SEC 'Dear CFO' Letter On Mortgage, Foreclosure, Loss Accrual (Including Litigation Risk) Not Limited To Financial Institutions

The SEC's 'Dear CFO' letter sent to public companies in October, 2010, posted on the SEC's website October 29, addresses "Accounting and Disclosure Issues Related to Potential Risks and Costs Associated with Mortgage and Foreclosure-Related Activities or Exposures."

Letter Lists Specific Disclosures 'To Be Considered'
Issued by staff of the SEC's Division of Corporation Finance, the October 29 'Dear CFO letter' contains a lengthy list of specific disclosures that "should be considered" in connection with mortgage (and mortgage securitization and sale-related) and foreclosure related activities.

Reminder Of MD&A Requirements
The letter also includes a reminder of certain MD&A requirements, including "any known trends or any known demands, commitments, events or uncertainties that you reasonably expect to have a material favorable or unfavorable impact on your results of operations, liquidity, and capital resources" (Item 303 Reg. S-K), and "legal proceedings, including proceedings known to be contemplated by governmental authorities" (Item 103 Reg. S-K).

Loss Accruals, Including Litigation
The SEC's October 29 'Dear CFO' letter also includes a reminder of current requirements for loss accruals and disclosures of contingencies, including Litigation-related contingencies, as currently required under FAS 5 (ASC SubTopic 450-20), and Rule 10-01(a)(5) of Reg. S-X. [Separately, The FASB recently announced that any new disclosure requirements under its proposed amendment of FAS 5 would not take effect this year, see our earlier post.]

Not Limited To Financial Institutions; Consider 'Similar Issues'
Significantly, although the Dear CFO letter was issued by the SEC to "certain public companies as a reminder of their disclosure obligations to consider in their upcoming Form 10-Qs and subsequent filings, in light of continued concerns about potential risks and costs associated with mortgage and foreclosure-related activities or exposures," the staff of the SEC take pains to note in the letter that:

• the list of disclosures to be considered is "not an exhaustive list" (see paragraph 2 of letter, and 3rd last paragraph of letter),
• the list of items to be considered, are, 'without limitation' to those items (paragraph 2 of letter).

Perhaps most significantly [in my view, see disclaimer on right side of this blog], public companies besides financial institutions should take note of the closing paragraph in the SEC's Dear CFO letter, in determining if the disclosures set forth therein are applicable to them:

Some of these issues are not limited to financial institutions that sold or securitized mortgages or mortgage-backed securities. Issuers that engage in mortgage servicing, title insurance, mortgage insurance, and other activities relating to residential mortgages should also consider the impact of these and similar issues for their disclosures.

Attendees at FEI's 29th annual Current Financial Reporting Issues (CFRI) conference Nov. 15-16 in NYC will hear about this and other SEC, FASB and IASB developments. (In other news, see also this FEI Summary: SEC Publishes 1st Progress Report on IFRS Workplan; IASB's Tweedie Emphasizes Single Set of Standards.)

SEC Publishes First Progress Report on IFRS Workplan

Earlier today, the SEC published its first progress report on its IFRS Workplan. Links to the progress report, the IFRS workplan, and related information can be found in the summary under "Latest News" on FEI's website. We will post links to additional analysis of the SEC's progress report after we and others have time to review it.

Majority Do Not Favor Fair Value For Loans, Liabilities, FASB Told

At today’s Financial Accounting Standards Board meeting, FASB staff presented a summary of feedback received from over 2,800 comment letters and other feedback on FASB’s proposed changes to accounting for financial instruments.

Staff noted a majority of constituents do not favor fair valuing loans, core deposits, or liabilities, and that users generally do not support retention of the fair value option for financial liabilities, although nonusers support use of the fair value option for liabilities in certain circumstances.

(In other action at today's board meeting, FASB clarified that its proposal amending disclosure of loss contingencies - including lawsuits - would not be effective this year; see separate post in the FEI blog.)

On the subject of financial instruments, FASB’s official Summary of Board Decisions, notes that staff summarized significant feedback on the May 2010 Exposure Draft, 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), that FASB plans to redeliberate the proposed credit impairment and interest income recognition models jointly with the IASB beginning with the November 10-12 joint board meetings, and that FASB plans to begin redeliberations of its proposed classification and measurement approach in December.

If you had been a fly on the wall among the observers at today's FASB board meeting (or a fly with headphones on listening to the webcast of the meeting like me), here are some additional highlights you would have heard from the live discussion.

Over 2800 Comment Letters Received On Proposal
Feedback received from preparers, investors and others, as detailed in today’s FASB board handout, included feedback from:

· 2,812 comment letters received to date,

· 5 public roundtables,

· 28 questionnaires allowing investors to provide confidential feedback

· 8 field visits with various entities, on a confidential basis, to discuss the operationality and the costs and benefits of the proposed [Accounting Standards] Update. Field visit participants included banking institutions of various asset sizes, nonfinancial entities, and an insurance company.

· 120+ investors and other users of financial statements employed by more than 60 firms through face-to-face meetings and calls with individual investors and groups of investors representing a variety of perspectives. Approximately 80 percent of these investors were buy-side analysts, with two thirds of these buy-side analysts investing on a long-only basis and the remainder employing a long/short strategy. The remaining investors were sell-side analysts specializing in either bank/insurance-related sectors or accounting, and ratings agencies analysts.

· numerous preparers, auditors, valuation specialists, and regulators through face-to-face meetings or calls with individual organizations or professional associations.

Majority Of Constituents Do Not Support Fair Valuing Loans, Core Deposits, Liabilities
Following are brief highlights from the staff’s verbal summary of feedback on the proposal:

Loans: almost all constituents agree fair value should not be the primary [measurement] attribute; [they] believe fair value for these instruments would increase subjectivity…. and potential negative effects to bank capital, lending…

Core deposits: virtually all constituents do not support fair value for core deposits, [they] believe [the] inputs are too subjective; a few users did support reporting value of core deposits; however, many of these users preferred full fair value, as opposed to [revaluing core deposits]

Liabilities: almost all constituents do not support fair valuing liabilities unless the entity has the ability and intent [to sell/liquidate the liability]… [these constituents] also believe that measuring a liability at fair value results in counterintuitive [treatment]… [in terms of] realizing gains from deterioration in credit quality of the entity; in most cases [those] gains will not be realized…

Fair value option: (1) Most users believe the fair value option should not be provided for financial liabilities; others believe [the fair value option should be] limited to [certain] situation[s]… a few users believe the fair value option should not be limited. Nearly all users believe disclosure [is important]. (2) Most nonusers support retention of the fair value option [in certain circumstances]; a few nonusers did not support the fair value option [in terms of reduction of comparability].

Hybrid instruments: Some nonusers [e.g. preparers, auditors] believe hybrid instruments should be bifurcated, but not assets, because they believe liabilities should be at amortized cost.

Path Forward Includes Identifying the 'Objective;' Convergence Considerations
Upon conclusion of their presentation summarizing feedback on the financial instruments proposal, staff asked the board if they agreed they would like to have staff bring all of the issues presented for more formal redeliberation at a future board meeting(s); the board agreed on that plan. Staff noted such meetings are currently slated to take place the week of November 11-12 and November 17.

FASB Board Member Marc Siegel observed, “We said at the [joint FASB-IASB board meeting, during the discussion of] Offsetting in London, there is a cross cutting issue when it comes to risk… whether or not we deal with risk in measurement, presentation, or disclosures.” He added, “When I started at my analyst firm, and we hired people to analyze banks, [using a] risk dashboard... credit, one of the [considerations]… interest, duration, liquidity, sort of morph together, and [the question of] do you have enough capital to support those risks. When we think about measurement, we have to also think about those risks.” A brief discussion ensued about providing information about risk and fair value through disclosure vs. measurement.

“Staff are thinking about it," noted a member of the FASB staff, including that the staff believes they should, "first think about the objective of classification and measurement, about the risk, the criteria, and work from there to understand what the board’s objective is.”

FASB Acting Chair Leslie Seidman suggested the staff’s approach could include, ”How we might want to proceed on the accounting model, and then, is there more information we need to provide, to provide a complete picture; that[‘s what] we thought we heard consensus on from investors.”

Following staff remarks about various types of approaches to organizing the redeliberation of the proposal, including feedback suggestion 2 categories or 3 categories to classify financial instruments, FASB Board Member Tom Linsmeier said, "I don’t know whether I think most productive to talk about loans by themselves, debt securities by themselves; I think it would be more productive for me, if we decide [that there should be] 2 categories or 3 [for classification of financial instruments], therefore, loans could be in 2-3 categories, debt could be in 2-3 categories; [the question is] is it an instrument specific approach, or debt specific approach; then disclosure issues [could be] address[ed], once we have a measurement basis in that category."

FASB staff observed, "I think most of the feedback we received, people focus on the criteria - not necessarily the legal form, but the intent. We would say, come back and look at the criteria, not the legal form, there are different risks from holding [certain] assets/liabilities, we don’t want to delay the conversation… we want to say, the perspective depend[s] on your perspective as holder of the instrument." FASB staff added that some constituent feedback suggested a model for measuring and/or classifying certain financial instruments based on management's intent, the 'business model' of the entity, and./or the characteristics of the underlying instrument (e.g. if the only way to sell or liquidate an instrument is in an active market, vs. instruments for which a market could become illiquid).

Staff noted some feedback recommended the board consider providing "detailed guidance on portfolio turnover, and on tainting."

Seidman instructed the FASB staff, "I want to give you some latitude to decide the best way to handle issues, [however] I just want a sense in the reasonably near future [of where we are going]."

Regarding the staff's suggestion to step back and consider the objective for the standard, Seidman advised, "It is important to have that discussion; [however] I see some practical issues with it; I want to make sure the issues are brought in a way [to show us] whether we will have a basis for possible convergence with the IASB." She emphasized, "I would like to have a sense in the relatively near term, whether we are going to pursue the approach in the ED for loans, core deposits, liabilities, so we can have a plan whether we’ve got a converged solution or not."

"I heard overwhelming feedback from investors," added Seidman, "even those who do not support fair value for these items in the balance sheet, they would like some information [about fair value, interest rate risk and liquidity risk]... I’d like to see it grounded in feedback from investors, on other feedback, so we can respond. I don’t think we can address all of this at the same time; with convergence, there is a need to address [the issues] in some order."

Board Member Larry Smith asked, "How are we going about redeliberations, vis-a-vis the IASB…" particularly with respect to impairment and derivatives.

Board Member Russell Golden (who recently was appointed to the board to fill the vacancy created by former FASB Chairman Robert Herz' retirement; Golden was formerly Technical Director of the FASB) noted, "I would recommend, we go through redeliberations; once we think we have a model on measurement, classification, we go ahead and present to [the IASB]; in the event [the models are] not identical, we have a discussion with them about opening up IFRS 9 [the IASB's standard on financial instruments]."

Board Member Tom Linsmeier said, "To be completely honest, this isn’t our decision, they have decided not to engage with us until we are done with our model."

Seidman said, "I thought we had an understanding we would start our redeliberations, see what the shape of our basic accounting model would be [for financial instruments]; once we have a sense whether we have a lot of things with common ground, or a few things, we would know if [we could] bring together as a converged standard. [Let's]find out where these deliberations go, and find out whether we have enough decisions to bring our standards together."

Wildcard: Impact Of New Board Members, When Appointed
Linsmeier raised a question as to the potential impact of new board members in finalizing the financial instruments proposal. (As announced by the Financial Accounting Foundation in August, the FAF decided to increase the size of the FASB board to seven members, from its current five members. The FASB had traditionally consisted of seven members from its founding in 1973 until 2008, when the FAF restructured some FASB operations.)

"We know new board members will be joining us, we won’t know timing of that for a while, but do we move on [identifying various] buckets [for purposes of classification and/or measurement], or wait?"

Smith responded, "Personally, I think we’ll be able to move [on redeliberations], take a vote; if [the vote is] 5-nothing, it's fairly obvious, if 3-2, we know it could change; unfortunately the [potential new board members'] selection and timing is out of our control; we can’t just sit back, we need to think about how to get them up and running, that’s a separate discussion."

Seidman noted, "We as an organization have [a responsibility] to [new] board members... I looked back to what was on our agenda when I joined the board, [we were] in the middle of stock comp.. [and other major projects]… we as a regular matter should proceed in a thoughtful manner, and we will do what we need to do to bring new board members up to speed. New board members can ask for help, if they feel they need to abstain [they can], our goal would be to bring them up to speed, on this project and every other project."

She then asked the staff to recap their immediate plans and what's on board for further discussion of this project.

Staff noted, "We will bring you a plan at some point in the next few days," adding they plan to come back to the board on November 12 with four issues:

1 yield and income , if you would include impact of credit losses or not

2. what we should include in how we determine the amount of (credit?) losses, (if we would… forecast or not, as well as if you are going to PV or not the cash flows, when we deal with the amount, as well as, if we are going to look at amt of losses you expect to incur thru life, vs. part of

3. when: timing of the recognition of a loss

4. some talk on an approach referred to as the 'Good Book/Bad Book,' a way for , if losses are not recognized on Day 1, at a certain point in time, if losses are going to be [recognized over] time.

Staff added, "We have November 10-12 [at the joint FASB-IASB board meeting noted above]; also dates the following week [including] November 17." Staff also noted they planned to have board memos available next week to share with the board, with 3 memos being prepared by FASB staff, and one by the IASB staff.

FASB Delays Effective Date of Loss Contingencies Proposal

At its board meeting earlier today, the Financial Accounting Standards Board agreed to clarify that its proposed amendments to disclosure of loss contingencies (including lawsuits) will not be effective this year-end.

Although the staff intends to bring issues for redeliberation to the board before the end of the year - with the goal of moving toward a final standard - staff recommended (and the board agreed) that based on constituent feedback received on the July 2010 Exposure Draft, Contingencies (Topic 450): Disclosure of Certain Loss Contingencies, and based on the current timing for redeliberation of the proposal, that it was important to state this clarification now, to remove any uncertainty as to whether the proposal could be effective this year. (The July 2010 proposal had stated an effective date of fiscal years ending after Dec. 15, 2010, which would have made it effective this year.)

The call for the vote today, as summed up by FASB Acting Chair Leslie Seidman, was to “clarify that under any circumstance, this proposed standard would not become effective this year-end.” The FASB board's vote in favor of that clarification was unanimous.

The offical results of the meeting (at which feedback on FASB's financial instruments proposal was also discussed, highlights of which are in a separate post in the FEI blog) can be found in FASB’s Summary of Board Decisions.

Financial Statement Presentation Project 'Pauses;' Removed From FASB, IASB June, 2011 Priorities

In an article published today, FASB, IASB Suspend Financial Statement Presentations Project Due to Workload, BNA's Denise Lugo reports that at the final session of the FASB, IASB joint board meeting last week, the boards decided that the financial statement presentation project will be dropped from the list of priority agenda items on which they aim to converge by June, 2011.

Focus Of June, 2011 Convergence Plan Down To Four Remaining Projects
As such, the financial statement presentation project - and the separate project aiming at convergence of accounting for liabilities vs. equity (aka the 'liability-equity project), as noted in the article FASB, IASB Ditch Effort to Converge On Liability-Equity Accounting Issues by BNA's Stephen Bouvier - will not be included among the four convergence projects prioritized for completion by the June, 2011 convergence deadline set forth in the FASB-IASB MOU as updated last year.

BNA's Lugo notes:

The four high-priority projects the boards expect to finalize by June 2011 are:

1. financial instruments,

2. leases,

3. revenue recognition, and

4. insurance.

Some highlights from the FASB and IASB boards' discussion of the deferral of the financial statement presentation project (described as a 'pause' by one of the board members), as cited by BNA's Lugo, include:

IASB Chairman Sir David Tweedie: "The danger is we come out with something we haven't proved is such a big improvement [and it involves] system changes [among other issues that would] cause major headaches.” ... Tweedie said the boards would revisit the project in June when they will have more time to deal with it...

FASB Acting Chairman Leslie Seidman: “Maybe some of [the projects within the Financial Statement Presentation project] are more easily implemented in a shorter time frame, and maybe if there's something that's perceived to be extremely costly in it, maybe that's the one that we would phase a little later. I don't think it's a foregone conclusion that this has to be implemented in one fell swoop.” ...

FASB Board Member Larry Smith: “If we're going to be honest with ourselves, we don't have capacity within ourselves to help them out. We have the big four projects that are going to take up all of our time. In addition, I don't know if the constituents have the capacity...We continue to receive feedback that we're overloading the system and this would be piling on to that overload and I don't give this project as
much priority as the other projects in terms of what we need to get done by a
certain date, so I'm supportive of ‘pausing’ to give us more time to think about
what we should accomplish with it.”

BNA's Bouvier, Lugo, and other BNA outstanding reporters like Steve Burkholder and Steven Marcy continue to provide some of the best breaking news from FASB and the IASB. (Official results of the Oct. 22 meeting are to be posted by FASB and IASB.)

We look forward to BNA's coverage, and that of other fine reporters and bloggers (including my BBF - best blogger friend, Francine McKenna, of Re: TheAuditors (recently tapped as one of 10 Worth Watching, Women Who Inspire A Profession by WebCPA, along with Joanne Barry of the NYSSCPAs, Terri Polley of the FAF, Judy O'Dell of the PCFRC, Leslie Seidman of FASB, and others), at FEI's upcoming Current Financial Reporting Issues (CFRI) conference Nov. 15-16 in NYC. Consider registering also for the Convergence Update and Planning Approaches (aka 'IFRS bootcamp' sponsored by FEI and Deloitte on Nov. 17.

FASB Leasing Proposal - Y2K or Meh?

As we reported in August, FASB released an Exposure Draft of a Proposed Accounting Standards Update with proposed amendments to FASB Codification Topic 840: Leases. The IASB concurrently issued its own proposal.

How Will Proposal Impact You?
What will the impact of the leasing proposal be? One real estate executive (quoted below) has said it could be the 'Y2K for the real estate industry,' while blogger Adrienne Gonzalez, author of the Jr. Deputy Accountant Blog, appears to catalogue the accounting proposal as a 'meh' type event in the overall scheme of things, comparing it to 'shuffling the deck chairs on the Titanic.'

Here's the quote from an Oct. 21 article in the Philadelphia Business Journal, FASB Change Would Put Leases On Firms' Balance Sheets:

“There’s a bit of denial out there,” said Lou Battagliese Jr., a principle with Jackson Cross Real Estate Partners, who advises corporate clients in their real estate needs. “The experts believe it’s just a question of when, not if. The joke is this is Y2K for the real estate industry.”
...
After taking an inventory, Battagliese advises corporate tenants to take a stab at determining the financial impact of accounting leases on a balance sheet, particularly since there is likely to be a “significant first-year impact.”

How Can You Impact The Proposal?
To estimate the impact of the proposal on your business (or potentially on your supply chain partners or your customers), here's where you can get some important information:
1. read the proposal; do your analysis, or initial analysis
2. listen to FASB's webcast on the proposal, Oct. 28 from 11am - 12 noon Eastern time.
3. attend educational events such as FEI's Current Financial Reporting Issues (CFRI) Conf. Nov. 15-16 in NYC, which includes high level FASB/IASB updates, an SEC Update, various general sessions, and concurrent sessions on specialized topics, including a concurrent session (among various concurrent sessions you can choose from) on the leasing proposal. The concurrent Leasing session at CFRI will be moderated by Gregg Nelson of IBM, and includes panelists John Bober of General Electric Co., Ross Prindle of Duff & Phelps, and Danielle Zeyher, Project Manager, FASB.
4. do your analysis/continue your analysis
5. talk to others in your industry and field (FEI CFRI and other FEI networking opportunities including local chapters, national committees, and other events provide such an opportunity; as previously reported, FEI has a new Associate Membership category)
6. consider the impact of FASB's proposal, including costs & benefits, practical & theoretical (conceptual) issues
7. file a comment letter on the proposal; view other comment letters filed.

The comment deadline on the leasing proposal is Dec. 15, 2010.

UPDATE: Lorraine Malonza, Senior Manager, Accounting Policy and Financial Research, FEI, reminds me that FASB is also holding joint roundtables with the IASB in January, 2011 on the Leasing proposal, to gather additional input. As noted in FASB's press release on the leasing roundtables, a request to be considered as a participant in the roundtables must be filed with FASB by Nov. 1, and a preliminary comment letter must be filed by roundtable participants by Dec. 1, with their final comment letter due by the Dec. 15 deadline.

FASB, SEC, IASB Update

Some news bytes happening around the globe in the world of financial and regulatory reporting:

FASB, IASB Seek Comment On Effective Dates, Transition For MOU Standards
Yesterday, the Financial Accounting Standards Board announced the release of a Discussion Paper (DP) seeking input from constituents on the effective dates and transition methods for the remaining standards to be issued under the Memorandum of Understanding between FASB and the International Accounting Standards Board on convergence. Concurrently, the IASB announced the release of a Request For Views (RFV) on the same topic. Comments on FASB's DP and IASB's RFV are due by Jan. 31, 2011.

IFRS Foundation Monitoring Board Meets Next Week in NYC
In other news, the IFRS Foundation (formerly called the International Accounting Standards Committee Foundation, or IASCF) which oversees the IASB, announced yesterday that a meeting of the IFRS Foundation Trustees and the IFRS Foundation Monitoring Board (a group of international regulators, including the U.S. SEC, and others), will meet on October 28 in New York City. The meeting will be held at the SEC's NY Regional Office.

As described on IASB's website here:

The IFRS Foundation is an independent, not-for-profit private sector organisation working in the public interest. Its principal objectives are:

•to develop a single set of high quality, understandable, enforceable and globally accepted international financial reporting standards (IFRSs) through its standard-setting body, the IASB;
•to promote the use and rigorous application of those standards;
•to take account of the financial reporting needs of emerging economies and small and medium-sized entities (SMEs); and
•to bring about convergence of national accounting standards and IFRSs to high quality solutions.

The governance and oversight of the activities undertaken by the IFRS Foundation and its standard-setting body rests with its Trustees, who are also responsible for safeguarding the independence of the IASB and ensuring the financing of the organisation. The Trustees are publicly accountable to a Monitoring Board of public authorities.

SEC Proposes Rules On Say-On-Pay, Golden Parachutes
Earlier this week, the U.S. Securities and Exchange Commission announced the release of proposed rules setting forth new requirements for proxy voting on executive compensation issues including 'say-on-pay' and 'golden parachutes.' Additional disclosure requirements on the above matters are also set forth in the proposals. Read more in SEC's Proposed Rule on: Shareholder Approval of Executive Compensation and Golden Parachute Compensation, and SEC's Proposed Rule on: Reporting Of Proxy Votes On Executive Compensation and Other Matters.

Learn More At FEI Conference!
Learn more about the above topics, and more, at FEI's 29th Annual Current Financial Reporting Issues (CFRI) Conference, taking place Nov. 15-16 at the Marriott Marquis Hotel in New York City, where you can hear from FASB Acting Chair Leslie Seidman, IFRS Foundation Member, and former SEC Commissioner Harvey Goldshmid, The Economist's U.S. Economics Editor Zanny Minton-Beddoes, and senior members of the FASB, IASB and SEC staff, including SEC Chief Accountant Jim Kroeker and SEC Division of Corporation Finance Chief Accountant Wayne Carnall. Enjoy the networking opportunities (and CPE!)

As noted in FEI's press release issued today, FEI President and CEO Marie Hollein, CTP said:

"CFRI continues to be one of the largest annual gatherings among the finance profession, and we see it as an excellent forum for both financial executives and regulators to discuss key issues and provide relevant insight...It is clear that most executives are concerned about the road ahead, and FEI has aptly designed this year's conference to focus on this topic. We'll have an exciting roster of speakers and
panels aimed at providing attendees with perspectives on the regulatory and
financial reporting landscape for 2011 and beyond."

What better place to consider the future of financial and regulatory reporting than Times Square? Join us at FEI's CFRI conference in November; see the CFRI agenda, list of speakers, and registration info.

Hall of Fame
FEI's CFRI is once again being held in conjunction with the annual FEI Hall of Fame Gala (Nov. 15 - separate registration/payment required, the Hall of Fame Gala is currently sold out with a waiting list). This year's Hall of Fame inductees are Karl M. von der Heyden and Ulyesse J. LeGrange; additional info is in this press release and at http://www.feihall.org/.

IFRS Boot Camp
Additionally, as in past years, FEI's 2-day CFRI conference will be followed on November 17 by the IFRS Boot Camp: Convergence Update and Planning Approaches (separate registration and payment required) cosponsored by Deloitte LLP and FEI.

XBRL U.S. Best Practice Committee Issues First Report

Earlier this week, XBRL US, the national consortium for eXtensible Business Reporting Language, or XBRL reporting standards, announced the formation of a Best Practices Committee. The announcement follows news earlier this year that "since the mandate for public company reporting in XBRL became effective in June 2009 ... Over 14,000 problems related solely to the use of the US GAAP Taxonomy have been identified in those filings, ranging from incorrect signs to missing concepts." (See XBRL-US white paper, June 2010 version: Avoiding Common Errors in XBRL Creation.)

As noted in this week's XBRL-US press release:

The [Best Practice] committee is charged with identifying and reaching agreement on best practices in the creation of XBRL-formatted financial statements from public companies reporting to the Securities and Exchange Commission (SEC) ...

To date over 1,440 companies have submitted more than 3,400 XBRL exhibits to comply with the SEC's mandate which started in June 2009. By June 2011, every public company will be required [by the SEC] to report financial statement information in XBRL format. Through analysis of these submissions, the Best Practice Committee has established guidance on specific topics including concepts used for shares issued and outstanding, accrual items in cash flow statements and the use of units and segment tables.

'Published Guidance From The Committee Should Be Considered"
My two cents (and I direct you to the disclaimer on the right side of this blog), perhaps significantly, the XBRL-US press release adds:

Published guidance from the committee should be considered by public company
preparers in their XBRL preparation process.

Refer to the XBRL-US Best Practice Committee's first periodic report; the committee invites suggestions for future issues to be considered, as noted in the press release linked above.

FEI Following Developments, Offers Educational Materials
FEI's Committee on Finance and Information Technology (CFIT), one of FEI's accounting policy and advocacy committees, is closly following developments with respect to XBRL reporting. Additionally, FEI's research affiliate, the Financial Executives Research Foundation (FERF) has published various reports relating to the use of XBRL. The most recent report, Best Practices in Outsourcing XBRL, published September, 2010, can be found in FERF's online bookstore.

SEC Historical Society Fireside Chat - Today!

At 2pm ET today, the SEC Historical Society, the virtual museum of the U.S. Securities and Exchange Commission, is holding one in a series of online Fireside Chats sponsored by Deloitte.

Today's Fireside chat, featuring former SEC Commissioner Roderick M. Hills, now with Hills, Stern & Morley, and Robert J. Kueppers, Deputy CEO of audit firm Deloitte LLP, is on the topic: Regulation in the Audit Profession: Yesterday, Today and Tomorrow. The discussion will be moderated by Prof. G. Peter Wilson of Boston College. Wilson is a past chairman of the American Accounting Association (AAA), the association of accounting professors.

If you'd like to learn s'more about regulation of the audit profession, go grab some marshmallows, pull up a comfy chair, and tune into today's SEC Historical Society Fireside Chat at 2pm ET. If you miss it, archived programs are available at www.sechistorical.org.

SEC Proposes Rule on ABS; Issues Interim Temp Final Rule, Proposal on Swaps

The SEC voted yesterday to release a proposal implementing a section of the Dodd-Frank Act, which requires an issuer of Asset-Backed Securities (ABS) to perform a review of the assets underlying the ABS, to disclose information relating to the review, and to make publicly available the findings and conclusions of any third-party due diligence report. See the SEC’s press release: SEC Proposes Rule on Issuer Review [and related disclosures] of Assets Underlying Asset- Backed Securities. One of the first to report on this action yesterday was Jesse Westbrook of Bloomberg Business Week.

Last week, the SEC issued a press release announcing the publication of a separate rule proposal relating to ABS. (See October 6 proposed rule on ABS Representations and Warranties.) The proposal would require issuers of ABS — and credit rating agencies (NRSROS) that rate ABS — to provide investors with new disclosures about representations, warranties, and enforcement mechanisms. The comment deadline on the October 6 rule proposal is November 15.

Dave Lynn wrote about the October 6 ABS proposal in a post in TheCorporateCounsel.net blog last week, under the subheading: The Dodd-Frank Rulemaking Train Keeps Rolling: Now, Asset-Backed Securities.

Swaps
In other action at the October 13 open commission meeting, the SEC (1) voted to adopt an interim final temporary rule implementing a section of the Dodd-Frank Act, to provide for the reporting of certain security-based swap transactions and include an interpretive note regarding retention and recordkeeping requirements for certain security-based swap transactions, and (2) voted to propose Regulation MC to implement Section 765 of the Dodd-Frank Act, aimed at mitigating conflicts of interest at security-based swap clearing agencies, security-based swap execution facilities, and national security exchanges that post or make available for trading security-based swaps. See the SEC’s press releases: SEC Adopts Interim Rule To Require Reporting of Security Based Swaps, and SEC Proposes Rules to Mitigate Conflict of Interest in Security Based Swaps. One of the first to report on this action yesterday was Ronald D. Oral of WSJ Marketwatch.

FASB Issues Proposal On Troubled Debt Restructurings; Comment Deadline Dec. 13

Earlier today, the Financial Accounting Standards Board released a proposal: Clarifications to Accounting for Troubled Debt Restructurings by Creditors. The comment deadline on the proposal is Dec. 13, 2010 (note: this blog inadvertently reported Dec. 31 in our original post, this is now corrected). Read FASB's press release; see the Exposure Draft of the proposed new standard (proposed Accounting Standards Update).

Blue Ribbon Panel On Private Co. Accounting Standards Prefers New Approach, New Board

Following up on our earlier post on the Blue Ribbon Panel on Standard Setting for Private Companies, a group formed by the Financial Accounting Foundation, the AICPA, and the National Association of State Boards of Accountancy (NASBA) to advise the FAF on a standard-setting model and corallary issues related to standard-setting for private companies, BRP members were called upon at their October 8 meeting to voice their preference on this matter, and a majority indicated a preference for a new standard-setting model for private company generally accepted accounting principles, with the assistance of a separate private company standards board housed under the FAF. (The FAF currently oversees the Financial Accounting Standards Board and the Governmental Accounting Standards Board.)

Read the FAF's press release issued following the BRP meeting, and see additional highlights in this FEI Summary by Lorraine Malonza, senior manager, Accounting Policy and Financial Research, and Ronald Wei, manager, Finance and Accounting Research, Financial Executives International, who were in attendance among the observers at the BRP meeting.

Hoogervorst Appointed Chair of IASB; Macintosh Vice-Chair

Earlier today, the IFRS Foundation (formerly called the IASCF) announced 2 key appointments:

• Hans Hoogervorst to succeed Sir David Tweedie as Chairman of IASB, effective at the end of June, 2011, upon Sir David’s retirement. Hoogervorst currently chairs Netherlands Authority for the Financial Markets (AFM), is chairman of Technical Committee of IOSCO, and co-chaired the FASB-IASB Financial Crisis Advisory Group with Harvey Goldschmid, former SEC Commissioner. (Goldschmid was named this year to the IFRS Foundation; and is one of the keynote speakers at FEI's annual Current Financial Reporting Issues (CFRI) Conference, Nov. 15-16 in NYC.)
• Ian Macintosh as Vice Chairman of IASB. Macintosh formerly served as Chief Accountant of the Australian Securities Investment Commission, and is a member of the IASB’s Standing Advisory Council.

The direct link to the IFRS Foundation's press release is: http://www.ifrs.org/News/Press+Releases/chairman+appointment.htm

News Broke On Academic Listserv
Props to former FASB Chairman and current Univ. of GA professor (and member of PCAOB Standing Advisory Group) Denny Beresford, who posted the IFRS Foundation's news earlier today on the AECM listserv (a listserve founded by academics, which is mainly directed at issues of interest to academics, including practical issues; practitioners and others can also sign up. There is also a separate listserv mainly focused on practitioner issues called the CPAs-L listserv.).

FEI Joins Anti-Fraud Effort With CAQ, IIA, NACD; Effort Intended To Complement PCAOB Fraud Center

Financial Executives International (FEI) announced earlier today that it has joined a collaborative effort led by the Center for Audit Quality (CAQ) that is aimed at deterring and detecting financial reporting fraud. Other leading organizations that are part of this effort include The Institute of Internal Auditors (IIA) and the National Association of Corporate Directors (NACD).

Collaborative Effort Will Focus On Four Areas
Initial efforts will focus on four areas:

• Advancing the understanding of conditions that contribute to fraud
• Developing techniques to enhance the application of skepticism
• Moderating the risks of focusing only on short-term results
• Leveraging the role of technology in deterring and detecting financial reporting fraud

CAQ Releases Report On Fraud
In related news, CAQ announced today the release of its report, Deterring and Detecting Financial Reporting Fraud – A Platform for Action. As noted in CAQ's press release:

The report defines financial reporting fraud as 'a material misrepresentation resulting from an intentional failure to report financial information in accordance with generally accepted accounting principles'...

[The report] is the result of CAQ-sponsored roundtable discussions and in-depth interviews on the issue of financial reporting fraud at public companies. The discussions and interviews featured corporate executives, members of boards of directors and audit committees, internal auditors, and external auditors – the takeholders that are participants in the “financial reporting supply chain” – as well as investors, regulators and academics, among others. The report offers the perspectives of more than 100 roundtable participants and related points to
ponder, as well as insights gained from research and guidance on the topic of fraud.

Additionally, as noted in the cover letter introducing the report:

[T]his report represents a first step in longer-term initiatives and collaborations for the deterrence and detection of financial reporting fraud, to benefit investors and other participants in the capital markets. The CAQ plans to play a leadership role in encouraging collaborative action to advance the understanding of conditions that contribute to fraud and develop enhanced deterrence and detection techniques and tools for all participants in the financial reporting process, including management, boards of directors, audit committees, internal auditors, and external auditors.

Effort Intended To Complement PCAOB Fraud Center
The CAQ Report also states:

We intend these efforts to complement the activities of the Public Company Accounting Oversight Board’s (PCAOB) Financial Reporting Fraud Resource Center, and look forward to opportunities for collaboration with the Center.

The PCAOB's Financial Reporting Fraud Resource Center was formed in response to one of the recommendations of the U.S. Treasury Department's Advisory Committee on the Auditing Profession (ACAP), which issued its Final Report in October, 2008.

Read more in this FEI press release, which provides a link to a video featuring CAQ Executive Director Cindy Fornelli, and FEI President and CEO Marie Hollein, speaking about this important new initiative, involving participants in the financial reporting system joining forces on the goal of detecting and preventing financial reporting fraud.

A Separate Peace? AICPA Calls For Separate Board Under FAF To Develop Private Co. Stds.

In advance of the Oct. 8 meeting of the Blue Ribbon Panel on Private Company Standard Setting, AICPA President and CEO Barry Melancon issued a statement saying:

"[W]e anticipate based on the preliminary conclusions during prior meetings [the Blue Ribbon Panel] will vote to recommend a new model of financial reporting that will generate truly differentiated standards for private companies."

Melancon continued by calling for the formation of a separate board from FASB - to focus on setting private company standards - to be formed under the aegis of the FAF, adding:

"Crucial to the effective implementation of that recommendation is establishing a separate standard setting board under the Financial Accounting Foundation to provide a comprehensive solution to the problem of private company accounting. This has been a long time coming and I believe the case for a separate private company standards board under the oversight of the FAF is stronger than ever."

Hat-tip to WebCPA which reported Meloncon's statement earlier today in: AICPA Wants New Standards Board For Private Companies.

Why Different Standards?
The debate over "Big GAAP/Little GAAP" or "differentiated accounting standards" - aka whether there should be a separate set of simplified accounting standards that are more directed to the needs of users of private company financial statements (such as owners, lenders and sureties) - has been going on for decades, as can be seen in this historical slide deck, PCFRC Brief History of Efforts in U.S., (2nd item on this PCFRC webpage).

The PCFRC was jointly formed by the AICPA and FASB in 2007 to advise FASB on private company accounting issues and how to improve accounting standards and disclosures to better meet the needs of private company users of financial statements, vs. what some perceive to be the driving force of general GAAP developed by FASB - that being users of public company financial statements, including public company regulators (SEC), public company analysts, in particular.

For example, issues about fair value sensitivity analysis on certain assets or broad swaths of assets appear to some to be driven by public company analysts, whereas some private companies say their banks are not interested in having the company going through that type of exercise, or certain other GAAP exercises, which the user may in essense ignore or have to 'undo.'

Additional Information About Blue Ribbon Panel
The Blue Ribbon Panel was jointly formed this year, cosponsored by the AICPA, the Financial Accounting Foundation (FAF, parent of FASB and GASB) and the National Association of State Boards of Accountancy (NASBA).

Read more info about the Blue Ribbon Panel (including minutes of prior meetings, the agenda for the upcoming Oct. 8 meeting, comment letters/responses, and related meeting materials, on the Blue Ribbon Panel webage located on the FAF website.

FEI Committee on Private Co's Responds
FEI's Committee on Private Company Standards (CPC-S) filed a comment letter on Sept. 15 i n response to the Blue Ribbon Panel's questions for comment. A total of 148 comment letters have been filed on the Blue Ribbon Panel's general questionnaire to date.

Additionally, on Sept. 30, FEI's CPC-S sent a document to the Blue Ribbon Panel entitled: Responses to Arguments Against Separate Private Company Accounting Standards. (As noted on the cover page of the 15-page document: "This draft has been prepared for discussion purposes by FEI‟s Committee on Private Companies-Standards (“CPC-S”). CPC-S is a technical committee of FEI which formulates private company positions for FEI in line with the views of its membership. This document represents the views of CPC-S and not necessarily the views of FEI." See also the introduction and background to the paper, which notes the methodology by which the Sept. 30 paper was prepared, in relation to the draft paper released by CPC-S earlier this year on private company standards.

Staid SEC Grants Stay on Proxy Access Rule

As helpfully detailed in today’s post by Broc Romanek in TheCorporateCounsel.net blog, the SEC yesterday granted a stay on its amendment to its proxy rules (Rule 14a-11 and 14a-8) which would have otherwise been effective for the 2011 proxy season. Romanek notes the SEC took this action after the U.S. Chamber of Commerce and the Business Roundtable filed a legal challenge to the SEC rule.

“A Stay Is Consistent With What Justice Requires”
The SEC, in taking a staid or conservative position (i.e. in the apolitical sense) in this matter, noted in yesterday’s Order:

“The Commission finds that, under all of the circumstances of this matter, a stay of Rule 14a-11 and related rule amendments is consistent with what justice requires. Among other things, a stay avoids potentially unnecessary costs, regulatory uncertainty, and disruption that could occur if the rules were to become effective during the pendency of a challenge to their validity. Because the Commission and petitioners will seek expedited review of petitioners’ challenge, questions about the rules’ validity will be resolved as quickly as possible.”

Additionally, as pointed out by Romanek in his post today:

“The SEC said it decided to delay the implementation of [Rule 14a-8 as well], because the amendment to Rule 14a-8 was designed to complement Rule 14a-11 and is intertwined, and there is a potential for confusion if the amendment to Rule 14a-8 were to become effective while Rule 14a-11 is stayed.’"

Chamber, Business Roundtable Commend SEC for Granting the Stay
In a press release issued following the SEC's action, the Chamber and Business Roundtable "Commend[ed the] SEC's Decision to Grant a Stay on [the] Proxy Access Rule."

Financial Stability Oversight Council To Seek Comments On Nonbank Financial Cos; ''Volcker Rule'

At its inaugural meeting last week, the Financial Stability Oversight Council approved its bylaw and a transparency policy applicable to the council. As noted in the FSOC's FAQ doc,the FSOC, created under the Dodd-Frank Act, "has a clear statutory mandate that creates for the first time collective accountability for identifying risks and responding to emerging threats to financial stability."

In other action at its Oct. 1 meeting, as noted in this FSOC press release, the council approved release of:

• an Advance Notice of Proposed Rulemaking (ANPR) on designating nonbank financial companies for heightened supervision, and


• a Notice and Request for Information (RFI) on the council's "Volcker Rule" (cite: wikipedia) study and recommendations. [The 'Volcker Rule,' according to FSOC, 'will help improve the safety of our nation's banking system by prohibiting proprietary trading activities and certain private fund investments.']

The above documents will be posted on FSOC's website concurrent with being posted in the Federal Register. There will be a 30-day comment period.

Separately, the council also agreed to an 'Integrated Implementation Roadmap' for the council and its independent member agencies, which include, among others, the SEC, CFTC, Fed, FDIC, Treasury, and OCC.

FEI Providing Preparer Input To FASB On Investment Properties Project

To assist FASB in gathering preparer input, FEI has posted a link to a quick, online survey on FASB's investment property project, focusing on scope of 'investment properties.' Additional information can be found in this FEI summary (FEI members only can access that webpage; if you are a preparer such as a Controller or CFO but not an FEI member and wish to participate in the the survey, please contact me at eorenstein@financialexecutives.org. ) Please try to complete the survey by Wed. Oct. 6.

See also this related report published by PwC: Fair Value Reporting for Investment Properties Under U.S. GAAP.