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Accounting Research Manager(TM)
Weekly Summary of Developments
January 22-26, 2007
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Accounting Research Manager subscriber,
The Accounting Research Manager database now contains this week's weekly summary of developments. Click the link below to access and print the fully-formatted Weekly Summary:
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If you do not have immediate Internet access to the Accounting Research Manager database, below is the text of this week's Weekly Summary.
Accounting and SEC Headlines
Proxy Materials -- SEC Issues Final Rule and Proposal Regarding Internet Proxy Solicitation
Executive Compensation Disclosure -- SEC Staff Issues Guidance
Detecting Fraud -- PCAOB Issues Observations
Uncertain Tax Positions -- FASB Decides to Retain Effective Date in FIN 48 and Considers Other Matters at January 17, 2007 Meeting
Inflation Rates -- Interpretation Issued, Inflation Rates for Judging Whether an Economy Is Highly Inflationary - December 2006
FASB Report Issued -- Business Combinations and Other Matters
AICPA Issues Audit Risk Alerts -- Interpretive Guidance Available
International Financial Reporting Standards -- IASB Issue Exposure Draft That Would Amend IFRS 1
Loyalty Programs -- IFRIC Discusses Loyalty Programs and Other Matters at January 11-12, 2007 Meeting
Auditing Headlines
AICPA Issues Audit Risk Alerts -- Interpretive Guidance Available
Detecting Fraud -- PCAOB Issues Observations
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ACCOUNTING AND SEC HEADLINES:
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Proxy Materials -- SEC Issues Final Rule and Proposal Regarding Internet Proxy Solicitation
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The SEC has issued amendments to the proxy rules under the Securities Exchange Act of 1934 that provide an alternative method for issuers and other persons to furnish proxy materials to shareholders by posting them on an Internet website and providing shareholders with notice of the availability of the proxy materials. Issuers must make copies of the proxy materials available to shareholders on request, at no charge. The amendments put into place processes that will provide shareholders with notice of, and access to, proxy materials while taking advantage of technological developments and the growth of the Internet and electronic communications. The SEC believes issuers that rely on the amendments may be able to: (a) significantly lower the costs of their proxy solicitations that ultimately are borne by shareholders; and (b) reduce the costs of engaging in a proxy contest for soliciting persons other than the issuer. The amendments do not apply to business combination transactions. The amendments also do not affect the availability of any existing method of furnishing proxy materials. While the rules are effective March 30, 2007, companies may not solicit proxies using this feature prior to July 1, 2007, and must give 40 calendar days notice. As a result, an issuer may not use this approach for meetings before August 10, 2007.
In a separate release, the SEC is proposing further changes to the proxy rules that would require issuers and other soliciting persons to furnish proxy materials to shareholders by posting them on an Internet website and providing shareholders with notice of the availability of the proxy materials:
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The proposed amendments are intended to provide all shareholders with the ability to choose the means by which they receive proxy materials. Comments on this proposal are due March 30, 2007.
Executive Compensation Disclosure -- SEC Staff Issues Guidance
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The staff of the SEC's Division of Corporation Finance has issued an interpretation, "Item 402 of Regulation S-K - Executive Compensation." The SEC staff issued this guidance to address various implementation questions that have arisen as companies begin to apply the new proxy disclosure rules that were issued by the SEC in August and December 2006. This guidance replaces the Item 402 of Regulation S-K interpretations in the July 1997 Manual of Publicly Available Telephone Interpretations and the March 1999 Supplement to the Manual of Publicly Available Telephone Interpretations. Some of the questions addressed by the SEC staff in this release relate to the disclosures required in the new "Compensation Discussion and Analysis" section.
Detecting Fraud -- PCAOB Issues Observations
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On January 22, 2007, the PCAOB issued a report that focuses on aspects of its interim auditing standards that address the auditor's responsibility with respect to fraud, principally AU section 316, Consideration of Fraud in a Financial Statement Audit. The PCAOB is not, in this report, changing or proposing to change any existing standard, nor is the report meant to provide a new interpretation of any aspect of existing standards. Rather, the PCAOB has identified certain observations, made in the course of its inspection process, that are sufficiently important or arise with sufficient frequency to warrant discussion in a public report, both for the purpose of generally focusing auditors on being diligent about these matters and for the purpose of providing information that audit committees may find useful in working with auditors.
For example, PCAOB inspection teams identified certain audit engagements in which auditors performed tests of journal entries, but failed to demonstrate that they had appropriately assessed the completeness and integrity of the population of journal entries obtained from the issuer. The inspection teams also noted instances in which there was no evidence in the audit documentation, and no persuasive other evidence, that an appropriate examination and evaluation of journal entries was performed. In addition, inspection teams noted the exclusion of journal entries with lower dollar amounts from the examination. The PCAOB states in this release that setting the scope in such a manner fails to appropriately address the risk of fraud occurring as a result of the frequent use of low-dollar entries.
Uncertain Tax Positions -- FASB Decides to Retain Effective Date in FIN 48 and Considers Other Matters at January 17, 2007 Meeting
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As reported in its "Action Alert" publication, the FASB met on January 17, 2007, and addressed the following projects or topics:
-Agenda Request - Delay of FIN 48 Effective Date
-Computational Guidance for Computing Diluted EPS under the Two-Class Method
The FASB unanimously decided that it would not defer the effective date (fiscal years beginning after December 15, 2006) in FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes. However, the FASB decided that it would develop implementation guidance for the phrase "the tax matter is ultimately settled through negotiation or litigation" in paragraph 10(b) of FIN 48.
The Action Alert also notes that the following projects or topics are scheduled to be discussed by the FASB at its January 30-31, 2007 meeting:
-Financial Statement Presentation
-Postretirement Benefit Obligations, Including Pensions (Proposed FASB Staff Position FAS 158-a)
-Agenda Decision: Allowance for Losses
-Agenda Decision: Implementation of AICPA Statement of Position 05-1
-Short-Term Income Tax Convergence
-Business Combinations: Applying the Acquisition Method
-Statement 133 Implementation Issue - Clarification of the Application of the "Shortcut Method"
In addition, on February 1, 2007, the FASB and IASB will conduct a "roundtable discussion" on their joint Conceptual Framework Project. Constituents of both the FASB and IASB are scheduled to participate.
Inflation Rates -- Interpretation Issued, Inflation Rates for Judging Whether an Economy Is Highly Inflationary - December 2006
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Our interpretation, Inflation Rates for Judging Whether an Economy Is Highly Inflationary - December 2006, has been issued and reflects the latest available inflation rate information. We have not made any changes since the September 2006 update.
We continue to identify those countries that are unusually slow in reporting their inflation rates. This may require further analysis by users of this Interpretation.
FASB Report Issued -- Business Combinations and Other Matters
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The December edition of the "FASB Report" includes a discussion of the decisions reached and projects added by the FASB during the three-months ended December 31, 2006. In addition, activities planned for the six-months ending June 30, 2007 are also discussed. As of January 1, 2007, the FASB has the following projects on its active agenda:
Joint Projects with the IASB--
-Conceptual Framework
-Business Combinations
-Financial Instruments: Liabilities and Equity
-Financial Statement Presentation
-Leases
-Revenue Recognition
-Earnings per Share
-Income Taxes
-Research and Development
-Insurance Contracts
-Financial Instruments
FASB Only Projects--
-Mergers and Acquisitions by a Not-for-Profit Organization
-Postretirement Benefit Obligations Including Pensions
-Subsequent Events
-Fair Value Option
-Derivatives Disclosures
-GAAP Hierarchy
-Statement 140 - Transfers of Financial Assets
-Insurance Risk Transfer
-Financial Guarantee Insurance
-Various FASB Staff Positions
-Computational Guidance for Computing Diluted EPS under the Two-Class Method
-Valuation Standards for Financial Reporting
AICPA Issues Audit Risk Alerts -- Interpretive Guidance Available
The AICPA has issued the following Audit Risk Alerts:
-Common Interest Realty Associations Industry Developments - 2006/2007
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-Manufacturing Industry Developments - 2006/2007
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-Real Estate Industry Developments - 2006/2007
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These Audit Risk Alerts may be useful to preparers and auditors in gaining an understanding of how current accounting, auditing, and regulatory developments affect these industries.
International Financial Reporting Standards -- IASB Issue Exposure Draft That Would Amend IFRS 1
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The IASB has issued an Exposure Draft (ED), Proposed Amendments to IFRS 1, "First-Time Adoption of International Financial Reporting Standards" - Cost of an Investment In a Subsidiary. The IASB issued this ED to respond to concerns about difficulties encountered by parent companies in measuring the cost of an investment in a subsidiary when adopting IFRSs. At present, IFRSs require a parent to measure an investment in a subsidiary either at its cost or at fair value. In some circumstances a parent is unable to determine cost in accordance with IFRSs but is deterred from using fair value to account for the investment by the subsequent need to measure the investment at each reporting date. The ED proposes to allow a parent to use a deemed cost to measure its investment in subsidiaries when it first adopts IFRSs. This deemed cost can be determined by reference to the parent's investment in the net assets of the subsidiary or the fair value of the parent's investment. The proposals also provide further relief by alleviating the need to restate the pre-acquisition accumulated profits of a subsidiary for the purposes of classifying dividends.
Comments on the ED are due April 27, 2007.
Loyalty Programs -- IFRIC Discusses Loyalty Programs and Other Matters at January 11-12, 2007 Meeting
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As reported in the IASB's "IFRIC Update" publication, the IFRIC met on January 11-12, 2007, and discussed the following matters:
-Draft IFRIC Due Process Handbook
-D20 Customer Loyalty Programs
-IAS 18 Revenue - Revenue Recognition in respect of Initial Fees
-IAS 19 Employee Benefits - Distinction between Curtailments and Negative Past Service Costs
-IAS 21 The Effects of Changes in Foreign Exchange Rates - The Hedge of a Net Investment in a Foreign Operation
-IAS 38 Intangible Assets - Advertising and Promotional Expenditure and Catalogues
-IAS 41 Agriculture - Recognition and Measurement of Biological Assets and Agricultural Produce in accordance with IAS 41
-IFRIC Agenda Decisions
-Tentative Agenda Decisions
-Update on Agenda Committee Business
The IFRIC considered comments received on its draft interpretation, D20 Customer Loyalty Programs. IFRIC noted that the proposal was being regarded as applying more widely than intended. Accordingly, it was decided to reword the scope paragraph (and perhaps also the title) to clarify that the proposed interpretation applies only to award credits that are granted to customers as part of a sales transaction, and not to other types of loyalty programs. It would not apply to any incentives offered to potential customers in the absence of a sale. The IFRIC also considered suggestions that the scope of the draft interpretation should be expanded to address award credits that entities sell separately, either to their own customers or those of other vendors. IFRIC decided not to expand the scope to include such transactions. The reason was that the purpose of the interpretation is to clarify that award credits granted with the sale of other goods or services are separately identifiable components of the sale. This issue does not arise if award credits are sold separately.
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AUDITING HEADLINES:
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AICPA Issues Audit Risk Alerts -- Interpretive Guidance Available
As discussed above in our Accounting and SEC Summaries, the AICPA has issued the following Audit Risk Alerts:
-Common Interest Realty Associations Industry Developments - 2006/2007
For detail, please contact info@zy-cpa.com
-Manufacturing Industry Developments - 2006/2007
For detail, please contact info@zy-cpa.com
-Real Estate Industry Developments - 2006/2007
For detail, please contact info@zy-cpa.com
These Audit Risk Alerts may be useful to preparers and auditors in gaining an understanding of how current accounting, auditing, and regulatory developments affect these industries.
Detecting Fraud -- PCAOB Issues Observations
For detail, please contact info@zy-cpa.com
As discussed above in our Accounting and SEC Summaries, on January 22, 2007, the PCAOB issued a report that focuses on aspects of its interim auditing standards that address the auditor's responsibility with respect to fraud, principally AU section 316, Consideration of Fraud in a Financial Statement Audit. The PCAOB is not, in this report, changing or proposing to change any existing standard, nor is the report meant to provide a new interpretation of any aspect of existing standards. Rather, the PCAOB has identified certain observations, made in the course of its inspection process, that are sufficiently important or arise with sufficient frequency to warrant discussion in a public report, both for the purpose of generally focusing auditors on being diligent about these matters and for the purpose of providing information that audit committees may find useful in working with auditors.
For example, PCAOB inspection teams identified certain audit engagements in which auditors performed tests of journal entries, but failed to demonstrate that they had appropriately assessed the completeness and integrity of the population of journal entries obtained from the issuer. The inspection teams also noted instances in which there was no evidence in the audit documentation, and no persuasive other evidence, that an appropriate examination and evaluation of journal entries was performed. In addition, inspection teams noted the exclusion of journal entries with lower dollar amounts from the examination. The PCAOB states in this release that setting the scope in such a manner fails to appropriately address the risk of fraud occurring as a result of the frequent use of low-dollar entries.
Some of the documents listed above may not be accessible under your current subscription. For information about upgrading your subscription to include additional content, click here:
For detail, please contact info@zy-cpa.com