The SEC’s Committee on Improvements to Financial Reporting voted in January to support a slate of preliminary recommendations designed to make the information presented by U.S. public companies more useful to investors while reducing the complexity of the financial reporting system. The preliminary proposals included a call for reducing industry-specific guidance and support for an SEC policy or safe harbor provision regarding professional judgment.

The committee, with businessman Robert Pozen as chairman, also supported the following preliminary recommendations, among others:

The FASB board and staff should include better representation for investors or financial statement users.

FASB should improve procedures for field testing, field visits and cost/benefit analyses in standard-setting.

The SEC should mandate the filing of XBRL-tagged financial statements within a defined time frame after certain preconditions have been satisfied relating to successful taxonomy testing and the capacity of companies to file XBRL-tagged financial statements using the new U.S. GAAP Taxonomies on the SEC’s EDGAR system.

The SEC should issue guidance stressing that those who evaluate the materiality of a reporting error should make the decision based on the perspective of a reasonable investor and that materiality should be judged based on how an error affects the total mix of information available to a reasonable investor.

The SEC should issue a comprehensive interpretive release regarding the use of corporate Web sites for disclosures of corporate information addressing such issues as liability for information presented in a summary format and treatment of hyperlinked information from within or outside a company’s Web site.

The committee will meet March 13 and 14 and is expected to issue its final recommendations to the SEC Commission by August. More information is available at www.sec.gov/about/offices/oca/acifr.shtml.

The AICPA issued Statement on Standards for Accounting and Review Services no. 16, Defining Professional Requirements in Statements on Standards for Accounting and Review Services . The provisions, which became effective upon issuance, define certain terms used in SSARSs to describe the professional requirements imposed on accountants performing a compilation or review of a nonissuer.

SSARS no. 16 defines two categories of professional requirements. Unconditional requirements, which are indicated in SSARS by the words “must” or “is required,” mandate compliance in all cases that conform to the circumstances in which the unconditional requirement applies. Presumptively mandatory requirements, indicated in SSARS by the word “should,” permit, in rare circumstances, departures from the mandatory requirements provided an accountant documents the justification for the departure and how the alternative procedures achieved the objectives of the presumptively mandatory requirement.

Information on the statement is available at www.aicpa.org/download/auditstd/arsc/Summary_for_AICPA_org.pdf. See also, “Official Releases,” JofA , Feb. 08, page 106.

A recent GAO report, Audits of Public Companies, found that concentration in the market of large public company audits by the four largest accounting firms is likely to continue with little adverse effect. Recent audit fee increases were attributed to expanding accounting and auditing requirements and higher personnel costs; and market participants acknowledged a general increase in audit quality. While smaller accounting firms face various challenges in expanding to audit more public companies, the majority are not interested in pursuing these clients.

Interest in the potential effects on competition and the choices available to large companies needing an auditor led to a random sample survey of almost 600 large, medium, and small public companies to obtain information on their experiences with auditors. The GAO also interviewed the four largest accounting firms and surveyed all other U.S. accounting firms that audit at least one public company.

According to the survey, 82% of large public companies saw their auditor choice limited to three or fewer firms, while around 60% viewed audit market competition as insufficient. Most small public companies reported satisfaction with auditor choices.

The report said proposals to address audit market concentration and challenges facing smaller accounting firms have gained little support because of questions raised by market participants about the effectiveness, feasibility and benefits of doing so. Due to the lack of a significant adverse effect of concentration in the current environment and no clear consensus on how to reduce such concentration, the GAO found no compelling need for immediate action.

The complete report is available at www.gao.gov/new.items/d08163.pdf.

The AICPA Investment Companies Expert Panel revised an illustrative report on internal control required by the SEC under Form N-SAR that incorporates the definitional changes to material weakness and significant deficiency as described in PCAOB Auditing Standard no. 5, An Audit of Internal Control Over Financial Reporting That Is Integrated With an Audit of Financial Statements . The revision replaces the illustrative report in paragraph 11.19 of the AICPA Audit and Accounting Guide Investment Companies as part of 2008 conforming changes. Consistent with the effective date of AS5, the revised illustrative report is effective for audits of fiscal years ending on or after Nov. 15, 2007, with immediate adoption permitted.

More information is available at www.aicpa.org/Professional+Resources/

SEC Chairman Christopher Cox highlighted the SEC’s positions on International Financial Reporting Standards (IFRS), XBRL and mutual recognition recently at the AICPA’s International Issues conference in Washington.

IFRS. “IFRS is coming,” said Cox, though he shied from giving a specific timeline in a question-and-answer session following his speech. “It’s difficult to overstate the potential upside for investors of the growing consensus behind IFRS,” he added.

XBRL. In discussing the SEC’s support for a multinational XBRL architecture Cox said, “This will increase interoperability among XBRL databases for U.S. GAAP, IFRS, and Japan GAAP.”

Mutual recognition. Cox said mutual recognition would give U.S. investors direct access to foreign markets, or possibly foreign broker-dealers, provided those entities were supervised under foreign securities regulations “substantially comparable” to those in the United States.

The International Accounting Standards Board completed a joint project with FASB by issuing a revised version of IFRS 3, Business Combinations , and an amended version of IAS 27, Consolidated and Separate Financial Statements . The revised IFRS 3 and amended IAS 27 are similar in most respects to FASB Statement no. 141(R), Business Combinations , and FASB Statement no. 160, Noncontrolling Interests in Consolidated Financial Statements , which were issued in December. For more information, visit www.iasb.org or www.fasb.org.

The Financial Crimes Enforcement Network (FinCEN) issued a pair of administrative rulings to help businesses determine whether their check cashing activities require them to register as money services businesses (MSBs) under the Bank Secrecy Act (BSA). The BSA defines a check casher as “a person engaged in the business of check cashing, other than a person who does not cash checks in an amount greater than $1,000 in currency or monetary or other instrument for any person on any day in one or more transactions.”

In the first ruling, FinCEN said a company that cashes its own checks that have been issued to loan customers as loan proceeds is not an MSB. As long as the funds are disbursed to the customer who is obtaining the loan, and not to a third party, the company is in effect disbursing loan proceeds in cash and is not a check casher under the BSA. The ruling is listed as FIN-2007-R001.

In the other case, a company cashes checks for amounts greater than $1,000 per person per day under two circumstances: (1) for the company’s own employees’ payroll checks; and (2) for checks or money orders payable to customers who have current obligations to the company that are due and payable, where the difference between the amount of the check and the amount the customer will pay the company to satisfy the current obligation is less than $1,000.

FinCEN said neither circumstance required registration, though as to the second circumstance, the ruling said that the presence of a written policy posted on the business’s premises would be a key factor in not requiring BSA registration. The ruling is listed as FIN-2007-R002.

The rulings are at www.fincen.gov.

FDIC Chairman Sheila Bair wrote in favor of an industry-led plan announced in December that would encourage wide-scale loan modification to curb foreclosures for subprime homeowners before interest rates reset to unaffordable levels.

Bair’s article, “The Case for Loan Modification,” in the Third Quarter 2007 issue of the FDIC Quarterly Banking Profile, examines the current state of the U.S. housing and mortgage credit markets, especially the pending interest-rate resets of subprime ARMs. She says the loan modification program is not a “bailout” because the government is not subsidizing investors or borrowers; it is only assuring investors they have the “legal flexibility” to pursue new strategies. She also said action to limit the mortgage credit crisis will benefit the FDIC Deposit Insurance Fund, which would cover insured losses if an institution fails.

The article is available at www.fdic.gov/bank/analytical/quarterly/index.html.

FASB launched the one-year verification phase of the FASB Accounting Standards Codification . Users who register at http://asc.fasb.org can review the codification for free and provide feedback on the system and on specific content. During the verification period, codification content will be updated to reflect changes resulting from constituent feedback and new standards. FASB is advising users that the codification content is not approved as authoritative and, therefore, users must verify research results using their existing resources for the currently effective literature.

The project’s goal is to simplify the organization of thousands of authoritative U.S. accounting pronouncements issued by multiple standard-setters, including FASB, the AICPA, and the Emerging Issues Task Force. The codification excludes governmental accounting standards.

The AICPA, in collaboration with the American Accounting Association’s Management Accounting Section, is soliciting proposals for 2008 research grants in the area of management accounting. The AICPA will fund one or more projects with grants of up to $75,000. The deadline for proposals is March 31. Guidelines are available at http://fmcenter.aicpa.org/


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