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SEC Proposals, PCAOB Alert, Lehman Update

Apr 19th 2010
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Following is an update on recent SEC and PCAOB activity.

SEC Proposes Rules Relating to Options Markets, Large Trader Reporting
At yesterday's open commission meeting, the SEC voted to release a number of proposed rules. See SEC press release on proposed amendments to Reg NMS that would impact the activities of - and fees charged by - options exchanges, and SEC press release on a proposed rule that would create a Large Trader Reporting System. The latter proposal is aimed at enhancing the SEC's ability to would identify large market participants, collect information on their trades, and analyze their trading activity.

SEC Proposes Rule Amendments On Asset-Backed Securities
On April 7, the SEC proposed rule amendments that would revise the disclosure, reporting and offering process for asset-backed securities (ABS). The comment deadline will be 90 days after the proposed rule is published in the Federal Register. SEC press release; proposed rule.

PCAOB Releases Staff Practice Alert on Significant Unusual Transactions
On April 7, the PCAOB released Staff Audit Practice Alert No. 5, Auditor Considerations Regarding Significant Unusual Transactions (Practice Alert No. 5). The Practice Alert compiles relevant requirements from existing PCAOB auditing standards regarding significant unusual transactions to assist the auditor in reviews of interim financial information and audits of financial statements. PCAOB press release; Practice Alert 5.

Lehman Update: Congressional Hearing, DOJ Investigation
Some commentators (I like that word better than 'pundits') have expressed the belief that PCAOB Audit Alert No. 5 referenced above, along with the SEC's recent "Dear CFO" letter on repos, are a response to one of the major issues identified in the bankruptcy examiner's report on Lehman Brothers (the "Lehman report"), which questioned the accounting treatment given to, and alleged a lack of sufficient disclosure related to, a financing transaction done at quarter-end in the last couple of quarters of the firm's life, specifically a repurchase transaction (in which securities are sold under an agreement to repurchase them), dubbed 'Repo 105' at Lehman.

Numerous bloggers have covered the Lehman report and offered their own take on the matter, among the most prominent in the field of accounting/auditing, specifically, being Francine McKenna of Re: The Auditors (numerous posts), Jim Petersen of Re: Balance (numerous posts), Tom Selling of The Accounting Onion, and Prof. Dave Albrecht of The Summa. [I also wish to note my appreciation to the above group of bloggers, who I have had offline discussions with from time to time, sometimes in anticipation of quoting them in this blog, and although I have not had the chance to write up any indepth interviews, the insights you have shared are appreciated.]

Also of note on this subject, on March 19, 2010 Chairman Chris Dodd of the Senate Banking Committee announced: Dodd Calls for DOJ Task Force to Investigate Criminal Activities at Lehman and Elsewhere

Additionally, the House Financial Services Committee, Chaired by Rep. Barney Frank, recently announced they will convene a hearing on April 20, 2010 on: Public Policy Issues Raised by the Report of the Lehman Bankruptcy Examiner

You can find 'my two cents' on this topic, here.


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