Significant Accounting and Reporting Matters

This alert provides a comprehensive overview of important, recent developments that have changed the financial reporting environment. Our detailed breakdown covers relevant guidance and rules issued by the Financial Accounting Standards Board (FASB), the Public Company Accounting Oversight Board (PCAOB), the Securities and Exchange Commission (SEC) and the International Accounting Standards Board (IASB).

Table of Contents

Financial Accounting Standards Board (FASB)
- Final FASB Guidance
- Proposed FASB Guidance
- Other Activities

Public Company Accounting Oversight Board (PCAOB)
- Proposed Guidance  

Securities and Exchange Commission (SEC)
- Final Rules
- Proposed Rules
- Other Activities

International Accounting Standards Board (IASB)
- Final IASB Guidance
- Proposed IASB Guidance
- Other Activities  

Effective Dates of U.S. Accounting Pronouncements  

Financial Accounting Standards Board (FASB)

Final FASB Guidance

All final FASB guidance can be accessed on the FASB website at http://www.fasb.org/home, located under the Standards tab, Accounting Standards Updates.

Accounting Standards Update 2011-12 — Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05

Issued: December 2011

Summary: The amendments in this Accounting Standards Update (“Update” or “ASU”) defer the effective date pertaining to reclassification adjustments out of accumulated other comprehensive income in Update 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, until the Board is able to reconsider those paragraphs.

In order to defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments, the paragraphs in this Update supersede certain pending paragraphs in Update 2011-05. The amendments are being made to allow the Board time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the Board is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before Update 2011-05.

All other requirements in Update 2011-05 are not affected by this Update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements.

Effective Date: The amendments in this Update are effective at the same time as the amendments in Update 2011-05 so that entities will not be required to comply with the presentation requirements in Update 2011-05 that this Update is deferring. For this reason, the transition guidance in paragraph 220-10-65-2 is consistent with that for Update 2011-05. The amendments in this Update are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter.

Accounting Standards Update 2011-11 — Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities

Issued: December 2011

Summary: The amendments in this Update require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position.  The disclosure requirements apply to financial instruments and derivative instruments that are either offset in accordance with Accounting Standards Codification (“Codification”) Section 210-20-45 or Section 815-10-45, or subject to an enforceable master netting arrangement or similar agreement. The Update requires entities to disclose in tabular format certain quantitative information separately for assets and liabilities, including but not limited to: gross amounts of those recognized assets and liabilities; amounts offset to determine the net amounts presented in the statement of financial position; net amounts presented in the statement of financial position; and amounts subject to an enforceable master netting arrangement.

These amendments were issued in conjunction with issuance of amendments to IAS 32 Financial Instruments: Presentation and IFRS 7 Financial Instruments: Disclosures by the IASB (see IASB/Final Guidance section below), however they do not fully converge balance sheet offsetting under U.S. GAAP and IFRS.  Rather, the Boards agreed to require additional disclosures.

Effective Date: An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented.

Accounting Standards Update 2011-10 — Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate—a Scope Clarification (a consensus of the FASB Emerging Issues Task Force)

Issued: December 2011

Summary: Under the amendments in this Update, when a parent (reporting entity) ceases to have a controlling financial interest (as described in Subtopic 810-10) in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary’s operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt.

Effective Date: The amendments in this Update should be applied on a prospective basis to deconsolidation events occurring after the effective date. Prior periods should not be adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities.

For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2013, and interim and annual periods thereafter. Early adoption is permitted.

Proposed FASB Guidance

The following is a summary of all proposed guidance that was issued or remained open for comment during the quarter.  All proposed FASB guidance can be accessed on the FASB website at http://www.fasb.org/home located under the Exposure Documents tab.

Proposed Accounting Standards Update – Consolidation (Topic 810): Parent’s Accounting for the Cumulative Translation Adjustment upon the Sale or Transfer of a Group of Assets That Is a Nonprofit Activity or a Business within a Consolidated Foreign Entity (a consensus of the FASB Emerging Issues Task Force)

Issued: December 8, 2011

Comment Deadline: February 6, 2012

Summary: When a reporting entity ceases to have a controlling financial interest in a group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a consolidated foreign entity, the amendments in this proposed Update would require the reporting entity to apply the guidance in Subtopic 810-10 to release any related cumulative translation adjustment into earnings. Additionally, upon such sale or transfer, if a parent has hedged part (or all) of its net investment in the foreign entity in which the group of assets had resided, the parent shall release into earnings the related amount of accumulated gain or loss on the net investment hedge attributable to the nonprofit activity or business.

The amount of the cumulative translation adjustment to release into earnings would be determined in a systematic and rational manner that reflects an asset group’s relative portion of the cumulative translation adjustment associated with the foreign entity. Approaches for determining the amount of cumulative translation adjustment to release into earnings include (a) a pro rata portion of the cumulative translation gain or loss attributable to the nonprofit activity or business based on the relative proportion of the net assets of the consolidated foreign entity at the date of disposition and (b) the cumulative translation gain or loss attributable to specific assets and liabilities of the nonprofit activity or business.

Effective Date: The amendments in this proposed Update would be applied prospectively to derecognition events occurring after the effective date. Prior periods would not be adjusted. Early adoption would be permitted. The effective date will be determined after the Task Force considers stakeholder feedback on the proposed Update.

Proposed Accounting Standards Update (Revised) — Revenue Recognition (Topic 605): Revenue from Contracts with Customers

Issued: November 14, 2011

Comment Deadline: March 13, 2012

Summary: This joint exposure draft issued by the FASB and the IASB proposes guidance that revises the initial exposure draft on this topic issued in June 2010 and would supersede the majority of current revenue recognition guidance.  The objective of the exposure draft is to clarify existing revenue recognition principles and develop a common standard for U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).  This includes removing inconsistencies and perceived weaknesses in existing revenue standards, and also improving the comparability of revenue recognition practices across companies, industries and capital markets. The exposure draft is applicable to all entities that enter into contracts with customers unless those contracts are within the scope of other standards.  The proposed model is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration the vendor receives. To accomplish this objective, the guidance requires the application of the following five steps: 

1. Identify the contract with the customer.
2. Identify the separate performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the separate performance obligations in the contract.
5. Recognize revenue when (or as) the company satisfies a performance obligation.

The FASB has published a FASB In Focus article discussing this proposed Update, which is available at: http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175823447182&blobheader=application%2Fpdf.

Effective Date: The effective date of the proposal would not be before January 1, 2015 for public entities with a minimum one year deferral period expected for non-public entities.  Early adoption is not permitted by the FASB’s proposal; however, the IASB plans to permit early adoption.  Retrospective application is required under the exposure draft, although certain transition relief is available.

Proposed Accounting Standards Update – Consolidation (Topic 810): Principal versus Agent Analysis

Issued: November 3, 2011

Comment Deadline: February 15, 2012

Summary: A reporting entity must determine whether it has a variable interest in an entity being evaluated for consolidation and whether that entity is a variable interest entity. Subtopic 810-10 currently provides criteria that must be evaluated to assess whether a decision-making arrangement represents a variable interest in an entity. The proposed amendments would continue to require an evaluation to determine whether a decision maker has a variable interest in an entity. However, it would introduce a separate qualitative analysis to determine whether the decision maker is using its power in a principal or an agent capacity. Accordingly, a decision maker with a variable interest in an entity would need to determine its capacity on the basis of the amendments in this proposed Update.

Under the proposed amendments, the evaluation to assess whether a decision maker is using its power as a principal or an agent would focus on:

• The rights held by other parties;
• The compensation to which the decision maker is entitled in accordance with its compensation agreement(s); and
• The decision maker’s exposure to variability of returns from other interests that it holds in the entity, including through related parties.

Further, to more closely align the consolidation requirements for voting interest entities and partnerships that are not variable interest entities with the consolidation requirements for variable interest entities, the proposed amendments would change how participating rights affect the consolidation analysis for those entities. That is, the assessment of whether the participating rights of a noncontrolling shareholder would overcome the presumption of control by the majority shareholder would focus on whether such rights allow the noncontrolling shareholders to participate in the activities that most significantly impact the investee’s economic performance.  In addition, the proposed amendments would change the evaluation of whether a general partner controls a limited partnership (or similar entity) to be consistent with the principal versus agent analysis developed for evaluating variable interest entities.

The FASB has published a FASB In Focus article discussing this proposed Update, which is available at: http://www.fasb.org/cs/ContentServer?site=FASB&c=Document_C&pagename=FASB/Document_C/DocumentPage&cid=1176159448189.

Effective Date: The proposed amendments would be effective for an entity’s interim and annual reporting periods in fiscal years that begin after the effective date. The effective date (and whether early application would be permitted) will be determined after the Board considers the feedback on the amendments in this proposed Update.

Proposed Accounting Standards Update – Real Estate—Investment Property Entities (Topic 973)

Issued: October 21, 2011

Comment Deadline: February 15, 2012

Summary: The amendments in this proposed Update would provide accounting guidance for an entity that meets the criteria to be an investment property entity. The proposed amendments would also introduce additional presentation and disclosure requirements for an investment property entity. The proposed amendments would be incremental guidance for investment property entities. In addition to the proposed amendments, an investment property entity would be required to follow applicable guidance in other Topics.

Real Estate Properties: Investment properties acquired by an investment property entity would initially be measured at transaction price, including transaction costs, and subsequently measured at fair value with all changes in fair value recognized in net income. Real estate properties other than investment properties would be measured in accordance with other relevant U.S. GAAP.

Controlling Financial Interests: The proposed amendments would require an investment property entity to account for a controlling financial interest in another investment property entity, an investment company entity, and certain service-providing entities in accordance with Topic 810, Consolidation.  An investment property entity would measure a controlling financial interest in any other entity at fair value with all changes in fair value recognized in net income. The investment property entity would retain the specialized guidance when consolidating another investment property entity or an investment company.

Equity Method Investments: The proposed amendments would require an investment property entity to account for an investment in an operating company that provides services to the investment property entity in accordance with Topic 323, Investments—Equity Method and Joint Ventures, if the investment property entity can exercise significant influence over the operating company. An investment property entity would measure all other investments that would otherwise qualify for the equity method of accounting (including investments in another investment property entity or an investment company) at fair value with all changes in fair value recognized in net income.

Other Financial Interests: Investments in entities in which the investment property entity does not have a controlling financial interest or cannot exercise significant influence would be measured in accordance with other relevant U.S. GAAP. For example, an investment property entity would account for a debt security issued by another investment property entity in accordance with Topic 320, Investments—Debt and Equity Securities.

The FASB has published a FASB In Focus article discussing this proposed Update, which is available at: http://www.fasb.org/cs/ContentServer?site=FASB&c=Document_C&pagename=FASB/Document_C/DocumentPage&cid=1176159406582.

Effective Date: The effective date will be determined after the Board considers the feedback on the amendments in this proposed Update. The Board plans to consider the effective dates for the amendments in the proposed Update on investment companies and the proposed Update, Leases (Topic 840), when determining the effective date for the amendments in this proposed Update.

The proposed amendments would be effective for interim and annual reporting periods in fiscal years that begin on or after the effective date. Early adoption would be prohibited.

If an entity is an investment property entity as a result of the proposed amendments, it would report the effect of applying the amendments in this proposed Update as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The cumulative-effect adjustment is the difference between the amounts recognized in the statement of financial position before initial application and the amounts recognized in the statement of financial position immediately after initial application.

Proposed Accounting Standards Update – Financial Services—Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements

Issued: October 21, 2011

Comment Deadline: February 15, 2012

Summary: The amendments in this proposed Update would affect the scope, measurement, presentation, and disclosure requirements for investment companies. The proposed amendments would:

1. Amend the investment company definition in Topic 946 and provide comprehensive guidance for assessing whether an entity is an investment company.
2. Require an investment company to consolidate another investment company or an investment property entity if it holds a controlling financial interest in the entity in a fund-of-funds structure. The investment company parent would retain the specialized guidance when consolidating another investment company or an investment property entity.
3. Amend the financial statements and financial highlights presentation requirements for situations in which an investment company consolidates a less-than-wholly-owned investment company or a less-than-wholly-owned investment property entity.
4. Prohibit an investment company that is able to exercise significant influence over another investment company or an investment property entity from accounting for its interest using the equity method of accounting. Rather, those investments would be measured at fair value.
5. Require additional disclosures including changes in an entity’s status as an investment company, whether the investment company has provided support to any of its investees, and any significant restrictions on an investee’s ability to transfer funds to the investment company.

The FASB has published a FASB In Focus article discussing this proposed Update, which is available at: http://www.fasb.org/cs/ContentServer?site=FASB&c=Document_C&pagename=FASB/Document_C/DocumentPage&cid=1176159406582.

Effective Date: The effective date will be determined after the Board considers the feedback on the amendments in this proposed Update. The proposed amendments would be effective for an entity’s interim and annual reporting periods in fiscal years that begin after the effective date. Earlier application would be prohibited.

Upon adoption of the proposed amendments, an entity would discontinue the application of the guidance in Topic 946 if the entity no longer meets the criteria to be an investment company. The entity would present the change in its status as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption by calculating the carrying amounts of its investees as though it had always accounted for its investments in conformity with other applicable U.S. GAAP, if practicable. If not practicable, the entity would apply the proposed amendments as of the beginning of the period of adoption.

If an entity that historically was not an investment company meets the criteria of an investment company as a result of adopting the proposed amendments, the entity would report the effect of applying the guidance in Topic 946 as a cumulative-effect adjustment to net assets (or a similar account) as of the beginning of the period of adoption.

An investment company may be required to consolidate another investment company or an investment property entity as a result of the proposed amendments. In such situations, the investment company shall apply the requirements in Topic 810 prospectively when the proposed amendments become effective. Any difference between the net assets required to be recognized and the amount previously recognized shall be recognized as a cumulative-effect adjustment to net assets (or similar account) as of the beginning of the period of adoption.

Proposed Accounting Standards Update – Technical Corrections

Issued: October 14, 2011

Comment Deadline: December 13, 2011

Summary: The amendments in this proposed Update represent minor changes to clarify the Codification or correct unintended application of guidance that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Additionally, the amendments will make the Codification easier to understand and the fair value measurement guidance easier to apply by eliminating inconsistencies and providing needed clarifications. This proposed Update is not intended to change U.S. GAAP. These amendments are presented in two sections—Technical Corrections (Section A) and Conforming Amendments Related to Fair Value Measurements (Section B).

Effective Date: The effective date will be determined after the Board considers the feedback on the amendments in this proposed Update.

Other Activities

The following section provides high level summaries of other relevant FASB publications and activities, with particular focus on the recent developments and prioritization of the FASB and IASB’s joint efforts to work towards convergence of U.S. GAAP and IFRS.

Update on International Convergence 

The Financial Accounting Foundation (“FAF” – the FASB’s parent organization) Board of Trustees submitted in November 2011 a comment letter on the SEC Staff Paper, Exploring a Possible Method of Incorporation. The Trustees support the incorporation of IFRS into U.S. GAAP as the appropriate path forward for the continued development of high-quality, investor-focused, global financial reporting standards. Consistent with this support, the Trustees recommended a number of modifications to the IFRS incorporation approach (colloquially referred to as Condorsement) set forth in the Staff Paper. The Trustees’ recommended approach is based on the premise that, over time, international standards will become the foundation of U.S. GAAP. The comment letter addresses concerns raised by U.S. stakeholders that the Condorsement approach: diminishes the SEC’s ability to continue to ensure investor protection in the U.S. capital markets as standard setting for U.S. GAAP moves to an international body; transfers significant authority to an international governance structure early on while adoption/incorporation of IFRS by major national economies is still evolving; and reduces the role and influence of the FASB as the U.S. standard setter, which could affect the quality of financial reporting standards in the U.S. and elsewhere. The comment letter is available at: http://www.accountingfoundation.org/cs/ContentServer?site=Foundation&c=Document_C&pagename=Foundation/Document_C/FAFDocumentPage&cid=1176159309272.

The Boards have been redeliberating the proposed Update, Leases (Topic 840), which was originally issued as a joint exposure draft in August 2010.  The Boards have made numerous decisions based in part on feedback from several hundred comment letters received, input from various general and targeted outreach programs, and other avenues.  The Boards have announced their intent to re-expose a revised proposal in early 2012, with the intent of issuing converged standards by the end of 2012.  Detailed information on the Boards’ decisions to date is available at: http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB%2FFASBContent_C%2FProjectUpdatePage&cid=900000011123.

For current status of joint FASB/IASB projects, refer to the FASB’s Current Technical Plan and Project Updates page at: http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1218220137074.

Update on Standard Setting for Private Companies

Summary of Current Developments: In November 2011, FASB Chairman Leslie F. Seidman added several projects to the Board’s agenda to address improvement of financial reporting by private companies and non-profit organizations.  The first two projects include a standard-setting project and a research project intended to improve financial reporting of not-for-profit organizations. The objectives of these projects encompass suggestions received by the Board from its Not-for-Profit Advisory Committee at the Committee’s September 2011 meeting. The third project’s purpose is to assess the feasibility of reducing or eliminating certain fair value measurement disclosure requirements for private companies and not-for-profit organizations. The decision to add the agenda project was based on comments received during private company roundtable discussions held in October 2011. Summaries of these projects are available at the FASB website. 

The FAF also announced in November 2011 plans to host additional roundtables in early 2012 to discuss and solicit feedback on the FAF’s recently issued Plan to Establish the Private Company Standards Improvement Council.  The FAF issued this plan with a request for comment in October 2011. The plan calls for the establishment of a new council with the authority to identify, propose, and vote on specific improvements to U.S. accounting standards for private companies. Changes would be subject to ratification by the FASB. Users, preparers, auditors, and others with an interest in private company financial reporting are encouraged to read the plan and provide the FAF with their comments by January 14, 2012. The plan and other related links are available at: http://www.accountingfoundation.org/cs/ContentServer?site=Foundation&c=Page&pagename=Foundation%2FPage%2FFAFSectionPage&cid=1176158985794.

Background: A Blue Ribbon Panel charged with making recommendations on the future of standard setting for private companies was launched by the AICPA and the FAF in 2009 and in January 2011 issued a report of its recommendations to the FAF Board of Trustees. The report calls for fundamental changes to the system of standard setting, including the creation of a new board, to be overseen by the FAF, that would focus on making exceptions and modifications to U.S. GAAP for private companies that better respond to the needs of the private company sector. The report also recommends the creation of a differential framework—a set of decision criteria—to facilitate a standard setter’s ability to make appropriate, justifiable exceptions and modifications. The report does not advocate a move toward a separate, self-contained GAAP for private companies or a comprehensive reorganization of GAAP. For more information, refer to the January 26, 2011 FAF News Release at: http://www.accountingfoundation.org/cs/ContentServer?site=Foundation&c=FAFContent_C&pagename=Foundation/FAFContent_C/FAFNewsPage&cid=1176158181429.

In March 2011, the FAF Board of Trustees announced the formation of a 10-member Private Company Resource Group, which includes users, preparers and auditors of private company financial statements, to evaluate the staff assessment and advise the Board in developing a differential decision-making framework.

In a July 2011 FASB In Focus article, the board announced that it has begun developing a so-called “differential framework” that would help provide a short-term solution for creating distinct standards or exceptions for private companies. The article describes a recently completed initial assessment of the differences in the way that private company financial statements are used by lenders, investors and others.

Public Company Accounting Oversight Board (PCAOB)

All proposed PCAOB guidance can be accessed on the PCAOB website at http://www.pcaob.org/ located under the Rules of the Board tab.

Comment Deadline: February 29, 2012

Summary: The PCAOB has re-proposed its standard on auditors’ communications with audit committees that will supersede PCAOB AU 380 (available at: http://pcaobus.org/Standards/Auditing/Pages/AU380.aspx). The PCAOB originally proposed to amend AU 380 in March 2010 to establish requirements intended to enhance the relevance and quality of the communications between the auditor and the audit committee. The re-proposed standard has been issued in response to sentiments expressed in various comment letters received and a public roundtable held in 2010 along with implementation considerations to align communication requirements with performance requirements in other PCAOB standards issued, including the PCAOB risk assessment standards (Auditing Standard Nos. 8-15) that became effective in December 2010. Additionally, as a result of the Dodd-Frank Act of 2010, the PCAOB has expanded authority over SEC-registered brokers and dealers. The new proposal now provides these brokers and dealers an opportunity to comment.

Some of the more significant requirements to improve and enhance current required communications within AU 380 include:

• Requires communication of significant unusual transactions and the auditor's understanding of the business rationale for such transactions;
• Requires communication of the auditor’s evaluation of going concern, if applicable; and
• The re-proposed standard removes the previous proposed requirement that the auditor evaluate the two-way communication between him/herself and the audit committee. It also removes the original proposal to communicate how management subsequently monitors critical accounting estimates and if estimates involve a range, how various selections within the range would affect the company’s financial statements. The re-proposed standard also streamlines the process for communicating critical accounting estimates.

Other specific matters to be communicated by the auditor may be found in Appendix B to the proposed standard. While the new proposed standard establishes certain requirements regarding auditor communications to the audit committee, the new proposed standard does not preclude the auditor from providing additional information to the audit committee. Nor does the new proposed standard preclude the audit committee from requesting additional information from the auditor.

To access the PCAOB’s proposed standard along with supplemental materials, refer to: http://pcaobus.org/Rules/Rulemaking/Pages/Docket030.aspx

Effective Date: The new proposed standard and related amendments is anticipated to be effective, subject to SEC approval, for audits of fiscal years beginning on or after December 15, 2012. 

Securities and Exchange Commission (SEC)

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Final Rules

All SEC Final Rules can be accessed on the SEC website at http://www.sec.gov/, located under the Regulatory Actions section, Final Rules.

(Note: The following pertains to significant accounting and reporting SEC releases. For a complete listing of SEC rules, please refer to the SEC website.)

As of the date of this Update, the SEC had not issued any significant final rules for the fourth quarter.

Proposed Rules

All SEC Proposed Rules can be accessed on the SEC website at http://www.sec.gov/, located under the Regulatory Actions section, Proposed Rules.

(Note: The following pertains to significant accounting and reporting SEC releases. For a complete listing of SEC rules, please refer to the SEC website.)

As of the date of this Update, the SEC had not issued any significant proposed rules for the fourth quarter.

Other Activities

The following section provides high level summaries of other relevant SEC and PCAOB publications and activities, with particular focus on the recent developments and prioritization of the Work Plan for Global Accounting Standards.

Summary: On November 16, 2011, the SEC released two Staff Papers: A Comparison of U.S. GAAP and IFRS and An Analysis of IFRS in Practice.

The Staff Paper A Comparison of U.S. GAAP and IFRS focuses on the Staff’s evaluation of financial reporting areas in which IFRS does not provide guidance or where it provides less guidance than U.S. GAAP. The Staff analyzed 29 U.S. GAAP Codification topics and compared them with the corresponding guidance in the IFRSs as issued by the IASB and focused on differences at the principles level. Any differences in the topics on the Boards’ current joint standards-setting projects were not included in this analysis. The analysis did not consider any SEC rules and regulations or other Staff guidance as it focused on the accounting principles recognized by the standard setters without additional regulatory interpretations. The Staff noted that while IFRS contains “broad principles to account for transactions across industries, with limited specific guidance and stated exceptions to the general guidance,” U.S. GAAP contains more detailed, specific requirements. The Staff also noted that there are fundamental differences that exist between the Boards’ respective conceptual frameworks. The Staff Paper is available at: http://www.sec.gov/spotlight/globalaccountingstandards/ifrs-work-plan-paper-111611-gaap.pdf.

The Staff Paper An Analysis of IFRS in Practice presents the Staff’s observations regarding the application of IFRS in practice. The Staff analyzed the most recent annual consolidated financial statements of 183 companies from 22 countries (both SEC registrants and nonregistrants), which prepare financial statements in accordance with IFRS. The companies selected were from the 500 largest global companies ranked by revenues and the significant majority of such companies were from the European Union. The Staff noted overall compliance with IFRS requirements, but noted also that companies could make improvements in transparency and clarity of financial statement disclosure. In addition, the Staff noted that that diversity in the application of IFRS presented challenges to the comparability of financial statements across countries and industries. The Paper also presents a summary of frequent areas of comment from the Division of Corporation Finance’s reviews of the most recent SEC filings of 140 of the approximately 170 foreign private issuers that prepare financial statements in accordance with IFRS. The areas of frequent comment overlap significantly with the most frequent areas of comment for issuers that prepare financial statements in accordance with U.S. GAAP. The Staff Paper is available at: http://www.sec.gov/spotlight/globalaccountingstandards/ifrs-work-plan-paper-111611-practice.pdf.

In addition to issuance of the two Staff Papers, SEC Chief Accountant James Kroeker noted in a speech to the AICPA National Conference on Current SEC and PCAOB Developments in December 2011 that the SEC will not announce a decision on whether to allow or require domestic companies to adopt IFRS for at least a few more months. The SEC has initially planned to make this decision by the end of 2011. A transcript of the entire speech is available at: http://www.sec.gov/news/speech/2011/spch120511jlk.htm.

SEC Staff Guidance from the AICPA National Conference on Current SEC and PCAOB Developments

Summary: The SEC staff discussed a variety of topics at the AICPA National Conference on Current SEC and PCAOB Developments held in December 2011. The discussions covered rules and regulations as well as accounting topics. The rules and regulations discussions focused on the following items:

1. Auditor Issues
2. Banking and Insurance Issues
3. Considerations in the Current Economic Environment
4. Error Corrections – Disclosure in Filings
5. Financial Reporting Manual Updates
6. Financial Reporting Series
7. Foreign Operations
8. Pro Forma Financial Information
9. Rules, Regulations, and SEC Staff Guidance

The accounting topics, which were much more limited than in previous years, included:

1. Consolidation – VIEs and Foreign Operations
2. Fair Value – Use of Pricing Services
3. Goodwill Impairment
4. IFRS – Work Plan
5. Income Taxes
6. Loss Contingencies
7. Pension and Other Post-Employment Benefit Assumptions and Funding
8. Segment Reporting.

Startup Expansion and Investment Act

Summary: In September 2011, Representative Ben Quayle (R-AZ-03) introduced the Startup Expansion and Investment Act, a bill that aims to enable emerging companies to access capital for expansion and creation of jobs. Specifically, the bill allows new companies with a market capitalization under $1 billion to opt-out of compliance with section 404(b) of the Sarbanes-Oxley Act for the first ten years after going public. Upon electing the opt-out, a company must clearly disclose the election in its annual reports. In December 2011, the bill was introduced by Senators Jim DeMint (R-S.C.) and John Barrasso (R-Wyo.) as S. 1962 within the Senate. The bill follows previous proposals and certain enacted measures aiming to provide relief to smaller companies from the costs and administrative requirements of compliance with the Sarbanes-Oxley Act. The bill is available at: http://www.gpo.gov/fdsys/pkg/BILLS-112s1962is/pdf/BILLS-112s1962is.pdf. 

International Accounting Standards Board (IASB)

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Final IASB Guidance

All final IASB guidance can be accessed on the IASB website at http://www.iasb.org/, located under the IFRS tab, Standards and Interpretations.

Amendments to IFRS 32 — Offsetting Financial Assets and Financial Liabilities 

Issued: December 2011

Summary: The amendments address inconsistencies in current practice when applying the offsetting criteria in IAS 32 Financial Instruments: Presentation. The amendments clarify:

• The meaning of ‘currently has a legally enforceable right of set-off’; and
• That some gross settlement systems may be considered equivalent to net settlement.

Effective Date: An entity shall apply the amendments for annual periods beginning on or after January 1, 2014. An entity shall apply those amendments retrospectively. Earlier application is permitted. If an entity applies the amendments from an earlier date, it shall disclose that fact and shall also make the disclosures required by Disclosures—Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) issued in December 2011. 

Amendments to IFRS 7 — Disclosures: Offsetting Financial Assets and Financial Liabilities 

Issued: December 2011

Summary: The amendments revise the disclosures required by IFRS 7 Financial Instruments: Disclosures to include information that will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity’s recognized financial assets and recognized financial liabilities, on the entity’s financial position. The amendments require entities to disclose in tabular format certain quantitative information separately for assets and liabilities, including but not limited to: gross amounts of those recognized assets and liabilities; amounts offset to determine the net amounts presented in the statement of financial position; net amounts presented in the statement of financial position; and amounts subject to an enforceable master netting arrangement.

These amendments were issued in conjunction with issuance of ASU 2011-11 by the FASB (see FASB/Final Guidance section above), however they do not converge balance sheet offsetting under U.S. GAAP and IFRS. Rather, the Boards agreed to require additional disclosures so a user can reconcile the impact under both U.S. GAAP and IFRS.

Effective Date: An entity shall apply those amendments for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. An entity shall provide the disclosures required by those amendments retrospectively.

Amendments to IFRS 9 and IFRS 7 — Mandatory Effective Date and Transition Disclosures 

Issued: December 2011

Summary: These amendments require entities to apply IFRS 9 Financial Instruments, as issued in November 2009 and updated in October 2010, for annual periods beginning on or after January 1, 2015 instead of on or after January 1, 2013. Early application of IFRS 9 continues to be permitted.

The amendments also modify the relief from restating prior periods. The Board has made amendments to IFRS 7 to require additional disclosures on transition from IAS 39 Financial Instruments: Recognition and Measurement to IFRS 9.

Effective Date: The deferral of the mandatory effective date of IFRS 9 is effective immediately. Entities who initially apply IFRS 9:

• Before January 1, 2012 need not restate prior periods and are not required to provide the disclosures set out in paragraphs 44S–44W of IFRS 7;
• On or after January 1, 2012 and before January 1, 2013 must elect either to provide the disclosures set out in paragraphs 44S–44W of IFRS 7 or to restate prior periods; and
• On or after January 1, 2013 shall provide the disclosures set out in paragraphs 44S–44W of IFRS 7. The entity need not restate prior periods.

SME Implementation Group Guidance — Q&A 2011/03: Interpretation of ‘traded in a public market’ in applying the IFRS for SMEs 

Issued: December 2011

Summary: Q&A 2011/03 addresses how broadly the phrase ‘traded in a public market’ should be interpreted in the definition of public accountability. It states that ‘public market’ is defined as ‘a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets,’ and the term is not restricted to recognized and/or regulated stock exchanges. It includes all markets that bring together entities that seek capital and investors who are not involved in managing the entity. For a market to be public it must be accessible by a broad group of outsiders.

All final Q&As are available at: http://go.ifrs.org/IFRS+for+SMEs+QandA.

SME Implementation Group Guidance — Q&A 2011/02: Entities that typically have public accountability 

Issued: December 2011

Summary: Q&A 2011/02 states that an entity that typically holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses should not automatically be assumed to have public accountability. The Q&A states that judgment should be applied in assessing whether such entities have public accountability, and provides examples.

All final Q&As are available at: http://go.ifrs.org/IFRS+for+SMEs+QandA.

Proposed IASB Guidance

The following section provides high-level summaries of IASB proposals that were exposed or remained open for comment in the second quarter, or the comment deadline for the proposal ended during the quarter. All proposals can be accessed on the IASB website at http://www.iasb.org/, located under the Get Involved tab, Comment on a Proposal.

Exposure Draft – Transition Guidance: Proposed amendments to IFRS 10

Issued: December 20, 2011

Comment Deadline: March 21, 2012

Summary: The IFRS Interpretations Committee received requests to clarify the transition guidance in IFRS 10 Consolidated Financial Statements. The objective of the proposed amendments in the exposure draft is to clarify what the IASB’s intention was when issuing IFRS 10. As a result, the IASB proposes to:

• Explain that the ‘date of initial application’ in IFRS 10 means ‘the beginning of the annual reporting period in which IFRS 10 is applied for the first time’.
• Amend paragraph C3 to clarify that an entity is not required to make adjustments to the previous accounting for its involvement with entities if the consolidation conclusion reached at the date of initial application is the same under IAS 27 Consolidated and Separate Financial Statements /SIC-12 Consolidation—Special Purpose Entities and IFRS 10. As a result, the IASB confirms that relief from retrospective application of IFRS 10 would also apply to an investor’s interests in investees that were disposed of during a comparative period such that consolidation would not occur under either IAS 27/SIC-12 or IFRS 10 at the date of initial application.
• Amend paragraphs C4 and C5 of IFRS 10 to clarify how an investor shall adjust comparative period(s) retrospectively if the consolidation conclusion reached at the date of initial application is different under IAS 27/SIC-12 and IFRS 10.

Effective Date: It is proposed that the effective date of the proposed amendments would be aligned with the effective date of IFRS 10. It is therefore proposed that an entity would also apply the proposed amendments for annual periods beginning on or after January 1, 2013.

Exposure Draft – Revenue from Contracts with Customers

Issued: November 14, 2011    

Comment Deadline: March 13, 2012

Summary: This is a joint exposure draft issued by the FASB and the IASB. Please refer to the FASB/Proposed Guidance section above for a complete summary of the proposal.

Exposure Draft – Government Loans (Proposed amendments to IFRS 1)

Issued: October 2011

Comment Deadline: January 5, 2012

Summary: The IASB has published this exposure draft of proposed amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards to require that first-time adopters apply certain requirements in IAS 20 Accounting for Government Grants and Disclosure of Government Assistance prospectively.

IAS 20 requires entities to measure government loans with a below-market rate of interest as a government grant. The benefit is measured as the difference between the fair value on initial recognition and the proceeds received. This requirement was incorporated into IAS 20 in 2008 by the addition of paragraph 10A. A first-time adopter was required to apply IAS 20 retrospectively to existing government loans at the date of transition to IFRSs and therefore was required to identify a fair value at the date the loan was received. The proposed amendment would require that first-time adopters apply this requirement in IAS 20 prospectively to loans entered into on or after the date of transition to IFRS. However, if an entity obtained the information necessary to apply these requirements to a government loan as a result of a past transaction at the time of initially accounting for that loan, then it may choose to apply paragraph 10A of IAS 20 retrospectively to that loan.

The proposed amendment would add an exception to the retrospective application of IFRS and in doing so would provide the same relief to first-time adopters as was granted to existing preparers of IFRS financial statements when the requirement was incorporated into IAS 20 in 2008.

Effective Date: An entity shall apply the amendments for annual periods beginning on or after January 1, 2013. Earlier application is permitted.

Exposure Draft – Investment Entities

Issued: August 2011

Comment Deadline: January 5, 2012

Summary: This exposure draft addresses whether an investment entity would be required to consolidate a controlled investment or carry the investment at fair value with changes through profit or loss. The IASB received a number of comments on its recently issued pronouncement, IFRS 10 Consolidated Financial Statements, related to the usefulness from an investor’s perspective of presenting consolidated financial statement for investments that an investment entity controls compared to presenting the investment at fair value. This exposure draft proposes criteria for an entity to qualify as an investment entity and guidance for making this assessment. The proposals would require an investment entity to measure its investments in controlled entities at fair value through profit or loss in accordance with IFRS 9 Financial Instruments (as issued in October 2010) and to provide additional disclosures to enable users of its financial statements to evaluate the nature and financial effects of its investment activities.

This exposure draft also proposes that in its consolidated financial statements, a parent of an investment entity should not retain the fair value accounting that is applied by its investment entity subsidiary to controlled entities, unless the parent qualifies as an investment entity itself. As a consequence, a parent of an investment entity should consolidate all entities it controls, including those that are controlled by an investment entity subsidiary, unless the parent is an investment entity itself. When consolidating, a parent of an investment entity would, however, retain the fair value accounting applied by the investment entity to investments in associates and joint ventures and other non-controlled entities.

For consistency within IFRS, the exposure draft also proposes to amend the relevant paragraphs of IAS 28 Investments in Associates and Joint Ventures: (a) to replace references to ‘venture capital organization, mutual fund, unit trust and similar entities’ with ‘investment entity’; and (b) to require an investment entity to measure its investments in associates and joint ventures at fair value through profit or loss in accordance with IFRS 9, or IAS 39 if IFRS 9 has not yet been applied.

To ensure comparability among entities, the exposure draft would require that entities applying this guidance early also apply all aspects of IFRS 10, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 (as amended in 2011).

Effective Date: The amendments in this proposed IFRS would be applied on a prospective basis for annual periods beginning on or after a date to be determined. If an entity applies this proposed IFRS in its financial statements early, it shall also apply IFRS 10, IFRS 11, IFRS 12 and IAS 28 (as amended in 2011).

SME Implementation Group Guidance — Draft Q&As 

Issued: November 2011

Comment Deadline: January 31, 2012

Summary: The SMEIG published two draft Q&As on the IFRS for SMEs. The draft Q&As cover the following topics:

1. Whether an entity may choose to apply the recognition and measurement provisions of IFRS 9.
2. Whether the recycling of cumulative exchange differences on disposal of a subsidiary is prohibited.

All draft Q&As are available at: http://www.ifrs.org/IFRS+for+SMEs/Draft.htm.

Other Activities

The following section provides high level summaries of other relevant IASB publications and activities, with particular focus on the recent developments and prioritization of the FASB and IASB’s joint efforts to work towards convergence of U.S. GAAP and IFRS.

Updates on IASB Public Consultation on Future Work Program 

Summary: In December 2011, the IASB announced the first of a series of public round-table meetings for its Request for Views Agenda Consultation 2011 published in July 2011. The first public round table is for comment letter respondents to the agenda consultation, and will be held on January 13, 2012 in Singapore. Registration for this event closed in December, but more information is available at: http://www.ifrs.org/Alerts/ProjectUpdate/agenda+consultation+round+tables+2011.htm.

Background: In July 2011, the IASB launched a public consultation to seek broad public input on the strategic direction and overall balance of its future work program. The consultation document published asks deliberately open questions to gather views on the IASB’s future work program from all those involved in or affected by financial reporting. In particular, the IASB is seeking feedback on how it should balance the development of financial reporting with the maintenance of IFRS and—with consideration of our time and resource constraints—those areas of financial reporting that should be given the highest priority for further improvement. The consultation period on the future work program of the IASB closed on November 30, 2011. The Request for Views Agenda Consultation 2011 document is available at: http://go.ifrs.org/agenda+consultation+2011+CLs.

Update on International Convergence 

For a summary of international convergence efforts, please refer to the FASB: Other Activities section above.

Effective Dates of U.S. Accounting Pronouncements