheet) vs. financings. Refer to the "Dear CFO" letter for additional detailed disclosures and information the SEC is seeking.

Repo accounting and disclosure shot to the forefront earlier this month, with the release of the Examiner's report on the Lehman bankruptcy, which made certain allegations questioning the accounting and disclosure relating to $50 billion of repos taken off the balance sheet (i.e. treated as sales) by Lehman.

My two cents (I remind you of the disclaimer which appears on the right side of this blog): even if you believe your company did not receive this 'sample letter,' or even if you see this letter referred to in the press or otherwise as directed at specific industries, I would suggest companies, auditors, legal counsel, and audit committees consider such "Dear CFO" letters as illustrative of the SEC's general view on accounting and disclosure matters for the issue(s) addressed in the letter.

Monday, March 22, 2010

Spring Training Begins This Week!

Spring is in the air - even in Washington, D.C., home of the 'snowpocolypse' that caused the first ever cancellation of Day 2 of the Practicing Law Institute's "SEC Speaks" conference earlier this year, as well as the Association of SEC Alumni (ASECA) Annual Dinner. Both programs (Day 2 of SEC Speaks, and the ASECA Dinner) have been rescheduled to take place later this week. Previously registered participants for either event (the ASECA dinner, or PLI's SEC Speaks) have been automatically registered for the new date of Thursday evening, March 25 (ASECA Dinner), or Friday, March 26 (Day 2 of PLI's SEC Speaks). (Read our earlier post, "SEC Speaks: We Listen," for highlights of Day 1 of SEC Speaks, focusing on the accounting-related sessions.)

If you were not previously registered to attend the ASECA dinner, but are interested in attending on the rescheduled date of Thursday evening, March 25, contact ASECA directly at info@secalumni.org asap, to find out if any seats are still available.

Separately, if you were not previously registered to attend PLI's SEC Speaks conference in February, but you are interested in attending the rescheduled Day 2 of SEC Speaks on March 26, visit the PLI SEC Speaks program page and select the type of program you wish to sign up for (live conference, webcast, CD or DVD).

According to Anita C. Shapiro, Vice President of Programs, PLI, the fee to register for the 2-day SEC Speaks program is the same as it was for the original 2-day program; if you sign up now as a new registrant, to attend in-person the Day 2 program only, on the rescheduled date of March 26, you will receive access to the archived webcast of Day 1 (Feb. 5), when the archived webcast is made available. Another registration option, instead of attending in-person, is to register for the live webcast of Day 2 (with access to archived webcast of day 1), or you can sign up to receive the CD or DVD version of the program, currently anticipated to be available in mid-April.

In viewing the agenda for Day 2 of PLI's SEC Speaks, be sure to SCROLL DOWN to "DAY TWO," which describes the agenda for Day 2 as including sessions on:

- Investment Management (Speakers: Division of Investment Management; Commentators: Hon. Paul Atkins, Hon. David Ruder)

- Judicial and Legislative Developments (Speakers: Office of General Counsel; Commentators: Hon. Isaac Hunt; Hon. Roberta Karmel)

- Risk, Strategy & Financial Innovation (Speakers: Division of Risk, Strategy & Financial Innovation; Commentators: Hon. Ed Fleischman, Hon. David Ruder)

- Ethics (Speakers: Office of General Counsel; Commentator: Hon. David Ruder)

- Workshops (Choose 1): Investment Management; Compliance Inspections & Exams; International Developments.

Registration for SEC Speaks is subject to availability and processing time required by PLI; contact PLI with any questions.

With the National Cherry Blossom Festival practically here (March 27-April 11, this year), hopefully attendees at the rescheduled Day 2 of SEC Speaks, and the ASECA dinner, will not only hear about the benefits of sunshine (the benefits of transparency, sunshine being the best disinfectant, etc.) but will also get to catch some rays.

FEI Summit Conference April 26-27, Caesar's Palace, Las Vegas
With some people predicting a sunnier side for the economy, too (see: Inside Wall Street: Ed Yardeni's Dozen Reasons to be Bullish, by Gene Marcial, AOL Daily Finance, 3.10.10) and with some people finding some room in budgets to attend outstanding conferences - particularly those with opportunities for networking with peers and CPE credit, you won't want to miss FEI's Leadership Summit (also called FEI's Summit Conference), taking place April 26-27 at Caesar's Palace in Las Vegas.

Mitt Romney, former Governor of Massachusetts, and Gary Loveman, CEO of Harrah's Entertainment, Inc. are the keynote speakers at FEI's Summit Conference, and the agenda includes a variety of general sessions as well as specialized tracks in corporate finance, finance and information technology, and executive leadership.

The early bird discount ends on March 27; register here. ** NEW MEMBERS of FEI who join FEI by March 31, as part of our Connection Through Association program, receive complimentary registration to the Summit conference.

Tuck Strategic Financial Leadership Program - May 9-14, 2010
The Tuck School of Business at Dartmouth College is launching a new course entitled the Strategic Financial Leadership Program (SFLP). The program will be offered for the first time, May 9-14, 2010, and will take place at the Tuck School of Business on the Dartmouth College campus in Hanover, New Hampshire.

SFLP is designed specifically for:
  • senior financial executives,
  • their direct reports, and
  • high potential financial staff.
The purpose of the one week, intensive program is to broaden finance professionals’ strategic capability, and expand individual leadership self-awareness to better lead and execute strategy. The program, taught by Tuck's faculty in finance, strategy, strategic communication and leadership, is designed to provide the tools to address the critical intersection of strategic thinking, individual leadership, and value creation. To bridge the gap from theory to practice, the SFLP program also integrates a hands-on action learning project of strategic and financial relevance to participants' companies.

To enroll a team in SFLP, visit Tuck’s executive education website, http://tuckleadership.com/ . Or contact Dick Mosenthal, Director of Open Enrollment Programs at Tuck, at (603) 646-8215 or via email at: richard.a.mosenthal@tuck.dartmouth.edu . For more info, see this video featuring Prof. Bob Howell. Receive a 10% discount in registering for the SFLP program by entering discount code FEI when you register.

FASB, SEC Updates From Executive Enterprise Institute
Looking for a conference this spring to hone your FASB, SEC reporting skills in particular areas, or to learn about new developments at the standard-setters (regulators)? Check out the programs offered by Executive Enterprise Institute (EEI), including "FASB Update" (course leader: Ray G. Stephens, DBA, CPA, CMA, Professor of Accountancy, Ohio University; Director, Ohio Center for Professional Accountancy), and SEC Accounting and Financial Reporting Course, and Advanced SEC-FASB Reporting & Compliance (course leaders: New York session: Tom Selling, CPA, PH.D.Emeritus Professor, Thunderbird School of Global Management, Former Academic Accounting Fellow at the SEC, and Publisher and Author of “The Accounting Onion”. Chicago session: Walter R. Teets, Associate Professor, Gonzaga University, Former Academic Accounting Fellow at the SEC, Former Professor in Residence, KPMG’s Department of Professional Practice). Read more about EEI programs in this post.

Wednesday, March 17, 2010

Grant Thornton, Others Release Papers, Articles On Private Co. Accounting

Earlier today, Grant Thornton LLC released a paper on Private Company Financial Reporting. The paper, available at www.grantthornton.com/PCreporting, authored by GT partners John Hepp and Gary Illiano, discusses the age-old question of whether it is time to develop a separate set of Generally Accepted Accounting Principles for private vs. public companies, a concept known as 'differential GAAP,' or 'Big GAAP/Little GAAP.' This is the central question to be considered by the new Blue Ribbon Panel on Private Company Accounting, cosponsored by the Financial Accounting Foundation (which oversees FASB), the American Institute of Certified Public Accountants, and the National Association of State Boards of Accountancy. As previously reported, the Blue Ribbon Panel is set to hold its first meeting on April 12.

What's Different About Differential GAAP Now?
With the question of Big GAAP/Little GAAP having a long history, GT's Hepp and Illiano discuss what's different now, including their view that there has been a shift in the fundamental financial accounting model - as evidenced by changes and proposed changes in the FASB and IASB's Conceptual Framework, and through relatively recent accounting standard-setting activities - from "one based on the traditional accounting model" to "one based on financial economics and capital markets research." Hepp and Illiano say this has created 'dueling paradigms.'

In my view, (I remind you of the disclaimer which appears on the right side of this blog), a crucial point in the GT paper relates to changing definitions of critical terms in the world of accounting standard-setting, and the fact that the definition of some terms has shifted over time toward the 'financial economics' or 'capital markets' model, as so described by Hepp and Illiano. This point is detailed in footnote 9 in the paper:

One characteristic of the shift to a different financial reporting paradigm is changes in the definitions of terms. In many cases the terminology remains the same, but with different meanings. The definitions of key terms such as general purpose financial reporting, investor, creditor, operating cash flows and fair value have all changed, sometimes in subtle ways. The term “professional judgment” is also changing to reflect more emphasis on evaluating future cash flows rather than judgment in terms of the meaning of contractual rights and obligations and realization. The FASB and IASB also plan to change the definitions of assets and liabilities to remove references to past transactions. This can be a source of confusion for accountants educated in earlier years.

But, it is not just a question of how current one's education is, in terms of how one may view the the pros and cons of the newer school of thought, or the 'financial economics' model; there are other issues as well, as described on pg. 7 of GT's paper:

The shift to a financial economic paradigm, while not complete, has increased concern among all preparers, but especially those in private companies, about the relevance of the information used in their financial statements. The declining relevance of earnings is not the only concern. There are also reservations about reliability, training and education, and the relative costs and benefits of applying new accounting standards.

Hepp and Illiano note that in November, 2009 the Private Company Financial Reporting Committee (PCFRC)- formed jointly by the Financial Accounting Standards Board and the AICPA - issued the following recommendation:

The Committee believes that a separate, stand-alone set of accounting standards for U.S. private companies tailored to the needs of the users of those statements is the preferred approach. However the Committee realizes there could be other major alternatives for private company accounting that should be explored. In establishing standards for private company financial reporting, the needs of financial statement users balanced against the costs of complying with the standards must be an overriding principle.

The PCFRC's recommendation, addressed to the Financial Accounting Foundation, led to the formation of the Blue Ribbon Panel.

Here are the conclusions in GT's paper (verbatim; reformatted into bullets):

  • On the issue of separate accounting for private companies, Grant Thornton LLP and Grant Thornton International Ltd agree with the FASB and the IASB that the objective of general purpose external financial reporting should be the same for all entities, but has expressed concerns that overemphasis of the needs of investors and creditors for capital allocation is not consistent with that determination.
  • In the 2006 response to the Preliminary Views, Grant Thornton LLP and Grant Thornton International Ltd commented that the proposed changes in the objective of financial reporting would encourage calls for a separate financial reporting framework for non-publicly accountable entities and that “on balance we believe that the proposed financial reporting objective is unsuitable for smaller, privately held entities.”
  • The objective of capital allocation could be viewed as a special case that is a subset of a more general objective of financial reporting that is common to public entities, private entities, not-for-profit organizations and government.
  • A different approach, therefore, to developing an objective of financial reporting would be to look first at the general case and the objectives held in common and then address the specific information needs of investors and creditors. As the FASB and the IASB have acknowledged, those needs may extend beyond the boundaries of financial reporting.
  • Therefore, Grant Thornton LLP welcomes the establishment of the blue-ribbon panel to study the issues facing private companies and urges that the scope be expanded, if possible, to include the interests of not-forprofit organizations.
  • While the best outcome perhaps would be a single objective and a single set of standards for all entities, the unique needs of the global capital markets and their importance may indicate that a different set of standards for investors and creditors in those markets may be the best solution to meet their needs.
  • Other standards, more reflective of accountability and local legal considerations, may better address the needs of private companies and not-for-profit organizations.

The fascinating thing about GT's conclusions, in my view (once again, I remind you of the disclaimer posted in the right margin of this blog), is that the question of "differential reporting" - a terms usually associated with a call from private companies for lessinging their burden of financial reporting, and providing their users with more relevant information - a call that is sometimes viewed by some parties in a negative light - may equally if not moreso relate to the fact that the traditional accounting model has morphed (or undergone a 'paradigm shift' to use Hepp and Illiano's terminology) to a model driven by the needs of certain (I would say, 'sophisticated') users of public company financial reporting, such as analysts (referred to by Hepp and Illiano as the "financial economics/capital markets' driven approach). That is, although we started out with a single set of general purpose accounting standards designed to be applicable to public and private companies, the 'financial economics/capital markets' view, as described by Hepp and Illiano, influenced a paradigm shift toward what amounts to, in substance, a 'different' set of standards or a 'different' paradigm than that of the original single set of standards.

Thrower, Rabin Weigh In
Further on the subject of private company accounting, this month's edition of Financial Executive Magazine, published by FEI, includes an article by Andy Thrower, "Should It Be Big GAAP or Little GAAP For Private Companies?" (FEI members, enter your member login info to open the article; nonmembers can register for a free login account to read articles online from Financial Executive Magazine.)

Thrower is past-chair of FEI's Committee on Private Companies-Standards, is a member of the FASB Small Business Advisory Committee, and previously served as a member of the Financial Accounting Standards Advisory Committee (FASAC). I remember interviewing Andy for an article which appeared in the December, 2005 issue of Financial Executive Magazine, and being struck by how steeped in the theory and history of accounting he is, as well as the current standards and practical aspects.

Separately, FEI member Steve Rabin authored an article published recently in The Value Examiner, entitled: "The Fair Value Compromise - A Proposed Solution."

Thrower's and Rabin's articles, as well as the Grant Thornton paper, make for very timely reading, as we await the upcoming deliberations of the Blue Ribbon Panel on Private Company Accounting.

Monday, March 15, 2010

Dodd Unveils Substitute Bill On Financial Regulatory Reform

On Monday, March 15, 2010, Banking, Housing, and Urban Affairs Committee Chairman, Chris Dodd (D-Conn.) released a new substitute bill to overhaul the country’s financial regulations.

According to Cady North, Manager of Government Affairs in FEI's Washington, DC office, "This new draft is substantially different from a House bill passed in December. There are several major sections in this bill including: the creation of a new Consumer Protection entity housed at the Federal reserve, resolution authority to help prevent situations where entities become systemically risky, executive compensation reforms including the ability for shareholders to take a “say on pay” vote, credit rating agency and hedge fund reforms, as well as regulation of the over-the-counter derivatives markets."

North notes that Chairman Dodd has been working on a bipartisan basis over the past few months on these significant reforms, but released a bill today without bipartisan support, noting “a few outstanding issues remain” and that he hopes the final package will ultimately have bipartisan consensus. The deadline for filing amendments will be Mar. 19, and consideration of amendments will begin quickly in committee on Monday, Mar. 22. Majority Leader Harry Reid has indicated he is hopeful this legislation could reach the Senate floor before Memorial Day, however, prolonged negotiations are expected.

A summary of the bill, prepared by the Senate Banking Committee, can be found here. Highlights pertaining to derivatives can be found in this FEI summary.

In his statement introducing the bill today, Dodd said: "It has always been my goal to produce a consensus package. And we have reached a point where bringing the bill to the full committee is the best course of action to achieve that end. I plan to hold a full committee markup the week of March 22nd. I have been fortunate to have a strong partner in Senator Corker, and my new proposal will reflect his input and the good work done by many of our colleagues as well. Our talks will continue, and it is still our hope to come to agreement on a strong bill all of the Senate can be proud to support very soon."

In response, Sen. Richard Shelby (R-AL), ranking Republican on the Senate Banking Committee, noted in his statement: “Republicans want to reach a bipartisan agreement with Chairman Dodd on substantive financial reform that protects taxpayers, strengthens our economy, and preserves the competitiveness of our financial markets. Over the coming days, my Republican Banking Committee colleagues and I will give Chairman Dodd’s proposal the serious consideration it deserves. Given the magnitude, complexity, and importance of this task, it is critical that we have sufficient time for a thorough review. This bill is 1,336 pages long. Forcing the Banking Committee to vote on this proposal in a single week is unrealistic and undercuts the potential for bipartisan agreement. Strong reform should not fear scrutiny.”

Consumer Financial Protection Bureau Would Be Housed In Federal Reserve
One of the more significant evolutions in the new version of the Senate bill introduced today, as shown in the Senate Banking Committee's summary, is that the Consumer Financial Protection Agency - renamed a Consumer Financial Protection Bureau (CFPB) - would not be an independent agency per se, but instead would be: "a new independent watchdog, housed at the Federal Reserve, with the authority to ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, and protect them from hidden fees, abusive terms, and deceptive practices."

Some additional highlights regarding the CFPB:
  • Led by an independent director appointed by the President and confirmed by the Senate.
  • Dedicated budget paid by the Federal Reserve Board.
  • Able to autonomously write rules for consumer protections governing all entities – banks and non-banks – offering consumer financial services or products.
  • Authority to examine and enforce regulations for banks and credit unions with assets of over $10 billion and all mortgage-related businesses (lenders, servicers, mortgage brokers, and foreclosure scam operators) and large non-bank financial companies, such as large payday lenders, debt collectors, and consumer reporting agencies. Banks with assets of $10 billion or less will be examined by the appropriate bank regulator.
  • Consolidates and strengthens consumer protection responsibilities currently handled by the Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corporation, Federal Reserve, National Credit Union Administration, and Federal Trade Commission.
Whether the above construct for the CFPB will satisfy the folks on the House side, or the folks behind the Funny or Die Presidential Reunion (featuring SNL alums), remains to be seen.

SEC Updates C&DIs on Exec Comp, Corp Gov; Corp Fin Issues Staff Legal Bulletin On Suspension Of Certain Reporting Obligations

On Friday, March 12, 2010 the U.S. Securities and Exchange Commission’s Division of Corporation Finance posted three new Questions & Answers as part of its Compliance & Disclosure Interpretations (C&DIs). The new items posted pertain to:

Section 119. Item 402(c) – Executive Compensation; Summary Compensation Table

New Question 119.25
New Question 119.26

Section 133. Item 407 - Corporate Governance
New Question 133.12

The full text of the new items is in this FEI Summary. Hat-tip to Broc Romanek of The Corporate Counsel.net Blog.

Staff Legal Bulletin On Suspension Of Certain Reporting Obligations
Earlier today (March 15, 2010) the SEC’s Division of Corporation Finance released Staff Legal Bulletin No. 18. The staff legal bulletin appears aimed at making a particular process more efficient by communicating the Division's response to a particular type of no-action letter request, as relates to suspension of certain reporting obligations, and offering guidelines for a common approach by which issuers would not have to request a no action response, although certain conditions would have to be met, and certain forms would still have to filed in connection with the suspension of reporting.

In summary, as stated in the staff legal bulletin:

“This staff legal bulletin provides the Division of Corporation Finance's views regarding certain situations in which issuers may utilize Rule 12h-3 under the Securities Exchange Act of 1934 to suspend their reporting obligations under Section 15(d) of the Exchange Act.”

The staff legal bulletin notes: “two common situations that give rise to no-action responses under Rule 12h-3,” and identifies “[four] conditions that must be satisfied in these two situations in order for an issuer to avail Itself of the reporting suspension provided by Rule 12h-3.”

Here are the two “common situations” (detailed further in the staff legal bulletin):
1. abandoned initial public offering, or
2. acquired issuer (defined as: “An issuer has been acquired by another entity, resulting in the class or classes of securities for which the issuer has a Section 15(d) reporting obligation being either: (1) extinguished; or (2) held or assumed by only one recordholder, the acquiring entity.”)

Here are the four “conditions” (detailed further in the staff legal bulletin):
1. The issuer must not have a class of securities registered under Section 12 of the Exchange Act
2. The issuer must comply with the other requirements of Rule 12h-3
3. The issuer must deregister any unsold securities from Securities Act registration statements and withdraw any registration statements if there were no sales
4. The issuer must not otherwise file Exchange Act reports during the time period in which it seeks to avail itself of the suspension provided by Rule 12h-3

Going Forward: Issuer Meeting Conditions Above Will Not Need A ‘No Action’ Response
“[O]n a going-forward basis,” the staff legal bulletin concludes: “an issuer that fits within either of the two situations identified above and satisfies the conditions set forth in this legal bulletin does not need a no-action response from the Division before filing a Form 15 to suspend its Section 15(d) reporting obligation in reliance on Rule 12h-3. In order to cease reporting, an issuer must file a Form 15 for each class of securities for which there is a Section 15(d) reporting obligation.”

Separately, the staff legal bulletin adds, “The Division will continue to entertain questions regarding the availability of Rule 12h-3 for situations that fall outside the facts and conditions discussed in this legal bulletin.”

Friday, March 12, 2010

FASB, IASB Release ED on Reporting Entity (Part of Joint Conceptual Framework)

Yesterday, FASB and the IASB released for public comment an Exposure Draft (ED) entitled, Conceptual Framework for Financial Reporting: The Reporting Entity. (FASB Reporting Entity ED, FASB Press Release, IASB Reporting Entity ED, IASB Press Release.)

The Reporting Entity exposure draft is one phase of FASB and the IASB's Conceptual Framework (CF) project. Other phases address the objectives of financial reporting, qualitative characteristics of financial reporting, and more. (See IASB Summary of CF project; FASB Summary of CF project.) The comment deadline on the Reporting Entity ED is July 16.

As noted in the Preface to FASB's Reporting Entity ED:

In a separate project, the two Boards are reconsidering the existing requirements for preparing consolidated financial statements. The Boards believe that the reporting entity concept in this Exposure Draft is consistent with the approaches they are
likely to pursue in the standards-level project.

In preparing responses to this Exposure Draft, respondents should consider the differences in status of the Concepts Statements and the Accounting Standards Codification, as well as the possibility that the FASB Concepts Statements could be
elevated to authoritative status in the future.
Key points in the ED, as highlighted by the AICPA's Journal of Accountancy, include:
The ED discusses what constitutes a reporting entity, which in different situations could be a group of entities, a single entity or only a portion of an entity.

Under the proposal, a reporting entity is a circumscribed area of economic activities whose financial information has the potential to be useful to existing and potential equity investors, lenders, and other creditors who cannot directly obtain the information they need in making decisions about providing resources to the entity and in assessing whether the management and the governing board of that entity have made efficient and effective use of the resources provided.

An entity controls another entity when it has the power to direct the activities of that other entity to generate benefits for (or limit losses to) itself. If an entity that controls one or more entities prepares financial reports, it should present
consolidated financial statements.

A portion of an entity could qualify as a reporting entity if the economic activities of that portion can be distinguished objectively from the rest of the entity and financial information about that portion of the entity has the potential to be useful in making
decisions about providing resources to that portion of the entity.

The comment deadline on the Reporting Entity ED is July 16, 2010.

Learn More About The Reporting Entity ED, Other Hot Topics
Learn more about the FASB-IASB Reporting Entity ED, and other hot topics in financial reporting, at upcoming conferences offered by Executive Enterprise Institute (EEI): see course entitled: "FASB Update" (course leader: Ray G. Stephens, DBA, CPA, CMA, Professor of Accountancy, Ohio University; Director, Ohio Center for Professional Accountancy).

See also the courses entitled: SEC Accounting and Financial Reporting Course, and Advanced SEC-FASB Reporting & Compliance (course leaders: New York session: Tom Selling, CPA, PH.D.Emeritus Professor, Thunderbird School of Global Management, Former Academic Accounting Fellow at the SEC, and Publisher and Author of “The Accounting Onion”. Chicago session: Walter R. Teets, Associate Professor, Gonzaga University, Former Academic Accounting Fellow at the SEC, Former Professor in Residence, KPMG’s Department of Professional Practice). In addition to the course leaders, guest speakers provided targeted information on specific topics.

I can speak from experience in attending the SEC-FASB course led by Tom Selling a couple of years ago, it was very informative, and there was ample opportunity to ask questions of the speakers and network with other attendees at the program. (Tom is also a good sport, he played a cameo role in a certain music video about accounting.)

Discounts available: FEI members, and nonmembers who read about these EEI programs in the FEI blog, can receive a discount in registering for the above courses on EEI's website, by entering one of the following discount codes: FEI members, use discount code FEI-MB. Nonmembers who read about the program in the FEI blog, enter code FEI-NB.

Blue Ribbon Panel On Private Co Accounting To Hold First Meeting April 12

According to information posted on FASB's website, the Blue Ribbon Panel on Private Company Accounting (abbreviated below as "BRP") will hold its inaugural meeting on April 12.

As we have previously reported, and based on information provided on the Blue Ribbon Panel webpage on FASB's website: "The American Institute of Certified Public Accountants (AICPA), the Financial Accounting Foundation (FAF; the parent organization of the Financial Accounting Standards Board (FASB)), and the National Association of State Boards of Accountancy (NASBA) have established a “blue ribbon panel” (the Panel) to address how accounting standards can best meet the needs of U.S. users of private company financial statements."

Additional information on the April 12 BRP meeting is forthcoming. According to Christine Klimek, Communications Manager at the Financial Accounting Foundation, "We will be announcing the meeting details—including registration information—within the next week. The agenda and other public meeting materials will be posted to the FASB website approximately one week before the meeting." According to Klimek, the meeting will also be webcast.

Matters To Be Addressed Include "Possible Alternatives For Private Co. Standards"
As further noted on the BRP's webpage on the FASB website, "The Panel will comprehensively review the current system of standard setting for private companies in the U.S., including the following matters:
  • Who are the actual users of private company financial statements and how do they use GAAP financial statements in their decision making?
  • What is the key, decision-useful information that the various users need from GAAP financial statements?
  • Are current GAAP financial statements meeting those needs? Why or why not?
  • Are the benefits of GAAP financial statements outweighing the costs of preparing those statements for private companies?
  • How does standard setting for private companies in the U.S. compare to standard setting in other countries, both those that have adopted IFRS for Small and Medium-Size Entities and those that have not?
  • To the extent that current GAAP is not meeting user needs in a cost-beneficial manner, what are some possible alternatives for private company standards (e.g., separate, stand-alone standards; base-level standards for all entities with additional disclosure requirements for public companies) and what are the implications for standard-setter structure and/or processes?

The BRP webpage adds: "In addressing these matters at a strategic level, the Panel will consider relevant studies and other reports on private company financial reporting that have been done over the years by the AICPA, the FAF, and others."

Panel's "Work Plan" Will Include Document(s) To Be Released
Also of note on the BRP's webpage is the discussion of the anticipated end-product of the BRP, a report to be issued to the Financial Accounting Foundation, which in turn is developing an 'action plan.' Here is what the BRP's webpage currently states:

The Panel will conclude its work and issue a report, with any recommendations on the future of standard setting for private companies, to the FAF Board of Trustees (the Trustees) in approximately one year. The Panel’s report will be made available to the public and the Trustees’ resulting action plan is expected to be exposed for public comment prior to that plan being finalized.

I posed a question to the FASB, as to why a commitment was made in the language above as far as the FAF planning to release its draft action plan for public comment, but no mention of plans for the BRP to seek public comment before issuing their final report. I observed that the SEC Advisory Committee on Improvements to Financial Reporting (CIFiR - aka the "Pozen Committee") released its draft recommendations for public comment (in the form of a "Progress Report") prior to CIFiR delivering their final recommendations to the SEC, and the FASB-IASB Financial Crisis Advisory Group (FCAG) sought public comment on some specific questions - although not on FCAG's recommendations per se - prior to issuance of FCAG's final report to FASB and the IASB.

Jeffrey Mechanick, Assistant Director at the FASB who also worked with the FCAG, responded to my questions as follows:

"The FAF will seek public comment on its action plan, as part of its public accountability.

"Since the Blue Ribbon Panel hasn't even met yet, it will talk about its workplan during the administrative part of its first meeting." He added, "I have no doubt the BRP will seek public input."

"By the very way it was constituted," Mechanick continued, "we went through all the key constituent organizations and chose panel members not just because of their accomplishments, but also because of their wider ties. Therefore, I'd expect BRP members to reach out for a wider set of input than just their own thoughts.

"Beyond that, this panel may very well choose to do something to get even broader public input; for example, it could do what FCAG did in soliciting input from the general public, an open call for input. Again, at this point, the panel has not yet met to discuss or decide on this issue."

Mechanick also emphasized the extent to which information about the BRP and its deliberations will be made available to the public. "With the exception of purely administrative actions, similar to FCAG, we are going to try to hold these meetings in the public; in fact, virtually all of the BRP's meetings will be done in the public and webcast. Also, as with FCAG, we will archive the webcasts for those who are unable to listen to them live."

Additionally, he noted, "we have set up webpages providing information about the BRP on the FAF website, with a link from the FASB website, and the AICPA website and NASBA website will also link back to information about the BRP on FAF's website."

Mechanick, who is coordinating staff support of the Blue Ribbon Panel, noted he is looking forward to the first meeting of the group. "This is a very important project for the private company sector and for the three sponsoring organizations, one that I expect will involve some very interesting Panel discussions," he said.

The FASB has also posted a list of BRP members and observers. For additional background, see our earlier posts on the BRP here, here, here and here.

Wednesday, March 10, 2010

FASB Adds Projects on Investment Properties, Offsetting (Netting), and FX

At the Financial Accounting Standards Board's board meeting earlier today, FASB Chairman Robert Herz noted that after consultation with his fellow board members and its Emerging Issues Task Force (EITF) agenda committee, two projects are being added to FASB's agenda on (1) investment properties and (2) balance sheet offsetting or netting. Separately, he noted a project is being added to the EITF's agenda on multiple foreign currency exchange rates.

The information on the new agenda items which appears below is verbatim from FASB's Summary of Board Decisions, except for information which appears in [brackets], which I have added based on Herz' comments at the board meeting.

The FASB chairman announced that he added the following projects to the Board’s agenda:

  1. Investments properties. The Board will consider whether entities should be given the option (or be required) to measure an investment property at fair value through earnings. Existing international financial reporting standards (IAS 40, Investment Properties) provides such an option. This project also will consider how an entity should consider a lease when measuring the fair value of a leased investment property.As part of this project, the Board also may address related issues that are within the scope of EITF Issue No. 09-D, “Application of Topic 946, Financial Services—Investment Companies, by Real Estate Investment Companies.” As a result, the EITF will not discuss Issue 09-D at its March 18, 2010 meeting. [NOTE: Herz said this project is, "something we looked at, when we had Fair Value Option - Phase 2 on our agenda, made more important now joint project on leases... also something that people in the real estate industry have come to us, preparer and user side, suggested would like to see option or even a requirement to fair value investment properties.]

  2. Balance sheet—offsetting. The Board will reconsider the current criteria that determine when an entity may offset assets and liabilities and report them as a net amount in the statement of financial position. [NOTE: In presenting this item at the board meeting, this project was interchangably referred to as 'offsetting' or 'netting' although some people will distinguish between the two. Herz said the project is being added to FASB's agenda for two reasons: (1) difference in netting requirements between us [U.S. GAAP] and current IFRS, both boards had some presentations on that fairly recently from some groups, (2) we got a particular request, but it may be a harbinger of things to come, of stock loan transactions being put thru clearinghouses," he described these as centralized clearinghouses with automatic netting, adding the project would be focused on "financial instrument netting issues."]

The FASB chairman also announced that he added the following issue to the EITF’s agenda:

Accounting for multiple foreign currency exchange rates. The current economic situation in Venezuela has raised questions about the usefulness of information that results from applying existing foreign currency standards in economies that have multiple exchange rates. The EITF will reconsider whether it is appropriate to use different exchange rates in an economy with multiple exchange rates (such as a parallel rate and an official rate) for (1) remeasurement of a foreign-currency-denominated transaction and (2) translation of a foreign subsidiary’s financial statements.While the current situation in Venezuela highlights the reporting problem, the EITF will not limit its discussion to foreign currency transactions involving that country. [NOTE: Herz noted the project relates to "translating transactions and asset/liability balances, and translating accounts of foreign subsidiaries." He noted there have been "multiple exchange rate issues in Venezuela," and that this is "a topic that comes up from time to time, there has been some diversity in practice, some unofficial guidance," and that, "we have asked the EITF to look at that issue."]


See also our earlier posts on the major topics discussed at today's FASB board meeting:
Hedge Accounting Will Permit Bifurcation-by-Risk; Emphasize Qualitative Assessment, and
Financial Statement Presentation Proposal Coming In April.

Hedge Accounting Proposal Will Permit Bifurcation-by-Risk; Emphasizes Qualitative Assessment

At its board meeting earlier today, consistent with an earlier decision made at its February 17 board meeting, FASB agreed to permit bifurcation-by-risk for hedge accounting in its upcoming proposal on hedge accounting The Exposure Draft of the proposed standard is expected to be released for public comment in March, 2010. The proposal to permit bifircation-by-risk represents a change from FASB's previous earlier hedge accounting proposal released in June, 2008.

Among other key points in the upcoming Exposure Draft, entities would be required to perform a qualitative (rather than quantitative) test at inception to demonstrate that an economic relationship exists between the hedging instrument and the hedged item or forecasted transaction. However, board members emphasized, the Exposure Draft will explain that in some situations a quantitative test may still be necessary at inception.

The board also discussed how the proposed hedge accounting model would be applied by certain nonpublic entities for which the board tentatively decided to provide a delayed implementation date on certain aspects of its proposed financial instruments project, particularly relating to the valuation of core deposit intangibles, and loans (nonpublic entities with less than $1 billion consolidated total assets).

Refer to FASB's Summary of Board Decisions for details.

Financial Statement Presentation Proposal Coming In April

At its board meeting earlier today, FASB discussed various issues in its Financial Statement Presentation project, including reaffirming and in some cases modifying prior decisions, on subjects such as: what constitutes a complete set of financial statements, requirements for comparative reporting, treatment of extraordinary items, and more. Refer to FASB's Summary of Board Decisions for results of the meeting. FASB expects to release the Exposure Draft for public comment in April.

Friday, March 5, 2010

IRS Extends Comment Deadline On Uncertain Tax Positions Proposal

FEI's Washington DC Government Affairs office reports that the Internal Revenue Service is giving interested parties more time to submit comments on its recent proposal to require companies to disclose information about their uncertain tax positions.

FEI submitted a request for the extension directly to IRS Commissioner Douglas Shulman, IRS Chief Counsel William Wilkins, and IRS LMSB Commissioner Heather Maloy. FEI's Committee on Taxation (COT) is reviewing Ann. 2010-09 on Uncertain Tax Positions as it considers filing a comment letter.

The comment deadline on Ann. 2010-09 has been extended to June 1, 2010. See:

See also related article in WebCPA.

If you have questions regarding FEI's Committee on Taxation, please contact Matt Miller, Senior Director, Government Affairs, in FEI's Washington, DC office, mmiller@financialexecutives.org.

PCAOB Forums On Small Bus Will Address Emerging Issues

Earlier today, the Public Company Accounting Oversight Board announced the 2010 schedule of its Forum on Auditing in the Small Business Environment. The one day forums, offered in various cities, are designed to provide information to, and receive feedback from, small audit firms and auditors of small public companies. (See PCAOB press release.)

When the small business forums were first launched by the PCAOB in 2004, some of the forums included a second day directed at financial executives and audit committee members. The current schedule of one-day forums announced for 2010 are targeted at auditors only.

Emerging Issues To Be Addressed
Emerging issues to be addressed by PCAOB staff at the small business forums will include case studies and discussion topics on:
  • Current economic issues and trends
  • Auditing Standard No. 7, Engagement Quality Review
  • Proposed standards on risk assessment
  • Auditing internal control over financial reporting (ICFR) for non-accelerated filers
  • Information technology issues
  • Future standard-setting priorities
  • Recent implementation of annual and special reporting rules
SEC Staff To Provide Update
According to the PCAOB’s press release: “Staff from the U.S. Securities and Exchange Commission Division of Corporation Finance will provide an update on recent SEC activities and observations of common financial reporting issues facing smaller public companies.”

Information May Be Of Interest To Co's Of All Sizes; Slides Available
Although the small business forums are targeted at small business auditors, information provided at the forums can be of interest to companies of all sizes, including auditors, financial executives, and audit committee members generally, and reference can be made to slides which the PCAOB generally posts on its website following these forums. Useful webpages to bookmark for this information on the PCAOB’s recently updated website include PCAOB’s Featured Issue: Small Business, and PCAOB’s Forums on Auditing In the Small Business Environment.

The SEC website also has resources for small companies, such as SEC Information For Small Business, which includes links to, among other things, Small Business Compliance Guides. See also the slide presentation that accompanied remarks of SEC Division of Corp Fin Chief Accountant Wayne Carnall at the Dec. 2009 AICPA SEC-PCAOB Conference; the slides are entitled: SEC Staff Review of Common Financial Reporting Issues Facing Smaller Issuers, PCAOB Forums on Auditing in the Small Business Environment .

Thursday, March 4, 2010

SEC Adds New XBRL FAQs In Advance Of March 23 Seminar

Earlier today, the SEC posted six new items (Q. 36-41) to its Staff Interpretations and FAQs Related to Interactive Disclosure (XBRL). The posting of the new FAQs today comes in advance of the SEC's March 23 public seminar on XBRL, announced recently by the SEC.

The March 23 seminar will take place at SEC's Washington, DC headquarters, is aimed at helping companies and preparers comply with rules that require financial reports to be filed using eXtensible Business Reporting Language (XBRL).

Additionally, as noted in the SEC's press release about the March 23 XBRL seminar, “The seminar will help answer frequently asked questions about the rules and technology requirements. SEC staff will present information to help corporate filers understand how to comply with the rules." Companies are encouraged to email questions to the SEC’s Office of Interactive Disclosure (OID) in advance of the program. Details on how to send questions to OID, and additional details on the March 23 program, can be found in thes SEC's press release. The event will also be webcast on www.sec.gov .

IASCF Seeks Comment On Proposed IFRS Taxonomy 2010
Separately, the International Accounting Standards Committee Foundation released for public comment an exposure draft of the International Financial Reporting Standards Taxonomy 2010 (IFRS Taxonomy 2010). According to the IASCF’s press release, the proposed taxonomy is consistent with IFRSs (full IFRS) and IFRS for Small and Medium-sized Entities (IFRS for SMEs).

Bill Sinnett, Director of Research at the Financial Executives Research Foundation, and I recently spoke with Olivier Servais, the IASCF's XBRL Team Leader for more insights into the IASCF's announcement and how it may relate to the development of XBRL in the U.S.

Servais explained: "The IFRS taxonomy is updated each year in light of the new IASB standards issued in the previous year." An additional important advance for in the 2010 IFRS XBRL Taxonomy, said Servais, is that its 'architecture' has been aligned with other GAAP taxonomies used around the world. "This architectural alignment will enabled companies and their investors to more easily use, compare, contrast disclosure concepts from the IFRS and US GAAP Taxonomies," he added.

I asked Servais if XBRL is part of the IASB-FASB Memorandum of Understanding (regarding convergence); he replied it is not, and while he did not want to opine on convergence - or on the propects for any ultimate action by the U.S. Securities and Exchange Commission to permit IFRS by U.S. filers [note: Sinnett and I spoke with Servais last week, prior to the SEC's announcement of the Commission Statement on Global Accounting Standards, see related posts here, here and here], he did say that, "I am pleased the development of XBRL in the U.S. is now part of the FAF (Financial Accounting Foundation), since they have a similar accounting standards perspective and function as the IASCF." (See our earlier post, SEC Approves FASB Support Fee; FAF To Maintain XBRL.)

The comment period on the IASCF’s proposed IFRS Taxonomy 2010 ends April 22. Further information can be found in the IASCF’s press release.

Additional resources on XBRL
Here are some additional resources on XBRL:

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Tuesday, March 2, 2010

Harry Makes His Mark

Harry Markopolos' book "No One Would Listen" (subtitled: "A True Financial Thriller"), the story of his role as a whistleblower on the Bernard Madoff fraud, told in his own words, was officially released today.

Published by John Wiley & Sons, Inc., here's the gist of the book, as told on the inside front cover:
This is the thrilling, complete story of the pursuit of the greatest financial criminal in history - a chase that put Markopolos's life in jeopardy, led to international notoriety from his appearance on 60 Minutes, and once again opened the door to questions regarding the true effectiveness of the Securities and Exchange Commission... Markopolos's incredible investigation takes readers inside the financial industry, revealing the never-before-told stories behind the headlines.
My local Barnes & Noble (B&N) bookstore told me on Sunday they had the book in-house, but could not release it until the official launch date (today), so I reserved a copy. Anxious to get a start on the book, I ordered the ebook on Sunday (the first time I've been motivated to order an ebook!). One thing that's a little daunting if you're a novice at ebook: the 374-page book runs 1,077 pages (screens) on an iPhone. But it's a real page (screen) turner!

Here's one of the most memorable passages in 'No One Would Listen," based on my reading so far:
"Numbers can't lie, but the people who create those numbers can and do. As so many people have learned, forgetting to include human nature in an equation can be devastating."
Expecting a crowd of like-minded accounting, regulatory, and financial 'geeks' (a term used a few times in Markopolos' book) to be camped out at the doorstep of the B&N store today (similar to the crowd that gathers for the release of those other "Harry" books - which also involve wizards, although not financial wizards), I arrived at my local B&N shortly after it opened today.

Although I didn't see anyone camped out for this Harry's book, here's what I heard about the launch of the book from Dave Hathaway, buyer for B&N:

'No One Would Listen' goes on sale today and already there has been strong interest in the title. This interest was due in part to the author's appearance on the The Today Show yesterday and NPR this morning. We expect that interest in the book will also increase after the author appears on The Daily Show with Jon Stewart next Monday 3/8. The author is very compelling and much of his story about how the investigation developed has not been told.
The book was prominently displayed at my local B&N when I arrived at the store today; a couple photos I took are shown in this post. Photo 1 is a closeup of the display. I also couldn't resist sharing with you Photo 2, which shows an interesting juxtaposition, in the coincidental placement of Markopolos' treatise on the Madoff fraud - a story of 'cooked books' (more precisely, falsified books) - nearby the section on "Cookbooks." The placement is purely coincidental since the Markopolos book is prominently displayed on an endcap right next to the main information desk in the bookstore, and the Cookbook section is nearby.

A website has been set up by Markopolos and his publisher which provides links to info about his book, and some fascinating documentation and other items, including 'resources' for educators, students and others. Following on the name of the book, the website is: http://www.noonewouldlisten.com/.
You may have seen some of the coverage of Markopolos' book earlier this week in the NYT, Huffington Post, or elsewhere; I may have more to say about the book in the future.
UPDATE: Audiobook available
In addition to the hard copy book and ebooks, http://www.audible.com/ (a division of Amazon.com) offers an audiobook version of Harry Markopolos' book, "No One Would Listen," about his quest to prove ponzi schemer Bernard Madoff was a fraud.
Audible.com has made the audiobook of Chapter 1 available for free. The complete audiobook (available for purchase) includes a bonus Chapter 10 which does not appear in the hard copy book or ebook, containing audio interviews of SEC Inspector General David Kotz (whose remarks closely follow the text of the OIG report issued on Labor Day weekend, 2009 on the Madoff affair), as well as interviews with a number of investors who lost money invested with Madoff (including an investor who testified at one of the Congressional hearings on the Madoff affair last year).

One of the more interesting comments Kotz made in the audio interview included in Chapter 10 of the audiobook, which was not in his OIG report, is along the lines of [note: I'm paraphrasing Kotz' words here]: perhaps the fraud went on so long because Madoff had come to believe in his own fictionalized version of the truth, and because he believed in it, it helped him to be all the more convincing. Note also that the page on the audible.com website that advertises the audiobook version of Markopolos' book includes the following "SEC disclaimer:" "The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This audiobook expresses the author's views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff."

If you want to listen to "No One Would Listen," you can order the complete audiobook (including bonus chapter 10) or download the free audiobook version of Chapter 1, by going to http://www.audible.com/noonewouldlisten .
As noted in the original version of this post, I may have further comment on the book, or further comments from others of note, at a future date.