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Accounting Research Manager(TM)
Weekly Summary of Developments
July 12-16, 2010
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Accounting Research Manager subscriber,

The Accounting Research Manager database now contains this week's weekly summary of developments. Click the link below to access and print the fully-formatted Weekly Summary:

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If you do not have immediate Internet access to the Accounting Research Manager database, below is the text of this week's Weekly Summary.

Accounting and SEC Headlines

Proxy Rules -- SEC Seeks Comments on Possible Revisions to Proxy Rules
PCAOB Staff Guidance -- PCAOB Issues Staff Audit Practice Alert on Using the Work of Other Auditors
Audit Confirmations -- PCAOB Issues Proposal on Audit Confirmation Process
SEC Regulations Committee -- CAQ SEC Regulations Committee Minutes Issued
Conceptual Framework -- FASB Discusses Conceptual Framework and Other Matters
Inflation Rates -- Interpretation Updated on Inflation Rates for Judging Whether an Economy Is Highly Inflationary
EITF Materials -- FASB Issues Additional Materials for July 29, 2010 EITF Meeting
Insurance Contracts -- IASB and FASB Discuss Insurance Contracts
International Accounting -- IASB Publishes Agenda for July 19-23, 2010 Meeting

Auditing and Internal Controls Headlines

Interim Financial Information -- AICPA Issues Proposals on Interim Financial Information
PCAOB Staff Guidance -- PCAOB Issues Staff Audit Practice Alert on Using the Work of Other Auditors
Audit Confirmations -- PCAOB Issues Proposal on Audit Confirmation Process

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ACCOUNTING AND SEC HEADLINES:
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Proxy Rules -- SEC Seeks Comments on Possible Revisions to Proxy Rules
For detail, please contact info@zy-cpa.com

The SEC has issued for public comment “Concept Release on the U.S. Proxy System.” This release seeks public comment on the U.S. proxy system and seeks to determine whether rule revisions should be considered to promote greater efficiency and transparency. The release focuses on the following areas: (a) accuracy, transparency, and efficiency of the voting process; (b) communications and shareholder participation; and (c) relationships between voting power and economic interest. Specific matters in these areas covered in the release include:

-Over-voting and under-voting of shares;
-Vote confirmation;
-Proxy voting by institutional securities lenders;
-Proxy distribution fees;
-Issuers’ ability to communicate with beneficial owners of securities;
-Role of proxy advisory firms; and
-Data-tagging proxy-related materials.

Comments on this release are due 90 days after it is published in the Federal Register.

PCAOB Staff Guidance -- PCAOB Issues Staff Audit Practice Alert on Using the Work of Other Auditors
For detail, please contact info@zy-cpa.com

The PCAOB issued Staff Audit Practice Alert No. 6, Auditor Considerations Regarding Using the Work of Other Auditors and Engaging Assistants from Outside the Firm. According to the PCAOB, this practice alert was issued as a result of observations in PCAOB inspections that some U.S.- based firms issuing audit reports based on work performed by others outside the U.S. are not properly applying PCAOB standards.

In recent years, a number of companies, particularly companies operating largely in China, have come to have securities trading in the U.S. by engaging in reverse mergers with U.S. shell companies that have previously registered their securities under U.S. law. For many such companies, the audit report is issued by registered public accounting firms located in the U.S., including smaller firms, even though the majority of audit procedures are performed by auditing firms or individuals located outside the U.S.

The practice alert reminds registered firms of their obligations when using the work of other firms or using assistants engaged from outside the firm. It describes the circumstances under which the firm issuing the audit report may use the work and reports of another auditor. The alert also notes that auditors who engage assistants from outside the firm are governed by the same standards regarding planning the audit and supervising assistants that apply when audit work is performed by assistants who are partners of, or employed by, the auditor's firm.

Audit Confirmations -- PCAOB Issues Proposal on Audit Confirmation Process
For detail, please contact info@zy-cpa.com

The PCAOB has issued for public comment a proposed audit standard, Confirmation. This proposed standard would strengthen the requirements and replace the current auditing standard, AU section 330, The Confirmation Process. The proposed standard emphasizes the importance of audit evidence obtained from independent third parties and strengthens and extends the requirements for using confirmations in the audit process. Any new auditing standard that is adopted by the PCAOB must be submitted to the SEC for approval.

Comments on this proposal are due September 13, 2010.

SEC Regulations Committee -- CAQ SEC Regulations Committee Minutes Issued
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The SEC Regulations Committee has issued minutes from its joint meeting with the staff of the SEC held on April 6, 2010. This committee, under the oversight of the Center for Audit Quality (CAQ), meets periodically with the staff of the SEC to discuss emerging technical accounting and reporting issues relating to SEC rules and regulations. Topics discussed at this meeting included the following:

-Various financial reporting matters, including Rule 3-09 compliance issues, disclosures regarding actual and pending accounting changes, goodwill impairment risk disclosures, income tax disclosures, new health care legislation, and the SEC staff review and comment process;
-Implementation and interpretation of certain SEC releases, including those on international accounting convergence, section 404(b) of the Sarbanes-Oxley Act of 2002 for nonaccelerated filers, and SEC guidance related to climate change disclosures;
-New or pending accounting standards and pronouncements, including FASB Accounting Standards Codification^TM (Codification) Topic 855, Subsequent Events, internal control considerations, and initial consolidation of a variable interest entity under Codification Topic 810, Consolidation;
-Calculating book value per share after adopting the guidance in Codification Topic 810;
-Applicability of the disclosure requirements of Item 3(f) of Form S-4 when the target is a reporting company that is significant at or below the 20% level;
-General partner balance sheet requirements in oil and gas limited partnership registration statements; and
-How the annual measurement of a registrant’s worldwide public float affects the assessment of whether the registrant must join an XBRL phase-in group or whether it may suspend XBRL reporting until a future phase-in date.

Conceptual Framework -- FASB Discusses Conceptual Framework and Other Matters
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As reported in its "Summary of Board Decisions" publication, the FASB met on July 14, 2010, and discussed the following topics: (a) conceptual framework: measurement; and (b) investment properties. The FASB discussed the measurement chapter of the Conceptual Framework and reached the following tentative decisions:

-The best way to satisfy the objective of financial reporting through measurement is to consider the effect of a particular measurement selection on all of the financial statements, instead of emphasizing the statement of financial position over the statement of comprehensive income or vice versa;
-An explanation of how the fundamental qualitative characteristics of useful financial information must be considered in selecting measurements should be developed within the measurement chapter;
-The terms "historical cost" and "fair value" should not be used since neither clearly and accurately describes the sets of possible measurement methods that are to be considered; and
-The measurement chapter should list and describe possible measurements, arrange or classify the measurements in a manner that facilitates standard-setting decisions, describe the advantages and disadvantages of each measurement in terms of the qualitative characteristics of useful financial information, and discuss at a conceptual level how the qualitative characteristics and cost constraint should be considered together in identifying an appropriate measurement.

The FASB also discussed its project on investment properties and tentatively decided to issue a proposal that would require an investment property to be measured at fair value.

The FASB chairman announced that a limited scope project has been added to the FASB’s agenda to achieve more consistent identification by lenders of troubled debt restructurings.

Inflation Rates -- Interpretation Updated on Inflation Rates for Judging Whether an Economy Is Highly Inflationary
For detail, please contact info@zy-cpa.com

Our interpretation, Inflation Rates for Judging Whether an Economy Is Highly Inflationary - June 2010, has been issued and reflects the latest available inflation rate information. Since our March 2010 update, Kenya has been reclassified from the “watch list” of countries that may have highly inflationary economies to the list of countries that do not have highly inflationary economies.

See our Literature Update for complete details.

EITF Materials -- FASB Issues Additional Materials for July 29, 2010 EITF Meeting
For detail, please contact info@zy-cpa.com

The FASB has issued the following additional materials for the July 29, 2010 EITF meeting:

-Revised agenda committee report; and
-EITF Issue No. 10-A, "How the Carrying Amount of a Reporting Unit Should be Calculated When Performing Step 1 of the Goodwill Impairment Test" (issue summary).

Insurance Contracts -- IASB and FASB Discuss Insurance Contracts
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As reported in its "IASB Update" publication, the IASB and FASB met on June 23, 2010, and discussed the following issues regarding insurance contracts:

-Cash flows, including acquisition costs and participating contracts;
-Unbundling;
-Presentation of the statement of comprehensive income; and
-Interest accretion for residual and composite margins.

International Accounting -- IASB Publishes Agenda for July 19-23, 2010 Meeting
For detail, please contact info@zy-cpa.com

The IASB has issued an agenda for its July 19-23, 2010 meeting. Topics expected to be discussed at this meeting include the following:

-Leases (jointly with the FASB);
-Insurance contracts (jointly with the FASB);
-Derecognition: transfers of financial assets;
-Rate-regulated activities;
-Income taxes;
-IFRS Interpretations Committee update;
-IFRS 1,First-time Adoption of International Financial Reporting Standards;
-IAS 29, Financial Reporting in Hyperinflationary Economies;
-Annual improvements project;
-Conceptual framework–measurement;
-Financial instruments with characteristics of equity;
-Hedge accounting;
-Consolidation;
-Impairment; and
-Fair value option.

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

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AUDITING AND INTERNAL CONTROLS HEADLINES:
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Interim Financial Information -- AICPA Issues Proposals on Interim Financial Information

The AICPA has issued for public comment the following exposure drafts:

-Proposed Statement on Auditing Standards (SAS), Revised Applicability of Statement on Auditing Standards No. 116, Interim Financial Information (Proposal 1); and
For detail, please contact info@zy-cpa.com

-Proposed SAS, Interim Financial Information–Redrafted (Proposal 2).
For detail, please contact info@zy-cpa.com

Proposal 1 would supersede paragraph 5 of SAS No. 116, Interim Financial Information, which is applicable when an auditor performs the audit of the latest annual financial statements and expects to be engaged to audit the current year financial statements. The guidance in this proposal would be applicable when the auditor audited the entity’s latest annual financial statements and the appointment of another auditor to audit the current year financial statements is not effective prior to the beginning of the period covered by the review. According to the AICPA, this represents a change from existing guidance in SAS 116 and would allow for an appropriate transition between auditors when an auditor change is anticipated.

Proposal 2 represents the redrafting of SAS 116 to apply the AICPA's clarity drafting conventions as part of its Clarity Project. As proposed, the guidance in Proposal 2 would make a number of changes to existing auditing standards, including:

-Uses the term "auditor" not because the auditor is performing an audit, but because the scope of this proposal is limited to a review of interim financial information performed by the auditor of the financial statements of the entity;
-Makes the guidance applicable when the auditor audited the entity’s latest annual financial statements and provides that the appointment of an auditor to audit the current year financial statements is not effective prior to the beginning of the period covered by the review;
-Requires the auditor to issue a written report unless the review of the interim financial information is required by a third party and the third party does not require that the auditor performing the interim review to issue a written review report; and
-Requires the auditor, before accepting the engagement, to: (a) review the interim financial information to determine whether the financial reporting framework to be applied in the preparation of the interim financial information is acceptable; and (b) obtain the agreement of management that it acknowledges and understands its responsibility for certain specified matters.

As proposed, the guidance in Proposal 1 would be effective for reviews of interim financial information for periods beginning after December 15, 2011, with early implementation permitted. The proposed guidance in Proposal 2 would be effective for reviews of interim financial information for interim periods of fiscal years beginning on or after December 15, 2012.

Comments on both proposals are due October 8, 2010.

The AICPA’s Clarity Project is intended to make existing U.S. generally accepted auditing standards (GAAS) easier to understand, apply, and move toward converging U.S. GAAS with International Standards on Auditing issued by the International Auditing and Assurance Standards Board. For further information on the AICPA's Clarity Project, see our previously published discussion and analysis in our publication "A Closer Look."

PCAOB Staff Guidance -- PCAOB Issues Staff Audit Practice Alert on Using the Work of Other Auditors
For detail, please contact info@zy-cpa.com

As discussed above in our Accounting and SEC Summaries, the PCAOB issued Staff Audit Practice Alert No. 6, Auditor Considerations Regarding Using the Work of Other Auditors and Engaging Assistants from Outside the Firm. According to the PCAOB, this practice alert was issued as a result of observations in PCAOB inspections that some U.S.- based firms issuing audit reports based on work performed by others outside the U.S. are not properly applying PCAOB standards.

In recent years, a number of companies, particularly companies operating largely in China, have come to have securities trading in the U.S. by engaging in reverse mergers with U.S. shell companies that have previously registered their securities under U.S. law. For many such companies, the audit report is issued by registered public accounting firms located in the U.S., including smaller firms, even though the majority of audit procedures are performed by auditing firms or individuals located outside the U.S.

The practice alert reminds registered firms of their obligations when using the work of other firms or using assistants engaged from outside the firm. It describes the circumstances under which the firm issuing the audit report may use the work and reports of another auditor. The alert also notes that auditors who engage assistants from outside the firm are governed by the same standards regarding planning the audit and supervising assistants that apply when audit work is performed by assistants who are partners of, or employed by, the auditor's firm.

Audit Confirmations -- PCAOB Issues Proposal on Audit Confirmation Process
For detail, please contact info@zy-cpa.com

As discussed above in our Accounting and SEC Summaries, the PCAOB has issued for public comment a proposed audit standard, Confirmation. This proposed standard would strengthen the requirements and replace the current auditing standard, AU section 330, The Confirmation Process. The proposed standard emphasizes the importance of audit evidence obtained from independent third parties and strengthens and extends the requirements for using confirmations in the audit process. Any new auditing standard that is adopted by the PCAOB must be submitted to the SEC for approval.

Comments on this proposal are due September 13, 2010.

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