Financial Reporting



The SEC adopted an amendment to its executive and director compensation disclosure rules to more closely conform the reporting of stock and option awards to FASB Statement no. 123(R), Share-Based Payment. The changes apply to rules the commission adopted in July 2006 to enhance executive compensation disclosure requirements for proxy statements, registration statements and annual reports filed by public companies.

The commission’s amendment will align the reporting of equity awards in the Summary Compensation Table and the Director Compensation Table to the amounts that are disclosed in the financial statements under Statement no. 123(R), which requires recognition of the costs of equity awards over the period in which an employee is required to provide services in exchange for the award. The change is intended to give investors a better idea of the compensation earned by an executive or director during a particular reporting period.

The amendment, in the form of interim final rules, was published in the Federal Register on Dec. 29, 2006. The changes apply to proxy, information and registration statements filed on or after Dec. 15, 2006, that are required to include Item 402 disclosure for fiscal years ending on or after Dec. 15, 2006, and for forms 10-K and 10-KSB for fiscal years ending on or after Dec. 15, 2006. The amendment is available at www.sec.gov/rules/final/2006/33-8765.pdf .

FASB issued for public comment proposed Statement 133 Implementation Issue No. H17, Foreign Currency Hedges: Hedging Functional-Currency-Equivalent Proceeds to Be Received From a Forecasted Foreign-Currency-Denominated Debt Issuance.

The statement clarifies that the variability in functional-currency-equivalent proceeds expected to be received from the forecasted issuance of debt, denominated in a currency other than the reporting entity’s functional currency, cannot be designated as the hedged transaction in a cash flow hedge of foreign currency risk because it does not affect reported earnings, as required by paragraph 29(c) of FASB Statement no. 133, Accounting for Derivative Instruments and Hedging Activities. The guidance, if adopted, would apply for each reporting entity on the first day of its first fiscal quarter beginning after the board’s cleared guidance is posted on the FASB Web site. The guidance is available at www.fasb.org/derivatives/12-28-06.pdf .

An AICPA task force and staff produced a working draft of a document designed to guide practitioners in accounting for equity-related financial instruments including convertible debt, convertible preferred shares and warrants.

The document is designed to help preparers and auditors of financial statements determine whether those financial instruments should be classified as stockholders’ equity or as assets or liabilities, among other issues. A working draft of the document is available at www.aicpa.org/Professional+Resources/ .

The AICPA staff also issued technical practice aids answering frequently asked questions on the following topics relating to investment companies:

Recognition of premium/discount on short positions in fixed-income securities.

Presentation of reverse repurchase agreements.

Accounting treatment of offering costs incurred by investment partnerships.

Meaning of “continually offer interests.”

The AICPA staff also issued these TPAs:

Income Tax Accounting for Contributions to Certain Nonprofit Scholarship Funding Organizations, which specifies that a contribution to a scholarship fund eligible for a state corporate income tax credit should be reported on income statements as a contribution, not an income tax expense.

Accounting for Certain Liquidated Damages, which states that liquidated damages, or contractual payments for late or incomplete delivery of certain fixed assets, typically would be recorded as a reduction of payments the buyer has made to the vendor.

Parent-Only Financial Statements and Relationship to GAAP notes a presumption under Accounting Research Bulletin 51 in favor of consolidated financial statements of entities with majority-owned subsidiaries.

These and other recently issued TPAs are available at www.aicpa.org/Professional+Resources/ .

 

 

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