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SEC Complexity Comm. Hears Testimony; IASB on Complexity of Fin. Instruments; FASB on Deriv., Hedging; SEC FV Guidance Coming

Mar 20th 2008
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Last week (March 13-14), the SEC Advisory Committee on Improvements to Financial Reporting (abbreviated CiFIR, also called the “complexity committee” or “Pozen committee” for chair Robert Pozen) met and heard testimony from three panels in response to CiFIR’s recommendations on materiality and restatements, the proposed Professional Judgment Framework (PJF), and XBRL, as detailed in this FEI summary. Pozen also noted dates of upcoming committee meetings, and touched on further recommendations being developed by the subcommittees, as noted in our summary.

As a reminder, March 31 is the comment deadline on the SEC’s request for comment on the recommendations contained in CiFIR’s initial Progress Report.

IASB Seeks Comment on Reducing Complexity of Reporting Fin. Instruments

Also on the topic of complexity – and another hot topic, financial instruments - the International Accounting Standards Board (IASB) yesterday (March 19) issued a Discussion Paper (DP) on "Reducing Complexity in Reporting Financial Instruments." The comment deadline on the DP is September 19.

The DP concludes that use of one measurement attribute for financial instruments would reduce complexity, and in the long term, they conclude that fair value (FV) would be that attribute. However, the DP acknowledges there are pros and cons about use of FV, and suggests some intermediary steps could be taken. Further information can be found in this FEI summary. Learn more about IFRS at FEI’s June 5 conference: “The World is Moving to IFRS-Are You?”

Breaking News: FASB Issues FAS 161 On Derivatives, Hedging Disclosures, More

In other news yesterday, the Financial Accounting Standards Board (FASB) issued FAS 161, “Disclosures about Derivative Instruments and Hedging Activities.”

Separately, FASB released Proposed FASB Staff Position (FSP) No. 132(R)-a, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” The comment deadline on the proposal is May 2.

Also yesterday, the FASB board voted to extend the effective date of its proposed FSP FAS 142-f, “Useful Life of Intangible Assets,” to conform the effective date to that of FAS 141R and FAS 157. Thus the effective date of the final FSP will be for financial statements issued for fiscal years beginning after Dec. 15, 2008. Other changes will be made in the final FSP based on comments received; details are in FASB’s board handout.

Watch For SEC Guidance On Fair Value

Last Friday (March 14), David Reilly and Kara Scannell reported in their article in the Wall Street Journal, “SEC Aims To Let Firms Explain Credit Crunch Thorns,” that the SEC is expected to release guidance – probably in the form of a letter to issuers which will likely be posted on the SEC website – to permit companies to disclose more information about ranges of possible fair values. It is hoped that such guidance will calm markets swooning from depressed and volatile fair value measurements calculated under FAS 157, Fair Value Measurement, and presumably under guidance issued in the form of ‘white papers’ by the Center for Audit Quality (CAQ – affiliated with the AICPA) last fall, as applied to current market conditions.

WSJ’s Reilly & Scannell noted that Congress is once again taking a keen interest in accounting standards. “Chairman of the House Financial Services Committee Barney Frank… says there is an urgent need to look at mark-to-market accounting because it's having a "downward pull" on the economy,” Reilly and Scannell report. They add, “Mr. Frank says he is in touch with regulators and will hold a hearing when Congress returns from break next month.”

We will be on the lookout for such a letter from the SEC, and plan to provide further coverage on the debate taking place on whether accounting standards like FAS 157 are a neutral glass through which to transparently view the values of assets and liabilities, or whether the standard acts as a magnifying glass or otherwise colors the view of the underlying asset or liability, particularly in thinly traded or illiquid markets (e.g. subprime).

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