Financial Reporting



The AICPA’s Accounting Standards Executive Committee (AcSEC) offered comments on a proposed FASB statement, Not-for-Profit Organizations: Mergers and Acquisitions. In the March 1 letter, AcSEC said the proposed statement is a step in the right direction, but also offered several caveats. Distinguishing between the acquiring entity and the one acquired is often less clear with not-for-profit organizations (NPOs) than with business enterprises, AcSEC said. Also, goodwill should be recognized only on objective criteria, not just to balance consideration paid for an organization with its net assets, AcSEC said. Furthermore, FASB should consider the implications of opt-out clauses in such transactions, which raise issues of both recognition and measurement of transactions. The letter is available at www.aicpa.org/download/acctstd/Mergers_and_Acquisitions_comment_letter.pdf.

A second, related FASB exposure draft is Not-for-Profit Organizations: Goodwill and Other Intangible Assets Acquired in a Merger or Acquisition. Both are part of a FASB project on business combinations.

The AICPA issued Interpretation no. 29, Reporting on an Uncertainty, Including an Uncertainty About an Entity’s Ability to Continue as a Going Concern. The interpretation provides guidance on Statement on Standards for Accounting and Review Services (SSARS) no. 1, Compilation and Review of Financial Statements (AICPA, Professional Standards, vol. 2, AR sec. 100). Specifically, the interpretation explains how to modify the standard compilation or review report when, during the performance of compilation or review procedures, the accountant becomes aware of evidence or information that brings into question the entity’s ability to continue as a going concern for a reasonable period of time. It also details what should be considered in deciding whether a report modification is necessary when a CPA becomes aware of a material uncertainty other than a going-concern uncertainty. The interpretation is available at www.aicpa.org/download/auditstd/.

The AICPA released a set of technical practice questions and answers (Q&As) on financial accounting and reporting issues related to the application of Statement of Position (SOP) 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts. The Q&As discuss:

  • Changes in investment management fees and other administrative charges.
  • Definition of re-underwriting.
  • Contract reinstatements.
  • Commissions paid on an increase in insurance coverage or incremental deposits.
  • Participating dividends and the interaction of guidance in SOP 05-1 and SOP 95-1.
  • Premium changes to FASB Statement no. 60, Long Duration Contracts.
  • Evaluation of changes under paragraph 15a.
  • Nature of investment return rights in paragraph 15b.
  • Transition provisions for Statement no. 60.
  • Integrated/nonintegrated contract features.
  • Evaluation of significance of modification.

To download the Q&As, visit: www.aicpa.org/Professional+Resources/Accounting+and+Auditing/ .

A bill that would hold federal agencies and standard-setting boards more accountable for reducing the complexity and costs of financial reporting and increasing transparency for investors unanimously passed the House of Representatives, 412–0. The bill is now up for consideration in the Senate.

The Promoting Transparency in Financial Reporting Act of 2007, HR 755, would require the respective chairs (or their designees) of the SEC, FASB and the PCAOB to testify before the House Financial Services Committee over the next five years. The hearings would focus on the agencies’ efforts in:

  • Reassessing complex and outdated accounting standards.
  • Improving the understandability, consistency and overall usability of existing accounting and auditing literature.
  • Developing principles-based accounting standards.
  • Encouraging the use and acceptance of interactive data.
  • Promoting disclosures in “plain English.”


“Modernizing reporting processes, increasing transparency and reducing the costs of financial reporting would help ease the regulatory burden on businesses and strengthen the ability of individual investors to make educated financial decisions,” said Rep. Geoff Davis, R-Ky., the bill’s chief sponsor.

The bill’s passage in the House on Feb. 27 represents a renewal of a push to pass the same law in the previous Congress. It was unanimously passed by the House in 2006 but stalled in the Senate.

The full text of the bill is available at http://thomas.loc.gov/ .

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