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Accounting Research Manager(TM)
Weekly Summary of Developments
April 16-20, 2007
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Accounting Research Manager subscriber,
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Accounting and SEC Headlines
Income Taxes -- FASB Addresses Comment Letters on Proposed FASB Staff Position Affecting FIN 48 and Other Matters at April 11, 2007 Meeting
EITF Materials Issued -- Agenda Committee Report Released
Financial Guarantee Insurance Contracts -- FASB Issues Exposure Draft That Would Clarify Statement 60
Statement 133 Scope Exception -- FASB Releases Proposed Guidance
Inflation Rates -- Interpretation Issued, Inflation Rates for Judging Whether an Economy Is Highly Inflationary - March 2007
Internal Controls -- PCAOB Issues Report on the Second-Year Implementation of Auditing Standard No. 2
Auditing Headlines
Internal Controls -- PCAOB Issues Report on the Second-Year Implementation of Auditing Standard No. 2
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ACCOUNTING AND SEC HEADLINES:
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Income Taxes -- FASB Addresses Comment Letters on Proposed FASB Staff Position Affecting FIN 48 and Other Matters at April 11, 2007 Meeting
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As reported in its "Action Alert" publication, the FASB met on April 11, 2007, and addressed the following projects or topics:
-Implementation Guidance for FIN 48
-Conceptual Framework
The FASB considered the various comment letters it received in connection with proposed FASB Staff Position (FSP) FIN 48-a, "Definition of 'Settlement' in FASB Interpretation No. 48," and agreed to certain changes. Specifically, the FASB decided to change the threshold from highly unlikely to remote when a company evaluates whether the taxing authority would subsequently examine or reexamine any aspect of a tax position as described in paragraph 10A(c) of the proposed FSP. When issued, this FSP will amend FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes. We understand the FASB plans to issue a final FSP around May 1, 2007.
The Action Alert also notes that the following projects or topics are scheduled to be discussed by the FASB and IASB at their joint meeting scheduled for April 23-24, 2007:
-Intangible Assets
-Financial Instruments
-Conceptual Framework
-Business Combinations
-Accounting for Leases
EITF Materials Issued -- Agenda Committee Report Released
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The FASB has issued the EITF Agenda Committee Report dated April 13, 2007. This report notes that the next EITF meeting is set for June 14, 2007, at which time the following issues are scheduled to be discussed:
-Issue 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards";
-Issue 07-1, "Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property";
-Issue 07-2, "Accounting for Convertible Debt Instruments That Require or Permit Partial Cash Settlement upon Conversion";
-Issue 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities"; and
-Issue 07-D, "The Application of the Two-Class Method to Master Limited Partnerships under FASB Statement No. 128, Earnings per Share."
Issue 07-D was added to the EITF agenda by the agenda committee at its April 13, 2007 meeting, whereas the committee decided not to add an issue to the EITF agenda to address the accounting for a "sunset clause" in a software licensing arrangement. The EITF is scheduled to reconsider its tentative conclusion reached in Issue 07-3, which is currently being exposed for public comment through May 3, 2007. The tentative conclusion in Issue 07-3 provides that a company that makes nonrefundable advance payments to a supplier of future research and development activities should treat such payments as an asset until the goods have been delivered or the related services have been performed.
Financial Guarantee Insurance Contracts -- FASB Issues Exposure Draft That Would Clarify Statement 60
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The FASB issued an Exposure Draft, Accounting for Financial Guarantee Insurance Contracts - An Interpretation of FASB Statement No. 60. This proposal would clarify how FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises, applies to financial guarantee insurance contracts, including the methodology to be used to account for premium revenue and claim liabilities. The scope of this proposal is limited to financial guarantee insurance (and reinsurance) contracts issued by insurance enterprises included within the scope of Statement 60.
In this proposal, the FASB defines financial guarantee insurance (and reinsurance) contracts as contracts issued by insurance enterprises that provide protection to the holder of a financial obligation (e.g., a municipal bond or an asset-backed security issued by a trust) from a financial loss in the event of a default.
The FASB states in the Exposure Draft that a final standard is expected to be issued in the third quarter of 2007 and would be effective for financial statements issued for fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. As proposed, transition would require a cumulative catch-up adjustment and retrospective application or early adoption would not be permitted.
Comments are due on the Exposure Draft on June 18, 2007.
Statement 133 Scope Exception -- FASB Releases Proposed Guidance
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The FASB has issued proposed guidance in Statement 133 Implementation Issue (also known as "DIG" issue) No. C21, "Whether Options (Including Embedded Conversion Options) Are Indexed to both an Entity's Own Stock and Currency Exchange Rates." As proposed, the FASB clarifies that an option to acquire a fixed number of an issuer's equity shares with an exercise price that is denominated in a currency other than the issuer's functional currency (including a conversion option embedded in a foreign-currency-denominated convertible debt instrument) is not considered to be indexed only to the issuer's own stock for purposes of applying the scope exception in paragraph 11(a) of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and, accordingly, does not meet the requirements for that scope exception. This DIG issue also proposes to clarify that the determination of whether an option to acquire a fixed number of an issuer's equity shares (including a conversion option embedded in a convertible debt instrument) is indexed to the issuer's own stock for purposes of applying the scope exception in paragraph 11(a) is not affected by the currency in which transactions are executed for the particular exchange(s) on which the issuer's equity shares are traded.
Comments on this proposed guidance are due May 24, 2007.
Inflation Rates -- Interpretation Issued, Inflation Rates for Judging Whether an Economy Is Highly Inflationary - March 2007
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Our interpretation, Inflation Rates for Judging Whether an Economy Is Highly Inflationary - March 2007, has been issued and reflects the latest available inflation rate information. Myanmar has been reclassified from a country on our "watch list" to a country that has a highly inflationary economy.
We continue to identify those countries that are unusually slow in reporting their inflation rates. This may require further analysis by users of this Interpretation.
Internal Controls -- PCAOB Issues Report on the Second-Year Implementation of Auditing Standard No. 2
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The PCAOB issued a report on the second year implementation of its Auditing Standard No. 2, An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements (AS 2). The report is based on PCAOB inspections that looked at portions of approximately 275 audits of internal control over financial reporting by registered public accounting firms. The most common observations from the inspection process as documented in the report are as follows:
-Some auditors did not fully integrate their audits.
-Some auditors failed to apply a top-down approach to testing controls.
-Some auditors assessed the level of risk only at the account level and not at the assertion level. As a result, those auditors likely expended more effort than necessary when testing controls for assertions that were lower risk. In a few cases, auditors tested the same controls that the issuer had tested, without assessing whether this was necessary to sufficiently address the risk that a relevant assertion might be misstated.
-Some auditors could have increased their use of the work of others.
The report notes that the PCAOB is not changing or proposing to change any existing standard, nor is it providing any new interpretation of any existing standards. It should be noted that on December 19, 2006, the PCAOB issued a proposal that would supersede AS 2. Finalization of this proposal is pending.
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AUDITING HEADLINES:
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Internal Controls -- PCAOB Issues Report on the Second-Year Implementation of Auditing Standard No. 2
For detail, please contact info@zy-cpa.com
As discussed above in our Accounting and SEC Summaries, the PCAOB issued a report on the second year implementation of its Auditing Standard No. 2, An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements (AS 2). The report is based on PCAOB inspections that looked at portions of approximately 275 audits of internal control over financial reporting by registered public accounting firms. The most common observations from the inspection process as documented in the report are as follows:
-Some auditors did not fully integrate their audits.
-Some auditors failed to apply a top-down approach to testing controls.
-Some auditors assessed the level of risk only at the account level and not at the assertion level. As a result, those auditors likely expended more effort than necessary when testing controls for assertions that were lower risk. In a few cases, auditors tested the same controls that the issuer had tested, without assessing whether this was necessary to sufficiently address the risk that a relevant assertion might be misstated.
-Some auditors could have increased their use of the work of others.
The report notes that the PCAOB is not changing or proposing to change any existing standard, nor is it providing any new interpretation of any existing standards. It should be noted that on December 19, 2006, the PCAOB issued a proposal that would supersede AS 2. Finalization of this proposal is pending.
Some of the documents listed above may not be accessible under your current subscription. For information about upgrading your subscription to include additional content, click here:
For detail, please contact info@zy-cpa.com