First Quarter 2009 Standard Setter Update

Transcription

1 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments (current through 10 April 2009) April 2009

2 Table of Contents Financial Accounting Standards Board (FASB)...1 Emerging Issues Task Force (EITF)...24 Securities and Exchange Commission (SEC)...28 Public Company Accounting Oversight Board (PCAOB)...36 Auditing Standards Board (ASB)...40 Governmental Accounting Standards Board (GASB)...46 Effective Date Matrices...52

3 To our clients and other friends This First Quarter 2009 Standard Setter Update booklet highlights significant developments in financial accounting and reporting between 24 November 2008 and 10 April The booklet also includes summaries of proposals presently under consideration by the Financial Accounting Standards Board (FASB), the Securities and Exchange Commission (SEC), the American Institute of Certified Public Accountants (AICPA), and the Governmental Accounting Standards Board (GASB). Summaries of the issues considered by the FASB s Emerging Issues Task Force (EITF) through its March 2009 meeting also are included. In addition, the booklet summarizes certain Public Company Accounting Oversight Board (PCAOB) pronouncements issued and proposals under consideration. Where applicable, the summaries refer to related Ernst & Young publications, many of which can be obtained on our AccountingLink site. We will continue to keep you informed about important developments as they occur. April 2009

4 Listing of pronouncements and proposals E First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

5 Financial Accounting Standards Board (FASB) Final Pronouncements FASB Staff Position No. FAS and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments...1 FASB Staff Position No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly...2 FASB Staff Position No. FAS and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments...3 FASB Staff Position No. FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies...4 FASB Staff Position No. EITF , Amendments to the Impairment Guidance of EITF Issue No FASB Staff Position No. FAS and FIN 46(R)-8, Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities...6 FASB Staff Position No. FAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets...7 FASB Staff Position No. FIN 48-3, Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises...8 FASB exposure drafts The Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No Rescission of FASB Technical Bulletin No. 01-1, Nullification of EITF Topics No. D-33 and No. D-67, Amendments, and Technical Corrections...9 Subsequent Events...10 Going Concern...10 Accounting for Transfers of Financial Assets, an amendment of FASB Statement No Amendments to FASB Interpretation No. 46(R)...12 Earnings per Share an amendment of FASB Statement No Disclosure of Certain Loss Contingencies, an amendment of FASB Statements No. 5 and 141(R)...14 Accounting for Hedging Activities, an amendment of FASB Statement No Conceptual Framework for Financial Reporting: The Objective of Financial Reporting and Qualitative Characteristics and Constraints of Decision- Useful Financial Reporting Information...16 Not-for-Profit Organizations Mergers and Acquisitions...16 Not-for-Profit Organizations Goodwill and Other Intangible Assets Acquired in a Merger or Acquisition...17 Proposed FASB Staff Positions (FSPs) and Statement 133 Implementation Issues Proposed Statement 133 Implementation Issue No. C22, Exception Related to Embedded Credit Derivatives...18 Proposed FSP FAS 144-d, Amending the Criteria for Reporting a Discontinued Operation...18 Proposed FSP FAS 157-c, Measuring Liabilities under FASB Statement No First Quarter 2009 Standard Setter Update Financial reporting and accounting developments i

6 Other FASB Discussion Paper, Leases: Preliminary Views...21 Discussion Paper, Preliminary Views on Revenue Recognition in Contracts with Customers...21 Discussion Paper, Preliminary Views on Financial Statement Presentation...22 Financial Crisis Advisory Group...23 Emerging Issues Task Force (EITF) EITF Consensuses for Exposure EITF Issue 09-1, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance...25 EITF Issue 08-9, Milestone Method of Revenue Recognition...26 EITF Issue 08-1, Revenue Arrangements with Multiple Deliverables...27 Securities and Exchange Commission (SEC) Final SEC pronouncements Interactive Data for Mutual Fund Risk/Return (Release No )...29 Interactive Data to Improve Financial Reporting (Release No )...29 Modernization of Oil and Gas Reporting (Release No )...30 SEC rule proposals Other SEC Roadmap for Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by U.S. Issuers (Release No )...32 Revisions of Limited Offering Exemptions in Regulation D (Release No )...33 SEC completes study of mark-to-market accounting...34 Public Company Accounting Oversight Board (PCAOB) Final PCAOB pronouncements and other reports Staff Audit Practice Alert No. 3 Audit Considerations in the Current Economic Environment...37 Staff Views An Audit of Internal Control Over Financial Reporting That is Integrated with An Audit of Financial Statements: Guidance for Auditors of Smaller Public Companies...37 PCAOB rule proposals PCAOB Release No Proposed Auditing Standard Engagement Quality Review...38 PCAOB Release No Proposed Auditing Standards Related to the Auditor s Assessment of and Response to Risk; Proposed Conforming Amendments to PCAOB Standards...38 ii First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

7 Auditing Standards Board (ASB) Final Standards Statement on Auditing Standards No. 116, Interim Financial Information...41 Exposure Drafts Proposed Statement on Auditing Standards, Compliance Audits...42 ASB Clarity Project...43 Governmental Accounting Standards Board (GASB) Final GASB pronouncements GASB Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments...47 GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions...47 GASB Concepts Statement No. 5, Service Efforts and Accomplishments Reporting...48 GASB Technical Bulletin No , Determining the Annual Required Contribution Adjustment for Postemployment Benefits...49 GASB exposure drafts Other GASB Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards...50 Invitation to Comment (ITC), Pension Accounting and Financial Reporting...51 Effective Date Matrices Effective Date Matrix FASB Final Statements...53 Effective Date Matrix FASB Final FSPs...55 Effective Date Matrix Statement 133 Implementation Issues...57 Effective Date Matrix Final EITF Consensus...57 Effective Date Matrix Final SEC Pronouncements...59 Effective Date Matrix Final PCAOB Pronouncements...60 Effective Date Matrix Final ASB Standards...60 Effective Date Matrix Final GASB Pronouncements...61 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments iii

8 Financial Accounting Standards Board (FASB) I First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

9 Final Pronouncements FASB Staff Position No. FAS and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments Date issued: April 2009 On 9 April 2009, the FASB released FSP FAS and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2). FSP FAS was issued contemporaneously with FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability has Significantly Decreased and Identifying Transactions that are Not Orderly (FSP FAS 157-4) and FSP FAS and APB 28-1, Interim Disclosures About Fair Value of Financial Instruments (FSP FAS 107-1). The three FSPs were approved by the FASB at its meeting on 2 April FSP FAS changes existing accounting requirements for other-than-temporary-impairment (OTTI) by: Replacing the current requirement that a holder have the positive intent and ability to hold an impaired security (a security is considered impaired when its fair value is less than its cost basis) to recovery in order to conclude an impairment was temporary with a requirement that an entity conclude it does not intend to sell an impaired security and it is not more likely than not it will be required to sell the security before the recovery of its amortized cost basis Requiring the other-than-temporary impairment (equal to the difference between the security s amortized cost basis and its fair value at the balance sheet date) to be separated into: The amount representing the decrease in cash flows expected to be collected (hereinafter referred to as credit loss ), which is recognized in earnings, and The amount related to all other factors, which is recognized in other comprehensive income (OCI) in circumstances in which a holder concludes it will not recover the entire cost basis of an impaired security and the holder does not intend to sell the security and has concluded it is not more likely than not they will be required to sell the security before recovery of its amortized cost basis if these conditions are not met, this amount is recognized in net income and need not be separately measured Modifying the terminology used to assess the collectibility of cash flows from probable that the investor will be unable to collect all amounts due to the investor does not expect to recover the entire amortized cost basis of the security. With this change, the FASB has lowered the threshold for recognizing an OTTI from probable to more likely than not First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 1

10 Requiring the total OTTI (difference between the fair value and the amortized cost of the security) to be presented in the statement of earnings with an offset in a separate line item for any amount of the total OTTI that is recognized in OCI For securities classified as held-to-maturity, requiring the amount of the OTTI recognized in OCI to be amortized (through OCI) over the remaining life of the security Amending existing disclosure requirements, extending those requirements to interim periods, requiring new disclosures that are intended to provide further disaggregated information. The FSP also requires information about how the amount of OTTI that was recognized in earnings (when an impairment resulting from other factors is recognized in OCI) was determined and a roll forward of such amount from one period to the next Effective date FSP FAS is effective for interim and annual periods ending after 15 June 2009, with early adoption permitted for periods ending after 15 March If an entity elects to early-adopt either FSP FAS or FSP FAS 107-1, that entity is required to early-adopt FSP FAS Likewise, if an entity early-adopts FSP FAS it is also required to early-adopt FSP FAS Other resources EY Hot Topic, FASB issues FSP FAS on other-than-temporary impairments (Score No. BB1741) FASB Staff Position No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly Date issued: April 2009 On 9 April 2009, the FASB released FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability has Significantly Decreased and Identifying Transactions that are Not Orderly (FSP FAS 157-4). FSP FAS was issued contemporaneously with FSP FAS and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2)and FSP FAS and APB 28-1, Interim Disclosures About Fair Value of Financial Instruments (FSP FAS 107-1). The three FSPs were approved by the FASB at its meeting on 2 April FSP FAS amends FASB Statement No. 157, Fair Value Measurements (Statement 157) to provide additional guidance on estimating fair value when the volume and level of transaction activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability. The FSP also provides additional guidance on circumstances that may indicate that a transaction is not orderly. FSP FAS 157-4, as well as the related FSP issued on the same day, FSP FAS 107-1, also require additional disclosures about fair value measurements in annual and interim reporting periods. FSP FAS supersedes FASB Staff Position No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active. As such, FSP FAS amends Appendix A of Statement 157 to provide a revised example to illustrate key considerations when applying the principles in Statement 157 in estimating fair value in non-active markets when there has been a significant decrease in the volume and level of activity for the asset. 2 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

11 The FSP is focused on assets and liabilities that have experienced a significant reduction in volume and activity in relation to normal market activity. The FASB believes there may be increased instances of transactions that are not orderly in these situations. In addition, uncertainty regarding when to make adjustments to observable data and when alternative valuation techniques should be used are more prevalent when the level of activity for an asset or liability has significantly decreased. Assets that historically traded in active markets (or in markets less inactive than they are today), were typically valued using a market approach given the availability and relevance of observable data. FSP FAS provides additional guidance on when the use of multiple (or different) valuation techniques may be warranted and considerations for determining the weight that should be applied to the various techniques. Effective date FSP FAS is effective for interim and annual reporting periods ending after 15 June Early adoption is permitted, but only for periods ending after 15 March If an entity chooses to early adopt this FSP, it must also early adopt FSP FAS In addition, a reporting entity that elects to early adopt either FSP FAS or FSP FAS is also required to early adopt this FSP. The FSP must be applied prospectively and does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, comparative disclosures are required only for periods ending after initial adoption. However, in the period of adoption a reporting entity must disclose a change, if any, in valuation technique and related inputs resulting from the application of the FSP, and quantify the total effect of the change in valuation technique and related inputs, if practicable, by major category. Other resources EY Hot Topic, FASB issues FSPs and on fair value measurements and disclosures (Score No. BB1740) FASB Staff Position No. FAS and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments Date issued: April 2009 On 9 April 2009, the FASB released FSP FAS and APB 28-1, Interim Disclosures About Fair Value of Financial Instruments (FSP FAS 107-1). FSP FAS was issued contemporaneously with FSP FAS and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2) and FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability has Significantly Decreased and Identifying Transactions that are Not Orderly (FSP FAS 157-4). The three FSPs were approved by the FASB at its meeting on 2 April FSP FAS extends the disclosure requirements of FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments (Statement 107), to interim financial statements of publicly traded companies as defined in APB Opinion No. 28, Interim Financial Reporting. Nonpublic entities also may provide the disclosures required by Statement 107 in interim financial statements, but are not required to do so. Statement 107 requires disclosures of the fair value of all financial instruments (recognized or unrecognized), except for those specifically listed in paragraph 8 of Statement 107, when practicable to do so. These fair value disclosures must be presented together with the related carrying amount of the First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 3

12 financial instruments in a manner that clearly distinguishes between assets and liabilities and indicates how the carrying amounts relate to amounts reported on the balance sheet. An entity must also disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments. Effective date FSP FAS is effective for interim reporting periods ending after 15 June 2009, with early adoption permitted for periods ending after 15 March Early adoption of this FSP is permitted only if the entity also elects to early adopt FSP FAS and FSP FAS FSP FAS does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FSP FAS requires comparative disclosures only for periods ending after initial adoption. Other resources EY Hot Topic, FASB issues FSPs and on fair value measurements and disclosures (Score No. BB1740) FASB Staff Position No. FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies Date issued: April 2009 On 1 April 2009, the FASB issued FASB Staff Position FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies (FSP FAS 141(R)-1). The FSP amends FASB Statement No. 141 (revised 2007), Business Combinations (Statement 141(R)), to require that assets acquired and liabilities assumed in a business combination that arise from contingencies (hereinafter referred to as pre-acquisition contingencies ) be recognized at fair value, in accordance with FASB Statement No. 157, Fair Value Measurements, if the fair value can be determined during the measurement period. The FASB believes that fair value can be determined for many warranty obligations, which are subject to the guidance in this FSP. If the fair value of a pre-acquisition contingency cannot be reasonably determined during the measurement period, the FSP requires the entity to recognize that asset or liability as of the acquisition date if: Information available before the end of the measurement period indicates that it is probable that an asset existed or that a liability had been incurred at the acquisition date and The amount of the asset or liability (determined pursuant to FASB Statement No. 5, Accounting for Contingencies (Statement 5)) can be reasonably estimated It is implicit in the first criterion above that it must be probable at the acquisition date that one or more future events confirming the existence of the asset or liability will occur. The FSP specifies that these criteria are to be applied using the guidance provided in Statement 5 and related FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss (FIN 14). The FSP does not provide guidance on subsequent accounting for pre-acquisition contingencies, other than to state that a systematic and rational method must be applied. FSP FAS 141(R)-1 requires disclosures consistent with Statement 5. 4 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

13 Because of issues raised by constituents relating to the application of Statement 141(R) for pre-acquisition contingencies, the Board reconsidered the guidance in Statement 141(R) and determined that the initial recognition and measurement model for assets and liabilities arising from contingencies should be similar to that previously applied under FASB Statement No. 141, Business Combinations. The Board states in its Basis for Conclusions that this approach is a temporary solution until the Board can reconsider the accounting for all contingencies. Effective date FSP FAS 141(R)-1 has the same effective date as Statement 141(R), which is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 15 December 2008 (i.e., on or after 1 January 2009 for a calendar year end company). Other resources EY Hot Topic, FASB amends Statement 141(R) s requirements for pre-acquisition contingencies (Score No. BB1734) FASB Staff Position No. EITF , Amendments to the Impairment Guidance of EITF Issue No Date issued: January 2009 The FSP amends EITF Issue No , Recognition of Interest Income and Impairment of Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets. The FSP eliminates the requirement that a holder s best estimate of cash flows be based upon those that a market participant would use. Instead, the FSP requires that an other-than-temporary impairment (OTTI) be recognized as a realized loss through earnings when it is probable 1 there has been an adverse change in the holder s estimated cash flows from the cash flows previously projected, which is consistent with the impairment model in FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities (Statement 115). The FSP also reiterates and emphasizes the objective of an OTTI assessment and the related disclosure requirements in Statement 115 and other related guidance, including the requirement that the holder consider all available information when developing the estimate of future cash flows (i.e., past events, current conditions, and expected events). Effective date The FSP is effective for interim and annual reporting periods ending after 15 December 2008 (e.g., 31 December 2008, for a calendar year-end entity), and should be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. Other resources EY Hot Topic, FASB issues FSP amending EITF (Score No. BB1679) 1 This threshold was subsequently amended in FSP FAS by, among other things, deleting the word probable. Accordingly, after the adoption of FSP FAS 115-2, any adverse change in cash flows expected to be collected results in an OTTI. First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 5

14 FASB Staff Position No. FAS and FIN 46(R)-8, Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities Date issued: December 2008 This FSP amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities (Statement 140), and FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46(R)). The FSP was issued by the FASB to expeditiously meet the need for enhanced information about transferred financial assets and about an enterprise s involvement with a variable interest entity (VIE). The FSP requires extensive additional disclosures by public entities with continuing involvement in transfers of financial assets to special-purpose entities and with VIEs, including sponsors that have a variable interest in a VIE. Additionally, the FSP requires certain disclosures to be provided by a public entity that is one of the following: A sponsor of a qualifying special-purpose entity (SPE) that holds a variable interest in the qualifying SPE but was not the transferor (nontransferor) of financial assets to the qualifying SPE A servicer of a qualifying SPE that holds a significant variable interest in the qualifying SPE but was not the transferor (nontransferor) of financial assets to the qualifying SPE The FSP amends the disclosure requirements of Statement 140 for public entities to (a) provide an overall objective for the disclosure requirements, (b) provide guidance on aggregating disclosures for similar transfers of financial assets, and (c) require additional disclosure about: The nature, purpose, size, and activities of an SPE utilized in a transfer of financial assets, including how the SPE is financed A transferor s continuing involvement with financial assets transferred in an asset-backed financing arrangement or securitization accounted for as a sale Assets and liabilities recognized in the transferor s financial statements that relate to transfers of financial assets accounted for as secured borrowings The FSP amends FIN 46(R) to require disclosure by a public company that is (a) the primary beneficiary of a VIE, (b) holds a significant variable interest in a VIE but is not the primary beneficiary or (c) is a sponsor that holds a variable interest in a VIE. While the FSP provides for new disclosure requirements, it also expands on some of the existing disclosures as required by the current FIN 46(R). Effective date This FSP is effective for fiscal periods ending after 15 December 2008 (i.e., fiscal year 2008 for calendar year companies). Other resources EY Hot Topic, FASB issues FSP on disclosures about transfers of financial assets and interests in variable interest entities (Score No. BB1654) 6 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

15 FASB Staff Position No. FAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets Date issued: December 2008 The FSP amends FASB Statement No. 132(R), Employer s Disclosures about Pensions and Other Postretirement Benefits (Statement 132(R)), to require additional disclosures about assets held in an employer s defined benefit pension or other postretirement plan. Prior to the FSP employers are currently required to disclose for each major category of plan assets, such as equity securities, debt securities, real estate and all other assets, the percentage of the fair value of total plan assets as of each annual reporting date for which a statement of financial position is presented. The FSP replaces the requirement to disclose the percentage of the fair value of total plan assets with a requirement to disclose the fair value of each major asset category. The FSP also: Provides several examples of additional major categories of plan assets and requires employers to consider the disclosure objectives included in the FSP when determining whether to provide additional disclosures about major asset categories Amends Statement 132(R) to require disclosure of the level within the fair value hierarchy in which each major category of plan assets falls, using the guidance in FASB Statement No. 157, Fair Value Measurements Requires employers to reconcile the beginning and ending balances of plan assets with fair values measured using significant unobservable inputs (Level 3), separately presenting changes during the period attributable to (a) actual return on plan assets, (b) purchases, sales and settlements (net), and (c) transfers in and out of Level 3 Includes a technical amendment to Statement 132(R) that requires nonpublic entities to disclose the net periodic benefit cost recognized for each annual period for which a statement of income is presented Effective date The FSP is effective for fiscal years ending after 15 December The technical amendment to Statement 132(R) was effective immediately. Other resources EY Hot Topic, FASB issues FSP amending disclosure provisions of FASB Statement No. 132(R) (Score No. BB1671) First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 7

16 FASB Staff Position No. FIN 48-3, Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises Date issued: December 2008 FSP FIN 48-3 provides an additional deferral of the effective date of FIN 48 for certain nonpublic enterprises (as defined in paragraph 289 of FASB Statement No. 109, Accounting for Income Taxes) until annual financial statements for fiscal years beginning after 15 December The effective date of FIN 48 for certain nonpublic enterprises was previously deferred in FSP FIN 48-2, Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises (FSP FIN 48-2), until annual financial statements for fiscal years beginning after 15 December The FASB decided that an additional deferral beyond that granted in FSP FIN 48-2 was necessary. During the deferral period, the FASB plans to issue another FSP to provide guidance for pass-through entities and not-for-profit organizations on how to apply the provisions of FIN 48. The FASB also plans to amend the disclosure requirements of FIN 48 for nonpublic entities. Effective date FSP FIN 48-3 was effective upon issuance (i.e., on 30 December 2008). Other resources EY Hot Topic, FASB Issues FSP FIN 48-3 (Score No. BB1675) 8 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

17 FASB exposure drafts The Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162 Date issued: March 2009 Comment period ends 8 May 2009 The proposed statement would modify the US generally accepted accounting principles (GAAP) hierarchy created by FASB Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles. If issued as proposed, there would only be two levels of GAAP: authoritative and nonauthoritative. This would be accomplished by authorizing the FASB Accounting Standards Codification (the Codification) to become the single source of authoritative US accounting and reporting standards, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other nongrandfathered, non-sec accounting literature not included in the Codification would become nonauthoritative. The Board s primary goal in developing the Codification is to simplify user access to authoritative GAAP by providing in one place authoritative literature related to a particular Topic. The Board believes the Codification retains existing GAAP without changing it, except for the following item. The FASB decided to include the American Institute of Certified Public Accountants (AICPA) Technical Inquiry Service (TIS) Section 5100, Revenue Recognition, paragraphs 38 76, in the Codification, which may result in an accounting change for nonpublic entities that had not previously applied this guidance. Those nonpublic entities would be required to apply the guidance prospectively for revenue arrangements entered into or materially modified in annual periods beginning on or after 15 December 2009, and interim periods within those years. This transition provision would be applicable only for nonpublic entities that had not previously applied this guidance. Effective date The proposed statement would be effective 1 July 2009, except as described in the preceding paragraph. Rescission of FASB Technical Bulletin No. 01-1, Nullification of EITF Topics No. D-33 and No. D-67, Amendments, and Technical Corrections Date issued: March 2009 Comment period ends 15 May 2009 The proposed statement would address certain inconsistencies in existing accounting pronouncements, provide certain clarifications to reflect the Board s intent in previously issued pronouncements, eliminate certain outdated guidance, and make technical corrections considered to be nonsubstantive in nature to an authoritative pronouncement. The changes are not expected to result in significant changes in practice. The proposed statement would rescind FASB Technical Bulletin No. 01-1, Effective Date for Certain Financial Institutions of Certain Provisions of Statement 140 Related to the Isolation of Transferred Financial Assets, and nullify Emerging Issues Task Force Topics No. D-33, Timing of Recognition of Tax Benefits for Pre-reorganization Temporary Differences and Carryforwards, and No. D-67, Isolation of Assets Transferred by Financial Institutions under FASB Statement No Effective date The proposed statement would be effective upon issuance. First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 9

18 Subsequent Events Date issued: October 2008 Comment period ended 8 December 2008 The intent of the proposed statement is to provide authoritative accounting literature for a topic that currently is addressed only in the auditing literature. The guidance as proposed largely is similar to the current guidance with some exceptions that are not intended to result in significant changes in practice. As proposed, two modifications to the subsequent events guidance are: To name the two types of subsequent events either as recognized subsequent events (currently referred to as Type I subsequent events) or non-recognized subsequent events (currently referred to as Type II subsequent events) To modify the definition of subsequent events to refer to events or transactions that occur after the balance sheet date, but before the financial statements are issued or available to be issued (currently events are evaluated up to the time that the financial statements are issued) The Board has discussed issues raised in comments received on the proposed statement and decided to include a general scope exception for any existing authoritative accounting literature that conflicts with the final Statement and to require that an entity disclose the date through which subsequent events have been evaluated. Effective date The new statement would be effective for interim or annual periods ending after 15 June The Board is requiring prospective application of the proposed statement because it does not expect the proposed statement to result in significant changes to current practice. Other resources EY Hot Topic, FASB issues exposure drafts on subsequent events and going concern (Score No. BB1601) EY Comment Letter (Score No. BB1649) Going Concern Date issued: October 2008 Comment period ended 8 December 2008 The intent of the proposed statement is to provide authoritative accounting literature for a topic that currently is addressed only in the auditing literature. The guidance as proposed largely is similar to the current guidance with some exceptions that are not intended to result in significant changes in practice. The modifications to the going concern guidance align the guidance with International Financial Reporting Standards (IFRS), specifically IAS 1, Presentation of Financial Statements (IAS 1). The modifications are: To change the time horizon for the going concern assessment to at least, but not limited to, twelve months from the end of the reporting period from a reasonable period of time, not to exceed one year beyond the date of the financial statements 10 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

19 To use the language in IAS 1 regarding the type of information that should be evaluated as part of the going concern assessment ( all information about the future ) The Board has discussed issues raised in comments received on the proposed statement and decided to provide guidance that defines a going concern and to clarify that the time period for the going concern assessment is not a bright-line 12 months but also is not intended to be an indefinite look-forward period. Effective date The new statement would be effective for interim or annual periods ending after 15 June The Board has proposed prospective application of the proposed statement because it does not expect the proposed statement to result in significant changes to current practice. Other resources EY Hot Topic, FASB issues exposure drafts on subsequent events and going concern (Score No. BB1601) EY Comment Letter (Score No. BB1648) Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140 Date issued: September 2008 Comment period ended 14 November 2008 The proposed statement responds to concerns about FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities-a Replacement of FASB Statement No. 125 (Statement 140), including practices that have developed since the issuance of Statement 140 that the FASB believes are not consistent with the original intent of that Statement, as well as concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the financial statements of transferors. Additionally, financial statement users have expressed concerns about the transparency of disclosures as a result of significant events in the credit markets. The proposed statement would remove the concept of a qualifying special-purpose entity (QSPE) from Statement 140 and remove the exception from applying FIN 46(R), Consolidation of Variable Interest Entities (an interpretation of ARB No. 51) (FIN 46(R)) to QSPEs. The proposed statement has been the subject of much redeliberation by the FASB. Based on discussions to date, the Board has affirmed many of the provisions of the proposed statement, including: a) the elimination of the QSPE concept, b) the removal of special provisions for guaranteed mortgage securitizations and c) the requirement that a transferor recognize and initially measure at fair value all assets obtained (including beneficial interests) and liabilities incurred as a result of a transfer of an entire asset or group of financial assets accounted for as a sale. However, the Board has decided to change the derecognition criteria initially proposed in the exposure draft. In assessing whether the transferor has constrained the ability of the transferee to pledge or exchange the transferred assets, or has otherwise maintained effective control over the transferred assets, the Board decided to require look-through provisions to consider the abilities of the beneficial interest holders to pledge or exchange their beneficial interests when the sole purpose of the transferee entity is to engage in securitization or asset-backed financing activities. First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 11

20 Effective date The proposed statement would be effective for transfers occurring on or after the beginning of a reporting entity s first fiscal year that begins after 15 November 2009, with earlier application prohibited. That is, the proposed statement would be effective for calendar year companies beginning in Additionally, on the effective date, all existing QSPEs must be evaluated for consolidation by all reporting entities in accordance with all applicable consolidation guidance, including the proposed amendments to FIN 46(R). If such an evaluation results in consolidation, the reporting entity would apply the transition guidance provided in the pronouncement that requires consolidation. The Board expects to issue a final standard by 30 May Other resources EY Hot Topic, FASB releases exposure draft on amendment to FAS 140 (Score No. BB1584) EY Comment Letter (Score No. BB1618) Amendments to FASB Interpretation No. 46(R) Date issued: September 2008 Comment period ended 14 November 2008 The proposed statement responds to concerns about the transparency of entities involvement with variable interest entities (VIEs) and the overly complex, quantitative nature of the application of FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities (an interpretation of ARB No. 51) (FIN 46(R)). As proposed, the statement would amend the guidance for determining the primary beneficiary of a VIE by requiring an enterprise to perform a qualitative analysis to determine if the enterprise s variable interest(s) give it a controlling financial interest. If the qualitative analysis indicates that the enterprise has (1) the power to direct matters that most significantly affect the activities of the entity and (2) the right to receive benefits or absorb losses that potentially could be significant, the enterprise would have a controlling financial interest and consolidate the VIE. The Board also decided to remove the quantitative assessment from the determination of the primary beneficiary. During its redeliberations, the Board decided to require continuous assessments of whether an enterprise is the primary beneficiary of a VIE, but reassessments of whether the entity is a VIE would only be required upon a reconsideration event as defined. Additionally, the Board affirmed its decision that enterprises should consider kick-out rights in the analysis of the primary beneficiary and in determining whether an enterprise is a VIE only if those kick-out rights are substantive and can be unilaterally exercised by a single party (including that party s related parties and de facto agents). Other topics redeliberated include, among other things, related party guidance, separate classification of elements, shared power and power over specified assets. The proposed statement would significantly expand the disclosure requirements for enterprises with involvement with VIEs. The criteria for determining whether an entity is a VIE would be unchanged. 12 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

21 Effective date The Board intends to redeliberate the effective date of the amendments, which was initially proposed to be as of a reporting entity s first fiscal year beginning after 15 November Earlier application is prohibited. That is, it would be effective for calendar year companies beginning in The statement as proposed would be applied to all entities in which an enterprise has a variable interest, unless there is a scope exception under the proposed statement. The Board expects to issue a final standard by 30 May Other resources EY Hot Topic, of Proposed Amendments to FIN 46(R) (Score No. BB1580) EY Comment Letter (Score No. BB1617) Earnings per Share an amendment of FASB Statement No. 128 Date issued: August 2008 Comment period ended 5 December 2008 The FASB issued the proposed statement as part of a joint project with the International Accounting Standards Board (IASB) to eliminate certain differences between FASB Statement No. 128, Earnings per Share, and International Accounting Standard 33, Earnings per Share (IAS 33). Concurrently, the IASB also issued an exposure draft proposing amendments to IAS 33. Those proposed amendments, taken together, are also intended to improve the comparability of EPS. In addition, the proposed statement also clarifies the application of the two-class method of computing earnings per share through additional guidance and comprehensive examples. The proposed changes to current practice include: An entity would be required to include shares that are currently issuable for little or no cost in the computation of weighted average shares outstanding in calculating basic EPS An entity would not increase the denominator of diluted EPS for common shares that would arise from the exercise or conversion of a freestanding instrument (or component of a compound instrument that is accounted for as if it were freestanding) that is measured at fair value each period with changes recognized through earnings An entity would use the end-of-period market price (or market price at time of exercise, if earlier) of its common shares to determine the incremental number of shares to be included in diluted EPS The carrying value of a liability that is not measured at fair value each period through earnings and that is assumed to be share settled would be included as assumed proceeds in the computation of diluted EPS An entity would assume share settlement in computing diluted EPS for an instrument that can be settled in cash or common stock if the effect would be dilutive unless share settlement is permitted only upon the legal bankruptcy of the entity Quarterly and year-to-date diluted EPS would be computed independent of any other periods First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 13

22 Effective date The proposed statement indicates that the effective date will be determined after the comment period; however it specifies that entities would be required to apply the new guidance retrospectively, with some limited exceptions. Other resources EY Hot Topic, FASB releases proposed statement to amend Statement 128, Earnings per Share (Score No. BB1574) EY Comment Letter (Score No. BB1647) Disclosure of Certain Loss Contingencies, an amendment of FASB Statements No. 5 and 141(R) Date issued: June 2008 Comment period ended 8 August 2008 The FASB has received feedback from a number of financial statement users and regulators that the current recognition and disclosure practices for contingent liabilities are inadequate. Such constituents have expressed the view that recognition typically occurs very late, and disclosures are often boilerplate, vague, or conclude that a reasonable estimate of the loss or range of loss cannot be made. As a result of those concerns, and issues raised during the FASB s deliberations on FASB Statement No. 141(R), Business Combinations, the FASB added a project on the accounting for and disclosure of certain nonfinancial liabilities and contingencies. The proposed Statement would: (a) expand the population of loss contingencies that are required to be disclosed, (b) require disclosure of specific quantitative and qualitative information about those loss contingencies, (c) require a tabular reconciliation of recognized loss contingencies, and (d) provide an exemption from disclosing certain required information if disclosing that information would be prejudicial to an entity s position in a dispute. In late September 2008, the Board decided on a plan for redeliberation of its exposure draft and directed the FASB staff to prepare an alternative model that would attempt to address the concerns that many constituents raised about the exposure draft. Both models are being field tested. In early March, the Board hosted two roundtable sessions to facilitate constructive dialogue and to attempt to find common ground among constituents regarding the enhancement of disclosure requirements. Participants in the roundtable discussions included financial statement preparers and users, attorneys, auditors, representatives from the SEC, PCAOB, ASB, and FASB board members and their staff. The FASB staff indicated that it would consider the views expressed at the roundtable discussions and develop a project plan for the remainder of the project. The Board would then redeliberate the proposed statement. Effective date As originally issued, the proposed statement would have been effective for financial statements issued for fiscal years ending after 15 December 2008, and for interim and annual periods in subsequent fiscal years. However, in conjunction with its redeliberations, the Board decided that any final statement on this topic would be effective no sooner than for fiscal years ending after 15 December First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

23 Other resources EY Hot Topic, FASB hosts loss contingency disclosure roundtables (Score No. BB1714) EY Hot Topic, FASB releases proposed statement to significantly expand disclosures for loss contingencies (Score No. BB1541) EY Comment Letter (Score No. BB1558) Accounting for Hedging Activities, an amendment of FASB Statement No. 133 Date issued: June 2008 Comment period ended 15 August 2008 The proposed statement was intended to resolve significant practice issues relating to the accounting for hedging activities. While the qualification for hedge accounting and the ongoing assessment of hedge accounting would be made easier to achieve, the actual ongoing accounting for hedge ineffectiveness would be more difficult for several very common hedges. In addition, the benefit of achieving hedge accounting, in terms of reducing earnings volatility, may be less attractive. The FASB proposed to replace the notion of a highly effective relationship with one that is merely reasonably effective. Existing requirements that hedges be reassessed every quarter would be removed, and scenarios in which qualitative assessments of hedge effectiveness are deemed acceptable are more numerous. Contemporaneous hedge designations will still be required, but the guidance in FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities that have led to cumbersome quantitative analyses, would be removed and replaced with more practical guidance. However, hedgers would no longer be able to designate hedged risks in a way that matches the risk the derivative is designed to address (e.g., hedgers would no longer be permitted to designate the hedged risk as the risk of changes in a benchmark interest rate). Instead, hedgers must focus on the entirety of the hedged item s price risk or hedged forecasted transaction s variability risk. Furthermore, the proposed statement would eliminate the assumption of no ineffectiveness for certain hedge relationships (i.e., the short-cut method), requiring that the hedged item or hedged forecasted transaction be measured independently of the derivative (a concept referred to today as the long-haul approach). The Board had delayed redeliberations on the hedging project pending decisions on its project related to the Discussion Paper, Reducing Complexity in Reporting Financial Instruments. The Boards now have a broader project to consider on a comprehensive basis, improvements to the recognition and measurement of financial instruments. The FASB and IASB staff will continue deliberations with the Board to further define potential measurement methods for financial instruments and potential characteristics for categorizing financial instruments. Effective date The proposed statement would have required application of the amended hedge accounting requirements for financial statements issued for fiscal years beginning after 15 June 2009, and for interim periods within those fiscal years. Early application would not have been permitted. However, because any new hedging guidance will be considered in connection with the FASB s and IASB s broader financial instruments project, the effective date of any new hedging guidance will be delayed from the date proposed in the exposure draft. First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 15

24 Other resources EY Hot Topic, FASB issues proposal to significantly amend Statement 133 hedging activities (Score No. BB1536) EY Comment Letter (Score No. BB1567) Conceptual Framework for Financial Reporting: The Objective of Financial Reporting and Qualitative Characteristics and Constraints of Decision-Useful Financial Reporting Information Date issued: May 2008 Comment period ended 29 September 2008 The objective of the conceptual framework project, a joint project of the FASB and IASB, is to develop an improved common conceptual framework that provides a sound foundation for developing future accounting standards. A conceptual framework is essential to develop standards that are based on sound principles, internally consistent, and internationally converged and that lead to financial reporting that provides the information capital providers need to make decisions in their capacity as capital providers. The new framework will build on the existing FASB and IASB frameworks. The project is being conducted in eight phases, and this exposure draft represents the Boards conclusions on the first of those phases. As proposed, the objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions in their capacity as capital providers. As proposed, the qualitative characteristics (attributes that make financial reporting useful) are complimentary concepts that can be distinguished as either fundamental or enhancing depending on how they affect the usefulness of information. Providing useful financial reporting information is limited by two pervasive constraints on financial reporting, materiality and cost. Other resources EY Comment Letter (Score No. BB1748) Not-for-Profit Organizations Mergers and Acquisitions Date issued: October 2006 Comment period ended 29 January 2007 Under the exposure draft, the pooling-of-interests method would no longer be used. Instead, the proposal would require the application of the acquisition method to all mergers and acquisitions by a not-for-profit organization. As a result of redeliberations of the mergers and acquisition proposal, the FASB decided that a merger is different from an acquisition and, therefore, a different accounting treatment for mergers would be appropriate. The Board agreed that the feature that distinguishes a merger is control. That is, in a merger, the governing bodies of two or more not-for-profit organizations cede control of those organizations to create a new organization. In an acquisition, one organization obtains control over the net assets of another organization or business. 16 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

25 The Board affirmed that the acquisition method should be required for acquisitions by not-for-profit organizations. The Board decided that the carryover method of accounting should be retained for mergers between not-for-profit organizations. The Board issued a request for additional comments on distinguishing between a merger and an acquisition by a not-for-profit organization during the second quarter of Comments were due 8 July The Board has now completed its redeliberations of the exposure draft, and at the 26 February 2009 meeting, the Board directed the staff to proceed with the drafting of a final Statement. At this time, publication of the final Statement is expected in April Effective date The Board decided that all not-for-profit organizations should apply the final Statement in the first fiscal year beginning after 15 December 2009, with no delayed effective date for smaller not-for-profit organizations. The Board also decided to prohibit early adoption of the final Statement. Other resources EY Comment Letters (Score Nos. BB1383, BB1553) Not-for-Profit Organizations Goodwill and Other Intangible Assets Acquired in a Merger or Acquisition Date issued: October 2006 Comment period ended 29 January 2007 The exposure draft proposes accounting guidance for intangible assets after a merger or acquisition. The proposed guidance for acquisitions is consistent with the accounting for all other acquired intangible assets, whether purchased, donated, or acquired individually or as part of a group. Under this proposal, not-for-profit organizations would be required to provide: (a) consistent and comparable information about identifiable intangible assets acquired in a merger or acquisition and (b) additional information about events resulting in impairments of goodwill acquired. As a result of its redeliberations, the Board affirmed that for acquisitions by not-for-profit organizations, the acquirer should apply the FASB Statement No. 141(R), Business Combinations criteria for recognition and measurement of identifiable assets acquired, including intangible assets. The Board decided that those not-for-profit organizations that recognize acquired goodwill should apply the guidance in FASB Statement No. 142, Goodwill and Other Intangible Assets, for subsequent testing and impairment. The Board has now completed its redeliberations of the exposure draft, and at the 26 February 2009 meeting, the Board directed the staff to proceed with the drafting of a final Statement. At this time, publication of the final Statement is expected in April Effective date The Board decided that all not-for-profit organizations should apply the final Statement in the first fiscal year beginning after 15 December 2009, with no delayed effective date for smaller not-for-profit organizations. The Board also decided to prohibit early adoption of the final Statement. Other resources EY Comment Letter (Score No. BB1382) First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 17

26 Proposed FASB Staff Positions (FSPs) and Statement 133 Implementation Issues Proposed Statement 133 Implementation Issue No. C22, Exception Related to Embedded Credit Derivatives Date issued: 14 January 2009 Comment period ended 13 February 2009 On 14 January 2009, the FASB released for public comment Proposed Statement 133 Implementation Issue No. C22, Exception Related to Embedded Credit Derivative (DIG C22), which clarifies when embedded credit derivatives, including those in collateralized debt obligations (CDOs) and synthetic CDOs, are not considered embedded derivatives that must be separately analyzed for potential bifurcation and separate accounting at fair value with changes reported in earnings. This proposed DIG issue would most often apply to hybrid instruments (whether senior or subordinated) created by combining debt instruments with credit derivatives, both held by the issuer of the beneficial interest (e.g., synthetic CDO structures). This proposed guidance would clarify the extent of the scope exception under paragraph 14B of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133) for embedded credit derivatives in hybrid instruments issued by special purpose entities. Issue C22 has been the subject of extensive redeliberation and discussion by the Board. Effective date The effective date originally proposed in the Implementation Issue is no longer relevant due to the delay resulting from extensive redeliberation. Other resources EY Hot Topic, FASB proposes to clarify the embedded credit derivative scope exception of Statement 133 (Score No. BB1685) EY Comment Letter (Score No. BB1700) Proposed FSP FAS 144-d, Amending the Criteria for Reporting a Discontinued Operation Date issued: 25 September 2008 Comment period ended 23 January 2009 The proposed FSP would converge the definition and disclosure requirements of a discontinued operation with IFRS. The proposed FSP would amend the definition of a discontinued operation that establishes when a component of an entity would be reported in the discontinued operations section of the income statement under FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (Statement 144). 18 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

27 The new definition of a discontinued operation is (a) a component of an entity that is an operating segment and either has been classified as held for sale or has been disposed of or (b) a business classified as held for sale on acquisition. The terms operating segment and business are defined in FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, and FASB Statement 141(R), Business Combinations, respectively. The proposed FSP also eliminates certain existing requirements for discontinued operations classification, specifically that: (a) the cash flows of the component are eliminated after disposal and (b) significant continuing involvement is prohibited. Under the new definition of a discontinued operation, most entities will report fewer discontinued operations, while in limited instances some entities may present additional discontinued operations; for example, when an operating segment has been disposed of but the entity retains significant continuing involvement. The proposed FSP requires additional disclosures for all components of an entity that either have been disposed of or are classified as held for sale that are intended to provide users with additional information because many activities that were previously classified as discontinued operations will now be presented as part of continuing operations (e.g., a component held for sale that would not meet the requirements for presentation as discontinued operations). Effective date The proposed FSP would be effective for financial statements issued for fiscal years beginning after 15 December 2009, and interim periods within those fiscal years. Earlier application would be permitted. The proposed FSP would be applied retrospectively to all periods presented. Other resources EY Hot Topic, FASB proposes new definition of a discontinued operation (Score No. BB1588) EY Comment Letter (Score No. BB1688) Proposed FSP FAS 157-c, Measuring Liabilities under FASB Statement No. 157 Date issued: January 2008 Comment period ended 18 February 2008 The proposed FSP would amend FASB Statement No. 157, Fair Value Measurements (Statement 157), to clarify the measurement principles in Statement 157 for liabilities. Statement 157 defines the fair value of a liability as the price that would be paid to transfer the liability in an orderly transaction between market participants at the measurement date. Under that definition, the liability to the counterparty is presumed to continue and is not settled. Because many liabilities are extinguished through settlement of the obligation with the counterparty rather than by paying another entity to assume the existing obligation, some constituents raised concerns about the application of this hypothetical measurement attribute. The proposed FSP is intended to clarify the principles of Statement 157 pertaining to the fair value measurements of liabilities in an effort to improve consistency in application. As written, the proposed FSP would clarify that a quoted price for the identical liability (unadjusted) in an active market (Level 1 input) is the best evidence of fair value for that liability. Therefore, if a reporting entity issued a debt instrument that is currently exchanged in an active market, both the reporting entity and the holder of the debt instrument would use the same quoted price in measuring fair value. First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 19

28 In the absence of a quoted price for an identical liability in an active market, the proposed FSP indicates that the reporting entity may measure the fair value of its liability at the amount it would receive as proceeds for issuing the same liability at the measurement date. As a result of its redeliberations, the Board has since concluded that if the identical asset does not exist, the fair value measurement of a liability should not include any additional input or adjustment to existing inputs (premium or discount) relating to the absence of market participants for the transfer of the liability or the existence of legal restrictions preventing the transfer of the liability. The Board reasoned that such an adjustment is not appropriate because legal restrictions preventing the transfer of a liability are reflected in the transaction price received by the reporting entity upon initial recognition of the liability. The Board decided at its 25 February 2009 meeting to reexpose this proposed FSP for an additional 30- day period. Effective date The proposed guidance would be effective for periods beginning after 1 July Other resources EY Comment Letter (Score No. BB1555) 20 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

29 Other FASB Discussion Paper, Leases: Preliminary Views Date issued: March 2009 Comment period ends 17 July 2009 On 19 March 2009, the FASB and IASB (collectively, the Boards) issued a discussion paper, Leases: Preliminary Views, on their ongoing joint project on leases. The objective of the Boards joint project on leases is to develop a new lease accounting model for lessees that provides useful, transparent and complete information about leasing transactions in financial statements. In short, the proposed model would eliminate the distinction between operating leases and capital leases for lessees and instead require the recognition for all leases of an asset representing the lessee s right to use the leased asset during the term of the lease and a liability for the lessee s obligation to make rental payments under the lease. The Boards tentatively decided to defer the development of a new accounting model for lessors and concentrate on the development of a new accounting model for lessees. While the Discussion Paper is focused primarily on lessee accounting, it does include a brief discussion of lessor accounting issues that would need to be considered were the project broadened to also address lessor accounting. The Boards are expected to rechallenge the tentative decision to pursue only lessee accounting after the issuance of the Discussion Paper. The Boards project on leasing is expected to significantly change how lessees account for leases, particularly leases that are currently classified as operating leases. Next Steps The Boards intend to deliberate the topics for which they have divergent views and the topics yet to be addressed during the period the Discussion Paper is exposed for comment. The Boards also will review comments received on the Discussion Paper and modify or confirm their preliminary views. The Boards are then expected to develop and expose for public comment an exposure draft of a new standard on accounting for leases, which the Boards currently plan to issue in the first half of Other resources EY Hot Topic, Leases project preliminary views (Score No. BB1719) Discussion Paper, Preliminary Views on Revenue Recognition in Contracts with Customers Date issued: December 2008 Comment period ends 19 June 2009 On 19 December 2008, the FASB and the IASB (collectively, the Boards) issued a discussion paper entitled Preliminary Views on Revenue Recognition in Contracts with Customers relating to their ongoing joint revenue recognition project. The Discussion Paper seeks comments on the Boards preliminary views on a single, asset-and-liability-based revenue recognition model that they believe will improve financial reporting within both US GAAP and IFRS by: Providing clearer guidance on when an entity should recognize revenue First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 21

30 Reducing the number of standards to which entities have to refer in determining when to recognize revenue Establishing principles that will result in entities reporting revenue more consistently for similar contracts regardless of the industry in which an entity operates The Discussion Paper proposes a revenue recognition model that focuses on assets and liabilities for purposes of evaluating contractual arrangements and determining when revenue should be recognized. The paper discusses how contractual rights and obligations should be measured and how changes in those rights and obligations affect revenue recognition. The paper proposes that performance obligations initially should be measured at the transaction price the customer s promised consideration. If a contract comprises more than one performance obligation, an entity would allocate the transaction price to the performance obligations on the basis of the relative standalone selling prices of the goods and services underlying those performance obligations. Next Steps As the Boards are still developing the proposed model, the Discussion Paper excludes a number of significant topics that an exposure draft of a proposed standard would address. The Boards intend to consider these topics during the period the Discussion Paper is exposed for comment. Other resources EY Hot Topic, Revenue recognition project preliminary views (Score No. BB1660) Discussion Paper, Preliminary Views on Financial Statement Presentation Date issued: October 2008 Comment period ended 14 April 2009 The IASB and the FASB (the Boards) initiated the joint project on financial statement presentation to address users concerns that inconsistencies in presentation and excessive aggregation make it difficult to fully understand the financial results of an entity. The purpose of this joint project is to establish a standard that will guide the organization and presentation of information in the financial statements. The proposed presentation model requires an entity to present information about the way it creates value (its business activities) separately from information about the way it funds or finances those business activities (its financing activities), and would require greater disaggregation on the face of the financial statements. The proposed model also would require the presentation of the statement of cash flows using the direct method and a single statement of comprehensive income. These approaches represent current alternatives available to financial statement preparers that are rarely used. Most companies present the statement of cash flows using the indirect method and include information on comprehensive income within the statement of changes in shareholders equity. The proposed model also would require incremental disclosures, the most significant of which is a schedule reconciling each line on the statement of cash flows to each line in the statement of comprehensive income. Next Steps The Boards will consider responses to the Discussion Paper and then develop an exposure draft of a proposed standard. The Boards expect to publish an exposure draft in First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

31 Other resources EY Hot Topic, FASB issues preliminary views on financial statement presentation (Score No. BB1607) EY Comment Letter (Score No. BB1743) Financial Crisis Advisory Group The IASB and the FASB have established an advisory group comprised of senior leaders with broad international experience in financial markets to assist them in considering accounting issues emerging from the global crisis. Composition of the Financial Crisis Advisory Group (FCAG) includes current and former investors, regulators, central bankers, finance ministers and others from industry and the public sector. The primary function of the FCAG is to advise the Boards about standard-setting implications of (1) the global financial crisis and (2) potential changes to the global regulatory environment. The advisory group held its first meeting in January It will conclude its activities within approximately six months (or less), and will conduct advisory meetings during that time. The FCAG has been invited to discuss, among other issues, the following: Areas in which financial reporting helped identify issues of concern, or may have created unnecessary concerns, during the credit crisis Areas in which financial reporting standards could have provided more transparency to help either anticipate the crisis or respond to the crisis more quickly Whether priorities for the IASB and the FASB should be reconsidered in light of the credit crisis Potential areas that require future attention of the IASB and the FASB to avoid future market disruption The implications of the credit crisis for the interaction between general purpose financial reporting requirements for capital markets and regulatory reporting, particularly for financial institutions The relationship between fair value and off-balance-sheet accounting and the current crisis, both during and leading up to the crisis The findings and relevance of conclusions of various studies underway, including the US Securities and Exchange Commission study under the Emergency Economic Stabilization Act of 2008 The need for due process for accounting standard setters and its implications on resolving emergency issues on a timely and inclusive basis The independence of accounting standard setters and governmental actions to the global financial crisis The FCAG requested written input from constituents in the form of responses to a specific set of questions to assist the FCAG in discussing accounting and reporting matters related to the financial crisis and making recommendations to the IASB and the FASB. Responses were due by 2 April Next Steps The group has met on three occasions and will summarize their recommendations in a report which is expected to be published in the second quarter of Other Resources EY Response to Invitation for Written Input (Score No. BB1732) First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 23

32 Emerging Issues Task Force (EITF) 24 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

33 EITF Consensuses for Exposure EITF Issue 09-1, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance An issuer of convertible debt may enter into share-lending arrangements simultaneously with a convertible debt offering. Although the convertible debt instrument is ultimately sold to investors, the share lending arrangement is entered into between the issuer and an investment bank underwriting the convertible debt offering and is intended to increase the number of shares available to facilitate the hedging strategies of the investor in convertible debt. The EITF concluded that share lending arrangements should be recorded at fair value in equity with an offsetting debit to debt issuance costs. In subsequent reporting periods, the debt issuance costs will be amortized as interest expense. The EITF also concluded that because shares loaned under these arrangements must be returned, the obligation to return the shares in a share lending arrangement is economically similar to a physically-settled forward share purchase contract. Under FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, the common shares subject to that forward contract are excluded from the calculation of basic and diluted earnings per share. Accordingly, the Task Force decided that loaned shares also should be excluded from the computation of basic and diluted earnings per share, although the arrangement is a participating security subject to the two-class method if the borrower of shares is not required to return to the share lender any dividends paid. Additionally, the EITF concluded that certain additional disclosures should be provided on an annual basis in any period in which a share lending arrangement is outstanding. Effective date The consensus-for-exposure, if affirmed, would be effective for fiscal years, and interim periods within those fiscal years, beginning on or after 15 December The consensus would require retrospective application to all prior periods (if practicable to do so), consistent with the requirements of paragraph 7 of Statement 154, for all own-share lending arrangements that were outstanding as of the effective date. Other resources EY EITF Update, 19 March 2009 Meeting Highlights (Score No. BB1720) First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 25

34 EITF Issue 08-9, Milestone Method of Revenue Recognition Some revenue arrangements provide for multiple payment streams for a single deliverable or a single unit of accounting (e.g., an upfront payment and subsequent milestone payments based on the outcome of ongoing research and development services). If delivery of a single unit of accounting spans multiple accounting periods, the arrangement consideration attributable to that unit of accounting needs to be allocated to those periods. The ultimate objective is to determine when the arrangement consideration, including any milestone payments, should be recognized as revenue. One method that has developed in practice to address how to recognize contingent arrangement consideration is the milestone method. Under the milestone method, the additional consideration earned from achievement of the milestone is viewed as being indicative of the value provided to the customer through either (a) the efforts performed by the vendor or (b) a specific outcome resulting from the vendor s performance to achieve that specific milestone. That is, the milestone method is an approach to the application of the proportional performance method of revenue recognition. The EITF concluded that a vendor may make an accounting policy election to recognize arrangement consideration that is entirely contingent on the achievement of a substantive milestone in the period in which the milestone is achieved (i.e., the milestone method is an acceptable application of the proportional performance model when the milestones are substantive). However, the Task Force noted that the milestone method is not the only acceptable revenue attribution model for arrangement consideration contingent upon the achievement of a milestone. Effective date Because of the conclusion that the use of the milestone method is an accounting policy election, the consensus-for-exposure, if affirmed, would be effective when ratified by the FASB. An entity should apply the requirements of Statement 154 if it elects to change its accounting policy to or from the milestone method (assuming that the entity determines that the new accounting method is a preferable alternative in the circumstances). Other resources EY Hot Topic, EITF Issue No. 08-9, Milestone Method of Revenue Recognition (Score No. BB1739) EY EITF Update, 19 March 2009 Meeting Highlights (Score No. BB1720) 26 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

35 EITF Issue 08-1, Revenue Arrangements with Multiple Deliverables An entity s sale of products or services may consist of multiple deliverables for which, under certain circumstances, revenue may be recognized separately for each deliverable. The absence of objective and reliable evidence of selling price (previously referred to as objective and reliable evidence of fair value ) of the undelivered item in a multiple-element revenue arrangement is one of the most common reasons entities are unable to separate deliverables in an arrangement under EITF Issue No , Revenue Arrangements with Multiple Deliverables (Issue 00-21). This often results in accounting that might not reflect the underlying economics of a transaction (e.g., deferral of revenue on the delivered item until the remaining items are delivered). The EITF reached a consensus-for-exposure that the selling price threshold for separation in Issue for the undelivered item(s) in an arrangement should allow for an entity s use of its best estimate of selling price to a third party in situations when the entity does not have vendor specific objective evidence (VSOE, as defined in AICPA Statement of Position 97-2, Software Revenue Recognition) or relevant third-party evidence of selling price. An entity could only use its estimated selling price after it determined that neither VSOE nor relevant third-party evidence of selling price exist. At its 19 March 2009 meeting, the EITF tentatively concluded to revise the consensus-for-exposure to require the relative selling price method when allocating arrangement consideration to the elements in an arrangement. The consensus-for-exposure required the use of the residual method in certain circumstances. In addition to the above changes, the EITF spent considerable time at the 19 March 2009 meeting discussing disclosure requirements for Issue 08-1, although the EITF did not reach a tentative conclusion regarding disclosure requirements. The EITF requested that the FASB staff assemble a working group to discuss potential disclosures and present a recommendation to the EITF at its meeting on 18 June Because of the change to require that arrangement consideration be allocated using the relative selling price method, and intention to revise the disclosure requirements, the EITF concluded that it will issue another consensus-for-exposure, subject to a comment period after it concludes on disclosures. Effective date The consensus-for-exposure had proposed that Issue 08-1, once finalized, would be effective for the first annual reporting period beginning after 15 December The consensus would be applied prospectively to arrangements entered into or modified after the effective date. Early application would be permitted as of the beginning of a vendor s fiscal year. The EITF will reconsider the effective date after it completes deliberations on the disclosure requirements and considers the comments on another consensus-for-exposure. Given that a final consensus will not be ratified before the end of June, it is possible that the EITF will delay the effective date of any final consensus. Other resources EY Hot Topic, EITF Issue No (Score No. BB1640) EY EITF Update, 19 March 2009 EITF Meeting Highlights (Score No. BB1720) EY EITF Update, 13 November 2008 EITF Meeting Highlights (Score No. BB1626) First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 27

36 Securities and Exchange Commission (SEC) 28 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

37 Final SEC pronouncements Interactive Data for Mutual Fund Risk/Return (Release No ) Date issued: February 2009 On 11 February 2009, the SEC published a final rule that requires every mutual fund to provide the risk/ return summary section of its prospectus in extensible Business Reporting Language (XBRL) format. The risk/return summary in XBRL format will be required in a mutual fund s initial registration statement, and an update will be required in any post-effective amendment. A mutual fund also will be required to post the XBRL disclosures on its website, if it has one. The XBRL disclosures will be provided as an additional exhibit to a mutual fund s registration statement that will supplement, but not replace or change, the mutual fund s traditional EDGAR filings. The XBRL disclosures can be provided at the time a mutual fund s registration statement becomes effective, or within fifteen business days thereafter. Otherwise, until it submits and posts the required interactive data, a mutual fund will be ineligible to file post-effective amendments under Rule 485(b), which provides for immediate effectiveness of amendments that make non-material changes. Effective date Mutual funds will be required to provide their risk/return summary information using XBRL for initial registration statements, and post-effective amendments that are annual updates to effective registration statements, that become effective on or after 1 January Interactive Data to Improve Financial Reporting (Release No ) Date issued: January 2009 On 30 January 2009, the SEC published a final rule that requires the use of XBRL for SEC financial reporting beginning, for certain companies, with quarterly periods that end on or after 15 June Under the final rule, XBRL use will be phased-in over three years (see Effective Date below). Under the final rule, XBRL-tagged financial information will be submitted via EDGAR in addition to, but not as a replacement of, the plain text financial statements, and will be due at the same time as the related EDGAR filing (with the exception of two 30-day grace periods one for a company s first required XBRL submission and the other for a company s first detailed tagging of financial statement notes and schedules). Interactive data will be required for, but will be limited to, the entirety of the financial statements. In its first year of compliance (i.e., for the filing of three Form 10-Q s and one Form 10-K), First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 29

38 a company must at least tag entire notes and schedules in XBRL as blocks of text. In its second year of compliance, a company also will be required to provide XBRL tags for the numerical details within its notes and schedules. A registrant may, but is not required to, tag narrative portions of its notes and schedules. The SEC is not requiring or permitting tagging of Management s Discussion and Analysis (MD&A) or executive compensation disclosures. The final rule applies to most SEC reporting companies, except: An investment company registered under the Investment Company Act A business development company, as defined A foreign private issuer (FPI) that presents its financial statements without using either US GAAP or IFRS as issued by the IASB Effective date XBRL will be phased-in over three years beginning with the first Form 10-Q (or for FPIs, their first Form 20-F or 40-F, if applicable) for the period ending after the specified transition date. The phase-in groups are as follows: For fiscal periods ending on or after 15 June 2009, US public companies and FPIs that (a) file financial statements with the SEC using US GAAP and (b) have a worldwide public float over $5 billion (approximately 500 companies) For fiscal periods ending on or after 15 June 2010, all other large accelerated filers using US GAAP (approximately 1,300 additional companies) For fiscal periods ending on or after 15 June 2011, all other filers, including smaller reporting companies and all filers that use IFRS as issued by the IASB (over 10,000 additional companies) Other resources EY Technical Line, SEC publishes final rule requiring XBRL (Score No. CC0275) EY Publication, Implementing XBRL Developing a roadmap for the SEC Mandate (Score No. BB1710) Modernization of Oil and Gas Reporting (Release No ) Date issued: December 2008 On 31 December 2008, the SEC published a final rule that revises its oil and gas reserves estimation and disclosure requirements. The primary objectives of the revisions are to increase the transparency and information value of reserve disclosures and improve comparability among oil and gas companies including comparability between domestic registrants and foreign private issuers. The final rule, among other things: Expands the definition of oil and gas producing activities to include reserves from non-traditional sources such as oil sands, shale and coalbeds Defines the term reasonable certainty used in the definition of proved oil and gas reserves as high degree of confidence 30 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

39 Adds a definition of the term reliable technology to clarify the types of technology that can be used to establish reasonable certainty of the economic producibility of estimated reserves and requires disclosures about those technologies Permits the optional disclosure of probable and possible reserves Modifies the prices used to estimate reserves for SEC disclosure purposes and to apply the full-cost method of accounting and depletion accounting to a 12-month average price instead of a single-day, period-end price (The FASB has added a limited scope project to its agenda to align its standards with the 12-month average price used in the SEC s final rule.) Permits companies to disclose reserves using an optional price sensitivity analysis Requires narrative disclosure of proved undeveloped reserves, including a description of why individual fields or countries have remained undeveloped for five years or more Requires companies to disclose the internal controls used to assure objectivity in the reserves estimation process, including disclosure of the qualifications of the technical person (whether an employee or third party) primarily responsible for overseeing the preparation of the reserves estimates. If the company discloses that an audit of the reserves was performed, similar disclosures are required of the third party that performed the audit Requires filing a report of the third party as an exhibit if the company represents that a third party prepared or audited reserves estimates or performed a process review Amends the definition of geographic area and establishes percentage thresholds for purposes of presenting disaggregated reserves and production disclosures Effective date The final rule is effective for registration statements filed on or after 1 January 2010, and for annual reports on Forms 10-K and 20-F for fiscal years ending on or after 31 December Early adoption is prohibited, including in interim periods prior to the first annual report for which the revised disclosures are effective. Other resources EY Hot Topic, of SEC s Modernization of Oil & Gas Reporting Requirements (Score No. CC0274) First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 31

40 SEC rule proposals Roadmap for Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by U.S. Issuers (Release No ) Date issued: November 2008 Comment period extended to 20 April 2009 On 14 November 2008, the SEC issued its Roadmap on the potential use of International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) in financial statements prepared by US issuers. On 3 February 2009, the SEC extended the comment period on the Roadmap from 19 February 2009 until 20 April In extending the comment period, the SEC hopes to increase both the response rate and the quality of comments. The Roadmap sets forth several milestones that, if achieved, could result in the mandatory use of IFRS in the US. The SEC will consider the progress made towards achieving these milestones, as well as the results of an internal study to be undertaken by the Office of the Chief Accountant, before it makes its final decision in 2011 about whether to proceed with the mandatory adoption of IFRS. Further, the proposed Roadmap makes clear the SEC s expectation of continuing to require US issuers to provide three years of financial information consistent with existing requirements in Regulation S-X for US GAAP, even in the year of adoption of IFRS. Assuming a 2014 conversion date, this means a calendar year large accelerated filer would need to include in its filings for 2014: IFRS balance sheets as of 31 December 2014 and 2013 IFRS income statements, cash flow statements, and statements of changes in equity for the years ended 31 December 2014, 2013 and 2012 An opening balance sheet as of the IFRS transition date, (in this example 1 January 2012) as required under IFRS 1, First-time Adoption of International Financial Reporting Standards Effective date The Roadmap suggests possible mandatory reporting under IFRS for fiscal years ending on or after 15 December 2014 for large accelerated filers, 2015 for accelerated filers, and 2016 for all other filers. In addition, the proposed Roadmap contains a proposed rule amendment that would permit a limited number of US companies that meet specified criteria to file IFRS financial statements with the SEC for years ending on or after 15 December Other resources EY Technical Line, The road to IFRS in the US (Score No. BB1664) EY Comment Letter (Score No. BB1708) 32 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

41 Revisions of Limited Offering Exemptions in Regulation D (Release No ) Date issued: August 2007 Comment period ended 9 October 2007 On 3 August 2007, the SEC published a proposal that contains various amendments to Regulation D. The SEC is proposing a new exemption from Securities Act registration, Rule 507 of Regulation D, which would be available for sales of securities to a new category of investors, called large accredited investors, as defined. The SEC also is proposing to expand the ability to qualify as an accredited investor; allow limited advertising for exempt offerings under new Rule 507; and expand the safe harbor from integrating exempt securities offerings. The proposed amendments also would modify and extend a bad actor disqualification to all Regulation D exemptions. Other resources EY Hot Topic, of SEC proposal Revised Regulation D offering exemptions (Score No. CC0237) First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 33

42 Other SEC SEC completes study of mark-to-market accounting On 30 December 2008, the SEC staff delivered to Congress its statutorily mandated study of mark-tomarket accounting (the Report). The Report recommends that the use of fair value accounting standards not be suspended; however, it does recommend improvements to existing practice, including reconsidering the accounting for impairments and the development of additional guidance for determining fair value of investments in inactive markets, including situations when market prices are not readily available. The Report s eight recommendations are as follows: Statement 157 should be improved, but not suspended The SEC staff believes that suspending Statement 157 would reduce the comparability and consistency of fair value measurements and therefore hinder an investor s ability to obtain decision-useful information Existing fair value measurement requirements should not be suspended The SEC staff believes that the elimination of existing fair value measurement would erode investor confidence in financial reporting, but suggests that the FASB reevaluate the incorporation of a company s own credit risk in the measurement of liabilities at fair value Additional measures should be taken to improve the application of existing fair value measurements The SEC staff believes additional assistance in the form of guidance, education and training is warranted in several areas, particularly related to Level 2 and Level 3 estimates The accounting for financial asset impairments should be readdressed The SEC staff believes that the FASB should consider (1) reducing the number of impairment models that currently exist in US GAAP and (2) increasing the prominence of other comprehensive income by either requiring a separate statement of other comprehensive income or presenting a single statement of comprehensive income that would replace and incorporate the current income statement Implement further guidance to foster the use of sound judgment The SEC staff believes the SEC and the PCAOB should consider issuing statements of policy related to the application of judgment in making fair value measurements Accounting standards should continue to be established to meet the needs of investors The SEC staff believes US GAAP should not be established or modified to serve the needs of regulators and others at the expense of investors Additional measures should address the operation of existing accounting standards The SEC staff believes additional formal measures should be adopted to identify and resolve practice issues encountered in the application of existing accounting standards (e.g., a post-adoption review of existing standards) 34 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

43 Address the need to simplify the accounting for investments in financial assets The SEC staff believes that the FASB and the IASB should work to simplify the accounting for investments in financial instruments, including the continued exploration of the feasibility of reporting all financial instruments at fair value Other resources EY Hot Topic, SEC completes study on mark-to-market accounting (Score No. BB1676) First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 35

44 Public Company Accounting Oversight Board (PCAOB) 36 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

45 Final PCAOB pronouncements and other reports Staff Audit Practice Alert No. 3 Audit Considerations in the Current Economic Environment Issued December 2008 On 5 December 2008, the PCAOB issued Staff Audit Practice Alert No. 3, Audit Considerations in the Current Economic Environment (practice alert), which is intended to assist auditors in identifying matters related to the current economic environment that might affect audit risk and require additional emphasis. The practice alert is organized into six sections Overall audit considerations; Auditing fair value measurements; Auditing accounting estimates; Auditing the adequacy of disclosures; Auditor s consideration of a company s ability to continue as a going concern; and Additional audit considerations for selected financial reporting areas. As indicated therein, Staff Audit Practice Alerts highlight new, emerging, or otherwise noteworthy circumstances that may affect how auditors conduct audits under the existing requirements of PCAOB standards and relevant laws. The statements contained in Audit Practice Alerts are not rules of the Board. Staff Views An Audit of Internal Control Over Financial Reporting That is Integrated with An Audit of Financial Statements: Guidance for Auditors of Smaller Public Companies Issued January 2009 On 23 January 2009, the PCAOB published Staff Views An Audit of Internal Control Over Financial Reporting That is Integrated with An Audit of Financial Statements: Guidance for Auditors of Smaller Public Companies (Staff Views). The Staff Views reflect consideration of comments received on Preliminary Staff Views An Audit of Internal Control That is Integrated with An Audit of Financial Statements issued by the PCAOB on 17 October 2007, which is now superseded. As indicated therein, the Staff Views publication is not a rule of the PCAOB and does not establish new requirements. Rather, the Staff Views explains how auditors can apply PCAOB Auditing Standard No. 5 to audits of smaller, less complex public companies by providing insights and examples to particular auditing issues that might arise. Topics discussed in the Staff Views include: general principles of scalability, evaluating entity-level controls, assessing the risk of management override and mitigating actions, evaluating segregation of duties and alternative controls, auditing information technology controls in a less complex IT environment, considering financial reporting competencies, obtaining sufficient evidence with less formal documentation, and evaluating pervasive control deficiencies. First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 37

46 PCAOB rule proposals PCAOB Release No Proposed Auditing Standard Engagement Quality Review Date issued: March 2009 Comment period ends 20 April 2009 The PCAOB voted on 4 March 2009 to repropose for public comment an auditing standard on engagement quality review (proposed standard). The PCAOB first proposed a new standard on engagement quality review on 26 February Since then, the PCAOB has made extensive changes to the original proposed standard and is now seeking comment on the revised proposed standard. The revised proposed standard would supersede the Board s quality control standard, SECPS Requirements of Membership, Section (f). It would apply to all audit engagements conducted pursuant to the standards of the PCAOB with fiscal years ending on or after 15 December 2009 (31 December 2009 for calendar year companies) and would then apply to the first interim period review performed in fiscal years beginning after 15 December 2009 (31 March 2010 for calendar year companies). The revised proposed standard sets forth the objective of the engagement quality review, the role and responsibilities of the engagement quality reviewer, including his or her qualifications, the engagement quality review process, and concurring approval for issuance of the auditor s report (or other communication if there is no audit report). Next steps The PCAOB has provided a 45-day comment period that ends 20 April Any new auditing standard that is adopted will be submitted to the SEC for approval. A final standard will not be effective until approved by the SEC. PCAOB Release No Proposed Auditing Standards Related to the Auditor s Assessment of and Response to Risk; Proposed Conforming Amendments to PCAOB Standards Date issued: October 2008 Comment period ended 18 February 2009 The PCAOB proposed a suite of seven new auditing standards and related conforming amendments, related to the auditor s assessment of and responses to risk. According to the proposing release, the proposals build upon and attempt to improve the framework established by the existing standards, rather than replacing that framework altogether. Accordingly, while the PCAOB is proposing to supersede several of its interim standards, the concepts underpinning the proposed standards should be familiar to most auditors. The PCAOB proposes to improve the existing framework for risk assessment by, among other things, 1) taking account of improvements in risk assessment methodologies, 2) further enhancing the integration of the audit of the financial statements with the audit of internal control over financial reporting, 3) integrating the auditor s current responsibilities for considering fraud during the audit, therefore 38 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

47 emphasizing that the consideration of fraud is a central part of the audit process and 4) reducing unnecessary differences with the risk assessment standards of other auditing standard setters, such as the International Auditing and Assurance Standards Board (IAASB) and the Auditing Standards Board (ASB). The suite of proposed risk assessment standards includes the following: Audit Risk in an Audit of Financial Statements. This proposed standard describes the components of audit risk and the auditor s responsibilities for reducing audit risk to an appropriately low level in order to obtain reasonable assurance in an audit of financial statements. Audit Planning and Supervision. This proposed standard describes the auditor s responsibilities for planning the audit, including assessing matters that are important to the audit, and establishing an appropriate audit strategy and audit plan. The proposed standard also describes the responsibilities of the engagement partner and other engagement team members for supervising and reviewing the work of the engagement team. Identifying and Assessing Risks of Material Misstatement. This proposed standard describes the auditor s responsibilities for identifying and assessing risks of material misstatement. The risk assessment process discussed in the proposed standard includes information-gathering procedures to identify risks (e.g., obtaining an understanding of the company, its environment, and its internal control) and analysis of the identified risks. The Auditor s Responses to the Risks of Material Misstatement. This proposed standard sets forth the auditor s responsibilities for responding to the risks of material misstatement in the general conduct of the audit and specific audit procedures. Evaluating Audit Results. This proposed standard describes the auditor s responsibilities regarding the process of evaluating the results of the audit in order to form the opinion(s) to be presented in the auditor s report. This process includes evaluating uncorrected misstatements and control deficiencies identified during the audit. Consideration of Materiality in Planning and Performing an Audit. This proposed standard sets forth the auditor s responsibilities for applying the concept of materiality, as described by the federal securities laws, in planning the audit and determining the scope of the audit procedures. Audit Evidence. This proposed standard sets forth the auditor s responsibilities regarding designing and applying audit procedures to obtain sufficient appropriate evidence to support the opinion(s) in the auditor s report. In particular, it discusses the principles for determining the sufficiency and appropriateness of audit evidence. The proposed standards will supersede five interim auditing standards: AU sec. 311, Planning and Supervision, AU sec. 312, Audit Risk and Materiality in Conducting an Audit, AU sec. 313, Substantive Tests Prior to the Balance Sheet Date, AU sec. 319, Consideration of Internal Control in a Financial Statement Audit, and AU sec. 326, Evidential Matter. Next steps The PCAOB provided a 120-day comment period that ended 18 February Any new auditing standards and amendments to the interim auditing standards that are adopted will be submitted to the SEC for approval. Final standards will not be effective until approved by the SEC. First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 39

48 Auditing Standards Board (ASB) 40 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

49 Final Standards Statement on Auditing Standards No. 116, Interim Financial Information Date issued: February 2009 This SAS amends AU section 722, Interim Financial Information (AICPA, Professional Standards, vol. 1), to accommodate reviews of interim financial information of nonissuers, 2 including companies offering securities pursuant to Securities and Exchange Commission (SEC) Rule 144A or participating in private equity exchanges. For example, a nonissuer may, on a quarterly basis, prepare interim financial statements that conform with the requirements of Article 10 of SEC Regulation S-X. This statement would apply when the interim financial information is intended to provide a periodic update to year-end reporting and specific conditions as set forth in the statement are met (including that the entity s latest annual financial statements have been audited by the accountant or a predecessor). This statement also clarifies that if the conditions set forth are not met, reviews of interim financial information of nonissuers should be performed in accordance with Statements on Standards for Accounting and Review Services. The SAS also removes the guidance for reviews of the interim financial information of issuers since such guidance appropriately resides in the auditing standards of the Public Company Accounting Oversight Board. Effective date This SAS is effective for reviews of interim financial information for interim periods beginning after 15 December Early application is permitted. 2 Nonissuers are all entities except for those defined as issuers. An issuer is defined in section 3 of the Securities Exchange Act of 1934 [15 U.S.C. 78c], the securities of which are registered under section 12 of that Act (15 U.S.C. 78l), or that is required to file reports under section 15(d) (15 U.S.C. 78o(d)), or that files or has filed a registration statement that has not yet become effective under the Securities Act of 1933 (15 U.S.C. 77a et seq.), and that it has not withdrawn. First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 41

50 Exposure Drafts Proposed Statement on Auditing Standards, Compliance Audits Date issued: December 2008 Comment period ends 30 April 2009 The Auditing Standards Board has developed this proposed SAS to update and clarify requirements and provide guidance to auditors auditing and reporting on an entity s compliance with applicable compliance requirements. The proposed SAS would supersede SAS No. 74, Compliance Auditing Considerations in Audits of Governmental Entities and Recipients of Governmental Financial Assistance (AICPA, Professional Standards, vol. 1, AU sec. 801), and would revise extant guidance by: clarifying its applicability; updating it for changes in the compliance audit environment; establishing a requirement for the auditor to adapt and apply GAAS, including the risk assessment and fraud standards (all of which primarily address audits of financial statements), to a compliance audit and providing guidance on how to do so; identifying the AU sections that are applicable to a compliance audit and those that are not applicable; defining terms related to a compliance audit; identifying auditor requirements that are unique to a compliance audit; providing guidance on the factors an auditor may consider in evaluating whether an entity has materially complied with the applicable compliance requirements; and identifying the elements to be included in an auditor s report on compliance. Effective date The provisions of this SAS would be effective for compliance audits for fiscal periods ending on or after 15 June Earlier application is permitted. 42 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

51 ASB Clarity Project To address concerns over the clarity, length, and complexity of its standards, the ASB is currently undertaking a significant effort to clarify the SASs (and Statements on Standards for Attestation Engagements (SSAEs) that relate to SASs being clarified). The final and proposed SASs below have been drafted in accordance with the ASB s clarity drafting conventions, which include the following: Establishing objectives for each of the standards Including a definitions section, where relevant, in each standard Separating requirements from application and other explanatory material Numbering application and other explanatory material paragraphs using an A- prefix and presenting them in a separate section that follows the requirements section Using formatting techniques, such as bullet lists, to enhance readability Including, where appropriate, special considerations relevant to audits of smaller, less complex entities within the text of the standard Including, where appropriate, special considerations relevant to audits of governmental entities within the text of the standard Consistent with the ASB s strategy to converge its standards with those of the International Auditing and Assurance Standards Board (IAASB), the proposed SASs have also been drafted using International Standards on Auditing (ISAs) (or International Standards on Assurance Engagements (ISAEs)) as a base. Differences between the SAS and the ISAs for which the ASB believes there is no compelling justification have been eliminated. Differences in objectives, definitions, or requirements between the proposed SASs and ISAs are identified in an exhibit to each exposure draft. Final Clarified Statements In the first quarter of 2009, the ASB issued the following final standards: Statement on Auditing Standards, Audit Documentation (Redrafted) Statement on Auditing Standards, The Auditor s Communication With Those Charged With Governance (Redrafted) First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 43

52 Exposure Drafts of Proposed Statements Through 10 April 2009, the ASB has issued the following proposals: Proposed Preface to Codification of Statements on Auditing Standards, Principles Governing an Audit Conducted in Accordance With Generally Accepted Auditing Standards, and Proposed Statement on Auditing Standards, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards (comment period ended 30 December 2008) Proposed Statement on Auditing Standards, Audit Considerations Relating to an Entity Using a Service Organization (Redrafted) (comment period ended 17 February 2009) Proposed Statement on Standards for Attestation Engagements, Reporting on Controls at a Service Organization (comment period ended 17 February 2009) Proposed Statements on Auditing Standards (comment period ends 30 April 2009): Audit Evidence (Redrafted); Materiality in Planning and Performing an Audit (Redrafted); Evaluation of Misstatements Identified During the Audit; Planning an Audit (Redrafted); Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (Redrafted); and Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained (Redrafted) Proposed Statements on Auditing Standards (comment period ends 15 May 2009): Required Supplementary Information; Other Information in Documents Containing Audited Financial Statements; and Other Information in Relation to the Financial Statements as a Whole Proposed Statement on Auditing Standards, Consideration of Fraud in a Financial Statement Audit (Redrafted) (comment period ends 29 May 2009) Proposed Statement on Auditing Standards, Consideration of Laws and Regulations in an Audit of Financial Statements (comment period ends 29 May 2009) Proposed Statement on Auditing Standards, Initial Audit Engagements, Including Reaudits Opening Balances (comment period ends 29 May 2009) Proposed Statement on Auditing Standards, Audit Sampling (Redrafted) (comment period ends 29 May 2009) Proposed Statement on Auditing Standards, Subsequent Events and Subsequently Discovered Facts (comment period ends 15 July 2009) 44 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

53 Effective date The ASB plans to make all of the clarified SASs effective at the same time, currently for audits of financial statements for periods beginning on or after 15 December This effective date is provisional but will not be earlier than 15 December Upon the issuance of all clarified SASs, one SAS will be issued containing all clarified SASs in codified format. First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 45

54 Governmental Accounting Standards Board (GASB) 46 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

55 Final GASB pronouncements GASB Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments Date issued: April 2009 GASB Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments incorporates the hierarchy of generally accepted accounting principles (GAAP) for state and local governments into the GASB s authoritative literature. It is intended to make it easier for preparers of state and local government financial statements to identify and apply the GAAP hierarchy, which consists of sources of accounting principles used in the preparation of financial statements so that they are presented in conformity with GAAP and the framework for selecting those principles. The GASB believes the Statement will improve financial reporting by contributing to the GASB s efforts to codify all GAAP for state and local governments so that they derive from a single source. Prior to the Statement, the GAAP hierarchy was set forth in the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards (SAS) No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles, rather than in the authoritative literature of the GASB. Statement 55 moves relevant portions of that SAS to the GASB literature without substantive changes. Because the GASB chose not to reconsider the guidance provided in the SAS, the order of priority for accounting and financial reporting guidance will remain unchanged in practice. Effective date GASB Statement 55 is effective immediately. GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions Date issued: March 2009 GASB Statement 54 is intended to improve the usefulness of information provided to financial report users about fund balance by providing clearer, more structured fund balance classifications, and by clarifying the definitions of existing governmental fund types. Fund balance the difference between assets and liabilities in the governmental fund financial statements is among the most widely and frequently used information in state and local government financial reports. The GASB developed Statement 54 to address the diversity of practice and the resulting lack of First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 47

56 consistency that had evolved in fund balance reporting. To reduce confusion, the new standards establish a hierarchy of fund balance classifications based primarily on the extent to which a government is bound to observe spending constraints imposed upon how resources reported in governmental funds may be used. Statement 54 distinguishes fund balance between amounts that are considered nonspendable, such as fund balance associated with inventories, and other amounts that are classified based on the relative strength of the constraints that control the purposes for which specific amounts can be spent. Beginning with the most binding constraints, fund balance amounts will be reported in the following classifications: Restricted amounts constrained by external parties, constitutional provision, or enabling legislation Committed amounts constrained by a government using its highest level of decision-making authority Assigned amounts a government intends to use for a particular purpose Unassigned amounts that are not constrained at all will be reported in the general fund The new standards also clarify the definitions of individual governmental fund types. It interprets certain terms within the definition of special revenue fund types, while further clarifying the debt service and capital projects fund type definitions. The final standard also specifies how economic stabilization or rainy-day amounts should be reported. Effective date GASB Statement 54 is effective for financial statements for periods beginning after 15 June Governments that wish to implement earlier than that date are encouraged to do so. GASB Concepts Statement No. 5, Service Efforts and Accomplishments Reporting Date issued: December 2008 GASB Concepts Statement 5 updates provisions in GASB Concepts Statement 2 in order to reflect developments that have occurred since GASB Concepts Statement 2 was issued in The proposed changes are based on the findings of extensive research by the GASB and others and the results of the GASB s monitoring of state and local governments that have been using and reporting service efforts and accomplishments (SEA) performance information. The reporting of SEA performance information is an important method of demonstrating accountability for the resources raised by a government. SEA reporting provides more decision-useful information about a government s efficiency and effectiveness in providing services to its citizens than can be provided by traditional financial statements. One objective of this updated Concepts Statement is to provide a framework that can inform the GASB as it considers proposed suggested guidelines for voluntary reporting of SEA performance information by state and local governmental entities. The revisions to Concepts Statement 2 clarify that it is beyond the scope of the GASB to establish the goals and objectives of state and local government services, to develop specific nonfinancial measures or indicators of service performance, or to set benchmarks for service performance. To emphasize this point, Concepts Statement 5 removes an entire section of Concepts Statement 2, titled, Developing Reporting Standards for SEA Information. Concepts Statement 2 also was amended to update terminology and to modify certain provisions to reflect what has taken place over the past 14 years. 48 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

57 GASB Technical Bulletin No , Determining the Annual Required Contribution Adjustment for Postemployment Benefits Date issued: December 2008 This Technical Bulletin clarifies the requirements of GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, and Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, for calculating the annual required contribution (ARC) adjustment. The Technical Bulletin applies to situations in which the actuarial valuation separately identifies the actual amount that is included in the ARC related to the amortization of past employer contribution deficiencies or excess contributions to a pension or other postemployment benefit (OPEB) plan. In response to constituent feedback that questioned the availability of actual amounts, Statements 27 and 45 required a procedure for estimating the amount. The new Technical Bulletin encourages use of the actual amount, if known, in place of the estimation procedure for purposes of the ARC adjustment. Effective date With regard to pensions, the provisions of this Technical Bulletin are effective for financial statements for periods ending after 15 December With regard to OPEBs, the provisions of the Technical Bulletin are effective for financial statements for periods ending after 15 December 2008, or simultaneously with the initial implementation of Statement 45, whichever is later. Earlier application is encouraged. First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 49

58 GASB exposure drafts Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards Date issued: August 2008 Comment period ended 30 October 2008 The objective of this proposed Statement is to incorporate into the authoritative literature of the GASB certain accounting and financial reporting guidance that is included in the AICPA s Statements on Auditing Standards. This proposed Statement addresses three issues not included in the authoritative literature that establishes accounting principles related party transactions, subsequent events, and going concern considerations. The presentation of principles used in the preparation of financial statements would be more appropriately included in accounting and financial reporting standards than in the auditing literature. This proposed Statement does not establish new accounting standards but rather incorporates the existing guidance (to the extent appropriate in a governmental environment) into the GASB standards. Effective date The requirements in this Statement would be effective upon its issuance. 50 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

59 Other GASB Invitation to Comment (ITC), Pension Accounting and Financial Reporting Date issued: April 2009 Comment period ends 31 July 2009 The GASB recently issued an Invitation to Comment (ITC), Pension Accounting and Financial Reporting. This ITC is intended to obtain feedback from constituents at an early stage of the GASB s reexamination of its pension accounting and financial reporting standards. This ITC addresses key issues related to pension accounting and financial reporting that were raised during the research phase of this project. The topics considered in the ITC include: the process on which pension accounting and financial reporting should focus; recognition of liabilities and expenses; measurement of unfunded pension obligations; the use of actuarial methods; reporting by government employers in costsharing multiple-employer pension plans; and reporting by pension plans themselves. First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 51

60 Effective Date Matrices 52 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

61 Effective Date Matrix FASB Final Statements Number Title Effective Date FAS 163 FAS 162 FAS 161 FAS 160 Accounting for Financial Guarantee Insurance Contracts (an interpretation of FASB Statement No. 60) The Hierarchy of Generally Accepted Accounting Principles Disclosures about Derivative Instruments and Hedging Activities (an amendment of FASB Statement No. 133) Noncontrolling Interests in Consolidated Financial Statements Effective for financial statements issued for fiscal years beginning after 15 December 2008, and interim periods within those fiscal years. Certain disclosure requirements are effective for the first period (including interim periods) beginning after issuance of the Statement on 23 May Except for those disclosures, earlier application is not permitted. Effective 13 November Effective for financial statements issued for fiscal years and interim periods beginning after 15 November Early application is encouraged. Effective in fiscal years beginning after 15 December 2008, with no early adoption permitted. FAS 141(R) Business Combinations Effective for fiscal years beginning after 15 December FAS 159 FAS 158 The Fair Value Option for Financial Assets and Financial Liabilities Employers Accounting for Defined Benefit Pension and Other Postretirement Plans Effective as of the beginning of an entity s first fiscal year that begins after 15 November Earlier adoption of the Statement is permitted as of the beginning of an entity s fiscal year, provided the choice to early adopt is made within 120 days of the beginning of the fiscal year of adoption and the entity has not yet issued financial statements for any interim period of that fiscal year. In addition, in order to early adopt Statement 159, an entity must also adopt all of the requirements of FASB Statement No. 157, Fair Value Measurements (Statement 157), as of the adoption date (or earlier). The requirement to recognize the funded status of a defined benefit postretirement plan and the disclosure requirements are effective for fiscal years ending after 15 December 2006, for public entities, and at the end of the fiscal year ending after 15 June 2007, for all other entities. The requirement to measure plan assets and benefit obligations as of the date of the employer s fiscal year-end statement of financial position is effective for fiscal years ending after 15 December First 2008 Quarter Standard 2009 Setter Standard Update Setter Financial Update reporting Financial and reporting accounting and developments accounting developments 53

62 Number Title Effective Date FAS 157 Fair Value Measurements Except as provided below, effective for financial statements issued for fiscal years beginning after 15 November 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year. Delayed application of this Statement is permitted for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after 15 November 2008, and interim periods within those fiscal years. An entity that has issued interim or annual financial statements reflecting the application of the measurement and disclosure provisions of this Statement prior to the issuance of FSP FAS 157-2, Effective Date of FASB Statement No. 157, must continue to apply all of the provisions of this Statement. FIN 48 Accounting for Uncertainty in Income Taxes Effective for fiscal years beginning after 15 December 2006 for public enterprises (as defined in paragraph 289 of Statement 109 as amended) and nonpublic consolidated entities of public enterprises that apply US GAAP. For nonpublic enterprises (as defined in paragraph 289 of FAS 109 as amended), except for nonpublic consolidated entities of public enterprises that apply US GAAP, this Interpretation is effective for annual financial statements for fiscal years beginning after 15 December 2008 unless the nonpublic enterprises issued a full set of annual financial statements using the recognition, measurement, and disclosure provisions of this Interpretation before the issuance of FSP FIN For nonpublic enterprises that issued a full set of annual financial statements using the recognition, measurement, and disclosure provisions of this Interpretation, this Interpretation is effective for fiscal years beginning after 15 December Earlier application is permitted as of the beginning of an enterprise s fiscal year. 54 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

63 Effective Date Matrix FASB Final FSPs Number Title Effective Date FSP FAS and FAS FSP FAS FSP FAS and APB 28-1 FSP FAS 141(R)-1 FSP EITF FSP FAS and FIN 46(R)-8 FSP FAS 132(R)-1 FSP FIN 48-3 FSP FAS FSP FAS and FIN 45-4 Recognition and Presentation of Other-Than-Temporary Impairments Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly Interim Disclosures about Fair Value of Financial Instruments Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies Amendments to the Impairment Guidance of EITF Issue No Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities Employers Disclosures about Postretirement Benefit Plan Assets Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active Disclosures about Credit Derivatives and Certain Guarantees Effective for interim and annual periods ending after 15 June 2009, with early adoption permitted for periods ending after 15 March Effective for interim and annual periods ending after 15 June 2009, and should be applied prospectively. Early adoption is permitted but only for periods ending after 15 March Effective for interim reporting periods ending after 15 June 2009, with early adoption permitted for periods ending after 15 March Effective for assets and liabilities arising from business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 15 December Effective for interim and annual reporting periods ending after 15 December 2008, and should be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. Effective for fiscal periods ending after 15 December Effective for fiscal years ending after 15 December The technical amendment to Statement 132(R) was effective immediately. Effective upon issuance (30 December 2008). Effective 10 October 2008, its date of issuance, including prior periods for which financial statements have not been issued. [NOTE: FSP FAS was superseded by FSP FAS ] Effective for reporting periods (annual or interim) ending after 15 November First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 55

64 Number Title Effective Date FSP FAS FSP EITF FSP SOP and AAG HCO-1 FSP APB 14-1 FSP FAS FSP FAS FSP FAS FSP FAS FSP FIN 48-1 FSP FIN 39-1 FSP FAS Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institution Funds Act, and Enhanced Disclosures for all Endowment Funds Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities Omnibus Changes to Consolidation and Equity Method Guidance for Not-for-Profit Organizations Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) Determination of the Useful Life of Intangible Assets Accounting for Transfers of Financial Assets and Repurchase Financing Transactions Effective Date of FASB Statement No. 157 Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 Definition of Settlement in FASB Interpretation No. 48 Amendment of FASB Interpretation No. 39 Conforming Amendments to the Illustrations in FASB Statements No. 87, No. 88, and No. 106 and to the Related Staff Implementation Guides Effective for fiscal years ending after 15 December Early application is permitted, as long as the organization has not previously issued annual financial statements for that fiscal year. Effective for fiscal years beginning after 15 December 2008, and interim periods within those years. Early application is not permitted. Effective for fiscal years beginning after 15 June 2008, and to interim periods therein. Effective for financial statements issued for fiscal years beginning after 15 December 2008, and interim periods within those fiscal years. Early adoption is not permitted. Effective for financial statements for fiscal years beginning after 15 December 2008 and interim periods within those fiscal years. Early adoption is prohibited. Effective for fiscal years beginning after 15 November 2008, and interim periods within those fiscal years. Earlier application is not permitted. Effective as of its 12 February 2008 issuance date. Effective on the initial adoption of Statement 157. Effective upon the initial adoption of Interpretation 48. Effective for fiscal years beginning after 15 November 2007, with early application permitted. Effective as of the effective dates of Statement 158. The unaffected guidance that this FSP codifies into Statements 87, 88, and 106 does not contain new requirements, and therefore, does not require a separate effective date or transition method. 56 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

65 Effective Date Matrix Statement 133 Implementation Issues Number Title Effective Date Statement 133 Implementation Issue No. E23 Issues Involving the Application of the Shortcut Method under Paragraph 68 Effective for hedging relationships designated on or after 1 January Effective Date Matrix Final EITF Consensus Number Title Effective Date 08-8 Accounting for an Instrument (or Embedded Feature) with a Settlement Amount That Is Based on the Stock of an Entity s Consolidated Subsidiary 08-7 Accounting for Defensive Intangible Assets 08-6 Accounting for Equity Method Investments 08-5 Issuer s Accounting for Liabilities Measured at Fair Value with a Third-Party Guarantee 08-4 Transition Guidance for Conforming Changes to EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios 08-3 Accounting by Lessees for Nonrefundable Maintenance Deposits 07-6 Accounting for the Sale of Real Estate Subject to the Requirements of FASB Statement No. 66, Accounting for Sales of Real Estate, When the Agreement Includes a Buy-Sell Clause Effective for fiscal years, and interim periods within those fiscal years, beginning on or after 15 December Early application is not permitted. Effective for transactions occurring in fiscal years, and interim periods within those fiscal years, beginning on or after 15 December Early application is not permitted. Effective for transactions in an investee s shares occurring or impairments recognized in fiscal years, and interim periods within those fiscal years, beginning on or after 15 December Early application is not permitted. Effective for the first reporting period beginning on or after 15 December Early application is permitted. Effective for fiscal years ending after 15 December 2008, and interim periods within those fiscal years. Early application is not permitted. Effective for financial statements issued for fiscal years beginning after 15 December 2008, and interim periods within those fiscal years. Early application is not permitted. Effective for fiscal years beginning after 15 December 2007, and interim periods within those fiscal years. Early application is not permitted. First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 57

66 Number Title Effective Date 07-5 Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity s Own Stock 07-4 Application of the Two-Class Method under FASB Statement No. 128 to Master Limited Partnerships 07-3 Accounting for Advance Payments for Goods or Services to be Received for Use in Future Research and Development Activities 07-1 Accounting for Collaborative Arrangements Accounting for Income Tax Benefits on Dividends on Share- Based Payment Awards Accounting for Collateral Assignment Split-Dollar Life Insurance 06-8 Applicability of the Assessment of a Buyer s Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums 06-4 Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements 06-1 Accounting for Considerations Given by a Service Provider to a Manufacturer or Reseller of Equipment Necessary for an End- Customer to Receive Service from the Service Provider Effective for financial statements issued for fiscal years beginning after 15 December 2008, and interim periods within those fiscal years. Early application is not permitted. Effective for fiscal years beginning after 15 December 2008, and interim periods within those fiscal years. Early application is not permitted. Effective for new contracts entered into in fiscal years beginning after 15 December 2007, including interim periods within those fiscal years. Earlier application is not permitted. Effective for annual periods beginning after 15 December Effective for dividends declared in fiscal years beginning after 15 December 2007, and interim periods within those years, with early application permitted at the beginning of the fiscal year for which financial statements have not been issued. Effective for fiscal years beginning after 15 December 2007, including interim periods within those years. Earlier application is permitted. Effective for annual periods beginning after 15 March 2007, with early application permitted as of the beginning of an entity s fiscal year Effective for fiscal years beginning after 15 December Effective for the first annual reporting period beginning after 15 June Earlier application permitted for financial statements that have not yet been issued. 58 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

67 Effective Date Matrix Final SEC Pronouncements Title Interactive Data for Mutual Fund Risk/Return Interactive Data to Improve Financial Reporting Modernization of Oil and Gas Reporting Foreign Issuer Reporting Enhancements Effective Date Initial registration statements, and post-effective amendments that are annual updates to effective registration statements, that become effective on or after 1 January The first Form 10-Q (or for FPIs, their first Form 20-F or 40-F, if applicable) for the period ending after the specified transition date, as follows: For fiscal periods ending on or after 15 June 2009, US public companies and FPIs that (a) file financial statements with the SEC using US GAAP and (b) have a worldwide public float over $5 billion For fiscal periods ending on or after 15 June 2010, all other large accelerated filers using US GAAP For fiscal periods ending on or after 15 June 2011, all other filers, including smaller reporting companies and all filers that use IFRS as issued by the IASB Registration statements filed on or after 1 January 2010, and annual reports on Forms 10-K and 20-F for fiscal years ending on or after 31 December The final rule is effective 6 December 2008, but various aspects of the final rule have different compliance dates. Electronic Filing and Revision of Form D Internal Control over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers Shareholder Choice Regarding Proxy Materials Staff Accounting Bulletin (SAB) No. 110 The amendments were effective 15 September Electronic filing of Form D is mandatory as of 16 March The final rule was effective 2 September A non-accelerated filer will become subject to the Section 404(b) auditor attestation requirement of the Sarbanes-Oxley Act in its annual report for its fiscal year ending on or after 15 December Except in connection with a business combination, effective for proxy materials issued on or after 1 January 2008 for large accelerated filers. Effective for proxy materials issued on or after 1 January 2009 for all other issuers, including all registered investment companies. The staff will continue to accept, under certain circumstances, the use of the simplified method beyond 31 December First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 59

68 Effective Date Matrix Final PCAOB Pronouncements Title Auditing Standard No. 6 Evaluating Consistency of Financial Statements Periodic Reporting by Registered Public Accounting Firms Rule 3526, Communication with Audit Committees Concerning Independence Rule 3523, Tax Services for Persons in Financial Reporting Oversight Roles Effective Date AS6 and the amendments became effective on 15 November The rules will take effect 60 days after SEC approval. Beginning then, firms will be subject to the special reporting obligations, with the earliest potential special reporting deadline for any firm being 90 days after Commission approval. Effective on 30 September The amendment to Rule 3523 became effective on 22 August 2008, immediately upon approval by the SEC. Effective Date Matrix Final ASB Standards Title SAS No. 116, Interim Financial Reporting SAS No. 115, Communicating Internal Control Related Matters Identified in an Audit SSAE No. 15, An Examination of an Entity s Internal Control Over Financial Reporting That is Integrated With an Audit of Its Financial Statements Effective Date Effective for reviews of interim financial information for interim periods beginning after 15 December Early application is permitted. Effective for audits of financial statements for periods ending on or after 15 December Earlier implementation is permitted. Effective for integrated audits for periods ending on or after 15 December Earlier implementation is permitted. 60 First Quarter 2009 Standard Setter Update Financial reporting and accounting developments

69 Effective Date Matrix Final GASB Pronouncements Title Statement 55 The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments Statement 54 Fund Balance Reporting and Governmental Fund Type Definitions Technical Bulletin No Determining the Annual Required Contribution Adjustment for Postemployment Benefits Concepts Statement 5 Service Efforts and Accomplishments Reporting Statement 53 Accounting and Financial Reporting for Derivative Instruments Statement 52 Land and Other Real Estate Held as Investments by Endowments Concepts Statement 4 Elements of Financial Statements Effective Date Effective immediately (Issued 2 April 2009). Effective for financial statements for periods beginning after 15 June Governments that wish to implement earlier than that date are encouraged to do so. With regard to pensions, effective for financial statements for periods ending after 15 December With regard to OPEBs, effective for financial statements for periods ending after 15 December 2008, or simultaneously with the initial implementation of Statement 45, whichever is later. Earlier application is encouraged. None stated. Effective for financial statements for reporting periods beginning after 15 June 2009, with earlier application encouraged. Effective for financial statements for periods beginning after 15 June Governments that wish to implement earlier than that date are encouraged to do so. None stated. Statement 51 Intangible Assets Effective for financial statements for periods beginning after 15 June Statement 50 Pension Disclosures Effective for periods beginning after 15 June 2007 with early implementation encouraged, except for requirements relating to governments using the aggregate actuarial cost method which are effective for financial statements and required supplementary information that contains information from actuarial valuations as of 15 June 2007, or later. Statement 49 Pollution Remediation Obligations Effective for financial statements for periods beginning after 15 December Technical Bulletin Accounting and Financial Reporting by Employers and OPEB Plans for Payments from the Federal Government Pursuant to the Provisions of Medicare Part D Statement 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions Statement 43 Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans Effective on 30 June 2006, except for portions of answers pertaining specifically to measurement, recognition, or required supplementary information requirements of Statement No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, or Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. Those provisions should be applied simultaneously with the implementation of Statement 43 or Statement 45. Effective in three phases based on a government s total annual revenues. Phase one employers, as defined by Statement 34, are required to implement the requirements of Statement 45 for periods beginning after 15 December Phase two and phase three employers, as defined by Statement 34, have one and two additional years, respectively to implement the new rules. Plans in which the sole or largest employer is a phase one government, as defined by Statement 34, are required to implement this Statement in financial statements for periods beginning after 15 December Plans in which the sole or largest employer is a phase two and phase three employer, as defined by Statement 34, have one and two additional years, respectively to implement Statement 43. First Quarter 2009 Standard Setter Update Financial reporting and accounting developments 61

70 Ernst & Young LLP Assurance Tax Transactions Advisory About Ernst & Young Strong independent assurance provides a timely and constructive challenge to management, a robust and clear perspective to audit committees and critical information for investors and other stakeholders. The quality of our audit starts with our 60,000 assurance professionals, who have the experience of auditing many of the world s leading companies. We provide a consistent worldwide audit by assembling the right multidisciplinary team to address the most complex issues, using a proven global methodology and deploying the latest, high-quality auditing tools. And we work to give you the benefit of our broad sector experience, our deep subject matter knowledge and the latest insights from our work worldwide. It s how Ernst & Young makes a difference Ernst & Young LLP. All Rights Reserved. SCORE No. BB1745 Ernst & Young refers to a global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm located in the US. This publication has been carefully prepared but it necessarily contains information in summary form and is therefore intended for general guidance only; it is not intended to be a substitute for detailed research or the exercise of professional judgment. The information presented in this publication should not be construed as legal, tax, accounting, or any other professional advice or service. Ernst & Young LLP can accept no responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. You should consult with Ernst & Young LLP or other professional advisors familiar with your particular factual situation for advice concerning specific audit, tax or other matters before making any decision.