The PCAOB adopted rules that will allow certain registered firms to provide audit services without a break in their PCAOB registration status when there has been some change in their legal form.

Under section 102(a) of the Sarbanes- Oxley Act and PCAOB rules, a public accounting firm must be registered with the PCAOB to prepare or issue audit reports for public companies or to play a substantial role in such work. To become registered, an accounting firm files an application for registration on PCAOB Form 1, which the board may approve or disapprove. The new rules and form—PCAOB Form 4—identify circumstances in which the registration status of a registered firm may continue in effect even after the firm’s legal form has changed or the firm has combined with another firm, without the new legal entity needing to apply for registration on Form 1.

The rules would take effect 60 days after SEC approval. The text of the rules and the instructions to Form 4 can be found on the PCAOB Web site, www.pcaobus.org, under the rulemaking docket.

The FDIC added a tool to its Web site that allows depositors at failed institutions to determine coverage on their deposits. The tool is available to depositors of insured institutions that fail after July 1, 2008. The first depositors to use the tool were from IndyMac Bank, the $32 billion institution that failed in July. Through Aug. 25, four banks had been added: First Heritage Bank of Newport Beach, Calif., First National Bank of Reno, Nev., First Priority Bank of Bradenton, Fla., and The Columbian Bank and Trust of Topeka, Kan.

The tool is at www2.fdic.gov/dip/index.asp. The FDIC says the tool is available to depositors no later than the first business day after a failure.

The SEC’s Advisory Committee on Improvements to Financial Reporting (CIFiR), submitted its final report in August. The report makes 25 recommendations that could be implemented by the SEC, FASB and the PCAOB.

The CIFiR report provides practical proposals to improve financial reporting in five main areas: (1) increasing the usefulness of information in SEC filings; (2) enhancing the accounting standards-setting process; (3) improving the substantive design of new standards; (4) delineating authoritative interpretive guidance; and (5) clarifying guidance on financial restatements and accounting judgments.

Among other things, the committee noted in the first area that many individual investors find company filings with the SEC to be overly complex and detailed. Thus the committee recommended including a short executive summary at the beginning of a company’s annual report that would describe concisely the main aspects of its business and its key performance metrics.

In the second area, the committee called for more investor participation in accounting standard setting by increasing investor representation on the boards of FASB and the Financial Accounting Foundation.

In the third area, the committee noted that the underlying objectives of certain accounting standards are sometimes obscured by dense language, detailed rules and numerous exemptions. The committee recommended another approach to the substantive design of standards. For example, it called for improved rules on off-balancesheet accounting and fewer situations where alternative accounting standards exist for the same transaction. The committee recommended that companies provide better disclosure to investors about what portion of their earnings constitutes cash or accrued income based on historical cost accounting and what portion represents unrealized gains or losses based on fair value estimates.

To reduce the proliferation of U.S. GAAP, the committee said it strongly supports FASB’s efforts to complete the codification of all authoritative accounting literature into one document. The committee said that others such as audit firms may still publish their views on accounting issues, but they should be labeled as nonauthoritative. In this fourth area, the committee also called for a clearer delineation of functions on interpreting accounting standards—with FASB taking the lead on broad issues and the SEC on registrantspecific issues.

In the fifth area, the committee recommended increased correction of accounting errors and more disclosures about those corrections to investors. However, the committee warned that correcting every accounting error should not automatically result in a lengthy process of restating financial statements for several prior years. The committee said that in the “dark period” during restatements when companies generally cease filing current financial reports, companies usually do not provide investors with much information. Thus, the committee said it believes that restatements of prior years should be undertaken for correcting accounting errors that are material to current investors.

The SEC already has taken steps based on two earlier recommendations made by the CIFiR. On May 14, the SEC formally proposed using XBRL technology to get important information to investors faster, more reliably, and at a lower cost by requiring all U.S. companies to provide financial information using XBRL beginning as early as next year. And on July 30, the SEC approved new guidance to public companies to address their concerns about how to comply with the securities laws while developing their Web sites to serve as an effective means for disseminating important information to investors.

To view or download the report, visit www.sec.gov/about/offices/oca/acifr/acifr-finalreport.pdf.

FASB board members support a 2010 adoption date for proposed amendments to FASB Statement no. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and FASB Interpretation no. 46 (revised December 2003), Consolidation of Variable Interest Entities.

The board decided on a single effective date for fiscal years beginning after Nov. 15, 2009. The board also decided to separately issue a FASB Staff Position that would require additional disclosures as soon as possible.

The board clarified that the initial consolidation of a variable-interest entity as a result of the initial application of the proposed amendments to FIN 46(R) would require an enterprise to initially measure all assets and liabilities at fair value, with any difference being recorded as a cumulative effect adjustment to retained earnings that would be recorded as of the beginning of the first fiscal year in which the proposed amendments are initially applied.

Many of the disclosures approved for the proposed amendments to Statement no. 140 and FIN 46(R) at FASB’s June 4, 2008, board meeting will be included in a separate FSP. The proposed FSP will require a non-transferor enterprise that holds a significant variable interest in a qualifying special-purpose entity to make certain disclosures required by the proposed amendments to the FIN 46(R) disclosures. The proposed FSP will be effective as soon as possible, but no later than the first interim reporting period in 2009. It will apply only to public companies.

The purpose of a disclosure-only FSP is to meet financial statement user needs for greater transparency for off-balance-sheet transactions as well as to provide preparers and others with adequate time to consider and implement the other proposed amendments to Statement no. 140 and FIN 46(R).

FASB will defer the development of a new accounting model for lessors. Its leaserelated project will address only lessee accounting. The board also agreed with an overall approach to generally apply the finance lease model in International Accounting Standard (IAS) 17, Leases, adapted where necessary, for all leases.

The board decided to require lessees to include contingent rentals in the measurement of the right-of-use asset and the lease obligation based on their best estimate of expected lease payments. Both the right-of-use asset and the lease obligation should be initially measured at the present value of the best estimate of expected lease payments for all leases. Options to extend or terminate the lease would be included in the measurement of the right-of-use asset and the lease obligation based on the best estimate of the expected lease term. Contractual factors, non-contractual factors and business factors should be considered when determining the lease term, the board concluded.

The Financial Crimes Enforcement Network issued guidance to casinos and card clubs with “red flags” that may indicate the presence of money laundering, terrorist financing and related financial crimes.

FinCEN’s guidance FIN-2008-G007, Recognizing Suspicious Activity—Red Flags for Casinos and Card Clubs, gives examples of activities that may be attempts to evade Bank Secrecy Act reporting or recordkeeping requirements, such as minimal gaming activities without reasonable explanations. The red flags are based on actual suspicious activity reports, observations of examiners, and experience of law enforcement.

The guidance is available at www.fincen.gov.

GASB issued a proposed technical bulletin that clarifies that the use of actual known amounts for purposes of calculating the annual required contribution (ARC) adjustment relating to pensions and other post-employment benefits (OPEB) is consistent with the intent of existing standards. The proposed technical bulletin, Determining the Annual Required Contribution for Postemployment Benefits, clarifies that using the known amount in place of the estimation procedure in GASB Statement no. 27, Accounting for Pensions by State and Local Governmental Employers, and Statement no. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, is encouraged.

Statements no. 27 and no. 45 assume that the ARC adjustment is not known and require governments to use a method of estimation. Since it has come to GASB’s attention that some actuaries do track that portion of the ARC separately, the proposed technical bulletin will clarify that governments may base the ARC adjustment on the actual amount when it is known.

The proposed technical bulletin is available at www.gasb.org/exp.

The trustees of the International Accounting Standards Committee (IASC) Foundation published a discussion document containing proposals that would establish a formal link between the IASC Foundation and a monitoring group composed of representatives of public authorities and international organizations that are accountable to public authorities. The proposals would also expand the membership of the International Accounting Standards Board (IASB) to 16 members and add new guidelines regarding the geographical diversity of the membership.

The establishment of the link to a monitoring group is aimed at enhancing the transparency and public accountability of the IASC Foundation, while not impairing the independence of the standard-setting process, according to an IASC Foundation news release.

The discussion document, Review of the Constitution: Public Accountability and the Composition of the IASB—Proposals for Change, is available at www.iasb.org/ NR/rdonlyres/12CC476D-B88F-418A- 826F-71A7465FC2E0/0/Proposal_ and_issues_for_the_Constitution.pdf.

Although investors are less confident in U.S. capital markets than they were a year ago, 70% or more continue to voice confidence in the markets and U.S. companies in general, as well as in audited financial statements, according to the Center for Audit Quality’s second annual survey of investors.

Seventy percent of investors who were surveyed between July 10 and July 20 expressed confidence in U.S. capital markets, down from 84% in July 2007. Rising gas and oil prices, the weakness of the dollar and the home foreclosure crisis were the top reasons for their reduced faith. Public confidence in audited financial statements was 73%—down from 80% a year ago.

A larger number of investors now describe themselves as “inexperienced” investors, with a corresponding increase in reliance on a broker or money manager. Eleven percent of investors say they have diversified their portfolios. The survey also found that nearly half of investors (45%) read companies’ financial reports “very” or “somewhat” often, but that many find the reports hard to use. Respondents voiced strong support (72%) for the design of a more user-friendly way of accessing and reading financial reports.

The relevance of financial reporting was the dominant theme of the CAQ’s recently concluded Public Dialogue Tour, according to CAQ Executive Director Cindy Fornelli. “In 10 cities across the country, the public company auditing profession heard from a variety of stakeholders that modernizing the business reporting model—and doing so in a manner that puts investors’ needs first—should be our highest priority,” Fornelli said in a press release. “That will be the primary focus of the Tour’s final report to be issued later this year.”

In addition to the design of more user–friendly financial reports, other proposals that investors said would give them a higher level of confidence are:

Creating an institute for auditing firms to share experiences and develop best practices for fraud prevention and detection (67%).

Allowing investors to access financial reports in a way that is customized to their specific interests and expertise (63%).

Requiring enhanced levels of public disclosure that provide investors with more information when public companies change auditors (63%).

Creating a single, uniform, international set of accounting standards (62%).

The survey summary and the complete questionnaire are posted on the CAQ’s Web site, http://thecaq.org/newsroom/pdfs/july2008investorsurvey.pdf.

Secretary of Labor Elaine L. Chao and SEC Chairman Christopher Cox signed a memorandum of understanding (MOU) that formalizes cooperation to share information relating to retirement and investments, and provide investors, benefit plan participants, and plan administrators with better access to more understandable information for making informed investment decisions.

The MOU establishes a process for the Labor Department’s Employee Benefits Security Administration and SEC staff members to share information and meet regularly to discuss matters of mutual interest, including examination findings and trends, enforcement cases, and regulatory requirements that impact the missions of both agencies.

For a copy of the MOU, visit www.dol.gov/opa/media/reports/mou072908.pdf or www.sec.gov/news/press/2008/mou072908.pdf.

Public pension plans that invested in alternative assets such as hedge funds had significantly higher standard deviations in return over a five-year period relative to other pension plans but did not have significantly different returns over the same period after measuring risk-adjusted returns with the Sharpe Ratio. The Office of the Comptroller of the Currency released the data in the work paper Alternative Assets and Public Pension Plan Performance.

The paper says plans that invested in hedge funds in 2006 did not have significantly different investment returns compared with those that did not invest in hedge funds. The paper says returns for funds that had 10% or more of their assets in alternative investments performed worse than other pension funds in 2002 and 2003 and significantly better overall in 2004, 2005 and 2006.

The authors say more “seasoned data” must be compiled before any strong conclusions can be made about the effects of hedge funds on public pension funds. The work paper is available at www.occ.gov/ftp/workpaper/wp2008-2.pdf.