Current Accounting and Reporting Developments Webcast Q3 2009 September 14, 2009
Current Accounting and Reporting Developments Webcast Steve Meisel SEC Services Leader
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Washington Activities and Their Section two Impact on Accounting Amy Best Coughlin Director, Office of Government, Regulatory Affairs & Public Policy
Washington Activities and Their Impact on Accounting A Few Key Observations Administration leveraged economic crisis to push several priorities at once Traditional August recess among the most active in recent history - Democrats, led by the President, now trying to regain the offensive
Washington Activities and Their Impact on Accounting A Few Key Observations All eyes are now on Fall 2009 the Season for Action With unemployment nearing 10%, economic concerns still top of mind 60 seat Senate majority does not necessarily mean smooth sailing for all Democratic priorities
Washington Activities and Their Impact on Accounting Review of Specific Public Policy Priorities/Reforms Climate Change/Cap-and-Trade legislation Health Care Reform legislation Financial Regulatory Reforms - including: consumer protections, executive compensation disclosures, regulation of OTC derivatives, and resolution authority.
Washington Activities and Their Impact on Accounting Issues Impacting Accounting/Auditing Free Enterprise Fund v. PCAOB.SOX Act Redo? Bi-partisan Financial Markets Commission Lack of Understanding of Accounting Issues Skepticism about need for globally-consistent accounting standards
Section two SEC Update John May Partner
SEC Update SEC Agenda Diverse regulatory agenda - Proxy disclosure enhancements - Say on Pay for TARP recipients - Shareholder director nominations - Broker voting in director elections - 404 for non-accelerated filers Continued focus on enforcement initiatives
SEC Update SEC Staff Focus Continued emphasis on communicating - July 2009 update to Financial Reporting Manual - Multiple updates to Compliance & Disclosure Interpretations - Dear CFO letter
SEC Update SEC Staff Focus Valuations - Area of intense focus (financial and non-financial assets/liabilities) - Variables, estimates, judgments, sensitivities - Disclosures Goodwill and intangible assets - Comments ask for disclosure at reporting unit level - What does an impairment reflect about the business - Foreshadowing
SEC Update SEC Staff Focus Segments - Aggregation continues to be the principal focus - Do market/economic events impact economic similarities? Debt and liquidity - Disclose items that impact the availability of credit - Compliance with covenants/likelihood of covenant defaults - Tabular presentation of financial covenants versus actual ratios - Counterparty risks - Capital raising needs/plans
Section two FASB Update Susan Cosper Partner
FASB Update EITF Issue 08-1, Revenue Arrangements with Multiple Elements Final Consensus - Amends the guidance in ASC 605 Revenue Recognition (Issue 00-21) - Incorporates best estimate of selling price into the hierarchy - Eliminates the residual method - Extensive ongoing qualitative and quantitative disclosures - Effective for fiscal years beginning after June 15, 2010
FASB Update EITF Issue 08-1, Revenue Arrangements with Multiple Elements - Transition - Option of either: prospective and newly modified arrangements retrospective - Early adoption is permitted as of the beginning of an entity s fiscal year See DataLine 2009-33 - New Proposed Revenue Guidance: A More Economic Approach to Arrangements with Multiple Deliverables
FASB Update EITF Issue 09-3, Applicability of SOP 97-2 to Certain Arrangements that Include Software Elements Final Consensus - Amends the guidance in ASC 985 (SOP 97-2) - Amends scope to exclude tangible products that contain software and non-software components that function together to deliver the products essential functionality - Includes factors and examples to consider in determining whether essential
FASB Update EITF Issue 09-3, Applicability of SOP 97-2 to Certain Arrangements that Include Software Elements - Same disclosures as Issue 08-1 - extensive ongoing qualitative and quantitative disclosures - Effective for fiscal years beginning after June 15, 2010 - Transition - Option of either: prospective and newly modified arrangements retrospective - Early adoption is permitted as of the beginning of an entity s fiscal year
FASB Update Other EITF Issues Issue 08-9, Milestone Method of Revenue Recognition - Intended to codify the milestone method - Further discussion expected at a future meeting Issue 09-2, R&D Assets Acquired in an Asset Acquisition - Consensus-for-exposure reached - Capitalize R&D in an asset acquisition - Recognize contingent consideration based on existing GAAP - Effective prospectively for periods beginning after December 15, 2009
FASB Update Other EITF Issues Issue 09-4, Seller Accounting for Contingent Consideration - No decision reached - FASB to decide whether to add a new project or include in an existing project
FASB Update FAS 167, Consolidation of Variable Interest Entities Reminder of the more significant changes - Bias towards more consolidation unless power is truly shared More VIEs than before (due to QSPE elimination) Determination of primary beneficiary changes from economic risk and rewards to power concept - No grandfathering of existing entities - Consolidation analysis must be reassessed continuously - For calendar year-end companies, effective January 1, 2010
FASB Update Update on Accounting for Financial Instruments Project (formerly FIRM Project) Objective to improve the decision usefulness of financial instrument reporting for users of financial statements Financial Instruments - Reconsider the recognition and measurement of financial instruments - Address issues related to impairment of financial instruments and hedge accounting - Increase convergence in accounting for financial instruments
FASB Update Update on Accounting for Financial Instruments Project (formerly FIRM Project) Includes the redeliberations of the Accounting for Hedging Activities Project - Simplify and resolve practice issues in accounting for hedging activities - Improve the financial reporting of hedging activities to make the accounting model and associated disclosures easier to understand for users of financial statements - Address differences in the accounting for derivative instruments and hedged items or transactions
FASB Update Loss Contingencies Project Redeliberations began August 2009 - Moving away from the ED (June 2008) - Focus on contentions of the parties versus estimates and predictions - Enhanced disclosures as the life-cycle of a case progresses - Disclosures that would not impact the outcome of the contingency - Threshold based on likelihood of loss Reasonably possible except for certain remote items
FASB Update Loss Contingencies Project Next Steps - Continue redeliberations - Consider re-exposure - Possible (although unlikely) 2009 effective date
FASB Update Consolidation: Proposed ASU Scope Clarifications Issued in August 2009 (See DataLine 2009-36) ASC 810-10 Scope Clarifications: - All businesses (except for the real estate exclusion) are within the scope, not just those that are subsidiaries - Sales that are in-substance the sale of real estate are not in scope (other change of control events are in scope) - Transfers of a business to a joint venture or an equity method investee are within the scope
FASB Update Consolidation: Proposed ASU Scope Clarifications Next Steps: - Comment period ends September 28, 2009 - Would be effective in 2009, retroactive to the effective date of implementation of ASC 810
FASB Update Update on FASB/IASB Revenue Recognition Project FASB and IASB issued a joint Discussion Paper (DP) on Revenue Recognition in December 2008 (comment period ended in June 2009) Comment Letter Responses - Generally comments were supportive of the boards objectives - Concerns were raised that the DP did not address key areas (e.g. accounting for return rights, impact of contract modifications, etc) ED expected in mid 2010, final standard expected in 2011
FASB Update Update on FASB/IASB Leases Project FASB and IASB are working together to develop a common standard for lease accounting DP was issued in March 2009 - addresses lessee accounting only Comment letter responses: - Generally supportive of the overall scope, with some asking for scope exceptions for immaterial and short-term leases - Most constituents felt the DP should address lessor accounting Boards are currently deliberating lessor accounting ED is expected in mid 2010, final standard in 2011
Section two Relevant Issues Going Into Q3 and Year End Paul Kepple Partner
Relevant Issues Going Into Q3 and Year End Fair Value Guidance Update Measuring Liabilities at Fair Value - New guidance on measuring fair value of liabilities was issued and is effective in Q4 for calendar year end companies - New guidance is broadly consistent with current practice and clarifies use of other valuation techniques Pension Plan Disclosures - Guidance significantly expands the disclosure requirements for employer pension/opeb plan assets - The guidance is effective for 2009 financial statements for calendar year companies, however certain information needs to be collected as of the beginning of the year
Relevant Issues Going Into Q3 and Year End Fair Value Guidance Update Alternative Investments - FASB final guidance to be released soon - Will allow use of net asset value (NAV) as practical expedient to fair value measures in certain circumstances - Guidance will be applicable for the fourth quarter for calendar year-end companies although early application will be permitted for financial statements not yet issued. - If an entity elects to early adopt the guidance they would not be required to early adopt the disclosure provisions
Relevant Issues Going Into Q3 and Year End Fair Value Guidance Update Improving Disclosures about Fair Value Measurements - FASB has proposed more fair value disclosures to be effective in Q4 for calendar year end companies - Some of the significant proposed amendments include: Addition of sensitivity analysis for level 3 measures (proposed to be effective in Q1 2010) Detailed disclosures about transfers to and from level 1 and 2 measurements Presenting gross the activity within the level 3 reconciliation
Relevant Issues Going Into Q3 and Year End Loan Loss Disclosures Dear CFO Letter from SEC Corporate Finance Office - SEC identified several disclosures that they expect financial institutions to address in MD&A: Information about higher risk loans Changes in loan provision practices Impact on ability to collect loans
Relevant Issues Going Into Q3 and Year End Loan Loss Disclosures Proposed FASB Guidance on Loan Loss Disclosures - FASB issued ED which calls for extensive new disclosures around the credit quality of financing receivables - These extensive new disclosures will impact both interim and annual financial statements and are proposed to be effective in the fourth quarter for calendar year-end companies
Relevant Issues Going Into Q3 and Year End Other Reminders Codification - Best practice to make disclosures more plain-english Deferred Tax Accounting - Companies may need to revisit foreign earnings assertions and whether deferred tax assets can be realized Venezuelan Foreign Currency Issues - Recent events and guidance - Selection of appropriate translation rate - Potential of highly inflationary designation - Next steps
Section two Q&A
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