Ask FERF (financial executives research foundation) about ... recent regulatory highlights.

The challenge of implementing a confluence of new accounting and auditing standards arising in the post-Sarbanes-Oxley era is addressed in an article on page 54.

Below are highlights of some far-reaching new standards and proposals. (More complete listings are available in Financial Executives Research Foundation (FERF) publications at www.ferf.org.)

Financial Accounting Standards Board (FASB)

Share-Based Payments

June 30 was the deadline for comments to be sent to FASB on its Exposure Draft (ED) of a proposed standard on share-based payments. A diversity of views was voiced in Congressional hearings on this matter, as well as in the thousands of comment letters FASB received, and at its public hearings in Palo Alto, Calif., and Norwalk, Conn. A final standard is expected to be issued during the fourth quarter.

Conceptual Framework Projects--Fair Value, Revenue Recognition

FASB has embarked on various broad conceptual framework projects, including a Fair Value (FV) methodology (a proposed 3 "Level" approach, with various sources of fair value ranging from actively quoted markets, to less active or more customized markets, to situations requiring valuation models to be employed). As this article went to press, FASB had anticipated issuing an ED on FV by June 30. FASB also anticipated issuing a related ED on Business Combinations. Both EDs have a 75-day comment period and public hearings on the FV ED are scheduled for September 2.

Revenue Recognition

FASB's contemplated direction on this project has been described by some as leading to a major change in financial reporting, by moving from a focus on completion of the earnings process and realizability (with certain resulting deferred items being maintained on the balance sheet) to a model focused on valuing the balance sheet effects of a transaction first, with resulting revenue (expense) falling out of that. FASB anticipates issuing two EDs related to the Revenue Recognition project in the fourth quarter (see relatd article on page 23).

Users and preparers of financial statements are advised to focus on the implications of these projects--which could form the basis of a sea-change in practice.

Securities and Exchange Commission (SEC)

Comprehensive Disclosure Requirements for Asset-Backed Securities--Proposed "Reg AB"

July 12 is the deadline for comments to the SEC on its proposed Reg AB. This proposal codifies existing practice and informal guidance for shelf registration of asset-backed securities. Division of Corporation Finance Director Alan Beller said the proposal included some liberalization of certain disclosure requirements and some incremental increase in disclosures related to background on sponsors and static pools. Jonathan Sokobin, Deputy Director of the Office of Economic Analysis, called the codification an improvement over the current system, in which some feel they need to know the "secret handshake" or have a "decoder ring" to navigate the system. The proposed rule (and comment letters) can be found at www.sec.gov/rules/proposed.shtml.

Public Company Accounting Oversight Board (PCAOB) and SEC Audit Standard-Setting Related Matters

SEC Chief Accountant Donald Nicolaisen's May 21 letter to the AICPA rejected the AICPA's argument regarding permissibility of certain contingent fees charged by auditors to audit clients for tax services. The letter also reiterated that value-added fees are prohibited unless they are entirely at the discretion of the client, and are, in substance, a contingent fee. The SEC included a reminder that it is the audit committee's responsibility to review auditor compensation arrangements. See the SEC letter at: www.sec.gov/info/accountants/staffletters/webb052104.htm.

At press time, the SEC was expected to approve PCAOB's Auditing Standard No. 2 (AS2) regarding audits of internal control over financial reporting. Some comment letters sent to the SEC and PCAOB requested additional staff guidance, and implementation working groups are being used in an advisory capacity. One such request (made by AICPA) was to defer the shortened 10-K filing deadlines for accelerated filers (from 75 days to 60 days) this year, in light of the Sarbanes-Oxley related standards. Both the SEC and PCAOB are considering issuing FAQ's with additional guidance.

International Accounting Standards Board (IASB)

EDs related to fair value, pensions and business combinations were issued recently by IASB, with deadlines for comment in July. See www.iasb.org.

contributed by FERF

Edith G. Orenstein ([e-mail]) is Manager of Research for Financial Executives Research Foundation (FERF).