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SASB announces corporate sustainability pilot program

Sep 30, 2013

The Sustainability Accounting Standards Board (SASB) has launched a corporate pilot program to help companies use SASB standards to disclose material environmental, social, and governance issues in their annual filings to the SEC.

The pilot program is open to publicly listed U.S. corporations that operate in the health care and financial sectors. Ten companies will be selected to participate in the pilot program, which will begin in the first quarter of 2014. Over the next three years, SASB anticipates that it will run pilot programs for a total of 10 sectors.

Companies will come away with an appreciation for the legal framework governing Form 10-K disclosures, an understanding of their current quality of disclosure and readiness to report, and the ability to recognize and disclose material sustainability factors using SASB industry standards.

Click for the press release (link to the SASB's Web site).

SEC re-opens comment period for proposal on general solicitations

Sep 27, 2013

The SEC has re-opened the comment period on its proposed amendments to Regulation D, Form D, and Rule 156 that are "intended to enhance the Commission’s ability to evaluate the development of market practices in Rule 506 offerings and to address concerns that may arise in connection with permitting issuers to engage in general solicitation and general advertising under new paragraph (c) of Rule 506."

The new proposal (Release No. 33-9458) re-opens the comment deadline for the SEC proposal issued on July 10, 2013 (Release No. 33-9416). The original proposal was issued in conjunction with the SEC's final rules (Release Nos. 33-9414 and 33-9415) to allow entities to use general solicitation and advertisements to market their securities. The original proposal contains amendments to Form D to require more information on Rule 506 offerings and notes the following benefits of the proposed amendments:

This information would enhance the ability of the Commission to evaluate the use of Rule 506(c) by requiring information in Form D on the types of investors that participate in Rule 506(c) offerings, the issuer’s plans to engage in general solicitation and methods used to satisfy the verification requirement in Rule 506(c). This information may also be useful to investors seeking to learn more about an offering being conducted pursuant to Rule 506(c) or about the types of issuers conducting these offerings. Finally, this information may be useful in facilitating enforcement efforts should any fraud or other securities law violations occur in these offerings.

The new comment deadline is November 4, 2013. The proposed and final rules are available on the SEC's website:

Results of outreach meetings with investors and analysts on the proposed accounting by lessees

Sep 27, 2013

The IASB staff has published a summary of feedback that the FASB and IASB received at recent meetings with investors and analysts on the lessee accounting proposals. These outreach meetings were held between May and September 2013.

During the outreach meetings, the FASB and the IASB asked investors and analysts three main questions about the proposals in Proposed ASU 2013-270 and ED/2013/6 which were published in May 2013:

  • Do leases create assets and liabilities for a lessee and, if so, should they be recognized on a lessee’s balance sheet?
  • What are your views on the proposed changes to a lessee’s income statement?
  • What are your views on the proposed note disclosure package?

On the balance sheet question, the credit analysts and analysts consulted within the credit rating agencies generally supported the changes proposed to a lessee’s balance sheet while the views of equity analysts were more mixed.

Regarding the income statement proposals, most, but not all, investors and analysts consulted agreed that there are economic differences between most leases of real estate and leases of equipment and vehicles and understand the rationale behind the dual approach proposed. Most of those who supported the balance sheet proposals, and yet disagreed with the dual approach in the income statement, still support the project overall. They are willing to accept the proposals in the income statement to achieve what they consider to be an improvement to financial reporting.

Not all investors and analysts consulted expressed views on the disclosure proposals. Of those who did, there was general support for those proposals. However, some investors and analysts suggested not changing the recognition and measurement of leases at all, but only improving note disclosures.

Please click for access to the full summary on the IASB's website. Further investor and analyst outreach meetings are scheduled for September and October 2013.

SEC chair talks enforcement

Sep 26, 2013

SEC Chair Mary Jo White gave a speech today at the Council of Institutional Investors fall conference in Chicago, Illinois. She touched on SEC priorities, but her speech focused on the Commission's enforcement principles, tools, and strategies.

As a well-respected attorney and former U.S. attorney for Manhattan, Ms. White admitted that enforcement is a topic she is passionate about. She praised the SEC's enforcement division, noting its large caseload and exceptional record. She stated that the goal of all SEC penalties is to have "teeth," meaning the penalties should be harsh yet fair, and send a strong message of deterrence. She also  advocates for penalty reform — allowing the SEC to seek greater penalties based on (1) three times the ill-gotten gains or (2) the amount of investor losses — whichever is larger, plus additional penalties for recidivism.

Ms. White also emphasized the importance of accountability in cases that demand more than just monetary penalties and compliance enhancements. She acknowledged the importance and use of no-admit-no-deny settlements, but explained certain scenarios that might require admissions:

  • Cases where a large number of investors have been harmed or the conduct was otherwise egregious.
  • Cases where the conduct posed a significant risk to the market or investors.
  • Cases where admissions would aid investors deciding whether to deal with a particular party in the future.
  • Cases where reciting unambiguous facts would send an important message to the market about a particular case.

Ms. White discussed the importance of pursuing individuals for wrongdoings in addition to companies. She said, "When people fear for their own reputations, careers or pocketbooks, they tend to stay in line." Ms. White also noted the importance of monitoring the whole market, having a presence "everywhere," and staying on top of the complex marketplace.

Please click for the full text of the speech on the SEC's Web site.

Support for impairment reform in the U.S. banking industry

Sep 26, 2013

U.S. Comptroller of the Currency Thomas Curry gave a speech at the AICPA Banking Conference earlier this month and discussed the risk of declining loan loss allowances and the need for revision in the way banks account for impairment. He expressed his support of the FASB's proposed "expected loss" model and explained the impact the model would have on banking institutions.

Mr. Curry discussed how the financial crisis revealed a flaw in the incurred loss model:

By requiring banks to wait for an 'incurred' loss event to recognize the resulting impairment, the model precludes banks from taking appropriate provisions for emerging risks that the bank can reasonably anticipate to occur. The result too often has been the need for banks to make large loan loss provisions in the midst of a credit downturn, often when earnings and lending capacity are already stressed. This leads to pro-cyclicality and results in delayed loss recognition.

He acknowledged that no loan loss methodology would have prevented the financial crisis. Mr. Curry also noted that amendments in FASB Proposed Accounting Standards Update 2012-260, Financial Instruments — Credit Losses, is consistent with his office's "risk-based and forward-looking" approach to supervision, so national banks and federal thrifts should have an easier time transitioning because of their familiarity with the Comptroller's oversight.

He stated, "the FASB proposal is consistent with the goal of supporting and reporting on the balance-sheet integrity and the ability of financial institutions to fully consider all information, past, present, and future, and to do it early, when risks are building, in determining what amount of allowance is the right amount." He also stressed one point that clearly differentiates the suggested FASB model from the IASB model: "Further, the proposal would create one consistent measurement approach for all financial assets not accounted for at fair value through net income, thus simplifying the system of multiple credit loss models."

Please click for the full text of the speech on the Office of the Comptroller of the Currency Web site.

FASB member promotes XBRL: "It's in your best interest"

Sep 24, 2013

Harold Schroeder, a FASB member, gave a speech at the XBRL U.S. Conference in Las Vegas, Nevada. Mr. Schroeder focused on the need for structured data and explained the FASB's involvement with the taxonomy.

In his speech, Mr. Schroeder often referred to his background as a portfolio manager to emphasize the relevancy and importance of XBRL to investors. He also articulated the tangible benefits of XBRL for investors:

  • Reduced cost, thus improving investor returns.
  • Increased productivity as a result of faster and better analysis.
  • Increased opportunity for higher returns because more companies can be analyzed.

Mr. Schroeder acknowledged that data aggregators have been creating their own competing taxonomies for years. However, third-party vendors have limited resources and their data sets frequently contain errors. A standardized taxonomy — when filers tag their own financial statements — reduces the number of errors, especially as time goes on. He noted that preparers also have the benefit of being in control of their financial statements. Mr. Schroeder said, "With structured data, using a standardized taxonomy, the preparer is better able to take control of the data that investors receive."

Mr. Schroeder also discussed why he believes the FASB should be involved in developing and maintaining the taxonomy, saying that the tasks best reside with accounting standard experts. It is a natural fit that the FASB — the U.S. standard setter — would take on the responsibility of the taxonomy.

Please click for the full text of the speech on the FASB's Web site.

Boards clarify the solely principal and interest condition

Sep 20, 2013

The FASB and IASB held joint meetings on September 17 and 18, 2013, to discuss several of the boards' joint projects. In their session on classification and measurement, the boards discussed clarifications and improvements to the solely principal and interest (P&I) condition.

Specifically, the boards:

  • Made a tentative decision that "principal" should be defined as "the amount transferred by the holder for the financial asset on initial recognition."
  • Clarified and emphasized definitions related to “interest” when applying the solely P&I condition, including the meaning of “time value of money” when applying regulated interest rates.
  • Discussed and made tentative decisions related to the application of the solely P&I condition to financial assets with contingent features, as well as to assets with prepayment and extension features.

For a detailed summary of the discussion, see the meeting minutes on the FASB Web site or the preliminary and unofficial notes taken by Deloitte observers at the meeting, available on IAS Plus.

Boards discuss impairment at joint meeting

Sep 19, 2013

The FASB and IASB held joint meetings on September 17 and 18, 2013, to discuss several of the boards' joint projects. In their session on impairment, the boards each began redeliberations of their respective expected credit loss models. Both boards participated in the discussions, but only made decisions on their respective papers.

For more information on the impairment discussion, please see:

  • Deloitte's September 20, 2013, Accounting Journal Entry: Financial instruments — FASB and IASB tentatively agree to clarify certain aspects of their impairment models.
  • Meeting minutes on the FASB's Web site.
  • Preliminary and unofficial notes on the impairment session taken by Deloitte observers at the meeting, available on IAS Plus.

FASB and IASB discuss revenue recognition

Sep 18, 2013

The FASB and IASB held joint meetings on September 17 and 18, 2013, to discuss several of the boards' joint projects. In a two-day session, the boards continued redeliberations on revenue, specifically discussing feedback related to collectibility, constraining revenue, and license revenue. Several options for each topic were debated, but the boards did not make any decisions at this meeting.

For more information on the revenue discussions, please see:

SEC rulemakings on municipal advisers and pay ratio rules

Sep 18, 2013

At today's open meeting, SEC Chair Mary Jo White announced that the SEC is considering rulemakings regarding municipal advisers and "pay ratio" rules.

Municipal advisers

The SEC issued a final rule and rule extension (links to SEC's Web site) regulating municipal advisers, meant to protect municipalities from the risks associated with investing with unregulated municipal advisers by requiring municipal advisers to (1) register with the SEC, (2) act in the best interest of their clients, and (3) be overseen by the SEC and the Municipal Securities Rulemaking Board. The final rule provides exemptions for certain professional services and already-regulated activities. The final rule also provides a phase-in period for compliance, with permanent registration beginning on July 1, 2014. More information is available in the press release on the SEC's Web site.

Pay Ratio

The SEC issued a proposed rule (link to SEC's Web site) that would require companies to disclose their "pay ratio," or the ratio of the total annual compensation of the median employee to the annual total compensation of the company's CEO, thus implementing Section 953(b) of the Dodd-Frank Act. The pay ratio disclosure would be required in any annual report, proxy or information statement, or registration statement that requires executive compensation disclosure. More information is available in the press release on the SEC's Web site and in Deloitte's September 19, 2013, Accounting Journal Entry: SEC proposes rule on "pay ratio" disclosures.

Speeches from today's open meeting on these topics are available on the SEC's Web site:

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.