SEC Trends & Developments - Spring 2012 - Highlights from the 2011 AICPA National Conference on Current SEC and PCAOB Developments

Every December, accountants, auditors, preparers, users and industry experts gather in Washington, D.C. and other simultaneous video-cast locations around the country for three days to hear what regulators and standard setters have to say at the annual AICPA National Conference on Current SEC and PCAOB Developments (the Conference).  Many of the themes focused on at this year's Conference were investors and the roles of management, the audit committee, and the auditors in the financial reporting process. This article gives a brief summary of the highlights discussed at the conference. Links for more details and speeches and presentations are included at the end of the article.

Jim Kroeker (SEC Chief Accountant) stated that the SEC staff remains committed to completing a final comprehensive report on its IFRS work plan. He remains positive about the prospect of International Financial Reporting Standards ("IFRS") incorporation but wants to ensure that “a strong and lasting framework is established.” Mr. Kroeker recognized the progress the FASB and International Accounting Standards Bureau ("IASB") have made in converging accounting standards. However, he did not commit to a definite timeline for completion of the SEC's report or a final decision on incorporating IFRS. 

PCAOB Chairman James Doty discussed the three projects that the PCAOB has under way as part of its initiatives to enhance the relevance, credibility, and transparency of audits. Mr. Doty also discussed the recent concept releases on auditor independence, audit firm rotation and the auditor's reporting model, as well as other matters on the PCAOB's rulemaking agenda to enhance the relevance, credibility and transparency of audits and the PCAOB's progress on international inspections.

Martin Baumann, PCAOB Chief Auditor and Director of Professional Standards, discussed the Board's recent practice alert and how auditors should respond to risks related to the current challenging economic environment. Other PCAOB officials shared significant inspection findings from the 2010 audits, particularly in the area of controls over fair value measurements.


Staff from the SEC's Division of Corporation Finance (“Corp Fin”) highlighted guidance from its Disclosure Guidance Topics, such as reverse mergers and cyber security risks. The staff also reminded the registrants to provide timely and adequate disclosures in areas that may be affected by the current economic environment, including liquidity and capital resources, income taxes and realizability of valuation allowances, impairment assessments for goodwill, and funding obligations for pension and other postretirement benefit plans.

The SEC staff also reiterated frequent areas of review comment, such as management's discussion & analysis (“MD&A”), loss contingencies, non-GAAP measures, segment disclosures, and the distinction between error correction and reclassification.

The Corp Fin staff highlighted certain accounting issues that may be relevant to U.S. listed companies with significant foreign operations. The staff continues to raise questions about the educational background and professional experience of employees or outside consultants preparing or supervising the preparation of U.S. GAAP financial statements for U.S. listed companies.  The staff also discussed disclosures related to variable interest entity (“VIE”) structures commonly used in China. Similar considerations may apply to other VIEs. The staff discussed the need for specific disclosures on the risks and uncertainties related to contractual relationships with VIEs and how the registrant concluded on the consolidation assessment. In addition, given the recent high volatility in exchange rates, the staff reminded registrants to provide disclosures of the impact of exchange rate fluctuations on a company's operations and financial performance and other key market risks.

Meredith Cross, Director of Corp Fin, along with Craig Olinger and Nili Shah, Deputy Chief Accountants of Corp Fin, also summarized Corp Fin's rulemaking and other activities during 2011.  Beginning in January 2012, the staff will make comment letters public twenty business days following the completion of a review, rather than the previous forty-five days. Ms. Cross also provided an update on the SEC's rulemaking to implement the Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).

Staff from the SEC's Office of the Chief Accountant discussed a number of financial reporting matters, including the use of pricing services for valuing securities. It was emphasized that management is ultimately responsible for the fair value estimates recorded for investments that are valued by pricing services. In order to fulfill its responsibility, management should understand the models used, including the significant inputs and assumptions used in arriving at the values provided. This will require management to develop controls over and perform testing of the models and inputs used by the pricing service.


Private Company Accounting — FASB Chairman Leslie Seidman discussed the FASB's efforts to address concerns of private companies that some accounting standards do not provide relevant information to their users and are too complex and costly to apply. The FASB is working to understand the unique and distinguishing factors of private companies and how those factors should affect accounting and disclosure matters. Ms. Seidman also discussed the Financial Accounting Foundation (“FAF”) Board of Trustees' proposal to establish a Private Company Standards Improvement Council (“PCSIC”). The PCSIC would be chaired by a FASB member and would report to the FAF Board of Trustees. Using an agreed-upon framework, the PCSIC would evaluate existing standards and future standards to identify where some or all of a standard should be different for private companies. The approach is an alternative to a recommendation of the FAF/AICPA/NASBA's Blue Ribbon Panel on Standard Setting for Private Companies to establish a separate board for private company standard setting. The comment deadline on the FAF proposal was 14 January 2012.

Testing of Goodwill Impairment — In September 2011, the FASB issued ASU to Accounting Standards Uipdate ("ASU") 2011-08, which amends the guidance in Accounting Standards Codification ("ASC") 350-20 on testing goodwill for impairment. Under the revised guidance, entities have the option of performing a qualitative assessment before calculating the fair value of a reporting unit in step one of the goodwill impairment tests (“step zero”). The SEC staff indicated that they would not expect that the revised guidance would result in material changes in the outcome of impairment testing and discussed two aspects of goodwill impairment testing on which the staff may provide comments to registrants. The staff would most likely comment if a registrant concludes and discloses that adoption of ASU 2011-08 has had a material impact on its financial statements, since the staff would not expect such an impact. Indeed, staff may comment if it appears that a registrant selected the step zero option to avoid an impairment charge for a reporting unit that is at risk of failing step one of the impairment test.

Revenue Recognition — The FASB and the IASB staffs discussed the Boards' revised joint proposal to create a single, global revenue recognition model. The staffs said the new revenue recognition model would improve financial reporting by removing inconsistencies within the existing revenue literature and providing a more robust framework to address revenue recognition issues. They also said the new model should improve comparability among companies, industries and capital markets and will require enhanced disclosures, if adopted. The staffs indicated they will perform extensive outreach during the re-exposure period to better understand how the revised model will affect various industries and to test the functionality of the revised model. Comments on the exposure draft (“ED”) are due by March 13, 2012.

Leases — The Boards' staffs discussed the joint leases project by summarizing feedback from outreach activities and the tentative decisions made by the Boards during redeliberations. The staffs cited that a number of significant open issues that would still need to be addressed. The revised ED is expected to be issued in the first half of 2012.

Financial Instruments — The FASB staff indicated that it expects the FASB to complete redeliberation of its classification and measurement ED by January 2012. The FASB will then consider the extent of any re-exposure. The IASB staff noted that the mandatory adoption date of IFRS 9 will be deferred to 2015. The delay will allow time for the IASB to expose the FASB's revised ED for comment, address potential inconsistencies with its insurance project and explore further opportunities for convergence. The staffs of both Boards indicated that they continue to work toward a single impairment model that reflects credit deterioration and the credit quality of loans. The staffs also are considering the application of the model to purchased and consumer loans. In addition, they are studying extending the use of the model to financial assets that are not loans. The FASB staff said the FASB will continue to redeliberate its hedging model once the classification and measurement project is complete. In contrast, the IASB staff said the IASB intends to issue a review draft for a 90-day comment period in an effort to further eliminate differences between the Boards' hedging models.

For more information, please visit the AICPA's website for the conference agenda and a complete list of topics (
 Text of speeches presented by SEC at the Conference can be viewed at 

SEC Trends & Developments - Spring 2012 Issue 

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