January

SEC updates its oil and gas disclosure rules

05 Jan 2009

The US SEC has made major changes to its requirements for disclosures of oil and gas reserves. The old rules had been in place for more than 25 years. The revisions permit the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about volumes (quantities) of reserves.

The new rules also will allow companies to disclose their probable and possible reserves to investors. The Commission's current rules limit disclosure to only proved reserves. Companies will be required to:
  • report the independence and qualifications of a reserves preparer or auditor;
  • file reports when a third party is relied upon to prepare reserves estimates or conducts a reserves audit; and
  • report oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices. The use of the average price will maximise the comparability of reserves estimates among companies and mitigate the distortion of the estimates that arises when using a single pricing date.
The reserve disclosures accompany the financial statements, which continue to use an historical cost-based accounting model. Click for SEC Press Release (PDF 30k). The full text of the new rules is not yet available.

 

SEC report on fair value accounting

05 Jan 2009

The US Securities and Exchange Commission has submitted to the US Congress a 211-page report on 'fair value accounting' by financial institutions. The report, mandated by the Emergency Economic Stabilization Act of 2008, recommends against suspending fair value accounting standards.

Rather, the report recommends improvements to existing practice, including reconsidering the accounting for impairments and the development of additional guidance for determining fair value of investments in inactive markets. The report notes that investors generally believe fair value accounting increases financial reporting transparency and facilitates better investment decision-making. The report also observes that fair value accounting did not appear to play a meaningful role in the bank failures that occurred in 2008. Rather, the report indicated that bank failures in the US appeared to be the result of growing probable credit losses, concerns about asset quality, and in certain cases, eroding lender and investor confidence. As mandated by the Act, the report focuses principally on fair value accounting in the context of US companies reporting under US GAAP. However, it also includes numerous references to international considerations and IFRSs.

While the report does not recommend suspending existing fair value standards, it makes eight recommendations to improve their application, including:

  • Development of additional guidance and other tools for determining fair value when relevant market information is not available in illiquid or inactive markets, including consideration of the need for guidance to assist companies and auditors in addressing:
    • How to determine when markets become inactive and whether a transaction or group of transactions are forced or distressed
    • How the impact of a change in credit risk on the value of an asset or liability should be estimated
    • When should observable market information be supplemented with and/or reliance placed on unobservable information in the form of management estimates
    • How to confirm that assumptions utilized are those that would be used by market participants and not just a specific entity
  • Enhancement of existing disclosure and presentation requirements related to the effect of fair value in the financial statements
  • Educational efforts, including those to reinforce the need for management judgment in the determination of fair value estimates
  • Examination by the FASB of the impact of liquidity in the measurement of fair value, including whether additional application and/or disclosure guidance is warranted
  • Assessment by the FASB of whether the incorporation of credit risk in the measurement of liabilities provides useful information to investors, including whether sufficient transparency is provided currently in practice
The report also recommends that FASB reassess current impairment accounting models for financial instruments, including consideration of narrowing the number of models under US GAAP.

Additionally, the report makes recommendations for improvements to the process used by the FASB in developing accounting standards, in particular, steps that could enhance the timeliness and transparency of the process.

Click for:

Members of IASB-FASB financial crisis advisory group

05 Jan 2009

The IASB and the FASB have announced the membership of the Financial Crisis Advisory Group (FCAG). The FCAG is the high-level advisory group set up by the boards to consider financial reporting issues arising from the global financial crisis.

The boards had previously announced that the FCAG will be jointly chaired by Harvey Goldschmid, former US SEC Commissioner, and Hans Hoogervorst, Chairman, AFM (the Netherlands Authority for the Financial Markets). Membership of the FCAG is as follows:
  • John Bogle, Founder, Vanguard, United States
  • Jerry Corrigan, Goldman Sachs and former President of the New York Federal Reserve Bank, United States
  • Fermin del Valle, former President, IFAC, Argentina
  • Jane Diplock, Chairman, IOSCO Executive Committee, New Zealand
  • Raudline Etienne, Chief Investment Officer, New York State Common Retirement Fund
  • Stephen Haddrill, Director General, Association of British Insurers, UK
  • Toru Hashimoto, former Chairman, Deutsche Securities Limited, Japan
  • Nobuo Inaba, former Executive Director, Bank of Japan, Japan
  • Gene Ludwig, former Controller of the Currency, United States
  • Yezdi Malegam, Board Member, National Reserve Bank of India, India
  • Klaus-Peter Muller, Chairman of the Supervisory Board, Commerzbank, Germany
  • Don Nicolaisen, former Chief Accountant, US Securities and Exchange Commission, United States
  • Wiseman Nkuhlu, Chairman of the Audit Committee, AngloGold Ashanti; former Economic Advisor to the President of the Republic of South Africa
  • Tommaso Padoa-Schioppa, former Finance Minister, Italy
  • Lucas Papademos, Vice-President, European Central Bank
  • Michel Prada, former Chairman, Autorite des marches financiers, France
There will also be observers from the Basel Committee, CESR, IAIS, Japan Financial Services Agency, US SEC, and the advisory councils of IASB and FASB. The FCAG will hold its first meeting in London on 20 January 2009 (there's more information about the meeting on IASB Website). Click for Press Release (PDF 286k). IAS Plus has comprehensive credit crisis information Here.

Another record year for IAS Plus

05 Jan 2009

In 2008 IAS Plus had 1,830,000 visitors. Thank you for making us, once again, the #1 source on the Internet for information about international financial reporting.

We wish you a very happy new year. Here are a few more statistics about IAS Plus in 2008:
  • Total page views: 6,160,000
  • Total website file size: 925mb
  • Total number of files: 5,580 files, including
    • 700 HTML web pages,
    • 3,856 downloadable PDF and ZIP files, and
    • 1,024 graphics files.

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