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Accounting Research Manager(TM)
Weekly Summary of Developments
April 14-18, 2008
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Accounting and SEC Headlines

Securities Registration -- SEC Publishes Guide
Revenue Recognition -- FASB Discusses Revenue Recognition and Other Matters

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ACCOUNTING AND SEC HEADLINES:
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Securities Registration -- SEC Publishes Guide
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The SEC staff has published a small entity compliance guide covering the SEC's recently issued final rule, Revisions to Form S-11 to Permit Historical Incorporation by Reference. The final rule revises Form S-11 to permit an entity that has filed an annual report for its most recently completed fiscal year and is also current with respect to its reporting obligations under the Securities Exchange Act of 1934 to incorporate by reference into Form S-11 information from its previously filed Exchange Act reports and documents. The final rule was effective April 15, 2008.

The Guide summarizes and explains the final rule and includes the following topics:

-Eligibility to incorporate by reference;
-Guidance for smaller reporting companies on procedural requirements;
-Effective date for smaller reporting companies; and
-Transition guidance for smaller reporting companies.

Revenue Recognition -- FASB Discusses Revenue Recognition and Other Matters
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As reported in its "Action Alert" publication, the FASB discussed the following items at its April 9, 2008 meeting:

-Revenue recognition;
-Measurement of liabilities; and
-Reconsideration of FASB Interpretation (FIN) No. 46 (Revised 2003), Consolidation of Variable Interest Entities.

The FASB discussed drafts of Chapters 2, 3, and 4 for the upcoming discussion paper on revenue recognition. These chapters cover accounting for contracts with customers and the identification and satisfaction of performance obligations. The FASB asked its staff to consider how the proposed revenue recognition model could be articulated based on the existing definition of an asset, rather than the FASB's working definition from its "Conceptual Framework Project." The FASB also asked its staff to explain the alternative view held by some members that revenue cannot arise at contract inception.

At its meeting on April 9, 2008, the FASB also discussed comments received from constituents on proposed FASB Staff Position (FSP) FAS 157-c, Measuring Liabilities under FASB Statement No. 157. Specifically, the FASB decided to make the following changes to this proposed FSP:

-Modify paragraph 6 to clarify that the exceptions to the use of Level 1 inputs in paragraphs 25 and 26 of FASB Statement No. 157, Fair Value Measurements, continue to be available under the guidance in the proposed FSP;
-Clarify that when using a quoted price in an active market, an entity should ensure that the item for which the quote pertains is identical to the unit of account for the liability being measured;
-Modify paragraph 6 of the proposed FSP to clarify that the best measurement of fair value for an entity's liability is the price at which that liability is traded as an asset;
-Clarify that the intent of the measurement guidance in paragraph 7 of the proposed FSP is to be a starting point for the fair value measurement of a liability and that any amounts calculated under that guidance may need to be adjusted further to remain consistent with the principles of Statement 157;
-Clarify that the effect of initially applying the guidance in the proposed FSP should be included as a change in fair value in the period of adoption;
-Specify that the final FSP will be effective at the later of (a) the beginning of the first reporting period ending after the issuance date of the FSP or (b) the beginning of the period in which an entity initially applies Statement 157.

The FASB also discussed amending certain key provisions of FIN 46R, primarily as a result of the potential elimination of the "qualifying special-purpose entity" concept in FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and in FIN 46R along with the recent activities in the credit markets. The FASB supported requiring an enterprise (including its related party and de facto agents) to determine whether it is the enterprise that must consolidate a variable interest entity (the primary beneficiary) primarily through a thorough qualitative assessment. If an enterprise is unable to determine if a primary beneficiary exists (or does not exist) through the qualitative assessment, the enterprise would perform the current quantitative analysis described in FIN 46R. The FASB also approved the addition of the "passive interest" concept, which is an interest in a variable interest entity:

-That has a maximum exposure that is capped (it cannot exceed an amount determinable at the date of the enterprise's involvement with the entity);
-In which the enterprise (including related parties and de facto agents) with the interest has no involvement with the design or redesign of the variable interest entity;
-In which the enterprise has no additional involvement or interests with the variable interest entity;
-In which the interest does not give the entity significant control rights; and
-In which the interest is insignificant.

The Board agreed that an enterprise with a passive interest would not be considered the primary beneficiary in any circumstance when the interest is passive.

As also reported in its Action Alert publication, the FASB is scheduled to meet jointly with the IASB on April 21 and 22, 2008, to discuss the following items:

-Memorandum of understanding;
-Revenue recognition;
-Meeting of the Corporate Reporting Users' Forum;
-Standard setters' responses to the credit crisis; and
-Conceptual framework: objectives and qualitative characteristics and reporting entity.

The FASB and IASB (the "Boards") are expected to discuss their joint cooperation agreement which was originally signed in February 2006. The Boards are scheduled to hear an overview from representatives of the European Financial Reporting Advisory Group regarding the Pro-active Accounting Activities in Europe Discussion Paper, Revenue Recognition - A European Contribution. Finally, the Boards are expected to consider the implications of adopting the "entity perspective," in which the entity itself is the subject matter of financial reporting. The Boards will also consider whether and, if so, how they might invite comments on potential implications of decisions already reached on phases for matters that are being or are yet to be considered in other phases of the project.

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