Currently, lease accounting requires certain leases to be recorded as assets and related liabilities for payments due when the terms of the lease meet certain criteria that in substance makes them similar to a purchase. In general, leases that do not meet this criteria are considered operating leases. Operating leases are considered to be executory contracts that do not result in obligations (liabilities)and therefore the payments due in the future under such leases are disclosed only in the footnotes as commitments and no assets are recorded on the balance sheet. Approval of this proposal may cause assets and liabilities on balance sheets to increase significantly. Since assets are depreciated using various methods while lease liabilities are amortized based on the interest rate and payments made, this change to lease accounting will likely change certain key company ratios such as the current ratio which provides indications of liquidity.
On July 21, 2010 the President signed the Dodd-Frank Reform Bill. Two significant new regulations in the bill relating to publicly-held companies and auditors are that it exempts smaller businesses from SOX 404(b) internal control audit requirements and it make auditors of broker-dealers subject to PCAOB regulation.
The next phase-in date is June 30, 2010 for large accelerated filers to file XBRL Data in their SEC filings
The following are excerpts from the SEC final rule released last year in April 2009:
Companies Covered by New Rules and Phase-in
The new rules will cover all companies that report either in U.S. GAAP, including smaller reporting companies and foreign private issuers that report in U.S. GAAP or, in the case of foreign private issuers, in accordance with IFRS as issued by the IASB. 129
When companies must begin including XBRL data in their filed reports
For public companies, the requirement to provide interactive XBRL data with their filings is phased in as follows:
U.S. domestic and foreign large accelerated filers with a world-wide public equity float above $5 billion as of the end of the second fiscal quarter of their most recently completed fiscal year and that file using U.S. GAAP (approximately 500 companies) must provide interactive data in their reports beginning with their first report on Form 10-Q , or first annual report on Form 20-F or Form 40-F , that contains financial statements for a fiscal period that ends after June 14, 2009.
All other domestic and foreign large accelerated filers that file using U.S. GAAP must provide interactive data reports beginning with their first report on Form 10-Q , or first annual report on Form 20-F or Form 40-F , that contains financial statements for a fiscal period that ends after June 14, 2010.
Other companies, including smaller reporting companies, that file using U.S. GAAP must provide interactive data in their reports beginning with their first report on Form 10-Q , or first annual report on Form 20-F or Form 40-F , that contains financial statements for a fiscal period that ends after June 14, 2011.
Foreign private issuers that file using International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) must provide interactive data in their reports beginning with their first annual report on Form 20-F or Form 40-F that contains financial statements for a fiscal period that ends after June 14, 2011.
Under this phase-in system, an issuer’s first filing with required interactive XBRL data is a quarterly report on Form 10-Q or, in the case of a foreign private issuer that does not file U.S. domestic forms, an annual report on Form 20-F or Form 40-F .
Release 33-9002 says the SEC staff will consider requests to defer the phase-in on a case-by-case basis for issuers with special circumstances, particularly where the filer is committed to switching its basis of reporting to IFRS as issued by the IASB. Issuers can make such requests by applying for a continuing hardship exemption under amended Rule 202 of Regulation S-T .
After the phase-in is completed, new filers will be required to submit XBRL data beginning with their first periodic report on Form 10-Q or, for foreign private issuers, the first annual report on Form 20-F or Form 40-F
Consequences of Non-Compliance and Hardship Exemption
The new rules provide, as proposed, that if a filer does not make the required interactive data submission, or post the interactive data on the company Web site, by the required due date, the filer will be unable to use short form registration statements on Forms S-3, F-3, or S-8. 294 This disqualification will last until the interactive data are provided. During the period of disqualification, the filer also will be deemed not to have available adequate current public information for purposes of the resale exemption safe harbor provided by Rule 144. 295 Once a filer complies with the interactive data submission and posting requirements—provided it previously filed its financial statement information in traditional format on a timely basis—it will be deemed to be timely and current in its periodic reports.
Seven accounting and business organizations have signed a letter objecting to the Brown amendment, which would legislate some accounting standards for financial reporting. Click here for full story.
The AICPA has published an alert to aide audit committees.
Regulatory Information and Financial Reporting:
Audit committees must be aware of the provisions of the Sarbanes-Oxley Act, along with associated regulations promulgated by bodies such as the Securities and Exchange Commission, the National Association of Securities Dealers, the New York Stock Exchange and others. This section offers a rundown of relevant regulations.
The Securities and Exchange Commission on Wednesday unanimously supported work on a plan under which 2015 would likely be the earliest possible date for the required use of International Financial Reporting Standards by U.S. public companies. The plan envisions continued study of IFRS and a 2011 vote on whether to mandate conversion to the international standards. SEC Chairman Mary Schapiro stressed that the commission is “on track to make a recommendation in 2011.” (Source: CPA Letter)
The new PCAOB Auditing Standard No. 7 expands the existing requirements for concurring reviews. According to the PCAOB, a well-performed engagement quality review can serve as an important safeguard against erroneous or insufficiently supported audit opinions and contribute to audit quality. The review serves as a check on the work performed by the engagement team, and the PCAOB believes it would increase the likelihood that a registered public accounting firm would identify any significant engagement deficiencies before it issues its audit report. (Source: WebCPA)
The standard is significantly more stringent than the current concurring review requirement and of course will add some more time and cost to the audits.
Most U.S. public companies that will be required to file their financial statements with the Securities and Exchange Commission using eXtensible Business Reporting Language (XBRL) are actively preparing to do so. Most filers report taking more than 120 hours to prepare for the first round of submissions, according to a survey by the AICPA and XBRL US. Source CPA Letter and JournalofAccountancy.com
The AICPA recently published an article: Self-Evaluation: A Primer for Audit committees. It discusses how Audit committees should consider conducting an annual comprehensive self-evaluation of their performance and effectiveness. The audit committee’s self evaluation should employ a straightforward approach that will aid the committee in assessing its strengths and lay a foundation for future improvement. To read more click below:
Another CPA firm is de-registered from the PCAOB and charged with fraud. Issuers should be careful when selecting a PCAOB registered auditor. Selecting the “low priced” auditor will often result in low quality service, issuer restatements and issuer reaudits costing the issuer more money in the long run and possibly damaging trading prices of the issuers capital stock. Below is the summary disciplinary proceeding posted yesterday by the PCAOB and a link to the PCAOB website with the full story.
ORDER INSTITUTING DISCIPLINARY PROCEEDINGS,
MAKING FINDINGS, AND IMPOSING SANCTIONS
In the Matter of The Blackwing Group, LLC and Sara L. Jenkins, CPA, Respondents.
PCAOB Release No. 105-2009-007
December 22, 2009