Wednesday, June 29, 2011

Private Companies Can Provide Input, Receive Info From Web Portal Offered By FASB

Earlier today, the FASB announced the launch of a 'web portal' in which private company stakeholders can learn how to provide input to the FASB on matters relating to private company standard-setting, and obtain updates on related developments. Visit FASB's Non-Public Entity Web Portal, read more in FASB's Press Release.

PwC Recommends FAF Form Advisory Committee On Reducing Complexity

In a June 28, 2011 Point of view article entitled, “Reducing Complexity,” audit firm PwC called for the formation of an advisory committee by the Financial Accounting Foundation, to advise the FASB on reducing complexity in accounting standards. PwC notes:

Accounting and financial reporting complexity continues to increase, presenting challenges for investors, preparers and auditors. While some complexity is necessary, complicated scope provisions, exceptions to general principles, and overly detailed guidance often make standards difficult to understand, interpret, and apply. New standards continue to be issued, further adding to complexity.

In our Point of view on reducing complexity in financial reporting, we note unnecessary complexity diminishes the value of accounting and reporting for
investors, who may look elsewhere for information. Complexity is also costly for
preparers (and investors who ultimately bear such costs), and the costs may not
be commensurate with the benefits to investors.

Given the above, we recommend the Financial Accounting Foundation establish
an advisory committee to the Financial Accounting Standards Board (FASB) focused
on complexity. The committee, comprised of a variety of stakeholders, would
advise the FASB on sources of complexity in existing accounting standards and
standards under development, and help propose balanced solutions that improve
the quality of information for investors while reducing complexity.

Related SEC Initiatives: Pozen Committee (CiFIR), 2011 Fin. Reporting Series

Among the Q&A's included at the conclusion of the PwC's paper, the firm references some related efforts headed up by the SEC to address complexity in financial reporting including the work of the SEC Advisory Committee on Improvements to Financial Reporting (aka "CiFIR" or the "Pozen Committee" for committee chairman Bob Pozen), as well as the SEC's upcoming Financial Reporting Series.

With respect to the work of the Pozen committee (CiFIR), which issued its report and recommendations in 2008, including recommendations aimed at accounting standard-setting, PwC says:

Our proposal, while consistent with the spirit of those recommendations, is different because it focuses on establishing a sustainable mechanism to address both existing
complexity and potential complexity through involvement early in the standard-setting process. We believe that our proposal addresses the necessary mechanism, process, and resources to help achieve the goal of reducing complexity.

Regarding the SEC's upcoming Financial Reporting Series, PwC notes that, in addition to having the advisory committee on complexity conduct a survey of all constituents of financial reporting (users, preparers, auditors, others), "The committee also would consider any complexity-related suggestions from the [FAF's] new post-implementation review process and the SEC's planned Financial Reporting Series of round tables."

My Two Cents
(I remind you of the disclaimer posted on the right side of this blog.)

An interesting point made by PwC is that the work of an advisory committee focused on reducing complexity can benefit private companies and public companies.

The firm observes that FASB resources have been directed at convergence with IFRS (note: in my view, this relates mainly, but not entirely, to public companies, given the SEC's current consideration of whether to permit or require public companies to report using IFRS instead of U.S. GAAP). Before leaving the topic of convergence, PwC states:

We observe that the current uncertain path toward convergence with, or possible
adoption of, international standards represents a major challenge. Some may question why the complexity issue should be addressed at this time. To us, too much complexity already exists in both sets of standards. This means that focusing attention on developing a systematic process for addressing this issue and getting started now are important.

PwC also observes that the FASB's existing advisory groups include advisory groups on private companies (which in my view, are looking for, in part, simplification of standards designed or driven by the needs of public companies, investors, regulators or analyts, but are viewed by some as needlessly complex for private companies and the users of private company financial reporting.)

A key point that lies below the surface of some of the discussions of the need to simplify private company accounting, (such as the deliberations of the Blue Ribbon Panel on Standard-Setting for Private Companies, whose report and recommendations are currently under consideration by the FAF, which is conducting outreach to obtain constituent views; see also FEI CPC-S position) is that public companies and the users of public company financial reporting are looking for, and could benefit from, a reduction in complexity in financial reporting as well.

This is particularly the case regarding accounting standards that appear to reflect 'unneccesarily complexity" - i.e., beyond that required by the level of complexity of the underlying transaction or economic event itself.

Complexity is exacerbated, however, for private companies and their users, when certain levels of complexity appear to follow from the needs of certain public company constituents, whereby the resultant reporting is either not as relevant or not as cost effective for private companies and the users of their financial statements, based on the differing needs of public vs. private company users, and different forms of access to information. [UPDATE 6:12 PM - This afternoon, FASB announced the launch of a web portal for nonpublic entities. ]

As noted by PwC, if a broad based advisory committee on complexity were formed, such as recommended by the firm, "Its output would benefit all companies."

Read more in PwC’s Point of View: Reducing Complexity.

Tuesday, June 28, 2011

FASB Parent - FAF - Seeks Trustees; IASB Parent - IFRSF - Seeks IFRS Advisory Council Members

On Friday, June 24, the Financial Accounting Foundation (which oversees the FASB and GASB) published a call for nominations to fill vacancies on the FAF board of Trustees. On the same day, the International Financial Reporting Standards Foundation (which oversees the IASB) announced a call for nominations to fill vacancies on the IFRS Advisory Council.

What Does It Take To Be An FAF Trustee?
"Ideal candidates" for FAF Trustee positions are described in the FAF's press release as follows:

    • The ideal candidates will be highly regarded within their profession, possess an understanding of the U.S. and global financial and capital markets, and have a strong appreciation for the importance to the markets, the investment community, and the public at large of independent standard setting for financial accounting and reporting. Candidates will be committed to the mission of the FAF, FASB, and GASB, demonstrate a concern for the public interest, and have an appreciation for the varying interests and perspectives of investors and other users of financial information and the preparers and auditors of financial reports.

    • In addition to the attributes described above, the FAF currently is seeking senior-level professionals with backgrounds and experience in one or more of the following areas:

    • Using financial statements, including those of private companies or of state or municipal governments

    • Leading smaller and/or private companies

    • Leading not-for-profit organizations.

FASB Board Appointments, Funding, Among Duties of FAF Trustees
Primary duties of the FAF Trustees are described as follows:

    • To monitor, on an ongoing basis, the activities of the FASB and the GASB and their due process practices, policies and procedures, including agenda setting, solicitation and consideration of public comments, post-implementation evaluation of the effectiveness and efficiency of their standards and standard-setting activities, and their performance within the context of their mission statements.

    • To appoint the Chairs and members of the FASB, GASB, and their advisory boards.

    • To approve the short and longer range strategic plans of the FAF, FASB and GASB, and monitor the progress in implementing such plans.

    • To advocate publicly on behalf of the independent standard setting process.

    • To conduct periodic reviews of the structure for establishing and improving financial accounting and reporting standards in such scope and at such times as the Trustees shall determine.

    • To oversee the finances, arrange and advocate for appropriate resources and funding, and approve the budgets of the FAF, FASB, and GASB.
The deadline to submit nominations for FAF Trustees is July 29. Details about the nomination process can be found in the FAF's press release.

IFRS Advisory Council To Turnover In Full in 2012
On the international accounting standard-setting front, the IASCF's press release notes:

The terms of all existing members of the IFRS Advisory Council expire at the end of December 2011. This will conclude the third iteration of the IFRS Advisory Council, which was the first one where individuals served as representatives of organisations that have an interest in standard-setting.
To aid in transition, while the terms of all IFRS Advisory Council members will end this year, the IFRS Advisory Council chair and vice chairs have been reappointed for terms ranging from one to three years. Additionally, terms of new members of the council will be staggered.

As background, the reference above to the 'third iteration' of the IFRS Advisory Council, with its emphasis on members serving on the council who represent 'organizations that have an interest in standard-setting,' follows from the restructuring of the IFRS Foundation's former 'Standards Advisory Committee" or SAC in 2008, one among a number of changes undertaken by the IASB and the IFRS Foundation following the IASB's 2008 Constitutional Review.

Representation Sought From Regional Standard-Setters, SMEs, More
Although the core framework of the IFRS Advisory Council will remain, according to the IFRSF's press release, the IFRS Foundation is seeking to expand the council's membership in certain key areas, described below (emphasis added).

Based upon the input received from the Advisory Council and others, the Trustees have agreed to keep the current representative model for membership. Furthermore, while the Trustees recognise that the IFRS Advisory Council is quite large, the Advisory Council’s chairs and vice-chairs, who have been reappointed, and members generally, believe that the size is manageable and
necessary to have the necessary broad range of interested parties represented
around the table. The Trustees have supported this view.

In terms of the composition of the Advisory Council’s membership, the Trustees have also accepted the broadly held view that the general mixture of perspectives is

At the same time, the Trustees will be making some minor modifications:

Inviting regional standard-setting bodies to join, instead of national standard-setters currently serving: The Trustees wish to encourage the development of regional bodies. A global National Standard-Setter group exists, and regional bodies exist or are in the process of being established in Africa, the Americas, Asia-Oceania, and Europe. The Trustees will ask the heads of these groups to serve on the Advisory Council, rather than individual national standard-setters themselves.

•Seek further participation from the academic community, other internationally recognised professional bodies with an interest in financial reporting not currently represented, and the SME community

•Add greater participation from developing markets (including Asia and the Middle East) and other economies committed to IFRS adoption

As noted in the IFRSF's advertisement for nominations to the IFRS Advisory Council, the deadline for nominations to the IFRS Advisory Council is September 19.

Thursday, June 23, 2011

IASB Issues Additional Guidance For Private Co’s On IFRS for SMEs

Earlier today, the IASB published additional guidance relating to IFRS for Small and Medium-Sized Entities, in the form of the first set of final Q&As developed by the IFRS for SMEs Implementation Group. The IASB's action is detailed below, as well as an update on FAF/FASB consideration of private company standard setting.

The thrust of IFRS for SMEs, published in July, 2009, is to provide a simplified set of self-contained GAAP for private companies; that is, the essense of the definition of 'SME' set forth in the IASB's IFRS for SMEs is not so much based on size per se, but based on companies that are not publicly listed and do not have 'public accountability' such as certain financial institutions and certain other types of companies, as defined in the IFRS for SMEs document. A good source of basic information, providing a basic walkthough of what IFRS for SMEs is all about, can be found on the IASB's About the IFRS for SMEs webpage.

The additional guidance published today, IFRS for SMEs Q&A 2011/01: Use of IFRS for SMEs in a Parent [Company's] Separate Financial Statements, was developed by the IFRS for SMEs Implementation Group (SMEIG), after being released in draft form earlier this year, and approved for publication by the IASB. Here is additional information about the role and composition of the SMEIG.

Additional information about IFRS for SMEs available on the IASB's website includes Presentations about the IFRS for SMEs. Among the presentations currently posted includes a January, 2011 presentation by IASB Board Member Paul Pacter (presented at a AAA meeting), provocatively entitled: Why the World Needs A Separate Standard for Private Companies, and Why the U.S. Does, Too.

FAF, FASB Consideration of Private Co. Standard-Setting
On the subject of the consideration of private company standard-setting in the U.S., the Financial Accounting Foundation, which oversees the FASB, has received over 800 comment letters regarding the January, 2011 recommendations of the Blue Ribbon Panel on Standard-Setting for Private Companies.

Many of those letters, beginning with Comment Letter # 5 filed in early June, follow from points suggested by the AICPA to its members, supporting the recommendation made by a majority of the Blue Ribbon Panel to have not only differential standards for private vs. public companies, but a separate standard-setter, side by side with the FASB.

In contrast, the comment letter filed by FEI's Committee on Private Company Standards in April, as previously reported here, suggests that an alternative path to providing focus on the needs of private companies and the users of their financial statements, without forming a separate standards-setting board, could potentially be achieved by forming a Private Company Task Force (PCTF), empowered with the ability to establish guidance, modelled after the Emerging Issues Task Force (EITF).

Additional information about the FAF's outreach on standard-setting for private companies can be found on the FAF's Standard-Setting for Nonpublic Entities webpage. You can also view the archived webcast of the FASB: In Focus webcast originally presented on June 17: FASB Update for Nonpublic Entities.

Tuesday, June 21, 2011

PCAOB Concept Release Issued Today Calls For 'AD&A,' Assurance On Additional Info, More

Earlier today, the PCAOB voted to issue a Concept Release on the Auditor's Reporting Model. As noted in the PCAOB's press release:

Auditor's Discussion & Analysis
Joining the ranks of the 'MD&A' (management's discussion and analysis) and 'CD&A' (compensation discussion and analysis) required of management by the SEC, would be an 'AD&A' (auditor's discussion and analysis), as set forth in the PCAOB's Concept Release.

Assurance On Other Information; Clarification of Language
Other ideas included in the Concept Release address required and expanded use of emphasis paragraphs; auditor assurance on other information outside the financial statements, and
clarification of language in the standard auditor's report.

Public Comment Sought via Comment Period, Roundtable
The public comment period on the Concept Release closes on September 30.

The PCAOB also announced today they will hold a public Roundtable in the third quarter, 2011 to obtain additional feedback on the Concept Release.

Further information is available in the PCAOB's Fact Sheet; the archived webcast of today's PCAOB board meeting will be posted by the PCAOB within 24 hours. See also related items for this Concept Release in the PCAOB's Rulemaking Docket No. 034.

Monday, June 20, 2011

FASB, IASB Amend Standards For Presentation Of Comprehensive Income, OCI

On June 16, 2011 the Financial Accounting Standards Board and the International Accounting Standards Board issued amended standards for the presentation of comprehensive income and other comprehensive income (OCI). In the U.S., the amendment was issued as Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The IASB effected the change by amending IAS 1, Presentation of Financial Statements.

As noted in FASB's press release:

...(ASU) No. 2011-05 Comprehensive Income (Topic 220): Presentation of
Comprehensive Income... is intended to increase the prominence of other comprehensive income in financial statements.

In US GAAP, the ASU will supersede some of the guidance in Topic 220 of the accounting Codification.

The main provisions of this Update provide that an entity that reports items of other comprehensive income has the option to present comprehensive income in either one or two consecutive financial statements:

- A single statement must present the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income.

- In a two-statement approach, an entity must present the components of net income and total net income in the first statement. That statement must be immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income.

The option in current GAAP that permits the presentation of other comprehensive
income in the statement of changes in equity has been eliminated.

As noted in the IASB's press release:

...the amendment [to IAS 1] ... will improve and align the presentation of items of other comprehensive income (OCI) in financial statements prepared in accordance with International Financial Reporting Standards (IFRSs) and those prepared in accordance with US generally accepted accounting principles (GAAP).

The amendments to IAS 1 Presentation of Financial Statements require companies preparing financial statements in accordance with IFRSs to group together items within OCI that may be reclassified to the profit or loss section of the income statement. The amendments also reaffirm existing requirements that items in OCI and profit or loss should be presented as either a single statement or two consecutive statements.
Read more in this edition of KPMG's Defining Issues.

Wednesday, June 15, 2011

FASB, IASB To Re-Expose Rev Rec For 120-Day Comment Period

Earlier today, FASB and the IASB announced they will re-expose an Exposure Draft of their proposed Revenue Recognition (‘Rev Rec’) standard. The re-exposure document will reflect changes agreed to by the boards based on their discussion of comment letters received on the original Exposure Draft.

According to this FASB-IASB press release, the boards plan to release the updated Exposure Draft in the third quarter of 2011 for a 120-Day comment period.

FASB Decides To Exempt Private Cos. From Certain Rev Rec Disclosures
In related news, at last week’s FASB meeting, the board decided to exempt private companies from certain disclosure requirements in its upcoming standard on revenue recognition. Other matters discussed at the board meeting included revenue recognition: rate regulated entities, financial instruments, and investment companies. Details are in this FEI Summary and FASB's Summary of Board Decisions.

Dodd-Frank's Impact on U.S. Competitiveness Focus Of June 16 Hearing

The House Financial Services Committee is holding a hearing tomorrow on the impact of the Dodd-Frank Act on jobs and U.S. competitiveness.

Describing the objective of the hearing in this press release, Committee Chairman Spencer Bachus stated:

There is a widespread and growing concern that the Dodd-Frank Act with its 400 new regulations will lead to industry, capital and jobs leaving the United States. This is a concern that many of us on the Committee have expressed repeatedly. Our hearing will examine the regulatory disparities between the U.S. and other nations and how that could put American companies at a competitive disadvantage and harm our economy.
The press release continues:

The Committee will specifically look at four crucial areas where divergent regulatory approaches taken by the United States and the rest of the world could damage the U.S. economy and the ability of financial institutions to compete against their foreign counterparts: capital and liquidity requirements; regulation and oversight of “systemically important financial institutions”; derivatives requirements; and a total ban on proprietary trading.

Slated to appear on the first panel at the hearing are the SEC Chairman Mary Schapiro, CFTC Chairman Gary Gensler, FDIC Chairman Sheila Bair, and senior representatives from the Federal Reserve, OCC and U.S. Treasury.

The second panel includes representatives from industry associations ISDA and SIFMA, the Chief Risk Officer of JP Morgan Chase, Hal Scott of Harvard Law School (who heads up a private sector initiative on U.S. competitiveness, the Committee on Capital Markets Regulation, informally known as the 'Paulson Committee' as it was launched during former U.S. Treasury Secretary Henry Paulson's tenure), and Damon Silvers of the AFL-CIO (who served on the Congressional Oversight Panel established by Congress in 2008 'to review the current state of financial markets and the financial regulatory system' ).

Some of the testimony has already been posted on the hearing webpage.

Monday, June 13, 2011

XBRL US GAAP Taxonomy: FASB, SEC Staff On June 22 FASB Webcast

The Financial Accounting Standards Board will host a webcast on June 22 from 1:00 -2:00 pm EDT on: How to Use the XBRL 2011 US GAAP Financial Reporting Taxonomy.

The webcast will focus on: "How to use the soon-to-be-released Taxonomy Online Review and Comment System’s search and navigation functions to efficiently find the tags that meet the U.S. Securities and Exchange Commission’s filer requirements."

Subtopics to be covered include:

  • Navigating the taxonomy

  • Considerations for tag selection

  • Understanding tag relationships and how to use the network views

  • Using advanced search and shared search functions to find relevant tags

  • Quickly finding certain types of tags

  • Understanding when to use industry entry points

  • Finding tags using the Accounting Standards Codification

  • Using specialized labels to find tags

  • Providing feedback on the Development and Accounting Standards Update Taxonomies.
Speakers include:

  • J.. Louis Matherne, FASB chief of taxonomy development,

  • Christine Tan, FASB XBRL project manager, and

  • Susan Yount, SEC, Office of Interactive Data
Up to 1 CPE credit will be available for the live webcast. An archived version of the webcast will also be available on FASB’s website through Sept. 21, 2011 (no CPE will be available for the archived webcast).

See the course description and registration information for FASB's June 22 webcast on the XBRL taxonomy.

Private Co. Accounting Standard-Setting Subject Of June 17 FASB Webcast

Private companies won't want to miss FASB's Update for Nonpublic Entities, featuring FASB board and staff members, in a live webcast this Friday June 17 from 1-2:40 pm EDT.

The webcast will focus on:

  • The Financial Accounting Foundation’s strategic review of standard setting for nonpublic entities

  • The FASB’s recent process changes made to broadly engage nonpublic stakeholders in standard setting

  • Progress on the FASB-International Accounting Standards Board (IASB) convergence program, and

  • Other active projects or recently-issued standards of interest to nonpublic entities.
Speakers will include:

Up to 2.0 CPE will be offered for the live webcast. An archived webcast (no CPE available for archived webcast) will also be avaialble on FASB's website until September 15.

Read additional course and registration information for FASB's June 17 Update for Nonpublic Entities.

Friday, June 10, 2011

SEC "Financial Reporting Series" To Focus On Early Identification of Risks to the Financial Reporting System

In remarks at USC's 30th Annual SEC and Financial Reporting Institute, SEC Chief Accountant Jim Kroeker announced that the SEC will launch a series of roundtables "to facilitate a balanced discussion of existing pressures or emerging issues in financial reporting." The roundtables, entitled the "Financial Reporting Series," are expected to be held three times per year. They will be open to the public, and webcast.

Objective: Early Identification of Risks
The objective of the Financial Reporting Series, said Kroeker, is to "assist us in our early identification of risks related to, as well as areas for potential improvements in, the reliability and usefulness of financial reporting to investors."

The first such roundtable, said Kroeker, is "expect[ed] be held later this year," and will focus on "a topic such as the role of uncertainty in financial reporting and whether [the] right level of information about uncertainty is being provided."

It appears the Financial Reporting Series, focused on the early identification of risks to the financial reporting system, dovetails neatly into the role of the newest Deputy Chief Accountant to join the OCA team - Mike Starr.

As noted in the SEC's press release issued last fall when Starr, former Chief Operating Officer of Grant Thornton Int'l, was hired in the newly created position of Deputy Chief Accountant for Policy Support and Market Monitoring: "In this role, Mr. Starr will serve as the Chief Accountant's liaison on projects and activities to improve the quality of accounting and auditing policy decisions and to identify and address potential financial reporting weaknesses and risks. Mr. Starr also will advise the Chief Accountant and the Office on highly complex topics."

Series of Roundtables, vs. a Formal Panel
Kroeker pointed out the Financial Reporting Series roundtables will differ from a formal advisory committee or blue ribbon panel (which, for example, aim to seek a consensus view and issue formal recommendations on behalf of the group). However, similar to the use of the output of a more formal committee, "I expect that the Series will provide the Commission staff, as well as the FASB and the PCAOB, with useful information about emerging issues and changes in the business environment that affect each of our respective roles in the financial reporting system."

Although he did not use the term 'ad hoc,' it appears the flexibility offered by a roundtable series - i.e., by not bringing together a formal panel to hold multiple meetings, deliberate, debate for a consensus, and issue formal recommendations - offers the benefit of being less labor intensive for SEC staff (and for those who participate in the roundtables). Additionally, the roundtable format will enable the SEC to bring together different groups of experts each time, (vs. an advisory committee) depending on the subject matter.

FASB, PCAOB and Other Observers
As has been the case with past SEC roundtables and advisory committees on cross-cutting issues that impact financial reporting and auditing, the chairs of the FASB and PCAOB will serve as observers at the roundtables.

Kroeker added that other observers may include staff from the federal bank regulatory agencies. In addition, although the roundtables will be organized by the SEC's Office of the Chief Accountant, he added that staff from other divisions and offices may observe (or, in my view, potentially co-moderate) the roundtables from time to time, including staff from the SEC's Division of Corporation Finance.

SEC Chairman Mary L. Schapiro gave an early nod to the Financial Reporting Series in remarks at a Financial Accounting Foundation dinner last month, when she said, "I am also looking forward to the FASB’s and the PCAOB’s participation in the SEC staff’s new 'Financial Reporting Series.' This will be another opportunity to listen and learn — a series of roundtables designed to help all of us who are involved in the financial reporting system, identify risks related to the reliability and usefulness of financial reporting, as well as areas for potential improvements. We believe that the series will provide us, as well as the FASB, PCAOB and others, with useful information about emerging issues and about changes in the business environment that affect the financial reporting system."

Diverse Participants
Participants in the Financial Reporting Series roundtables, Kroeker said last week at USC, will represent a variety of groups included among the SEC's constituents.

"The approach will be one of inviting a cross section of capital markets participants," he said, "including investors, preparers, auditors, and others." He added the aim of the discussion was to "foster an informed dialogue on some of the most difficult financial reporting topics."

Shades Of Pozen Committee, Dodd-Frank
The Financial Reporting Series appears to have some roots in a similar cross-constituent group recommended by SEC Advisory Committee on Improvements to Financial Reporting (aka 'the Pozen Committee' for its chair, Bob Pozen; also known as CIFiR).

In the Pozen Committee's final report issued on August 1, 2008, Recommendation 2.3 included forming a Financial Reporting Forum, as follows:

Create a Financial Reporting Forum (FRF) that includes key constituents from the preparer, auditor, and investor and other user communities, to meet with representatives from the SEC, the FASB, and the PCAOB to discuss pressures
in the financial reporting system overall, both immediate and long-term, and how individual constituents are meeting these challenges. This may require the FASB to re-evaluate the roles and composition of its advisory groups or agenda committees....

In the detailed discussion of this recommendation later in the Pozen committee's report, it was noted that the scope of their suggested FRF would be broader than just FASB issues, "[W]e would not limit the proposed FRF’s purview solely to the work of the FASB. Rather, key constituents in the U.S. financial reporting system would meet with representatives from the SEC, the FASB, and the PCAOB to confer on immediate financial reporting needs and priorities system-wide. By identifying emerging issues, the FRF would give timely input on pressures affecting the financial reporting system, both immediate and long-term."

Like the Pozen Committee's recommended FRF, the SEC's Financial Reporting Series will include participation by representatives of the SEC, FASB and PCAOB; however, unlike the Pozen Committee's FRF, the agency representatives will serve in an observer role.
Also, like the Pozen Committee's FRF, there will be a variety of constituents from the financial reporting and auditing process (investors, preparers, auditors and others); but unlike the FRF, the Financial Reporting Series will not be a formal advisory group. (Potential conflicts of a formal FRF with other existing advisory committees were foreseen by some, as noted in the Pozen committee report; the SEC has avoided this problem by keeping the roundtables in more of an informal, ad hoc nature, rather than forming a formal advisory committee.)

In the main, by addressing emerging issues, including broad-based constituents from the private sector and regulatory community, and convening in public, the new Financial Reporting Series, based on Kroeker's description at USC, appears to implement the thrust of the Pozen Committee's recommended FRF, which called for a focus on, "Urgent matters in the U.S. financial reporting system [which] should be dealt with in a timely fashion, which may require the FRF to be convened both on a regular schedule and on short notice, as necessary. The meeting process should allow interested parties to raise issues in a transparent fashion."

Separately, an earlier version of the Dodd-Frank Act (the House version passed on Dec. 11, 2009) called for the formation of a "Financial Reporting Forum." As noted in our blog post at that time:

Financial Reporting Forum to make recommendations to Congress: A Financial Reporting Forum would be created, consisting of the Chairmen of the FASB, SEC,
bank regulatory agencies, and certain others to be appointed by the SEC (including a representative of a financial institution, a non-financial institution, auditors, and investors). The Financial Reporting Forum would meet at least quarterly, to: "discuss immediate and long-term issues critical to financial reporting," and would "issue an annual report to the Congress detailing any determinations or findings made by the Forum during the previous year, including any legislative recommendations the Forum may have related to financial reporting matters." [NOTE: An earlier version of this provision was submitted by Rep. Miller.] [Sec. 7417]
Although I don't believe the "Financial Reporting Forum" recommended in the earlier House version remained in the final Dodd-Frank Act, the common theme of involving representatives of the SEC, FASB and PCAOB, along with key constituents, to "discuss immediate and long-term issues critical to financial reporting" seems to be consistent in many respects not only with the Pozen Committee's recommended FRF, but also with the SEC's new Financial Reporting Series.

Additionally, I believe (before its too late, let me remind you of the disclaimer posted on the right side of this blog) that the new Financial Reporting Series can be beneficial to the SEC, PCAOB and FASB, given the responsibility of the Financial Stability Oversight Council which was included in the final Dodd-Frank Act.

As described by AICPA JofA Senior Editor Matthew Lamoreaux in his article, Financial Regulatory Reform Bill Clears Congress, when the final Dodd-Frank Act was signed by President Obama last year:

Accounting standards. The act gives the Financial Stability Oversight Council the duty to monitor domestic and international financial regulatory proposals and developments, including insurance and accounting issues, and to advise Congress and make recommendations in such areas that will enhance the integrity, efficiency, competitiveness and stability of the U.S. financial markets. The council may submit comments to the SEC and any standard-setting body with respect to an existing or proposed accounting principle, standard or procedure.
Stay Tuned
In his remarks at USC last week, Kroeker noted, "I encourage you to watch for public announcements of the sessions in advance through a press release or on a devoted Financial Reporting Series webpage on the Commission’s website."

Other Topics In Kroeker's Speech
Other major topics covered in Kroeker's speech, besides the Financial Reporting Series, included:

  • Oversight of Standard-Setting: Convergence (IFRS and U.S. GAAP)

  • Oversight of Standard-Setting: Private Companies (Note: some may consider it interesting that the SEC's oversight indirectly extends to private companies (in addition to public companies) through its oversight of the FASB.) In his remarks, Kroeker states: "I have also spent time understanding the report and recommendations put forward by a Blue-Ribbon Panel on Standard Setting for Private Companies. My focus in understanding those recommendations is to consider the nature and impact of any recommendations for private companies to apply accounting standards that may differ from those that public companies apply."

    He continues, "It is prudent, in my view, to carefully consider the nature of any differences and their effect on the capital formation process if private companies have to adopt a revised, and more stringent set of accounting policies in connection with preparing Commission filings to raise public capital. Further, it is important to understand why one might suggest a different standard for private companies."

    Kroeker concludes on this subject, "I support the approach taken by the FAF Trustees in carefully considering the advice from this panel as they strategically assess the financial reporting system for private companies. Further, I believe that in a number of areas additional research, study, and outreach, particularly to investors, would be warranted prior to implementing any significant change in the standard-setting structure applicable to nonpublic entities."

  • SEC's Sarbox Section 404 Study - including a repeated call for PCAOB to publish findings of 'lessons learned' about auditor practices, from its inspections data

  • Mitigating financial reporting risk - through PCAOB's announced consideration of potential changes to the auditor's reporting model, and through better audits

  • Need for focus on PCAOB international inspections

Thursday, June 9, 2011

Auditor Relationship, Audit Fees, and Risk Management: FEI-FERF Report

Earlier today, results of the latest FEI Audit Fee Survey, conducted by FEI's research affiliate, the Financial Executives Research Foundation (FERF), were released.

This year's survey, sponsored by NYSE-Euronext, was expanded as in recent years to include audit fees in total (i.e., not only Sarbanes-Oxley Section 404-related fees, which was the objective of the audit fee survey when first launched). Information on total audit fees is now the focus of the survey, since Sarbanes-Oxley Section 404 fees are generally not broken out as much by auditors as in prior years, and have been blended into the integrated audit fee.

Public and Private Companies Surveyed
The survey results include results for both private and public companies, with results broken out within public companies for accelerated and nonaccelerated filers.

243 survey responses were received in total, representing executives from 98 U.S. publicly-held companies (consisting of 82 accelerated filers and 16 nonaccelerated filers), 124 U.S. privately-held companies, three foreign companies and 21 non-profit organizations.

Modest Changes In Audit Fees

  • Audit fees for public company accelerated filers increased by 2%, on average;

  • Audit fees for public company nonaccelerated filers increased by 3%, on average; and

  • Audit fees for private companies remained flat, on average.

Auditor Relationship

  • the relationship with auditors was rated ‘neutral to good’ on average by both public and private companies.

  • 21 years was the weighted average number of years of the client-auditor relationship for the public company survey respondents, compared with 8 years for the private company respondents
Note: see also our recent blog post, PCAOB To Consider Mandatory Audit Firm Rotation.

Risk Management
For the first time, the Audit Fee Survey included questions about risk management. Questions addressed such topics as whether survey respondents currently have a company-wide risk management process in place, rolled out to the whole company, or used at headquarters.

Read more in FEI's press release.
Access the full Audit Fee Survey report.

Wednesday, June 8, 2011

PCAOB To Consider Mandatory Audit Firm Rotation

In a keynote speech last week entitled Rethinking the Relevance, Credibility and Transparency of Audits, Public Company Accounting Oversight Board Chairman Jim Doty called for a reexamination of whether there should be a move to mandatory audit firm rotation. Doty delivered the speech at USC's 30th Annual SEC and Financial Reporting Institute.

Mandatory Audit Firm Rotation, More, Coming In Concept Release
Referencing the importance of independence and skepticism, Doty said, “I believe it is incumbent on the PCAOB to take up the debate about firm tenure and examine it, with rigorous analysis and the weight of evidence in support and against. I don't have a predetermined idea as to whether the PCAOB ultimately should adopt term limits. My only predilection is that the PCAOB deepen the analysis of how we can better insulate auditors from client pressure and shift their mindset to protecting the investing public.

“As such,” he continued, “the [PCAOB] board plans to issue another concept release to explore whether there are other approaches we could take that could more systematically insulate auditors from the forces that pull them away from the necessary mindset.”

Auditor's Reporting Model - Concept Release Coming
As reported in March, the PCAOB plans to issue a concept release for public comment on the Auditor's Reporting Model. Doty added in last week's speech that the PCAOB expects to issue the above-referenced concept release on enhancing auditor's independence and skepticism "around the same time that we issue the concept release on the auditor's reporting model, in order that they can be considered together in a holistic manner."

FEI’s Committee on Corporate Reporting will be closely following these issues to provide thoughtful and practical input from the prepararer's point of view.

Friday, June 3, 2011

Don't Want To Miss A Thing

(video: Don't Want To Miss a Thing by Aerosmith, via YouTube)

With everyone present and accounted for following the failed 'end of the world' (NYT) two weeks ago (BTW, where are the millions of dollars in Rapture contributions (Yahoo)?) the need to meet mandatory CPE requirements (AICPA) and stay current on the latest SEC and FASB developments continues (not to mention the PCAOB and IASB). Like the theme song from the doomsday action flick, Armageddon, if you Don't Want to Miss a Thing (Aerosmith), check out the hot topics to be covered at these upcoming webcasts and conferences: