Financial Reporting

FASB issued FASB Staff Position no. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.

The guidance applies to the calculation of earnings per share under FASB Statement no. 128, Earnings per Share, for share-based payment awards with rights to dividends or dividend equivalents. Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities, according to the FSP, and should be included when computing EPS following the two-class method.

The FSP is effective for financial statements issued for fiscal years beginning after Dec. 15, 2008, and interim periods within those years. All prior-period EPS data should be adjusted retrospectively (including interim financial statements, summaries of earnings and selected financial data) to conform to the provisions. Early application is prohibited.

The FSP is available at

FASB issued a draft abstract of EITF Issue no. 08-5, Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement.

The draft addresses an issuer’s unit of accounting for debt issued with an inseparable third-party credit enhancement measured or disclosed at fair value. It states that the issuer of such debt should not include the effect of the credit enhancement in the fair value measurement of the liability. The unit of accounting for the debt does not include the third-party credit enhancement, according to the draft. The credit enhancement is obtained for the benefit of the investor and does not represent an asset of the issuer. Issuers should disclose the existence of a thirdparty credit enhancement on its issued debt.

The exposure draft is available at

SEC Chairman Christopher Cox announced an initiative to examine fundamental questions about the way the SEC acquires information from public companies, mutual funds, brokers and other regulated entities, and the way it makes that information available to investors and the markets.

The first phase of the study, called the 21st Century Disclosure Initiative, will involve preparing, by the end of this year, a blueprint for future SEC action to improve the usefulness and timeliness of disclosure for investors, and to streamline and modernize the collection of disclosure from companies and regulated entities. The study will be a fundamental rethinking of financial disclosure, beginning with the basic purposes of disclosure from the perspective of investors and markets.

The study will include a review of all existing SEC forms and reporting requirements, as well as the manner in which information is provided to the SEC, with a special focus on needless redundancy. It will also include consideration of various alternative strategic approaches to acquiring and publishing disclosure information. The study also will consider ways that regulatory requirements for the collection of information might be tailored to get the best real-time distribution of financial and narrative disclosure to investors.

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