Earlier today the SEC Advisory Committee on Improvements to Financial Reporting (CIFiR or the ‘Pozen Committee’ for chair Robert Pozen) voted to approve publication of its final report. A press conference will take place at the SEC tomorrow, said Pozen, to recognize delivery of CIFiR’s final report to SEC Chairman Christopher Cox. Cox and Pozen will be joined at the press conference by FASB Chairman Robert Herz and PCAOB Chairman Mark Olson.
At today’s meeting, CIFiR concurred with the list of 9 changes to the report circulated to the committee in advance of the meeting, which Pozen described during the meeting. He said the changes were made in the past few days in response to issues raised by committee members and in light of eight final comment letters received. The changes were described by Pozen as largely technical in nature, and are reflected in CIFIR’s “Revised Draft Final Report v2 (Marked for Revisions to v1)” currently posted on SEC’s website.
One item on the list of 9 changes was to insert a new footnote (footnote 15, printed pg. 11, pdf pg 16) to define what CIFIR means by ‘investor preeminence” as that term is used in Recommendation 2.1, which says, in part: “Therefore, investor perspectives should be given pre-eminence15 by all parties involved in standards-setting.” Footnote 15 states: “We recognize the need for balance among all parties involved in the standard-setting process. We do not intend to suggest by this recommendation that investor input trumps all others. Instead, in cases where constituent views cannot be reconciled, we believe that all the investor perspectives should be afforded greater weight.” Pozen explained in describing the change at the meeting, “Not that it [investor perspectives] always wins, but it has greater weight.”
In addition to the list of 9 changes, one additional change was suggested during today’s meeting, by CIFiR member Ed McClammy. He suggested, and the committee agreed, to substitute the phrase “as well as” for the word “about” in the following sentence which appears in Recommendation 3.3 regarding disclosures during what is sometimes referred to as the ‘dark period’ when companies are undergoing restatements. With this change, Recommendation 3.3 now states (new words highlighted, deleted words in brackets): "The FASB or the SEC, as appropriate, should issue guidance on disclosure of financial and other reliable information during the period during which the impact of a financial reporting error is being evaluated or the restatement is being prepared, as well as the [delete: about] need for the restatement and [delete: about] the restatement itself to improve the adequacy of this disclosure based on the needs of investors.
SEC Chief Accountant Conrad Hewitt thanked Pozen and the committee, noting, “This is one reason I came to the commission.“ He added, “I had discussed with [FASB Chairman Robert] Herz before I accepted the position [of Chief Accountant], I was very concerned about complexity in the financial reporting system.” Hewitt said, “I am pleased with all the efforts everyone put into this,” and noted he had asked everyone to 'think outside the box” at CIFiR’s first meeting, and they accomplished that.
Hewitt also observed that a number of the committees’ recommendations are already underway in terms of being implemented. Pozen pointed out that CIFiR’s report has been updated to reference some of these recent developments, including SEC’s XBRL proposal issued in May, and the Interpretive Release on use of corporate websites approved for release by the SEC yesterday. Hewitt thanked Pozen “for your leadership in getting this accomplished.” Pozen thanked the committee as well as the SEC and FASB for their support, including by providing staff resources.
A clean copy of the final report will be posted on SEC’s website. A ‘compendium of recommendations” is provided in the Executive Overview on printed pages 8-18 (pdf pages 13-23) of CIFIR’s “Revised Draft Final Report v2 (Marked for Revisions to v1)”
Thursday, July 31, 2008
Wednesday, July 30, 2008
SEC Votes To Release Interp Guidance On Use of Corp Websites
At its open commision meeting earlier today (July 30), the SEC voted to issue guidance in an Interpretive Release on the use of company websites for disclosures to investors. As noted in SEC's press release, "The interpretive release will be effective upon its publication in the Federal Register." Further details can be found in the remarks of Corp Fin staffer Kim McManus. Other matters addressed at today's SEC meeting relate to municipal securities disclosures and investment company boards.
FASB Votes for Single Effective Date On Securitization Changes, With Earlier Disclosures
At its board meeting earlier today, FASB voted today to have a single effective date for its proposed amendments to FAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and FIN 46R, Consolidation of Variable Interest Entities, which impact off-balance sheet treatment of securitizations, including mortgage and other securitizations. The effective date agreed to today would be: fiscal years beginning after Nov. 15, 2009. (Thus, for calendar year-end companies, the effective date is essentially 2010, a year later than the initial half of the ‘dual effective date’ originally proposed, which would have been 2009 - with a one year deferral for existing QSPEs to 2010.) Timing: The proposed revisions to FAS 140 and FIN 46R are expected to be released for public comment 3Q08, with a roundtable and final standard(s) expected 4Q08.
Separately, FASB agreed today to propose (in a separate proposed FASB staff position or FSP) ‘transition’ disclosures relating to the above standards. (A draft of the proposed disclosures appears in the minutes of the June 4 board meeting.) The scope of the disclosures proposal will be public companies. (Note: certain additional disclosures were also agreed to today to be provided by ‘non-transferors with a significant interest in a QSPE,” as shown on pg 4 of today’s FASB board handout.) FASB’s intent is for these disclosures to be made ‘as soon as possible, but no later than the first interim reporting period in 2009.” FASB Technical Director Russell Golden suggested the board seek comment (e.g., in the Notice to Recipients of the proposed FSP) on: “how much time do you think your company needs, what are things you need to gather, and put in place,” in order to meet the proposed disclosure requirements, and that FASB similarly “gather input from users as soon as possible.”
FASB Chairman Robert Herz noted that while he did not object to offering the single effective date in 2010, “I am kind of chagrined by what we found by some of these inquiries over last five, six months,” adding it has become “apparent to me with the benefit of hindsight, the kind of reporting that was made by a number of preparers, certain large financial institutions, did not meet the desires of the investment community.”
“You have to ask,” said Herz, “when you get poor reporting, to what extent is it based on [accounting] standards, [vs.] poor reporting [or] lack of enforcement.” He added, “My own conclusion [is it has been] a combination of both; certainly while we have acknowledged certain aspects of FAS 140 and FIN 46R could be improved... it is also clear QSPEs have been stretched beyond recognition.”
In a veiled reference to recent comments reported in the press to have been made by President George W. Bush, Herz noted some have described “other aspects of the financial markets [as] being drunk.” He added, “With the benefit of hindsight, it seems unfortunately to be true, [and] very disappointing to me.”
“I think the system can do better than that,” said Herz, adding, “it does pain me to take something that has been abused by some folks to go on for another year.” Examples of ‘abuse’ cited by Herz relate to ““things like ‘significantly limited,’ ‘entirely specified’ [terms used in FAS 140 as limits to the powers of QSPEs, which are supposed to be passive vehicles]” described by Herz as “areas where some have “gone beyond” the standard. He added, “In my view, [some are] actively managed, that should not have been QSPEs; with hindsight we know they were, in certain instances they have to be actively managed with problems in collateral and those kinds of things.”
Herz noted “banking regulators yesterday put out a proposal for comment on standardized capital guidelines, on a number of things,” and that “some of those are inevitably tied to existing accounting.” He added, “we have been dialoguing with [the banking regulators] almost constantly about these matters and the need for ... some careful thinking about implications of these changes.” Among the various banking regulators FASB has talked to, said Herz, include the Office of Federal Housing Enterprise Oversight (OFHEO). (OFHEO oversees Fannie Mae and Freddie Mac.)
Like Herz, FASB board member Tom Linsmeier also used the word ‘chagrined,’ in voting on the change in effective date today. He said at least some constituents are “holding their nose, recognizing practical realities, chagrined we can’t get it done next fiscal year.”
“The loud message I’m trying to send,” said Linsmeier, “is, if people are here to slow us down with comment letters, I’m not interested in slowing down for practical [reasons], the markets need to get better information as soon as possible.” He added, “I will not entertain much sympathy for constant comment letters just saying ‘defer, defer, defer.’”
Board member Leslie Seidman said, “I think today when we talked about the change in effective date, [we were] responsive to concerns raised about people having time to understand the provisions and to work with regulators on capital requirements to make sure those issues are dealt with in a thoughtful way.”
She also noted a commenter had asked FASB to deal with these changes as part of international convergence (with the IASB). She indicated that while FASB would have preferred to deal with the issue as part of international convergence, “Our organization and the [IASB] have received mandates to act as quickly as possible,” to remedy matters perceived as problematic in the standards. “We are trying to achieve that mandate,” said Seidman, “and balance it with adequate time,” i.e. for companies to adapt to the changes. She noted FASB has been communicating with the IASB to aim to be ‘directionally’ consistent, and to try to narrow differences as they proceed.
Board member George Batavick noted, “The challenge is, we really have to clearly communicate exactly what we are asking for, whether in words or examples.”
The board instructed the staff to proceed to drafting a written ballot for the board to vote on releasing this proposed FSP on disclosures for public comment. There will be a 30 day comment period.
Separately, FASB agreed today to propose (in a separate proposed FASB staff position or FSP) ‘transition’ disclosures relating to the above standards. (A draft of the proposed disclosures appears in the minutes of the June 4 board meeting.) The scope of the disclosures proposal will be public companies. (Note: certain additional disclosures were also agreed to today to be provided by ‘non-transferors with a significant interest in a QSPE,” as shown on pg 4 of today’s FASB board handout.) FASB’s intent is for these disclosures to be made ‘as soon as possible, but no later than the first interim reporting period in 2009.” FASB Technical Director Russell Golden suggested the board seek comment (e.g., in the Notice to Recipients of the proposed FSP) on: “how much time do you think your company needs, what are things you need to gather, and put in place,” in order to meet the proposed disclosure requirements, and that FASB similarly “gather input from users as soon as possible.”
FASB Chairman Robert Herz noted that while he did not object to offering the single effective date in 2010, “I am kind of chagrined by what we found by some of these inquiries over last five, six months,” adding it has become “apparent to me with the benefit of hindsight, the kind of reporting that was made by a number of preparers, certain large financial institutions, did not meet the desires of the investment community.”
“You have to ask,” said Herz, “when you get poor reporting, to what extent is it based on [accounting] standards, [vs.] poor reporting [or] lack of enforcement.” He added, “My own conclusion [is it has been] a combination of both; certainly while we have acknowledged certain aspects of FAS 140 and FIN 46R could be improved... it is also clear QSPEs have been stretched beyond recognition.”
In a veiled reference to recent comments reported in the press to have been made by President George W. Bush, Herz noted some have described “other aspects of the financial markets [as] being drunk.” He added, “With the benefit of hindsight, it seems unfortunately to be true, [and] very disappointing to me.”
“I think the system can do better than that,” said Herz, adding, “it does pain me to take something that has been abused by some folks to go on for another year.” Examples of ‘abuse’ cited by Herz relate to ““things like ‘significantly limited,’ ‘entirely specified’ [terms used in FAS 140 as limits to the powers of QSPEs, which are supposed to be passive vehicles]” described by Herz as “areas where some have “gone beyond” the standard. He added, “In my view, [some are] actively managed, that should not have been QSPEs; with hindsight we know they were, in certain instances they have to be actively managed with problems in collateral and those kinds of things.”
Herz noted “banking regulators yesterday put out a proposal for comment on standardized capital guidelines, on a number of things,” and that “some of those are inevitably tied to existing accounting.” He added, “we have been dialoguing with [the banking regulators] almost constantly about these matters and the need for ... some careful thinking about implications of these changes.” Among the various banking regulators FASB has talked to, said Herz, include the Office of Federal Housing Enterprise Oversight (OFHEO). (OFHEO oversees Fannie Mae and Freddie Mac.)
Like Herz, FASB board member Tom Linsmeier also used the word ‘chagrined,’ in voting on the change in effective date today. He said at least some constituents are “holding their nose, recognizing practical realities, chagrined we can’t get it done next fiscal year.”
“The loud message I’m trying to send,” said Linsmeier, “is, if people are here to slow us down with comment letters, I’m not interested in slowing down for practical [reasons], the markets need to get better information as soon as possible.” He added, “I will not entertain much sympathy for constant comment letters just saying ‘defer, defer, defer.’”
Board member Leslie Seidman said, “I think today when we talked about the change in effective date, [we were] responsive to concerns raised about people having time to understand the provisions and to work with regulators on capital requirements to make sure those issues are dealt with in a thoughtful way.”
She also noted a commenter had asked FASB to deal with these changes as part of international convergence (with the IASB). She indicated that while FASB would have preferred to deal with the issue as part of international convergence, “Our organization and the [IASB] have received mandates to act as quickly as possible,” to remedy matters perceived as problematic in the standards. “We are trying to achieve that mandate,” said Seidman, “and balance it with adequate time,” i.e. for companies to adapt to the changes. She noted FASB has been communicating with the IASB to aim to be ‘directionally’ consistent, and to try to narrow differences as they proceed.
Board member George Batavick noted, “The challenge is, we really have to clearly communicate exactly what we are asking for, whether in words or examples.”
The board instructed the staff to proceed to drafting a written ballot for the board to vote on releasing this proposed FSP on disclosures for public comment. There will be a 30 day comment period.
Subscribe to:
Posts (Atom)