Wednesday, September 29, 2010

FASB To Release Discussion Doc. on MOU Completion/Implementation-'Significant Change To Financial Reporting System'

Chairing his final Financial Accounting Standards Board meeting on Sept. 29, 2010, Bob Herz noted in his opening remarks that FASB plans to release a Discussion Document in mid-October, seeking comment on various matters relating to implementation of the suite of remaining standards to be issued by FASB and the International Accounting Standards Board in accordance with the FASB-IASB Memorandum of Understanding.

Discussion Doc On MOU Standards Implementation Expected Mid-October
Herz referred to the Discussion Document as 'important,' noting that its purpose was to obtain "stakeholder feedback on the effective dates, transition methods, and other matters related to completion of the MOU projects."

"Once the MOU projects are completed," observed Herz, "the board recognizes those represent a significant amount of change in the financial reporting system." He noted that the boards are interested in "thoughtful feedback" on these issues.

Herz added, "My understanding is that the IASB will also be issuing a similar document to their constituents around the same time."

FASB Acts on EITF Consensuses
FASB agreed to ratify one final EITF consensus, and agreed to release three EITF consensuses for exposure (i.e. public comment). Further details on the board's discussion are in this FEI summary available to FEI members only; read about our new Associate Member category. Also watch for FASB's Summary of Board Decisions (which provides a factual summary) posted in FASB's News Center same-day or next day following FASB board meetings; the FEI summaries generally include additional 'color commentary' from the meeting.

"May You Continue To Make Informed And Wise Decisions"
In his closing remarks, Herz noted, "this is the last meeting I've had the honor of chairing this board," adding, "I don't use a gavel, but I am handing over a bell" to Leslie Seidman, named by the Financial Accounting Foundation (which oversees FASB) to serve as Acting Chairman beginning October 1.

"May you continue to make informed and wise decisions," Herz wished the board.

Seidman, speaking on behalf of the board members and staff, thanked Herz for his eight years of service at FASB, noting in particular how Herz "initiated a restructuring of the way GAAP is established in the U.S.," as well as overseeing the move to the Codification, and improved outreach to constituents.

With that, Herz rung his closing bell.

FASB, IASB Release 1st Phase of Joint Conceptual Framework

Yesterday, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) published final documents marking the first phase of their joint Conceptual Framework project. Each board had their own separate Concepts Statements, forming the framework on which accounting standards issued by the board(s) are to be based. As noted in the FASB-IASB joint news release:

The new framework builds on existing IASB and FASB frameworks. The IASB has revised portions of its framework; while the FASB has issued ‘Concepts Statement 8’ to replace ‘Concepts Statements 1 and 2’.
FASB's Concepts Statement No. 8 (aka 'CON 8') is entitled: Conceptual Framework for Financial Reporting—Chapter 1, The Objective of General Purpose Financial Reporting, and Chapter 3, Qualitative Characteristics of Useful Financial Information (a replacement of FASB Concepts Statements No. 1 and No. 2).

The IASB is holding a live webcast at 2 separate times (to accomodate different time zones) today (Wed. Sept. 29) to introduce this first phase of the joint conceptual framework. The webcast will include responding to some questions from listeners.

Yesterday's release marks completion of 'phase A' of the boards' joint Conceptual Framework project. Read more about the remaining phases B-H on the IASB's or FASB's websites.

Friday, September 17, 2010

SEC Proposes Disclosures, Issues Interp Release

At an open commission meeting earlier today, the SEC voted unanimously to propose new disclosures for short-term borrowings.

The comment deadline on the proposed new disclosures for short-term borrowings will be 60 days after publication in the Federal Register.

Additionally, the SEC voted to issue an interpretive release providing guidance on existing MD&A requirements for liquidity and funding disclosure. The interpretive release will be effective immediately upon publication in the Federal Register.

Read more in SEC's press release, which also provides links to the proposed rule (proposed disclosures), and the interpretive release.

Some will say that some of these disclosures arise from the Lehman brothers debacle. Earlier this year, the SEC posted a 'sample letter' of a letter sent to public companies regarding disclosures of repo, securities lending, and certain other transactions.

See also blogger Francine McKenna's take on the post-Lehman world. She participated earlier this week on a panel with NYT's Floyd Norris and the Lehman bankruptcy examiner, Anton Valukas. Read her post in her blog, Re: The Auditors: "Top Ten Things Lawyers Should Know About Auditors."

FEI Committee On Private Cos. Responds To Blue Ribbon Panel

Earlier this week, FEI's Committee on Private Company Standards (CPC-S) filed a comment letter in response to questions posed by the Blue Ribbon Panel on Standard Setting for Private Companies. (In December 2009, responding to feedback from many of America’s private companies, and to a recommendation made by the Private Company Financial Reporting Committee (PCFRC), the American Institute of Certified Public Accountants (AICPA), the Financial Accounting Foundation (FAF), and the National Association of State Boards of Accountancy (NASBA) announced the establishment of a “blue-ribbon panel” to address how U.S. accounting standards can best meet the needs of users of private company financial statements.)

Highlights from the FEI CPC-S comment letter can be found in this FEI Summary. (UPDATE: as of 2pm Friday, Sept. 17, 140 comment letters have been posted.)

Russell Golden Appointed To FASB Board

Earlier today, the Financial Accounting Foundation announced the appointment of Russell G. Golden to the Financial Accounting Standards Board, effective October 1, 2010. Golden will fill the board member vacancy on the FASB resulting from the retirement of Robert H. Herz on September 30, 2010.

Prior to his appointment as a FASB board member, Golden served as technical director of the FASB. Golden served in various roles at the FASB as a member of the senior staff. Previous to joining the FASB, Golden was a partner at Deloitte & Touche LLP in the National Office Accounting Services department.

As previously announced, Leslie Seidman has been appointed acting chairman of the FASB board effective October 1. Additionally, the FAF will increase the size of the board to seven board members total, from the current number of five. The board historically had seven members since its inception, until a reduction in the size of the board was effected in 2008.

Additional details can be found in the FAF press release, and in this Q&A with FAF Chairman John Brennan About the Board Member Selection Process.

Wednesday, September 15, 2010

SEC, Conforming With Dodd Frank Act, Exempts Small Cos. From Sarbox Internal Control Audits

Earlier today (Sept. 15) the SEC issued a Final Rule exempting small companies (non-accelerated filers) from Sarbanes-Oxley Section 404(b), the external auditor's report on internal control. The exemption is effective immediately, and has been issued in accordance with new Section 404(c) of Sarbox, enacted as part of the Dodd-Frank financial reform act signed into law in July.

Specifically, footnote 11 of the SEC's Final Rule defines non-accelerated filers indirectly by describing what constitutes 'accelerated' filers and 'large accelerated filers' as follows:
Although the term “non-accelerated filer” is not defined in Commission rules, we use it throughout this release to refer to a reporting company that does not meet the definition of either an “accelerated filer” or a “large accelerated filer” under Exchange Act Rule 12b-2. Under Exchange Act Rule 12b-2, an accelerated filer is an issuer that “had an aggregate worldwide market value of the voting and non-voting common equity held by its non-affiliates of $75 million or more, but less than $700 million, as of the last business day of the issuer’s most recently completed second fiscal quarter” and a large accelerated filer is an issuer that “had an aggregate worldwide market value of the voting and non-voting common equity held by its non-affiliates of $700 million or more, as of the last business day of the issuer’s most recently completed second fiscal quarter”. In addition, for both definitions, the issuer needs to have been subject to reporting requirements for at least twelve calendar months, have filed at least one annual report, and not be eligible to use the requirements for smaller reporting companies for its annual and quarterly reports.

The exemption is specified in the SEC's Final Rule as follows:

The Commission is adopting amendments to its rules and forms to conform them to new Section 404(c) of the Sarbanes-Oxley Act,7 as added by Section 989G of the Dodd-Frank Act.8 Section 404(c) provides that Section 404(b) of the Sarbanes-Oxley Act shall not apply with respect to any audit report prepared for an issuer that is neither an accelerated filer nor a large accelerated filer as defined in Rule 12b-29 under the Exchange Act.[footnote 10] Prior to enactment of the Dodd-Frank Act, a non-accelerated filer[footnote 11] would have been required, under existing Commission rules, to include an attestation report of its registered public accounting firm on internal control over financial reporting in the filer’s annual report filed with the Commission for fiscal years ending on or after June 15, 2010.

Other provisions of the Dodd-Frank Act of interest to accountants and financial professionals can be found in this article by Matthew Lamoreaux in the Sept. 10 issue of the AICPA's Journal of Accountancy, Financial Regulatory Reform: What You Need To Know.

SEC Posts Notice of Filing and Comment Period on PCAOB Suite of Risk Assessment Standards

Perhaps coincidentally (perhaps not), the SEC also posted on Sept. 15 Notice of Filing of Proposed Rules on Auditing Standards Related to the Auditor's Assessment of and Response to Risk and Related Amendments to PCAOB Standards (the PCAOB's suite of new risk assessment standards). The Notice of Filing and Comment Period process by the SEC on PCAOB final rules was written into the original Sarbanes-Oxley Act, and is standard operating procedure. The comment period to the SEC ends 21 days following publication of the Notice in the Federal Register.

Monday, September 13, 2010

FASB Goes Gaga For Input On Upcoming Standards For Public, Private Cos.

No, Lady Gaga* is not becoming their new spokesperson, but as evidenced by some of the most recent headlines on FASB's website, and as reflected in some of the most recent news items on FEI's website, FASB is going 'gaga' for input on upcoming standards that will impact public and private companies, as well as input on the standard-setting process for private companies.

Technically, the request for input on the latter item was issued by the Blue Ribbon Panel on Standard-Setting for Private Companies, established this year by the Financial Accounting Foundation or FAF (which oversees FASB), the American Institute of CPAs (AICPA), and the National Association of State Boards of Accountancy (NASBA).

Daryl Buck, Senior Vice President and Chief Financial Officer of Reasor's Holding Company, Inc. and chair of FEI's Committee on Private Company Standards (CPC-S), serves as a member of the Blue Ribbon Panel. FEI's CPC-S is currently considering providing comments to the Blue Ribbon Panel.

For further info, see the Blue Ribbon Panel's Questions for Submissions, and Responses received so far. The comment deadline is September 15; see also the most recent edition of FASB in Focus, issued last week, which provides a summer/fall 2010 roundup on the Blue Ribbon Panel.

Separately, FASB announced on September 10 that it will be holding a series of roundtables on its proposed financial instruments and derivatives accounting standards, and other proposed standards. The proposals are aimed at public as well as private companies. See FASB's press release. See FASB's website,, for additional webcasts and releases.

IASB-FASB Preparer Questionnaire on Leases
Among recent releases issued by the IASB, which you can read about on, one in particular I'd like to note - and props to FEI's new Manager of Finance and Research, Ron Wei,
for pointing this out - is the IASB-FASB Preparer Questionnaire on Leases. The questionnaire is part of the two boards' outreach efforts on their joint project on Leases. Questions are provided for preparers who are lessees and for those who are lessors. The IASB and FASB request that responses to the leasing questionnaire be provided by September 30.

* article about Lady Gaga linked above from Boston Herald, for further background, see also NYT and WSJ Speakeasy blog . As noted by one AP writer, (published in Winnipeg Free Press) Lady Gaga 'swept' last night's MTV Video Music Awards, winning a record 8 awards.

Thursday, September 9, 2010

We're From The Government ...

You know how the rest of the saying goes, “and we’re here to help.” As discussed in more detail below, you can see this practice in action in the SEC’s invitation for advance comment on rulemaking under the financial reform act released in July, and the SEC’s invitation for comment on the impact of its ‘International Financial Reporting Standards (IFRS) Workplan” released earlier this year. Additionally, in remarks at a U.S. Chamber of Commerce conference in July, SEC Chairman Mary L. Schapiro noted: “the path forward still poses significant challenges. But to be fully successful in meeting those challenges, it will require broad engagement—that means business, regulators, consumers and investors alike.”

Washington Policy Conference
Such engagement will be evident at FEI's upcoming Washington Policy Conference Sept. 20-21 at the Washington Court Hotel on Capitol Hill. Keynote remarks will be provided by SEC Commissioner Kathleen L. Casey, IRS Commissioner Douglas Shulman, and former GAO Comptroller General David M. Walker, who currently serves as President & CEO, Peter G. Peterson Foundation. Other high level government and business representatives (CFOs, Chief Tax Officers, Treasurers and others) will provide their perspectives on various panels; see the full agenda and list of speakers; register here. FEI members (and our new category of Associate Members) save money registering for this and other conferences, webcasts and events; the conference also welcomes non-members.

SEC Seeks Advance Comment on Rulemaking
Shortly after the President’s signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC announced: SEC Chairman Schapiro Announces Open Process for Regulatory Reform Rulemaking. In brief, the SEC is seeking advance comments for their staff (and Commissioners) to consider as it enters wide-ranging rulemaking required under the Dodd-Frank Act. (Other regulatory agencies will also be entering varying degrees of rulemaking flowing from the Act.)

Meetings With SEC Staff Will Be Impacted
Significantly, as observed by Broc Romanek in blog: “[T]his "field day" may help to shorten the comment periods and get rules in place before next year's proxy season."

However, he added: "Perhaps even more important is the SEC's "newly-established best practices when holding meetings with interested parties," which include "Staff will try to meet with any interested parties seeking a meeting. When the number of requests exceeds availability, the staff will seek out parties with varying viewpoints. Staff may have to limit the number of meetings with similarly situated parties and will limit multiple meetings with the same party.”

Although Broc's views and my views are often on the same page, my views on the potential reduction of staff meetings differ somewhat from his. He states: "Given the level of rulemaking the Staff has on its plate, time management is of the essence and these "best practices" should help curtail wasteful meetings where the same points are made over and over again (and problems are identified but no solutions are proposed)."

My Two Cents
(I refer readers to the disclaimer posted on the right side of this blog.) On the one hand, I don’t recall such a broad request for advance comment on rulemaking, and I believe this move is very positive, with the added benefit of comment letters being posted real-time (as is the standard practice of the SEC.)

On the other hand, it can be challenging to provide substantive, practical comments on potential rulemaking prior to having some verbal if not written skeleton of potential alternative draft rulemaking (albeit comment periods will continue to take place on formal proposed rulemaking as usual). However, the pre-proposal brainstorming stage is where the verbal back and forth at meetings between constituents and staff (or Q&A at conferences) can be very helpful, to discuss various potential areas of thinking or directions the SEC staff (or other regulatory agency staff, as applicable) may consider even before they are at the stage of proposed rulemaking. (For example, as we see at PCAOB advisory group meetings and roundtables, and at SEC advisory group meetings and roundtables; more about the PCAOB further below.)

Hopefully increases to the SEC staff budget will allow meetings with constituents to continue relatively apace and still meet the Commission’s goals of transparency.

Sample of comment letters
The SEC’s request for comment on the Dodd-Frank Act covers 9 major areas. I recently took a look at the letters in the “Other” category (so far 31 letters, dated as of Sept. 2, in that category.). The letters included, among others: a letter from Arnold & Porter on behalf of the State of Alaska urging the SEC to include States in the definition of “accredited investor,” a letter filed by Meridian Fund Advisers re: “The Need for Corporate Governance Reforms or Established Corporate Governance Best Practices for Hedge Funds,” numerous letters admonishing the SEC and Congress for reducing access to SEC documents under the Freedom of Information Act (FOIA), including one from a self-proclaimed whistleblower/Compliance Accountant Joe Jefferis, a letter from SIFMA on the importance of the upcoming GAO study of GASB. There are also some letters from a self-identified Citizen Voter and a Professor of Common Sense. My sense is that it is early in the process for specific advance comment on certain rulemaking-related matters throughout the Dodd-Frank Act, and, as usual, comments will follow from specific proposed rulemaking.

The most recent letter I noted in the file (dated Sept. 2) was sent by attorney Herbert Milstein, a former Associate Director of Enforcement in the Division of Corporate Finance [note: corrected title from original blog post] at the SEC (now with law firm Cohen Milstein Sellers & Toll PLLC), who writes that he represented a plaintiff in a case in which workpapers were requested from an oversees entity of a Big 4 international accounting firm, but the law in that country (China, in this case) precluded the international division of the firm from providing the requested documents.

Milstein notes some remarks taken from the transcript of the trial, and concludes in his letter to the SEC:
"I respectfully submit that it is in the interest of the Commission, the U.S. securities markets, and investors such as the state and municipal pension plans that my firm routinely represents, that the Commission adopt a rule that mandates that any company whose securities are registered to trade in the U.S. markets choose, as its outside auditor, a firm that has consented to the jurisdiction of the United States courts for service of process or subpoena and which has agreed to produce work papers and other documents relevant to its work for the company if they are validly requested in U.S. civil litigation."
SEC Request for Comment On IFRS Workplan
Separately, as noted by Compliance Week’s Melissa Klein Aguilar in her post last month in The Filing Cabinet, the SEC released two separate requests for comment in August relating to its IFRS workplan, one regarding the impact on investors, and one regarding the impact on issuers.

In related news, there is some conjecture among journalists, bloggers, affected parties and others as to what the future of IFRS will be, with the previously reported early retirement decision of Robert H. Herz to leave the FASB board, and with IASB Chairman Sir David Tweetie's scheduled retirement from the IASB board in 2011, as noted in this recent article by Mario Christodolou in AccountancyAge, Bringing the US on Board.

PCAOB Reopens Comment Period-Commun. w/Audit Comm.; Roundtable Coming
We can also see 'we're from the government and we're here to help" (or, in this case, we're from the quasi-governmental agency and we're here to help) in action with the PCAOB's recent announcement that it is (1) reopening the comment period on its proposal on communication with audit committees - something of keen interest to auditors, board members, and senior financial officers, and (2) holding a public roundtable Sept. 21 on this subject. The roundtable will be webcast. The PCAOB notes that in light of the roundtable, it is extending the comment period on the proposal until October 21. Here is the PCAOB's Briefing Paper for the roundtable; see also the Proposed Rule and Comments filed so far.

Hard-Working Agency
Rounding out this post, I recently received my 2010 edition of the SEC Alumni Association (more formally known as the Association of SEC Alumni or ASECA) Newsletter, which included the full text of the speech made by former Enforcement Director Bill McLucas, (now with law firm WilmerHale), recipient of the William O. Douglas Award, at the annual ASECA awards dinner in March. I found the following sections of McLucas' remarks among the most powerful:

I want to say a word to the Commission staff who are here this evening. All of us – perhaps especially those of us who do battle with you daily and challenge you on a variety of fronts as we represent our clients, have been and will remain enormously supportive of this agency and most importantly, its mission. We’ve all heard the criticism and the attacks that have been mounted against the SEC over the past two years. Whatever criticism the agency has endured – and while some of it may well be fair, much of it has been misplaced in my view – I know the agency has taken it seriously and taken steps to address the issues, real or perceived. …

You need to keep your focus, keep in mind all the successes the agency achieves for investors, most of which do not get the attention you’d like in this climate. You have to keep moving ahead…. First, you have strong leadership from the Chairman and the Commission….Second, notwithstanding some tough days that have demoralized the agency, the staff is still among the best in government and the leadership team at the division and office levels is outstanding and as strong as it has ever been….[See McLucas’ complete remarks.]
I encourage you to visit ASECA's website, as well as that of the SEC Historical Society. I continue to believe that people who commit themselves to public service, for a period of time or as a life-long career, and those who leave such agencies to go to -as some in public service refer to with a wink - 'the dark side,' (i.e. the private sector, such as law firms, accounting firms, the corporate and financial sector) - and practice in the private sector armed with not only knowledge of how an agency works, but with an eye toward what is right, can enhance the regulatory system and the business environment generally. To reemphasize what McLucas noted above, "those of us who do battle with you daily and challenge you on a variety of fronts... have been and will remain enormously supportive of this agency and ... its mission."

Thursday, September 2, 2010

FEI Comments On FASB Fair Value Proposal

On Sept. 1, 2010 a joint comment letter was filed by FEI's Committee on Corporate Reporting and Committee on Corporate Treasury on the Financial Accounting Standards Board's proposal relating to financial instruments. Specifically, the comment letter was filed in response to FASB's Proposed Accounting Standards Update: Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815) – Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities. Note: technically, while the heading of the proposal addresses financial instruments, the key issue is the application of fair value, thus the heading at the top of this post.

FEI's 12-page comment letter, co-signed by CCR Chair Loretta Cangialosi and CCT Chair Susan Stalnecker, concluded that:

While we support the FASB and IASB convergence efforts, we are strongly opposed to many of the provisions included in the proposed ASU, including the pervasive expansion of the use of fair value, the inability to consider future events in the estimation of expected credit losses, and the overall lack of consistency between the proposal and an enterprise’s business strategy. The Proposed ASU will reduce the reliability of financial reporting and introduce significant operational complexity. Given these concerns and our belief that the expansion of fair value is not favored by the majority of financial statement users, we strongly encourage the FASB to delay the final issuance of the Proposed ASU until a single converged financial reporting model for financial instruments is developed.

Read further details in the FEI comment letter. A total of over 250 comment letters have been filed with FASB on this proposal to date.

Separately, Tom Selling, author of The Accounting Onion blog, has some things to say about this topic (and more) in his blog post today. Selling is the lead coordinator on a number of FASB-IASB-SEC-PCAOB courses offered by SmartPros/EEI.

You can also get updates on the latest developments in accounting at FEI's Current Financial Reporting Issues Conference, Nov. 15-16 2010 in NYC; props to Francine McKenna of Re: The Auditors for mentioning our conference in her blog post yesterday, I always look forward to her unique (need I say inimitable?) coverage of our conference and other matters.