Saturday, May 29, 2010

FEI CCR Responds To PCAOB Proposal On Audit Committees

Yesterday, FEI's Committee on Corporate Reporting filed a comment letter in response to the Public Company Accounting Oversight Board's Release No. 2010-001, “Proposed Auditing Standard Related to Communications with Audit Committees and Related Amendments to Certain PCAOB Auditing Standards.”

As noted in this FEI summary by Lorraine Malonza, Senior Manager, Technical Accounting, FEI:

"The CCR letter supports the PCAOB Board’s efforts to comprehensively update the interim auditing standards in regard to communications with audit committees, which is consistent with the Sarbanes-Oxley Act of 2002.

"However, CCR is concerned by and does not support some of the additional communication requirements proposed by the PCAOB Board, especially those related to accounting policies, practices and estimates."

Read the FEI CCR comment letter for more details.

May 28 was the comment deadline on the PCAOB proposal; comment letters on the audit committee proposal posted on the PCAOB website so far (i.e. as of May 28, all dated prior to May 28) can be found here, check back again for more comment letters to be posted.

Thursday, May 27, 2010

FASB Releases Proposals on Financial Instruments, Comprehensive Income

Late yesterday, the Financial Accounting Standards Board released two proposals (also called Exposure Drafts or EDs) of proposed Accounting Standards Updates (proposed ASUs) on two related projects:
  1. Proposed ASU: Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities - Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815), and
  2. Proposed ASU: Comprehensive Income (Topic 220): Statement of Comprehensive Income
As noted in FASB's press release:

A briefing document about the financial instruments proposal entitled FASB In Focus is also available at the website, along with a “podcast” featuring an in-depth audio interview with FASB Chairman Robert Herz about financial instruments. The FASB will also be hosting a live webcast on the financial instruments proposal on June 30.
The comment deadline on the two proposals is September 30. FASB seeks input from all of its constituents, including preparers, auditors, investors and others.

FASB Board Members, Others Divided on Proposal
As reported by Steven Burkholder in today's BNA Daily Report for Executives:
A divided FASB approved the proposal. Herz and board colleagues Thomas Linsmeier and Marc Siegel supported its issuance.

The other members of the five-person panel, Leslie Seidman and Lawrence Smith, formally registered dissenting “alternative views.” Over the years, Seidman and Smith often have raised more questions than other board members about the efficacy of fair value-based accounting prescriptions.

Within 45 minutes of FASB's release of the draft ASU, the American Bankers Association registered criticism of the proposal. “FASB's proposal for mark-to-market accounting presents significant problems, not only for banks, but also the general economy,” ABA President Edward Yingling said in a prepared statement. “If implemented, the proposal would greatly undermine the availability of credit by making it difficult to make many long-term loans, the value of which, even if performing perfectly, would likely be reduced on the day the loan is made.”

In recent weeks, security analysts, such as Greg Jonas, a managing director at Morgan Stanley, have stated their support for FASB's overall approach on instruments, citing improvements to financial reporting they believe it would make possible.

Friday, May 21, 2010

SEC, FASB, PCAOB Testimony Posted For Congress. Hearing Taking Place Now

Testimony of SEC Chief Accountant Jim Kroeker, FASB Chairman Robert Herz, and PCAOB Acting Chairman Dan Goelzer has been posted on the hearing webpage for today's Congressional hearing now in progress on: Accounting and Auditing Standards: Pending Proposals and Emerging Issues . The hearing began at 10am and is being webcast via the House Financial Services Committee website and on CSPAN.

COSO Releases Latest Fraud Study

Yesterday, COSO announced the release of a new research study, Fraudulent Financial Reporting: 1998-2007, that examines 347 alleged accounting fraud cases identified by a review of U.S. Securities and Exchange Commission (SEC) Accounting and Auditing Enforcement Releases (AAER's) issued over a ten-year period ending December 31, 2007.

The COSO Fraud Study updates COSO's previous 10-year study of fraud and was led by the same core academic research team as COSO's previous Fraud Study.

COSO's Fraud Study provides an in-depth analysis of the nature, extent and characteristics of accounting frauds occurring throughout the ten years, and provides helpful insights regarding new and ongoing issues needing to be addressed.

COSO is more formally known as The Committee of Sponsoring Organizations of the Treadway Commission, and the five sponsoring organizations are the AAA, AICPA, FEI, IIA, and IMA. More COSO info is available on their website,

Tuesday, May 18, 2010

Congressional Hearing on Accounting, Auditing This Friday

According to Cady North, Manager of Government Affairs in FEI's Washington, DC office, the House Financial Services Committee, Subcommittee on Capital Markets plans to have a what has been described by some as a “discussion” about pending accounting and auditing issues this Friday, May 21 at 10 am EST. The hearing is formally entitled: Accounting and Auditing Standards: Pending Proposals and Emerging Issues.

FEI's North believes that witnesses will include representatives of the Chief Accountant’s office at the SEC, as well as representatives from the FASB, and the PCAOB. It will be a general hearing covering a broad array of issues such as the oversight of the SEC, FASB, and PCAOB, the pending Supreme Court case regarding the constitutionality of the PCAOB. Other potential issues could include mark-to-market accounting, and more. Also, according to North, the hearing will not be merely be focused on the financial services industry.

Monday, May 10, 2010

FEI Comm. on Corp Reporting Writes FASB, IASB About Impact Of MOU Standards

On Friday, FEI's Committee on Corporate Reporting sent a letter (see: CCR letter) to Robert Herz, Chairman of the Financial Accounting Standards Board, and Sir David Tweedie, Chairman of the International Accounting Standards Board, expressing concern about the impact and timing of the 10+ standards set to come out by June, 2011 under the FASB-IASB Memorandum of Understanding.

The letter, signed by CCR Chairman Arnie Hanish, stated, in part:

"Collectively, we do not believe we have sufficient technical resources in industry to respond effectively to such a large quantity of complex proposals issued over a very short period of time. Even if it were not so, it is not clear to us that the FASB and IASB have the requisite resources to absorb and resolve all of the issues that would be posed by all of these proposed standards in such a compressed time period.

We also note that if we are not able to fully analyze and comment on these proposals, they could end up being finalized without the necessary analysis that our comments relative to real-life transactions, or with limited comments, leading to a large number of implementation issues and potentially significant amendments to the newly issued standards. We make these observations based on experiences with other major, complex standards, such as FIN 46 on Variable Interest Entities. Due to the very abbreviated time frame between issuance of the ED, issuance of the final standard and its effective date, the principles that were fundamental to operation of the standard needed to be amended through issuance of a revised standard (FIN 46R) and a series of subsequent FASB Staff Positions. If that were to occur with these standards, we do not think that type of process would be helpful to investors or preparers.

We note that a separate committee of FEI, FEI’s Committee on Private Companies-Standards, shares our concern and has filed a separate comment letter on this point." [NOTE: See our previous post on the CPC-S letter to FASB.]
In conclusion, Hanish stated:

"We recommend that the FASB identify a representative group of preparers,
auditors and financial statement users to identify logical groupings of revised standards and a timetable for the completion of each group that would avoid the
types of issues we describe above. We would be pleased to provide representatives to serve on such a group."
Read more in the CCR letter.

SEC Workplan and the Convergence Process
In her opening remarks at the SEC's Feb. 24, 2010 open meeting, at which the Commission voted to release a Commission Statement in Support of Convergence and Global Accounting Standards (including a related staff Work Plan), SEC Chairman Mary Schapiro stated:
Today's Commission statement reaffirms our support for a single globally-accepted standard, describes the issues that need to be further examined and analyzed, and lays out the events that must occur between now and 2011. Specifically, the convergence projects currently underway between the FASB and the International Accounting Standards Board, must first be successfully completed. And our staff must gather information to aid the Commission as it evaluates the impact that the use of IFRS by U.S. companies would have on our securities market. To this end, we have asked the staff to develop and execute a work plan, which the staff will discuss in more depth in a moment.

In 2011, upon conclusion of the fact-gathering and analysis set forth in the work plan — and assuming completion of the convergence projects — the Commission will then be in a position to determine whether to incorporate IFRS into the financial reporting system for U.S. public companies. Until that time, we will
expect staff to provide periodic written public reports to the Commission on the
progress of its efforts.
More recently, there has been speculation about whether 100% completion of the convergence projects laid out in the FASB-IASB MOU must be completed by June, 2011 to meet the goals in the SEC's Work Plan (not to mention the goal set forth last September by the G-20 Leaders). Some related reading can found in:

Wednesday, May 5, 2010

FEI CPC-S Releases Working Draft On Private Co. Accounting

Yesterday, FEI's Committee on Private Company Standards (CPS-S) released a working draft of a white paper entitled, "A Model Conceptual Framework for Private Company Accounting Standards." The current chair of the CPC-S committee is Bill Koch, and the principal author of the paper is CPC-S past chair Andy Thrower.

CPC-S Vice Chair Daryl Buck, a member of the Blue Ribbon Panel on Private Company Accounting, and a former member of the FASB-IASB Private Company Financial Reporting Committee (PCFRC), has forwarded a copy of the CPC-S working draft to the staff of the Blue Ribbon Panel on Private Company Accounting, to share with the panel.

The Blue Ribbon Panel was formed this year under the joint sponsorship of the Financial Accounting Foundation (FAF - which oversees the FASB), the AICPA, and the National Association of State Boards of Accountancy (NASBA). Additional information on the Blue Ribbon Panel can be found in our April 6 blog post. The next meeting of the Blue Ribbon Panel will take place on May 14 at the FAF.

CPC-S has also posted the document on FEI's website,, and is publicizing it through the FEI blog, so the concepts described in the working draft can be considered by the Blue Ribbon Panel and others with interest in private company accounting standard setting.

Buck explains: "CPC-S greatly appreciates the work of the Blue Ribbon Panel on behalf of private companies, as we have stated in a recent letter to the chairmen of FAF [Financial Accounting Standards Foundation] and FASB [Financial Accounting Standards Board]. We are confident that our working draft document will provide useful input for the Blue Ribbon Panel's discussions, and we look forward to receiving the Blue Ribbon Panel's feedback."

Highlights of the FEI CPC-S 76-page working draft can be found in the Preface at the beginning of the document.

Separately, FEI CPC-S also recently sent a comment letter to the Chairmen of the FAF and the FASB expressing concern about the pace of accounting standard-setting, as noted in our May 3 blog post.

Monday, May 3, 2010

FEI Comm. on Pvt. Cos. Writes FASB About Concern On Pace of Std-Setting

On April 30, 2010 FEI's Committee on Private Companies - Standards, filed a comment letter with John J. Brennan, Chairman of the Financial Accounting Foundation (which oversees the Financial Accounting Standards Board) and with Robert Herz, Chairman of the FASB, expressing concern about the pace of standard-setting under the FASB-IASB MOU.

The letter, co-signed by CPC-S Chair Bill Koch and Vice Chair Daryl Buck, voices concern about the pace of accounting standard-setting under the remaining time under the the FASB-IASB MOU, which calls for close to a dozen new standards to be issued between now and June, 2011, including approximately ten exposure drafts of proposed new standards to be issued for public comment over the next year.

As stated in CPC-S' letter:

The potential for so many proposals being issued for comment this year and finalized by June 2011 poses three significant concerns:
1. Concern about the impact that a compressed due diligence timeline for FASB may have on the quality of the proposed new standards;
2. Concern about private companies’ ability to thoughtfully analyze and comment on the proposed standards on a timely basis; and
3. Concern about private companies’ ability to successfully implement on a timely basis the expected new standards.

For further details, read the CPC-S letter.

CFOs' Confidence Up - Modestly - 1Q2010 FEI -Baruch Survey Shows

CFOs' confidence is up - modestly - says the 1Q 2010 FEI - Baruch College survey. As noted in the FEI-Baruch press release:

"It is clear from the results of our first quarter survey that CFOs are feeling more confident about the economy and the impact of their business, but they are treading lightly, and we are seeing more modest increases in the Optimism Index than we saw in the third and fourth quarters of 2009," said John Elliott, Dean of the Zicklin School of Business at Baruch College. "Despite some challenges, CFOs are showing that their companies are indeed on the road to recovery, and the substantial increases they are expecting with regard to earnings and revenue make it clear that companies have made good progress over the last year."

Read more details from the survey results in the FEI-Baruch press release.