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BDO SEIDMAN, LLP’S October 2007 FINANCIAL REPORTING UPDATE

BDO SEIDMAN, LLP’S October 2007 FINANCIAL REPORTING UPDATE. Speakers and Replay Information. Speakers Jeff Lenz Ben Neuhausen Replay Access www.bdo.com/about/publications/assurance CPE – Participation Verification 4 key words provided during the call must be confirmed on the evaluation.

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BDO SEIDMAN, LLP’S October 2007 FINANCIAL REPORTING UPDATE

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  1. BDO SEIDMAN, LLP’SOctober 2007FINANCIAL REPORTING UPDATE

  2. Speakers and Replay Information • Speakers • Jeff Lenz • Ben Neuhausen • Replay Access • www.bdo.com/about/publications/assurance • CPE – Participation Verification • 4 key words provided during the call must be confirmed on the evaluation

  3. Agenda • SEC Update • GAAP Update • Questions and Answers

  4. SEC UPDATE October 2007

  5. SEC Update – Agenda • Practice Issues • Rulemaking • Other Activities

  6. Experts and Consent Requirements • Recent “change” in SEC staff policy • Application of 33 Act Rule 436(a): • If any portion of the report or opinion of an expert or counsel is quoted or summarized as such in the registration statement or in a prospectus, the written consent of the expert or counsel shall be filed as an exhibit to the registration statement and shall expressly state that the expert or counsel consents to such quotations or summarization.

  7. Experts and Consent Requirements • Registrant refers to the work of a valuation specialist (purchase price allocation, goodwill impairment analysis, stock compensation, pension obligation) but does not name the specialist • Prior practice – no consent required • “New” practice – consent required • Use caution in drafting 34 Act reports • Cannot incorporate by reference if consent needed and expert will not provide it

  8. Form S-8 Filing Issues Facts: A company discontinues an operation in Q1 2007 and reflects discops in its 2007 10-Qs. In October 2007, the company plans to file a Form S-8. The S-8 will incorporate by reference the 2007 10-Qs and the 2006 Form 10-K, which includes the 2004-2006 audited financial statements that do not reflect the discops. Question: Can the company simply incorporate the 2006 10-K by reference, or must it file revised financial statements reflecting discontinued operations?

  9. Form S-8 Filing Issues Answer: The company must it file revised financial statements reflecting discontinued operations.

  10. Form S-8 Filing Issues Facts: A company made a significant acquisition in Q1 2007. It filed an 8-K containing target audited financial statements for 2005 and unaudited financial statements for the nine months ended 9/30/06 and 05. In October 2007, the company plans to file a Form S-8. Question: Can the company simply incorporate the 8-K by reference, or must it file 2006 target audited financial statements?

  11. Form S-8 Filing Issues Answer: The staff hasn’t decided. Stay tuned.

  12. Shelf Registration Filing Issues Facts: A company files a shelf registration statement for an unspecified amount of debt securities, listing guarantors and collateral entities. Before the takedown: • Does the company need to comply with Rule 3-10? Yes. • Do the guarantors assume a 34 Act reporting obligation? Yes. • Does the company need to comply with Rule 3-16? No.

  13. Fair Value Option Facts: A company adopts the fair value method of accounting for an equity method investment. Question: How should the company compute significance of the investee under the income test (e.g., for purposes of Rules 4-08(g) and Rule 3-09)? Answer: Numerator equals the change in the fair value of the investment reflected in earnings.

  14. Executive Compensation Disclosures • Staff has reviewed 350 issuers and sent comment letters • Principal themes include: • Provide the how and why of specific comp decisions • Presentation – Be clear, specific, direct, and understandable • Staff report available at: http://www.sec.gov/divisions/corpfin/guidance/execcompdisclosure.htm • “Where’s the Analysis?” speech available at: http://www.sec.gov/news/speech/2007/spch100907jww.htm

  15. RulemakingICFR Guidance and Rules • Interpretive guidance for management http://www.sec.gov/rules/interp/2007/33-8810.pdf • Revised management’s reportrules http://www.sec.gov/rules/final/2007/33-8809.pdf • Definition of Significant Deficiency http://www.sec.gov/rules/final/2007/33-8829.pdf • PCAOB Auditing Standard No. 5 http://www.pcaobus.org/Rules/Rules_of_the_Board/Auditing_Standard_5.pdf • Updated SEC staff FAQ http://www.sec.gov/info/accountants/controlfaq.htm

  16. Internal Control Reporting Have the Stars Aligned? • BDO Seidman AcSense presentation • Tomorrow (Oct. 17) 11am – 1pm ET • Register at http://www.bdo.com/acsense/stars.asp

  17. Proposed RulesSmaller Company Regulations • Eliminate small business forms and simplify the small business reporting systemhttp://www.sec.gov/rules/proposed/2007/33-8819.pdf • Revise the eligibility requirements for primary offerings on Forms S-3 and F-3http://www.sec.gov/rules/proposed/2007/33-8812.pdf • Exempt compensatory employee stock options from Exchange Act registration requirementshttp://www.sec.gov/rules/proposed/2007/34-56010.pdf

  18. Proposed RulesSmaller Company Regulations • Revise Rule 144 and Rule 145 to shorten holding period for requirementshttp://www.sec.gov/rules/proposed/2007/33-8813.pdf • Create a registration exemption under Regulation D for offers and sales to “large accredited investors”http://www.sec.gov/rules/proposed/2007/33-8828.pdf • Electronic filing and simplification of Form Dhttp://www.sec.gov/rules/proposed/2007/33-8814.pdf

  19. Rulemaking - IFRS Proposed Rule - Acceptance of Foreign Private Issuers’ IFRS financial statements without reconciliation to U.S. GAAPhttp://www.sec.gov/rules/proposed/2007/33-8818.pdf Concept Release - Allowing U.S. Issuers to prepare IFRS financial statements http://www.sec.gov/rules/concept/2007/33-8831.pdf

  20. RulemakingProxy Delivery and Access Proxy Delivery – Final Rule Require electronic posting of proxy materialshttp://www.sec.gov/rules/final/2007/34-56135.pdf Proxy Access – Proposed Rules Shareholder Proposals http://www.sec.gov/rules/proposed/2007/34-56160.pdf Shareholder Proposals Relating to the Election of Directors http://www.sec.gov/rules/proposed/2007/34-56161.pdf

  21. RulemakingOn the Horizon? • XBRL – • Draft taxonomy completed September 2007 • Proposed rules expected spring 2008; final rules expected fall 2008 • Oil & gas – proved reserves disclosure • Considering allowing new technologies to compute reserves

  22. Other ActivitiesCommissioner Departures • Both Democratic Commissioners announce their departure • Roel Campos • Annette Nazareth

  23. SEC Advisory Committee on Improvements to Financial Reporting • Goals • Reduce unnecessary complexity • Make information more useful and understandable • Chair – Robert Pozen • First meeting held August 2, 2007 • Next meeting November 2, 2007 • Discussion paper at http://www.sec.gov/about/offices/oca/acifr/acifr_discussion.htm

  24. SEC Advisory Committee on Improvements to Financial Reporting Subcommittees – • Substantive complexity • Standard setting process • Audit process and compliance • Delivering financial information • International coordination http://www.sec.gov/about/offices/oca/acifr.shtml

  25. Paulson Committee on the Auditing Profession • Focus on key issues affecting auditing profession • Concentration • Financial soundness • Audit quality • Employee recruitment and retention • Arthur Levitt and Don Nicolaisen co-chair • First meeting October 15, 2007 • Recommendations expected mid-2008 http://www.treas.gov/offices/domestic-finance/acap/

  26. GAAP Update October 2007

  27. Agenda • Credit market accounting issues • FASB Statement No. 157 • FASB Exposure Drafts • FASB Staff Positions • EITF Issues • AICPA Statement of Position 07-1 • Other Developments

  28. Credit market accounting issues • Abrupt shift in credit markets during Summer 2007 • Subprime mortgages • Alt-A and jumbo mortgages • Leveraged buyout loans • Asset-backed commercial paper • Collateralized debt obligations • Auction rate securities

  29. Credit market accounting issues • Accounting issues • Solvency, liquidity, and going concern • Valuation of assets • Losses on loan commitments • Consolidation of commercial paper conduits

  30. Credit market accounting issues • Valuation of assets, particularly assets carried at fair value • Quoted market prices in active markets are the best evidence of fair value, even if volumes are lower than in the past or the investor thinks that the quoted market prices are irrational • In the absence of quoted market prices in active markets, alternative valuation techniques should incorporate current market evidence

  31. Credit market accounting issues • Losses on loan commitments • Loans held for sale are carried at lower of cost or market • Similarly, if a loan will be carried at lower of cost or market when funded, then the related loan commitment should be carried at lower of cost or market • Transfers of loans or commitments from held to sale to held for investment, or vice versa, are done at lower of cost or market on date of transfer

  32. Credit market accounting issues • Center for Audit Quality (CAQ) white papers • Mortgage Bankers Association white paper

  33. FASB Statement No. 157 • Fair value measurements • Effective for fiscal years beginning after 11/15/2007 • Major changes in how to measure fair value, including • Exit values • Market participant perspective • Principal market • Fair value measures are pervasive in GAAP • Significant implementation issues • FEI and IMA request one-year deferral

  34. FASB Statement No. 157 • BDO Financial Reporting Letter with Frequently Asked Questions and implementation guidance • http://www.bdo.com/about/publications/assurance/FRL-FairValue9-07-4.pdf

  35. FASB Exposure Drafts • Exposure Drafts from 2005 on Business Combinations and Noncontrolling Interests likely to be issued as final Statements this quarter (Statements 141(R) and 160) • Disclosures about Derivative Instruments and Hedging Activities • Accounting for Financial Guarantee Insurance Contracts • Invitation to Comment—Accounting for Insurance Contracts • Whether to add project to agenda • Whether to address insurance company accounting, or accounting by both insurance company and policyholder

  36. FSP FAS 154-a, Considering the Effects of Prior-Year Misstatements FSP FAS 128-a, Computational Guidance for Computing Diluted EPS under the Two-Class Method FSP FAS 144-c, Classifying and Accounting for a Depreciable Asset as Held-for-Sale When an Equity Method Investment is Obtained Removed from agenda Rolled into upcoming 3rd Exposure Draft Delayed until issuance of FASB Statement No. 160 FASB Staff Positions—Update

  37. FASB Staff Positions—Final • None since last call

  38. FASB Staff Positions—Proposed • FSP FAS 140-d, Transfer of financial assets with repurchase agreement • FSP APB 14-a, Convertible debt that may be settled in cash upon conversion • FSP SOP 94-3-a and AAG HCO-a, Changes to consolidation and equity method guidance for not-for-profit organizations

  39. EITF Update SELECTED EITF ISSUES

  40. 06-11, Accounting for Tax Benefits from Dividends on Employee Stock Compensation Awards 07-2, Accounting for Convertible Debt that Requires or Permits Cash Settlement 07-D, Application of the Two-Class Method to Master Limited Partnerships Final consensus Now FSP APB 14-a 07-4, Tentative consensus Open EITF Issues—Update

  41. 07-1, Joint development, manufacturing, and marketing arrangements 07-3 Nonrefundable advance payment for goods and services to be used in future R&D Tentative consensus Final consensus Open EITF Issues—Update

  42. 07-5, Whether an instrument is indexed to a company’s own stock 07-6, Sale of real estate with buy/sell clause Still under discussion Tentative consensus New Open EITF Issues

  43. AICPA Statement of Position 07-1 • Clarifies scope of AICPA Guide, Audits of Investment Companies • Effective for fiscal years beginning after 12/15/2007 • Implementation questions • AICPA may issue Technical Practice Aids • Requests to FASB for deferral of effective date

  44. Other developments • Request to defer implementation of FASB Interpretation No. 48 for private companies • FASB Codification • XBRL • “Taxonomy” nearing completion • Potential SEC rulemaking to require filings using XBRL

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