A congressionally mandated SEC study found that mark-to-market accounting did not appear “to play a meaningful role in bank failures occurring during 2008.” Rather, the report says the bank failures “appeared to be the result of growing probable credit losses, concerns about asset quality, and in certain cases, eroding lender and investor confidence.”

The study made several recommendations to improve the application of mark-to-market (or fair value) accounting standards. The suggested changes included, among others, reconsidering accounting for impairments of financial instruments and developing more guidance for determining the fair value of investments in inactive markets. The report is available at www.sec.gov/news/studies/2008/marktomarket123008.pdf.

 FASB issued one final staff position and a proposed FSP intended to address concerns stemming from the financial crisis about accounting for financial instruments.

FASB Staff Position (FSP) EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20, amends the impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets. It is intended to achieve more consistent determinations of whether other-than-temporary impairments of available-for-sale or held-to-maturity debt securities have occurred. The FSP is available at www.fasb.org/pdf/fsp_eitf99-20-1.pdf.

Proposed FSP FAS 107-a, Disclosures about Certain Financial Assets: An Amendment of FASB Statement No. 107, would amend the disclosure requirements in FASB Statement no. 107, Disclosures about Fair Value of Financial Instruments, to increase the comparability of certain financial instruments that are economically similar but have different measurement attributes. The proposal is available at www.fasb.org/fasb_staff_positions/prop_fsp_fas107-a.pdf.

The FSPs represent two of four short-term projects announced by FASB Chairman Robert Herz on Dec. 15 that are intended to improve and simplify current practices for accounting for financial instruments. As of mid-January, FASB was working on the remaining projects—Clarification of the Embedded Credit Derivative Scope Exception in Paragraph 14B of Statement 133 and Recoveries of Other-Than-Temporary Impairments (Reversals).

In addition to these short-term efforts, Herz announced that following input received during the recent round-table discussions on the global financial crisis held with the IASB, and other input and discussions with constituents, FASB added to its technical agenda a comprehensive joint project with the IASB to address complexity in existing standards of accounting and reporting for financial instruments.

“Regaining investor confidence during this global credit crisis requires both immediate action and a plan for long-term improvement in the accounting for financial instruments,” Herz said in a press release. “By issuing these proposed FSPs, the FASB is taking immediate steps to reduce complexity and make the accounting for these instruments easier to understand.”

 FASB deferred the effective date of FIN 48, Accounting for Uncertainty in Income Taxes, for certain nonpublic entities, including private nonprofit organizations, until annual financial statements for fiscal years beginning after Dec. 15, 2008.

The deferred effective date gives FASB additional time to develop guidance on the application of FIN 48 by pass-through entities and nonprofits. The deferral also gives the board time to amend FIN 48 disclosure requirements for nonpublic enterprises. The FSP is available at www.fasb.org/pdf/fsp_fin48-3.pdf.

 The SEC approved revisions to modernize its oil and gas company reporting requirements to help investors evaluate the value of their investments in these companies.

The new disclosure requirements include provisions that permit the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about reserves volumes. The requirements also will allow companies to disclose their probable and possible reserves to investors.

The disclosure requirements also require companies to report the independence and qualifications of a reserves preparer or auditor; file reports when a third party is relied upon to prepare reserves estimates or conducts a reserves audit; and report oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices. The use of the average price will maximize the comparability of reserves estimates among companies and mitigate the distortion of the estimates that arises when using a single pricing date. The new rules will be effective Jan. 1, 2010. For more information, visit www.sec.gov/rules/final/2008/33-8995.pdf.

 For the 12th consecutive year, the Government Accountability Office (GAO) said it could not express an opinion on the consolidated financial statement of the U.S. government—other than the Statement of Social Insurance—because of numerous material internal control weaknesses and other limitations.

Acting Comptroller General Gene Dodaro, the head of the GAO, said in a press release that the agency’s ability to render an opinion on the accrual-basis consolidated financial statement was hampered by three major issues that include “serious financial management problems at the Department of Defense, the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and the federal government’s ineffective process for preparing the consolidated financial statements.”

Dodaro also noted material weaknesses related to improper payments, information security and tax collection activities. He also noted that at least three major agencies (Defense, Homeland Security and NASA) failed to receive clean opinions.

The GAO’s full report on the fiscal year 2008 financial statement is available at www.gao.gov/financial/fy2008financialreport.html.

 The FDIC’s Deposit Insurance Fund (DIF) balance dropped by $10.63 billion or 23.5% to $34.59 billion in the third quarter of 2008, according to the Chief Financial Officer’s (CFO) Report to the Board. The decline was mostly attributed to an $11.93 billion increase in provisions for insurance losses for anticipated failures at insured institutions, partially offset by an $881 million increase in assessment revenue.

The FDIC was named receiver of nine failed institutions in the third quarter: IndyMac Bank of Pasadena, Calif.; First National Bank of Reno, Nev.; First Heritage Bank of Newport Beach, Calif.; First Priority Bank of Bradenton, Fla.; The Columbian Bank and Trust Co. of Topeka, Kan.; Integrity Bank of Alpharetta, Ga.; Silver State Bank of Henderson, Nev.; Ameribank Inc. of Northfork, W.Va.; and Washington Mutual Bank (WaMu) of Henderson, Nev. These banks had assets of $337 billion with estimated losses totaling $11 billion. WaMu, with $299 billion in assets and $188 billion in deposits, was the largest failed institution in FDIC history. IndyMac, with $28 billion in assets and $19 billion in deposits, was the fourth-largest failure in FDIC history.

With the DIF reserve ratio at 1.01% at the start of the third quarter, the FDIC is required by the Federal Deposit Insurance Reform Act of 2005 to establish a restoration plan to raise the ratio to 1.15% no later than five years after establishing the plan. The plan to restore the ratio includes a combination of uniform higher assessment rates and other risk-based adjustments that place a greater burden of increased assessments on riskier institutions.

The complete CFO Report to the Board is available at www.fdic.gov.

 Banks and thrifts continued to pursue loan modifications to keep borrowers in their homes, but redefaults on modified loans continued at high rates, according to the OCC and OTS Mortgage Metrics Report for the third quarter of 2008. The report is issued jointly by the Office of Thrift Supervision and the Office of the Comptroller of the Currency.

New loan modifications increased 16% to more than 133,000 in the quarter. Working against this effort was the high rate of redefaults, measured for the first time in this report. Of loans modified in the first quarter, 37% were 30 or more days delinquent after three months, and 55% were 30 or more days delinquent after six months; 19% of loans modified in the first quarter were 60 or more days delinquent after three months, and 37% were 60 or more days delinquent after six months.

“This trend of increasing delinquencies underscores the need to understand why these modifications have not been more sustainable,” Comptroller of the Currency John C. Dugan said in a press release.

The report provides loan-by-loan data in a standardized format for 35 million first-lien mortgages, worth more than $6.1 trillion, held or serviced by national banks and thrifts. The full report is available at www.ots.treas.gov and www.occ.treas.gov.

 GASB issued Concepts Statement no. 5, Service Efforts and Accomplishments Reporting (an amendment of GASB Concepts Statement no. 2). The statement’s updates reflect developments and changes in terminology that have occurred since Concepts Statement no. 2 was issued in 1994.

The proposed changes are based on research by GASB and others and the results of GASB’s monitoring of state and local governments that have been using and reporting service efforts and accomplishments (SEA) performance information. One of the proposal’s objectives is to provide a framework for GASB to consider proposed suggested guidelines for voluntary reporting of SEA performance information by state and local governments. The revisions clarify that it is beyond the scope of GASB to establish the goals and objectives of state and local governments, to develop specific nonfinancial measures or indicators of service performance, or to set benchmarks for service performance.

For complete details of the release, go to www.gasb.org.

 The Financial Services Agency of Japan (JFSA) updated its Frequently Asked Questions Regarding the Notification Requirements for Foreign Audit Firms in December to clarify amendments made to Japan’s Certified Public Accountants Act. Those changes require foreign audit firms of entities listed on Japanese capital markets to notify the JFSA. The amended CPA Act, together with relevant regulations, went into effect April 1, 2008. An English translation of relevant legal provisions together with the analysis of public comments submitted is available at http://tinyurl.com/78c6fo.

 The AICPA launched the Economic Crisis Resource Center, a Web site for CPAs that offers resources on navigating challenging economic times. The site (www.aicpa.org/economy) features more than 200 items, including articles on strategic planning, budgeting and forecasting; webcasts on credit and financing impacts; tools for minimizing the effects of a recession; CPE courses on fraud detection and maintaining the public trust; and professional development resources such as job postings (www.cpa2biz.com/careers). Resources are available for all segments of the CPA profession. The site is part of the AICPA’s committment to supporting CPAs in their role as stewards of sound money management as the U.S. steers through current and future financial challenges.

Where to find July’s flipbook issue

The Journal of Accountancy is now completely digital. 





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