PCAOB Concept Release Issued Today Calls For 'AD&A,' Assurance On Additional Info, More

Earlier today, the PCAOB voted to issue a Concept Release on the Auditor's Reporting Model. As noted in the PCAOB's press release:



Auditor's Discussion & Analysis

Joining the ranks of the 'MD&A' (management's discussion and analysis) and 'CD&A' (compensation discussion and analysis) required of management by the SEC, would be an 'AD&A' (auditor's discussion and analysis), as set forth in the PCAOB's Concept Release.



Assurance On Other Information; Clarification of Language

Other ideas included in the Concept Release address required and expanded use of emphasis paragraphs; auditor assurance on other information outside the financial statements, and

clarification of language in the standard auditor's report.



Public Comment Sought via Comment Period, Roundtable

The public comment period on the Concept Release closes on September 30.



The PCAOB also announced today they will hold a public Roundtable in the third quarter, 2011 to obtain additional feedback on the Concept Release.



Further information is available in the PCAOB's Fact Sheet; the archived webcast of today's PCAOB board meeting will be posted by the PCAOB within 24 hours. See also related items for this Concept Release in the PCAOB's Rulemaking Docket No. 034.

FASB, IASB Amend Standards For Presentation Of Comprehensive Income, OCI

On June 16, 2011 the Financial Accounting Standards Board and the International Accounting Standards Board issued amended standards for the presentation of comprehensive income and other comprehensive income (OCI). In the U.S., the amendment was issued as Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The IASB effected the change by amending IAS 1, Presentation of Financial Statements.

As noted in FASB's press release:

...(ASU) No. 2011-05 Comprehensive Income (Topic 220): Presentation of
Comprehensive Income... is intended to increase the prominence of other comprehensive income in financial statements.

In US GAAP, the ASU will supersede some of the guidance in Topic 220 of the accounting Codification.

The main provisions of this Update provide that an entity that reports items of other comprehensive income has the option to present comprehensive income in either one or two consecutive financial statements:

- A single statement must present the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income.

- In a two-statement approach, an entity must present the components of net income and total net income in the first statement. That statement must be immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income.

The option in current GAAP that permits the presentation of other comprehensive
income in the statement of changes in equity has been eliminated.

As noted in the IASB's press release:

...the amendment [to IAS 1] ... will improve and align the presentation of items of other comprehensive income (OCI) in financial statements prepared in accordance with International Financial Reporting Standards (IFRSs) and those prepared in accordance with US generally accepted accounting principles (GAAP).

The amendments to IAS 1 Presentation of Financial Statements require companies preparing financial statements in accordance with IFRSs to group together items within OCI that may be reclassified to the profit or loss section of the income statement. The amendments also reaffirm existing requirements that items in OCI and profit or loss should be presented as either a single statement or two consecutive statements.

Read more in this edition of KPMG's Defining Issues.

FASB, IASB To Re-Expose Rev Rec For 120-Day Comment Period

Earlier today, FASB and the IASB announced they will re-expose an Exposure Draft of their proposed Revenue Recognition (‘Rev Rec’) standard. The re-exposure document will reflect changes agreed to by the boards based on their discussion of comment letters received on the original Exposure Draft.

According to this FASB-IASB press release, the boards plan to release the updated Exposure Draft in the third quarter of 2011 for a 120-Day comment period.

FASB Decides To Exempt Private Cos. From Certain Rev Rec Disclosures
In related news, at last week’s FASB meeting, the board decided to exempt private companies from certain disclosure requirements in its upcoming standard on revenue recognition. Other matters discussed at the board meeting included revenue recognition: rate regulated entities, financial instruments, and investment companies. Details are in this FEI Summary and FASB's Summary of Board Decisions.

Dodd-Frank's Impact on U.S. Competitiveness Focus Of June 16 Hearing

The House Financial Services Committee is holding a hearing tomorrow on the impact of the Dodd-Frank Act on jobs and U.S. competitiveness.

Describing the objective of the hearing in this press release, Committee Chairman Spencer Bachus stated:

There is a widespread and growing concern that the Dodd-Frank Act with its 400 new regulations will lead to industry, capital and jobs leaving the United States. This is a concern that many of us on the Committee have expressed repeatedly. Our hearing will examine the regulatory disparities between the U.S. and other nations and how that could put American companies at a competitive disadvantage and harm our economy.

The press release continues:

The Committee will specifically look at four crucial areas where divergent regulatory approaches taken by the United States and the rest of the world could damage the U.S. economy and the ability of financial institutions to compete against their foreign counterparts: capital and liquidity requirements; regulation and oversight of “systemically important financial institutions”; derivatives requirements; and a total ban on proprietary trading.

Slated to appear on the first panel at the hearing are the SEC Chairman Mary Schapiro, CFTC Chairman Gary Gensler, FDIC Chairman Sheila Bair, and senior representatives from the Federal Reserve, OCC and U.S. Treasury.

The second panel includes representatives from industry associations ISDA and SIFMA, the Chief Risk Officer of JP Morgan Chase, Hal Scott of Harvard Law School (who heads up a private sector initiative on U.S. competitiveness, the Committee on Capital Markets Regulation, informally known as the 'Paulson Committee' as it was launched during former U.S. Treasury Secretary Henry Paulson's tenure), and Damon Silvers of the AFL-CIO (who served on the Congressional Oversight Panel established by Congress in 2008 'to review the current state of financial markets and the financial regulatory system' ).

Some of the testimony has already been posted on the hearing webpage.

XBRL US GAAP Taxonomy: FASB, SEC Staff On June 22 FASB Webcast

The Financial Accounting Standards Board will host a webcast on June 22 from 1:00 -2:00 pm EDT on: How to Use the XBRL 2011 US GAAP Financial Reporting Taxonomy.

The webcast will focus on: "How to use the soon-to-be-released Taxonomy Online Review and Comment System’s search and navigation functions to efficiently find the tags that meet the U.S. Securities and Exchange Commission’s filer requirements."

Subtopics to be covered include:

• Navigating the taxonomy



• Considerations for tag selection



• Understanding tag relationships and how to use the network views



• Using advanced search and shared search functions to find relevant tags



• Quickly finding certain types of tags



• Understanding when to use industry entry points



• Finding tags using the Accounting Standards Codification



• Using specialized labels to find tags



• Providing feedback on the Development and Accounting Standards Update Taxonomies.

Speakers include:

• J.. Louis Matherne, FASB chief of taxonomy development,



• Christine Tan, FASB XBRL project manager, and



• Susan Yount, SEC, Office of Interactive Data

Up to 1 CPE credit will be available for the live webcast. An archived version of the webcast will also be available on FASB’s website through Sept. 21, 2011 (no CPE will be available for the archived webcast).

See the course description and registration information for FASB's June 22 webcast on the XBRL taxonomy.

Private Co. Accounting Standard-Setting Subject Of June 17 FASB Webcast

Private companies won't want to miss FASB's Update for Nonpublic Entities, featuring FASB board and staff members, in a live webcast this Friday June 17 from 1-2:40 pm EDT.

The webcast will focus on:

• The Financial Accounting Foundation’s strategic review of standard setting for nonpublic entities


• The FASB’s recent process changes made to broadly engage nonpublic stakeholders in standard setting


• Progress on the FASB-International Accounting Standards Board (IASB) convergence program, and


• Other active projects or recently-issued standards of interest to nonpublic entities.

Speakers will include:

• FASB Board Member Daryl Buck (NOTE: prior to joining the FASB board this year, Buck served as CFO of Reasor's Inc. and as Chairman of FEI's Committee on Private Company Standards)


• FASB Board Member Larry Smith, and


• FASB Staff Members Jeff Mechanick, Ron Bossio, and Paul Glotzer

Up to 2.0 CPE will be offered for the live webcast. An archived webcast (no CPE available for archived webcast) will also be avaialble on FASB's website until September 15.

Read additional course and registration information for FASB's June 17 Update for Nonpublic Entities.

SEC "Financial Reporting Series" To Focus On Early Identification of Risks to the Financial Reporting System

In remarks at USC's 30th Annual SEC and Financial Reporting Institute, SEC Chief Accountant Jim Kroeker announced that the SEC will launch a series of roundtables "to facilitate a balanced discussion of existing pressures or emerging issues in financial reporting." The roundtables, entitled the "Financial Reporting Series," are expected to be held three times per year. They will be open to the public, and webcast.

Objective: Early Identification of Risks
The objective of the Financial Reporting Series, said Kroeker, is to "assist us in our early identification of risks related to, as well as areas for potential improvements in, the reliability and usefulness of financial reporting to investors."

The first such roundtable, said Kroeker, is "expect[ed] ...to be held later this year," and will focus on "a topic such as the role of uncertainty in financial reporting and whether [the] right level of information about uncertainty is being provided."

It appears the Financial Reporting Series, focused on the early identification of risks to the financial reporting system, dovetails neatly into the role of the newest Deputy Chief Accountant to join the OCA team - Mike Starr.

As noted in the SEC's press release issued last fall when Starr, former Chief Operating Officer of Grant Thornton Int'l, was hired in the newly created position of Deputy Chief Accountant for Policy Support and Market Monitoring: "In this role, Mr. Starr will serve as the Chief Accountant's liaison on projects and activities to improve the quality of accounting and auditing policy decisions and to identify and address potential financial reporting weaknesses and risks. Mr. Starr also will advise the Chief Accountant and the Office on highly complex topics."

Series of Roundtables, vs. a Formal Panel
Kroeker pointed out the Financial Reporting Series roundtables will differ from a formal advisory committee or blue ribbon panel (which, for example, aim to seek a consensus view and issue formal recommendations on behalf of the group). However, similar to the use of the output of a more formal committee, "I expect that the Series will provide the Commission staff, as well as the FASB and the PCAOB, with useful information about emerging issues and changes in the business environment that affect each of our respective roles in the financial reporting system."

Although he did not use the term 'ad hoc,' it appears the flexibility offered by a roundtable series - i.e., by not bringing together a formal panel to hold multiple meetings, deliberate, debate for a consensus, and issue formal recommendations - offers the benefit of being less labor intensive for SEC staff (and for those who participate in the roundtables). Additionally, the roundtable format will enable the SEC to bring together different groups of experts each time, (vs. an advisory committee) depending on the subject matter.

FASB, PCAOB and Other Observers
As has been the case with past SEC roundtables and advisory committees on cross-cutting issues that impact financial reporting and auditing, the chairs of the FASB and PCAOB will serve as observers at the roundtables.

Kroeker added that other observers may include staff from the federal bank regulatory agencies. In addition, although the roundtables will be organized by the SEC's Office of the Chief Accountant, he added that staff from other divisions and offices may observe (or, in my view, potentially co-moderate) the roundtables from time to time, including staff from the SEC's Division of Corporation Finance.

SEC Chairman Mary L. Schapiro gave an early nod to the Financial Reporting Series in remarks at a Financial Accounting Foundation dinner last month, when she said, "I am also looking forward to the FASB’s and the PCAOB’s participation in the SEC staff’s new 'Financial Reporting Series.' This will be another opportunity to listen and learn — a series of roundtables designed to help all of us who are involved in the financial reporting system, identify risks related to the reliability and usefulness of financial reporting, as well as areas for potential improvements. We believe that the series will provide us, as well as the FASB, PCAOB and others, with useful information about emerging issues and about changes in the business environment that affect the financial reporting system."

Diverse Participants
Participants in the Financial Reporting Series roundtables, Kroeker said last week at USC, will represent a variety of groups included among the SEC's constituents.

"The approach will be one of inviting a cross section of capital markets participants," he said, "including investors, preparers, auditors, and others." He added the aim of the discussion was to "foster an informed dialogue on some of the most difficult financial reporting topics."


Shades Of Pozen Committee, Dodd-Frank
The Financial Reporting Series appears to have some roots in a similar cross-constituent group recommended by SEC Advisory Committee on Improvements to Financial Reporting (aka 'the Pozen Committee' for its chair, Bob Pozen; also known as CIFiR).

In the Pozen Committee's final report issued on August 1, 2008, Recommendation 2.3 included forming a Financial Reporting Forum, as follows:

Create a Financial Reporting Forum (FRF) that includes key constituents from the preparer, auditor, and investor and other user communities, to meet with representatives from the SEC, the FASB, and the PCAOB to discuss pressures
in the financial reporting system overall, both immediate and long-term, and how individual constituents are meeting these challenges. This may require the FASB to re-evaluate the roles and composition of its advisory groups or agenda committees....

In the detailed discussion of this recommendation later in the Pozen committee's report, it was noted that the scope of their suggested FRF would be broader than just FASB issues, "[W]e would not limit the proposed FRF’s purview solely to the work of the FASB. Rather, key constituents in the U.S. financial reporting system would meet with representatives from the SEC, the FASB, and the PCAOB to confer on immediate financial reporting needs and priorities system-wide. By identifying emerging issues, the FRF would give timely input on pressures affecting the financial reporting system, both immediate and long-term."

Like the Pozen Committee's recommended FRF, the SEC's Financial Reporting Series will include participation by representatives of the SEC, FASB and PCAOB; however, unlike the Pozen Committee's FRF, the agency representatives will serve in an observer role.
Also, like the Pozen Committee's FRF, there will be a variety of constituents from the financial reporting and auditing process (investors, preparers, auditors and others); but unlike the FRF, the Financial Reporting Series will not be a formal advisory group. (Potential conflicts of a formal FRF with other existing advisory committees were foreseen by some, as noted in the Pozen committee report; the SEC has avoided this problem by keeping the roundtables in more of an informal, ad hoc nature, rather than forming a formal advisory committee.)

In the main, by addressing emerging issues, including broad-based constituents from the private sector and regulatory community, and convening in public, the new Financial Reporting Series, based on Kroeker's description at USC, appears to implement the thrust of the Pozen Committee's recommended FRF, which called for a focus on, "Urgent matters in the U.S. financial reporting system [which] should be dealt with in a timely fashion, which may require the FRF to be convened both on a regular schedule and on short notice, as necessary. The meeting process should allow interested parties to raise issues in a transparent fashion."

Separately, an earlier version of the Dodd-Frank Act (the House version passed on Dec. 11, 2009) called for the formation of a "Financial Reporting Forum." As noted in our blog post at that time:

Financial Reporting Forum to make recommendations to Congress: A Financial Reporting Forum would be created, consisting of the Chairmen of the FASB, SEC,
bank regulatory agencies, and certain others to be appointed by the SEC (including a representative of a financial institution, a non-financial institution, auditors, and investors). The Financial Reporting Forum would meet at least quarterly, to: "discuss immediate and long-term issues critical to financial reporting," and would "issue an annual report to the Congress detailing any determinations or findings made by the Forum during the previous year, including any legislative recommendations the Forum may have related to financial reporting matters." [NOTE: An earlier version of this provision was submitted by Rep. Miller.] [Sec. 7417]

Although I don't believe the "Financial Reporting Forum" recommended in the earlier House version remained in the final Dodd-Frank Act, the common theme of involving representatives of the SEC, FASB and PCAOB, along with key constituents, to "discuss immediate and long-term issues critical to financial reporting" seems to be consistent in many respects not only with the Pozen Committee's recommended FRF, but also with the SEC's new Financial Reporting Series.

Additionally, I believe (before its too late, let me remind you of the disclaimer posted on the right side of this blog) that the new Financial Reporting Series can be beneficial to the SEC, PCAOB and FASB, given the responsibility of the Financial Stability Oversight Council which was included in the final Dodd-Frank Act.

As described by AICPA JofA Senior Editor Matthew Lamoreaux in his article, Financial Regulatory Reform Bill Clears Congress, when the final Dodd-Frank Act was signed by President Obama last year:

Accounting standards. The act gives the Financial Stability Oversight Council the duty to monitor domestic and international financial regulatory proposals and developments, including insurance and accounting issues, and to advise Congress and make recommendations in such areas that will enhance the integrity, efficiency, competitiveness and stability of the U.S. financial markets. The council may submit comments to the SEC and any standard-setting body with respect to an existing or proposed accounting principle, standard or procedure.

Stay Tuned
In his remarks at USC last week, Kroeker noted, "I encourage you to watch for public announcements of the sessions in advance through a press release or on a devoted Financial Reporting Series webpage on the Commission’s website."

Other Topics In Kroeker's Speech
Other major topics covered in Kroeker's speech, besides the Financial Reporting Series, included:

• Oversight of Standard-Setting: Convergence (IFRS and U.S. GAAP)




• Oversight of Standard-Setting: Private Companies (Note: some may consider it interesting that the SEC's oversight indirectly extends to private companies (in addition to public companies) through its oversight of the FASB.) In his remarks, Kroeker states: "I have also spent time understanding the report and recommendations put forward by a Blue-Ribbon Panel on Standard Setting for Private Companies. My focus in understanding those recommendations is to consider the nature and impact of any recommendations for private companies to apply accounting standards that may differ from those that public companies apply."
  
  He continues, "It is prudent, in my view, to carefully consider the nature of any differences and their effect on the capital formation process if private companies have to adopt a revised, and more stringent set of accounting policies in connection with preparing Commission filings to raise public capital. Further, it is important to understand why one might suggest a different standard for private companies."
  
  Kroeker concludes on this subject, "I support the approach taken by the FAF Trustees in carefully considering the advice from this panel as they strategically assess the financial reporting system for private companies. Further, I believe that in a number of areas additional research, study, and outreach, particularly to investors, would be warranted prior to implementing any significant change in the standard-setting structure applicable to nonpublic entities."
  




• SEC's Sarbox Section 404 Study - including a repeated call for PCAOB to publish findings of 'lessons learned' about auditor practices, from its inspections data




• Mitigating financial reporting risk - through PCAOB's announced consideration of potential changes to the auditor's reporting model, and through better audits




• Need for focus on PCAOB international inspections