July 20, 2012
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SEC Staff Publishes Final Report on Work Plan for Global Accounting Standards
The SEC Office of the Chief Accountant (OCA) has published its final staff report on the “Work Plan” related to global accounting standards. The SEC (Commission) directed its staff to develop and execute the “Work Plan” in February 2010, included in the Commission Statement in Support of Convergence and Global Accounting Standards. The purpose of the “Work Plan” is to consider specific areas and factors relevant to an SEC determination as to whether, when, and how the current financial reporting system for U.S. issuers should be transitioned to a system incorporating International Financial Reporting Standards (IFRS).
The final staff report summarizes the observations and analyses of the staff regarding key areas identified for study in the “Work Plan” for global accounting standards. Significant observations identified by the OCA staff in its report include the following:
- Early on in the process, it became clear to the OCA staff that an outright declaration of IASB standards as authoritative was not supported by the vast majority of participants in the U.S. capital markets, and instead, the staff focused on the pros and cons of methods of incorporation.
- The IASB has made significant progress in developing a comprehensive set of accounting standards, but gaps still exist.
- The IFRS Interpretations Committee must do more to address issues related to maintaining IFRS standards on a timely basis to keep those standards up-to-date.
- In order to develop accounting standards that could be incorporated in multiple jurisdictions, the IASB needs to understand the intricacies of a number of distinct domestic reporting and regulatory systems. Accordingly, the IASB should rely more on national standard-setters.
- While certain financial statements reviewed by OCA generally appeared to comply with IFRS, global application of IFRS could be improved to narrow diversity.
- The overall design of the governance structure of the IFRS Foundation appears to strike a reasonable balance of providing oversight of the IASB while simultaneously recognizing and supporting the IASB’s independence. However, the OCA staff believes that it may be necessary to put in place mechanisms specifically to consider and to protect the U.S. capital markets (e.g., through the FASB endorsement process).
- The IASB's parent, the IFRS Foundation, needs to increase its funding and broaden the base from which its membership is gathered.
- Investor education on accounting issues and changes in the accounting standards is not uniform.
The SEC is expected to use the staff’s final report to make a decision on whether to permit the use of IFRS for U.S. companies. The final report cautions that the SEC has not made any decision regarding the incorporation of IFRS. Specifically, the final report provides:
The Commission believes it is important to make clear that publication of the Staff Report at this time does not imply -- and should not be construed to imply -- that the Commission has made any policy decision as to whether International Financial Reporting Standards should be incorporated into the financial reporting system for U.S. issuers, or how any such incorporation, if it were to occur, should be implemented.
A copy of OCA’s final report is available here.
SEC Staff Releases Updated Financial Reporting Manual
The staff in the Division of Corporation Finance (Corp Fin) of the SEC has released its updated Financial Reporting Manual, reflecting changes through March 31, 2012. This manual represents informal guidance prepared for use by the Corp Fin staff. Corp Fin has made this publication available because readers may find the guidance therein useful in preparing filings with the SEC. Updates in this edition of the manual include the following areas (identified below in parentheses by section number in the manual):
- Age of Financial Statements - Basics (section 2045.15);
- Results of Operations (section 9220.8NOTE);
- Reverse Acquisitions and Reverse Recapitalizations: Form 8-K (section 12220.1b); and
- Forms 40-F and 6-K (section 16210.1).
A copy of the updated Financial Reporting Manual is available here.
SEC Staff Publishes Small Entity Compliance Guide on Compensation Committees
The staff of the SEC has published a Small Entity Compliance Guide, Listing Standards for Compensation Committees and Disclosure Regarding Compensation Consultant Conflicts of Interest. This guide summarizes and explains a new rule and amendments to SEC proxy disclosure rules to implement Section 952 of the Dodd-Frank Act, which added Section 10C to the Securities and Exchange Act of 1934 (Exchange Act). Section 10C requires the SEC to adopt new disclosure rules concerning compensation consultant conflicts of interest. This guide discusses the requirements of the new rules regarding: (a) disclosure about conflicts of interests of compensation committees; and (b) listing requirements for compensation committees.
A copy of the guide is available here.
A copy of the SEC’s final rule, Listing Standards for Compensation Committees, implementing Section 10C of the Exchange Act, is available here.
Paul A. Beswick Named Acting Chief Accountant
SEC Chairman Mary Schapiro announced the appointment of Paul A. Beswick as the Acting Chief Accountant in the SEC's Office of the Chief Accountant (OCA). In his new role, Mr. Beswick will oversee accounting interpretations, international accounting matters, and professional practice issues. Mr. Beswick replaces James L. Kroeker, who left the SEC last Friday.
Since joining the SEC in September 2007, Mr. Beswick has fulfilled a number of key roles in the OCA. Most recently, as Deputy Chief Accountant, he was responsible for the day-to-day operations of the office's accounting group, including resolution of accounting practice issues, rulemaking, and oversight of private sector standard-setting efforts.
A copy of the news release on this matter is available from the SEC here.
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