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Accounting Research Manager(TM)
Weekly Summary of Developments
October 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
EITF Materials Issued -- Collaborative Arrangements, Real Estate Sale Agreements with a Buy-Sell Clause for the November 29, 2007 EITF Meeting
Conceptual Framework -- FASB Discusses its Conceptual Framework Project and Other Matters at October 17, 2007 Meeting
Valuation of Stock-Based Awards -- SEC Issues Letter to Registrant Approving Market-Based Approach to Valuing Employee Stock-Based Awards
PCAOB Inspections -- PCAOB Issues a Report on Inspections of Domestic Triennially Inspected Firms
Inflation Rates -- Interpretation Issued, Inflation Rates for Judging Whether an Economy Is Highly Inflationary - September 2007
International Financial Reporting -- IASB Issues Agenda for International Financial Reporting Interpretations Committee (IFRIC) Meeting on November 1-2, 2007
IASB Update -- IASB Discusses Conceptual Framework and Other Matters at Its October 16-19, 2007 Meeting
Auditing and Internal Controls Headlines
Audit Sampling -- Amendment to Statement on Auditing Standards No. 39
Internal Controls -- Guidance Updated in SOX 404 for Small, Publicly Held Companies
PCAOB Inspections -- PCAOB Issues a Report on Inspections of Domestic Triennially Inspected Firms
Government Headlines
Governmental GAAP Guide -- Guidance Issued
Comprehensive Implementation Guide -- GASB Issues the 2007-2008 Comprehensive Implementation Guide
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ACCOUNTING AND SEC HEADLINES:
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EITF Materials Issued -- Collaborative Arrangements, Real Estate Sale Agreements with a Buy-Sell Clause for the November 29, 2007 EITF Meeting
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The FASB has issued the following materials for the EITF meeting scheduled for November 29, 2007:
-Issue No. 07-1, "Accounting for Collaborative Arrangements" (Comment Letters)
-Issue No. 07-6, "Accounting for the Sale of Real Estate When the Agreement Includes a Buy-Sell Clause" (Comment Letters)
At its November 29, 2007 meeting, the EITF will review comment letters received from constituents on both EITF Issues 07-1 and 07-6. EITF Issue 07-1 addresses the accounting for collaborative arrangements, such as those to jointly develop and commercialize intellectual property. Collaborative arrangements present unique accounting issues, including how cost incurred and revenue generated should be reported by the participants, characterization of payments made between participants of the collaborative arrangements and what disclosures should be made about a collaborative arrangement. EITF Issue 07-6 addresses whether a buy-sell clause in a real estate sale agreement represents a prohibited form of continuing involvement that would preclude partial sale and profit recognition from the sale of real estate pursuant to FASB Statement No. 66, Accounting for Sales of Real Estate.
Conceptual Framework -- FASB Discusses its Conceptual Framework Project and Other Matters at October 17, 2007 Meeting
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As reported in its "Action Alert" publication, the FASB met on October 17, 2007, and addressed the following projects or topics:
-Conceptual framework: elements and recognition;
-Accounting for leases;
-Statement 133 hedging;
-Agenda decision: deferral of the effective date of Statement 157; and
-Agenda decision: SOP 07-1 and Statement 159 implementation.
As part of its Conceptual Framework project, the FASB continued its discussion of a working definition of an asset. The FASB tentatively decided to: (a) focus the definition of an asset on a present economic resource, rather than on future economic benefits; (b) remove the assessment of likelihood from the existing definition of an asset; (c) focus the definition on the present rather than on past transactions or other events; and (d) ask its staff to clarify the linkage between the entity and the economic resource, preferably without using the word control.
As reported last week in our Hot Topic, the FASB decided that it would not defer the required effective date in FASB Statement No. 157, Fair Value Measurements:. For detail, please contact info@zy-cpa.com Separately, the FASB decided that it would defer the required effective date in AICPA Statement of Position (SOP) 07-1, Clarification of the Scope of the Audit and Accounting Guide 'Investment Companies' and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies.
In addition to its action at the October 17, 2007 meeting, the FASB will discuss the following matters at its October 31, 2007 meeting:
-Financial statement presentation;
-Valuation of nonfinancial assets and emission allowances that are acquired for resale; and
-Agenda decision: not-for-profit endowment and Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA).
The FASB will readdress the issues of classified statement of financial position, capital management disclosures, and netting on the statement of cash flows. The FASB also will discuss issues related to application of the cohesiveness principle. Those issues include: (a) classification and presentation of dividends payable; (b) foreign currency translation adjustments; and (c) the effects of basket transactions (a single transaction that involves multiple assets, or a combination of assets and liabilities, that would be classified in more than one category under the working format).
Valuation of Stock-Based Awards -- SEC Issues Letter to Registrant Approving Market-Based Approach to Valuing Employee Stock-Based Awards
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The SEC's Office of the Chief Accountant (OCA) issued a letter to a registrant approving its use of a market-based approach to valuing employee stock-based awards. In most cases, registrants accounting for stock-based awards under FASB Statement No. 123R, Share-Based Payment, have used valuation models such as Black-Scholes or a Lattice model to value stock awards for financial reporting purposes. The registrant's design and successful approval by OCA of a market-based approach may provide an alternative method to valuing employee stock-based awards.
The registrant proposed to value its stock-based awards in accordance with Statement 123R by using the market clearing price of Employee Stock Option Appreciation Rights Securities (ESOARS) issued in an auction. ESOARS are consistent in terms and nature of underlying stock-based awards and provide the purchaser payments based on actual award exercise activity. The SEC staff agreed with the registrant that the market clearing price of the ESOARS was a reasonable estimate of the fair value of the underlying employee stock-based awards. The SEC staff based its conclusion on: (a) the robust review the registrant performed on its auction process; (b) the design of the ESOARS; (c) bidder sophistication and participation; and (d) a comparison to the market clearing price of ESOARS to the value calculated using broadly used valuation models.
Registrants accounting for stock-based awards under Statement 123R may find this letter from OCA helpful.
PCAOB Inspections -- PCAOB Issues a Report on Inspections of Domestic Triennially Inspected Firms
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The PCAOB issued, A Report on the PCAOB's 2004, 2005, and 2006 Inspections of Domestic Triennially Inspected Firms (the Report). The Report discusses observations identified in the course of the PCAOB's inspections of registered U.S. firms that were subject to triennially inspections. The Report includes a discussion of areas of the audit where PCAOB inspectors observed significant or frequent deficiencies in the first inspections of these firms and warrant emphasis. Specific areas covered in the Report are:
-Revenue;
-Related party transactions;
-Equity transactions;
-Business combinations;
-Impairment of assets;
-Going concern considerations;
-Loans and accounts receivable (including allowance accounts);
-Areas specific to service organizations;
-Use of other auditors;
-Use of work of specialists;
-Independence; and
-Concurring partner review.
The PCAOB cautions readers against looking at the areas covered in the Report as a comprehensive list of items triennially inspected firms must give attention to. Instead, firms should continually stress the critical need to conduct all aspects of issuer audits with due care and professional skepticism.
Inflation Rates -- Interpretation Issued, Inflation Rates for Judging Whether an Economy Is Highly Inflationary - September 2007
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Our Interpretation, Inflation Rates for Judging Whether an Economy Is Highly Inflationary - September 2007, has been issued and reflects the latest available inflation rate information. We did not make any changes since our June 2007 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.
International Financial Reporting -- IASB Issues Agenda for International Financial Reporting Interpretations Committee (IFRIC) Meeting on November 1-2, 2007
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The IASB has issued the agenda for the IFRIC November 1-2, 2007 meeting which includes:
-IAS 27 Consolidated and Separate Financial Statements - Accounting for distributions of non-cash assets to owners
-IAS 39 Financial Instruments: Recognition and Measurement
-IAS 18 Revenue - Customer contributions
-Review of Tentative Agenda Decisions published in September IFRIC Update
-Staff Recommendations for Tentative Agenda Decisions
-Administrative Session
IASB Update -- IASB Discusses Conceptual Framework and Other Matters at Its October 16-19, 2007 Meeting
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As reported in its "IASB Update" publication, the IASB met on October 16-19, 2007, and discussed the following projects or topics:
-Conceptual Framework
-Fair Value Measurements
-Financial Instruments
-Puttable Financial Instruments and Obligations Arising on Liquidation
-Financial Statement Presentation
-IAS 37 redeliberations
-Leases
-Annual Improvements Process
-Post-employment Benefits
-IAS 24 Related Party Disclosures
-Share-based Payment
-XBRL
The IASB also met with the FASB in a joint meeting on October 22-23, 2007, where they discussed the following projects or topics:
-Conceptual Framework
-Financial Statement Presentation
-Revenue Recognition
-Derecognising Assets and Liabilities
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AUDITING AND INTERNAL CONTROLS HEADLINES:
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Audit Sampling -- Amendment to Statement on Auditing Standards No. 39
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We have added a GAAS Update Service that focuses on practical issues relating to Statement on Auditing Standards No. 111, Amendment to Statement on Auditing Standards No. 39, "Audit Sampling," by using a "Question & Answer" format designed to provide practical discussion, advice, and specific implementation guidance. The Q & As address various issues including:
-Examples of audit procedures that do not constitute audit sampling;
-A practical approach that the auditor might follow when determining whether audit sampling in substantive tests of details is necessary or appropriate;
-Factors that the auditor should consider when selecting specific individually significant items to audit in substantive tests of details;
-Factors that the auditor should consider when evaluating the sufficiency of audit evidence obtained in substantive tests of details for a particular account balance or class of transactions; and
-Common methods used by auditors for selecting a statistical or a nonstatistical sample in substantive tests of details and in tests of controls.
Internal Controls -- Guidance Updated in SOX 404 for Small, Publicly Held Companies
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We have published the 2008 Edition of the SOX 404 for Small, Publicly Held Companies. This publication provides information and practical resources to help management in its process of assessing the effectiveness of a company's internal control over financial reporting and its disclosure controls as required by the Sarbanes-Oxley Act of 2002 (SOX). Accordingly, the publication includes numerous checklists and workpapers for use in complying with applicable SEC and PCAOB rules and regulations.Significant updates or additions included in the 2008 Edition of this publication are:
-A discussion of the PCAOB's Auditing Standard No. 5, An Audit of Internal Control over Financial Reporting That Is Integrated with an Audit of Financial Statements (AS/5 ). AS/5 replaces PCAOB Auditing Standard No. 2, An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements;
-A discussion of SEC Release No. 33-8760, Internal Control over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers and Newly Public Companies. This Release describes Section 404 compliance dates for non-accelerated filers; and
-A discussion of the Government Accountability Office (GAO) report, Sarbanes-Oxley Act: Consideration of Key Principles Needed in Addressing Implementation for Smaller Public Companies. Among other things, this Report: (a) examines the effect of SOX on smaller companies, including costs of compliance; (b) reviews the SEC's and PCAOB's implementation efforts; and (c) reviews the SEC's and PCAOB's responses to concerns raised by smaller public companies.
See our Literature Update for complete details.
PCAOB Inspections -- PCAOB Issues a Report on Inspections of Domestic Triennially Inspected Firms
For detail, please contact info@zy-cpa.com
As discussed above in our Accounting and SEC Summaries, the PCAOB issued, A Report on the PCAOB's 2004, 2005, and 2006 Inspections of Domestic Triennially Inspected Firms (the Report). The Report discusses observations identified in the course of the PCAOB's inspections of registered U.S. firms that were subject to triennially inspections. The Report includes a discussion of areas of the audit where PCAOB inspectors observed significant or frequent deficiencies in the first inspections of these firms and warrant emphasis. Specific areas covered in the Report are:
-Revenue;
-Related party transactions;
-Equity transactions;
-Business combinations;
-Impairment of assets;
-Going concern considerations;
-Loans and accounts receivable (including allowance accounts);
-Areas specific to service organizations;
-Use of other auditors;
-Use of work of specialists;
-Independence; and
-Concurring partner review.
The PCAOB cautions readers against looking at the areas covered in the Report as a comprehensive list of items triennially inspected firms must give attention to. Instead, firms should continually stress the critical need to conduct all aspects of issuer audits with due care and professional skepticism.
Some of the documents listed above may not be accessible under your current subscription. For information about upgrading your subscription to include additional content, click here:
For detail, please contact info@zy-cpa.com
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GOVERNMENT HEADLINES:
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Governmental GAAP Guide -- Guidance Issued
For detail, please contact info@zy-cpa.com
We have published the 2008 edition of the Governmental GAAP Guide. The Governmental GAAP Guide is a single reference that discusses all of the promulgated accounting principles applicable to the financial reporting by state and local governments that are in use today: GASB Statements, GASB Interpretations, GASB Technical Bulletins, NCGA Statements, NCGA Interpretations, and certain AICPA Statements of Position and Audit and Accounting Guides. These pronouncements have been analyzed and are restated in straightforward language to facilitate their understanding by preparers and auditors of governmental financial statements. In addition, numerous examples and illustrations are provided as well as a financial statement disclosure checklist that assists financial statement preparers and attestors in meeting the applicable disclosure requirements.
The 2008 edition of the Governmental GAAP Guide has been updated to reflect the guidance in the following:
-GASB Statement No. 50, Pension Disclosures;
-AICPA Audit and Accounting Guide, State and Local Governments (with conforming changes as of May 1, 2006); and
-GASB Comprehensive Implementation Guide - 2006 Questions and Answers.
The 2008 edition also includes updated coverage on the following GASB Statements and Technical Bulletins (TB):
-GASB Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues;
-GASB Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations; and
-GASB Technical Bulletin No. 06-1, Accounting and Financial Reporting by Employers and OPEB Plans for Payments from the Federal Government Pursuant to the Retiree Drug Subsidy Provisions of Medicare Part D.
See our Literature Update for complete details.
Comprehensive Implementation Guide -- GASB Issues the 2007-2008 Comprehensive Implementation Guide
For detail, please contact info@zy-cpa.com
We have added a Governmental GAAP Update Service that discusses the 2007-2008 edition of the Comprehensive Implementation Guide (the Guide). The Guide is a useful tool to assist financial statement preparers and auditors in the implementation and application of GASB pronouncements. The Guide was prepared by the GASB staff and cleared by the GASB prior to issuance and therefore, considered Level D in the hierarchy of generally accepted accounting principles as defined in Statement on Auditing Standards No. 69, The Meaning of "Present Fairly in Accordance with Generally Accepted Accounting Principles" in the Independent Auditor's Report.
Topics covered by specific questions and answers within the Guide are:
-Interest rates on economic development loans;
-Land purchased for a nominal amount;
-Change in capitalization threshold;
-Reporting reinvested earnings of permanent endowments;
-Over-and-under-charges of internal service funds;
-Changes to Other Postretirement Employee Benefit (OPEB) substantive plans;
-Tax rebate programs; and
-Capital asset impairment losses.
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