Highlights

BY STANLEY ZAROWIN

FASB issued Statement no. 157, Fair Value Measurements, which provides enhanced guidance for using fair value to measure assets and liabilities and will apply where other standards require or permit fair value measurements ( www.fasb.org/pdf/fas157.pdf). Although the statement does not require any new measurements, some entities will have to change their current practice in order to comply with it. Among other things, the statement

Retains the notion that the exchange price is that of an orderly transaction to sell an asset or transfer a liability in its principal or most advantageous market.

Emphasizes that fair value is a market-based—not entity-specific—measurement and that a fair value measurement should be based on assumptions market participants would use in pricing an asset or liability.

Clarifies that such assumptions include those about risk and about the effect of a restriction on the sale or use of an asset and that a fair value measurement for a liability reflects its nonperformance risk.

Affirms that the fair value of a position in a financial instrument that trades in an active market should be measured as the product of the quoted price for the individual instrument multiplied by the quantity held.

Expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition.

Applies to derivatives and other financial instruments measured at fair value under FASB Statement no. 133, Accounting for Derivative Instruments and Hedging Activities, at initial recognition and in all subsequent periods.

Statement no. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within them. The board encourages earlier application, provided the reporting entity has not yet issued financial statements for that fiscal year or an interim period within it. With certain exceptions, the provisions of the statement should be applied prospectively as of the beginning of the fiscal year in which the statement is initially applied.

After several companies had restated their financial statements to correct errors in accounting for stock option grants, the staff of the SEC’s Office of the Chief Accountant wrote a letter to the AICPA Center for Public Company Audit Firms and Financial Executives International expressing its views on existing accounting guidance related to grants of stock options ( www.sec.gov/info/accountants/staffletters/fei_aicpa091906.htm). In most cases, the guidance referred to was Accounting Principles Board Opinion no. 25, Accounting for Stock Issued to Employees.

The letter, which does not apply in any other context, discusses the backdating of options awards, options grants with administrative delays, validity of prior grants, uncertainty about individual award recipients, setting an exercise price by referring to a future market price, grants prior to the commencement of employment, incomplete or missing documentation of options-granting activities, changes to options grants due to the release of new information, and the timing of and income tax benefits related to such grants.

The Treasury Department and the IRS proposed regulations that clarify the treatment of expenditures incurred in selling, acquiring, producing or improving tangible assets ( www.regulations.gov; document ID IRS-2006-0454-001). The proposal clarifies and expands the standards in the current regulations and provides clear-cut tests for determining whether amounts paid to restore property to its former working condition must be capitalized as improvements. Comments are due November 20, 2006.

The IRS’s private debt collection initiative took effect in September, when the service assigned delinquent federal tax accounts to three outside contractors that, by yearend, will have contacted approximately 40,000 taxpayers who are in arrears. Information on the collection program and the IRS’s plan for ensuring the privacy of taxpayer information are available at www.irs.gov/newsroom/article/0,,id=161179,00.html.

The AICPA and the Association of Certified Fraud Examiners (ACFE) released “Fraud and the Tone at the Top,” a free Web-based video training program designed for corporate executives and employees. In it, AICPA President and CEO Barry C. Melancon and ACFE founder and Chairman Joseph T. Wells identify major fraud factors and common ethical violations—and suggest ways to overcome them. The video and other free resources are available at the AICPA Antifraud and Corporate Responsibility Center ( http://antifraud.aicpa.org).

The Institute announced that XBRL-US will convert from operating under the committee structure of the AICPA to an independent, not-for-profit organization called XBRL-US Inc., which will continue as the chartered U.S. jurisdiction of XBRL International Inc. and as a member-supported entity. The SEC recently awarded a $5.5 million contract to XBRL-US Inc. for it to complete the development of XBRL taxonomies for U.S. GAAP financial reporting. More information is available at www.xbrl.org/us.

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