SEC-GAAP Watch - The latest news and developments in accounting, reporting, and disclosure requirements - Stay Informed

2/07/12 -- Task Force Recommends Exempting Start-Ups from U.S. GAAP, SEC Reporting
As discussed in the article entitled "Start-Ups Want a Pass on U.S. GAAP, SEC Reporting" in the February 3, 2012, issue of Accounting & Compliance Alert, on February 1, a Treasury Department initial public offering task force said the reporting rules for young companies should be scaled back.

The task force said exempting companies with $1 billion in sales and market values of $700 billion from reporting in U.S. GAAP and filing statements with the SEC will help them grow faster and create more jobs. The exemptions would be set up by creating a category in SEC rules called emerging growth companies.

The IPO task force's recommendations largely match ideas from Sen. Charles Schumer (D-NY) and the White House.

The recommendations were presented to the SEC's Small and Emerging Companies Advisory Committee, which was formed last year after agency officials reviewed their rules and decided they needed to come up with ways to ease the regulatory burden on young companies.

Among other things, the companies would get relief from complying with Section 404(b) of the Sarbanes-Oxley Act of 2002, the requirement for external auditors to attest to a company's financial reporting controls. 2/02/12- SEC Chief Accountant to Meet with IASB Officials in London

As discussed in the article entitled "Chief Accountant to Meet with IASB Officials in London" in the January 31, 2012, issue of Accounting & Compliance Alert, James Kroeker, the SEC's chief accountant, is scheduled to make a presentation at a February 20 meeting of the IFRS Advisory Council. The SEC is generally expected to make an important decision on IFRS in the next few months. The IFRS Advisory Council works with the IASB on developing the standard-setting agenda.

Kroeker's presentation is scheduled to address the status of the SEC's consideration of replacing U.S. GAAP with the international standards, the IASB website said. The SEC's last major piece of rule making on IFRS was a February 2010 statement in Release No. 33-9109, Commission Statement in Support of Convergence and Global Accounting Standards, which includes an outline of how regulators would evaluate the suitability of the IFRS for U.S. investors. Through the remainder of last year, agency officials, including SEC Chairman Mary Schapiro and Kroeker, said they hoped to make a decision about IFRS by the end of 2011.

One month into 2012, no one from the SEC has said exactly when the decision will come.

1/26/12 -- SEC Transaction Fee Rates Lowered for Fiscal 2012
As discussed in the article entitled "Transaction Fee Rates Lowered for Fiscal 2012" in the January 25, 2012, issue of Accounting & Compliance Alert, the SEC said in Release No. 34-66202, Order Making Fiscal Year 2012 Annual Adjustments to Transaction Fee Rates, that it is lowering the fees it charges securities exchanges as of February 21.

Because Congress had not funded the agency for fiscal 2012 by its October 1, 2011, start the transaction fee rate that the commission announced previously never became effective. As a result, the fees under Section 31 of the Securities Exchange Act of 1934 will drop to $18 per $1 million in trading volume from $19.20.

The rates were adjusted according to the revisions that the Dodd-Frank Act made to Section 31, which require the SEC to publish a revised fee rate 30 days after its regular appropriation for fiscal 2012 which was enacted on December 23 for $1.321 billion.

The SEC funds its operations through fees it charges public companies and securities exchanges, but it has to reset the rates based upon the budget Congress approves for the agency.

1/25/12 -- SEC Explains Mine Safety Rules in Small Company Guide
As discussed in the article entitled "Mine Safety Rules from Release No. 33-9286 Are Explained in Small Company Guide" in the January 24, 2012, issue of Accounting & Compliance Alert, the SEC published a small entity compliance guide to explain the requirements from Release No. 33-9286, Mine Safety Disclosure.

Release No. 33-9286 implemented a Dodd-Frank Act provision that calls for public companies that operate mines to disclose health and safety issues in their annual and quarterly SEC filings. Companies have to file an 8-K when they receive certain notices and orders from the Mine Safety and Health Administration.

The amendments in Release No. 33-9286 go into effect on January 27.

Mining companies have to report the number of violations and imminent danger orders they received under the Federal Mine Safety and Health Act of 1977, the total number of mining-related deaths, and pending legal actions before the Federal Mine Safety and Health Review Commission.

The SEC said only a brief disclosure should be included in quarterly or annual reports, but it wants detailed information attached as an exhibit. The information should be presented in a table if that will make it easier for investors to understand.

1/24/12 -- Corporation Finance Division Updates Financial Reporting Manual
As discussed in the article entitled "Financial Reporting Manual Gets Updated" in the January 23, 2012, issue of Accounting & Compliance Alert, the SEC's corporation finance division released the latest quarterly update to its Financial Reporting Manual on January 19.

The most recent update includes information on the requirements for auditors of development stage companies, date changes for financial reports in proxy statements, rules for financial statements of acquired businesses, and auditor modifications to internal control reports.

The SEC said an auditor has to include a disclaimer if it makes changes to an internal control report required by Auditing Standard (AS) No. 5, An Audit of Internal Control Over Financial Reporting That is Integrated with an Audit of Financial Statements.

The SEC expects modified reports and disclaimers to be rare, but it wants companies and their auditors to talk to the agency's staff before submitting a regulatory filing.

The update also said the SEC will not recognize a person as a certified public accountant unless she or he is licensed to practice in the state where they live or have an office.

1/13/12 -- SEC Approves PCAOB's $227.7 Million 2012 Budget
As discussed in the article entitled "PCAOB's $227.7 Million 2012 Budget Approved" in the January 12, 2012, issue of Accounting & Compliance Alert, the SEC unanimously voted to approve PCAOB's annual budget and the related accounting support fee.

The budget is an increase of approximately 11% over 2011 spending.

The increase is primarily a result of the PCAOB's expanded inspection program, including staff to perform international inspections and inspections of auditors of broker-dealers, a new authority the Dodd-Frank Act granted.

The budget will be funded mostly by an accounting support feel totaling $215 million, of which $196.8 million is assessed on publicly traded companies and $18.2 million on broker-dealers.

1/12/12 -- SEC Warns Banks About Disclosures Surrounding European Debt
As discussed in the article entitled "Financial Instruments Discussion Pushed Back a Week" in the January 11, 2012, issue of Accounting & Compliance Alert, the FASB postponed its scheduled discussion of the classification and measurement phase of its financial instruments project to January 20.

The accounting standard-setter was scheduled to discuss the issue at its January 11 weekly meeting but moved it back a week because of a scheduling conflict, a FASB spokeswoman said.

Classification and measurement is one of three parts of the financial instruments project, and FASB Chairman Leslie Seidman has said pinning down this phase is essential before the FASB and IASB can move on to the project's hedge accounting phase. The financial instruments project also includes an asset impairment test.

1/11/12 -- SEC Warns Banks About Disclosures Surrounding European Debt
As discussed in the article entitled "Banks Are Warned About Disclosing Risks with European Debt" in the January 10, 2012, issue of Accounting & Compliance Alert, financial companies are not properly alerting investors about the risks in their holdings of debt issued by European countries, the SEC said January 6, in an interpretive document called CF Disclosure Guidance: Topic No. 4.

The information financial companies supply in their regulatory filings is inconsistent in "substance and presentation," said the document from the staff in the SEC's division of corporation finance. "This inconsistency may lead to disclosures that lack transparency and comparability for investors."

Some companies have improved the quality of the information in their management's discussion and analysis section of their regulatory filings when prompted by the SEC's staff, but the agency believes it needs to prod companies before they become more consistent in providing the information.

The SEC said it wants quarterly and annual reports to include the total holdings in government bonds, bank-issued bonds, and nonfinancial company instruments on a country-by-country basis. It also wants financial companies to explain how they've hedged the risks and the holdings that may not be covered by contracts like credit default swaps or other types of insurance.

1/10/12 -- SEC to Vote on PCAOB's 2012 Budget
As discussed in the article entitled "PCAOB's $227.7 Million 2012 Budget to Be Considered" in the January 6, 2012, issue of Accounting & Compliance Alert, the SEC will meet January 11 to consider whether to approve the PCAOB's 2012 budget and its related accounting support fee.

In November 2011, members of the PCAOB approved the 2012 budget of $227.7 million, an increase of $23.3 million, or 11.4%, from 2011.

The PCAOB estimated that the total accounting support fee for 2012 will be $215 million, with approximately $196.8 million coming from public companies and $18.2 million from broker-dealers.

The budget assumes an increase of 93 employees to bring the board's staff to 810 people. Some 63% of the new employees will be added to the division of registration and inspections.

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2/10/12- FASB, IASB May Ask Insurers to Provide Multiple Estimates of Expected Claims
As discussed in the article entitled "Property Insurers May Be Asked for Multiple Estimates of Claims" in the February 9, 2012, issue of Accounting & Compliance Alert, the FASB and IASB are trying to figure out how hurricanes and other natural disasters fit into a proposal that requires insurance companies report expected claims liabilities.

The FASB devoted part of a February 8 informal review of the insurance project to debating the implications of the wide swings in estimated claims from natural disasters in the days leading up to a hurricane. A storm that falls near the end of a fiscal quarter may require several weeks to reliably measure claims from policyholders. In the interval, if the insurer has to prepare its financial results, it may have little confidence in the estimated losses it reports.

"The expected value approach proposed in the exposure draft could require the insurer to recognize a large loss in one period, even if subsequent events show that no insured event occurs," said a memo prepared by the FASB and IASB research staffs.

Under the proposal being drafted by the accounting boards, if the period between the initial tracking of a major storm and its landfall span the end of an accounting period, the insurer must recognize the cash flow estimates as of the last day of the quarter.

The FASB makes no formal decisions at education sessions like the one held February 8. But the latest discussion was used to prepare the board and its research staff for a joint meeting with the IASB on February 25-27 in London.

2/09/12 - Companies Challenge FASB's Proposed Change to Currency Adjustments in Topic 830
As discussed in the article entitled "Proposed Change to Currency Adjustments in Topic 830 Meets Resistance" in the February 8, 2012, issue of Accounting & Compliance Alert, some large U.S. companies are challenging the FASB's plan to shift the recognition of gains from sales of foreign businesses to the guidance for consolidated reporting instead of the standard for foreign exchange adjustments.

The FASB's plan will result in less consistent reporting, in part because the proposed changes will lead to a greater use of subjective measures that will "be assessed differently across the spectrum of preparers," said Exxon Mobil Corp. in a January 30 comment letter.

Yum Brands Inc., the Louisville, KY, holding company for fast-food chains Pizza Hut, Taco Bell, and KFC, disagreed with the FASB's decision to exclude real estate businesses from the proposed changes.

The criticism appeared in the handful of comment letters submitted in response to Proposed Accounting Standards Update (ASU) No. EITF-11A, Consolidation (Topic 810): Parent's Accounting for the Cumulative Translation Adjustment upon the Sale or Transfer of a Group of Assets That Is a Nonprofit Activity or a Business within a Consolidated Foreign Entity (a consensus of the FASB Emerging Issues Task Force), which was released in December with a comment period that ended February 6.

The proposed changes to FASB ASC 810-10, Consolidation, formerly FASB Interpretation (FIN) No. 46(R), and FASB ASC 830-30, Foreign Currency Matters-Translation of Financial Statements-Derecognition, formerly SFAS No. 52, deal with earnings adjustments that reflect the sale or liquidation of an overseas operation.

2/08/12 - FASB Advisory Group Wants Clear Guidance on Related-Party Transactions
As discussed in the article entitled "PCFRC Asks for Clear Guidance on Related-Party Transactions" in the February 7, 2012, issue of Accounting & Compliance Alert, the group that advises the FASB on private company accounting concerns wants clarification on related-party leases in a proposed standard that requires investment property businesses to measure their holdings at fair value.

In a January 9, 2012, comment letter to the FASB, the Private Company Financial Reporting Committee wrote that its members interpreted the proposal to exclude businesses created to hold real estate used by a related operating company. But the wording should make the distinction clear because "there could be some confusion in interpreting the requirements," wrote PCFRC Chairman Judith O'Dell.

Related-party leases are common for private companies, and are often used for estate planning or tax purposes. The relationship could be between family members or operating companies with the same shareholders or partners.

"It appears that the proposed ASU was specifically drafted to exclude those entities," O'Dell wrote.

Proposed Accounting Standards Update (ASU) No. 2011-210, Real Estate-Investment Property Entities (Topic 973), is one of a trio of consolidated reporting proposals out for public comment until February 15.

2/06/12 - FASB to Discuss Insurance Project
As discussed in the article entitled "Insurance Project up for Discussion" in the February 3, 2012, issue of Accounting & Compliance Alert, the FASB plans to discuss the insurance project at a February 8 education session.

No decisions are made at education sessions, but the discussions often prepare the board for upcoming decision-making meetings and help gauge board members' positions.

The insurance project is one of four big-ticket convergence efforts between the FASB and IASB, but it has posed many problems for the standard-setters because of different business practice on both sides of the Atlantic and the board's staggered schedules.

The IASB has been pushing for a single accounting model for all insurance contracts, while the FASB favors one model for short-term policies, such as theft and auto, and a second for long-term contracts such as life insurance.

2/03/12 - FASB's Disclosure Framework Discussion Paper Takes Shape
As discussed in the article entitled "Disclosure Framework Discussion Paper Takes Shape" in the February 2, 2012, issue of Accounting & Compliance Alert, the public should have a chance to weigh in by midyear on a plan to help the FASB reduce redundant disclosure requirements.

The board is planning to issue a discussion paper as the first step toward producing a guide, called a framework, to help the standard-setter write clearer disclosure rules. The paper is likely to include questions on whether materiality should be assessed when deciding whether to disclose something. It's also planned that the paper will offer specific suggestions on disclosures that could be trimmed.

The FASB research staff also plans to reach out to the SEC to make sure the effort does not conflict with the agency's requirements, staff and board members said at a FASB educational session on February 1.

The board is expected to meet again with the project team to discuss the issue before it releases the discussion paper for comment.

1/31/12 - FASB and IASB Move Closer to Deal on Classification and Measurement
As discussed in the article entitled "Standard-Setters Move Closer to Deal on Classification and Measurement" in the January 30, 2012, issue of Accounting & Compliance Alert, the FASB and IASB agreed to move closer together on the classification and measurement portion of the financial instruments project.

Meeting via videoconference on January 27, the boards agreed to focus on three areas: financial instruments measured at amortized cost; whether there should be separate measurement, or bifurcation, for financial assets that have been hedged with derivative contracts; and whether there should be a model that shows the changes in the fair value of a debt security in other comprehensive income and not net income.

The boards may then consider related issues that would be affected by their progress, such as disclosure requirements or the guidance for financial liabilities, according to a staff memo.

The boards unanimously supported the plan.

"I think it's a very, very good opportunity for us to try and narrow the differences between where we've landed in our decisions so far," FASB Chairman Leslie Seidman said.

1/30/12 - FASB to Discuss Disclosure Framework at Next Education Session
As discussed in the article entitled "Disclosure Framework Project on Agenda" in the January 27, 2012, issue of Accounting & Compliance Alert, the FASB expects to continue its discussion on disclosure requirements within accounting standards during a February 1 meeting.

The board is hoping that a special guide, or framework, will set goals for its standard-setting and help reduce redundant disclosure requirements in U.S. GAAP. The meeting is scheduled as an education session, which means no formal decisions will be made.

The FASB took up the disclosure framework project in July 2009. The FASB put the project aside in recent years as it focused on big-ticket convergence projects but has recently revived the effort and has been working closely with the European Financial Reporting Advisory Group, which is involved in a similar project.

The FASB also plans to meet with the Investors Technical Advisory Committee on January 31 at the board's headquarters in Norwalk, CT.

1/26/12 -- FASB Issues Proposed ASU 2012-100 to Simplify Impairment Test for Long-Lived Intangibles
As discussed in the article entitled "Proposed ASU 2012-100 Aims to Simplify Impairment Test for Long-Lived Intangibles" in the January 26, 2012, issue of Accounting & Compliance Alert, the FASB on January 25 issued proposed Accounting Standards Update (ASU) No. 2012-100, Intangibles-Goodwill and Other (Topic 350), to give businesses a break when testing for the diminishing value of long-lived intangible assets.

The proposal will be out for comment until April 24.

The proposed amendment to FASB ASC 350-30, General Intangibles Other than Goodwill, formerly SFAS No. 142, aims to give businesses relief on what some critics say is a complicated and expensive test.

The test-required at least annually-assesses drops in value of things like trademarks, licenses, and distribution rights. The test calls for comparing the fair value of the asset to its carrying amount or book value. If the carrying amount exceeds its fair value, an impairment loss is recognized in the amount of that excess.

1/23/12 -- FASB Can't Decide How to Fit Low Quality Loans in Proposed Impairment Model
As discussed in the article entitled "Low Quality Loans Won't Fit Easily into Proposed Impairment Model" in the January 20, 2012, issue of Accounting & Compliance Alert, as the FASB and IASB work on a way to categorize loans by credit quality, they still need to decide what to do about loans that are risky from the outset.

The loans tend to have an above-average rate of default and are often acquired by investors at a discount because their value has declined, a FASB staff member told the board members during a January 18 educational session.

The FASB is expected to discuss the impairment portion of the financial instruments project with the IASB during a January 27 videoconference meeting.

The high default rates for some loans and loan portfolios could complicate the standard-setters' efforts to determine where the assets fit into a model for classifying loans based on credit quality.

The impairment model-one of three parts of the important financial instruments project-aims to give investors and creditors better information about an asset's risk at the earliest possible stage in the credit cycle. The information would be conveyed by putting loans into three categories, or buckets, representing degrees of credit quality, with the best assets in Bucket 1 and the worst in Bucket 3.

1/20/12 -- Advisory Panel Lends Support to FAF Private Company Proposal
As discussed in the article entitled "Advisory Panel Lends Support to FAF Private Company Proposal" in the January 17, 2012, issue of Accounting & Compliance Alert, the Private Company Financial Reporting Committee said it supports a plan from the FASB's oversight body, the Financial Accounting Foundation, to replace the private company committee with a body that has more authority.

The PCFRC was set up by the FASB and AICPA in 2006, but it has been generally been regarded as having too limited a role in the FASB's decisions.

In October 2011, the FAF proposed replacing it in Request for Comment, Plan to Establish the Private Company Standards Improvement Council.

A January 10 letter from the PCFRC says formation of a council focused on private company concerns is "long overdue." But the PCFRC expressed concerns about the structure of the council and feared that it may be too beholden to the FASB.

"PCFRC members believe that the council should work closely with [the FASB] but have more independence than the current proposal allows," the letter said.

1/19/12 -- FASB and IASB Set to Move Forward on Convergence Projects
As discussed in the article entitled "Standards Boards Set to Move Forward on Convergence Projects" in the January 17, 2012, issue of Accounting & Compliance Alert, the FASB and IASB plan to meet via videoconference on January 25 and 27 to discuss the insurance project and the impairment portion of the financial instruments project.

The accounting boards last took up the insurance project in December, when they debated the definition of a portfolio of insurance contracts. The boards indicated that a portfolio would be defined as a group of contracts with similar risks and similar durations but asked their research staffs to come back with a proposal for a future meeting.

The insurance project aims to give investors and creditors a clearer picture about the assets and liabilities in insurance contracts, but the boards' efforts to converge their work has been hampered by the different schedules on which they are working.

The accounting standard-setters have done a better job aligning their work with the impairment portion of the financial instruments project. The boards want to categorize loans and other debt securities by expected credit losses into three categories, or buckets.

The accounting boards have yet to release a detailed agenda for the joint meetings, but during the most recent discussion they held in December, the boards said they wanted to progress quickly with the project in the New Year.

1/18/12 - FAF Review Endorses Implementation of FIN No. 48
As discussed in the article entitled "Review Endorses Implementation of FIN No. 48" in the January 13, 2012, issue of Accounting & Compliance Alert, a post-implementation review of FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109, (FASB ASC 740-10), by the Financial Accounting Foundation found that the standard generally provides investors with more information of a higher quality than existed before the standard was issued in 2006.

Still, some accountants are not fully satisfied with the standard.

The FAF, the parent organization of the FASB and GASB, said its review team found that the standard led to more consistency in the reporting of uncertain income tax positions.

FIN No. 48 was controversial almost from the moment it was published. The principle requires companies to analyze each tax liability and determine the level of confidence they have in the measurement. According to a 2008 survey, 28% of large public companies did not satisfactorily meet the requirements.

The review team, which was overseen by the FAF trustees, said FIN No. 48 has given investors information that has helped them manage their portfolios.

1/17/12 -- FASB to Discuss Insurance, Financial Instruments at Next Meeting
As discussed in the article entitled "Financial Instruments, Insurance Up for Discussion" in the January 13, 2012, issue of Accounting & Compliance Alert, the FASB is scheduled to meet January 20 to discuss the classification and measurement phase of the financial instruments project.

The standards board was scheduled to have the discussion on January 11 but postponed it because of a scheduling conflict. Board members are expected to review feedback from banks who asked for more guidance on valuing assets and liabilities.

The financial instruments project also includes an asset impairment test, which the board is scheduled to discuss during a January 18 education session.

The session is also scheduled to include a review of the insurance contracts project.

The boards want to update the accounting for the insurance industry to give a clear view of the assets, liabilities, and risks in insurance contracts.

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08/30/11 -- PCAOB to Hold Roundtable on Auditor's Report
As discussed in the article entitled "Board to Hold Roundtable on Auditor's Report" in the August 26, 2011, issue of Accounting & Compliance Alert, the PCAOB will host a public roundtable in Washington on September 15 to discuss its concept release on possible changes to the auditor's reporting model.

The board said it wants to hear from investors, preparers of financial statements, audit committee members, auditors, and other financial statement users on the alternatives presented in the concept release for changing the auditor's report. The roundtable will also give participants a chance to present other alternatives not discussed in the concept release.

"The Board's consideration of the audit reporting model is intended to identify meaningful opportunities to enhance the relevance of auditors' communications with investors," PCAOB Chairman James Doty said. "I look forward to a robust discussion at the roundtable meeting of various possibilities raised in the Board's concept release or by commenters."

Issued on June 21, Release No. 2011-003, Concept Release on Possible Revisions to PCAOB Standards Related to Reports on Audited Financial Statements and Related Amendments to PCAOB Standards, presents several alternatives for changing the auditor's reporting model and seeks comment on these or other alternatives that could provide investors with more transparency into the audit process and more insight into the company's financial statements or information outside the financial statements.

08/18/11 -- PCAOB Reopens Debate on Auditor Rotation in Concept Release No. 2011-006
As discussed in the article entitled "Concept Release No. 2011-006 Reopens Debate on Auditor Rotation" in the August 17, 2011, issue of Accounting & Compliance Alert, the PCAOB issued Concept Release No. 2011-006, Auditor Independence and Audit Firm Rotation, on August 16, revisiting an issue that was last debated in depth while the Sarbanes-Oxley Act of 2002 was working its way through Congress.

Concept Release No. 2011-006 asks for comments on ways to improve auditor independence and poses questions about mandatory audit firm rotation.

The comment deadline is December 14, and the PCAOB will review the comments and other views during a public forum next March.

The document's central question is whether term limits reduce the pressure auditors face to protect long-term client relationships at the expense of investors, said PCAOB Chairman James Doty.

08/10/11 -- SEC, PCAOB Officials Invite Chinese Securities Regulators to U.S.
As discussed in the article entitled "Regulators Travel to China to Discuss Audit Oversight" in the August 9, 2011, issue of Accounting & Compliance Alert, the SEC and PCAOB on August 8 released details of the Sino-U.S. Symposium on Audit Oversight that was held in Beijing on July 11-12.

Aside from SEC and PCAOB officials, the attendees included representatives from the China Securities Regulatory Commission (CSRC) and Chinese Ministry of Finance (MOF).

The officials briefed each other on their respective audit oversight system and inspection procedures and exchanged views on how to deepen cross-border cooperation.

CSRC Chairman Shang Fulin met with the SEC-PCAOB delegation headed by PCAOB board member, Lewis Ferguson, and SEC deputy chief accountant, Mike Starr, prior to the symposium.

The U.S. officials invited the CSRC and the MOF to send delegates to Washington to have further discussions.

06/16/11 -- PCAOB Approves Interim Inspection Program for Auditors of Broker-Dealers
As discussed in the article entitled "Auditors of Broker-Dealers Are About to Get Hit with Inspections" in the June 15, 2011, issue of Accounting & Compliance Alert, the PCAOB on June 14 voted unanimously to adopt temporary rules authorizing inspections of auditors for broker-dealers.

The board will use information gathered through the inspections to decide on the permanent program’s scope.

The Dodd-Frank Act amended Section 104 of the Sarbanes-Oxley Act of 2002 and expanded the PCAOB's authority include inspections of auditors of broker-dealers after it was found that Bernard Madoff's massive fraud was aided by an accountant who never bothered to look at the books and worked in a one-room office at a suburban strip mall.

The interim program is largely in line with the proposal issued in December in Release No. 2010-008, Proposed Temporary Rule for an Interim Inspection Program for the Audits of Brokers and Dealers, said PCAOB deputy general counsel Michael Stevenson.

The interim program will last about two years and will cover all auditors of broker-dealers.

The PCAOB also adopted a funding mechanism to support the inspections. The interim inspection program and funding rules are subject to SEC approval.

04/11/11 -- PCAOB to Scrutinize Quality Control at Large Firms
As discussed in the article entitled "Quality Control at Large Firms to Come Under Scrutiny" in the April 6, 2011, issue of Accounting & Compliance Alert, the PCAOB may consider changes to standards on a principal auditor's use of other audit firms in global networks.

During a speech at the Council of Institutional Investors spring meeting in Washington on April 4, PCAOB Chairman James Doty said that the board plans to first upgrade its inspection of the quality control processes of large firms that participate in global networks.

"Audit reports by such firms do not generally describe the affiliated firms that participated in the audit or the coordination that was required," Doty said. "The firm that signs the report stands by the work of the firms that are not named, which is important. But the public is left with the impression that the signing firm performed all the procedures described in the audit report, and that is generally not the case."

Doty said that this year, the PCAOB inspections will focus on evaluating the quality of communications and coordination among affiliates in the global networks.

"Inspectors will examine firms' supervision of work performed by affiliated firms, including firms' controls over consultations on accounting and auditing issues, as well as engagement teams' use and evaluation of affiliates' work," Doty explained. "Based on what we find, we are planning to consider any appropriate changes to our standard on the principal, or signing, auditor's use of other audit firms."

03/23/11 -- PCAOB's Advisory Group to Discuss Implications of Accounting Convergence
As discussed in the article entitled "Audit Advisory Group to Discuss Implications of Accounting Convergence" in the March 21, 2011, issue of Accounting & Compliance Alert, the PCAOB's Standing Advisory Group is scheduled to review the effect the international convergence of accounting standards may have on auditors during a meeting set for March 24.

FASB member Lawrence Smith is slated to update SAG members on the board’s standard-setting, including the projects on revenue recognition, lease accounting, and financial instruments.

The projects, some of which are expected to be completed this year, may result in significant changes for public companies and investors. It's expected that audit firms will have to prepare their staffs to ensure their readiness for the amended guidance.

Last year, SAG members discussed some potential challenges that auditors will have from the convergence effort and other amendments to U.S. GAAP, including the increased use of fair value measurements, estimates, and judgments.

03/11/11 -- PCAOB Moves Review of Audit Reports to Standard-Setting Agenda
As discussed in the article entitled "Review of Audit Reports Moves to Standard-Setting Agenda" in the March 9, 2011, issue of Accounting & Compliance Alert, the PCAOB said it will hold a meeting on March 22 to review its staff’s research on a potential expansion of the auditor’s reporting model.

The meeting will set the stage for a concept release the board expects to publish this spring.

The auditor’s report has not changed significantly in decades. For most public company filings, it's a short, one-page statement that amounts to a pass-fail system. Typically it says a client's financial statements were examined and prepared in accordance with U.S. GAAP and fairly present the client's operations and finances.

But in 2008, the Treasury Department’s Advisory Committee on the Auditing Profession asked the PCAOB to consider changes so that the reports have some use for investors.

02/24/11 -- PCAOB Inspections Staffer Promoted to Division Director
As discussed in the article entitled "Inspections Staffer Promoted to Division Director" in the February 23, 2011, issue of Accounting & Compliance Alert, Helen Munter will become director of the division of registration and inspections, the PCAOB's largest, on March 1 when George Diacont retires.

Munter will oversee the division's regular inspections of hundreds of registered public accounting firms. She joined the PCAOB in 2004 as regional director for the San Mateo, CA, office, and became deputy director in 2008. During this time, she led some of the division's largest inspections.

Prior to joining the PCAOB, she was an audit partner and deputy director of professional practice in the San Francisco office of Deloitte & Touche LLP.

02/10/11 -- PCAOB's Registration and Inspection Chief to Retire
As discussed in the article entitled "Director of Registration and Inspection to Retire" in the February 8, 2011, issue of Accounting & Compliance Alert, the PCAOB said February 7 that registration and inspection director George Diacont will retire in early March.

Diacont ran the inspection division for eight years after the board was founded in 2003 and helped design the board’s inspection process.

The PCAOB has conducted more than 1,200 inspections in the U.S. and more than 250 in 35 other countries. In the process, it has identified numerous accounting and auditing problems.

Before joining the PCAOB, Diacont was chief accountant of Nasdaq Listing Investigations, where he had to track down allegations of fraud involving companies that traded on the Nasdaq.

Before Nasdaq, Diacont worked at the SEC for more than 20 years. He was acting SEC chief accountant and the top accountant in the enforcement division.

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10/21/11 -- FAF Wants to Avoid a Two-Tier Accounting System
As discussed in the article entitled "FAF Wants to Avoid a Two-Tier Accounting System" in the October 19, 2011, issue of Accounting & Compliance Alert, the Financial Accounting Foundation was worried about creating a Big GAAP-Little GAAP financial reporting system, and that caused it to stop short of endorsing an AICPA call for a separate accounting standards board devoted strictly to private companies.

Instead, the foundation, which oversees the standard-setting of the FASB and GASB, called for creating an advisory council to replace the Private Company Financial Reporting Committee (PCFRC) and work closely with the FASB on writing exceptions to U.S. GAAP for privately held businesses.

A two-tier accounting system with one set of standards for public companies and a second set for private companies "could create confusion, increase costs, and potentially lower the quality of accounting standards-and the quality of financial reporting," said FAF President and CEO Teresa Polley in the foundation's October 2011 newsletter.

The foundation said it considered the recommendations of the Blue-Ribbon Panel on Standard Setting for Private Companies, which was jointly sponsored the FAF, the AICPA, and the National Association of State Boards of Accountancy (NASBA), before it issued Request for Comment, Plan to Establish the Private Company Standards Improvement Council, in early October.

But the foundation rejected the key recommendation of the Blue-Ribbon Panel, which was strongly supported by the AICPA, for a separate standards board.

03/08/11 -- FAF to Give More Attention to Private Company Concerns
As discussed in the article entitled "FAF to Give More Attention to Private Company Concerns" in the March 7, 2011, issue of Accounting & Compliance Alert, the Financial Accounting Foundation, which oversees the FASB and GASB, formed a working group on March 4 to deal with accounting standards for private businesses and not-for-profit groups.

The announcement came six weeks after a group jointly sponsored by the FAF, the AICPA, and the National Association of State Boards of Accountancy (NASBA), issued a formal recommendation that the foundation set up a distinct standard-setting body to deal solely with private company issues.

The working group will use the recommendations from the Blue-Ribbon Panel on Standard Setting for Private Companies as part of its work.

The work will take six to eight months, according to an FAF spokeswoman.

The group will meet and hold roundtable discussions with accounting professionals and other interested parties.

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1/31/12 - FASB and IASB Move Closer to Deal on Classification and Measurement
As discussed in the article entitled "Standard-Setters Move Closer to Deal on Classification and Measurement" in the January 30, 2012, issue of Accounting & Compliance Alert, the FASB and IASB agreed to move closer together on the classification and measurement portion of the financial instruments project.

Meeting via videoconference on January 27, the boards agreed to focus on three areas: financial instruments measured at amortized cost; whether there should be separate measurement, or bifurcation, for financial assets that have been hedged with derivative contracts; and whether there should be a model that shows the changes in the fair value of a debt security in other comprehensive income and not net income.

The boards may then consider related issues that would be affected by their progress, such as disclosure requirements or the guidance for financial liabilities, according to a staff memo.

The boards unanimously supported the plan.

"I think it's a very, very good opportunity for us to try and narrow the differences between where we've landed in our decisions so far," FASB Chairman Leslie Seidman said.

1/19/12 -- FASB and IASB Set to Move Forward on Convergence Projects
As discussed in the article entitled "Standards Boards Set to Move Forward on Convergence Projects" in the January 17, 2012, issue of Accounting & Compliance Alert, the FASB and IASB plan to meet via videoconference on January 25 and 27 to discuss the insurance project and the impairment portion of the financial instruments project.

The accounting boards last took up the insurance project in December, when they debated the definition of a portfolio of insurance contracts. The boards indicated that a portfolio would be defined as a group of contracts with similar risks and similar durations but asked their research staffs to come back with a proposal for a future meeting.

The insurance project aims to give investors and creditors a clearer picture about the assets and liabilities in insurance contracts, but the boards' efforts to converge their work has been hampered by the different schedules on which they are working.

The accounting standard-setters have done a better job aligning their work with the impairment portion of the financial instruments project. The boards want to categorize loans and other debt securities by expected credit losses into three categories, or buckets.

The accounting boards have yet to release a detailed agenda for the joint meetings, but during the most recent discussion they held in December, the boards said they wanted to progress quickly with the project in the New Year.

12/12/11 -- FASB and IASB Continue to Refine Asset Impairment Model
As discussed in the article entitled "Impairment Model Debate Begins to Focus on Cash Flow Forecasts" in the December 9, 2011, issue of Accounting & Compliance Alert, the FASB and the IASB are slated to refine the "three-bucket" expected loss approach for the impairment of financial assets during their next joint meeting December 14-16.

The expected-loss model for asset impairments is among the most important pieces of the financial instrument standard the boards are trying to write together, said IASB member John Smith December 7 at the AICPA's National Conference on Current SEC and PCAOB Developments in Washington.

With the other two portions of the project-classification and measurement and hedging-the boards have made less progress. But with the impairment model, the boards agree on the general outline of an approach that deals with the general pattern of deterioration in the credit quality of financial assets.

In June, the accounting standard-setters laid out an approach that uses three buckets, or stages, for monitoring deterioration in credit quality. Now the boards want to add details to the method for recognizing losses caused by deterioration in credit quality and determine how the deterioration in quality should be recorded in the financial statements.

12/08/11 -- FASB, IASB Leaders Say International Convergence Is Winding Down
As discussed in the article entitled "Seidman, Hoogervorst See an End to Convergence" in the December 7, 2011, issue of Accounting & Compliance Alert, the FASB and IASB are ready to end the international convergence effort they pursued for the past decade.

The decision to bow to the inevitable comes six months after a self-imposed deadline expired without the boards completing the projects in their Memorandum of Understanding, the document that outlined the standards in U.S. GAAP and IFRS that would be merged into a single set of accounting principles.

By 2010, the boards jettisoned most of the MOU projects to focus on three-financial instruments, revenue recognition, and lease contracts. A fourth project on insurance accounting that had been begun by the IASB was rolled into the convergence effort after the FASB signed on.

The U.S. board is committed to finishing the four remaining projects, but going beyond them is not viable, "politically or practically," said FASB Chairman Leslie Seidman, who added she was speaking for herself, not the board.

IASB Chairman Hans Hoogervorst, who took the helm of the international board saying convergence was his number one priority, backtracked from that position in November and reiterated those sentiments with Seidman.

11/22/11 -- FASB, IASB Want Lease Commitments Recognized in Mergers and Acquisitions
As discussed in the article entitled "Buyers Will Recognize A Seller's Lease Commitments" in the November 18, 2011, issue of Accounting & Compliance Alert, the FASB and IASB concluded their discussions of some remaining details on their pending standard on lease accounting during a November 16 videoconference meeting.

The boards decided to support the staffs' recommendation that when one company buys a second that holds some lease contracts, the buyer should recognize the acquired commitments on its balance sheet as liabilities. The contracts should be measured at the present value of future lease payments as if the contract is a new lease.

When the company being acquired is a lessee, the asset side of the balance sheet would show the right to use the property or equipment as an asset equal in value to the liability.

The staff said its method would achieve the benefits of fair value measurement without the related costs. The staff also called its approach consistent with the lessee model in the proposed lease standard and relatively simple to apply.

However, the boards decided to go with FASB member Russell Golden's suggestion to exclude short-term leases of less than a year from the proposed change.

10/19/11 -- FASB and IASB to Discuss Leases and Insurance Contracts at Next Meeting
As discussed in the article entitled "Leases, Insurance to Dominate Joint Meeting" in the October 17, 2011, issue of Accounting & Compliance Alert, the international convergence projects on lease accounting and insurance contracts are expected to take up most of the joint FASB and IASB meeting on October 19-20.

The projects are each slated for several hours of discussion, according to the meeting agenda. The standard-setters hope to release the exposure drafts for both projects in 2012.

Big differences remain between the boards on the insurance project. The standard-setters haven't decided on the model to use for short- and long-term policies and whether there should be different approaches.

The boards are mostly on the same page when it comes to lease accounting, but the FASB is facing pressure from U.S. business groups to consider two accounting models for lessors as opposed to the single approach the boards tentatively agreed to in July.

10/06/11 -- FASB Parent Organization Proposes Private Company Standards Improvement Council
As discussed in the article entitled "FAF Call for Private Company Council Falls Short of AICPA Demands" in the October 5, 2011, issue of Accounting & Compliance Alert, the Financial Accounting Foundation, the parent organization of the FASB and GASB, published a Request for Comment, Plan to Establish the Private Company Standards Improvement Council.

The document outlines a plan to create an advisory council to help the FASB amend U.S. GAAP to address the needs of private companies.

The proposal is a response to repeated requests over several years from the AICPA for a separate accounting board devoted to private companies. The plan is out for comment until January 14, 2012.

The AICPA responded with a statement calling the FAF move an inadequate response to years of "pent-up frustration" among private companies. AICPA President and CEO Barry Melancon said he was "profoundly disappointed" with the plan because it did not call for establishing an independent standard-setting body.

The "Private Company Standards Improvement Council (PCSIC) will identify, propose, deliberate, and formally vote on specific exceptions or modifications to U.S. GAAP for private companies," the FAF said. If two-thirds of the council approves a decision, it will be sent to the FASB.

The FAF said the PCSIC will replace the Private Company Financial Reporting Committee (PCFRC), which the FASB and AICPA set up in 2006.

10/05/11 -- FASB and IASB to Issue Second Lease Contract Exposure Draft in 2012
As discussed in the article entitled "Second Lease Contract Exposure Draft May Be Ready in 2012" in the October 4, 2011, issue of Accounting & Compliance Alert, accounting standard-setters are expected to release the second round of their joint lease accounting proposal in early 2012.

The FASB and IASB decided to reissue the proposal for comment in July after recognizing that the changes they made since the original exposure draft needed a public airing.

"They did a 180 without really consulting with anybody, which we found disturbing," said Tom Quaadman, vice president of U.S. Chamber of Commerce's Center for Capital Markets Competitiveness.

The FASB and IASB had earlier hoped to release the second exposure draft by the end of 2011.

The FASB issued proposed Accounting Standards Update (ASU) No. 1850-100, Leases (Topic 450), in August 2010. The IASB's version was Exposure Draft (ED) No. 2010-9, Leases.

09/21/11 -- FASB and IASB Address Scope of Lease Accounting Proposal
As discussed in the article entitled "Standard-Setters See Differences Between Standards for Inventory and Leases" in the September 20, 2011, issue of Accounting & Compliance Alert, accounting standard-setters addressed what may be some of the final issues regarding the scope of a converged standard on lease accounting during a September 19 videoconference.

The boards also examined some measurement issues with a project that aims to end the long-standing practice in U.S. GAAP and IFRS that leaves most operating leases off company balance sheets.

Many investors say putting leases on company balance sheets will give a clearer picture of a business's liabilities because the leasing of equipment or buildings allows many businesses to report lower financial leverage and higher profitability.

With regard to the project's scope, the FASB and IASB took up the question of whether an agreement to mine for precious metals or a contract to obtain spare parts, which is called a right-of-use, should be part of the standard. The boards tentatively decided that the arrangements typically fall under "inventory." Those that do meet the definition of a lease, however, could not also be defined as inventory.

Assets such as nondepreciating spare parts and operating materials would remain in the scope of the leases project, the boards voted in a related decision.

09/15/11 -- FASB and IASB to Discuss Three Convergence Projects at Next Meeting
As discussed in the article entitled "Three Convergence Projects on Tap For Next Joint Meeting" in the September 14, 2011, issue of Accounting & Compliance Alert, the FASB and IASB plan to meet via videoconference on September 19 and 21 to discuss lease accounting, insurance contracts, and the asset impairment test in the financial instruments project.

The meeting will be the first joint session the boards have held in two months.

The standard-setters remain far apart on insurance contracts, with U.S. insurers pressuring the FASB to scrap the international board's plan to create a single accounting model for both life and property-and-casualty insurance companies. U.S. underwriters argue that the policies have very different business models and require separate accounting rules, which is the system that exists today in U.S. GAAP.

According to agenda papers released in advance of the meeting, the boards plan to discuss the risk adjustment and disclosures along with the FASB's recent discussion about the so-called single-margin approach to insurance contracts. The single margin values an insurance contract based on the expected premiums from a policyholder minus the anticipated liability for claims over the contract's life. The values incorporate an implicit assumption about the risk or uncertainty connected to them.

09/14/11 -- FASB and IASB to Discuss Leases at Next Meeting
As discussed in the article entitled "Standard-Setters to Tackle Leases Project" in the September 13, 2011, issue of Accounting & Compliance Alert, accounting standard-setters are gearing up for a meeting later this month to address lease accounting.

The FASB discussed the project's scope and the presentation of some lease contracts in financial statements during a September 9 education session. The board does not make decisions at education sessions, but the discussion served as a preview for the joint videoconference meeting with the IASB scheduled for September 19.

The lease project aims to end the long-standing practice in U.S. GAAP and IFRS that leaves most operating leases off company balance sheets. Many investors say that requiring leases to be recognized on company balance sheets will give a clearer picture of a business's liabilities. Businesses that lease equipment or buildings instead of buying generally report lower financial leverage and higher profitability.

Because so many businesses use leases-for everything from storefronts and office equipment to machinery-the project has been one of the standard-setters' most closely watched efforts.

05/31/11 -- FASB and IASB Continue Discussion on International Convergence
As discussed in the article entitled "Convergence Projects Fill Schedule for Next Round of Meetings" in the May 27, 2011, issue of Accounting & Compliance Alert, the FASB and IASB were to discuss four convergence projects during a videoconference meeting held May 31 and June 1.

With the project on insurance contracts, the boards planned to discuss the accounting for reinsurance. For the lease accounting project, the standard-setters were scheduled to discuss subsequent measurement of the assets and liabilities on a lessee’s balance sheet.

The boards were also planning to discuss the revenue recognition project. The meeting agenda also included a presentation from the International Swaps and Derivatives Association about the accounting treatment for settlement of a derivatives contract and the treatment of collateral in the balance sheet offsetting project.

In a second discussion on balance sheet offsetting, the boards planned to discuss other issues pertaining to collateral.

05/09/11 -- FASB and IASB to Discuss Revenue Recognition and Insurance Contracts at Next Meeting
As discussed in the article entitled "Convergence Projects Get Set for Next Round of Joint Meetings" in the May 6, 2011, issue of Accounting & Compliance Alert, the FASB and IASB plan to discuss their convergence projects on revenue recognition and insurance contracts during a May 11 videoconference meeting.

For the revenue recognition project, the boards want to discuss how the proposed accounting model will affect telecommunications companies. The boards don't plan on making any decisions during the session.

Separately, the FASB said it will hold informal education sessions on the convergence projects for lease contracts and financial instruments.

The boards plan to discuss international convergence in more detail during meetings planned for May 17-19 in London.

03/14/11 -- FASB and IASB to Discuss Proposed Insurance Standard
As discussed in the article entitled "Proposed Insurance Standard to Dominate Next Round of Joint Board Meetings" in the March 11, 2011, issue of Accounting & Compliance Alert, the FASB and IASB plan to meet for three days via videoconference March 14-16 and devote most of the sessions to their joint project on insurance accounting.

Insurance is one of the four high-profile projects on the standard-setters' convergence plan—the others being financial instruments, lease accounting, and revenue recognition—and the boards have been meeting regularly for the past 18 months to meet an accelerated deadline of issuing a final standard.

The IASB is still planning to have its final guidance out by June, while the FASB's scheduling is likely to result in a standard published in 2012.

The boards are trying to complete the work on some significant issues in the project, including the measurement of a contract's profitability.

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